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EX-21.1 - LIST OF SUBSIDIARIES - GelTech Solutions, Inc.gltc_ex211.htm
EX-10.21 - HULL PROMISSORY NOTE - GelTech Solutions, Inc.gltc_ex1023.htm
EX-5.1 - LEGAL OPINION OF HARRIS CRAMER LLP - GelTech Solutions, Inc.gltc_ex51.htm
EX-23.1 - CONSENT OF SALBERG & COMPANY, P.A. - GelTech Solutions, Inc.gltc_ex231.htm
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As filed with the Securities and Exchange Commission on January 6, 2012
Registration No. ____________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
GelTech Solutions, Inc.
(Exact name of registrant as specified in its charter)
  
Delaware
 
3530
 
56-2600575
(State or other jurisdiction of
 
(Primary Standard Industrial
 
(I.R.S. Employer
incorporation or organization)
 
Classification Code Number)
 
Identification No.)

1460 Park Lane South, Suite 1
Jupiter, Florida 33458
 (561) 427-6144
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Michael Cordani
1460 Park Lane South, Suite 1
Jupiter, Florida 33458
(561) 427-6144
 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Michael D. Harris, Esq.
Brian S. Bernstein, Esq.
Harris Cramer LLP
3507 Kyoto Gardens Drive, Suite 320
Palm Beach Gardens, Florida 33410
(561) 478-7077
 
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  þ
  
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
 
 
 
 

 
 
CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered
 
Amount to be
Registered (1)
   
Proposed
Maximum
Offering Price
Per Share  (2)
   
Proposed
Maximum
Aggregate
Offering Price (2)
   
Amount of 
Registration Fee
 
Common stock, $0.001 par value per share
   
4,400,000
   
$
0.56
   
$
2,464,000
   
$
282.37
 
Total
   
4,400,000
   
$
0.56
   
$
2,464,000
   
$
282.37
 
 
(1)   The shares of our common stock being registered hereunder are being registered for sale by the selling shareholder named in the prospectus.  Under Rule 416 of the Securities Act of 1933, the shares being registered include such indeterminate number of shares of common stock as may be issuable with respect to the shares being registered in this registration statement as a result of any stock splits, stock dividends.
 
(2)  The proposed maximum offering price per share and the proposed maximum aggregate offering price have been estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 on the basis of the average of the bid and asked price of our common stock on the OTC Bulletin Board on December 30, 2011, a date within five business days prior to the date of the filing of this registration statement.

The registrant hereby amends this registration statement on such date or date(s) as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.
 


 
 

 
 
The information in this prospectus is not complete and may be changed.  These securities may not be sold until the registration statement filed with the Securities and Exchange Commission of which this prospectus is a part becomes effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
Subject to Completion, Dated January 6, 2012

GELTECH SOLUTIONS, INC.
 
PROSPECTUS
 
4,400,000 Shares of Common Stock

This prospectus relates to the sale of up to 4,400,000 shares of our common stock which may be offered by the selling shareholder, Lincoln Park Capital Fund, LLC.  The shares of common stock being offered by the selling shareholder are outstanding or issuable pursuant to the Lincoln Park Purchase Agreement.  See “The Lincoln Park Transaction” for a description of the Purchase Agreement.  Also, please refer to “Selling Shareholder” beginning on page 47.  Such registration does not mean that Lincoln Park will actually offer or sell any of these shares.  We will not receive any proceeds from the sales of the above shares of our common stock by the selling shareholder; however we will receive proceeds under the Purchase Agreement if we sell shares to the selling shareholder.

Our common stock trades on the Over-the-Counter Bulletin Board under the symbol “GLTC”.  As of the last trading day before the date of this prospectus, the closing price of our common stock was $0.__ per share.
 
The common stock offered in this prospectus involves a high degree of risk.  See “Risk Factors” beginning on page 4 of this prospectus to read about factors you should consider before buying shares of our common stock.
  
The selling shareholder is an “underwriter” within the meaning of the Securities Act of 1933.  The selling shareholder is offering these shares of common stock.  The selling shareholder may sell all or a portion of these shares from time to time in market transactions through any market on which our common stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale.  The selling shareholder will receive all proceeds from the sale of the common stock.  For additional information on the methods of sale, you should refer to the section entitled “Plan of Distribution.”
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
The date of this prospectus is ________________, 2012
 
 
 

 
 
TABLE OF CONTENTS
 
   
PAGE
 
PROSPECTUS SUMMARY
    1  
         
RISK FACTORS
    4  
         
FORWARD-LOOKING STATEMENTS
    12  
         
USE OF PROCEEDS
    12  
         
CAPITALIZATION
    12  
         
MARKET FOR COMMON STOCK
    13  
         
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    14  
         
BUSINESS
    21  
         
MANAGEMENT
    34  
         
EXECUTIVE COMPENSATION
    37  
         
PRINCIPAL SHAREHOLDERS
    42  
         
RELATED PERSON TRANSACTIONS
    43  
         
LINCOLN PARK TRANSACTION
    44  
         
SELLING SHAREHOLDER
    47  
         
DESCRIPTION OF SECURITIES
    48  
         
PLAN OF DISTRIBUTION
    49  
         
LEGAL MATTERS
    51  
         
EXPERTS 
    51  
         
ADDITIONAL INFORMATION
    51  
         
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    F-1  
 
You should rely only on information contained in this prospectus.  We have not authorized anyone to provide you with information that is different from that contained in this prospectus.  The selling shareholder is not offering to sell or seeking offers to buy shares of common stock in jurisdictions where offers and sales are not permitted.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.  We are responsible for updating this prospectus to ensure that all material information is included and will update this prospectus to the extent required by law.
 
 
i

 
 
PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.  You should read the entire prospectus carefully including the section entitled “Risk Factors” before making an investment decision.  GelTech Solutions, Inc., is referred to throughout this prospectus as “GelTech,” “we,” “our” or “us.”
 
Our Company
 
GelTech creates innovative, Earth-friendly, cost-effective products that help industry, agriculture, and the general public accomplish environmental and safety goals, such as water conservation and the protection of lives, homes, and property from fires.

GelTech Solutions, Inc. markets four products: (1) FireIce®, a water soluble fire retardant used to protect firefighters, structures and wildlands; (2) FireIce® Home Defense Unit for homeowner’s to protect their homes and property from advancing wildfires; (3) Soil2O™ ‘Dust Control’, our new application which is used for dust mitigation in the aggregate, road construction, mining, as well as, other industries that deal with daily dust control issues; and (4) Soil2O™, a product which reduces the use of water and is primarily marketed to golf courses and the agriculture market .
 
Management focuses its primary efforts on (i) FireIce® which received U.S. Forest Service, which we refer to as the “Forest Service”, approval in March 2011 and (ii) Soil2O™ ‘Dust Control’.  The Forest Service approval permits federal and state governments to use FireIce® fighting wildfires.  We have not received any government orders to date.  GelTech is expanding its efforts internationally with its recent approval to sell FireIce® in Australia and New Zealand.  Moreover, GelTech is in the process of entering into a distribution agreement with a new Chinese distributor.
 
Corporate Information

We are a Delaware corporation.  Our principal executive offices are located at 1460 Park Lane South, Suite 1, Jupiter, Florida 33458.  Our phone number is (561) 427-6144 and our website can be found at www.geltechsolutions.com.  The information on our website is not incorporated into this prospectus.
 
THE OFFERING

Common stock outstanding prior to the offering:
23,127,414 shares (1)
   
Common stock offered by the selling shareholder:
4,400,000 shares (2)
   
Common stock outstanding immediately following the offering:
27,210,747 shares
   
Use of proceeds:
We will not receive any proceeds from the sale of the shares of common stock.
   
Risk Factors:
See “Risk Factors” beginning on page 4 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.
   
Stock Symbol:
“GLTC”
 
(1)  Includes the 150,000 initial commitment shares and the 166,667 initial purchase shares.
 
(2)  Of the 4,400,000 shares of common stock being offered, only 316,667 shares are currently outstanding.
 
The number of shares of common stock to be outstanding prior to and after this offering excludes:

a total of 5,992,007 shares of common stock issuable upon the exercise of outstanding stock options;
a total of 3,742,007 shares of common stock reserved for future issuance under our 2007 Equity Incentive Plan, which we refer to as the “Plan”; and
a total of 4,995,258 shares of common stock issuable upon the exercise of warrants.
 
 
1

 
 
On September 1, 2010, GelTech and Lincoln Park Capital Fund, LLC, which we refer to as “Lincoln Park”, executed a purchase agreement and a registration rights Agreement, which we refer to as the “Prior Agreements”, whereby GelTech had the right to sell, at its sole discretion, to Lincoln Park up to $5,000,000 of our common stock, over a 30-month period. On January 3, 2012, the Prior Agreements were terminated by mutual agreement.  Under the Prior Agreements, we sold Lincoln Park 2,348,063 shares of common stock and received $3,358,866.

As of January 4, 2012, we executed a new purchase agreement, which we refer to as the “Purchase Agreement”, and a new registration rights agreement, which we refer to as the “Registration Rights Agreement”, with Lincoln Park.  Under the Purchase Agreement, Lincoln Park is obligated to purchase from us up to $5.0 million of our common stock, from time to time over a 30 month period.  Upon filing the Registration Statement which contains this prospectus, we received $100,000 from Lincoln Park as an initial purchase in exchange for 166,667 shares of our common stock.

Pursuant to the Registration Rights Agreement, we were required to file a registration statement that includes this prospectus with the Securities and Exchange Commission, which we refer to as the “SEC”, covering the shares that have been issued or may be issued to Lincoln Park under the Purchase Agreement.  We do not have the right to commence any additional sales of our shares to Lincoln Park until five days after the SEC has declared effective the registration statement of which this prospectus is a part.  Thereafter, over 30 months, we have the right, but not the obligation, to direct Lincoln Park to purchase up to an additional $4,900,000 of our common stock in amounts up to $30,000 as often as every two business days under certain conditions. We can also accelerate the amount of our common stock to be purchased under certain circumstances.  No sales of shares may occur at a purchase price below $0.35 per share.  The price of our stock as of January 3, 2012 was $0.64.  The purchase price of the shares will be based on the market prices of our shares at the time of sale as computed under the Purchase Agreement without any fixed discount.  We issued 150,000 shares of our stock to Lincoln Park as a commitment fee for entering into the Purchase Agreement and we are obligated to issue up to an additional 450,000 shares pro rata as Lincoln Park purchases up to $4,900,000 of our common stock as directed by us. For example, if we elect, at our sole discretion, to require Lincoln Park to purchase $50,000 of our stock then we would issue 4,592 shares of the pro rata commitment fee which is the product of $50,000 (the amount we have elected to sell) divided by $4,900,000 (the total amount remaining we can sell Lincoln Park under the Purchase Agreement multiplied by 450,000 (the total number of pro rata commitment shares).  The pro rata commitment shares will only be issued pursuant to this formula as and when we elect at our discretion to sell stock to Lincoln Park.   Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

Under each of the Purchase Agreement and the Registration Rights Agreement, we are required to register: (1) 316,667 shares which have already been issued, (2) an additional 450,000 shares which we are required to issue pro rata in the future as a commitment fee if and when we sell shares to Lincoln Park under the Purchase Agreement, and (3) 3,633,333 shares which we may sell from time to time in accordance with the Agreement to Lincoln Park five days after this registration statement is declared effective.  Although the Purchase Agreement provides that we may sell up to $5,000,000 of our common stock to Lincoln Park, we are only registering 4,400,000 shares to be purchased thereunder which includes 166,667 shares that have been issued for $100,000 and 600,000 commitment shares (of which 150,000 have already been issued), which may or may not cover all such shares purchased by Lincoln Park under the Purchase Agreement, depending on the purchase price per share.

Of the 4,400,000 shares offered under this prospectus:
 
·   
316,667 shares have already been issued
·   
an additional 450,000 shares which we are required to issue proportionally in the future, as a commitment fee, if and when we sell additional shares to Lincoln Park under the Purchase Agreement, and
·   
up to an additional 3,633,333 shares we may sell to Lincoln Park.

As of January 3, 2012, there were 23,127,414 shares outstanding (approximately 13.6 million shares held by non-affiliates), including 150,000 commitment shares already issued and 166,667 initial purchase shares.   If all of the 4,400,000 shares offered by Lincoln hereby (of which only 316,667 are currently outstanding) were issued and outstanding as of the date hereof, such shares would represent 16.2% of the total common stock outstanding or 24.9% of the non-affiliates shares outstanding, as adjusted, as of the date hereof.  The number of shares ultimately offered for sale by Lincoln Park is dependent upon the number of shares that we sell to Lincoln Park under the Purchase Agreement.
 
2

 
 
SUMMARY FINANCIAL DATA

The following summary of our financial data should be read in conjunction with, and is qualified in its entirety by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, appearing elsewhere in this prospectus.
 
Statements of Operations Data

    Three Months  Ended September 30, 2011 (Unaudited)    
Three Months Ended
September 30,
2010
(Unaudited)
   
Year Ended
June 30,
2011
   
Year Ended
 June 30,
 2010
 
Revenue
  $
178,402
   
$
28,557
   
$
221,804
   
$
566,240
 
                                 
Gross profit
  $
103,162
   
$
19,893
   
$
119,916
   
$
379,757
 
                                 
Net loss
  $
(1,462,546)
   
$
(997,147)
   
$
(6,026,641)
   
$
(3,536,884)
 
                                 
Net loss per common share – basic and diluted
  $
(0.07)
   
$
(0.06)
   
$
(0.32)
   
$
(0.24)
 
                                 
Weighted average common shares outstanding (basic and diluted)
   
22,128,048
   
 
16,672,034
   
 
18,637,833
   
 
15,018,756
 
  
Balance Sheet Data

   
September 30,
2011
(Unaudited)
   
September 30,
 2010
(Unaudited)
   
June 30,
2011
   
June 30,
2010
 
Cash and cash equivalents
 
$
736,373
   
$
189,763
   
$
1,956,976
   
$
625,796
 
  
                               
Working capital (deficit)
 
$
1,042,787
   
$
(1,862,726
)
 
$
2,076,982
   
$
(1,687,547
)
  
                               
Total assets
 
$
1,711,423
   
$
1,001,912
   
$
2,751,971
   
$
1,465,098
 
  
                               
Total current liabilities
 
$
428,810
   
$
2,635,193
   
$
449,536
   
$
2,579,514
 
  
                               
Accumulated deficit
 
$
(17,132,373
)
 
$
(10,640,333
)
 
$
(15,669,827
)
 
$
(9,643,186
)
  
                               
Total shareholders’ equity (deficit)
 
$
(214,870
)
 
$
(1,633,281
)
 
$
804,952
   
$
(1,114,416
)
 
 
3

 
 
RISK FACTORS
 
Investing in our common stock involves a high degree of risk.  You should carefully consider the following risk factors before deciding whether to invest in GelTech.  If any of the events discussed in the risk factors below occur, our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected.  In such case, the value and marketability of the common stock could decline.

Risk Factors Relating to Our Company

Our ability to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.

We incurred net losses of approximately $6 million in fiscal 2011 and $3.5 million in fiscal 2010.  These losses have continued for the year ending June 30, 2012.  We lost approximately $1.5 million for the quarter ended September 30, 2011 and expect that for the most recent quarter we will incur a similar net loss.  We anticipate these losses will continue for the foreseeable future.  We currently have a working capital deficiency and have not reached a profitable level of operations, all of which raise substantial doubt about our ability to continue as a going concern.  Our continued existence is dependent upon our achieving sufficient sales levels of our products including FireIce® and Soil2O™ ‘Dust Control’ and obtaining adequate financing.  

In January 2012, we signed a Purchase Agreement with Lincoln Park.  We may direct Lincoln Park to purchase up to an additional $4,900,000 of our common stock over a 30-month period assuming an effective registration statement.

The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and volume of trading and the extent to which we are able to secure working capital from other sources, such as through the sale of our products.  If obtaining sufficient funding from Lincoln Park does not occur or is prohibitively dilutive and if we are unable to sell enough of our products, we will need to secure another source of funding in order to satisfy our working capital needs.  Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects. 
 
If we do not raise additional debt or equity capital, we may not be able to remain operational.
 
We have negative working capital and borrowed approximately $90,000 from our management in December 2011. Additionally, we have $1,497,483 in long-term convertible debt held by our principal shareholder, which is due in February 2016.  Because we are not currently generating positive cash flow, we need to sell debt or equity securities whether from Lincoln Park or any other party.  If our stock price is below the $0.35 minimum price, we will be unable to sell shares to Lincoln Park to help support our operations.

Because of the lingering effects of the recession, the lack of available credit for companies like us and our stock price and trading volume, we may be hampered in our ability to raise the necessary working capital. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.  If we do not raise the necessary working capital and/or increase revenue, we will not be able to remain operational.
 
 
4

 

Because we have not generated material sales of FireIce® since it was launched over two years ago, there can be no assurances it will be accepted by potential customers.
 
We launched FireIce® in fiscal 2009 and although we have generated $1.1 million in sales, we have not yet achieved a consistent sustainable revenue stream. There are multiple factors, which may prevent us from successfully commercializing FireIce®, our fire suppression gel:

We need to convince potential customers, including federal and state governments, that FireIce® is superior to and less costly than competitive products.
 
In seeking to sell FireIce®, we face substantial competition and must deal with the natural reluctance of people to change.
 
Internationally, we are required to comply with local laws which may require certification of FireIce®, a local partner, local licenses and other matters which are barriers to our selling FireIce®.
  
We have a limited operating history on which to evaluate our potential for future success and to determine if we will be able to execute our business plan.  Therefore, it is difficult to evaluate our future prospects and the risk of success or failure of our business.

We were formed in 2006.  While we have conducted development and sales and marketing activities, we have not generated material revenue to date.  You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company.  These risks include:

our ability to effectively and efficiently market and distribute our products,
 
our ability to obtain market acceptance of our current products and future products that may be developed by us, and

our ability to sell our products at competitive prices which exceed our per unit costs.

We may not be able to address these risks and difficulties, which could materially and adversely affect our revenue, operating results and our ability to continue to operate our business.
 
Because GelTech has not yet generated material revenue to date, it may never result in the generation of material revenue or profitability.

Since our incorporation in 2006, our goal has been to generate revenue from the sale and development of our products including FireIce® and Soil2O™.  Our marketing of these products is subject to a number of risks, including:

In seeking to sell FireIce® to government agencies, we will encounter typical risks such as a reluctance to change, the impact of the recession on local government budgets and competition.
 
We have not proven that we have the ability to market and sell our products.
 
Although we have a pending U.S. patent application for the sprayable form of Soil2O™, we have no patent protection for the granular form and there are many products on the market which are advertised as performing similar functions to Soil2O™ granular;
 
If the pending patent application is not granted for the sprayable form of Soil2O™, we will face direct competition, which can erode any market share we may achieve and create pricing pressure; and

We cannot assure you that our marketing efforts will result in material sales or that if it does result in material sales, that such sales will necessarily translate into profitability.
 
 
5

 
 
Our growth strategy reflected in our business plan may not be achievable or may not result in profitability.

We may not be able to implement our growth strategy reflected in our business plan rapidly enough for us to achieve profitability.  Our growth strategy is dependent on a number of factors, including market acceptance of our fire suppression gel and our moisture preservation product.  We cannot assure you that our potential markets will purchase our products or that those parties will purchase our products at the cost and on the terms assumed in our business plan.
  
Among other things, implementation of our growth strategy would be adversely affected if:
 
we are not able to attract sufficient customers to the products we offer in light of the price and other terms required in order for us to attain the level of profitability that will enable us to continue to pursue our growth strategy;
 
adequate penetration of new markets at reasonable cost becomes impossible limiting the future demand for our products below the level assumed by our business plan;
 
we were forced to significantly adapt our business plan to meet changes in our markets; and
 
for any reason, we are not able to attract, hire, retain and motivate qualified personnel.
 
If we cannot manage our growth effectively, we may not become profitable.

Businesses, which grow rapidly often, have difficulty managing their growth.  If we grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support.  We cannot assure you that our management will be able to manage our growth effectively or successfully.  Our failure to meet these challenges could cause us to lose money, and your investment could be lost.

Among other things, implementation of our growth strategy would be adversely affected if we were not able to attract sufficient customers to the products we offer or plan to offer in light of the price and other terms required in order for us to attain the necessary profitability.
 
We may not be able to maintain and expand our business if we are not able to retain, hire and integrate key management and operating personnel.

Our success depends in large part on the continued services and efforts of key management personnel.  Competition for such employees is intense and the process of locating key personnel with the combination of skills and attributes required to execute our business strategies may be lengthy.  The loss of key personnel could have a material adverse impact on our ability to execute our business objectives.  We do not have any life insurance on the lives of any of our executive officers.

We could face potential difficulties in locating sufficient manufacturing sources if our products gain widespread commercial acceptance.

We have used third parties to manufacture our products on a limited basis.  If we are unable to produce our products in sufficient quantities at an acceptable cost, we may lose customers and our business could be harmed.  Our ability to expand production could also be hindered by the availability of materials used to manufacture our products or the availability of qualified personnel.  These difficulties could result in reduced quality of our products or reduced sales, which could damage our industry reputation and hurt our profitability.
 
 
6

 
 
Although we began marketing of Soil2O™ in 2007, we have not achieved material sales.
 
Although we began marketing and selling Soil2O™ as a product providing a solution to golf courses facing drought conditions in 2007, we have not generated material sales.  Initially, we entered into an exclusive distribution agreement with a third party for the States of Florida and Arizona.  We have terminated the exclusive nature of that agreement because of limited sales. We may not be able to sell Soil2O™ in volumes and at prices, which will be profitable to us. We have to expand our sales and distribution efforts to other states. Additionally, we must recruit distributors for agricultural usage of Soil2O™.  If we cannot expand our sales and distribution network, our future sales of Soil2O™ will be limited since our sales efforts have been aimed primarily at the agriculture industry in the Southeastern U.S.
 
Because we do not have a patent on Soil2O™ or its uses, if our competitors are able to reverse engineer our product, our ability to compete effectively may be harmed.

Currently, there are numerous companies that advertise moisture preservation products that appear similar to Soil2O™.  Because we lack any patent protection on Soil2O™ itself and have only a patent pending for the sprayable form, there is a substantial risk that one of these competitors could determine how to make the granular form of Soil2O™ and market it under their own brand name; thereby adversely affecting our ability to compete successfully.

A change in environmental regulations may adversely affect the use of FireIce® and Soil2O™ and may hinder our ability to generate revenue from this line of business.

While we believe that FireIce® and Soil2O™ (including Soil2O™ “Dust Control™”) are environmentally friendly, we may become subject to changing environmental regulations that could adversely affect the use of it.  If we do become subject to environmental regulations, the use of FireIce® and Soil2O™ may be limited as compared to other technologies which may be less expensive or more efficient.
 
FireIce® and Soil2O™ face substantial competition in the fire suppression and moisture preservation markets, respectively, and there is no guarantee potential customers will select our products over those of our competitors.

We face multiple competitors in the fire suppression and moisture preservation markets. In the fire suppression field, we compete against at least one well-established, publicly-traded company as well as several independently owned businesses. In the moisture preservation areas, we face competition from numerous independently owned businesses that have competing and in some case very similar products.  In addition, companies may be developing or may, in the future, engage in the development of products and/or technologies competitive with our products.  We expect that technological developments will occur and that competition is likely to intensify as new technologies are employed.
  
Many of our competitors are capable of developing or have developed and are capable of continuing to develop products based on similar or other technology, which are or may be competitive with our products and technologies.  At least one of our competitors in the fire suppression business has substantially greater financial and other resources, research and development capabilities and more experience in obtaining regulatory approvals, manufacturing and marketing than we do.  Because our competitors in the moisture preservation markets are private companies, we are unable to determine the amount of financial and other resources they have available.  However, some of these companies appear to have had much greater marketing experience than we have.  Potential customers may prefer the pricing terms or service offered by competitors.  Furthermore, competitors may have an advantage as a result of having existing business relationships with potential customers.
 
 
7

 
 
Because we are seeking to enter into contracts with federal and state governments, we will be subject to a number of risks, which could adversely affect our business.

We are seeking to sell our products, including FireIce®, to federal and state governments.  In selling to the government, we will be subject to a number of significant risks including:
 
Increasing state, local and federal budget deficits which can delay and impede our receipt of orders;
 
We may not be successful in selling our products to the government, although we will incur material costs as part of our sales efforts;
 
Government contracts often contain unfavorable termination provisions; and

We may be subject to audit and modification of agreements by the government in its sole discretion, which subjects us to additional risks.

The government can unilaterally:

suspend or prevent us for a set period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations;
 
terminate our existing contracts;

reduce the scope and value of our existing contracts;
 
audit and object to our contract-related costs and fees; and

change certain terms and conditions in our contracts.

Further, as part of any audit or review, the government may review the adequacy of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property, compensation and/or management information systems.  In addition, if an audit or review uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the government or any of its agencies.  We could also suffer serious harm to our reputation if allegations of impropriety were made against us. 
  
Even if we are able to successfully enter into contracts to supply federal and state governments with our products, there can be no assurances these contracts will be profitable.

The process of obtaining government contracts is lengthy and uncertain, and we must compete for each contract.  Similar to large corporations, government employees resist change and taking risks.  This can make it more difficult to obtain government contracts.  Moreover, the award of one government contract does not necessarily secure the award of future contracts.  Governments are subject to budgetary restrictions, which may limit their ability to buy our products.  These budgetary restrictions have been magnified by the current recession, which has resulted in material decreases in tax receipts.  Even if we are able to enter into a contract with a government, there is no guarantee we will be able to do so on terms, which will be profitable to us.
 
 
8

 
 
Because we are pursuing a strategy of seeking to commercialize our products internationally, we are subject to risks frequently associated with international operations, and we may sustain large losses if we cannot deal with these risks.

Because we are pursuing distribution channels internationally, we will be required to focus on unique local laws including required licenses, certifications or other requirements to use our products which may vary from country to country. If we are able to successfully develop international markets, we would be subject to a number of risks, including:
 
Certification of our products in each country;
 
Changes in laws or regulations resulting in more burdensome governmental controls, regulation of the markets in which our  products are used;
 
Political and economic instability;
 
Extended payment terms beyond those customarily offered in the United States;
 
Protecting and enforcing our intellectual property rights;
 
protectionist laws and business practices that favor local businesses in some countries;
 
higher costs associated with doing business internationally;
 
trade and tariff restrictions;
 
Difficulties in managing sales representatives and employees outside the United States; and
 
Potentially adverse tax consequences.
 
If we cannot manage these risks, we may sustain large losses.

If we are unable to protect our proprietary technology, our business could be harmed.

Our intellectual property including patents is our key asset. We currently expect to commercialize three U.S. patents and ten patent pendings. Competitors may be able to design around our patents and compete effectively with us.  The cost to prosecute infringements of our intellectual property or the cost to defend our products against patent infringement or other intellectual property litigation by others could be substantial.  We cannot assure you that:

pending and future patent applications will result in issued patents,
 
patents licensed by us will not be challenged by competitors,

the patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage,
 
if we are sued for patent infringement, we can raise the necessary capital to defend our patents, and

we will be successful in defending against future patent infringement claims asserted against our products.
 
 
9

 
 
 Risks Related to Our Common Stock

Because the market for our common stock is limited, persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by them.

Our common stock trades on the OTC Bulletin Board which we refer to as the “Bulletin Board,” which is not a liquid market.  There is currently only a limited public market for our common stock.  We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may decline.

Because we are subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock which adversely affects its liquidity and market price.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions.  The market price of our common stock on the Bulletin Board has been substantially less than $5.00 per share and therefore we are currently considered a “penny stock” according to SEC rules.  This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.  These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.

Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors to re-sell shares of penny stocks like GelTech.  This may have had and may continue to have a depressive effect upon the common stock price.

Due to factors beyond our control, our stock price may be volatile.
 
Any of the following factors could affect the market price of our common stock:
 
Sales by Lincoln Park,
   
our failure to generate revenue,
 
our failure to achieve and maintain profitability,
 
short selling activities,
 
the sale of a large amount of common stock by our shareholders including those who invested prior to commencement of trading,
 
actual or anticipated variations in our quarterly results of operations,
 
announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments,
 
the loss of major customers or product or component suppliers,
 
the loss of significant business relationships,
 
our failure to meet financial analysts’ performance expectations,
 
changes in earnings estimates and recommendations by financial analysts, or
 
changes in market valuations of similar companies.
 
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.  A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.
 
 
10

 
 
Because the majority of our outstanding shares are freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.

As of the date of this prospectus, we had outstanding approximately 23 million shares of common stock, of which our principal shareholder owns approximately 6.5 million shares and directors and executive officers own approximately 2.3 million shares, which are subject to the limitations of Rule 144 under the Securities Act of 1933, which we refer to as the "Act".  All of the remaining outstanding shares are freely tradable.

In general, Rule 144 provides that any non-affiliate of GelTech, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock freely, provided that GelTech stays current in its SEC filings.  After one year, a non-affiliate may sell without any restrictions.

An affiliate of GelTech may sell after six months with the following restrictions: (i) GelTech is current in its filings, (ii) certain manner of sale provisions, (iii) filing of Form 144, and (iv) volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed 1% of the total number of outstanding shares.  A person who has ceased to be an affiliate at least three months immediately preceding the sale and who has owned such shares of common stock for at least one year is entitled to sell the shares under Rule 144 without regard to any of the limitations described above.
 
The sale of our common stock to Lincoln Park may cause dilution and the sale of the shares by Lincoln Park could cause the price of our common stock to decline.

The number of shares ultimately offered for sale by Lincoln Park is dependent upon the number of shares purchased by Lincoln Park under the Purchase Agreement.  The purchase price for the common stock to be sold to Lincoln Park pursuant to the Purchase Agreement will fluctuate based on the price of our common stock. Depending upon market liquidity at the time, a sale of shares by Lincoln Park at any given time could cause the trading price of our common stock to decline.  After it has acquired such shares, Lincoln Park may sell all, some or none of such shares.  Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock.  The sale of a substantial number of shares of our common stock, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.  However, we have the right to control the timing and amount of any sales of our shares to Lincoln Park.

An investment in GelTech may be diluted in the future as a result of the issuance of additional securities or the exercise of options or warrants.

In order to raise additional capital to fund our strategic plan, we may issue additional shares of common stock or securities convertible, exchangeable or exercisable into common stock from time to time, which could result in substantial dilution to any person who purchases our common stock.  Because we have a negative net tangible book value, purchasers will suffer substantial dilution.  We cannot assure you that we will be successful in raising funds from the sale of common stock or other equity securities.
 
In the future, we may issue preferred stock without the approval of our shareholders, which could make it more difficult for a third party to acquire us and could depress our stock price.

Our Board may issue, without a vote of our shareholders, one or more series of preferred stock that have more than one vote per share.  This could permit our board of directors to issue preferred stock to investors who support us and our management and permit our management to retain control of our business.  Additionally, issuance of preferred stock could block an acquisition resulting in both a drop in our stock price and a decline in interest of our common stock.

Since we intend to retain any earnings for development of our business for the foreseeable future, you will likely not receive any dividends for the foreseeable future.

We have not and do not intend to pay any dividends in the foreseeable future, as we intend to retain any earnings for development and expansion of our business operations.  As a result, you will not receive any dividends on your investment for an indefinite period of time.
 
 
11

 
    
FORWARD-LOOKING STATEMENTS
 
This prospectus includes forward-looking statements including statements regarding our liquidity, anticipated capital expenditures, expected sales from our QPL Listing, anticipated sales of FireIce and Soil2O, and anticipated resumption of FireIce sales in China.

All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements.  The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements.  We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.  These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” elsewhere in this prospectus.
 
Other sections of this prospectus may include additional factors which could adversely affect our business and financial performance.  New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements.
 
USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by Lincoln Park.  We will not receive any proceeds upon the sale of shares by Lincoln Park, the selling shareholder.  However, we may receive proceeds up to an additional $4.9 million under the Purchase Agreement with Lincoln Park.  The proceeds from the Purchase Agreement will be used for working capital and general corporate purposes.    
 
CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2011.  The table should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus:
 
   
As of
September 30, 2011
 
Shareholders’ equity (deficit):
     
Common stock, $0.001 par value;
 
$
22,135
 
Additional paid-in capital
   
16,895,368
 
Accumulated deficit
   
(17,132,373
)
Total shareholders’ equity (deficit)
 
$
(214,870
)
 
 
12

 
 
MARKET FOR COMMON STOCK

Our common stock is quoted on the Bulletin Board under the symbol “GLTC”.  Our common stock last traded at $0.64 on January 3, 2012. The following table provides the high and low bid price information for our common stock for each quarterly period within the two most recent fiscal years as reported by the Bulletin Board.  The quotation reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
 
Quarter Ended
 
High
   
Low
 
December 31, 2011   $ 0.85     $ 0.55  
September 30, 2011
 
$
1.88
   
$
0.70
 
June 30, 2011
 
$
3.75
   
$
1.75
 
March 31, 2011
 
$
2.00
   
$
0.88
 
December 31, 2010
 
$
1.50
   
$
1.05
 
September 30, 2010
 
$
1.60
   
$
0.95
 
June 30, 2010
 
$
1.88
   
$
1.10
 
March 31, 2010
 
$
2.05
   
$
1.52
 
 
There are approximately 235 holders of record of our common stock.  We believe that additional beneficial owners of our common stock hold shares in street name.
 
Dividend Policy
 
We have not paid cash dividends on our common stock and do not plan to pay such dividends in the foreseeable future.  Our Board of Directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions. Dividends, under the Delaware General Corporation Law, may only be paid from our net profits or surplus. To date, we have not had a fiscal year with net profits and do not have surplus.
 
 
13

 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in this prospectus.

Overview

GelTech Solutions, Inc. markets four products: (1) FireIce®, a water soluble fire retardant used to protect firefighters, structures and wildlands; (2) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires; (3) Soil2O™ 'Dust Control’, our new application which is used for dust mitigation in the aggregate, road construction, mining, as well as, other industries that deal with daily dust control issues; and (4) Soil2O™, a product which reduces the use of water and is primarily marketed to golf courses and the agriculture market.  Our consolidated financial statements have been prepared on a going concern basis, and we need to generate sufficient material revenues to support the ongoing business of the Company.
 
In March 2011, the Company was notified by the Forest Service that its FireIce® product would be listed on the Forest Service’s Qualified Products List, which we refer to as the “QPL List.”  Inclusion on the QPL List qualifies our product for use to fight brush and wildfires on State and National Park lands. The testing process by the Forest Service began in September 2008 and included a battery of tests including tests for possible toxicity to the environment, decomposition and possible corrosion to land based firefighting equipment and firefighting aircraft. GelTech believes that this listing will lead to a substantial increase in the sales of FireIce® in the future. We have not sold any material amounts of FireIce® to the Forest Service or any state governments.
 
Results of Operations

The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein.
 
For the Three Months Ended September 30, 2011 compared to the Three Months Ended September 30, 2010.

Sales
 
For the three months ended September 30, 2011, we had sales of $178,402 as compared to sales of $28,557 for the three months ended September 30, 2010, an increase of $149,845 or 525%.  Sales of product during the three months ended September 30, 2011 consisted of $145,597 for Soil2O™ and $32,805 for FireIce® and related products.  Of the Soil2O™ sales, $141,367 related to the new dust control application and $4,230 related to traditional Soil2O™ applications.  FireIce® sales consisted of $25,598 product sales and $7,207 related to sales of HDU units.  We anticipate that sales of Soil2O™ "Dust Control" in the United States will continue to grow as we add new customers and receive new orders from existing customers while domestic sales of FireIce® will be more sporadic as they are currently primarily dependent on wildfire activity.  We anticipate a resumption of FireIce® sales to China in early 2012.
 
 
14

 
 
Cost of Goods Sold
 
Cost of goods sold was $75,240 for the three months ended September 30, 2011 as compared to a cost of goods sold of $8,664 for the three months ended September 30, 2010.  The increase was the direct result of the increase in sales.  Cost of sales as a percentage of sales was 42% for the three months ended September 30, 2011 as compared to 30% for the three months ended September 30, 2010.  The higher cost of sales percentage in fiscal 2012 relates to the sales mix and an increase in raw material costs.  Fiscal 2012 sales include sales of FireIce HDU units which have a lower gross profit percentage. There were no FireIce HDU units sales during the three months ended September 30, 2010.  We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the three months ended September 30, 2011.
 
Selling, General and Administrative Expenses
 
Selling, General and Administrative expenses were $1,503,206 for the three months ended September 30, 2011 as compared to $881,210 for the three months ended September 30, 2010. The increase in fiscal 2011 expenses resulted from  (1) an increase in non-cash stock option expense of $352,000 related to option grants to executive officers, employees and directors; (2) an increase in salaries and employee benefits of $207,000 related to the hiring of a full time CFO and salary increases for executive officers of $126,000 and the addition of five new staff members resulting in an increase of $81,000; (3) an increase in sales and marketing expense as we continue to build the FireIce® and Soil2O™  brands; (4) an increase in travel expenses of $38,000 related to our wildfire efforts in Texas and New Mexico, our dust control efforts in Arizona and a demonstration of FireIce® in Brazil, and (5) an increase of $29,000 in facilities costs with the addition of the storage facility and operations center in California.  These increases were partially offset by decreases in investor relations of $55,000 due to the cancellation of our investor relations agreement and the expiration of a 2009 investor relations contract and a decrease of $29,000 in professional fees which resulted from the transition of our CFO from consultant to full time employee and a reduction of legal fees from the prior year.  Legal fees for the three months ended September 30, 2010 include fees related to the registration statement filed in connection with the Lincoln Park Capital agreement.
 
Research and Development Expenses
 
R&D expenses were $42,249 for the three months ended September 30, 2011 as compared to $35,583 for the three months ended September 30, 2010. The fiscal 2012 expenses relate to research of potential product enhancements for FireIce® and testing of our Soil2O™ "Dust Control" product
 
Loss from Operations
 
Loss from operations was $1,442,293 for the three months ended September 30, 2011 as compared to $896,900 for the three months ended September 30, 2010. The increased loss resulted from the higher operating expenses which were partially offset by the higher gross profit resulting from the increase in sales.
 
Interest Income
 
Interest income was $406 for the three months ended September 30, 2011 as compared to $1,274 for the three months ended September 30, 2010.  The amounts are reflective of the cash balances on hand and the prevailing interest rates during the respective three month periods.
 
 
15

 
 
Loss on settlement
 
Loss on settlement of $1,500 during the three months ended September 30, 2011 resulted from a cash payment to resolve a minor misunderstanding with a prospective individual investor.
 
Interest Expense
 
Interest expense was $19,159 for the three months ended September 30, 2011 as compared to $101,521 for the three months ended September 30, 2010. The higher expense during the three months ended September 30, 2010 resulted from the amortization of the debt issuance costs related to the renewal of the line of credit agreement in May 2010 which was replaced by a five-year convertible note in February 2011. Amortization of these costs was $69,505 for the three months ended September 30, 2010.  In addition, interest expense related to accrued interest was lower during the three months ended September 30, 2011 due to the $1 million reduction of the outstanding debt amount in February 2011.
 
Net Loss
 
Net loss was $1,462,546 for the three months ended September 30, 2011 as compared to $997,147 for the three months ended September 30, 2010. The higher net loss resulted from the higher operating expenses which were partially offset by the higher gross profit resulting from the higher sales as described above.  Net loss per common share was $0.07 for the three months ended September 30, 2011 as compared to $0.06 for the three months ended September 30, 2010. The weighted average number of shares outstanding for the three months ended September 30, 2011 and 2010 were 22,128,048 and 16,672,024, respectively.
 
For the Fiscal Year Ended June 30, 2011 Compared to the Fiscal Year Ended June 30, 2010.
 
Sales
 
For the fiscal year ended June 30, 2011, we had sales of $221,804 as compared to sales of $566,240 for the fiscal year ended June 30, 2010. Sales in fiscal 2010 were higher because of two sales of Firelce® to our Chinese distributor amounting to $416,000. In January 2010, the Chinese government suspended further sales of Firelce® until the Beijing Fire Authority could conduct a quality control examination.  In connection with a distribution agreement with our former Chinese distributor, in January 2011, FireIce® was certified by the Beijing Fire Authority.  Because we have terminated that agreement, FireIce® is no longer certified.  We are currently in negotiations to enter into a new distribution agreement with a new Chinese distributor and anticipate FireIce® being recertified after this new agreement is executed. Sales during the fiscal year ended June 30, 2011 consisted of sales of FireIce® and Soil2O™ amounting to $160,200 and $61,604, respectively.  Sales in 2010 consisted of sales of FireIce® and Soil2O™ amounting to approximately $498,000 and $68,000, respectively.  We anticipate that our sales from both FireIce® and Soil2O™ will increase in fiscal 2012 as we begin our first full year on the QPL List and as our roll out of Soil2O™ “Dust Control” continues.
 
Cost of Goods Sold
 
For the fiscal year ended June 30, 2011, our costs of goods sold were $101,888 as compared to $186,483 for the fiscal year ended June 30, 2010. The change is consistent with the decrease in sales.  We expect that our cost of goods sold will follow the same trend as our revenues in fiscal 2012.
 
 
16

 
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $5,291,220 for the fiscal year ended June 30, 2011 as compared to $3,392,456 for the fiscal year ended June 30, 2010. This increase is reflective of increases in the following major expense categories:
 
Salaries and employee benefits - Salaries and employee benefits increased $186,000 in fiscal 2011 as we hired two individuals in California to establish a base of operations or our FireIce® and Soil2O™ products.  In addition, we added a product manager position for Soil2O™ at our corporate office.  We anticipate that salaries and employee benefit costs will increase in fiscal 2012 with the addition of a full-time CFO, a U.S. Forest Service liaison, an operations manager and an additional operations coordinator for FireIce® in California.
 
Sales and marketing expense - Sales and marketing expenses increased $371,000 as GelTech looked to continue to build the brands of both Soil2O™  and FireIce® and introduce the FireIce® Home Defense Unit (HDU) and Soil2O™ "Dust Control" products through a variety of media including Internet, print media, radio and television  advertising as well as an NHRA sponsorship.  We expect to reduce our sales and marketing costs in fiscal 2012 by focusing our resources on those media outlets that have been the most cost effective in achieving our marketing goals of building the brand and making our products visible to decision makers.
 
Non-cash compensation - Non-cash compensation expense increased $479,000 related to the vesting of new options granted to officers, employees and directors in fiscal 2011.  We do not anticipate a significant increase in non-cash expense in fiscal 2012.
 
Professional fees - Professional fees increased $481,000 related to the legal and accounting fees required to complete our registration statement filing as part of the agreement with Lincoln Park Capital and due to the issuance of options valued at $297,640 to professional service providers.  We expect that professional fees will decline in fiscal 2012 as our part time consulting CFO has become a full time employee, an expected reduction in legal fees and no additional option grants to professional service providers are anticipated.
 
Investor relations - Investor relation costs increased $273,000 resulting from the issuance of 125,000 shares of restricted common stock to our former investor relations firm and the vesting of options granted in 2009 to an investment banking firm.  It is anticipated that these costs will decrease in fiscal 2012 as we bring more of this function "in house".
 
Travel expense - Travel expense increased $163,000 related to numerous trips to establish our base of operations in California and the travel related to pursuing international opportunities in South America, Russia, China and Australia.
 
Research and Development Costs

Research and development costs for the fiscal year ended June 30, 2011 were $91,762¸ as compared to $19,541 during the fiscal year ended June 30, 2010. The higher amount in fiscal 2011 related to the development of our new FireIce® HDU and Soil2O™ "Dust Control" applications and the further refinement of the FireIce® eductor system.  We expect that these costs will continue at a relatively even level as we continue to explore new products and new applications of our existing products.
 
 
17

 
 
Other Income (Expense)

Net other expense for the fiscal year ended June 30, 2011 was $763,575 as compared to $504,644 for the fiscal year ended June 30, 2010.  The increase in net other expense included a loss on extinguishment of debt in the amount $267,390 related to the reduction in our line of credit and the conversion of the remaining balance into a five year convertible note and a $62,414 expense related to warrants granted to a warrant holder to induce the exercise of warrants which were "out of the money."  These increased costs were partially offset by a decrease in interest expense resulting from the reduction in the outstanding balance of the debt.  Interest expense is expected to remain fairly constant in fiscal 2012.

Net Loss
 
For the fiscal year ended June 30, 2011 our net loss was $6,026,641 as compared to $3,536,884 for the fiscal year ended June 30, 2010.  The increase in the net loss was the result of the  lower gross profit due to lower revenues, higher total operating expenses and  higher other expense as described above.  Net loss per common share was $0.32 for the fiscal year ended June 30, 2011 as compared to a net loss per common share of $0.24 for the fiscal year ended June 30, 2010.  The weighted average number of shares outstanding were 18,637,833 and 15,018,756 for the fiscal years ended June 30, 2011 and 2010, respectively.

Liquidity and Capital Resources

For the three months ended September 30, 2011, GelTech used net cash of $1,212,339 in operating activities as compared to net cash used in operating activities of $778,881 for the three months ended September 30, 2010.  Net cash used during the three months ended September 30, 2011 resulted primarily from the net loss of $1,462,546, a decrease in accrued liabilities of $96,253 and an increase in inventory of $186,402 which were partially offset by non-cash stock based compensation of $412,724, non-cash amortization of stock based prepaid consulting of $42,500, depreciation of $12,549 and an increase in accounts payable of $66,133.  For the three months ended September 30, 2010, we used net cash of $778,881 in operating activities resulting from a net loss of $997,147, a decrease in accrued expenses of $76,806 and an increase in inventory of $63,565 which were partially offset by stock option compensation expense of $60,782, amortization of debt issuance costs of $69,505 and stock based prepaid expenses of $69,426 and an increase in accounts payable of $135,865.

Cash flows used in investing activities for the three months ended September 30, 2011 amounted to $26,922 as compared to $1,771 for the three months ended September 30, 2010.  This related to purchases of equipment used with our mobile mixing truck and additional computer and office equipment for the corporate office.

Cash flows from financing activities for the three months ended September 30, 2011 were $18,658 as compared to $344,619 for the three months ended September 30, 2010. During the three months ended September 30, 2011, the Company received $30,000 from the exercise of options to purchase 30,000 shares of common stock at an exercise price of $1.00 per share by a director and repaid $11,342 of insurance premium financing.   During the three months ended September 30, 2010, we received $352,000 from the sale of common stock and warrants in private placements, net of commissions paid. These proceeds were used for working capital and to repay $7,381 of insurance premium financing.

For the fiscal year ended June 30, 2011, we used net cash of $3,636,213 in operating activities as compared to $2,568,345 for the fiscal year ended June 30, 2010.  The increase in cash used from operations was primarily the result of an increase in the net loss of $2.5 million for the reasons identified above which were partially offset by an increase in stock option compensation expense of $523,025, an increase in stock options issued for non-employee services of $322,850, an increase in common stock issued for services of $103,001, a loss on extinguishment of debt of $267,390 and the $62,414 cost of warrants issued to a warrant holder to induce the exercise of "out of the money" warrants.  
 
 
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Cash flows used in investing activities for the fiscal year ended June 30, 2011 amounted to $205,077 which consisted of the purchase of a mobile mixing truck and helicopter dip tanks to enable FireIce® to be used to mix FireIce® for use on brush and wildfire applications. This vehicle is a mobile mixing truck containing a 3,000 gallon tank which will enable GelTech to work directly on the fire lines supplying the United States Forest Service or any other fire control agency up to 250,000 gallons of FireIce® per day.  In addition, GelTech purchased two support vehicles for the FireIce® application and one demonstration vehicle with a customized spraying unit for the Soil2O™ "Dust Control" application.  Cash flows used in investing activities for the fiscal year ended June 30, 2010 amounted to $7,563 and related to purchases of computer equipment for the corporate office.  
 
Cash flows provided by financing activities for the fiscal year ended June 30, 2011 were $5,172,470 as compared to $2,956,323 for the fiscal year ended June 30, 2010.  During the fiscal year ended June 30, 2011, GelTech received $3,348,866 from the sale of stock and warrants to Lincoln Park Capital, $1,353,220 from the sale of common stock and warrants to accredited investors in private placement transactions, $379,129 from the exercise of warrants for cash and $122,000 from the exercise of options for cash. These proceeds were used for working capital, capital expenditures for equipment and vehicles and to repay $30,745 of insurance financing.  During the fiscal year ended June 30, 2010, we received $2,090,000 from the sale of common stock and warrants in private placements, net of commissions paid, received $908,156 from advances on our line of credit (See "Certain Relationships and Related Person Transactions" for a description of this line of credit) and received $58,350 from the exercise of stock options for cash.  These proceeds were used for working capital and to repay $32,028 of insurance premium financing.
 
As of January 4, 2012, we had $205,000 in available cash which includes $100,000 Lincoln Park is paying us when we file the initial Registration Statement.  We also have negative working capital. Although we do not anticipate the need to purchase any additional material capital assets in order to carry out our business, it may be necessary for us to purchase additional mobile mixing trucks and support vehicles in the future, depending on demand.

GelTech believes that its working capital needs of $2.5 - $3.5 million will be met over the next eight to 12 months via a combination of sales of stock through Lincoln Park, through private investments resulting from GelTech’s contacts with institutional and private investors or through additional debt financing. In December 2011, we reduced the exercise price of our outstanding warrants to $0.50 per share through January 15, 2012.  To date, one of our directors, Phil O’Connell, Jr., exercised 130,000 warrants paying us $65,000. There is no guarantee that such fund raising efforts will be successful.  If we are unable to generate substantial cash flows from financings in the short-term and perhaps longer and from product sales, we will not be able to remain operational.
 
We cannot predict when the SEC will declare this registration statement effective.  Any delays in the effective date and failure of our stock price and trading volume to increase will impact our ability to meet our working capital needs through Lincoln Park.
 
Related Person Transactions
 
We recently borrowed approximately $90,000 from our management consisting of approximately $40,000 in demand loans and $50,000 due in February 2012. For other information on related party transactions and their financial impact, see Note 6 to the Unaudited Condensed Consolidated Financial Statements.
  
 
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Principal Accounting Estimates
 
In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has selected its most subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the Company’s financial condition. The accounting estimates are discussed below. This estimate involves certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition.
 
Revenue Recognition
 
Under ASC 605-15-25 we recognize sales of our products when each of the following has occurred:
 
The price of the product sold is fixed or determinable and evidence of an agreement is present
 
-
The title and risk of loss of the product has passed to the buyer and the sale is not contingent upon the buyer being able to resell the product.
 
-
We have a reasonable expectation that the buyer has the intent and the ability to pay for the product ordered.
 
We have no future obligation to the seller related to the product sold.
 
Stock-Based Compensation
 
Under ASC 718-10 which was effective as of January 1, 2006, we recognize an expense for the fair value of our outstanding stock options as they vest, whether held by employees or others.
 
We estimate the fair value of each stock option and warrant at the grant date using the Black-Scholes option pricing model based upon certain assumptions which are contained in Note 1 to the year-ended June 30, 2011 and 2010 consolidated financial statements contained herein. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because our stock options and warrants have characteristics different from those of traded options, and because changes in the subjective input of assumptions can materially affect the fair value estimate, in our management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of such stock options.
 
New Accounting Pronouncements

See Note 1 to our consolidated financial statements for the year ended June 30, 2011 included herein for discussion of recent accounting pronouncements.


 
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BUSINESS

GelTech Solutions, Inc. is a Delaware corporation organized in 2006.  Our current business model is focused on the following environmentally friendly products:
 
FireIce® – a fire suppression product,
  
Soil2O™ – “Dust Control” - a dust control product we introduced in fiscal 2011, which substantially reduces water usage,
 
Soil2O™  -  a line of agricultural moisture retention products, and
 
FireIce® Home Defense Unit – a product for homeowner's to protect their homes and property from advancing wildfires.
 
Gel Tech also has other products which it is not currently focusing on commercializing. They are:
 
SkinArmor™ – an ointment used for protecting skin from direct flame and high temperatures,

IceWear™ – a garment line to assist in cooling body temperature, and
 
WeatherTech Innovations® – our hurricane suppression project.
 

 
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FireIce®
 
Industry Overview
 
The fire suppression systems market is estimated to reach $1.6 billion a year by 2014 according to a 2009 Global Industry Analysts report. According to an article published by the Building and Fire Research Laboratory of the National Institute of Standards and Technology, as early as 1994, the lack of availability of halon fire suppressants sparked worldwide efforts in developing alternative firefighting agents and delivery systems.  Continuing the trend, on November 12, 2010, at the Twenty-Second Meeting of the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer, the United Nations Environment Programme adopted a resolution urging States to intensify development of acceptable halon alternatives for fire extinguishing systems used in aircraft and hand-held fire extinguishers.
 
Our fire suppression business has two marketing thrusts:
 
suppression of structural and other fires within cities and towns, and
 
suppression of wildland fires such as forest fires managed by federal and state governments.
 
According to the National Fire Protection Association, in 2009 there were 1,348,500 fires in the United States that caused approximately $12.5 billion in damages. In 2010, there were 26,748 structural fires in New York City alone. The New York City Fire Department, which we believe is the largest fire department in the world, has an operating budget for fiscal year 2011 of $1.6 billion. In a 2009 report by Headwaters Economics, local and federal agencies currently spend approximately $3 billion annually on the suppression of forest fires. For fiscal year 2011, Congress appropriated nearly $384 million to the Forest Service Wildland Fire Management Account for the suppression of wildfires.  In addition, the Department of Homeland Security, which we refer to as Homeland Security, through their Assistance to Firefighters Grant has distributed funds to allow firefighting departments to purchase critical firefighting gear equipment and other fire suppression necessities. According to Homeland Security’s website, Homeland Security awarded approximately $405 million under the Assistance to Firefighters Grant for fiscal year 2011.
 
The Product
 
FireIce® is the registered trade name of our fire suppression product. FireIce® is a dry powder that when added to water in very low concentrations (0.1 to 1.2 percent by weight), rapidly absorbs water to produce a gel whose consistency depends on the selected concentration. The dry powder is self-dispersing in many applications, or can be easily mixed with water. Within seconds of being mixed with water, FireIce® is ready to use and turns into a fire preventing, heat absorbing and fire suppressing gel. In many applications the gel forms a cohesive layer which acts as a vapor barrier and prolongs the effectiveness of the water. Due to the gel layer created by FireIce® on burning and adjacent objects, FireIce® also has the ability to suffocate a fire.
 
FireIce® has the following properties. We believe it:
 
is non-toxic,
 
is environmentally safe,
 
is non-corrosive to metals,
 
mixes easily with water,
  
will not clog or stick in spraying devices,
 
reduces the threat of a fire rekindling,
 
extinguishes fires more rapidly than traditional methods, and
 
saves customers cost on freight when compared to competitors.
 
 
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Uses
 
There are many existing and potential uses for FireIce®. We believe it can be an extremely valuable tool for firefighters because:
 
When mixed with water, it can be dispersed and applied by all types of application equipment used in direct fire suppression, such as pressurized water extinguishers, pumper trucks, aircraft, backpack extinguishers, or even hand held spray bottles.
 
Firefighters can apply FireIce® directly to buildings and other structures exposed to an advancing fire.
 
FireIce® can also be rapidly sprayed on foliage to prevent the spread of fires.
 
FireIce® absorbs many times its own weight in water and forms a gel producing increased droplet sizes that reduce drift and evaporation when dropped aerially.
 
According to the National Interagency Fire Center, drought conditions in the U.S. were so severe for the first five months of 2011 that nearly every state had experienced a wildfire, and by June, about 3.2 million acres of land had been burned by wildfires compared to a total of 3.4 million acres burned by wildfires for the entire year of 2010.  Furthermore, in April 2011, the State of Texas burned from border to border as wildfires consumed more than two million acres in every region of the state.  In September 2011, Texas was ravaged by wildfires destroying over 550 residencies and structures.  In June 2011, Arizona sustained major wildfires which caused an estimated $109 million in damages.   

Fires are not only a major problem in the United States. In August 2010, Russia suffered immense forest fires causing more than 60 casualties, destroying one third of all crops, and resulting in a nationwide ban on grain exports by the world’s third largest wheat producer.  The total damages were estimated to be up to $15 billion to the Russian economy (or one percent of Russia’s Gross Domestic Product). In June 2011, more than 400 wildfires ignited in Siberia and raised fears that Russia may face damages similar to the wildfires of 2010.  Furthermore, from June 2011 through September 2011, more than 700,000 hectares of Siberia and Russia’s Far East territories had been burnt by wildfires, which is more than triple the area burned during the summer of 2010. In December 2010, a mammoth fire in Mount Carmel, Israel became one of the worst natural disasters in the country’s history.  Over 40 people died, 17,000 individuals were forced to evacuate, and nearly six months later, the government appropriated over $54 million for the restoration and rehabilitation of the city and the Carmel Forest.
 
FireIce® can play a major role in putting out and containing wildland fires, including forest fires, by being sprayed from airplanes directly over such fires, including in areas too dangerous for ground-based firefighters to enter. FireIce® can also be sprayed from tanker trucks on the edges of these fires.
 
FireIce® also has a number of potential retail and consumer uses:
 
It can be sprayed out of fire extinguishers.
 
It can be used in a spray bottle by professionals, such as welders, who work with blowtorches.
 
 
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Sales and Marketing

After we received independent third party laboratory certification (UL-711 2-A; UL-711 40-A, and a Custom Rubber and Tire Fire Listing), we began marketing FireIce® initially to local fire departments and local government officials. None of our competitors have these UL-711 certifications. Accordingly, we have the only gel that can be sold to fire departments for application directly on fires. Competitive gels can be applied to structures which are not burning as a retardant but not as a fire suppressant.

We began sales of Soil2O™ “Dust Control” in Southern California in December 2010 and have three full-time employees responsible for selling the product.  During fiscal 2011, Soil2O™ “Dust Control” accounted for 12% of our revenue, and for the quarter ended September 30, 2011 it accounted for 76% of our revenue. During the quarter ended December 31, 2011, sales of Soil2O™ “Dust Control” amounted to 4% of revenues.
 
We market and sell FireIce® through fire equipment distributors, online and direct marketing, and attendance at fire industry national trade shows as well as through our team of four people who call on potential customers and respond to inquiries.
 
Because of the wildfires which threaten the United States each year, we understand the potential for FireIce® and the tremendous marketplace for Aerial firefighting in conjunction with the Forest Service. In March 2011, GelTech was notified by the Forest Service that FireIce® would be listed on the QPL List.  Inclusion on the QPL List qualifies our product for use to fight brush and wildfires on State and National Park lands.  GelTech anticipates that this listing will lead to a substantial increase in the sales of FireIce® in the future, although it has not occurred to date. 
 
We have developed a Home Defense Unit which we launched in October 2010.   To date, the sales of the Home Defense Unit have not been material. Initially, the Home Defense Unit is available for sale on our website and through distributors. We expect to support the Home Defense Unit by continuing to market it in California and in other states where homes are threatened by wildfires. These efforts may include local advertising where appropriate and recruiting local distributors.  

The Home Defense Unit is sold in three versions (i) an industrial version which includes a pressure cleaner, a patented wand assembly and FireIce® powder; (ii) a smaller version for homeowners which consists of a smaller pressure cleaner, a patented wand assembly and FireIce® powder; and (iii) the patented wand assembly and FireIce® powder for those homeowners who have pressure cleaners.
 
International Sales
 
In addition to domestic sales, we have also concentrated on expanding market share internationally. We believe the international market presents us with an important opportunity. We recently obtained approval to sell FireIce® in Australia and New Zealand.  In order to seek to penetrate this market, we entered into a Distribution Agreement with a large Dutch company specializing in the distribution of specialty chemicals and other products internationally.

We are seeking to open distribution channels for FireIce® in China, South America, some select European countries and Russia. FireIce® is a product designated for ‘public safety’ and consequently, must receive certification and approvals before it may be used in each country.  After 18 months and a visit from auditors from Russia, FireIce® has been approved for usage in fire apparatus as well as for large scale wildfires. We are currently preparing packaging according to Russian specifications. We are hopeful to begin shipping in the quarter beginning January 1, 2012.  
 
Our efforts in China continue to move forward. The size of the marketplace is very large and our efforts to bring other resources to enhance the distribution have taken time to bring together.  We are negotiating a letter of intent with our Chinese distributor; the new arrangement would allow GelTech to have more input and direction in the sales and marketing.  Initially, GelTech sought to have the proposed new distributor and our former distributor act together, which would have accelerated the ability to execute a contract.  The new arrangement could not be agreed upon by the Chinese companies.  The proposed new Chinese distributor has received the proper approvals to sell FireIce®.  GelTech is in the process of filing a “trademark cancellation” against our former distributor for misappropriating the use of the FireIce® trademark. When this trademark infringement is resolved, we will be able to finalize an agreement with the proposed new Chinese distributor.  We cannot predict how long it will take to resolve the trademark matter.
 
In our international sales program, we will require payment in advance of shipment through irrevocable letters of credit. We will also require payment in United States dollars to eliminate the risk of currency fluctuation.
 
 
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Raw Materials and Suppliers
 
The raw materials for FireIce® are in abundant supply. The base ingredients of FireIce® are manufactured for us by two third parties. However, there are also several other companies that are able to manufacture the base ingredients. FireIce® becomes a gel when mixed in water. 
    
Competition
 
The fire suppression market is highly competitive. However, we believe we will be able to compete effectively because:
 
FireIce® should provide superior benefits over other fire suppressants.
 
The price per gallon of FireIce® is significantly less than our competitors’ products.
 
The effectiveness of FireIce® to extinguish rapidly and stop rekindling, allows fire departments to put out fires faster which helps to save manpower and unnecessary overtime costs associated with spending extra time on a fire scene.
 
Once a fire has been extinguished, any dispensing system used to apply FireIce® can be simply cleaned with water from a garden hose.
 
FireIce® is the only gel that currently can be applied to fires as a suppressant.
 
FireIce® is different from foam. Foam consists of air bubbles in water and a small amount of surfactant. When the bubbles burst, the foam collapses. When mixed with FireIce®, water is held by a three-dimensional network of cross-linked polymers. When FireIce® is applied to the fire, the water evaporates and the liquid collapses, sapping the fire of not only heat but oxygen as well. It takes longer for water to evaporate from our polymer than for air bubbles to burst. We believe this is how FireIce® provides a more efficient protection that lasts longer than foam.
 
In the wildfire market with sales to federal and state governments, the market leader is Phos Chek.  Phos Chek has been in the forestry marketplace for over 50 years selling their long-term retardant.  They do have a strong infrastructure and long standing relationships with customers.  Nonetheless, we believe that the combination of our superior product and pricing will eventually overcome the competitive barriers. Phos Chek is a long-term retardant.  FireIce® is used in “direct attack” and, long-term retardant is used in “indirect attack”.  Direct attack is when the product is dumped directly on the fire. Indirect attack is when the product is used to create a fire break in front of the fire. Long-term retardant takes time to dry and cure in order to create its fire break.  FireIce® is ready immediately to be used on fires.

One of our largest competitors is Tyco Fire & Security, a major business segment of publicly-traded Tyco International Ltd. (NYSE: TYC). Tyco Fire & Security produces ANSUL®, a premium brand of special hazard fire protection products including fire extinguishers and hand line units, pre-engineered restaurant, vehicle, and industrial systems; sophisticated fire detection/suppression systems and a complete line of dry chemical, foam, and gaseous extinguishing agents. Tyco Fire & Security is a very well-funded company and has significantly more financial, marketing and sales resources than us. In our marketplace Tyco’s main sales thrust is Class A foam. Firefighting foam is a 30+ year old technology; we feel the benefits and performance of FireIce® will eventually lead to fire departments replacing foam with FireIce®. They also have a very extensive distributor list and have a significant share of the market that we are attempting to enter.
 
 
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Another competitor is U.S. Foam Technologies, a manufacturer and distributor of environmentally friendly firefighting foams. It is a small company whose main marketing thrust is to attract customers to its website through the use of the Google “adwords” program. It also markets its foams at the national firefighting conventions. Since we eventually intend to market FireIce® throughout the entire United States, and because U.S. Foam Technologies’ main focus appears to be the Midwest, we do not believe it will be a competitive threat in the near future.
 
National Foam, part of the Kidde Fire Fighting organization, is a manufacturer of foam concentrate, foam proportioning systems, fixed and portable foam firefighting equipment, monitors, nozzles and specialized big flow pumping solutions. National Foam has historically been at the forefront of foam fire fighting and fire control technology and is the acknowledged world leader in providing foam based solutions. Other brands associated with National Foam include: Feecon, offering airport crash rescue and general mobile firefighting equipment and Wirt Knox, offering a range of hose racks, reels, carts and general hose storage accessories. National Foam has significant financial resources and is part of a large fire fighting company conglomerate. Thus, it has significantly more financial, marketing and sales resources than we do.
 
Barricade International, Inc. is a small company that is also marketing a liquid fire retardant gel which has been approved by the Forest Service. However, their product is an emulsion gel, which comes in a liquid form and is made from completely different materials than FireIce®.

Thermo-Gel® provides the fire fighting industry with a product that can be used for structure protection, exposure protection, defensible perimeters and wet lines. This product consists of superabsorbent polymers-polyacrylamide and sodium polyacrylate, mineral oil, and surfactants, and is supplied as a liquid concentrate which is mixed in an eductor. It does require special expensive equipment to use. Thermo-Gel® is used in fighting active fires, wildland fires, prescribed burns, aviation applications, and in the protection of all types of structures from homes to commercial and industrial investments. This product has been approved by the Forest Service.

We do not believe it is any real competitive threat to our FireIce® because:
 
Its gel is significantly more expensive per gallon mixed than ours.
 
Even though the gel is designed to protect homes and structures, it is not designed to directly protect firefighters and other first responders as FireIce® is capable of doing.
 
Unlike FireIce®, Thermo-Gel® only works with the device it manufactures and that must be purchased from Barricade.
 
Thermo-Gel®’s mixture has to be shaken every 30 to 60 days or it hardens and becomes unusable.
 
Unlike FireIce®, its product is not allowed to be put into any type of firefighter equipment or pumper trucks. It hardens in a short time period, which is not conducive to the intricate pieces of firefighting equipment. Thermo-Gel® claims that in a worst case scenario objects coated with their gel may have to be cleaned with a special chemical cleaner and pressure washed.
 
Thermo-Gel® is an emulsion gel, which means it is already a liquid. It must be sprayed ahead of time and allowed to cure and turn into a hardened substance with a Styrofoam type of feel.
 
Unlike Thermo-Gel®’s product, FireIce® will not affect the paint on the structure.
 
 
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Seasonality
 
There is no real seasonality to structural fires. These occur throughout the year. In wildland fires, FireIce® use will be more likely during the warmer, drier summer months when forest and other wildland fires are more prevalent. However, in Southern California wildland fires occur year round and are most damaging in September and October.

Soil2O ‘Dust Control’
 
Industry Overview

Dust control is vital to several industries including agriculture, construction, mining and transportation.  In response to the level of dust emissions from agricultural, mining and other industries, the Environmental Protection Agency, which we refer to as the “EPA”, is proposing to amend its National Ambient Air Quality Standards so that the amount of allowable dust released in the air will be reduced by half.  According to the EPA’s website, dust accounts for over 25% of particle matter smaller than 2.5 micrometers in diameter, which are the major cause of reduced visibility or haze in parts of the U.S., and it accounts for over 78% of particle matter smaller than 10 micrometers in diameter, which causes respiratory related health issues.  Dust also causes environmental damage such as acid rain, increased acidity in lakes and streams, depletion of nutrients in the soil and damage to sensitive forests and farm crops.  In terms of agriculture, a report issued by the Mississippi River Collaborative in April 2011, states that the annual cost of soil erosion in agriculture to U.S. taxpayers is estimated to be between $60 and $100 billion.  In 2010, the U.S. Department of Agriculture, which we refer to as the “USDA”, released data showing soil erosion in Iowa fields at a rate of 5.2 tons per acre per year.  However, an eight-year study conducted by a non-profit organization known as the Environmental Working Group suggests that the actual rate may be as high as 64 tons per acre per year.  In terms of mining, the 2009 Minerals Yearbook released by the U.S. Geological Survey, a bureau of the U.S. Department of the Interior, reported that over 4,000 of the 11,000 mines in the U.S. are specifically stone mines which release large amounts of dust in the atmosphere.
 
The Product

GelTech recently launched Soil2O™ ‘Dust Control’ using its environmentally friendly Soil2O™ product.  ‘Dust Control’ is useful in a variety of commercial and industrial markets with dust control and moisture retention problems including road construction sites, rock pits, unpaved roadways, landfills and coal piles.  In contrast to the standard product used on gravel roads and rock pits and other dust causing surfaces, Soil2O™ ‘Dust Control’ is environmentally friendly and requires significantly less water.  Water is commonly transported to the site in large trucks.  Thus, ‘Dust Control’ reduces a company’s carbon footprint.  Additionally, ‘Dust Control’ reduces labor, water and fuel costs and reduces the wear and tear on equipment. 
 
 
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Uses
 
Soil2O ™ ‘Dust Control’ may be used in a variety of ways to control dust in multiple industries, including the following:

·
Soil2O™ ‘Dust Control’ can be sprayed on mining, rock quarry or landfill haul roads to eliminate dust from constant traffic

·
Soil2O™ ‘Dust Control’ can be sprayed on quarry conveyor belts to reduce airborne dust

·
Soil2O™ ‘Dust Control’ can be sprayed on coal ash beds to reduce  airborne dust at coal fired power plants
 
 Benefits
 
Soil2O™ ‘Dust Control’ is beneficial because it will reduce the number of times companies will need to spray haul roads, thus reducing water usage, fuel, maintenance and labor costs.  In addition, the product is non-toxic and environmentally friendly and can be integrated into the reclamation process for mining companies, instead of being a product that needs to be cleaned up.

Sales and Marketing
 
We began sales of Soil2O™ “Dust Control” in Southern California in December 2010 and have three full-time employees responsible for selling the product.  During fiscal 2011, Soil2O™ “Dust Control” accounted for 12% of our sales, and for the quarter ended September 30, 2011 it accounted for 76% of our sales and will account for 4% of sales for the quarter ended December 31, 2011. We are currently marketing Soil2O™ “Dust Control” in California, Arizona, Texas, Alabama, Florida, Pennsylvania and New Jersey. We are currently working with aggregate pits and quarries, gold mines, large scale construction companies, cement manufacturers, dairy farms and government facilities. Sales in Soil2O™ “Dust Control” have fallen due to the rainy season and due to deferrals of new purchases until the beginning of 2012.
 
Competition

There are a few niche dust control products in the marketplace. The main and most widely used product is Magnesium Chloride or MagChloride. MagChloride has a hygroscopic quality which has the ability to absorb moisture from the air, controlling the number of small particles which become airborne. MagChloride still needs many laps with a water truck to keep it hydrated and working. After just a few applications our “Dust Control” product offering helps to limit the times a water truck is needed, saving fuel, labor costs, and thousands of gallons of water per day.
 
 
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Soil2O™ - Agricultural Application

Industry Overview
 
Irrigation in all forms costs billions of dollars a year. According to the USDA Farm and Ranch Irrigation Survey, in 2008 farmers spent $4.8 billion on irrigation equipment, facilities, land improvements, and energy to power irrigation pumps. According to the World Bank’s website, agricultural water management is a vital practice in ensuring food security, poverty reduction, and environmental protection. For this reason, the total value of all loans currently held by the World Bank for irrigation and drainage is $3.7 billion. After decades of successfully expanding irrigation and improving productivity, farmers and managers face an emerging crisis in the form of poorly performing irrigation schemes, slow modernization, declining investment, constrained water availability, and environmental degradation. Furthermore, with irrigation costs running into the hundreds of thousands of dollars per golf course, an article in the April 2010 edition of The Golf Course Trades discussed the growing need for golf superintendents to invest in new products and services designed to improve efficiency, conservation and ease of operations.
 
Drought conditions currently exist in many parts of the U.S. These drought conditions are causing crop shortages as farmers have insufficient water for their crops which is reducing their yield. Additionally, the drought is causing an increase in forest fires in some areas.
 
The Product
 
Soil2O™’s main ingredient is a potassium based co-polymer. Versions of this product have been used in the agricultural industry for many years. Soil2O™ can absorb hundreds of times its weight in water. Water is rapidly drawn into a polymer network where it is stored. As the soil dries out, the polymer releases up to 95% of the water it has absorbed back into the soil. Therefore, the water becomes available when the plants need it most. Soil2O™ is available in different particle sizes — the finer the size of the particle, the greater its absorption capacity and speed.
 
We are marketing two distinct versions of Soil2O™, a sprayable version and a granular one. The sprayable version is a fine particle blend that is for use on existing grass and can be applied using any type of spray rig or backpack sprayer. The granular product has been formulated to be tilled into the top four to six inches of the soil to assist in replacing and replanting of grass, including sodding and seeding, and is also recommended to be used during the planting of trees, shrubs, and annuals. The granular version is appropriate for planting situations in which the grass is not already established. We are now selling both versions to our distributors which are marketing the products to the agricultural and other markets.
 
Soil2O™ degrades naturally in the soil. Sunlight and salinity exposure makes it break down faster. The Soil2O™ sprayable version is used as a top dressing and sprayed onto already established turf and grasses.  Our formulation provides a specifically formulated particle size which, with irrigation, gets down to the roots to supply turf and grasses with water and nutrients. Since the sprayable particle size is very small and not as protected from the ultraviolet light given off by the sun as the granular form, it is broken down much more rapidly than the granular form. The granular form of Soil2O™ is tilled directly into the soil and will last for three to five years without having to be reapplied. The market for the granular product is newly-designed golf courses as well as courses doing replanting as part of their continual golf course maintenance. Although granular form re-orders for large scale use may be limited due to its long duration in soil, we expect it to be used in both industrial and retail markets for the planting of landscaping which always has constant turnover due to landscaping re-design, re-planting and young tree mortality rates.
 
 
29

 
 
Uses
 
Soil2O™ has multiple potential uses in the agricultural market:
 
Soil2O™ products are specially designed for use as a soil conditioner for water and nutrient retention, interior and exterior farming including growers, turf farms and greenhouses, landscaping, forestry, horticulture and golf course maintenance. Each product’s goal is to increase the water holding capacity of soils and potting mixes, thereby reducing the frequency of irrigation, as well as the leaching of valuable nutrients.
 
Soil2O™ can also be beneficial for lawns and sod by improving germination and promoting regular even growth of lawns. This is especially useful for turf farms, golf courses and grass in parks and gardens.
  
Soil2O™ can be effective in agriculture, particularly in commercial farming. By storing water for later release as the soil becomes drier, Soil2O™ delays wilting and makes it possible for certain plants to become better established while waiting for rain or irrigation to begin. In one test, the use of Soil2O™ in rain fed sugar cane increased the yield by approximately 25%.
 
By absorbing fertilizer, Soil2O™ reduces the amount that runs out of the soil and makes it available to the plants for a longer period of time.
 
Soil2O™ can be used in the planting of trees, bushes and saplings by enhancing root development and reducing mortality rates due to transplant shock.
 
Soil2O™ can keep plants, trees and cut flowers hydrated and thereby facilitate their transportation over long distances.
 
If Soil2O™ is mixed into the soil, cuttings and transplants take root better and watering frequencies are reduced by as much as 30% to 50%.
 
Another potential use of Soil2O™ is for floral decoration. Soil2O™ is placed in a container with colored water. Soil2O™ absorbs this colored water and becomes colored. The resulting colored gel can be placed in glass containers in which cut flowers may be placed.
 
We believe that the recent surge in water scarcity in the U.S. has created an opportunity to demonstrate to governments that Soil2O™ can provide a solution for the agricultural market. The agriculture market has a substantial problem in regards to fertilizer and nutrient leaching. Soil2O™ is currently being evaluated by some of the largest growers in Florida in regards to the leaching issue.
 
GelTech is working on rolling out a distribution network in the southern half of the United States, focusing on strong regional suppliers and companies that offer direct dust control services.  To date, the bulk of our focus has been in the Southwest.  We are seeking to expand our limited number of distributors and marketing the Soil2O™ line to various businesses including agricultural growers and service providers, aggregate pits and quarries, gold mines, large scale construction companies, cement manufacturers, dairy farms and government facilities.

We are also engaged in discussions with a few international distributors about acting as a distributor for Soil2O™ in marketplaces that include Australia and some Southern African countries. We cannot assure you we will be successful in recruiting distributors or that they will sell substantial quantities of Soil2O™ at prices that are profitable.

 
30

 
 
Raw Materials and Suppliers
 
Our Soil2O™ base ingredients are manufactured for us by a third party. There are several other companies that are also capable of manufacturing the main ingredients.
 
Sales and Marketing
 
We are currently marketing to golf courses, landscapers and highway landscaping companies through distributors in the southwest United States and to homeowners through our website. In fiscal 2011 and in fiscal 2012, the sales for Soil2O™ were nominal.
 
Competition
 
Polymers have been marketed on and off for over 20 years as additions to soil to increase water retention and reduce irrigation. Numerous companies appear to have products that are very similar to Soil2O™. Some of these companies are:
 
Horticultural Alliance, Inc.
 
Turbo Technologies, Inc.
 
American Soil Technologies, Inc. [OTCBB: SOYL]
 
The first two are private companies and it is unclear what financial, marketing and sales resources they have compared to us. On the other hand, American Soil Technologies, Inc. is listed on the Bulletin Board. However, from American Soil’s filings with the SEC, it is clear that it has experienced significant losses, has a large accumulated deficit and has a working capital deficit which may hamper its ability to compete. It supplies polymer soil additions and other related products. American Soil has an exclusive license to two method patents with cross-linked and linear polymers as their basis. They also have a patent on a slow release liquid fertilizer. American Soil also has two patents on a machine designed to install its liquid products in mature turf as well as some standing crops. Since we do not currently have a patent on Soil2O™ itself or on any of its uses, it is possible that a competitor could reverse engineer Soil2O™ and market it under its own brand name. We have filed a patent application for the sprayable version of Soil2O™.
 
Seasonality
 
We expect Soil2O™ will experience seasonality in sales during the fall and winter quarters. However, we do not expect as much seasonality in the Southeastern areas that generally experience year round growing cycles, with the sale of the agricultural products preceding the growing cycle of various crops. We also believe a higher demand for Soil2O™ will exist during the drought conditions affecting the U.S. particularly in the Southwest.
 
SkinArmor
 
Overview
 
SkinArmor™ was developed out of a need for the U.S. Military. Since the ‘Iraqi and Afghanistan Wars’ began, the U.S.  Military has had a large number of personnel receiving high intensity burns. When moving personnel, there is a potential for the transport vehicle to come in contact with an “Improvised Explosive Device” or “IED”.  Most transports only have airflow from underneath the vehicles to maintain protection from shots taken at them. When a transport comes in contact with an “IED” the explosion comes from underneath the vehicle, and into the air vents. This two to three second blast creates heat of over 2500°F.  SkinArmor™ could be used by soldiers during the transportation process offering protection from this type of an explosion.
 
 
31

 
 
The Product
 
SkinArmor™ is a product we developed using the same base components as we do with the FireIce® product line. We have added a few additional compounds to assist with making the product thicker and more easily spread on the skin. SkinArmor™ will be delivered in a ‘tube’ shape container that will be easily carried by any soldier, firefighter or first responder. We remain in the pre-marketing stage, and have found that there are potentially many other uses for SkinArmor™.  We believe that anyone that works in a high temperature environment could have a potential need for protection with SkinArmor™. 
 
WeatherTech Innovations®

Weather Tech Innovations, Inc. is our subsidiary that we organized to manage our hurricane suppression project. It has undergone only very limited testing and is not ready for true live testing in hurricanes. We need to raise between $3 to $5 million for preliminary environmental impact studies and to build the appropriate computer and radar facilities for participating universities. Another $50 to $100 million will be needed to fully test the project once the preliminaries goals have been reached and verified. We are uncertain whether we can raise this sum and have not devoted any efforts to do so as we seek to commercialize other products.  We are currently not focusing on this product because of the significant cost to continue development.

Intellectual Property
 
The following are patents and patents pending for products we currently market or expect to market:
  
U.S. patent application, Serial No. 11/775,512 –Water retention mixture and method for spray application and International Patent application, Serial No. PCT/US2008/069398;
 
U.S. patent application, Serial No. 12/208,832 – Rapid Deployment Fire Retardant Gel Pack and International Patent application, Serial No. PCT/US2009/056532;
 
U.S. patent application, Serial No. 12/282,603 – Process and Device for Fire Prevention and Extinguishing;
 
U.S. patent, Patent No. 7,992,647 – Process and Device for Fire Prevention and Extinguishing;
 
U.S. patent application, Serial No. 12/270,485 – Method and Apparatus for Improving Fire Prevention and Extinguishment;
 
U.S. patent application, Serial No. 29/375,350 – Firehose Eductor;
 
U.S. patent application, Serial No. 61/430,601 – Method of Controlling Road Dust in Strip Mines;
 
U.S. patent application, Serial No. 61/430,601 – Strip Mine Conveyor Belt Dust Control;
 
U.S. patent application, Serial No. 12/887,230 – Home Safety Kit;
 
U.S. patent, Patent No. D637,357 – Fire Extinguisher Dispensing Hose; and
 
U.S. patent application, Serial No. 12/870,333 - Water Based Fire Extinguisher.  
 
 
32

 
 
We also hold patents for IceWear™ and our hurricane suppression project. Our Chief Technology Officer continues to develop potential new products. We recently filed new patent applications, some of which are to improve our existing technologies and others are for new products.
 
We claim trademark rights to the following marks.  Federal trademark applications are on file with the United States Trademark Office:
 
GelTech Solutions®
 
FireIce®
 
SkinArmor™
 
Soil2O™
 
Got Dust™
 
IceWear™
 
WeatherTech Innovations®
 
Employees
 
As of January 3, 2012, we had 19 employees of which all are full-time employees. We hire independent contractors on an “as needed” basis only. We have no collective bargaining agreements with our employees. We believe that our employee relationships are satisfactory. In addition to our Chief Executive Officer and our Chief Technology Officer, we employ three other members of the Cordani family. See “Certain Relationships and Related Person Transactions.”

Research and Development

During the last two fiscal years, GelTech has spent $91,762 and $19,541 on research and development expenses.

Property

Our corporate offices are located in Jupiter, Florida.  We lease our office on a month-to-month basis at a monthly rental fee of $8,211.  If we were required to move, we believe that there is a large supply of commercial property available in the general area which we could lease at comparable prices.  In addition, we have a one year lease for space in an industrial yard in California which houses our fleet of vehicles, our mobile mixing vehicle and equipment and provides storage for inventory at a monthly cost of $2,650.
 
Legal Proceedings

From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business.  There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on our consolidated financial position or results of operations.  However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

 
33

 
 
MANAGEMENT

The following is a list of our directors and executive officers.  All directors serve one-year terms or until each of their successors are duly qualified and elected.  The officers are elected by our Board.

Name
   
Age 
 
Position
Michael Cordani
 
51
 
Chief Executive Officer, Secretary, Treasurer and Chairman of the Board
Joseph Ingarra
 
38
 
President and Director
Peter Cordani
 
50
 
Chief Technology Officer and Director
Michael Hull
 
58
 
Chief Financial Officer
Michael Becker   60   Director
Jerome Eisenberg
 
72
 
Director
Leonard Mass
 
70
 
Director
Phil O’Connell, Jr.
 
71
 
Director

Biographies

Michael Cordani has been our Chief Executive Officer and a director since inception.  He became Chairman of the Board of Directors on June 25, 2007.  From inception until June 25, 2007, Mr. Cordani was also our President.  Mr. Cordani also acted as our Chief Financial Officer until August 28, 2007.   Mr. Cordani was selected as a director for his 20 years of experience in management.  In addition, Mr. Cordani was selected because he is our Chief Executive Officer.

Joseph Ingarra has been our President since June 25, 2007.  From inception until June 25, 2007, Mr. Ingarra was our Executive Vice President.  He has been a director since inception.  From January 2005 to April 2006, Mr. Ingarra was Vice-President of Corporate Acquisitions for MidCoast Financial, Inc., a financial services firm which specializes in the acquisition of closely held corporations.  Mr. Ingarra was selected as a director because he is our Co-founder and President.

Peter Cordani has been our Chief Technology Officer since inception.  Mr. Cordani has been a director since July 3, 2007.  He is the inventor of all of our intellectual property.  Mr. Cordani was the Chief Executive Officer of Dyn-O-Mat from February 1994 until February 2007. Mr. Cordani was selected as a director because of his patent experience and because he is our Chief Technology Officer.

Michael Hull became our Chief Financial Officer on March 17, 2008.  Until September 1, 2011, Mr. Hull was working for us on a part-time basis. Since then, Mr. Hull has been with us on a full-time basis.  From January 2008 until December 2009, Mr. Hull was a Director of CFO Services for WSR Consulting, Inc., which we refer to as WSR, which provides Chief Financial Officer and related services to businesses.  Prior to Mr. Hull becoming a full-time employee, WSR provided Chief Financial Officer services to GelTech.  See the Section entitled “Related Persons Transactions” found elsewhere herein.  Until August 31, 2011, Mr. Hull spent the majority of his time providing accounting services for Ecosphere Technologies, Inc. (OTCBB: ESPH) a diversified water engineering, technology licensing and environmental services company.  From November 2006 through November 2007, Mr. Hull was Chief Financial Officer of BabyUniverse, Inc., an Internet retailer.   Previously, Mr. Hull spent 11 years in public accounting with the South Florida audit practice of Price Waterhouse.  Mr. Hull is a Certified Public Accountant in Florida.
 
 
34

 
 
Michael Becker became a director of GelTech on January 3, 2012.  Mr. Becker is an accountant and has been President of the accounting firm Michael C. Becker & Co. since 1979.  From 1976 until August 2007, Mr. Becker served on the Miami-Dade Fire Department and retired as the Chief Fire Officer.  Mr. Becker is a Certified Public Accountant in Florida.  Mr. Becker was selected as a director because of his experience as an accountant, his knowledge of the fire industry and because he is independent.
 
Jerome Eisenberg has been our director since February 1, 2010.  Since 2006, Mr. Eisenberg has been Chairman of the Board of ORBCOMM, Inc. (NASDAQ: ORBC), a leading provider of global satellite and cellular data communications solutions for asset tracking, management, and remote control.  From December 2004 until March 2008, Mr. Eisenberg served as the Chief Executive Officer of ORBCOMM, Inc.  Mr. Eisenberg has been a director of ORBCOMM, Inc. since 2004.  In July 2009, Mr. Eisenberg became Chief Executive Officer of TFISA LLC, a company formed to distribute FireIce® internationally.  Mr. Eisenberg was selected as a director because of his experience with public companies and because he is independent.
 
Leonard Mass has been our director since May 11, 2010.  Since September 2005, Mr. Mass has been the Vice President of Land Development in the Real Estate Development division of the Drummond Company, Inc. a company which is principally engaged in the business of mining, purchasing, processing and selling of both thermal and metallurgical coal.  Mr. Mass was selected to as a director for his 40 years of experience in executive management and his background in finance and management and because he is also independent.

Phil O’Connell, Jr. became a director of GelTech on November 15, 2006. Mr. O’Connell is an attorney and has been a partner at the law firm of Casey Ciklin Lubitz Martens & O’Connell, P.A. and predecessor law firms since 1969.  Mr. O’Connell was selected as a director because of his experience as a lawyer and because he is independent.

Mr. Michael Cordani, our Chief Executive Officer and Chairman of the Board, is the brother of Mr. Peter Cordani, our Chief Technology Officer and a director.  There are no other family relationships between any of the executive officers and directors.  Our Bylaws require that each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified.  We have never had an annual meeting of shareholders. See “Certain Relationships and Related Person Transactions” below for further information concerning our employment of Cordani family members.

Committees of the Board of Directors

Our Board has established an Audit Committee and a Compensation Committee.  We have not established a Nominating Committee.  The function of this committee is being undertaken by the entire Board as a whole.  The Board and its Committees meet throughout the year and act by written consent from time to time as appropriate.  Committees regularly report on their activities and actions to the Board.  The Audit Committee has a written charter approved by the Board.

The following table identifies the independent and non-independent current Board and Committee members:

Name
 
Independent
   
Audit
   
Compensation
 
Michael Cordani
                       
Joseph Ingarra
                       
Peter Cordani
                       
Michael Becker     ü       ü          
Jerome Eisenberg
   
ü
     
ü
         
Leonard Mass
   
ü
     
ü
     
ü
 
Phil D. O’Connell, Jr.
   
ü
     
ü
     
ü
 

 
35

 
 
Director Independence
 
Our Board has determined that Messrs. Becker, Eisenberg, Mass and O’Connell are independent under the NASDAQ Stock Market Listing Rules.  Also, our Board has determined that Messrs. Becker, Eisenberg and Mass are qualified as Audit Committee Financial Experts, as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.  Although Mr. Eisenberg provides sales services for us worldwide, we have not compensated him since we have generated no sales from his efforts.  Mr. Eisenberg is associated with a company which has exclusive rights to distribute certain of our products in various countries in conjunction with a distribution agreement entered into in July 2009, prior to Mr. Eisenberg becoming a director. No sales have been generated.  See "Certain Relationships and Related Person Transactions" on page 43. Accordingly, he is independent, although that may change in the future.
 
Audit Committee
 
The Audit Committee’s primary role is to review our accounting policies and any issues which may arise in the course of the audit of our financial statements.  The Audit Committee selects our independent registered public accounting firm, approves all audit and non-audit services, and reviews the independence of our independent registered public accounting firm.  The Audit Committee also reviews the audit and non-audit fees of the auditors.  Our Audit Committee is also responsible for certain corporate governance and legal compliance matters including internal and disclosure controls and compliance with the Sarbanes-Oxley Act of 2002.
 
Compensation Committee

The function of the Compensation Committee is to determine the compensation of our executive officers.  The Compensation Committee has the power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations with respect to shareholder proposals related to compensation matters.  Additionally, the Compensation Committee is responsible for administering the Plan.

Code of Ethics

Our Board has adopted a Code of Ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer.  Although not required, the Code of Ethics also applies to our Board.  The Code provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, including insider trading, corporate opportunities and whistle-blowing or the prompt reporting of illegal or unethical behavior.  We will provide a copy of the Code of Ethics to any person without charge, upon request.  The request for a copy can be made in writing to GelTech Solutions, Inc., 1460 Park Lane South, Suite 1, Jupiter, Florida 33458, Attention: Mrs. Darlene Cordani.

Shareholder Communications

Although we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing to us at GelTech Solutions, Inc., 1460 Park Lane South, Suite 1, Jupiter, Florida 33458, Attention: Mrs. Darlene Cordani, or by facsimile (561) 427-6182.  Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

 
36

 
 
EXECUTIVE COMPENSATION

The chart below summarizes the terms and conditions of these employment agreements with our executive officers.
 
Executive
 
Term
 
Base Salary/
Compensation(1)
 
Option/Bonus
Incentive (2)
Michael Cordani
 
March 10, 2011 through March 10, 2014
 
$150,000 per year with increases for 2012 and 2013
 
250,000 stock options and a performance based annual bonus (3)
Joseph Ingarra
 
March 10, 2011 through March 9, 2014
 
$150,000 per year with increases for 2012 and 2013
 
250,000 stock options and a performance based annual bonus (3)
Peter Cordani
 
March 10, 2011 through March 9, 2014
 
$150,000 per year with increases for 2012 and 2013
 
250,000 stock options and a performance based annual bonus (3)
Michael Hull (4)
 
September 1, 2011 through August 31, 2014
 
$146,000 per year
 
150,000 stock options and a performance based annual bonus (5)
———————
(1)
The base salary increases are subject to approval of the Compensation Committee with target salaries for 2012 and 2013 of $200,000, and $225,000, respectively.  Increases are to be based upon profitability, positive cash flow and such other factors as the Compensation Committee deems important.  This chart does not include September 2011 grants of 175,000 options to each of Messrs. Michael Cordani, Joseph Ingarra and Peter Cordani. Those options are exercisable at $0.81 per share over a 10 year period subject to vesting.
   
(2)
Following the completion of each fiscal year, the Compensation Committee will have the discretion to award each of the executives a target bonus based on each Executive’s job performance, the Company’s revenue growth, positive cash flow, net income before income taxes or other criteria selected by the Compensation Committee.  No bonuses were awarded for the year ended June 30, 2011.
   
(3)
The options are 10-year options exercisable at $1.25 per share.  The options vest in one-third increments each year subject to continued employment on the applicable vesting date and further subject to meeting budgeted revenue targets.  Any options which do not vest in a fiscal year are forfeited.  However, the Compensation Committee retains discretion to vest any options for a fiscal year in which the applicable performance target was not met.   
 
(4)
Mr. Hull’s term commenced on September 1, 2011.
   
(5)
The options are 10-year options exercisable at $0.60 per share.  Of these options: (i) 50,000 vested on September 1, 2011 and (ii) the balance vest in six equal increments each June 30 and December 31, beginning December 31, 2011, subject to continued employment on each applicable vesting date.  Exercisability is also subject to executing GelTech’s standard Stock Option Agreement. 
 
Termination Provisions 

All of the severance payments that our executive officers are entitled to in connection with a termination of their employment are intended to comply with Section 409A of the Internal Revenue Code of 1986, which we refer to as the Code, and the Regulations thereunder.  Upon termination without cause or for good reason, Michael Cordani, Joseph Ingarra and Peter Cordani are entitled to one year’s severance and Michael Hull is entitled to six month’s severance.  Additionally, each of these executive’s stock options and shares of restricted stock shall immediately vest.
 
 
37

 
 
Summary Compensation Table

The following information is related to the compensation paid, distributed or accrued by us for the last two fiscal years to our Chief Executive Officer (principal executive officer) and the two other most highly compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000, which we refer to as our “Named Executive Officers.”
 
Summary Compensation Table
 
Name and
Principal Position
(a)
 
Year
(b)
 
Salary
($)(c)
 
Option
Awards
($)(f)(1)(2)
 
Total
($)(j)
 
Michael Cordani
 
2011
   
132,292
   
820,025
   
952,317
 
Chief Executive Officer
 
2010
   
125,000
   
-
   
125,000
 
                         
Joseph Ingarra
 
2011
   
132,292
   
820,025
   
952,317
 
President
 
2010
   
125,000
   
-
   
125,000
 
                         
Peter Cordani
 
2011
   
132,292
   
820,025
   
952,317
 
Chief Technology Officer
 
2010
   
125,000
   
-
   
125,000
 

(1)  
The amounts in this column represents the fair value of the award as of the grant date as computed in accordance with FASB Accounting Standards Codification Topic 718.   These amounts represent awards that are paid in options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the Named Executive Officers.
 
(2)  
Includes 750,000 stock options of which: (i) 150,000 vested immediately and (ii) the remaining vest in six equal increments each June 30th and December 31, with the first vesting date being June 30, 2011 (exercisable at $1.22 per share).  Also includes 250,000 stock options which vest annually (exercisable at $1.25 per share), and subject to meeting certain performance milestones.  All of these options are subject to continued employment as of each applicable vesting date.

 
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Outstanding Equity Awards

Listed below is information with respect to unexercised options, stock that has not vested and equity incentive awards for each Named Executive Officer as of June 30, 2011:
 
   
Option Awards
Name
(a)
 
Number of
 Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
   
Number of
 Securities
Underlying
 Unexercised
Options
(#)
Unexercisable
(c)
   
Equity Incentive
 Plan Awards:
 Number of
Securities
Underlying
 Unexercised or
 Unearned Options
(#)
(d)
   
Option
Exercise
 Price
($)
(e)
 
Option
Expiration Date
(f)
Michael Cordani
   
175,000
(1)
   
0
     
0
   
$
1.00
 
September 15, 2011
   Chief Executive Officer
   
150,000
(2)
   
0
     
0
   
$
0.667
 
March 17, 2018
     
250,000
(3)
   
500,000
     
0
   
$
1.22
 
December 8, 2020
     
0
     
0
     
250,000(4)
   
$
1.25
 
March 10, 2021
                                   
Joseph Ingarra
   
175,000
(1)
   
0
     
0
   
$
1.00
 
September 15, 2011
   President
   
50,000
(2)
   
0
     
0
   
$
0.667
 
June 25, 2012
     
200,000
(2)
   
0
     
0
   
$
0.667
 
March 17, 2018
     
250,000
(3)
   
500,000
     
0
   
$
1.22
 
December 8, 2020
     
0
     
0
     
250,000(4)
   
$
1.25
 
March 10, 2021
                                   
Peter Cordani 
   
175,000
(1)
   
 0
     
 0
   
$
1.00
 
September 15, 2011
   Chief Technology Officer  
   
145,833
(2)
   
29,167
     
0
   
$
1.00
 
March 17, 2018
   
   
185,007
(2)
   
0
     
0
   
$
0.667
 
March 17, 2018
     
250,000
(3)
   
500,000
     
0
   
$
1.22
 
December 8, 2020
     
0
     
0
     
250,000(4)
   
$
1.25
 
March 10, 2021
———————
(1)
These options were fully vested as of June 30, 2011 and expired on September 15, 2011.

(2)
Fully vested.
 
(3)
Each executive in this table received a grant of 750,000 options of which 150,000 vested immediately and the remaining vest in six equal increments on each June 30th and December 31st (with first vesting date being December 31, 2011) over a three-year period, subject to continued employment on the applicable vesting date.

(4)
Each executive in this table received a grant of 250,000 options which vest annually over three-year period, subject to continued employment on the anniversary date and further subject to meeting certain performance milestones.
 
 
39

 
 
2007 Equity Incentive Plan

In March 2007, we established the Plan.  Initially, we were authorized to issue up to 1,500,000 Stock Rights.  In September 2008, our Board increased the Plan by adding an additional 2,000,000 Stock Rights.  Under the Plan, all of our non-employee directors (who do not own 10% or more of our common stock) receive automatic grants of stock options upon appointment as director or member of a board committee.  These initial grants vest over a three-year period each 12 months following the date of grants, subject to service with GelTech in the capacity in which the grant was received on each applicable vesting date.  Also, each non-employee director receives an automatic option grant each year on July 1st for their service on the Board.  The annual grants vest on June 30th of the following year, subject to service with GelTech in the capacity in which the grant was received.

Initial Grants
 
Chairman of the Board
50,000 options
Director
30,000 options
Chair of a Committee
10,000 options
Member of a Committee
5,000 options
 
Annual Grants
 
Director
50,000 options
Chair of a Committee
10,000 options
Member of a Committee
5,000 options
 
Prior to the Board amending the Plan on April 6, 2010, non-employee directors received annual grants of 20,000 stock options and the Chairman of the Board received 35,000 stock options. The amendment eliminated the annual grant to the Chairman and increased the annual grant to directors to 50,000 options.

The exercise price of options or stock appreciation rights granted under the Plan shall not be less than the fair market value of the underlying common stock at the time of grant.  In the case of incentive stock options, the exercise price may not be less than 110% of the fair market value in the case of 10% shareholders.  Options and stock appreciation rights granted under the Plan shall expire no later than 10 years after the date of grant.  The total number of shares with respect to which options or stock awards may be granted under the Plan the purchase price per share, if applicable, shall be adjusted for any increase or decrease in the number of issued shares resulting from a recapitalization, reorganization, merger, consolidation, exchange of shares, stock dividend, stock split, reverse stock split, or other subdivision or consolidation of shares.

Our Board or the Compensation Committee may from time to time may alter, amend, suspend, or discontinue the Plan with respect to any shares as to which awards of stock rights have not been granted.  However no rights granted with respect to any awards under the Plan before the amendment or alteration shall be impaired by any such amendment, except with the written consent of the grantee.
 
Under the terms of the Plan, our Board or the Compensation Committee may also grant awards which will be subject to vesting under certain conditions.  The vesting may be time-based or based upon meeting performance standards, or both. Recipients of restricted stock awards will realize ordinary income at the time of vesting equal to the fair market value of the shares.  We will realize a corresponding compensation deduction.  Upon the exercise of stock options or stock appreciation rights, the holder will have a basis in the shares acquired equal to any amount paid on exercise plus the amount of any ordinary income recognized by the holder.  Upon sale of the shares, the holder will have a capital gain or loss equal to the sale proceeds minus his or her basis in the shares.
 
Our standard Stock Option Agreement provides for “clawback” provisions, which enable our Board to cancel options and recover past profits if the person is dismissed for cause or commits certain acts which harm us.

 
40

 
 
Equity Compensation Plan Information

The following chart reflects the number of securities granted and the weighted average exercise price for our compensation plans as of June 30, 2011.
 
Name Of Plan
 
Number of
securities to be issued
upon exercise of
outstanding
options, warrants and rights
(a)
   
Weighted-average exercise price of outstanding
options, warrants
and rights
(b)
   
Number of
securities remaining available for
future issuance under
compensation plans
(excluding securities reflected in column (a))
(c)
 
Equity compensation plans approved by security holders
   
- 0 -
           
N/A
 
                       
Equity compensation plans not approved by security holders (1)(2)
   
5,769,507
   
$
1.16
     
N/A
 

(1) Includes options and shares of common stock issued under the Plan. Also includes 2,250,000 options granted outside of the Plan.
 
(2) Includes 5,095,007 stock options issued to directors and executive officers.
 
The following chart reflects the number of stock options we have awarded our current executive officers and directors from the beginning of fiscal 2010 until the end of fiscal 2011.
 
 
Name
 
Number of
Options
   
Exercise
Price
per Share
 
Expiration Date
Michael Cordani (1)
   
750,000
   
$
1.22
 
December 8, 2020
Michael Cordani (2)
   
250,000
   
$
1.25
 
March 10, 2021
Peter Cordani (1)
   
750,000
   
$
1.22
 
December 8, 2020
Peter Cordani (2)
   
250,000
   
$
1.25
 
March 10, 2021
Joseph Ingarra (1)
   
750,000
   
$
1.22
 
December 8, 2020
Joseph Ingarra (2)
   
250,000
   
$
1.25
 
March 10, 2021
Jerome Eisenberg (3)
   
30,000
   
$
1.92
 
February 1, 2020
Jerome Eisenberg (3)
   
5,000
   
$
1.95
 
February 11, 2020
Jerome Eisenberg (4)
   
55,000
   
$
1.21
 
July 1, 2020
Jerome Eisenberg (5)
   
50,000
   
$
1.25
 
March 10, 2021
Leonard Mass (6)
   
30,000
   
$
1.55
 
May 11, 2020
Leonard Mass (4)
   
50,000
   
$
1.21
 
July 1, 2020
Leonard Mass (7)
   
5,000
   
$
1.38
 
September 27, 2020
Leonard Mass (8)
   
5,000
   
$
1.25
 
March 10, 2021
Leonard Mass (5
   
50,000
   
$
1.25
 
March 10, 2021
Phil O’ Connell, Jr. (4)
   
35,000
   
$
1.84
 
July 1, 2019
Phil O’ Connell, Jr. (4)
   
60,000
   
$
1.21
 
July 1, 2020
Phil O’ Connell, Jr. (5)
   
50,000
   
$
1.25
 
March 10, 2021
____________
(1)
Of these options: (i) 150,000 vested immediately and (ii) the remaining vesting in six equal increments on each June 30th and December 31st, with the first vesting date being June 30, 2011.
(2)
Vest in three equal annual increments subject to meeting certain performance milestones and further subject to continued employment on each applicable vesting date.
(3)
Vests in six equal increments on each June 30th and December 31st, with the first vesting date being June 30, 2010.
(4)
Fully vested.
(5)
Vests in six equal increments on each June 30th and December 31st, with the first vesting date being June 30, 2011.
(6)
Vests in three equal increments each May 11th, with the first vesting date being May 11, 2011.
(7)
Vests in three equal increments each September 27th, with the first vesting date being September 27, 2011.
(8)
Vests in three equal increments each June 30th and December 31st, with the first vesting date being March 10, 2012.

On July 1, 2011, our non-employee directors received automatic grants under the Plan as described above. See the Executive Compensation Table on page 37 for a description of options granted to our executive officers in fiscal 2012.
 
 
41

 
 
Fiscal 2011 Director Compensation Table

We do not pay cash compensation to our directors for service on our Board and our employees do not receive compensation for serving as members of our Board.  Directors are reimbursed for reasonable expenses incurred in attending meetings and carrying out duties as board and committee members.  Under the Plan, our non-employee directors receive automatic grants of stock options as compensation for their services on our Board, as described above.
 
Name
 
Option
Awards
($)(1)
   
Total
($)
 
Jerome Eisenberg
 
$
87,621
   
$
87,621
 
Anthony Marchese (2)
 
$
82,950
   
$
82,950
 
Leonard Mass
 
$
91,988
   
$
91,988
 
Phil O’Connell, Jr.
 
$
95,621
   
$
95,621
 
 
(1)
The amounts in this column represent the fair value of the award as of the grant date as computed in accordance with FASB ASC Topic 718 and the recently revised SEC disclosure rules.  These amounts represent awards that are paid in options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the directors.
 
(2)
Mr. Marchese resigned on September 28, 2011.
 
PRINCIPAL SHAREHOLDERS

The following table sets forth the number of shares of GelTech’s voting stock beneficially owned as of January 5, 2012 by (i) those persons known by GelTech to be owners of more than 5% of GelTech’s common stock, (ii) each director of GelTech, (iii) each Named Executive Officer, and (iv) all executive officers and directors of GelTech as a group.  Unless otherwise specified in the notes to this table, the address for each person is: c/o GelTech Solutions, Inc., 1460 Park Lane South, Suite 1, Jupiter, Florida 33458.
 
Title of Class
 
Name and Address
of Beneficial Owner
 
Amount and
Nature of Beneficial
Ownership (1)
   
Percent of
Class (1)
 
Directors and Named Executive Officers:
                   
Common Stock
 
Michael Cordani (2)
   
726,442
     
3.1
%
Common Stock
 
Joseph Ingarra (3)
   
730,643
     
3.1
%
Common Stock
 
Peter Cordani (4)
   
1,204,065
     
5.1
%
Common Stock
 
Michael Becker (5)
   
0
       
0
Common Stock
 
Jerome Eisenberg (6)
   
95,000
       
 *
Common Stock
 
Leonard Mass (7)
   
142,071
       
Common Stock
 
Phil O’Connell, Jr. (8)(9)
   
1,720,858
     
7.3
%
Common Stock
 
All directors and executive officers as a group (8 persons) (10)
   
4,687,745
     
18.4
%
                     
5% Shareholder:
                   
Common Stock
 
Michael Reger (11)
   
9,147,407
     
35.4
%
________
 * Less than 1%.
  
 (1) 
Applicable percentages are based on 23,127,414 shares outstanding as of January 5, 2012, adjusted as required by rules of the SEC.  Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock underlying options and warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person.  Unless otherwise indicated in the footnotes to this table, GelTech believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them.  The table includes only vested options and warrants or options and warrants that will vest and become exercisable within 60 days.

 (2) 
Mr. Cordani is Chairman of the Board and Chief Executive Officer.   Shares are held with Mr. Cordani’s wife as tenants by the entirety. Includes 501,000 shares of common stock issuable upon exercise of vested options.  Also includes 15,000 shares of common stock held by an adult child of Mr. Cordani.  Mr. Cordani disclaims beneficial ownership of these securities and this disclosure shall not be deemed an admission that he is the beneficial owner of either the securities held in the trust or shares held by his children.
 
(3) 
Mr. Ingarra is a director and President.  Includes 600,000 shares issuable upon the exercise of vested options.
 
(4) 
Mr. Peter Cordani is a director and Chief Technology Officer.  Includes shares held by North Carolina River Ridge II LLC, a company managed by Mr. Peter Cordani.  It owns 397,208 shares of common stock. Thus, under SEC rules, Mr. Peter Cordani is considered the beneficial owner as explained in Note (1).  Also includes 535,008 shares issuable upon the exercise of vested options.  Mr. Cordani is the trustee of three trusts which own 271,349 shares of GelTech.
 
(5) 
Mr. Becker is a director. 
 
(6) 
Mr. Eisenberg is a director.  Represents shares issuable upon the exercise of vested options.
 
(7)
Mr. Mass is a director.  Includes 78,333 shares issuable upon the exercise of vested options.
 
(8) 
Mr. O’Connell is a director.  Includes 344,058 shares issuable upon the exercise of warrants.  Also includes 141,667 shares issuable upon the exercise of vested options.
 
(9) 
Includes: (i) 95,241 shares jointly held by Mr. O’Connell and his wife, (ii) 1,089,392 shares held by the Phil D. O’Connell, Jr. Revocable Trust, of which Mr. O’Connell is the trustee, (iii) 10,000 shares held by Mr. O’Connell’s wife and (iv) 40,500 shares held in trusts for Mr. O’Connell’s children, of which Mr. O’Connell is the trustee.  Mr. O’Connell disclaims beneficial ownership of the securities held by his wife and this disclosure shall not be deemed an admission that he is the beneficial owner of the securities held by his wife.
 
(10) 
Includes 66,666 shares issuable upon the exercise of vested options held by Michael Hull, our Chief Financial Officer.  
 
(11) 
Includes 1,350,000 shares issuable upon the exercise of warrants and 434,681 shares of common stock held in a grantor retained annuity trust of which Mr. Reger is the trustee.  Also includes 1,328,093 shares issuable upon the conversion of a convertible note.  Address is 777 Yamato Road, Suite 300, Boca Raton, Florida 33431.
 

 
42

 
 
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

 In addition to Michael and Peter Cordani, the following related parties are employed at GelTech:

 
·
Michael Cordani’s wife as a bookkeeper at $1,000 per week,
 
 
·
Michael and Peter Cordani’s father is employed as a researcher at $1,200 per week, and
 
 
·
Michael and Peter Cordani’s mother as a receptionist at $600 per week.

We believe all of these salaries are at or are below the going rate of what such services would cost on the open market.
 
In 2008, we entered into a one-year Consulting Services Agreement with WSR Consulting, Inc. which required WSR to provide accounting and finance services including providing a Chief Financial Officer.  Until September 1, 2011, Mr. Michael Hull had been acting as our part-time Chief Financial Officer on behalf of WSR.  We paid WSR $5,000 per month for these part-time services. Because Mr. Hull has joined us on a full-time basis, we terminated this agreement.  

In August 2008 and September 2008, GelTech entered into two revolving line of credit agreements which permitted GelTech to borrow up to $4,000,000 and $1,000,000 from Mr. Michael Reger, its largest shareholder.  In November 2008 and April 2009, GelTech received advances totaling $773,000 under the $1,000,000 line of credit.  In February 2009, GelTech borrowed $250,000 under the $4,000,000 revolving line of credit agreement in two separate fundings.  These credit facilities, as described below, were cancelled in May 2009.
 
On May 29, 2009, we entered into a Credit Enhancement and Financing Security Agreement or the 2009 Loan Agreement with Mr. Reger.  Also on May 29, 2009, GelTech entered into a $2,500,000 Revolving Line of Credit Agreement or Credit Agreement and borrowed $1,550,000 under the Credit Agreement.  Advances under the Credit Agreement were being used for working capital, acquisition of inventory and to repay $1,058,943 due under the $1,000,000 and $4,000,000 credit facilities previously entered into with Mr. Reger.  The Revolving Promissory Note executed by GelTech and delivered to Mr. Reger permitted GelTech to borrow up to $2,500,000.  Interest was due monthly on the 20th day of each month beginning June 20, 2009 and the principal and all accrued interest was due on May 29, 2010.  On May 20, 2010, GelTech and Mr. Reger extended the loan until May 19, 2011. Additionally, GelTech was required pay down the loan to a zero balance for a period of 30 consecutive days.  This was required in the previous line of credit but the lender did not compel GelTech to do so.   As consideration for the extension, Mr. Reger was paid $60,000 and was issued 150,000 shares of GelTech's common stock and 150,000 two-year warrants exercisable at $1.50 per share.
 
On May 29, 2009, GelTech and Mr. Reger entered into a Loan Cancellation Agreement by which the $1,058,943 due under the 2008 loans was repaid and the 2008 agreement was cancelled.  This $1,058,943 sum is part of the $1,550,000 borrowed by GelTech.  As consideration for entering into this 2009 Agreement, Mr. Reger was paid $60,000 and issued 150,000 shares of GelTech’s common stock.

On February 18, 2011, GelTech and Michael Reger renegotiated their line of credit and reduced the principal on the line of credit by $1 million.  Mr. Reger agreed to accept 892,857 shares of GelTech’s common stock in consideration for cancelling $1 million of the $2,497,483 line of credit, which was due in May 2011.  The remaining $1,497,483 owed under the line of credit has been converted into a five-year note which is convertible at $1.12 per share bearing 5% interest per year. In connection with the loan cancellation, GelTech issued Mr. Reger 1,000,000 five-year warrants exercisable at $1.25 per share and 300,000 five-year warrants exercisable at $1.75 per share.
 
Jerome Eisenberg, a director of GelTech, is the Chief Executive Officer of TFISA, LLC., which we refer to as “TFISA”, a company that was specifically formed to distribute FireIce® and SkinArmor™, in connection with an agreement signed in July 2009 prior to Mr. Eisenberg becoming a director.   For the term of the Agreement, TFISA has exclusive rights to distribute:

·  
FireIce® to governmental agencies worldwide including the U.S. excluding (i) any municipal, state owned or volunteer fire-fighting company or any state fire-fighting instrumentality in the U.S. and (ii) sales of FireIce® Products to the Forest Service.  
·  
SkinArmor™ worldwide; and
·  
Eductors for the FireIce® Pumper Truck to all of Europe and other countries throughout the world.

The Agreement expires in December 2015.  As of the date of this prospectus, no sales of have been made by TFISA.  Furthermore, TFISA has not purchased any products from us. The Agreement fixes the prices that we may charge TFISA when it purchases products from us.
 
On December 20, 2011, Michael Cordani, our Chief Executive Officer and Chairman of the Board of Directors, and Joe Ingarra, our President and a director lent GelTech $10,000 and $29,380, respectively.  In connection with these loans, GelTech issued Messrs. Cordani and Ingarra promissory notes payable on demand.

On December 21, 2011, Michael Hull, our Chief Financial Officer, lent GelTech $50,000 and was issued a 60-day promissory note.  In connection with the loan, GelTech re-priced 150,000 of Mr. Hull’s options from $1.95 to $0.60.  Additionally, on December 21, 2011, GelTech issued 441,177 shares of common stock to Phil O’Connell, a director of GelTech, in exchange for exercising warrants and as settlement of an outstanding claim for loans (totaling approximately $304,000) made by the director to GelTech’s predecessor.
 
 
43

 
 
THE LINCOLN PARK TRANSACTION

On September 1, 2010, GelTech and Lincoln Park executed the Prior Agreements whereby GelTech had the right to sell, at its sole discretion, to Lincoln Park up to $5,000,000 of our common stock, over a 30-month period.  On January 3, 2012, the Prior Agreements were terminated by mutual agreement.  Under the Prior Agreements, we sold Lincoln Park 2,348,063 shares of common stock and received $3,358,866.

As of January 4, 2012, GelTech and Lincoln Park entered into the Purchase Agreement and Registration Rights Agreement.  Under the Purchase Agreement, Lincoln Park is obligated to purchase from us up to $5.0 million of our common stock, from time to time over a 30 month period.  Upon filing the registration statement which contains this prospectus, we received $100,000 from Lincoln Park as an initial purchase in exchange for 166,667 shares of our common stock.

Pursuant to the Registration Rights Agreement, we were required to file a registration statement that includes this prospectus with the SEC covering the shares that have been issued or may be issued to Lincoln Park under the Purchase Agreement.  We do not have the right to commence any sales of our shares to Lincoln Park until five days after the SEC has declared effective the registration statement of which this prospectus is a part.  Thereafter, over 30 months, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $5,000,000 of our common stock in amounts up to $30,000 as often as every two business days under certain conditions. We can also accelerate the amount of our common stock to be purchased under certain circumstances.  No sales of shares may occur at a purchase price below $0.35 per share.  The price of our stock as of January 3, 2012 was $0.64.  The purchase price of the shares will be based on the market prices of our shares at the time of sale as computed under the Purchase Agreement without any fixed discount.  We issued 150,000 shares of our stock to Lincoln Park as a commitment fee for entering into the Purchase Agreement and we are obligated to issue up to an additional 450,000 shares pro rata as Lincoln Park purchases up to $4,900,000 of our common stock as directed by us. For example, if we elect, at our sole discretion, to require Lincoln Park to purchase $50,000 of our stock then we would issue 4,592 shares of the pro rata commitment fee which is the product of $50,000 (the amount we have elected to sell) divided by $4,900,000 (the remaining amount we can sell Lincoln Park under the Purchase Agreement multiplied by 450,000 (the total number of pro rata commitment shares).  The pro rata commitment shares will only be issued pursuant to this formula as and when we elect at our discretion to sell stock to Lincoln Park.  Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

Purchase of Shares Under The Purchase Agreement

Under the Purchase Agreement, on any business day selected by us and as often as every two business days, we may direct Lincoln Park to purchase $30,000 of our common stock (subject to the $0.35 minimum purchase price being met).  The purchase price per share is equal to the lesser of:

the lowest sale price of our common stock on the purchase date; or

the average of the three lowest closing sale prices of our common stock during the 12 business days prior to the date that notice is received by Lincoln Park.
 
The purchase price will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute the purchase price.  In addition to the $30,000 purchase amount, GelTech may accelerate the amounts of the purchases. The price at which Lincoln would purchase accelerated amounts of our stock will be the lesser of (i) the lowest sale price of our common stock on the purchase date and (ii) the lowest purchase price (as described above) during the previous 10 business days prior to the purchase date.  The actual amount of money we can receive from Lincoln Park every two-business days will be based upon the price of our common stock, as follows:
 
PRICE PER SHARE
 
AMOUNT OF MONEY
$0.35 - $0.89
 
$30,000
$0.90 - $1.19
 
$90,000
$1.20 - $1.99
 
$150,000
$2.00 - $2.49
 
$270,000
$2.50 or Higher
 
$530,000
 
The actual number of shares we sell will be determined by dividing the payment to us by the actual purchase price per share.

 
44

 
 
Minimum Purchase Price

Under the Purchase Agreement, we have set a minimum purchase price of $0.35.  We will not sell to Lincoln Park shares of common stock below $0.35. Specifically, Lincoln Park shall not have the right or the obligation to purchase shares of our common stock on any business day that the market price of our common stock is below $0.35.
 
Events of Default

The Purchase Agreement contains a number of events constituting an “Event of Default”, including:

while any registration statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the registration statement (including, without limitation, the issuance of a stop order) or is unavailable to Lincoln Park for sale of our common stock offered hereby and such lapse or unavailability continues for a period of 30 consecutive business days or for more than an aggregate of 60 business days in any 365-day period;

suspension by our principal market of our common stock from trading for a period of three consecutive business days;

the delisting of our common stock from our principal market provided our common stock is not immediately thereafter trading on the OTC Bulletin Board or any national securities exchange;
 
ceasing to be DTC eligible and/or failing to participate on the DWAC F.A.S.T. system;
 
our transfer agent’s failure for five business days to issue to Lincoln Park shares of our common stock which Lincoln Park is entitled to under the Purchase Agreement;

any material breach of the representations or warranties or covenants contained in the purchase agreement or any related agreements which has or which could have a material adverse effect on us subject to a cure period of five business days; or

any participation in insolvency or bankruptcy proceedings by or against us.

In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of any party.  During an event of default, all of which are outside the control of Lincoln Park, shares of our common stock cannot be sold by us or purchased by Lincoln Park under the terms of the Purchase Agreement.
 
No Short-Selling or Hedging by Lincoln Park

Lincoln Park has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase Agreement.
 
 
45

 
 
Effect of Performance of the Purchase Agreement on Our Shareholders

All shares of common stock that are registered in this offering are expected to be freely tradable.  It is anticipated that shares registered in this offering will be sold over a period ending in July 2015.  The sale by Lincoln Park of a significant amount of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile.  Lincoln Park may ultimately acquire all, some or none of the shares of common stock not yet issued but registered in this offering.  After it has acquired such shares, it may sell all, some or none of such shares. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. However, we have the right to control the timing and amount of any sales of our shares to Lincoln Park and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.

In connection with entering into the Purchase Agreement, we authorized the sale to Lincoln Park of up to $5.0 million of our common stock exclusive of the 600,000 commitment shares issued, or to be issued. The number of shares ultimately offered for sale by Lincoln Park under this prospectus is dependent upon the number of shares purchased by Lincoln Park under the Purchase Agreement.  The following table sets forth the amount of proceeds we would receive from Lincoln Park from the sale of shares at varying purchase prices:
 
Assumed Average
Purchase Price
($)
 
Number of Registered
Shares to be Issued if
Full Purchase (1)
   
Percentage of Outstanding
Shares After Giving Effect to the
Issuance to Lincoln Park (2)(3)
   
Additional Proceeds from the Sale of
Registered Shares
to Lincoln Park Under the
Purchase Agreement
($)
 
$0.35 (4)
 
3,750,119
   
13.95%
   
1,271,666.55
 
$0.64 (5)
 
3,846,884
   
14.26%
   
2,325,333.12
 
$1.00
 
3,967,006
   
14.64%
   
3,633,333.00
 
$2.00
 
2,900,000
   
11.14%
   
4,900,000.00
 
$3.00
 
2,083,333
   
8.26%
   
4,900,000.00
 
_________
(1) 
Although the Purchase Agreement provides that we may sell up to an additional $4,900,000 of our common stock to Lincoln Park, we are only registering 3,633,333 shares to be purchased thereunder (not including the initial shares already purchased), which may or may not cover all such shares purchased by them under the Purchase Agreement, depending on the purchase price per share.  As a result, we have included in this column only those shares which are registered in this offering.
  
(2)
The number of registered shares to be issued includes the additional commitment shares issuable to Lincoln Park (but not the initial commitment shares), and no proceeds will be attributable to such commitment shares.
 
(3)
The denominator is based on 22,810,747 shares outstanding, and includes the 316,667 shares previously issued to Lincoln Park under the Purchase Agreement and the number of shares set forth in the adjacent column which includes the commitment fee issued pro rata up to the additional $4.9 million of our stock if purchased by Lincoln Park. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding assumed purchase price set forth in the adjacent column.
 
(4) 
Under the Purchase Agreement, GelTech may not sell and Lincoln Park cannot purchase any shares in the event the price of our stock is below $0.35.
 
(5)
The closing price of our common stock on January 3, 2012.
 
 
46

 
 
SELLING SHAREHOLDER

The shares of common stock being offered by the selling shareholder are to be issued to Lincoln Park under the Purchase Agreement.  Except for the Prior Agreements, Lincoln Park has not had any material relationship with us within the past three years.

We do not know when or in what amounts Lincoln Park may offer shares for sale.  Lincoln Park may not sell any or all of the shares offered by this prospectus.  Because Lincoln Park may offer all or some of the shares, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares, we cannot estimate the number of the shares that will be held by Lincoln Park after completion of the offering.  However, for purposes of this table, we have assumed that, after completion of the offering, all of the shares covered by this prospectus will be sold by Lincoln Park.
 
The following table presents information regarding Lincoln Park.  The information concerning beneficial ownership has been taken from our stock transfer records and information provided by Lincoln Park.

Selling Shareholder
 
Shares Beneficially
Owned Before
Offering
   
Percentage of
Outstanding Shares
Beneficially Owned
Before Offering
   
Shares to be
Sold
in the Offering
Assuming
GelTech Issues
Maximum No.
of Shares
in the Offering
   
Percentage of
Outstanding Shares
Beneficially Owned
After Offering
 
Lincoln Park Capital Fund, LLC (1)
    1,100,498 (2)     4.82 % (2)     4,400,000 (3)     2.9 %
_________
(1)
Josh Scheinfeld and Jonathan Cope, the principals of Lincoln Park, are deemed to be beneficial owners of all of the shares of common stock owned by Lincoln Park. Messrs. Scheinfeld and Cope have shared voting and disposition power over the shares being offered under this prospectus.
   
(2)
Includes 783,831 shares of our common stock previously issued to Lincoln Park pursuant to the Prior Agreement executed in September 2010. The agreement was terminated in January 2012. Also includes 166,667 shares issued upon the filing of this registration statement for $100,000 in proceeds and 150,000 shares issued as commitment shares.   We may at our discretion elect to issue to Lincoln Park up to an additional 4,083,333 shares of our common stock under the Purchase Agreement but Lincoln Park does not beneficially own any such shares that may be issued by us at our sole discretion and such shares are not included in determining the percentage of shares beneficially owned before the offering.  Also not included in Lincoln Park’s beneficial ownership is 200,000 shares issuable upon the exercise of warrants.
   
(3)
This number includes 3,800,000 shares of common stock, the maximum number of shares to be sold in the offering, plus 600,000, the total commitment shares to be issued assuming GelTech offers the maximum number of shares under the Purchase Agreement.
   

 
47

 
 
DESCRIPTION OF SECURITIES

We are authorized to issue 50,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share.

Common Stock

The holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the election of directors. There is no cumulative voting in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities.

Preferred Stock

We are authorized to issue 5,000,000 shares of $0.001 par value preferred stock in one or more series with such designations, voting powers, if any, preferences and relative, participating, optional or other special rights, and such qualifications, limitations and restrictions, as are determined by resolution of our board of directors. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by shareholders and could adversely affect the rights and powers, including voting rights, of the holders of common stock. In certain circumstances, the issuance of preferred stock could depress the market price of the common stock.
 
Anti-takeover Effects of Delaware Law

We are subject to the “business combination” provisions of Section 203 of the Delaware General Corporation Law.  In general, such provisions prohibit a publicly-held Delaware corporation from engaging in various “business combination” transactions such as a merger with any interested shareholder which includes, a shareholder owning 15% of a corporation’s outstanding voting securities, for a period of three years after the date in which the person became an interested shareholder, unless:
 
The transaction is approved by the corporation’s Board prior to the date the shareholder became an interested shareholder;
 
Upon closing of the transaction which resulted in the shareholder becoming an interested shareholder, the shareholder owned at least 85% of the shares of stock entitled to vote generally in the election of directors of the corporation outstanding excluding those shares owned by persons who are both directors and officers and specified types of employee stock plans; or
 
On or after such date, the business combination is approved by the Board and at least 66 2/3% of outstanding voting stock not owned by the interested shareholder.

A Delaware corporation may opt out of Section 203 with either an express provision in its original Certificate of Incorporation or an amendment to its Certificate of Incorporation or Bylaws approved by its shareholders. We have not opted out of this Statute.  This Statute could prohibit, discourage or delay mergers or other takeover attempts to acquire us.

 
48

 
 
Dividends

We have not paid dividends on our common stock since inception and do not plan to pay dividends on our common stock in the foreseeable future.

Transfer Agent

We have appointed Transfer Online, Inc. of Portland, Oregon is acting as our stock transfer agent. Their contact information is: 512 SE Salmon Street, Portland, Oregon 97214, phone number (503) 227-2950, facsimile (503) 227-6874, www.transferonline.com.

PLAN OF DISTRIBUTION

The common stock offered by this prospectus is being offered by Lincoln Park, the selling shareholder.  The common stock may be sold or distributed from time to time by the selling shareholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed.  The sale of the common stock offered by this prospectus may be effected in one or more of the following methods:

ordinary brokers’ transactions;
 
transactions involving cross or block trades;

through brokers, dealers, or underwriters who may act solely as agents;
 
“at the market” into an existing market for the common stock;

in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;
 
in privately negotiated transactions; or

any combination of the foregoing.
 
 
49

 
 
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers.  In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the registration or qualification requirement is available and complied with.

Brokers, dealers, underwriters, or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling shareholder and/or purchasers of the common stock for whom the broker-dealers may act as agent.  The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions.

Lincoln Park is an “underwriter” within the meaning of the Securities Act.

Neither we nor Lincoln Park can presently estimate the amount of compensation that any agent will receive.  We know of no existing arrangements between Lincoln Park, any other shareholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares offered by this prospectus.  At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters, or dealers and any compensation from the selling shareholder, and any other required information.
 
We will pay all of the expenses incident to the registration, offering, and sale of the shares to the public other than commissions or discounts of underwriters, broker-dealers, or agents.  We have also agreed to indemnify Lincoln Park and related persons against specified liabilities, including liabilities under the Securities Act.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable.

Lincoln Park and its affiliates have agreed not to engage in any direct or indirect short selling or hedging of our common stock during the term of the Purchase Agreement.

We have advised Lincoln Park that while it is engaged in a distribution of the shares included in this prospectus it is required to comply with Regulation M promulgated under the Securities Exchange Act of 1934.  With certain exceptions, Regulation M precludes the selling shareholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete.  Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security.  All of the foregoing may affect the marketability of the shares offered hereby this prospectus.

This offering will terminate on the date that all shares offered by this prospectus have been sold by Lincoln Park.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling GelTech pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
 
 
50

 
 
LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for us by Harris Cramer LLP, Palm Beach Gardens, Florida.  

EXPERTS

The consolidated financial statements appearing in this prospectus and registration statement for the years ended June 30, 2011 and 2010 have been audited by Salberg & Company, P.A., an independent registered public accounting firm as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1, including the exhibits, schedules, and amendments to this registration statement, under the Securities Act with respect to the shares of common stock to be sold in this offering.  This prospectus, which is part of the registration statement, does not contain all the information set forth in the registration statement.  For further information with respect to us and the shares of our common stock to be sold in this offering, we make reference to the registration statement.  We are an Exchange Act reporting company and are required to file periodic reports on Form 10-K and 10-Q and current reports on Form 8-K.  You may read and copy all or any portion of the registration statement or any other information, which we file at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549, on official business days during the hours of 10:00 AM to 3:00 PM.   You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC.  Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.  Also, the SEC maintains an internet site that contains reports, proxy and information statements, and other information that we file electronically with the SEC, including the registration statement.  The website address is www.sec.gov.

 
51

 
 
 
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
    PAGE  
       
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and June 30, 2011
    F-2  
         
Condensed Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010 (Unaudited)
    F-3  
         
Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2011 and 2010 (Unaudited)
    F-4  
         
Notes to Condensed Consolidated Financial Statements (Unaudited) 
    F-5  
 
Report of Independent Registered Public Accounting Firm
    F-16  
         
Consolidated Balance Sheets
    F-17  
         
Consolidated Statements of Operations
    F-18  
         
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
    F-19  
         
Consolidated Statements of Cash Flows
    F-20  
         
Notes to Consolidated Financial Statements
    F-21  
 
 
F-1

 
 
 
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
 
 
             
   
 
 
   
As of
September 30,
   
As of
June 30,
 
   
2011
   
2011
 
   
(Unaudited)
   
 
 
ASSETS
             
Cash and cash equivalents
  $ 736,373     $ 1,956,976  
Accounts receivable trade, net
    110,687       103,824  
Inventories
    579,836       393,434  
Prepaid consulting
    -       42,500  
Prepaid expenses and other current assets
    44,701       29,784  
Total current assets
    1,471,597       2,526,518  
                 
Furniture, fixtures and equipment, net
    224,195       209,822  
Deposits
    15,631       15,631  
                 
Total assets
  $ 1,711,423     $ 2,751,971  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 
Accounts payable
  $ 345,085     $ 270,864  
Accrued expenses
    72,192       168,445  
Insurance premium finance contract
    11,533       10,227  
Total current liabilities
    428,810       449,536  
                 
Convertible note
    1,497,483       1,497,483  
Total liabilities
    1,926,293       1,947,019  
                 
Commitments and contingencies (Note 5)
               
                 
Stockholder's equity (deficit)
               
Preferred stock: $0.001 par value; 5,000,000 shares authorized;
               
 no shares issued and outstanding
    -       -  
Common stock: $0.001 par value; 50,000,000 shares authorized;
               
22,134,570 and 22,104,570 shares issued and outstanding as of September 30, 2011 and June 30, 2011, respectively.
    22,135       22,105  
Additional paid in capital
    16,895,368       16,452,674  
Accumulated deficit
    (17,132,373 )     (15,669,827 )
Total stockholders'  equity (deficit)
    (214,870 )     804,952  
                 
Total liabilities and stockholders' equity (deficit)
  $ 1,711,423     $ 2,751,971  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
F-2

 
 
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(UNAUDITED)
 
             
             
 
 
For the Three Months Ended 
September 30,
 
   
2011
   
2010
 
             
Sales
  $ 178,402     $ 28,557  
                 
Cost of goods sold
    75,240       8,664  
 
               
Gross profit
    103,162       19,893