10-Q: Cleartronic Reports Q3 Loss Amid Soaring Administrative Costs, Despite Strong Software Revenue Growth

Cleartronic, Inc. reported a net loss for the quarter and nine months ended June 30, 2025, driven by significant increases in administrative expenses, despite a rise in overall revenue from its software platforms.

Summary

• Revenue increased by 7.31% to $1,078,530 for the three months ended June 30, 2025, and by 37.49% to $3,001,557 for the nine months ended June 30, 2025, primarily due to growth in ReadyOp and Alastar platform licensing.
• Gross profit rose to $815,021 for the quarter and $2,342,459 for the nine months, driven by increased software sales and consulting activity.
• Net loss attributable to common stockholders was $61,093 for the three months and $158,771 for the nine months ended June 30, 2025, a significant decline from net income of $74,625 and a smaller loss of $6,373 in the prior year periods, respectively.
• Administrative expenses surged by 49.59% to $781,633 for the three months and 63.35% to $2,265,269 for the nine months, largely due to increased headcount, personnel costs associated with the Alastar acquisition, and general business expenses.
• Cash and cash equivalents decreased to $776,646 as of June 30, 2025, from $849,727 at September 30, 2024.
• Net cash used in operating activities was $68,313 for the nine months ended June 30, 2025, a reversal from $398,421 provided in the prior year period.
• Total stockholders' deficit increased to $330,510 as of June 30, 2025, from $202,431 at September 30, 2024.
• The company's principal office lease transitioned to a month-to-month agreement after expiring on December 31, 2024.
• The company's disclosure controls and procedures were deemed not effective as of June 30, 2025, due to limited personnel and challenges in segregation of duties.

Sentiment

Score: 3

Explanation: The company experienced strong revenue growth in its core software licensing, but this was significantly overshadowed by a substantial increase in administrative expenses, leading to a net loss and negative operating cash flow. The disclosure of ineffective internal controls and a worsening stockholders' deficit further contribute to a negative sentiment.

Positives

• Revenue increased by 7.31% for the three months and 37.49% for the nine months ended June 30, 2025, driven by strong growth in software licensing.
• Gross profit increased by $129,699 for the three months and $752,324 for the nine months ended June 30, 2025, reflecting improved profitability on core software and consulting services.
• Licensing of ReadyOp Software revenue significantly increased to $948,892 for the three months and $2,680,468 for the nine months ended June 30, 2025.
• Consulting fees and related income increased from $0 in the prior year to $112,088 for the three months and $231,039 for the nine months ended June 30, 2025.
• Interest income on treasury bill investments increased, contributing to other income.
• No single customer accounted for more than 10% of revenues for the three and nine months ended June 30, 2025, indicating reduced customer concentration risk compared to prior periods.

Negatives

• Shift from net income of $74,625 in the three months ended June 30, 2024, to a net loss of $61,093 in the three months ended June 30, 2025.
• Increased net loss attributable to common stockholders for the nine months ended June 30, 2025, to $158,771 from $6,373 in the prior year.
• Administrative expenses surged by 49.59% for the three months and 63.35% for the nine months, significantly impacting profitability.
• Net cash used in operating activities was $68,313 for the nine months ended June 30, 2025, a substantial negative swing from $398,421 provided in the prior year.
• Total stockholders' deficit worsened to $330,510 as of June 30, 2025.
• Hardware sales decreased significantly from $302,604 to $17,550 for the three months and from $340,699 to $90,050 for the nine months.
• Other income decreased for the nine months due to the non-recurrence of a $42,941 gain on settlement of accounts payable from the prior year.
• Cumulative arrearage of undeclared dividends for Series A Preferred stock totaled $278,021 as of June 30, 2025.
• Management concluded that disclosure controls and procedures are not effective due to limited personnel and challenges in segregation of duties.

Risks

• Limited personnel leading to inherent challenges in achieving complete segregation of duties within the financial reporting process.
• Reliance on local manufacturing facilities for circuit boards, with interruption of adequate supply of components (primarily computer chips) presenting additional risk.
• Current worldwide shortage of computer chips limits the ability to supply proprietary radio gateways to clients and other buyers.
• Potential for future litigation or claims, though currently not engaged in any.
• The company's disclosure controls and procedures are not effective, posing a risk to financial reporting reliability.

Future Outlook

The company expects to continue marketing and selling subscriptions to its ReadyOp, ReadyMed, and Alastar platforms. Management acknowledges the risks and uncertainties inherent in future projections and does not undertake to release publicly revisions to forward-looking statements to reflect events or circumstances after the report date or the occurrence of unanticipated events.

Management Comments

• "Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this prospectus should not be regarded as a representation that our objectives or plans will be achieved."
• "Due to limited number of personnel, there are inherent challenges in achieving complete segregation of duties within the financial reporting process, management concluded that the Company’s disclosure controls and procedures are not effective as of such date."
• "We intend to take appropriate and reasonable steps to make the necessary improvements to remediate this deficiency as resources to do so become available."
• "Management will seek to minimize disputes with the Company’s customers but recognizes the inevitability of legal action in today’s business environment as an unfortunate price of conducting business."

Industry Context

The company operates in the software-as-a-service (SaaS) sector, specifically targeting emergency management, communications, and healthcare industries with its ReadyOp, ReadyMed, and Alastar platforms. The acquisition of Alastar assets indicates a strategy of expanding platform offerings and client base. The mention of worldwide computer chip shortages highlights a broader supply chain challenge impacting hardware-related aspects of the business, which could affect its AudioMate IP gateways.

Comparison to Industry Standards

• The company's shift to a net loss and negative operating cash flow, despite revenue growth, contrasts with the typical trajectory of mature SaaS companies that aim for sustained profitability and positive cash generation.
• The significant increase in administrative expenses (49.59% for the quarter, 63.35% for nine months) without a corresponding improvement in net income or positive cash flow suggests inefficiencies or aggressive investment that has not yet yielded returns, which is often scrutinized more heavily than in early-stage, high-growth SaaS startups.
• The disclosed ineffectiveness of internal controls is a critical governance issue that is generally not acceptable for publicly traded companies and falls below industry best practices for financial reporting integrity.
• While the company is expanding its platform offerings (e.g., Alastar acquisition), the financial performance indicates challenges in scaling operations profitably compared to more established SaaS peers.

Corporate Governance

Legal Proceedings

• The company 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.

Related Party Transactions

• Paid $9,000 to a related party consultant during the three months ended June 30, 2025, and $27,000 for the nine months ended June 30, 2025.
• Owed $1,024 to the Chief Executive Officer as of September 30, 2024, which was repaid in October 2024.
• Recorded a bad debt expense of $58,891 in September 2024 for an uncollectible loan principal and interest advanced to VoiceInterop, a former wholly-owned subsidiary now 96% owned by shareholders.

Stakeholder Impact

• Shareholders: Common stockholders experienced increased net losses and a worsening stockholders' deficit. Preferred Series A stockholders have cumulative undeclared dividends. The ineffective internal controls pose a risk to financial reporting reliability.
• Employees: Increased headcount and personnel-related costs due to the Alastar acquisition indicate growth in the workforce.
• Customers: Continued growth in software licensing revenue suggests ongoing customer adoption and satisfaction with ReadyOp, ReadyMed, and Alastar platforms. Potential impact from computer chip shortages on hardware supply.
• Suppliers: Risk of interruption of adequate supply of components, particularly computer chips, for manufacturing.

Next Steps

• Remediate deficiencies in disclosure controls and procedures and internal control over financial reporting as resources become available.
• Continue marketing and sales of subscriptions to ReadyOp, ReadyMed, and Alastar platforms.
• Manage supply chain risks related to computer chip shortages for IP gateway devices.

Key Dates

Recommendation

Despite strong revenue growth in software licensing, the significant increase in administrative expenses leading to a net loss and negative operating cash flow raises serious concerns about profitability and financial management. The disclosed ineffectiveness of internal controls is a major red flag for investors, indicating potential risks in financial reporting and operational oversight. The worsening stockholders' deficit further underscores the company's financial challenges. These factors collectively suggest a deteriorating financial position and high operational risk, warranting a sell recommendation.

Keywords

Cleartronic, ReadyOp, ReadyMed, Alastar, SaaS, software, communications platform, emergency response, IP gateways, quarterly report, net loss, revenue growth, administrative expenses, cash flow, preferred stock, internal controls, SEC filing