Item 1.
Business.
The Company
We were initially incorporated on November 4, 1999, as Menu Sites, Inc., a Florida corporation. On March 9, 2001, we changed our name to CNE Communications, Inc. On October 1, 2004, we changed our name to CNE Industries, Inc. On March 29, 2005, we changed our name to GlobalTel IP, Inc. On May 9, 2008, we changed our name to Cleartronic, Inc.
All of our operations are conducted through our wholly owned subsidiaries, VoiceInterop, Inc., a Florida corporation, incorporated on November 13, 2007, and ReadyOp Communications, Inc., a Florida corporation, incorporated on September 15, 2014, which facilitate the marketing and sales of ReadyOp™ software, discussed below.
Business Overview
We do not currently have sufficient capital to conduct the present or proposed business activities described below. The costs to operate our business are approximately $30,000 per month. In order for us to cover our monthly operating expenses, we must generate revenues of approximately $75,000 per month. Accordingly, in the absence of revenues, we must secure $30,000 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 $360,000 in equity or debt capital. If we are unsuccessful in securing sufficient capital or revenues, we will be unable to continue any business activities. We have not obtained any commitments for additional capital, and we may not be able to obtain any additional capital on terms not unfavorable to us, if at all.
From March 2005 to October 2007, we were primarily engaged in providing telecommunications services to our customers employing Voice over Internet Protocol (VoIP) technology. In October 2007, we sold substantially all of our assets utilized in that business. Prior to 2005, we were a website development company.
We are now a provider of Internet Protocol, or IP, unified group communication solutions. The products used in our solutions include our own proprietary products as well as products from other software and hardware vendors.
We have designed and customized standards based audio and voice collaboration solutions for prospective customers as part of a unified group communication system. We consider all aspects of a potential customer’s information technology resources and existing telecommunications network in creating a design best suited for that customer. In 2013, we developed our own proprietary group communication solution and have built and installed four of these solutions as of the filing date of this report. Prior to developing our own solution we used WAVE software as the core component. We have designed, built and installed 18 unified group communication solutions as of the filing date of this report, 14 of which utilize WAVE software. In November 2013, we discontinued using WAVE software as a component in our unified communication solution installations.
Revenues have been generated from the design, construction and installation of the group communication systems. We have also generated revenues from maintenance and support contracts, once a unified group communication solution has been installed and tested. While we no longer sell WAVE based systems we will continue to support the installations that we have previously installed. We also sell our proprietary line of Internet Protocol Gateway which we have branded the AudioMate 360 IP Gateway, discussed below. These units are currently being sold directly to end-users and by Value Added Resellers (“VARs”). As of the date of this filing, we have approximately 10 active VARs, and we have sold our gateways to more than 1,000 end-users in the United States and 18 foreign countries.
Prior to and subsequent to sales we have made to four airport authorities, we have had discussions with approximately 10 other airport authorities as well as airlines in the United States and abroad to design, build and install voice interoperability solutions. Those discussions have not resulted in any sales.
We have developed an Internet Protocol Gateway which we call the AudioMate 360 IP Gateway. The AudioMate 360 IP Gateway has been designed to provide an Internet Protocol Gateway to users of unified group communications. The AudioMate 360 IP Gateway is available in different configurations which enable it to be used with various types of communications equipment.
Although other devices are available that perform the same or similar functions, we believe that our price for the AudioMate 360 IP Gateway is substantially lower than the prices others are presently charging for similar devices. If we are unable to provide the AudioMate 360 IP Gateway to our prospective customers at substantially lower prices than others are charging for similar gateways, our business will be materially adversely affected.
We do not have any other products at this time.
Our Agreement with Collabria
In March 2015, the Company amended its Licensing Agreement with Collabria LLC of Tampa, Florida (”Collabria”). The Agreement grants the Company master distribution rights to market, sell and support Collabria’s command and control software, trade-named ReadyOp. ReadyOp software is designed for fast, efficient access to information and for communication with multiple persons, groups and agencies. This agreement will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. Upon expiration of the agreement, the Company’s only obligation to Collabria shall be the payment of all outstanding obligations to Collabria. In September 2014, the Company formed ReadyOp Communications, Inc. (a Florida corporation), as a wholly owned subsidiary to facilitate the marketing of ReadyOp software. According to the terms of the agreement ReadyOp Communications will pay Collabria a royalty for all ReadyOp software sold.
Need for Unified Group Communications
Unified group communications and coordination within and between agencies for response actions to incidents and emergencies has been a challenge for many years. The result has been inefficiencies and in some cases the loss of lives, time and money during response activities. Governmental agencies, hospitals and other organizations experience these same interoperability failures.
We believe that Collabria’s ReadyOp™ software is a new approach to communication, coordination and interoperability that is simple, flexible, low-cost and is already in use by many agencies and enterprises in the governmental and private sectors.
Collabria’s ReadyOp™ Software
ReadyOp is a simple, innovative web-based planning and communications platform for efficiently and effectively planning, managing, communicating, and directing activities within a single organization or in a unified command structure. ReadyOp is a comprehensive solution with multiple means of communications in a single program, including interoperable communications for radios and other devices. ReadyOp’s flexibility supports daily operations, exercises and response activities including multi-agency and multi-location operations. ReadyOp is a single platform that provides communications, coordination, collaboration and critical response capabilities for first responders and other organizations.
Communication challenges and coordination failures within and between organizations have been well documented and remain a part of the final report for most every exercise and major incident. This is especially evident when multiple agencies are involved in a response effort. In 2003, Homeland Security Presidential Directive-5 (HSPD-5) created the National Incident Management System (NIMS). NIMS is intended to provide a consistent template for government, private sector, and nongovernment organizations to work together during incidents and emergencies.
NIMS was used to create the Incident Command System (ICS) for first responders. ICS is essentially an organizational chart with assigned roles for responsibilities during incident response. Each role has assigned tasks to be accomplished, the goal being that all persons assuming the various roles complete their assigned tasks. Use of ICS is mandated for all law enforcement, fire and other government agencies at all levels plus seaports, airports, universities and hospitals. ReadyOp was initially designed based on the structure of ICS, but has evolved into a full response and communications platform.
Patents and Intellectual Property
If we are able to continue our business activities, our business will be dependent on our intellectual property, some of which we have developed for our software and hardware applications. We do not have any trade secret confidentiality agreements. For projects that are in development, we intend to rely on intellectual property rights afforded by trademark and trade secret laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our rights to our technology and other intellectual property. We cannot foretell if these procedures and arrangements will be adequate in protecting our intellectual property.
We have filed a patent application with the United States Patent and Trademark Office in connection with various configurations of our AudioMate 360 IP Gateway. We may file similar patent applications in additional countries. The claims in the patent application relate to various aspects of the AudioMate 360 IP Gateway. On March 13, 2012, the United States Patent Office notified us that U.S. Patent number 8,135,001 B1 had been granted for the 34 claims of our patent application for Multi Ad Hoc Interoperable Communicating Networks. It may be that one or more of our claims are not meaningful. Furthermore, the validity of issued patents is frequently challenged by others. One or more patent applications may have been filed by others previous to our filing, which encompass the same or similar claims.
A patent application does not in and of itself grant exclusive rights. A patent application must be reviewed by the Patent Office of each relevant country prior to issuing as a patent and granting exclusive rights.
We do not have any trademarks.
Because of our limited resources, we may be unable to protect a patent, either owned or licensed, or to challenge others who may infringe upon a patent. Because many holders of patents in our industry have substantially greater resources than we do and patent litigation is very expensive, we may not have the resources necessary to successfully challenge the validity of patents held by others or withstand claims of infringement or challenges to any patent we may obtain. Even if we prevail, the cost and management distraction of litigation could have a material adverse affect on us.
Because Internet Protocol Gateways and their related manufacturing processes are covered by a large number of patents and patent applications, infringement actions may be instituted against us if we use or are suspected of using technology, processes or other subject matter that is claimed under patents of others. An adverse outcome in any future patent dispute could subject us to significant liabilities to third parties, require disputed rights to be licensed or require us to cease using the infringed technology.
If trade secrets and other means of protection upon which we rely may not adequately protect us, our intellectual property could become available to others. Although we may rely on trade secrets, copyright law, employee and third-party nondisclosure agreements and other protective measures to protect some of our intellectual property, these measures may not provide meaningful protection to us.
The laws of many foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, if at all.
Rapid Technological Change Could Render Our Products Obsolete
Our markets are characterized by rapid technological changes, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer requirements, and evolving industry standards. The introduction of new products embodying new technologies and the emergence of new industry standards could render our existing products obsolete. Our future success will depend upon our ability to continue to develop and introduce a variety of new products and product enhancements to address the increasingly sophisticated needs of our customers. We may experience delays in releasing new products and product enhancements in the future. Material delays in introducing new products or product enhancements may cause customers to forego purchases of our products and purchase those of our competitors.
Seasonality of Our Business
We do not anticipate that our business will be affected by seasonal factors.
Impact of Inflation
We are affected by inflation along with the rest of the economy. Specifically, our costs to complete our products could rise if specific components needed incur a rise in cost.
Manufacturing and Suppliers
We have outsourced the manufacturing of our AudioMate 360 IP Gateway. This outsourcing has allowed us to:
·
Avoid costly capital expenditures for the establishment of manufacturing operations;
·
Focus on the design, development, sales and support of our hardware products; and
·
Leverage the scale, expertise and purchasing power of specialized contract manufacturers.
Currently, we have arrangements for the production of our gateways with a contract manufacturer in Florida. Our reliance on contract manufacturers involves a number of potential risks, including the absence of adequate capacity, ownership of certain elements of electronic designs, and reduced control over delivery schedules. Our contract manufacturers can provide us with a range of operational and manufacturing services, including component procurement and performing final testing and assembly of our products. We intend to depend on our contract manufacturers to procure components and to maintain adequate manufacturing capacity.
We have also relied on a small number of suppliers for several key components utilized in the assembly of our AudioMate 360 IP Gateway. For example, our contract manufacturer has purchased a key component that is essential to the production of our gateways from a single source supplier. We have not identified any alternative suppliers for that component. Our contract manufacturer has maintained relatively low inventories and acquired components only as needed. As a result, our ability to efficiently respond to customer orders, if any, may be constrained by, among other things, the then-current availability or terms and pricing of necessary components. We may be unable to obtain a sufficient quantity of these components in a timely manner to meet the demands of our customers. In addition, we have no control over the prices of these components. Any delays or any disruption of the supply of these components could also materially and adversely affect our operating results.
Approximately, 20% of the revenues generated during the year ended September 30, 2015 were generated from our licensing agreement with Collabria. If this agreement is terminated it could have significant on impact on revenues.
Competition
The unified group communications industry is extremely competitive. Over the past year, the number of companies entering our industry has increased dramatically. Competitive pricing pressures can negatively impact profit margins, if any. Competitors include Cisco Systems, Inc., Tyco Electronics Ltd., Catalyst Communications Technologies, Inc., Telex, Inc., Federal Signal Corporation and Mutual-Link, Inc. as well as Motorola and its authorized dealers. These and other potential competitors are generally large and well capitalized and have substantially more experience than we do in our industry. Consequently, in order for Cleartronic to be successful in its intended operations, it must be able to compete effectively against its competitors. If Cleartronic cannot effectively compete for whatever reason, we will not be successful.
Sales and Marketing
We have marketed our unified group communication solutions and AudioMate 360 IP Gateway through a commissioned sales person. The majority of our sales leads have come through sales persons, VARs and our website. If we are able to continue our business activities, we intend to expand the use of commissioned sales representatives to market and sell the ReadyOp™ software solution along with our AudioMate 360 IP Gateway line of Internet Protocol Gateways. We will also continue to use our network of VARs to market our AudioMate 360 IP Gateway.
Key Personnel of Cleartronic
Our future financial success depends to a large degree upon the personal efforts of our key personnel. Larry M. Reid, our Chairman, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, and Director, and his intended designees will play the major roles in securing the services of those persons deemed capable to develop and execute upon our business strategy. While we intend to employ additional executive, development, and technical personnel in order to minimize the critical dependency upon any one person, we may not be successful in attracting and retaining the persons needed.
At present, Cleartronic has one executive officer, Larry M. Reid. In March 2015, the Company entered into a new employment agreement with the Company’s CEO, Larry M. Reid (the “Agreement”). Under the Agreement, Mr. Reid agreed to remit 2.0 billion shares of common stock back to the Company in exchange for 200,000 shares of Series C Convertible Preferred stock with a fair value of $252,000.
Unless Cleartronic shall have given Mr. Reid written notice at least 30 days prior to the Termination Date, the Agreement shall automatically renew and continue in effect for additional one-year periods, provided, however, that we may, at our election at any time after the expiration of the initial term of the Agreement, give Mr. Reid notice of Termination.
Mr. Reid will be paid a base salary of $8,000 per month. A copy of the employment agreement with Mr. Reid has been previously filed on March 18, 2015 with the SEC as an exhibit to a Form 8-K. See “Item 13. Certain Relationships and Related Transactions and Director Independence.”
Adequacy of Working Capital for Cleartronic
We estimate that we will need at least $360,000 to continue operations over the next 12 months. We will apply great efforts to raise though equity or debt offerings what we feel is sufficient working capital for our intended business plan by various means. If we are not able to raise additional capital, we will not be able to continue operations and our business may fail.
The Financial Results for Cleartronic May Be Affected by Factors Outside of Our Control
Our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are outside our control. Our anticipated expense levels are based, in part, on our estimates of future revenues and may vary from projections. We may be unable to adjust spending rapidly enough to compensate for any unexpected revenues shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would materially and adversely affect our business, operating results, and financial condition. Further, we believe that period-to-period comparisons of our operating results are not necessarily a meaningful indication of future performance.
Employees
As of the date of this report, we have one employee, Larry M. Reid, our Chairman, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, and sole Director. We anticipate adding two additional employees in the next 12 months. We do not feel that we would have any difficulty in locating needed staff.
Transfer Agent
Our transfer agent is ClearTrust, LLC, whose address is 16540 Pointe Village Drive, Suite 206, Lutz, Florida 33558, and telephone number (813) 235-4490.
Company Contact Information
Our principal executive offices are located at 8000 North Federal Highway, Suite 100, Boca Raton, Florida 33487, telephone (561) 939-3300. Our email address is info@cleartronic.com. The Cleartronic Internet website is located at www.cleartronic.com. The information contained in our website shall not constitute part of this report.
Item 1A.
Item 1A.
Risk Factors.
Not applicable.
Item 1B.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Item 2.
Properties.
We lease approximately 1,700 square feet for our principal offices in Boca Raton, Florida, from an unaffiliated party at a monthly rental of approximately $3,200. The lease expires on November 30, 2018.
Item 3.
Item 3.
Legal Proceedings.
Cleartronic is not engaged in any litigation at the present time, and management is unaware of any claims or complaints that could result in future litigation. Management will seek to minimize disputes with our customers but recognizes the inevitability of legal action in today’s business environment as an unfortunate price of conducting business.
Item 4.
Item 4.
(Removed and Reserved).
Not applicable.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock has been traded on the OTCPINK since May 1, 2015, under the symbol “CLRI.” Previously, the shares of our common stock were traded on the OTCQB from May 16, 2013, until May 1, 2015.
The following table sets forth, taking into consideration the one for 3,000 reverse split of our common stock which occurred on December 28, 2012, the high and low bid prices for our common stock on the OTCQB and OTCPINK as reported by various market makers. The quotations do not reflect adjustments for retail mark-ups, mark-downs, or commissions and may not necessarily reflect actual transactions.
As of December 31, 2015, we were authorized to issue 5,000,000,000 shares of our common stock, of which 197,722,989 shares were outstanding. Our shares of common stock are held by approximately 198 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of our common stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies. In addition to our authorized common stock, Cleartronic is authorized to issue 200,000,000 shares of preferred stock, par value $0.00001 per share, of which 2,563,370 shares are issued or outstanding. There is no trading market for the shares of our preferred stock.
Dividends
We have not paid or declared any dividends on our common stock, nor do we anticipate paying any cash dividends or other distributions on our common stock in the foreseeable future. Any future dividends will be declared at the discretion of our board of directors and will depend, among other things, on our earnings, if any, our financial requirements for future operations and growth, and other facts as our board of directors may then deem appropriate. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for a description of our preferred stock and dividend rights pertaining to the preferred stock.
The Company is obligated to pay dividends on its Series A Convertible Preferred Stock. Each Series A Preferred Holder is entitled to receive cumulative dividends at the rate of 8% of $1.00 per annum for each outstanding share of Series A Preferred then held by such Series A Preferred Holder, on a pro rata basis. The Company has accrued dividends payable to preferred shareholders through September 30, 2015. No cash dividends have been paid to date.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
(a)
(b)
(c)
Equity compensation plans approved by security holders
167 (1)
$90,000
75,000,000 (2)
Equity compensation plans not approved by security holders
1,871,301 (3)
Total
167 (1)
$90,000
76,871,301
_____________
(1)
Includes outstanding options granted pursuant to GlobalTel IP 2005 Incentive Equity Plan, which terminated by its terms on October 17, 2010. The shares have been adjusted for the one for 3,000 reverse split of our common stock which occurred on December 28, 2012.
(2)
Includes shares available for future issuance under the Cleartronic 2011 Equity Incentive Plan.
(3)
Includes shares remaining for issuance under the 2009 Consultant Stock Plan.
Recent Sales of Unregistered Securities
On the dates specified below, we have issued unregistered securities to various creditors and investors.
·
In March 2015, the Company issued 670,904 shares of Series D Convertible Preferred stock as consideration for the forgiveness of $135,012 in notes payable, $59,608 in accrued interest and $140,832 in accrued dividends. The fair value of the Series D preferred stock was $825,212 resulting in a loss on forgiveness of debt of $489,758.
·
In March 2015, the Company entered into a new employment agreement with the Company’s CEO, Larry M. Reid. Under the agreement, Mr. Reid agreed to remit 2.0 billion shares of common stock back to the Company in exchange for 200,000 shares of Series C Convertible Preferred stock with a fair value of $252,000 as well as compensation stated in the agreement. The common stock remitted to the Company was recorded as a treasury acquisition for the value of the Series C preferred stock and the net present value of Mr. Reid’s salary over a five years using a discount rate of 5%, totaling approximately $627,000. The treasury stock was subsequently retired and recorded to additional paid-in capital.
·
In October 2014, a shareholder converted 20,000 shares of Series A Convertible Preferred stock into 2,000,000 shares of common stock.
·
In October 2014, a shareholder converted 20,000 shares of Series C Convertible Preferred stock into 100,000 shares of common stock.
·
In November 2014, a shareholder converted 10,000 shares of Series A Convertible Preferred stock into 1,000,000 shares of common stock.
·
In December 2014, a shareholder converted 12,500 shares of Series A Convertible Preferred stock into 1,250,000 shares of common stock.
·
In January 2015, a shareholder converted 37,500 shares of Series A Convertible Preferred stock into 3,750,000 shares of common stock.
·
In February 2015, a shareholder converted 32,500 shares of Series A Convertible Preferred stock into 3,250,000 shares of common stock.
·
In March 2015, a shareholder converted 37,500 shares of Series A Convertible Preferred stock into 3,750,000 shares of common stock.
·
In April 2015, a shareholder converted 283,250 shares of Series A Convertible Preferred stock into 28,325,000 shares of common stock.
·
In November 2014, the Company issued 2,500,000 shares of common stock to one shareholder for $25,000 in cash.
·
In May and June 2015, the Company issued 216,500 shares of common stock to 2 shareholders for $12,990 in cash.
·
In March 2015, the Company amended its Licensing Agreement with Collabria LLC of Tampa, Florida (”Collabria”). The Agreement grants the Company master distribution rights to market, sell and support Collabria’s command and control software, trade-named ReadyOp. This agreement will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. The amendment reduces the royalty to be paid on a sale from 80% to 20%. As consideration for entering into the agreement and the reduction of the stated royalty, the Company issued Collabria LLC 25,000,000 shares of restricted common stock valued at $0.08 per share. The licensing rights will be amortized over the life of the agreement.
Our unregistered securities were issued in reliance upon an exemption from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 506(c) of Regulation D promulgated under the Securities Act. Each investor took his securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. Our securities were sold only to an accredited investor, as defined in the Securities Act, and after a thorough discussion. Finally, our stock transfer agent has been instructed not to transfer any of such securities, unless such securities are registered for resale or there is an exemption with respect to their transfer.
All of the above described investors who received shares of our common stock or preferred stock were provided with access to our filings with the SEC, including the following:
·
The information contained in our annual report on Form 10-K under the Exchange Act.
·
The information contained in any reports or documents required to be filed by Cleartronic under sections 13(a), 14(a), 14(c), and 15(d) of the Exchange Act since the distribution or filing of the reports specified above.
·
A brief description of the securities being offered, and any material changes in our affairs that were not disclosed in the documents furnished.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
There were no purchases of our equity securities by Cleartronic or any affiliated purchasers during any month within the fiscal year covered by this report.
Item 6.
Item 6.
Selected Financial Data.
Not applicable.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 2015, we had current assets of $
116,556
and current liabilities of $
710,839
. 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, 2015
, Cleartronic had an accumulated deficit of $
14,154,917
, which included a net loss of $
2,053,767
reported for the year ended September 30, 2015
. Also, during the year ended September 30, 2015
, we used net cash of $
155,339
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.
Results of Operations
Year Ended September 30, 2015, Compared to Year Ended September 30, 2014.
Revenues. Revenues increased 67% to $346,518 in 2015, from $207,424 during 2014. This increase of approximately $139,000 was primarily due to increased sales of ReadyOp hardware and software generated through our subsidiary ReadyOp Communications, Inc. Revenue from our other subsidiary, VoiceInterop, Inc., increased by approximately 18% to $228,918.
Cost of Revenues and Gross Margins. Cost of revenues increased from $92,349 in 2014, to $137,973 in 2015. Gross margins increased to 60% or $208,545 in 2015 compared with 55% or
$
115,075 in 2014. The primary reason for the increase in gross margin was due to increased sales of proprietary and ReadyOp software and hardware which generates higher margins than sales of third party hardware and software.
Operating Expenses. Operating expenses increased approximately 51% in 2015, to $514,377 compared to $339,960 during 2014. Operating expenses include selling expenses, administrative expenses, research and development costs and amortization and depreciation expense. This increase was primarily due to the recognition of $200,000 in amortization expense associated with the licensing agreement with Collabria LLC for their ReadyOp software and hardware.
Selling Expenses. Selling expenses increased approximately 21% from $30,521 in 2014, to $36,975 in 2015, primarily due to increased commission expense paid to outside sales consultants. Administrative expenses decreased approximately 10% from $302,789 in 2014, to $273,495 in 2015, primarily due to a decrease in management and investment banking fees paid to outside consultants.
Research and Development Expenses. Research and development expenses decreased approximately 41% to $3,907 in 2015, from $6,650 in 2014, due to minimal development expense related to the expansion our AudioMate 360 IP Gateway product line.
Amortization and Depreciation Expenses. Amortization expense was $200,000 in 2015 while there was no amortization or depreciation expenses incurred in 2014. The amortization expense incurred in 2015 was a result of the licensing agreement entered into in March of 2015 with Collabria LLC to become the master distributor of Collabria’s ReadyOp software and hardware. The agreement is being amortized over the 5 year term of the agreement.
Loss on Conversion of Debt.
In March 2015, the Company issue 670,094 shares of Series D Convertible Preferred stock as consideration for the forgiveness of $135,012 in notes payable, $59,608 in accrued interest and $140,832 in accrued dividends. The fair value of the Series D preferred stock was $825,212 resulting in a loss on forgiveness of debt of $489,758.
Interest and Other Expense.
Interest expense increased approximately 140% to $67,035 in 2015 as compared with $27,891 in 2014. The increase was primarily due to interest expense associated with two short term convertible notes entered into in 2015. Other expenses declined by approximately 49% to $24,116 in 2015 from $47,123 in 2014 primarily because of a decrease of approximately $20,591 in dividend expense.
Impairment Expense
. In March 2015, the Company amended its Licensing Agreement with Collabria, which will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. The amendment reduces the royalty to be paid on a sale from 80% to 20%. As consideration for entering into the agreement and the reduction of the stated royalty, the Company issued Collabria 25,000,000 shares of restricted common stock valued at $.08 per share (Note 6). The Company amortizes this licensing agreement over its remaining life on a straight line basis.
The Company evaluates licensing rights for impairment when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. As of September 30, 2015, management determined that sales of ReadyOp products had failed to meet the projected revenue targets and that the carrying value of the license agreement exceeded the fair value. Accordingly management revised the estimate of undiscounted future cash flows expected to be generated by the licensing agreement and incurred an impairment loss of $1,167,000 for the year ended September 30, 2015.
The company recorded $200,000 in amortization expense prior to the impairment recognition for the year ended September 30, 2015.
Net Loss. Net losses were $
2,053,767
and $299,899 for 2015 and 2014, respectively.
Liquidity and Capital Resources
Cash and cash equivalents increased by $3,651 during the fiscal year ended September 30, 2015, to $6,155. Net cash used in operating activities for the fiscal year ended September 30, 2015, was $155,339 as compared to $217,683 for the fiscal year ended September 30, 2014, due primarily to the loss incurred on conversion of debt partially offset by a decrease in accrued expenses. We funded our operating activities during the most recent fiscal year through financing activities that generated net proceeds of approximately $158,990.
At September 30, 2015, our total liabilities were $713,642, which included $414,588 in accounts payable, $131,856 in accrued expenses, $756 in customer deposits, $95,001 in notes payable stockholders, $29,221 in convertible notes payable and $42,220 in deferred revenue.
Based on our continued unified communication installations and the development of our AudioMate 360 IP Gateway, 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. In addition, we intend to market our AudioMate 360 IP Gateway both directly to clients and through VARs. Our VARs have introduced us to customers in the past, and we will continue to rely on them to introduce us to additional 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. Our business plan further calls for us to seek additional VARs such as consulting firms, equipment manufacturers and communications companies.
We believe that in order to fund our business plan, we will need approximately $500,000 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 $30,000 per month. In order for us to cover our monthly operating expenses, we must generate approximately $75,000 per month in revenue. Accordingly, in the absence of sufficient revenues, we must raise $30,000 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 $360,000 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 both fiscal years ended September 30, 2015, and 2014.
Financing Activities
·
In November 2013, we issued 40,000,000 shares of our common stock to an individual investor for $200,000 in cash.
·
In December 2013, we issued 10,000,000 shares of our common stock to an individual investor for $100,000 in cash.
·
In April 2014, we issued 5,000,000 shares of our common stock to two individual investors for $50,000 in cash.
·
In June 2014, we issued 900,000 shares of our common stock to two investors for $9,000 in cash.
·
In November 2014, we issued 2,500,000 shares of our common stock to an individual investor for $25,000 in cash.
·
In December 2014, we entered into a Securities Purchase Agreement with an institutional investor in connection with the issuance of an 8% convertible promissory note in the amount of $38,000.
·
In January and February 2015, we issued two 8 % promissory 1 year notes to a shareholder for $40,000 in cash.
·
In May 2015, we entered into a Securities Purchase Agreement with an institutional investor in connection with the issuance of an 8% convertible promissory note in the amount of $43,000.
·
In June, 2015 a convertible note holder converted the $38,000 in principal and $1,520 in accrued interest into 1,432,859 shares of common stock.
·
In July 2015, we issued 216,500 shares of our common stock to two individual investors for $12,990 in cash.
·
In November 2015, we issued an 8% promissory note to a shareholder and director for $50,000.
·
In November 2015, we paid $33,000 in principal and $14,974.69 in accrued interest to a convertible note holder.
·
In December 2015, we issued 250,000 shares of common stock to one investor for $5,000 cash.
Cash from Financing Activities
Net cash provided by financing activities was $158,990 during fiscal 2015. This included $37,990 from proceeds from the issuance of shares of our common stock, $81,000 from the issuance of convertible notes and $40,000 from the issuance of notes payable to a stockholder. Net cash provided by financing activities was approximately $209,000 during fiscal year 2014. This included proceeds from the issuance of shares and the repayment of a promissory note.
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. Unified group communication solutions consist of three elements to be provided to customers: software licenses and equipment purchased from third-party vendors, proprietary hardware that is manufactured on contract to required specifications and installation and integration of the hardware and software into the cohesive communication source.
The Company's revenue recognition policies are in accordance with Accounting Standards Codification 605-10 “Revenue Recognition” (ASC 605-10). Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the contract price is fixed or determinable, and collectability is reasonably assured. No right of return privileges are granted to customers after shipment. The Company recognizes revenue for the elements separately as the sales of the equipment and software, installation and integration, and support services represent separate earnings processes that are generally specified under separate agreements.
Revenue from the resale of equipment utilized in unified group communication solutions is recognized when shipped. For software licenses, the Company does not provide any services that are considered essential to the functionality of the software, and therefore revenue is recognized upon delivery of the software, provided (1) there is evidence of an arrangement, (2) collection of the fee is considered probable and (3) the fee is fixed and determinable.
The Company also provides support to customers under separate contracts varying from one to five years. The Company’s obligations under its service contracts vary by the length of the contract. In all cases the Company is the primary obligor to provide first level support to the client. If the contract has less than one year of service and support remaining on the contract, it is classified as a current liability; if longer, it is classified as a non-current liability.
Installation and integration services are recognized upon completion.
Inventory. Inventory consists of finished goods to be shipped along with completed circuit boards and parts necessary for final assembly of finished product. During the year ended September 30, 2014 the Company eliminated its inventory of individual component parts used in assembly of its circuit boards. The component parts inventory was purchased from the Company by its contract manufacturer which now provides completed circuit boards at a price that includes component parts and assembly charges. All existing inventory is considered current and usable and no reserve for obsolescence was carried for the years ended September 30, 2015 and 2014.
Derivative Instruments The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date. As of September 30, 2015 and 2014 there were no derivative liabilities.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of Accounting Standards Codification 718-10 “Compensation” (ASC 718-10) using the modified retrospective transition method. ASC 718-10 (formerly SFAS 123R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of each award as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of the Company's stock price. In March 2005, the SEC issued SAB No. 107, Share-Based Payment ("SAB 107"), which provides guidance regarding the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10.
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”). Pursuant to FASB ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by FASB, the AICPA and the SEC, did not, or are not believed by management to have a material impact on the Company’s present or future financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Subsequent Events
·
In November 2015, two shareholders converted 7,280 shares of Series C Convertible Preferred stock into 36,400 shares of common stock.
·
In December 2015, a shareholder purchased 250,000 restricted shares of common stock for $5,000 in cash.
·
In December 2015, the Company entered into a Convertible Promissory Note with a private investor in connection with the issuance of a 8% convertible promissory note in the amount of $25,000.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
The financial statements and related notes are included as part of this report as indexed in the appendix on page, et seq.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None,
Item 9A.
Item 9A.
Controls and Procedures.
See Item 9A(T) below.
Item 9A(T).
Controls and Procedures.
Evaluation of Disclosure and Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a - 15(c) and 15d - 15(e)). Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period ended September 30, 2015, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our Chief Executive and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a, et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the registrant have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, 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 and includes those policies and procedures that:
·
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Changes in Internal Control Over Financial Reporting. There have been no changes in the registrant’s internal control over financial reporting through the date of this report or during the period ended September 30, 2015, that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Independent Registered Accountant’s Internal Control Attestation. This report does not include an attestation report of the registrant’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the registrant’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the registrant to provide only management’s report in this report.
Remediation plans for material weaknesses over internal controls. Our plans to mitigate material weaknesses in disclosure controls and procedures for future filings will be dependent on our ability to obtain adequate financing to fund development of our financial reporting infrastructure. At this time it is not cost beneficial for us to utilize capital to focus on mitigating financial reporting weaknesses; however, we expect to implement a plan for remediation of these deficiencies when sufficient funding to implement such a plan is available.
Item 9B.
Item 9B.
Other Information.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance.
The following table sets forth information concerning the directors and executive officers of Cleartronic as of the date of this report:
Name
Age
Position
Director Since
Larry M. Reid
Chairman, Chief Executive Officer, President, Chief Financial Officer, Principal Accounting Officer, Secretary, and Director
Richard Lackey
Director
Marc Moore
Director
The members of our board of directors are subject to change from time to time by the vote of the stockholders at special or annual meetings to elect directors. Our current board of directors consists of one director, who has expertise in the business of Cleartronic. Upon receipt of sufficient funds either from revenues or through receipt of funds from debt or sales of our common stock and preferred stock, we intend to seek directors and officers who would be able to assist in the execution of our business plan.
The foregoing notwithstanding, except as otherwise provided in any resolution or resolutions of the board, directors who are elected at an annual meeting of stockholders, and directors elected in the interim to fill vacancies and newly created directorships, will hold office for the term for which elected and until their successors are elected and qualified or until their earlier death, resignation or removal.
Whenever the holders of any class or classes of stock or any series thereof are entitled to elect one or more directors pursuant to any resolution or resolutions of the board, vacancies and newly created directorships of such class or classes or series thereof may generally be filled by a majority of the directors elected by such class or classes or series then in office, by a sole remaining director so elected or by the unanimous written consent or the affirmative vote of a majority of the outstanding shares of such class or classes or series entitled to elect such director or directors. Officers are elected annually by the directors. There are no family relationships among our directors and officers.
We may employ additional management personnel, as our board of directors deems necessary. Cleartronic has not identified or reached an agreement or understanding with any other individuals to serve in management positions, but does not anticipate any problem in employing qualified staff.
A description of the business experience for the director and executive officer of Cleartronic is set forth below.
Larry M. Reid has been a member of our Board of Directors since 1999, and our Chief Financial Officer since March 2005. He has served as President since February 2012. Mr. Reid was also our President from September 2006, to July 2011, and from 1999 to March, 2005, at which time he became our Executive Vice President and Chief Financial Officer. From December 2001, until September 2005, Mr. Reid was the Chief Financial Officer and a Director of Connectivity Inc., which was primarily engaged in the manufacture and distribution of emergency call boxes. In April 2003, Connectivity Inc. was acquired by Arrow Resources Development, Inc. at which time Mr. Reid became the Executive Vice President and a Director of that company.
Committees of the Board
We do not currently have an Audit, Executive, Finance, Compensation, or Nominating Committee, or any other committee of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the United States Securities and Exchange Commission. Such persons are also required to furnish Cleartronic with copies of all forms so filed.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that as of the date of this report, our executive officers, directors and greater than 10 percent beneficial owners have not complied on a timely basis with all Section 16(a) filing requirements.
Communication with Directors
Stockholders and other interested parties may contact any of our directors by writing to them at Cleartronic, Inc., at 8000 North Federal Highway, Suite 100, Boca Raton, Florida 33487, Attention: Corporate Secretary.
Our board has approved a process for handling letters received by us and addressed to any of our directors. Under that process, the Secretary reviews all such correspondence and regularly forwards to the directors a summary of all such correspondence, together with copies of all such correspondence that, in the opinion of the Secretary, deal with functions of the board or committees thereof or that he otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by us that are addressed to members of the board and request copies of such correspondence.
Conflicts of Interest
With respect to transactions involving real or apparent conflicts of interest, we have not adopted any written policies and procedures.
Code of Ethics for Senior Executive Officers and Senior Financial Officers
We have not adopted a Code of Ethics for Senior Executive Officers and Senior Financial Officers.
Item 11.
Item 11.
Executive Compensation.
Summary of Cash and Certain Other Compensation
At present, Cleartronic has one executive officer, Larry M. Reid. We executed an Employment Agreement with Mr. Reid on March 13, 2015. The Employment Agreement replaces our previously executed Employment Agreement with Mr. Reid. Pursuant to the Employment Agreement (the “Agreement”), Cleartronic and Mr. Reid agreed that for a one year period beginning on March 13, 2015, we employed Mr. Reid to perform services for us both on and offsite. The last day of the one year period shall be the “Termination Date” for purposes of the Agreement. Termination of the agreement can be made by either party without penalty upon 10 days written notice.
Unless Cleartronic shall have given Mr. Reid written notice at least 30 days prior to the Termination Date, the Agreement shall automatically renew and continue in effect for additional one-year periods (and all provisions of this anniversary from such original Termination Date shall thereafter be designated as the “Termination Date” for all purposes under the Agreement, provided, however, that we may, at our election at any time after the expiration of the initial term of the Agreement, give Mr. Reid notice of Termination, in which event he shall continue to receive, as severance pay, six months of his base salary, if any, or the amount due through the next “Termination Date”, whichever is less. Mr. Reid may terminate the Agreement without severance pay upon 10 days written notice to the Company. Under the Agreement, Mr. Reid agreed that he shall carry out the strategic plans and policies as established by our business plan. Mr. Reid will advise us from time to time on organization, hiring, mergers, and execution of our business plan.
Mr. Reid is paid in addition to a base salary of $8,000 per month. In addition, Mr. Reid agreed to cancel 2,000,000,000 shares of common stock previously issued to him for conversion of Series C Preferred stock. As additional consideration for the cancellation of the common shares the Company agreed to issue Mr. Reid 200,000 shares of Series C Preferred stock. We do not have any other compensation arrangements with any other executive officer or director.
It is uncertain when, if ever, we will be in a position to compensate any of our other officers or directors. Before we can expect to provide for additional officer salaries, we will have to obtain revenues from the sales of our products or raise funds through a debt or equity offering of our securities. See “Item 1. Business.”
Summary Compensation Table
The following table sets forth, for our named executive officers for the two completed fiscal years ended September 30, 2015, and 2014:
Name and
Principal Position
Year
Salary ($)
Bonus ($)
Stock Awards ($)
Option Awards ($)
Non-Equity Incentive Plan Compensation ($)
Nonqualified
deferred
compensation
earnings
($)
All Other Compensation ($)
Total ($)
Larry M. Reid (1)
60,000
60,000
78,000
78,000
__________
(1)
Mr. Reid is our chairman of the board, president, chief financial officer, principal accounting officer, secretary, and sole director.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information for each of our named executive officers as of the end of our last completed fiscal year, September 30, 2014:
Option Awards
Stock Awards
Name
Number of Securities Underlying Unexercised Options (#) Exercisable
Number of Securities Underlying Unexercised Options (#) Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
Option Exercise Price ($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
Market Value of Shares or Units of Stock That Have Not Vested
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Larry M. Reid (1)
__________
(1)
Mr. Reid is our chairman of the board, president, chief financial officer, principal accounting officer, secretary, and sole director.
Employment Agreements
See “Summary of Cash and Certain Other Compensation,” above.
Director Compensation
See “Summary of Cash and Certain Other Compensation,” above.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table presents information regarding the beneficial ownership of all shares of our common stock and preferred stock as of the date of this report by:
·
Each person who owns beneficially more than five percent of the outstanding shares of our common stock;
·
Each person who owns beneficially outstanding shares of our preferred stock;
·
Each director;
·
Each named executive officer; and
·
All directors and officers as a group.
Shares of Common Stock Beneficially Owned (2)
Shares of Preferred Stock Beneficially Owned (2)
Name of Beneficial Owner (1)
Number
Percent
Number
Percent
Larry M. Reid (3)
5,016,325
2.53%
277,586
8.45%
Marc Moore
12,500,000
6.32%
Richard Lackey
All directors and officers as a group (one person)
17,516,325
8.85%
277,586
8.45%
________
(1)
Unless otherwise indicated, the address for each of these stockholders is c/o Cleartronic, Inc., at 8000 North Federal Highway, Suite 100, Boca Raton, Florida 33487. Also, unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to our shares of common stock or preferred stock which he beneficially owns.
(2)
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. As of the date of this report, we have 5,000,000,000 authorized shares of common stock, par value $0.00001 per share, of which 197,722,989 shares were issued and outstanding. As of the date of this report, we have 200,000,000 authorized shares of preferred stock, par value $0.00001 per share, of which 3,282,310 shares were issued and outstanding. Mr. Reid owns one share of our Series B Preferred Stock and 277,585 shares of our Series C Preferred Stock. See below for a description of our preferred stock and voting rights.
(3)
Mr. Reid is our chairman of the board, president, chief financial officer, principal accounting officer, secretary, and director.
As a result of the stock ownership by Mr. Reid, he is able to influence all matters requiring stockholder approval including the election of directors, merger or consolidation. This concentration of ownership may delay, deter or prevent acts that would result in a change of control, which in turn could reduce the market price of our common stock.
Other than as stated herein, there are no arrangements or understandings, known to us, including any pledge by any person of our securities:
·
The operation of which may at a subsequent date result in a change in control of Cleartronic; or
·
With respect to the election of directors or other matters.
Preferred Stock
As of the date of this report, we have 200,000,000,000 authorized shares of preferred stock, par value $0.00001 per share, of which 3,275,030 shares were issued and outstanding. There are currently four series of preferred stock designated as follows:
·
1,250,000 shares have been designated as Series A Preferred Stock, 40,750 of which are issued and outstanding;
·
10 shares have been designated as Series B Preferred Stock, one of which is issued and outstanding;
·
50,000,000 shares have been designated as Series C Preferred Stock, 2,570,655 of which are issued and outstanding; and
·
10,000,000 shares of Series D Preferred Stock, 670,904 of which are issued and outstanding.
Pursuant to our Articles of Incorporation establishing our preferred stock:
·
A holder of shares of the Series A Preferred Stock is entitled to the number of votes equal to the number of shares of the Series A Preferred Stock held by such holder multiplied by one on all matters submitted to a vote of our stockholders. Each one share of our Series A Preferred Stock shall be convertible into 100 shares of our common stock. Each holder of Series A Preferred Stock is entitled to receive cumulative dividends at the rate of 8% of $1.00 per annum on each outstanding share of Series A Preferred Stock then held by such holder, on a pro rata basis.
·
A holder of shares of the Series B Preferred Stock is entitled one vote per share on all matters submitted to a vote of our stockholders. If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have voting rights equal to two times the sum of the total number of shares of our common stock which are issued and outstanding at the time of voting, plus the total number of shares of any shares of our preferred stock which are issued and outstanding at the time of voting. A holder of shares of the Series B Preferred Stock shall have no conversion rights or rights to dividends.
·
A holder of shares of the Series C Preferred Stock is entitled to the number of votes equal to the number of shares of the Series C Preferred Stock held by such holder multiplied by 10 on all matters submitted to a vote of our stockholders. In addition, the holders of our Series C Preferred Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors, in its sole discretion. No dividends have been declared. Finally, each one share of our Series C Preferred Stock shall be convertible into five of shares of our common stock.
·
A holder of shares of the Series D Preferred Stock is entitled to the number of votes equal to the number of shares of the Series D Preferred Stock held by such holder multiplied by 10 on all matters submitted to a vote of our stockholders. In addition, the holders of our Series D Preferred Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors, in its sole discretion. No dividends have been declared. Finally, each one share of our Series D Preferred Stock shall be convertible into five of shares of our common stock.
Item 13.
Item 13.
Certain Relationships and Related Transactions and Director Independence.
See “Summary of Cash and Certain Other Compensation,” above.
Item 14.
Item 14.
Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed by Goldstein Schechter Koch P.A. for professional services rendered for the audit of our annual financial statements for the fiscal years ended September 30, 2015 and 2014, were $30,000 and $28,000, respectively.
Audit Related Fees
The aggregate audit-related fees billed by Goldstein Schechter Koch P.A. for professional services rendered for the audit of our annual financial statements for the fiscal years ended September 30, 2015 and 2014, were $26,000 for each year.
Tax Fees
The aggregate tax fees billed by Ribotsky Levine & Company for professional services rendered for tax services for the fiscal years ended September 30, 2015 and 2014, were $0 and $1,500, respectively.
All Other Fees
There were no other fees billed by Ribotsky, Levine & Company or Goldstein Schechter Koch P.A. for professional services rendered during the fiscal years ended September 30, 2015 and 2014, other than as stated under the captions Audit Fees, Audit-Related Fees, and Tax Fees.
Less than 50% of the hours expended on the principal accountant’s engagement to audit our consolidated financial statements for the fiscal year ended September 30, 2015, were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
PART IV
Item 15.
Item 15.
Exhibits, Financial Statement Schedules.
(a)
All financial statements are included in Item 8 of this report.
(b)
All financial statement schedules required to be filed by Item 8 of this report and the exhibits contained in this report are included in Item 8 of this report.
(c)
The following exhibits are attached to this report:
Exhibit No.
Identification of Exhibit
3.1**
Articles of Incorporation, filed as exhibit 3.01 to the registrant’s registration statement on Form SB-2 on July 3, 2006, Commission File Number 333-135585.
3.2**
Articles of Amendment to Articles of Incorporation filed March 12, 2001, filed as exhibit 3.02 to the registrant’s registration statement on Form SB-2 on July 3, 2006, Commission File Number 333-135585.
3.3**
Articles of Amendment to Articles of Incorporation filed October 4, 2004, filed as exhibit 3.03 to the registrant’s registration statement on Form SB-2 on July 3, 2006, Commission File Number 333-135585.
3.4**
Articles of Amendment to Articles of Incorporation filed March 31, 2005, filed as exhibit 3.04 to the registrant’s registration statement on Form SB-2 on July 3, 2006, Commission File Number 333-135585.
3.5**
Articles of Amendment to Articles of Incorporation filed May 9, 2008, filed as exhibit 3.02 to the registrant’s registration statement on Form S-1 on May 28, 2008, Commission File Number 333-135585.
3.6**
Articles of Amendment to Articles of Incorporation filed June 28, 2010, filed as exhibit 3.7 to the registrant’s Form 10-Q on February 14, 2011, Commission File Number 333-135585.
3.7**
Articles of Amendment to Articles of Incorporation filed May 6, 2011, filed as exhibit 3.1 to the registrant’s Form 8-K on May 6, 2011, Commission File Number 333-135585.
3.8**
Articles of Amendment to Articles of Incorporation filed April 19, 2012, filed as exhibit 3.09 to the registrant’s Form 10-Q on May 14, 2012, Commission File Number 333-135585.
3.9**
Articles of Amendment to Articles of Incorporation filed September 7, 2012, filed as exhibit 3.1 to the registrant’s Form 8-K on September 7, 2012, Commission File Number 333-135585.
3.10**
Articles of Amendment to Articles of Incorporation filed September 19, 2012, filed as exhibit 3.1 to the registrant’s Form 8-K on September 19, 2012, Commission File Number 333-135585.
3.11**
Articles of Amendment to Articles of Incorporation filed October 5, 2012, filed as exhibit 3.1 to the registrant’s Form 8-K on October 5, 2012, Commission File Number 333-135585.
3.12**
Articles of Amendment to Articles of Incorporation filed December 28, 2013, filed as exhibit 3.12 to the registrant’s Form 8-K on January 14, 2014, Commission File Number 333-135585.
3.13**
Bylaws, filed as exhibit 3.05 to the registrant’s registration statement on Form SB-2 on July 3, 2006, Commission File Number 333-135585.
3.14**
Amended and Restated Bylaws, filed as exhibit 3.1 to the registrant’s Form 8-K on July 26, 2010, Commission File Number 333-135585.
10.1**
Convertible Promissory Note dated November 15, 2011, in the original principal amount of $60,000 issued to Asher Enterprises, Inc., filed as exhibit 10.1 to the registrant’s Form 10-Q on May 14, 2012, Commission File Number 333-135585.
10.2**
Convertible Promissory Note dated January 19, 2012, in the original principal amount of $37,500 issued to Asher Enterprises, Inc., filed as exhibit 10.2 to the registrant’s Form 10-Q on May 14, 2012, Commission File Number 333-135585.
10.3**
Promissory Note dated June 26, 2012, in the original principal amount of $10,000 issued to Dominic Albi, filed as exhibit 10.3 to the registrant’s Form 10-Q on August 20, 2012, Commission File Number 333-135585.
10.4**
Convertible Promissory Note dated August 22, 2012, in the original principal amount of $37,500 issued to Asher Enterprises, Inc., filed as exhibit 4.12 to the registrant’s Form 10-K on January 14, 2013, Commission File Number 333-135585.
10.5**
Amendment to Consulting Services Agreement dated October 1, 2008, between Larry M. Reid and the registrant, filed as exhibit 10.7 to the registrant’s Form 10-K on December 30, 2011, Commission File Number 333-135585.
10.6**
Employment Agreement dated October 5, 2012, between Larry M. Reid and the registrant, filed as exhibit 10.1 to the registrant’s Form 8-K on October 12, 2012, Commission File Number 333-135585.
10.7**
Software License Agreement dated August 15, 2014, between Collabria LLC and the registrant, filed as exhibit 10.11 to the registrant’s Form 8-K on August 20, Commission File Number 333-135585.
10.8**
Securities Purchase Agreement dated December 1, 2014, between the registrant and KBM Worldwide, Inc. in connection with the issuance of an 8% convertible promissory note in the amount of $38,000, filed as Exhibit 10.8to the registrant’s Form 10-K on January 13, 2015, Commission File Number 000-55329
10.9**
Convertible Promissory Note dated December 1, 2014, in the original principal amount of $38,000 issued to KBM Worldwide, Inc. filed as exhibit 10.9 to the registrant’s Form 10-K on January 13, 2015, Commission File Number 000-55329.
10.10**
Lease Agreement dated November 30, 2014, between BGNP Associates, LLC and Cleartronic, Inc, filed as Exhibit 10.10 to the registrant’s Form 10-K on January 13, 2015, Commission File Number 000-55329
10.11**
Employment Agreement dated March 13, 2015, between Larry M. Reid and the registrant, filed as Exhibit 10.1 to the registrant’s Form 8-K on March 18, 2015, Commission File Number 000-55329
10.12**
Amended Software License Agreement dated March 31, 2015, between Collabria LLC and the registrant, filed as exhibit 10.4 to the registrant’s Form 8-K on April 10, 2015, Commission File Number 000-55329
10.13**
Subscription Agreement between registrant and private accredited investor dated March 31, 2015 for purchase of 278,743 shares of Series D Convertible Preferred stock, filed as exhibit 10.1 to the registrant’s Form 8-K on April 10, 2015, Commission File Number 000-55329
10.14**
Subscription Agreement between registrant and private accredited investor dated March 31, 2015 for purchase of 270,024 shares of Series D Convertible Preferred stock, filed as exhibit 10.2 to the registrant’s Form 8-K on April 10, 2015, Commission File Number 000-55329
10.15**
Subscription Agreement between registrant and private accredited investor dated March 31, 2015 for purchase of 278,743 shares of Series D Convertible Preferred stock, filed as exhibit 10.3 to the registrant’s Form 8-K on April 10, 2015, Commission File Number 000-55329
10.16*
Convertible Promissory Note dated May 7, 2015 in the original amount of $43,000 issued to Vis Vires Group Inc.
10.17*
Securities Purchase Agreement dated May 7, 2015 between the registrant and Vis Vires Group Inc. in connection with the Convertible Promissory Note issued on even date.
10.18*
Promissory Note date November 24, 2015 in the original amount of $50,000 issued to Mr. Marc Moore.
10.19*
Convertible Promissory Note dated December 7, 2015 for an amount up to $150,000 issued to JMJ Financial.
31.1*
Certification of Larry M. Reid, Chief Executive Officer of Cleartronic, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Larry M. Reid, Chief Financial Officer and Principal Accounting Officer of Cleartronic, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Larry M. Reid, Chief Executive Officer of Cleartronic, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Larry M. Reid, Chief Financial Officer and Principal Accounting Officer of Cleartronic, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
____________
*
Filed herewith.
**
Previously filed.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLEARTRONIC, INC.
Date: January 13, 2016 By /s/ Larry M. Reid
Larry M. Reid, Chief Executive Officer
By /s/ Larry M. Reid
Larry M. Reid, Chief Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Larry M. Reid
LARRY M. REID
Chairman, President Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and Secretary
January 13, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Cleartronic, Inc. and Subsidiaries,
We have audited the accompanying consolidated balance sheets of Cleartronic, Inc. and Subsidiaries as of September 30, 2015 and 2014 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two year period ended September 30, 2015. Cleartronic, Inc. and Subsidiaries’ management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amount and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cleartronic, Inc. and Subsidiaries as of September 30, 2015 and 2014, and the consolidated results of its operations and its consolidated cash flows for each of the years in the two year period ended September 30, 2015 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has had recurring losses from operations and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Goldstein Schechter Koch P.A.
Hollywood, Florida
January 13, 2016
The accompanying notes are an integral part of theses consolidated financial statements
The accompanying notes are an integral part of theses consolidated financial statements
The accompanying notes are an integral part of theses consolidated financial statements
The accompanying notes are an integral part of theses consolidated financial statements
CLEARTRONIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015 and 2014
NOTE 1 - ORGANIZATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Cleartronic, Inc. (the “Company”) was incorporated in the state of Florida on November 15, 1999.
The Company, through one of its wholly owned subsidiaries VoiceInterop, Inc., designs, builds and installs unified group communication solutions, including unique hardware and customized software, for public and private enterprises and markets those services and products under the VoiceInterop brand name.
In March 2015, the Company amended its Licensing Agreement with Collabria LLC of Tampa, Florida (”Collabria”). The Agreement grants the Company master distribution rights to market, sell and support Collabria’s command and control software, trade-named ReadyOp. ReadyOp software is designed for fast, efficient access to information and for communication with multiple persons, groups and agencies. This agreement will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. Upon expiration of the agreement, the Company’s only obligation to Collabria shall be the payment of all outstanding obligations to Collabria. In September 2014, the Company formed ReadyOp Communications, Inc. (a Florida corporation), as a wholly owned subsidiary to facilitate the marketing of ReadyOp software. According to the terms of the agreement ReadyOp Communications will pay Collabria a royalty for all ReadyOp software sold.
The Company’s two operating subsidiaries are Voiceinterop, Inc. and ReadyOp Communications, Inc.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements and accompany notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of Cleartronic, Inc. and its subsidiaries, VoiceInterop, Inc. and ReadyOp Communications, Inc. All intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
In preparing the consolidated 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.
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 September 30, 2015 and 2014.
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 has an Accounts Receivable Purchase and Security Agreement with Bridgeport Capital Resources of Birmingham, AL. Under the terms of the agreement the Company sells certain acceptable accounts receivable to Bridgeport Capital at a discount to the receivable face value. Discounts can range between 2.25 and 6.25 percent depending on the length of time the receivable remains outstanding.
LICENSING AGREEMENT
In March 2015, the Company amended its Licensing Agreement with Collabria, which will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. The amendment reduces the royalty to be paid on a sale from 80% to 20%. As consideration for entering into the agreement and the reduction of the stated royalty, the Company issued Collabria 25,000,000 shares of restricted common stock valued at $.08 per share (Note 6). The Company amortizes this licensing agreement over its remaining life on a straight line basis.
The Company evaluates licensing rights for impairment when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. As of September 30, 2015, management determined that sales of ReadyOp products had failed to meet the projected revenue targets and that the carrying value of the license agreement exceeded the fair value. Accordingly management revised the estimate of undiscounted future cash flows expected to be generated by the licensing agreement and incurred an impairment loss of $1,167,000 for the year ended September 30, 2015.
The Company recorded $200,000 in amortization expense prior to the impairment recognition for the year ended September 30, 2015.
The Company provided no allowance for doubtful accounts for the years ended September 30, 2015 and 2014, respectively.
CONCENTRATION OF CREDIT RISK
The Company currently maintains cash balances at one FDIC-insured banking institution. Deposits held in noninterest-bearing transaction accounts are insured up to a maximum of $250,000 at all FDIC-insured institutions.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred. For the years ended September 30, 2015 and 2014, the Company had $3,907 and $6,650, respectively, in research and development costs.
REVENUE RECOGNITION AND DEFERRED REVENUES
Unified group communication solutions consist of three elements to be provided to customers: software licenses and equipment purchased from third-party vendors, proprietary hardware that is manufactured on contract to required specifications and installation and integration of the hardware and software into the cohesive communication source.
The Company's revenue recognition policies are in accordance with Accounting Standards Codification 605-10 “Revenue Recognition” (ASC 605-10). Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the contract price is fixed or determinable, and collectability is reasonably assured. No right of return privileges are granted to customers after shipment. The Company recognizes revenue for the elements separately as the sales of the equipment and software, installation and integration, and support services represent separate earnings processes that are generally specified under separate agreements.
Revenue from the resale of equipment utilized in unified group communication solutions is recognized when shipped. For software licenses, the Company does not provide any services that are considered essential to the functionality of the software, and therefore revenue is recognized upon delivery of the software, provided (1) there is evidence of an arrangement, (2) collection of the fee is considered probable and (3) the fee is fixed and determinable.
The Company also provides support to customers under separate contracts varying from one to five years. The Company’s obligations under its service contracts vary by the length of the contract. In all cases the Company is the primary obligor to provide first level support to the client. If the contract has less than one year of service and support remaining on the contract, it is classified as a current liability; if longer, it is classified as a non-current liability.
Installation and integration services are recognized upon completion.
EARNINGS PER SHARE
In accordance with accounting guidance now codified as FASB ASC 260 “Earning 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.
As of September 30, 2015 and 2014, we had outstanding options and warrants exercisable for an aggregate of 167 and 167 shares of common stock, respectively. As of September 30, 2015 and 2014, we had 40,750 and 474,000 shares of Series A Convertible Preferred stock outstanding convertible into 4,750,000 and 47,400,000 common shares, respectively. As of September 30, 2015 and 2014, we had 2,570,655 and 2,370,655 shares of Series C Convertible Preferred stock outstanding which are convertible into 12,853,275 and 11,853,275 shares of common stock, respectively. As of September 30, 2015 and 2014, we had 670,904 and 0 shares of Series D Convertible Preferred stock outstanding which are convertible into 6,709,040 and 0 shares of common stock, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), “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 unobservable. 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 market on a first-in, first-out basis. During the year ended September 30, 2014 the Company eliminated its inventory of individual component parts used in assembly of its circuit boards. The component parts inventory was purchased from the Company by its contract manufacturer which now provides completed circuit boards at a price that includes component parts and assembly charges. The Company only carries finished goods to be shipped along with completed circuit boards and parts necessary for final assembly of finished product. The Company’s prior policy was to record a reserve for technological obsolescence of component parts. That policy was discontinued in 2014 as all existing inventory is considered current and usable. The Company recorded no reserve for the years ended September 30, 2015 and 2014.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. For financial statement purposes depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the asset.
Expenditures for replacements, maintenance and repairs that do not extend the lives of the respective assets are charged to expense as incurred. When assets are retired, sold or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are recognized.
As of September 30, 2015 and 2014 all property and equipment had been fully depreciated.
INCOME TAXES
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company records valuation allowance to reduce net deferred tax assets to the amount considered more likely than not to be realized. Changes in estimates of future taxable income can materially change the amount of such valuation allowances.
The Company is required to recognize, measure, classify, and disclose in the financial statements uncertain tax positions taken or expected to be taken in the Company’s tax returns. Management has determined that the Company does not have any uncertain tax positions and associated unrecognized benefits that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Company’s tax returns will not be challenged by the taxing authorities and that the Company will not be subject to additional tax penalties, and interest as a result of such challenge. The federal and state income tax returns of the Company for the years ended September 30, 2014, 2013 and 2012 are subject to examination by the IRS and state taxing authorities generally for three years after they were filed. There are no tax examinations currently in process.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted the fair value recognition provisions of Accounting Standards Codification 718-10 “Compensation” (ASC 718-10) using the modified retrospective transition method. ASC 718-10 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of each award as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of the Company's stock price. In March 2005, the SEC issued SAB No. 107, Share-Based Payment ("SAB 107"), which provides guidance regarding the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10.
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”). Pursuant to FASB ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
DERIVATIVE INSTRUMENTS
The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date
and then that fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date. As of September 30, 2015 and 2014 there were no derivative liabilities.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The Company had advertising costs of $987 during the year ended September 30, 2015 and $2,121 during the year ended September 30, 2014.
NOTE 2 -RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements issued by the FASB, the AICPA and the SEC, did not, or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 3 - GOING CONCERN
During the years ended September 30, 2015 and 2014, and since inception, the Company has experienced cash flow problems. From time-to-time, the Company has experienced difficulties meeting its obligations as they became due. As reflected in the accompanying consolidated financial statements, the Company incurred net losses from operations of approximately $306,000 for the year ended September 30, 2015 and had working capital deficit of approximately $594,000 for the year ended September 30, 2015. The Company also had an accumulated deficit of approximately $13,000,000 and a stockholders’ deficit of approximately $1,203,000 at September 30, 2015.These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company believes the agreement with Collabria will allow the Company to generate additional income from the sale of ReadyOp software and will assist in expanding the distribution of the AudioMate AM360 line of IP gateway devices. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management is currently seeking funding from significant shareholders and outside funding sources sufficient to meet its minimal operating expenses. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 - DEFERRED INCOME TAXES
The Company calculates its deferred tax assets based upon its consolidated net operating loss (NOL) carryovers available to offset future taxable income, net of other tax credit(s) or tax deferred liabilities, if any. No deferred tax assets for the years ended September 30, 2015 and 2014 have been recorded since any available deferred tax assets are fully offset by increases in its valuation allowances. The Company increased its valuation allowance based on its history of consolidated net losses. At September 30, 2015, the Company has an adjusted net operating loss carryforwards of approximately $13,149,000 that expire through 2032. Should a cumulative change in the ownership of more than 50% occur within a three-year period, there could be an annual limitation on the use of the net operating loss carryforwards.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes plus any available consolidated, net deferred tax credits. Significant components of the Company’s net deferred income tax assets at September 30 are as follows:
A reconciliation of the Federal and respective State income tax rate as a percentage of income before taxes is as follows:
Federal statutory income tax rate
34.0%
34.0%
State taxes, net of federal benefit
5.0%
5.0%
Effective rate for deferred tax asset
39.0%
39.0%
Less: Valuation allowance
(39.0%)
(39.0%)
Effective income tax rate
0.0%
0.0%
Management has determined that it is more likely than not that the Company will not use the NOL carryforward and has 100% against the deferred asset. The reserve is based on historical experience of the Company’s operations as it has not recognized net income in its current incarnation and there is no indication of any events or conditions that would show that trend will not continue due to the Company’s current expectation of expense requirements.
In May 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). Now codified FASB ASC 740-10-25-9 provides guidance on how to determine whether a tax position is effectively settled for purpose of recognizing previously unrecognized tax benefits. The implementation of this standard did not have a material impact on our consolidated financial position or results of operation.
NOTE 5 -NOTES PAYABLE - STOCKHOLDERS
In November 2013, the Company repaid a note payable to one stockholder for $150,000.
The Company has other notes payable to stockholders totaling $92,291. These notes range in interest from 8% to 15% which are payable quarterly. All of these notes mature December 31, 2016.
Interest expense on notes payable - stockholders was $12,724 and $27,981 for the years ended September 30, 2015 and 2014, respectively.
NOTE 6 -CONVERTIBLE PROMISSORY NOTES
The Company entered into securities purchase agreements (the “Purchase Agreement”) with two investors and issued convertible promissory notes in the amount of $38,000 and $43,000 respectively (the “Notes”).The Notes were dated December 1, 2014 and May 7, 2015, bore interest at 8% per annum and mature on September 3, 2015 and February 11, 2016, respectively. The notes are convertible into shares of the Company’s common stock at the greater of; (i) the variable conversion price (58% multiplied by the market price) that is equal to the average of the three (3) lowest closing bid prices of the Common Stock during the ten (10) trading day period prior to the date of conversion or (ii) the fixed conversion price of $.00005. The Notes also contain a prepayment option whereby the Company may make payments to the holder based on the length of time the Note has been outstanding, upon three (3) trading days' prior written notice to the holder.
During the first 30 days, the Company may make a payment to the holder equal to 115% of the then outstanding unpaid principal and interest, from days 31 until 60 days, the Company may make a payment to the holder equal to 120% of the then outstanding unpaid principal and interest, from days 61 until 90 days, the Company may make a payment to the holder equal to 125% of the then outstanding unpaid principal and interest, from days 91 until 120 days the Company may make a payment to the holder equal to 130% of the then outstanding unpaid principal and interest, from days 121 until 150 days, the Company may make a payment to the holder equal to 135% of the then outstanding unpaid principal and interest, from days 151 until 180 days, the Company may make a payment to the holder equal to 140% of the then outstanding unpaid principal and interest, after 180 days, the Company has no right of prepay. In the event of default before the maturity dates, the payment is immediately due, in the amount of 22% of the outstanding unpaid principal, along with interest and any penalties.
Beneficial Conversion Feature
In connection with the convertible note entered into in December 2014 and May 2015, the Company determined that a beneficial conversion feature existed on the date the note was issued. The beneficial conversion feature related to this note was valued as the difference between the effective conversion price (computed by dividing the relative fair value allocated to the convertible note by the number of shares the note is convertible into) and the fair value of the common stock multiplied by the number of shares into which the note may be converted.
In accordance with ASC 470 “Debt with Conversion and other Options”, the intrinsic value of the beneficial conversion features were recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the instrument. The Company recorded beneficial conversion features related to the December 2014 convertible note financing of $27,500 and a beneficial conversion feature of $31,000 related to the May 2015 note.
In June, 2015 the convertible note holder converted the $38,000 December note of $38,000 in principal and $1,520 in accrued interest into 1,432,859 shares of common stock. Upon conversion, the remaining discount on the notes payable was recognized as interest totaling $15,287.
The Company had no convertible promissory notes outstanding as of September 30, 2014.
NOTE 7 -EQUITY TRANSACTIONS
Preferred Stock
In June 2010, the Board of Directors voted to amend the Company’s Articles of Incorporation in order to authorize the issuance of 200 million shares of Preferred Stock with a par value of $0.001 per share. Concurrently, the Board designated the preferred stock as Series A Convertible Preferred Stock. Among other things, the Certificate of Designation of Series A Convertible Preferred (i) authorizes 1,250,000 shares of the Corporation’s preferred stock to be designated “Series A Convertible Preferred Stock (ii) is convertible into the Company's common stock after two years at a conversion price of $0.01 per share at the holder's option (iii) each holder of Series A Preferred Stock is entitled to receive cumulative dividends, payable quarterly in either cash or equivalent shares of common stock at the rate of 8% of $1.00 per annum on each outstanding share of Series A Preferred then held by such Series A Preferred Holder, on a pro rata basis.
In August 2012, the Board of Directors voted to amend the Company’s Articles of Incorporation to designate the Series B Preferred Stock setting forth the rights and preferences of the Series B Preferred Stock. Among other things, the Certificate of Designation (i) authorizes 10 (ten) shares of the Corporations preferred stock to be designated as Series B Preferred Stock; (ii)grants no conversion rights to the holders of the Series B Preferred Stock; (iii) provides the holders of Series B Preferred Stock shall vote with the holders of the Corporation’s common stock and any class or series of capital stock of the Corporation hereafter created; and (iv) provides that if at least on share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred stock at any given time, regardless of their number, shall have voting rights equal to two (2) times the sum of: i) the total number of shares of Common Stock which are issued and outstanding at the time of voting, plus ii)the total number of shares of any Preferred Stocks which are issued and outstanding at the time of voting.
In October 2012, the Board of Directors voted to amend the Company’s Articles of Incorporation to designate the Series C and Series D Convertible Preferred Stock setting forth the rights and preferences of the Series C and D Convertible Preferred Stock, par value $.00001 per share. Among other things, the Certificate of Designation for the Series C Preferred (i) authorizes fifty million (50,000,000) shares of the Corporation’s preferred stock to be designated as “Series C Convertible Preferred Stock”; (ii) grants conversion rights to the holders of the Series C Preferred Stock; (iii) provides that each share of Series C Preferred Stock shall ten votes for any election or other vote placed before the shareholders of the Corporation; (iv) provides for anti-dilutive rights; (v) provides for liquidation rights; (vi) establishes the initial price at $2.50 per share; (vii) entitles the holder of the Series C Preferred Stock to receive dividends when, as and if declared by the Board of Directors. Among other things, the Certificate of Designation for the Series D Preferred (i) authorizes ten million (10,000,000) shares of the Corporation’s preferred stock to be designated as “Series D Convertible Preferred Stock”; (ii) grants conversion rights to the holders of the Series D Preferred Stock; (iii) provides that each share of Series D Preferred Stock shall ten votes for any election or other vote placed before the shareholders of the Corporation; (iv) provides for anti-dilutive rights; (v) provides for liquidation rights; (vi) establishes the initial price at $5.00 per share; (vii) entitles the holder of the Series D Preferred Stock to receive dividends when, as and if declared by the Board of Directors.
Preferred Share Designations
In December 2013, the Board of Directors voted to amend the Company’s Articles of Incorporation to change the conversion rights of the Series C and Series D Convertible Preferred Stock. Each share of the Series C and Series D Preferred Stock is convertible into five shares of common stock.
During the year ended September 30, 2014, the company issued 35,000 shares of Series C Convertible Preferred stock to a consulting firm for services valued at $10,000.
In March 2015, the Company issued 670,904 shares of Series D Convertible Preferred stock as consideration for the forgiveness of $135,012 in notes payable, $59,608 in accrued interest and $140,832 in accrued dividends. The fair value of the Series D preferred stock was $825,212 resulting in a loss on forgiveness of debt of $489,758.
In March 2015, the Company entered into a new employment agreement with the Company’s CEO, Larry M. Reid. Under the agreement, Mr. Reid agreed to remit 2.0 billion shares of common stock back to the Company in exchange for 200,000 shares of Series C Convertible Preferred stock with a fair value of $252,000 as well as compensation stated in the agreement. The common stock remitted to the Company was recorded as a treasury acquisition for the value of the Series C preferred stock and the net present value of Mr. Reid’s salary over a five years using a discount rate of 5%, totaling approximately $627,000. The treasury stock was subsequently retired and recorded to additional paid-in capital.
Dividends payable on Series A Convertible Preferred Stock of approximately $3,372 and $124,860 are included in Accrued Expenses as of September 30, 2015 and 2014, respectively.
Common Stock
On September 13, 2012, the Board of Directors voted to increase the Company’s authorized shares of common stock to 5,000,000,000 shares and to decrease the par value to $.00001 per share.
Common stock issued for conversion of preferred stock
In February 2014, 3 shareholders converted 75,358 shares of Series C Convertible Preferred stock into 376,790 shares of common stock and 1 shareholder converted 100,000 shares of Series A Convertible preferred stock into 10,000,000 shares of common stock.
In April 2014, 3 shareholders converted 110,894 shares of Series C Convertible Preferred stock into 554,470 shares of common stock.
In October 2014, a shareholder converted 20,000 shares of Series A Convertible Preferred stock into 2,000,000 shares of common stock.
In October 2014, a shareholder converted 20,000 shares of Series C Convertible Preferred stock into 100,000 shares of common stock.
In November 2014, a shareholder converted 10,000 shares of Series A Convertible Preferred stock into 1,000,000 shares of common stock.
In December 2014, a shareholder converted 12,500 shares of Series A Convertible Preferred stock into 1,250,000 shares of common stock.
In January 2015, a shareholder converted 37,500 shares of Series A Convertible Preferred stock into 3,750,000 shares of common stock.
In February 2015, a shareholder converted 32,500 shares of Series A Convertible Preferred stock into 3,250,000 shares of common stock.
In March 2015, a shareholder converted 37,500 shares of Series A Convertible Preferred stock into 3,750,000 shares of common stock.
In April 2015, a shareholder converted 283,250 shares of Series A Convertible Preferred stock into 28,325,000 shares of common stock.
Common stock issued for cash
In November 2013, the Company issued 40,000,000 shares of common stock to one shareholder for $200,000 in cash.
In December 2013, the Company issued 10,000,000 shares of common stock to one shareholder for $100,000 in cash.
In April 2014, the Company issued 5,000,000 shares of common stock to 2 shareholders for $50,000 in cash.
In June 2014, the Company issued 900,000 shares of common stock to 2 shareholders for $9,000 in cash.
In November 2014, the Company issued 2,500,000 shares of common stock to one shareholder for $25,000 in cash.
In May and June 2015, the Company issued 216,500 shares of common stock to 2 shareholders for $12,990 in cash.
Common Stock Issued for Licensing Rights
In March 2015, the Company amended its Licensing Agreement with Collabria LLC of Tampa, Florida (”Collabria”). The Agreement grants the Company master distribution rights to market, sell and support Collabria’s command and control software, trade-named ReadyOp. This agreement will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. The amendment reduces the royalty to be paid on a sale from 80% to 20%. As consideration for entering into the agreement and the reduction of the stated royalty, the Company issued Collabria LLC 25,000,000 shares of restricted common stock valued at $0.08 per share. The licensing rights will be amortized over the life of the agreement.
Consultant Stock Plans
During the year ended September 30, 2011, the Company adopted the Cleartronic, Inc. 2011 Consultant Stock Plan to assist the Company in obtaining and retaining the services of persons providing consulting services to the Company. In April 2011, the Company filed a registration statement with the Securities and Exchange Commission registering 6,666 shares of the Company's common stock for issuance under the plan.
During the year ended September 30, 2005, the Company adopted the GlobalTel IP, Inc. 2005 Incentive Equity Plan (the “Plan”) allocating up to 1,666 shares of the Company’s common stock to offer incentives to key employees, contractors, directors and officers.
The following table summarizes information about stock options outstanding at September 30, 2015 and 2014:
The following table summarizes the number of outstanding options with their corresponding contractual life, as well as the exercisable weighted average (WA) outstanding exercise price, and number of vested options with the corresponding exercise price by price range.
In October 2010, the 2005 Incentive Equity Plan expired. During the year ended September 30, 2015, the Company granted no options, no options were exercised and no options expired or were cancelled.
No outstanding options were held by officers as of September 30, 2015, and September 30, 2014.
Warrants
During the year ended September 30, 2015 and 2014, there were -0- warrants and 4,579 warrants were cancelled or expired.
The following is a summary of the Company’s warrant activity:
Warrants
Weighted average exercise price
Outstanding at September 30, 2013
4,579
$ 167.07
Granted
$ 0.00
Expired/Cancelled
(4,579)
$ 167.07
Outstanding at September 30, 2014
$ 0.00
Granted
$ 0.00
Expired/Cancelled
$ 0.00
Outstanding at September 30, 2015
$ 0.00
Warrants exercisable at September 30, 2014
Warrants outstanding at September 30, 2015
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OBLIGATIONS UNDER OPERATING LEASES
The Company leases approximately 1,700 square feet for its principal offices in Boca Raton, Florida at a monthly rental of approximately $3,200. The lease, which provides for annual increases of base rent of 4%, expires on November 30, 2018.
The Company subleased a portion of its principal offices to a third party on a month to month basis until November 30, 2014 at which time the sub-lessee negotiated its own lease. For the years ended September 30, 2014 the Company’s rent was reduced by approximately $30,000 as a result of the sublease agreement.
Future lease commitments are as follows for the years ended September 30:
$40,000
41,610
43,280
7,260
Total
$132,150
Rental expense incurred during the years ended September 30, 2015 and 2014 was $43,673 and $51,549, respectively.
MAJOR CUSTOMERS
Approximately 38% and 44% of the Company's revenues for the years ended September 30, 2015 and 2014 was derived from 3 customers, respectively.
MAJOR SUPPLIERS 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.
Approximately, 20% of the revenues generated during the year ended September 30, 2015 were generated from our licensing agreement with Collabria. If this agreement is terminated it could have significant on impact on revenues.
EMPLOYMENT AGREEMENT
In March 2015, the Company entered into a new employment agreement with its CEO. Under the agreement, the CEO receives a base salary of $8,000 per month. The agreement term is one year and renews automatically at the end of each year unless notice of termination is given by the Company or the CEO. In the event of termination by the Company, the CEO would receive six months of base salary as severance.
NOTE 9 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through January 13, 2016, which is the date the consolidated financial statements were issued.
Notes Payable Shareholders
In November 2015, the Company issued a Promissory Note to a shareholder and a director in the amount of $50,000. The note bears interest at 8% per annum and matures December 31, 2016.
Common stock issued for conversion of preferred stock
In November 2015, two shareholders converted 7,280 shares of Series C Convertible Preferred stock into 36,400 shares of common stock.
Common Stock Issued for Cash
In December 2015, a shareholder purchased 250,000 restricted shares of common stock for $5,000 in cash.
Convertible Promissory Notes
In November 2015, a convertible note holder converted $10,000 of principal into 847,458 shares of common stock.
In November 2015, the Company repaid the principal balance due of $33,000 on a Convertible Promissory Note along with accrued interest of $14,974.69.
In December 2015, the Company entered into a Convertible Promissory Note with a private investor in connection with the issuance of a 8% convertible promissory note in the amount of $25,000. The note matures on December 6, 2017, and is convertible into shares of the Company’s common stock at a variable conversion price (55% multiplied by the market price) that is equal to the lowest trade price in the 25 trading days previous to the conversion. The Note also contains prepayment option whereby the Note bears no interest for the first 90 days if repaid in full plus a 10% Original Issue Discount fee. After 90 days the Note incurs a 12% one-time interest charge. In the event of default before the maturity dates, the payment is immediately due, in the amount of 150% of the outstanding unpaid principal, along with interest and any penalties.