CLRI 10-Q Quarter ended Feb. 14, 2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________

FORM10-Q

(Mark One)
[ X ]	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended December 31, 2011
[    ]	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to
Commission File Number: 333-135585

Cleartronic, Inc.

(Exact name of registrant as specified in it’s charter)

Florida 65-0958798

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

8000 North Federal Highway, Boca Raton, Florida 33487

(Address of principal executive offices)                                                  (Zip Code)

561-939-3300

( Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X _ No __ __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files). X _ No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ____

Accelerated filer ____

Non-accelerated filer ____

Smaller reporting company _ X_

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ___   No _ X_

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ]  No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 147,078,470 shares as of February 14, 2012

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CLEARTRONIC, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
ASSETS
	December 31,		September 30,
	2011		2011
	(unaudited)
Current assets:
Cash	$     34,466		$   39,188
Inventory	43,164		45,998
Prepaid expenses and other current assets	41,656		8,656
Total current assets	119,286		93,842
Property and equipment, net	9,713		12,201
Total assets	$   128,999		$ 106,043
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$  421,842		$ 333,735
Accrued expenses	235,652		145,474
Deferred revenue, current portion	33,869		22,786
Convertible note payable, net of discount of $56,403 and $0	3,597		-
Derivative liability	56,785		-
Notes payable - stockholders	167,952		168,499
Total current liabilities	919,697		670,494
Long Term Liabilities
Notes Payable - Stockholders	160,000		115,000
Deferred revenue, net of current portion	50,003		18,870
Total long term liabilities	210,003		133,870
Total liabilities	1,129,700		804,364
Stockholders' equity (deficit):
Series A preferred stock - $.001 par value; 200,000,000 shares authorized,
1,074,000 shares issued and outstanding	1,074		1,074
Common stock - $.001 par value; 1,250,000,000 shares authorized,
138,328,470 and 134,657,169 shares issued and outstanding, respectively	138,330		134,657
Additional paid-in capital	6,857,231		6,853,558
Accumulated Deficit	(7,997,336)		(7,687,610)
Total stockholders' equity (deficit)	(1,000,701)		(698,321)
Total liabilities and stockholders' equity (deficit)	$   128,999		$   106,043

See the accompanying notes to these condensed consolidated financial statements

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CLEARTRONIC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		For three		For three
		months ended		months ended
		December 31,		December 31,
		2011		2010
	Revenue	$       99,129		$     180,442
	Cost of Revenue	64,099		86,095
	Gross Profit	35,030		94,347
	Operating Expenses:
	Selling expenses	35,920		34,477
	Administrative expenses	217,326		208,513
	Research and development	56,976		26,398
	Depreciation	2,488		3,971
	Total Operating Expenses	312,710		273,359
	(Loss) from operations	(277,680)		(179,012)
	Gain on derivative financial instrument	6,532		-
	Interest and other expenses	(38,615)		(16,087)
	Net (loss)	$ (309,763)		$ (195,099)
	(Loss) per share - basic and diluted	$   (0.0023)		$   (0.0015)
	Weighted average of shares outstanding:
	Basic and diluted	135,814,427		132,307,758

See the accompanying notes to these condensed consolidated financial statements

>

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CLEARTRONIC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		For three		For three
		months ended		months ended
		December 31,		December 31,
		2011		2010
	Net (Loss)	$  (309,763)		$  (195,099)
	Adjustments to reconcile net (loss) to net cash
	(used) in operating activities:
	Depreciation	2,488		3,971
	Change in fair value of derivative liability	(3,215)		-
	Amortization of notes payable discount	3,597		937
	(Increase) decrease in assets:
	Accounts receivable	-		(58,768)
	Inventory	2,834		(18,335)
	Prepaid expenses and other current assets	(33,000)		7,778
	Increase (decrease) in liabilities:
	Accounts payable	88,146		(2,181)
	Accrued expenses	97,522		32,890
	Customer deposits	-		783
	Deferred revenue	42,216		29,840
	Net Cash Used in Operating Activities	(109,175)		(198,184)
	Cash Flows From Investing Activities:
	Purchase of property and equipment	-		-
	Net Cash  (Used In) Investing Activities	-		-
	Cash Flows From Financing Activities:
	Principal payments on notes payable	(547)		(686)
	Proceeds from issuance of preferred stock	-		250,000
	Proceeds from notes payable	60,000
	Proceeds from notes payable - stockholders	45,000		-
	Net Cash Provided by Financing Activities	104,453		249,314
	Net Decrease in Cash	(4,722)		51,130
	Cash - Beginning of Period	39,188		22,348
	Cash - End of Period	$    34,466		$   73,478
	SUPPLEMENTAL CASH FLOW INFORMATION:
	Cash paid for interest	$      3,666		$     5,149
	NONCASH FINANCING ACTIVITY
	During the 3 months ended December 31, 2011, the Company issued
	3,671,301 shares of common stock for conversion of accrued expenses of $7,342

See the accompanying notes to these condensed consolidated financial statements

CLEARTRONIC, INC. AND SUBSIDARY

Notes to Condensed Consolidated Financial Statements

December 31, 2011

NOTE 1   -

ORGANIZATION

Cleartronic, Inc.  (the “Company”) was incorporated in Florida on November 15, 1999 originally formed as a website developer under the name Menu Sites, Inc., which  operations in 2002.

In 2005, the Company became a provider of Voice Over Internet Protocol (VOIP) services and re-seller of international pre-paid telecommunication services, and was renamed GlobalTel IP, Inc.

In November 2007, the Company formed, as Florida corporations, two wholly-owned subsidiaries: Gulf Telco, Inc. and VoiceInterop, Inc.

In May 2008, the Company changed its name to Cleartronic, Inc.

In August 2008, the Company ceased re-selling international pre-paid telecommunication services, sold certain of its VoIP assets, and discontinued all business in its subsidiary Gulf Telco. The Company began to transition its remaining VoIP business into managed unified group communication operations and the development of VoIP related products in its subsidiary, VoiceInterop, Inc.

The Company now 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.

NOTE 2   -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited interim consolidated financial statements contain the consolidated accounts of Cleartronic, Inc.and VoiceInterop, Inc. All material intercompany transactions and balances have been eliminated.

BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended September 30, 2011 included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission. The unaudited interim consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made. Operating results for the three months ended December 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2012.

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USE OF ESTIMATES

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and operations for the reporting period. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

CONCENTRATION OF CREDIT RISK

The Company currently maintains cash balances at one banking institution. Beginning December 31, 2010 through December 31, 2012, deposits held in noninterest-bearing transaction accounts are fully insured, regardless of the amount in the account, at all FDIC-insured institutions.

RESEARCH AND DEVELOPMENT COSTS

The Company expenses research and development costs as incurred.  For the three months ending December 31, 2011 and 2010, the Company had $56,976 and $26,398, respectively, in research and development costs from continuing operations.

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

Basic income (loss) per common share is calculated using the weighted average number of shares outstanding during the periods reported. Diluted earnings per share include the weighted average effect of all dilutive securities outstanding during the periods presented. Diluted per share loss is the same as basic per share loss when there is a loss from continuing operations. Accordingly, for purposes of dilutive earnings per share, the Company excluded the effect of warrants and options.  As of December 31, 2011 and 2010, we had outstanding options and warrants exercisable for an aggregate 34,538,487 and 22,336,265 shares of common stock, respectively.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these 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. The Company’s policy is to record a reserve for technological obsolescence or slow-moving inventory items. No reserve was made for inventory balances as of December 31, 2011.

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.

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.

DERIVATAVE 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.

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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 will be 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.

ADVERTISING COSTS

Advertising costs are expensed as incurred. The Company had advertising costs of $3,431 during the three months ended December 31, 2011, and $4,533 during the three months ended December 31, 2010.

NOTE 3   -

GOING CONCERN

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

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 accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4   -

NOTE PAYABLE TO STOCKHOLDER

On December 9, 2011, the Company received an additional $45,000 from an existing noteholder per the terms of an amendment to a secured promissory note payable executed in June 2011. Total principal due at December 31, 2011 under the amended note is $160,000. The original note and the amendment call for interest payable at 10% quarterly with a maturity date of December 31, 2012. Under the terms of the note, the Company will receive its final funding in March 2012.

NOTE 5 -

CONVERTIBLE PROMISSORY NOTE AND EMBEDDEDED DERIVATIVE LIABILITIES

On November 15, 2011 the Company entered into securities purchase agreement (the “Purchase Agreement”) with an investor and issued a convertible promissory note. The note bears interest at 8% per annum and matures on August 15, 2012. The note may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the issuance of the note.  The Conversion Price shall be equal to 58% multiplied by the Variable Conversion Rate which 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. The Notes also contains prepayment options 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 60 days the Company may make a payment to the holder equal to 130% of the then outstanding unpaid principal and interest, from days 61 until 120 days the Company may make a payment to the holder equal to 135% of the then outstanding unpaid principal and interest, from days 121 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 any event of default before the maturity date payment is immediately due in the amount 150% of the outstanding unpaid principal along with interest and any penalties.

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Derivative analysis

The convertible note is convertible into common stock of the Company at variable conversion rates that provides a fixed return to the note-holder. Under the terms of the notes, the Company could be required to issue additional shares in the event of a default. Due to these provisions, the conversion feature is subject to derivative liability treatment under Section 815-40-15 of the FASB Accounting Standard Codification (“Section 815-40-15”) (formerly FASB Emerging Issues Task Force (“EITF”) 07-5). The notes have been measured at fair value using a lattice model at each reporting period with gains and losses from the change in fair value of derivative liabilities recognized on the consolidated statement of operations. The conversion feature was recorded as a discount to the notes due to the beneficial conversion feature upon origination.

The embedded derivative of these notes was re-measured at December 31, 2011 yielding a gain on change in fair value of the derivative of $6,532 for the three months ended December 31, 2011. The derivative value of these notes at December 31, 2011, yielded a derivative liability at fair value of $ 53,468 .

NOTE 6 -

EQUITY

Common Stock

In December 2011, the Company issued 3,671,301 shares of the Company’s common stock to a consultant in exchange for services previously accrued in the amount of approximately $7,300.

Preferred Stock

Dividends payable on Series A Convertible Preferred Stock of approximately $21,000 are included in Accrued Expenses at December 31, 2011.

NOTE 7 -

RELATED PARTY TRANSACTIONS

The Company leases its office space from another entity that is also a stockholder. Rent expense paid to the related party was $19,836 and $23,820 for the three months ended December 31, 2011 and 2010, respectively.

NOTE 8 -    SUBSEQUENT EVENTS

Management has evaluated subsequent events through February 14, 2012, which is the date the consolidated financial statements were issued.

In January 2012, the Company entered into a Securities Purchase Agreement with a private investor in connection with the issuance of a 8% convertible note in the amount of $37,500. The note matures on October 23, 2012 and is convertible into shares of the Company’s common stock at a variable conversion price (58% multiplied by the market price). The variable conversion feature of this debt will potentially result in a derivative liability, the fair value of which has not been determined as of the date of these financial statements.

In January 2012, the Company issued 5,000,000 shares of its common stock to one consultant in exchange for services valued at $12,500.

In February 2012, the Company issued 3,750,000 shares of its common stock to one consultant in exchange for service valued at $11,250.

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Item 2.  Management’s Discussion and Analysis or Plan of Operation.

Overview

Cleartronic, Inc. (the “Company,” formerly GlobalTel IP, Inc.) was incorporated in Florida on November 15, 1999. Originally formed as a website developer, we ceased such operations in 2002. In 2005, we commenced operations as a provider of Voice Over Internet Protocol (VoIP) services. In 2007, we elected to exit the international VoIP business and concentrate on providing unified group communication solutions. The Company, through our wholly owned subsidiary, VoiceInterop, Inc., now designs, sells and installs unified group communication solutions for public and private enterprises and is developing an Application Service Provider solution for voice interoperability.

Results of Operations – Three Months Ended December 31, 2011 and 2010

Revenues

Revenues decreased approximately 45% to $99,129 for the three months ended December 31, 2011 as compared to $180,442 for the three months ended December 31, 2010. The decrease was due to fewer unified communication projects completed in the three months ended December 31, 2011 than were completed in  the three months ended December 31, 2010.

Cost of Revenues

Cost of revenues was $64,099 for the three months ended December 31, 2011 as compared to $86,095 for the three months ended December 31, 2010, a decrease of approximately 26%. The decrease was due to decreased sales of unified communications solutions.

Operating Expenses

Operating expenses for the three months ended December 31, 2011 were $312,710 compared to $273,359 for the three months ended December 31, 2010, an increase of approximately 14%. This increase was primarily due to an increase in research and development costs which increased 116% to $56,976 in in the three months ended December 31, 2011 compared to $26,398 primarily because of expenditures in developing new products not related to group communications.

Loss from Operations

Loss from operations for the three months ended December 31, 2011 was $277,680 compared to a loss of $179,012 for the three months ended December 31, 2010. The increase in loss from operations in 2011 versus 2010 was primarily due to a decrease in our sales. Gross profit margins declined to approximately 35% in the three months ended December 31, 2011 from approximately 52% for the three months ended December 31, 2010. This decrease was primarily due to purchasing and manufacturing our communication product in smaller quantities.

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Net Loss Applicable to Common Stock

Net loss applicable to common stock was $309,763 for the three months ended December 31, 2011 compared to a net loss of $195,099 for the three months ended December 31, 2010. Net loss per common share was $0.0023 and $0.0015 for the three months ended December 31, 2011 and 2010, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $109,175 for the three months ended December 31, 2011 compared to $198,184 for the three months ended December 31, 2010.

No cash was provided by or used in investing activities during the three months ended December 31, 2011 and the three months ended December 31, 2010.

Net cash provided by financing activities was $104,453 for the three months ended December 31, 2011 compared to $249,314 for the three months ended December 31, 2010. The decrease was primarily due to the sale of $250,000 of the Company's preferred stock in the  three months ended December 31, 2010 as compared with $104,453 in debt financing for the same period in 2011.

Our obligations are being met on a month-to-month basis as cash becomes available. There can be no assurance that our present flow of cash will be sufficient to meet current and future obligations.

We have incurred losses since our inception and continue to require additional capital to fund operations and development. As such, our ability to pay our already incurred obligations is mostly dependent on the Company being able to have substantially increased revenues and raising substantial additional capital through the sale of its equity or debt securities. There can be no assurance that we will be successful in accomplishing any of the foregoing.

We believe that in order to fund our business plan, we will need approximately $1 million 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 intend to continue to seek private financing from existing stockholders and others.

The costs to operate our current business are approximately $90,000 per month. In order for us to cover our monthly operating expenses, we would have to generate revenues of approximately $260,000 per month. Accordingly, in the absence of revenues, we will need to secure $90,000 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 would need to secure $1,080,000 in equity or debt capital.

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If we are unsuccessful in securing sufficient capital or revenues, we would have to cease business in approximately 60 days.

FORWARD-LOOKING STATEMENTS

The information set forth in this Management’s Discussion and Analysis contains certain “forward-looking statements,” including, among others (i) expected changes in our revenues and profitability, (ii) prospective business opportunities, and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends,” or “expects.” These forward-looking statements relate to our plans, objectives, and expectations for future operations. 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. In light of the risks and uncertainties, there can be no assurance that actual results, performance, or achievements will not differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

An evaluation was conducted by our chief executive officer (“CEO”) and principal financial officer (“PFO”) of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2011. Based on that evaluation, the CEO and PFO concluded that our controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our CEO and PFO, as appropriate to allow timely decisions regarding required disclosures.

Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risk associated with such lack of segregation is low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. Management may reevaluate this situation as circumstances dictate.

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

There have been no material developments during the quarter ended December 31, 2011 in any material pending legal proceedings to which we are a party or of which any of our property is the subject.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

On November 15, 2011 the Company entered into securities purchase agreement (the “Purchase Agreement”) with an investor and issued a convertible promissory note. The note bears interest at 8% per annum and matures on August 15, 2012. The note may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the issuance of the note.  The Conversion Price shall be equal to 58% multiplied by the Variable Conversion Rate which 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. The Notes also contains prepayment options 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 60 days the Company may make a payment to the holder equal to 130% of the then outstanding unpaid principal and interest, from days 61 until 120 days the Company may make a payment to the holder equal to 135% of the then outstanding unpaid principal and interest, from days 121 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 any event of default before the maturity date payment is immediately due in the amount 150% of the outstanding unpaid principal along with interest and any penalties. The proceeds from the sales were used to fund operating expenses.

On December 9, 2011, the Company received an additional $45,000 from an existing noteholder per the terms of an amendment to a secured promissory note payable executed in June 2011. Total principal due at 12/31/2011 under the amended note is $160,000. The original note and the amendment call for interest payable at 10% quarterly with a maturity date of December 31, 2012. Under the terms of the note, the Company will receive its final funding in March 2012.

The registrant claimed exemption from the registration provisions of the Securities Act of 1933 with respect to the securities pursuant to Section 4(2) thereof inasmuch as no public offering was involved. The shares were not offered or sold by means of: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium, or broadcast over television or radio, (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising, or (iii) any other form of general solicitation or advertising and the purchases were made for investment and not with a view to distribution. Each of the purchasers was, at the time of the purchaser’s respective purchase, an accredited investor, as that term is defined in Regulation D under the Securities Act of 1933, and had access to sufficient information concerning the registrant and the offering.

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Item 3.  Defaults upon Senior Securities.

None.

Item 5.  Other Information.

(a)

None.

(b)

There were no changes to the procedures by which security holders may recommend nominees to our board of directors.

Item 6.  Exhibits.

Exhibit Number			Description
3.1			Articles of Incorporation (1)
3.2			Articles of Amendment to Articles of Incorporation, filed March 12, 2001 (1)
3.3			Articles of Amendment to Articles of Incorporation, filed October 4, 2004 (1)
3.4			Articles of Amendment to Articles of Incorporation, filed March 31, 2005 (1)
3.5			Articles of Amendment to Articles of Incorporation, filed May 9, 2008 (2)
3.6			Bylaws (1)
3.7			Articles of Amendment to the Articles of Incorporation, filed June 28, 2010 *
31.1			Section 302 Certification by the Corporation’s Principal Executive Officer *
31.2			Section 302 Certification by the Corporation’s Principal Financial Officer *
32.1			Section 906 Certification by the Corporation’s Principal Executive Officer and Principal Financial Officer *

*	Filed herewith.
(1)	Filed on July 3, 2006 as an exhibit to our Registration Statement on Form SB-2, and incorporated herein by reference.
(2)	Filed on May 28, 2008 as an exhibit to Amendment No. 6 to our Registration Statement on Form S-1, and incorporated herein by reference.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CLEARTRONIC, INC.
Date: February 14, 2012	By:	/s/ Larry M. Reid
		Larry M. Reid Principal Executive Officer and Principal Financial Officer and Chief Accounting Officer

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