Cleartronic, Inc. 10-Q

Item 1. Financial Statements CLEARTRONIC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2023 September 30, 2023 (unaudited) Current assets: Cash and cash equivalents $ 818,525 $ 516,955 Accounts receivable, net of an allowance for credit losses of $ 92,665 as of December 31, 2023 and $ 63,665 as of September 30, 2023 476,565 545,573 Inventory 27,646 21,913 Prepaid expenses and other current assets 85,575 68,522 Due from related party 53,302 - Interest receivable - related party 3,427 2,724 Total current assets 1,465,040 1,155,687 Property and Equipment, net 15,168 16,526 Intangible Assets, net 121,392 44,373 Operating lease - right-of-use asset 23,932 29,914 Other assets: Due from related party - 53,302 Total other assets - 53,302 Total assets $ 1,625,532 $ 1,299,802 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 49,537 $ 85,858 Deferred revenue, current portion 1,459,667 1,105,580 Operating lease liability 25,267 24,580 Total current liabilities 1,534,471 1,216,018 Long term liabilities: Deferred revenue, net of current portion 68,217 72,100 Operating lease liability - long term - 6,507 Total long term liabilities 68,217 78,607 Total liabilities 1,602,688 1,294,625 Commitments and Contingencies (See Note 6) Stockholders' equity: Series A preferred stock - $ .00001 par value; 1,250,000 shares authorized, 512,996 issued and outstanding, respectively. 5 5 Series B preferred stock - $ .00001 par value; 10 shares authorized, 0 shares issued and outstanding, respectively. - - Series C preferred stock - $ .00001 par value; 50,000,000 shares authorized, 3,133,503 and 3,133,503 shares issued and outstanding, respectively. 32 32 Series D preferred stock - $ .00001 par value; 10,000,000 shares authorized, 670,904 shares issued and outstanding, respectively. 7 7 Series E preferred stock - $ .00001 par value, 10,000,000 shares authorized, 3,000,000 shares issued and outstanding, respectively. 30 30 Common stock - $ .00001 par value; 5,000,000,000 shares authorized, 229,160,695 and 229,160,695 , shares issued and outstanding, respectively. 2,291 2,291 Additional paid-in capital 15,240,104 15,240,104 Accumulated Deficit ( 15,219,625 ) ( 15,237,292 ) Total stockholders' equity 22,844 5,177 Total liabilities and stockholders' equity $ 1,625,532 $ 1,299,802 - 1 - CLEARTRONIC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022 Revenue $ 606,047 $ 506,650 Cost of Revenue 95,631 77,491 Gross Profit 510,416 429,159 Operating Expenses: Selling expenses 120,235 67,831 Administrative expenses 405,998 321,898 Depreciation and amortization expense 1,357 1,080 Research and development 13,559 21,815 Total Operating Expenses 541,149 412,624 Extinguishment of liabilities 44,052 - Interest income/expense, net 4,348 549 Total Other Income/(Expenses) 48,400 549 Income before income taxes 17,667 17,084 Provision for income taxes from continuing operations - - Net Income 17,667 17,084 Preferred stock dividends Series A Preferred ( 10,343 ) ( 10,344 ) Net income attributable to common stockholders $ 7,324 $ 6,740 Net income per common share - basic $ 0.00 $ 0.00 Net income per common share - diluted $ 0.00 $ 0.00 Weighted Average of number of shares outstanding basic 229,160,695 228,630,043 Weighted Average of number of shares outstanding diluted 599,482,330 599,331,678 - 2 - CLEARTRONIC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) For The Three Months Ended December 31, 2023 For The Three Months Ended December 31, 2022 NET INCOME $ 17,667 $ 17,084 Cash Flows From Operating Activities Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization expense 1,357 1,080 Amortization of operating lease - right-of-use asset 5,982 - Extinguishment of liabilities ( 44,052 ) - Provision for credit losses 29,000 - (Increase) decrease in assets: Accounts receivable 40,008 ( 24,752 ) Inventory ( 5,733 ) - Prepaid expenses and other current assets ( 17,756 ) - Due from related party - 9,280 Increase (decrease) in liabilities: Accounts payable 7,731 32,933 Deferred revenue 350,204 ( 223,639 ) Operating lease liability ( 5,820 ) - Net Cash Provided (used) by Operating Activities 378,588 ( 188,014 ) Cash Flows From Investing Activities Purchase of intangible assets ( 77,018 ) - Net Cash Used in Investing Activities ( 77,018 ) - Cash Flows From Financing Activities - - Net (decrease) increase in cash 301,570 ( 188,014 ) Cash at beginning of period 516,955 468,167 Cash at end of period $ 818,525 $ 80,153 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ - $ 666 Cash paid for taxes $ - $ 690 Supplemental disclosure of non-cash investing and financing activities: Series C Convertible Preferred shares exchanged for common stock $ - $ 7 - 3 - CLEARTRONIC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 (Unaudited) Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Series E Preferred Stock Common Stock Additional paid-in Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount capital deficit Equity Balance at September 30, 2023 512,996 $ 5 - $ - 3,133,503 $ 32 670,904 $ 7 3,000,000 $ 30 229,160,695 $ 2,291 $ 15,240,104 $ ( 15,237,292 ) $ 5,177 Net income for the three months ended December 31 , 2023 - - - - - - - - - - - - - 17,667 17,667 Balance at December 31, 2023 (Unaudited) 512,996 $ 5 - $ - 3,133,503 $ 32 670,904 $ 7 3,000,000 $ 30 229,160,695 $ 2,291 $ 15,240,104 $ ( 15,219,625 ) $ 22,844 - 4 - CLEARTRONIC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED DECEMBER 31, 2022 (Unaudited) Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Series E Preferred Stock Common Stock Additional paid-in Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount capital deficit Deficit Balance at September 30, 2022 512,996 $ 5 - $ - 3,341,503 $ 34 670,904 $ 7 3,000,000 $ 30 228,120,695 $ 2,281 $ 15,240,112 $ ( 15,293,848 ) $ ( 51,379 ) Series C Convertible Preferred shares exchanged for common stock - - - - ( 132,000 ) ( 1 ) - - - - 660,000 7 ( 6 ) - - Net income for the three months ended December 31, 2022 - - - - - - - - - - - - - 17,084 17,084 Balance at December 31, 2022 (Unaudited) 512,996 $ 5 - $ - 3,209,503 $ 33 670,904 $ 7 3,000,000 $ 30 228,780,695 $ 2,288 $ 15,240,106 $ ( 15,276,764 ) $ ( 34,295 ) - 5 - CLEARTRONIC, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements December 31, 2023 (Unaudited) NOTE 1 - ORGANIZATION Cleartronic, Inc. (the “Company”) was incorporated in Florida on November 15, 1999. All current operations are conducted through the Company’s wholly owned subsidiary, ReadyOp Communications, Inc. (“ReadyOp”), a Florida corporation incorporated on September 15, 2014. ReadyOp facilitates the marketing and sales of subscriptions to the ReadyOp™ and ReadyMed™ platforms and the AudioMate IP gateways discussed below. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements contain the consolidated accounts of Cleartronic, Inc. and its subsidiary, ReadyOp Communications, Inc. All material intercompany transactions and balances have been eliminated. BASIS OF PRESENTATION The financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The unaudited interim financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state the Company’s financial position, results of operations and cash flows for the dates and periods presented and to make such information not misleading. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year ended September 30, 2023, contained in our General Form for Registration of Securities of Form 10-K as filed with the Securities and Exchange Commission (the “Commission”) on December 21, 2023. The results of operations for the three months ended December 31, 2023, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending September 30, 2024. 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. Significant estimates include the assumptions used in valuation of deferred tax assets, estimated useful life of property and equipment, valuation of inventory and allowance for credit losses. 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 has investments Treasury Bills. The Treasury Bills have remaining terms ranging from four-week month to thirteen weeks on December 31, 2023. Treasury Bills with an original maturity date of three months or less are included within cash and cash equivalents on the balance sheet at December 31, 2023. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES The Company maintains current receivable amounts with most of its customers. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers. This evaluation is based upon an analysis of current and past due amounts, along with relevant history and facts particular to the customer. The Company records its allowance for credit losses based on the results of this analysis. The analysis requires the Company to make significant estimates and as such, changes in facts and circumstances could result in material changes in the allowance for credit losses. The Company considers as past due any receivable balance not collected within its contractual terms. The Company provided $ 92,665 and $ 63,665 allowances for doubtful accounts as of December 31, 2023, and September 30, 2023, respectively. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist primarily of deferred subscriber costs and prepaid expenses. Deferred subscriber costs totaling $ 25,500 and $ 38,250 at December 31, 2023 and September 30, 2023, respectively. Prepaid expenses totaling $ 85,575 and $ 68,522 at December 31, 2023 and September 30, 2023, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter or when the property and equipment is put into service. INTANGIBLE ASSETS The Company’s intangible assets consist of fees paid to outside consulting services and employees that are assisting us in obtaining FedRAMP certification. At December 31, 2023, The Company had intangible assets with a cost of approximately $ 121,392 , with finite lives. The Company amortizes intangible assets with finite lives over the shorter of their estimated useful or legal life. The useful life is reevaluated for each reporting period. For the three months ended December 31, 2023, no amortization expense was recorded. The Company evaluates intangible assets with finite lives for impairment at least annually or when events or changes in circumstances indicate that an impairment may exist. The Company determined that none of its intangible assets were impaired during the three months ended December 31, 2023. CONCENTRATION OF CREDIT RISK The Company currently maintains cash balances at one FDIC-insured banking institution. Deposits held in non interest-bearing transaction accounts which are insured up to a maximum of $ 250,000 at all FDIC-insured institutions. As of December 31, 2023 and September 30, 2023, the Company had $ 0 and $ 118,140 , respectively, in excess of FDIC insured limits. RESEARCH AND DEVELOPMENT COSTS The Company expenses research and development costs as incurred. For the three months ended December 31, 2023 and 2022, the Company had $ 13,559 and $ 21,815 respectively, in research and development costs. - 6 - REVENUE RECOGNITION AND DEFERRED REVENUES The Company revenue recognition policy follows guidance from Accounting Standards Codification (“ASC”) 606, Revenue from contract with customers. Revenue is recognized when the Company has transferred promised goods and services to the customer and in the amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount: i. Identification of Contact with a customer; ii. Identify the performance obligation of the contract iii. Determine transaction price; iv. Allocation of the transaction price to the performance obligations; and v. Recognition of revenue when (or as) the Company satisfies each performance obligation. The Company generates revenue primarily through the sale of software licenses and integrated hardware. The portion of the contract that is associated with ongoing hosting and related customer service is amortized monthly over the license period. The Company incurs certain incremental contract costs (referred to as deferred subscriber acquisition costs, net) including selling expenses (primarily commissions) related to acquiring customers. Deferred subscriber acquisition costs, net are included in prepaid and expenses and other current assets on the consolidated balance sheet. Commissions paid in connection with acquiring new customers are determined based on the value of the contractual fees. Deferred subscriber acquisition costs will be expensed as incurred on the date the revenue associated with the cost is recognized. In transactions in which hardware is sold to a customer, the Company recognizes the revenue when the hardware has been shipped to the customer. The hardware supplied by the Company does not require a related software license and can be operated and fully functional without the Company’s software. From time to time clients request special training meetings. We send employees to these meeting and charge our clients on a per diem basis. These charges are recorded as consulting fees on our income statement. Customer billings for services not yet rendered and hardware not yet installed are deferred and recognized as revenue as services are provided. These fees are recorded as current deferred revenue on the consolidated balance sheet as the Company expects to satisfy any remaining performance obligations as well as recognize the related revenue within the next twelve months. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed. Under an agreement with the School District of Hillsborough County Florida, the District has approved an agreement with the Company whereby the Company will provide 500 units of its AudioMate AM360 Radio gateways to a third party, Centegix, which will be installing the gateways under their agreement with the School District. Centegix has paid the Company for the gateways in advance and the deposit is accounted for in deferred revenue. The estimated completion date for the project is August 31, 2024. As of December 31, 2023 and September 30, 2023, respectively, the Company recorded $ 1,527,884 and $ 1,177,680 , respectively, in deferred revenue. DISAGGREGATED REVENUE The following table sets forth the approximate net sales by primary category: Schedule of disaggregated revenue For the three months ended December 31, 2023 December 31, 2022 Licensing of ReadyOp Software $ 589,547 $ 460,244 Hardware Sales and Consulting 16,500 46,406 Total $ 606,047 $ 506,650 DEFERRED REVENUE The following table provides a summary of the changes included in deferred revenue during the three months ended December 31, 2023 and year ended September 30, 2023: Schedule of deferred revenue For the three months ended December 31, 2023 For the year ended September 30, 2023 Beginning balance $ 1,177,680 $ 1,125,511 Additions to deferred liability (1) 606,047 2,184,124 Deductions to deferred liability (2) ( 255,843 ) ( 2,131,955 ) Ending balance $ 1,527,844 $ 1,177,680 (1) Customer billings for services not yet rendered and hardware not yet installed (2) Revenue recognized in the current year related to the deferred liability EARNINGS PER SHARE Earnings per share (“EPS”) are the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by adding both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation. - 7 - As of December 31, 2023 and 2022, we had no options and warrants outstanding. As of December 31, 2023 and 2022, we had 512,996 shares of Series A Convertible Preferred stock outstanding, which are convertible into 51,299,600 shares of common stock. As of December 31, 2023 and 2022, we had 3,133,503 and 3,209,503 shares of Series C Convertible Preferred stock outstanding, respectively, which are convertible into 15,947,515 and 16,707,515 shares of common stock, respectively. As of December 31, 2023 and 2022, we had 670,904 shares of Series D Preferred stock outstanding which are convertible into 3,354,520 shares of common stock. As of December 31, 2023 and 2022, we had 3,000,000 shares of Series E Convertible Preferred stock outstanding which are convertible into 300,000,000 shares of common stock. The table below details the computation of basic and diluted earnings per share (“EPS”) for the three months ended December 31, 2023 and 2022: Schedule of diluted earnings per share For the three months ended December 31, 2023 For the three months ended December 31, 2022 Net income attributable to common stockholders for the period $ 7,324 $ 6,740 Weighted average number of shares outstanding 229,160,695 228,630,043 Basic earnings per share $ 0.00 $ 0.00 The following table sets for the computation of diluted earnings per share: Schedule of computation of diluted earnings per share For the three months ended December 31, 2023 For the three months ended December 31, 2022 Net income attributable to common stockholders for the period $ 7,324 $ 6,740 Add: Preferred stock dividends 10,343 10,344 Adjusted net income $ 17,667 $ 17,084 Weighted average number of shares outstanding 229,160,695 228,630,043 Add: Shares issued upon conversion of preferred stock 370,321,635 370,701,635 Weighted average number of common and common equivalent shares 599,482,330 599,331,678 Diluted earnings per share $ 0.00 $ 0.00 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company measures the fair value of its assets and liabilities under ASC topic 820, “Fair Value Measurements and Disclosures”. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There was no impact relating to the adoption of ASC 820 to the Company’s consolidated financial statements. ASC 820 also describes three levels of inputs that may be used to measure fair value: - Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. - Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. - Level 3: Inputs that are generally observable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Financial instruments consist principally of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and deferred revenue. The carrying amounts of such financial instruments in the accompanying consolidated balance sheet approximate their fair values due to their relatively short-term nature. The 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. As of December 31, 2023 and September 30, 2023, we held no assets that were required to be measured at fair value on a recurring basis. There were no transfers between levels in the fair value hierarchy during three months ended December 31, 2023 and year ended September 30, 2023, respectively. INVENTORY Inventory consists of components held for assembly and finished goods held for resale or to be utilized for installation in projects. Inventory is valued at lower of cost or net realizable value on a first-in, first-out basis. The Company’s policy is to record a reserve for technological obsolescence or slow-moving inventory items. The Company only carries finished goods to be shipped along with completed circuit boards and parts necessary for final assembly of finished product. All existing inventory is considered current and usable. The Company recorded no reserve for obsolete inventory as of December 31, 2023 and September 30, 2023, respectively. At December 31, 2023 inventory was $ 27,646 of raw materials. At September 30, 2023, inventory was $ 21,913 of raw materials. - 8 - ADVERTISING COSTS Advertising costs are expensed as incurred. The Company had advertising costs of $ 22,584 and $ 13,419 during the three months ended December 31, 2023 and 2022, respectively. RECENT ADOPTED ACCOUNTING PRONOUNCEMENTS Troubled Debt Restructurings and Vintage Disclosures In March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 was effective for the Company October 1, 2022. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements. RECENT ISSUED ACCOUNTING PRONOUNCEMENTS The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company’s Financial Statements. In the current year, the Company adjusted its classification of selling and administrative expenses in the Statement of Operations. For comparative purposes, amounts in the prior years have been reclassified to conform to current year presentations. These reclassifications had no effect on previously reported results of operations or retained earnings. LEASE ACCOUNTING We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. We have a lease agreement with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because our lease does not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. In general, leases, where we are the lessee, may include options to extend the lease term. These leases may include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Certain operating leases provide for annual increases to lease payments based on an index or rate. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred. Amortization of finance lease assets is recognized over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. On December 2, 2022, and effective on January 1, 2023, the Company signed a two-year lease of 1,145 square feet for our principal offices in Clearwater, Florida. The monthly rent is $ 2,134 in year one and increases to $ 2,198 in year two. The lease expires on December 31, 2024. The tables below present information regarding the Company’s operating lease assets and liabilities at December 31, 2023 and September 30, 2023: Schedule of operating lease assets and liabilities December 31, 2023 September 30, 2023 Assets Operating lease -right-of-use assets-non-current $ 23,932 $ 29,914 Liabilities Operating lease liability $ 25,267 $ 31,087 Weighted-average remaining lease term (years) 1.00 1.25 Weighted-average discount rate 8 % 8 % The components of lease expense were as follows: Operating lease cost Amorization on right-of-use operating lease asset $ 5,982 $ 17,949 Lease liability expense in connection with obligation repayment 584 2,429 Total operating lease costs $ 6,566 $ 20,378 Supplemental cash outflows information related to operation lease was as follows: Operating cash outflows from operating lease (obligation payment) $ 6,402 $ 19,206 Right-of-use asset obtained in exchange for new operating lease liability $ - $ 47,863 At December 31, 2023, the Company has no financing leases as defined in ASC 842, “Leases.” - 9 - Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2023: Schedule of future minimum lease payments required under leases 2024 $ 19,782 2025 6,594 Total undiscounted cash flows 26,376 Less: amount representing interest ( 1,109 ) Present value of operating lease liability 25,267 Less: current portion of operation lease liability ( 25,267 ) Long-term operating lease liability $ - NOTE 3 – PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS At December 31, 2023 and September 30, 2023, property and equipment, net, is as follows: Schedule of property and equipment net For the three months ended December 31, 2023 For the year ended September 30, 2023 Office Equipment $ 28,040 $ 28,040 Less: Accumulated Depreciation ( 12,872 ) ( 11,514 ) Total Property and Equipment, net $ 15,168 $ 16,526 Depreciation expense for the three months ended December 31, 2023 and 2022, was $ 1,357 and $ 1,080 , respectively. At December 31, 2023 and September 30, 2023, intangible assets, net, is as follows: Schedule of intangible assets For the three months ended December 31, 2023 For the year ended September 30, 2023 Intangible Assets 121,392 44,373 Total Intangible Assets, net $ 121,392 $ 44,373 Amortization expense for the three months ended December 31, 2023 and 2022, was $ 0 and $ 0 , respectively. NOTE 4 - EQUITY TRANSACTIONS Preferred Stock Dividends As of December 31, 2023 and September 30, 2023, the cumulative arrearage of undeclared dividends for Series A Preferred stock totaled $ 216,524 and $ 205,658 , respectively and $ 10,343 for the three months ended December 31, 2023. 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 7,317,403 shares were issued and outstanding. There are currently 5 series of preferred stock designated as follows: ● 1,250,000 shares have been designated as Series A Preferred Stock, 512,996 of which are issued and outstanding; ● 10 shares have been designated as Series B Preferred Stock, none of which is issued and outstanding; ● 50,000,000 shares have been designated as Series C Preferred Stock, 3,133,503 of which are issued and outstanding; and ● 10,000,000 shares have been designated Series D Preferred stock, of which 670,904 are issued and outstanding; and ● 10,000,000 shares have been designated Series E Preferred stock, of which 3,000,000 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 to 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 5 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 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 5 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 shares of our common stock. ● A holder of shares of the Series E Preferred Stock is entitled to the number of votes equal to the number of shares of the Series E Preferred Stock held by such holder multiplied by 100 on all matters submitted to a vote of our stockholders. In addition, the holders of our Series E 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 E Preferred Stock shall be convertible into 100 shares of our common stock. - 10 - NOTE 5 - RELATED PARTY TRANSACTIONS Rent expense incurred during the three months ended December 31, 2023 and 2022 was $ 0 and $ 2,343 , respectively (See Note 6). During the three months ended December 31, 2023 and 2022, the Company paid $ 12,000 and $ 9,000 , respectively, to a related party consultant. As of December 31, 2022, the Company advanced $ 53,302 to VoiceInterop, the Company’s former wholly owned subsidiary and now 96 % owned by our shareholders. The amount is included in due from related party on the consolidated balance sheet. The amount is due on September 30, 2024, and bears interest at 5 % effective October 1, 2022. As of December 31, 2023, the Company recorded $ 3,427 in interest receivable – related party. NOTE 6 - COMMITMENTS AND CONTINGENCIES Obligation Under Operating Lease On December 2, 2022, and effective on January 1, 2023, the Company signed a two-year lease of 1,145 square feet for our principal offices in Clearwater, Florida. The monthly rent is $ 2,134 in year one and increases to $ 2,198 in year two. The lease expires on December 31, 2024. On January 1, 2023, upon adoption of ASC 842, the Company will recognize right-to-use assets as operating leases and operating lease obligations. On December 1, 2021, the Company signed a one year lease approximately 2,000 square feet for our principal offices in Boca Raton, Florida. The monthly rent is $ 2,200 . The lease expired on November 30, 2022 . Rent expense incurred during the years ended September 30, 2023 and 2022 was $ 22,722 and $ 26,973 , respectively. Revenue and Accounts Receivable Concentration For the three months ended December 31, 2023, one customer accounted for 12.72 % of the Company’s revenues. For the three months ended December 31, 2022, one customer accounted for 16 % of the Company’s revenues. As of December 31, 2023, no customer accounted for more than 10 % of the Company’s total outstanding accounts receivable. As of September 30, 2023, no customer accounted for more than 10 % of the Company’s total outstanding accounts receivable. Deferred Revenue Concentration As of December 31, 2023, one customer accounted for more than 33 % of the Company’s total outstanding deferred revenue. As of September 30, 2023, no customer accounted for more than 10 % of the Company’s total outstanding deferred revenue. Major Supplier and Sole Manufacturing Source The Company relies on no major supplier for its products. The Company has contracted with local manufacturing facilities to provide completed circuit boards used in the assembly of its IP gateway devices. Interruption of adequate supply of components, primarily computer chips, to the manufacturing source presents additional risk to the Company. The Company believes that additional commercial facilities exist at competitive rates to match the resources and capabilities of its existing manufacturing source, but the current worldwide shortage of computer chips does limit our ability to supply our proprietary radio gateways to clients and other buyers. Exclusive Licensing Agreement On May 5, 2017, the Company entered into an Exclusive Licensing Agreement with Sublicensing Terms (the “Agreement”) with the University of South Florida Research Foundation, Inc. (“USFRF”) relating to an exclusive license of certain patent rights in connection with one of USFRF’s U.S. Patent Applications. Both parties recognize that the research and development work provided by the Company was sufficient for USFRF to enter into the Agreement with the Company. The Agreement is effective April 25, 2017 and continues until the later of the date that no Licensed Patent remains a pending application or an enforceable patent or the date on which the Licensee’s obligation to pay royalties expires. The Company agreed to pay USFRF a royalty of 3 % for sales of all Licensed Products and Licensed Processes and agreed to pay USFRF minimum royalty payments of $8,000 for fiscal year 2022 and thereafter on the same date, for the life of the agreement. In the event the Company proposes to sell any Equity Securities, then USFRF will have the right to purchase 5 % of the securities issued in such offering on the same terms and conditions are offered to other purchasers in such financing. As of December 31, 2023 and 2022, the Company has recorded $ 9,090 and $ 3,640 for the minimum royalty for the fiscal year ended 2023 and 2022. NOTE 7 – EXTINGUISHMENT OF LIABILITIES During the three months ended December 31, 2023, the Company recorded a gain on extinguishment of liabilities $ 44,052 related to amounts due to vendors that exceeded the statute of limitations. - 11 -