UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 0-52993

GelTech Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware		56-2600575
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1460 Park Lane South, Suite 1, Jupiter, Florida		33458
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (561) 427-6144

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ     No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ     No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ¨		Accelerated filer   ¨
Non-accelerated filer     ¨		Smaller reporting company  þ
(Do not check if a smaller reporting company)		Emerging growth company  ¨

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o     No  þ

 

Class		Outstanding at August 11, 2017
Common Stock, $0.001 par value per share		62,745,856 shares

 

  

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Table of Contents

 

	PART I – FINANCIAL INFORMATION
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS.	1
	Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016	1
	Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (Unaudited)	2
	Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (Unaudited)	3
	Condensed Notes to Consolidated Financial Statements (Unaudited)	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	18
ITEM 4.	CONTROLS AND PROCEDURES.	18
	PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS.	19
ITEM 1A.	RISK FACTORS.	19
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	19
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	19
ITEM 4.	MINE SAFETY DISCLOSURES.	19
ITEM 5.	OTHER INFORMATION.	19
ITEM 6.	EXHIBITS.	19
SIGNATURES		20

 

  

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PART I – FINANCIAL INFORMATION

 

ITEM 1. 

CONSOLIDATED FINANCIAL STATEMENTS.

 

GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		As of June 30,				As of December 31,
		2017				2016
		(Unaudited)
ASSETS
Cash		$	124,327			$	151,184
Accounts receivable trade, net			99,327				108,659
Inventories			1,328,327				1,662,429
Prepaid expenses and other current assets			60,426				109,801
Total current assets			1,612,407				2,032,073
Furniture, fixtures and equipment, net			209,559				253,294
Inventory not expected to be realized within one year			479,486				—
Deposits			16,086				16,086
Total assets		$	2,317,538			$	2,301,453
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable		$	224,273			$	141,794
Accrued expenses			314,229				521,781
Settlement accrual			—				26,789
Deferred revenue			—				6,667
Insurance premium finance contract			8,418				51,957
Total current liabilities			546,920				748,988
Convertible notes - related party, net of discounts			2,961,496				2,956,407
Convertible line of credit – related party, net of discounts			5,233,429				4,959,674
Total liabilities			8,741,845				8,665,069
Stockholders’ deficit
Preferred stock: $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock: $0.001 par value; 150,000,000 shares authorized; 60,778,617 and 53,605,180 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.			60,779				53,605
Additional paid in capital			43,551,469				41,540,705
Accumulated deficit			(50,036,555	)			(47,957,926	)
Total stockholders' deficit			(6,424,307	)			(6,363,616	)
Total liabilities and stockholders' deficit		$	2,317,538			$	2,301,453

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

  

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2017				2016				2017				2016
Sales		$	181,469			$	484,934			$	570,505			$	703,304
Cost of goods sold			53,411				135,112				184,641				211,135
Gross profit			128,058				349,822				385,864				492,169
Operating expenses:
Selling, general and administrative expenses			1,011,289				1,005,203				2,017,923				2,179,675
Research and development			10,239				37,514				22,830				155,463
Total operating expenses			1,021,528				1,042,717				2,040,753				2,335,138
Loss from operations			(893,470	)			(692,895	)			(1,654,889	)			(1,842,969	)
Other income (expense)
Other income			—				300,000				—				300,000
Interest income			3				3				8				6
Gain (loss) on conversion of interest			—				—				—				(72,765	)
Loss on extension of warrants			—				—				—				(206,620)
Loss on settlement			—				(320,631	)			—				(320,631	)
Interest expense			(211,216	)			(173,870	)			(423,748	)			(327,384	)
Total other income (expense)			(211,213	)			(194,498	)			(423,740	)			(627,394	)
Net loss		$	(1,104,683	)		$	(887,393	)		$	(2,078,629	)		$	(2,470,363	)
Net loss per common share - basic and diluted		$	(0.02	)		$	(0.02	)		$	(0.04	)		$	(0.05	)
Weighted average shares outstanding - basic and diluted			58,253,159				50,409,090				56,487,308				49,894,633

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		For the Six Months Ended June 30,
		2017				2016
Cash Flows from Operating Activities
Reconciliation of net loss to net cash used in operating activities:
Net loss		$	(2,078,629	)		$	(2,470,363	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense (recovery)			—				(21,875	)
Depreciation			44,992				34,990
Amortization of debt discounts			98,166				65,654
Loss (gain) on conversion of interest			—				72,765
Options  issued for services			30,703				44,477
Loss on extension of warrants			—				206,620
Stock option compensation expense			133,683				298,808
Changes in assets and liabilities:
Accounts receivable			9,332				(18,547	)
Settlement receivable			—				(300,000	)
Inventories			(145,384	)			30,818
Prepaid expenses and other current assets			49,375				63,569
Accounts payable			84,279				(67,235	)
Deferred revenue			(6,667	)			14,667
Settlement accrual			(26,789	)			240,631
Accrued expenses			299,323				276,206
Net cash used in operating activities			(1,507,616	)			(1,528,815	)
Cash flows from Investing Activities
Purchases of equipment			(1,257	)			(153,943	)
Net cash used in investing activities			(1,257	)			(153,943	)
Cash flows from Financing Activities
Proceeds from sale of stock under stock purchase agreement			210,555				407,275
Proceeds from sale of stock and warrants			1,115,000				150,000
Proceeds from advances on convertible line of credit with related parties			200,000				1,205,000
Payments on insurance finance contract			(43,539	)			(46,598	)
Net cash provided by financing activities			1,482,016				1,715,677
Net (decrease) increase in cash			(26,857	)			32,919
Cash - beginning			151,184				135,266
Cash - ending		$	124,327			$	168,185

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

Continued

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

		For the Six Months Ended June 30,
		2017				2016
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		$	1,129			$	1,188
Cash paid for income taxes		$	—			$	—
Supplementary Disclosure of Non-cash Investing and Financing Activities:
Beneficial conversion feature of convertible notes		$	9,661			$	105,116
Loan discount from warrants		$	9,661			$	105,116
Options issued for legal services, recorded as prepaid expense		$	30,703			$	—
Stock issued for services		$	1,800			$	11,267
Stock issued for accrued interest		$	506,875			$	298,177

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

NOTE 1 – Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

GelTech Solutions, Inc., or GelTech or the Company, generates revenue primarily from marketing products based around the following four product categories (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in urban firefighting, including fires in underground utility structures, and in wildland firefighting and as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) FireIce Shield®, a line of products used in industry by manufacturers, plumbers, and welders, and by police departments and first responders to protect assets from fire; (3) Soil₂O® “Dust Control”, our application which is used for dust mitigation in the aggregate, road construction and mining Soil₂O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion, and (4) Soil₂O®, a product which reduces the use of water and is primarily marketed to golf courses and commercial landscapers and most recently to homeowners via the Soil₂O® Home Lawn Kit.

The Company also markets equipment that is used to apply these primary products including (1) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire or explosion, (2) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires and (3) the FireIce Shield CTP System, a mobile spray unit that can be used to protect communication tower electronics during hot work.

Our unaudited condensed 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 GelTech.

The corporate office is located in Jupiter, Florida.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries: FireIce Gel, Inc., GelTech International, Inc. and Weather Tech Innovations, Inc. There has been no activity in FireIce Gel, Inc., Weather Tech Innovations, Inc. and GelTech International, Inc.  

These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (”SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by "GAAP" for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The information included in these unaudited consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained in this report and the audited consolidated financial statements and accompanying notes included in the Company’s Report on Form 10-K for the year ended December 31, 2016 filed on March 28, 2017.

Inventories

Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out method. Inventories as of June 30, 2017 consisted of raw materials and finished goods in the amounts of $980,316 and $827,497, respectively. As June 30, 2017, the Company had approximately $18,541 of consignment inventory consisting of FireIce 561 and FireIce HVOF with certain customers.  As of June 30, 2017, the Company estimated that raw materials in the amount $479,486 would most likely not be consumed in the next twelve months and therefore reclassified that amount to long term inventory in the unaudited consolidated balance sheet.  

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Significant estimates for the six months ended June 30, 2017 include the allowance for doubtful accounts, depreciation and amortization, valuation and classification of inventories, valuation of options and warrants granted for services or settlements, valuation of common stock granted for services or debt conversion, valuation of debt discount related to the beneficial conversion feature of convertible notes, accruals for litigation losses and the valuation of deferred tax assets.

Revenue Recognition

Revenue from sales of products is recognized when persuasive evidence of an arrangement exists, products have been shipped to the customer, economic risk of loss has passed to the customer, the price is fixed or determinable, collection is reasonably assured, and any future obligations of the Company are insignificant. Revenue is shown net of returns and allowances. The Company provides certain customers with the right of return for unsold product. Sales to these customers are recorded as the customer sells the product, thus removing the right of return.

Products shipped from either our third-party fulfillment companies or our Jupiter, Florida or Irwindale, California locations are shipped FOB shipping point. Normal payment terms are net 30 days depending on the arrangement we have with the customer. As such, revenue is recognized when product has been shipped from either the third-party fulfillment company or from the Jupiter, Florida or Irwindale, California locations.

The Company follows the guidance of ASC 705-20 “Accounting for Consideration Received from a Vendor” and ASC 605-50, “Revenue Recognition, Customer Payments and Incentives”. Accordingly, any incentives received from vendors are recognized as a reduction of the cost of products. Promotional products or samples given to customers or potential customers are recognized as a cost of goods sold. However, products we utilize to perform demonstrations for potential customers are recorded as a marketing expense in operations.

Net Earnings (Loss) per Share

The Company computes net earnings (loss) per share in accordance with ASC 260-10, “Earnings per Share.” ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The Company’s diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.  At June 30, 2017, there were options to purchase 11,996,340 shares of the Company’s common stock, warrants to purchase 14,570,450 shares of the Company’s common stock and 24,221,161 shares of the Company’s common stock are reserved for convertible notes which may dilute future earnings per share.

Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.

The Company accounts for non-employee stock-based compensation in accordance with ASC 505-50-25, “Equity Based Payments to Non-Employees,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to non-employees based on estimated fair values.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

Determining Fair Value Under ASC 718-10

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Company’s determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.

The Company estimates expected volatility based upon the historical stock price of the Company and estimates the expected term for employee stock options using the simplified method for employees and directors and the contractual term for non-employees.  The risk free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.

The fair values of stock options and warrants granted during the period from January 1, 2017 to June 30, 2017 were estimated using the following assumptions:

Risk free interest rate		0.58% - 1.63%
Expected term (in years)		2.0 - 4.0
Dividend yield		––
Volatility of common stock		79.39% - 105.41%
Estimated annual forfeitures		––

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 and apply the full retrospective approach. Because the Company's primary source of revenues is sales of products, the Company believes the impact of this new standard will be immaterial to the results of operations and will only impact the Company’s disclosure.

In February 2016, the FASB issued ASU 2016-02, Leases. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.  Because the Company has not entered into any lease transactions, there will be no impact to the Company by this standard.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718).  The objective of this release was to provide further guidance as to when changes to the terms and conditions of share-based payments require an entity to apply modification accounting.  The ASU provides that modification accounting shall be used unless three specific criteria are met.  Because the Company has always used modification accounting for changes in the terms and condition of equity-based payments, there will be no impact to the Company by this standard.

No additional Accounting Standards Updates (ASUs) which were not effective until after June 30, 2017 are expected to have a significant effect on the Company's consolidated financial position or results of operations.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

NOTE 2 – Going Concern

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize it assets and discharge its liabilities in the normal course of business.  As of June 30, 2017, the Company had an accumulated deficit and stockholders’ deficit of $50,036,555 and $6,424,307, respectively, and incurred losses from operations and net losses of $1,654,889 and $2,078,629, respectively, for the six months ended June 30, 2017 and used cash in operations of $1,507,616 during the six months ended June 30, 2017.  In addition, the Company has not yet generated revenue sufficient to support ongoing operations. Management believes these factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

During the six months ended June 30, 2017, the Company received $200,000 in advances from its convertible line of credit with its chairman and principal shareholder and $1,115,000 from private placements with four accredited investors, including $500,000 from its chairman and principal shareholder. The Company also received $210,555 from Lincoln Park Capital Fund LLC in connection with a $10 million stock purchase agreement entered into in August 2015. See Note 4.

Management believes that the Purchase Agreement with Lincoln Park, additional funding from its chairman and principal shareholder and the revenue prospects from the Wildland industry provide the opportunity for the Company to continue as a going concern.  Ultimately, the continuation of the Company as a going concern is dependent upon the ability of the Company to generate sufficient revenue to attain profitable operations.

NOTE 3 – Convertible Note Agreements – Related Party

The Company currently has three debt facilities outstanding, all of them held by its chairman and principal shareholder.

One convertible note in the amount of $1,997,483, dated February 1, 2013 was a consolidation of prior debt instruments. The note bore annual interest of 7.5%, was convertible at $0.35 per share and due December 31, 2016. On February 12, 2015, this note was modified by securing the note with all the assets of the Company and by extending the due date of the note from December 31, 2016 to December 31, 2020. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification the Company recorded a loss on extinguishment of debt of $34,586 and all prior related debt discounts were fully amortized. During the six months ended June 30, 2017, the Company recognized interest expense of $74,290.  As of June 30, 2017, the principal balance of the note is $1,997,483 and accrued interest amounted to $61,156.

A second convertible note in the amount of $1,000,000 dated July 11, 2013 related to a new funding on that date. The note bore annual interest of 7.5%, was convertible at $1.00 per share and was due July 10, 2018. In connection with the note, the Company issued five–year warrants to purchase 500,000 shares of common stock at an exercise price of $1.30 per share. On February 12, 2015, this note was modified by securing the note with all the assets of the Company, by extending the due date of the note from July 10, 2018 to December 31, 2020 and by reducing the conversion rate of the note from $1.00 to $0.35 per share. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a loss on extinguishment of debt of $562,062. Also, in connection with the modification the Company recorded a note discount of $60,390, related to the relative fair value of the warrants attached to the note. For the six months ended June 30, 2017, the Company recorded interest expense of $5,089 related to the amortization of the note discounts related to the warrants. As of June 30, 2017, the balance of the unamortized discount related to the warrants was $35,987. As of June 30, 2017, the principal balance on this note is $1,000,000 and accrued interest amounted to $72,740.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

In connection with the February 2015 debt modifications described above, the Company entered into a Secured Revolving Convertible Promissory Note Agreement for a credit facility of up to $4 million with its chairman and principal shareholder. On April 8, 2016, the Company and its chairman and principal shareholder entered into the First Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $4 million to $5 million. On September 27, 2016, the Company and its chairman and principal shareholder entered into the Second Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $5 million to $6 million. Under the agreements, the Company may, with the prior approval of its chairman and principal shareholder, receive advances under the secured convertible credit facility. Each advance bears an annual interest rate of 7.5%, is due December 31, 2020 and is convertible at the rate equal to the closing price of the Company’s common stock on the day prior to the date the parties agree to the advance. In addition, the Company will issue the Company’s chairman and principal shareholder two year warrants to purchase shares of common stock at an exercise price of $2.00 per share. The number of warrants issued equals 50% of the number of shares issuable upon the conversion of the related advance.

For the six months ended June 30, 2017, the Company received two advances totaling $200,000 with conversion rates of $0.23 and $0.2785 per share, and issued two year warrants to purchase 396,925 shares of common stock at an exercise price of $2.00 per share. In connection with these advances, the Company has recorded loan discounts related to the warrants and the beneficial conversion features of the advances amounting to $9,661 and $9,661, respectively. During the six months ended June 30, 2017, the Company has recognized interest expense of $93,077 related to the amortization of loan discounts. As of June 30, 2017, the principal balance of the advances was $5,895,000 and the balance of the unamortized discounts related to the warrants and the beneficial conversion feature was $330,785 and $330,785, respectively. Accrued interest on the advances amounted to $165,933 as of June 30, 2017.

The calculated loan discounts for warranties were based on the relative fair value of the warrants which were calculated by the Company based on the Black Scholes option pricing model, using expected volatilities of between 97.04% and 99.04%, based on the Company’s historical stock price, discount rates from 1.19% to 1.22%, and expected terms of 2 years, the term of the warrants.

A summary of notes payable and related discounts as of June 30, 2017 is as follows:

		Principal				Unamortized Discount				Debt, Net of Discount
Related parties
Secured Convertible notes payable		$	2,997,483			$	(35,987	)		$	2,961,496
Secured Convertible Line of Credit			5,895,000				(661,570	)			5,233,430
Less current portion			—				—				—
Secured convertible notes payable and line of credit, net of current portion		$	8,892,483			$	(697,557	)		$	8,194,926

NOTE 4 – Stockholders’ Deficit

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock, par value $0.001 per share with such rights, preferences and limitation as may be set from time to time by resolution of the board of directors and the filing of a certificate of designation as required by Delaware General Corporation Law.

Common Stock

On August 12, 2015, GelTech signed a $10 million Purchase Agreement with Lincoln Park. The Company also entered into a Registration Rights Agreement with Lincoln Park whereby we agreed to file a registration statement related to the transaction with the SEC covering the shares that may be issued to Lincoln Park under the Purchase Agreement.

 

Under the terms and subject to the conditions of the Purchase Agreement, GelTech has the right to sell, and Lincoln Park is obligated to purchase, up to $10 million in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 30-month period commencing on the date that a registration statement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC.  The Company filed the registration statement with the SEC on October 5, 2015 and it was declared effective by the SEC on October 16, 2015.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

During the six months ended June 30, 2017, the Company issued 858,250 shares of common stock in exchange for $210,555 in connection with the Lincoln Park Purchase Agreement.

In May 2017, the Company issued 428,032 shares of common stock to its chairman and principal shareholder in payment of accrued interest of $149,811. The shares were valued at $107,008 based on the quoted trading price at the conversion agreement date.  The gain of $42,803 was recorded to paid in capital on the conversion as the conversion was by a related party.

In May 2017, the Company issued 1,275,277 shares of common stock to its chairman and principal shareholder in payment of accrued interest of $357,064 related to the advances under the Secured Revolving Convertible Promissory Note Agreement. The shares were valued at $320,095 based on the quoted trading price at the conversion agreement date.  The gain of $36,969 was recorded to paid in capital on the conversion as the conversion was by a related party.

During the six months ended June 30, 2017, the Company issued 7,172 shares of common stock in payment of consulting services valued at $1,800.

During the six months ended June 30, 2017, the Company issued 4,604,706 shares of common stock and two-year warrants to purchase 2,302,354 shares of common stock at $2.00 per share in exchange for $1,115,000 in connection with private placements with four accredited investors, including 2,063,069 shares and warrants to purchase 1,031,056 shares to the Company’s chairman and principal shareholder in exchange for $500,000.

Stock-Based Compensation

Stock-based compensation expense recognized under ASC 718-10 for the period January 1, 2017 to June 30, 2017, was $132,589 for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At June 30, 2017, the total compensation cost for stock options not yet recognized was approximately $86,579.  This cost will be recognized over the remaining vesting term of the options of approximately two years.

Stock-based awards granted to non-employees, in the form of warrants to purchase the Company’s common stock, are valued at fair value in accordance with the measurement and recognition criteria of ASC 505-50 "Equity Based payments to Non-Employees.” Stock based compensation to non-employees recognized for the six months ended June 30, 2017 was $1,094.

In June 2017, the Company granted five year options to purchase 150,000 shares of the Company’s common stock at an exercise price of $0.25 per share to an employee in connection with the employee’s appointment as an officer of the Company.  The options vested 25% immediately, with the remainder vesting annually over a three year period, subject to continued employment with the Company. The options were valued with the Black-Scholes option pricing model using an expected volatility of 79.39% based upon the historical price of the company’s stock, a term of four years, calculated using the simplified method and a risk-free rate of 1.63%.  The calculated fair value, $21,996 will be amortized ratably over the vesting period.

During the six months ended June 30, 2017 the Company granted five year options to purchase 150,000 shares of common stock at an exercise price of $0.275 per share in exchange for legal services.  The options were valued with the Black-Scholes option pricing model using an expected volatility of 99.06% based upon the historical price of the company’s stock, an expected term of five years, the term of the warrants and a risk-free rate of 1.88%.  The calculated fair value, $30,703 was recorded as prepaid expense and will be amortized over the twelve month service period.  For the six months ended June 30, 2017, $12,793 was amortized to expense.

Warrants to Purchase Common Stock

Warrants Issued for Cash or Services

In January 2016, the Company granted a one year extension for warrants to purchase 3,968,258 shares of common stock which were set to expire at various dates in 2016.  Of the warrants extended, 2,443,565 were held by our president and principal shareholder and a director.  In connection with the extension, the Company recorded other expense of approximately $207,000 for the six months ended June 30, 2016 representing the difference between the fair value of the old warrants and the extended warrants.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Unaudited)

NOTE 5 – Related Party Transactions

During the six months ended June 30, 2017, the Company issued warrants to its president and principal shareholder in exchange for cash as more fully described in Notes 3 and 4.

NOTE 6 – Concentrations

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2017. As of June 30, 2017, there were no cash balances held in depository accounts that are not insured.

At June 30, 2017, five customers accounted for 19.6, 13.0%, 12.9%, 10.7% and 10.3% of accounts receivable.

For the six months ended June 30, 2017, two customers accounted for 32.6% and 16.7% of sales.

Approximately 43.8% of revenue was generated from customers outside the United States during the six months ended June 30, 2017.

During the six months ended June 30, 2017, sales primarily resulted from three products, FireIce®, Soil₂O® and FireIce Shield® which made up 73.5%, 12.6% and 13.8%, respectively, of total sales. Of the FireIce® sales, 85.8% related to the sale of FireIce® products and 12.6% related to sales of the FireIce extinguishers and eductor equipment.  Of the Soil₂O® sales, 19.6% related to traditional sales of Soil₂O® and 80.4% related to sales of Soil₂O® Dust Control.  Of the FireIce Shield® sales, 22.8% consisted sales of asset protection canisters and refills, 25.8% related to FireIce Shield® CTP units and products, and 51.0% consisted of sale of spray bottles for use by welders and plumbers.  

One vendor accounted for 53.4% of the Company’s approximately $93,000 in purchases of raw material, finished goods and packaging during the six months ended June 30, 2017.

During the six months ended June 30, 2017, our chairman and principal shareholder provided 100% of the Company’s debt financing.  

NOTE 7 – Subsequent Events

In August 2017 (the “Effective Date”), the Company adopted the 2017 Equity Incentive Plan (“2017 Plan”) to replace the 2007 Equity Incentive Plan (the “2007 Plan”) that expired on January 31, 2017.  In accordance with the 2017 Plan, on the Effective Date, the Company issued 710,000 10-year stock option to its non-employee directors. The options have an exercise price of $0.2113 per share and vest on June 30, 2017, subject to continuing service as a director. The options were valued using the Black-Scholes model using an expected volatility of 80.03% (derived using the historical market price for the Company’s common stock), an expected term of 5.5 years (using the simplified method) and a discount rate of 1.91%. The fair value of these options, $100,959, will be recognized as expense over the requisite service period.  Outstanding derivative securities (i.e., stock appreciation rights and stock options) which were granted under the 2007 Plan will still be subject to the terms and conditions of the 2007 Plan and any agreement executed with respect to such security.

Since July 1, 2017, the Company has issued 1,942,239 shares of common stock and two year warrants to purchase 971,120 shares of common stock at an exercise price of $2.00 per share in exchange for $425,000 in connection with private placements with 2 accredited investors, including 520,834 shares and 260,417 warrants to its chairman and principal shareholder in exchange for $125,000.

In addition, the Company issued 25,000 shares of common stock in exchange for $6,000 in connection with a private placement with an accredited investor.

In August 2017, the Company issued ten year fully vested options to purchase 500,000 shares of common stock at an exercise price of $0.2039 per share to its CEO and CTO. The options were valued using the Black-Scholes model using an expected volatility of 80.03% (derived using the historical market price for the Company’s common stock), an expected term of 5.0 years (using the simplified method) and a discount rate of 1.82%. The fair value of these options, $65,833 will be recognized as expense during the three months ending September 30, 2017.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

ITEM 2. 

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

Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.  Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 28, 2017.

Overview

GelTech Solutions, Inc. (“GelTech” or the “Company”), generates revenue primarily from marketing products based around the following four product categories (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in wildland and urban firefighting, including fires in underground utility structures, and in wildland firefighting as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) FireIce Shield®, a line of products used by industry, police departments and first responders to protect assets from fire; (3) Soil₂O® “Dust Control”, our 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 commercial landscapers and most recently to homeowners via the Soil₂O® Home Lawn Kit. The Company also markets equipment that is used in the application of these primary products including (1) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire or explosion (2) the FireIce Shield CTP System, a mobile spray unit that can be used to protect communication tower electronics during hot work and (3) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires.

2017 Highlights

Thus far in 2017, we have added four additional state agencies to our Wildland line up and our FireIce products have also been used to successfully control a landfill fire in the Bahamas that has been burning for five years. The new name of our product listed on the United States Forest Service (Forest Service) Qualified Products List, FireIce 561, was accepted by the Forest Service. Further, we have installed and will be field testing an automated FireIce mixing and loading piece of equipment at three airbases this fire season, one in Colorado, one in Montana and one in Saskatchewan, and will be opening a new airbase and expanding an existing airbase in Oregon.

Training of new communication tower contractors on usage of the FireIce Shield CTP System slowed during the first quarter of 2017, partially from seasonality and also from reluctance by contractors to commit to the product until it is required by the cell tower owners. We have begun the process of expanding the cell tower program to the Southwestern United States and demonstrated the FireIce Shield CTP unit and products at the largest wireless communications trade show in May, sharing a booth with Crown Castle International, Inc. We received interest from several contractors in the southwest at the show.  Although revenues from this source have been immaterial to date, we continue to believe these customers will generate significant revenues in the future.  

Our utilities customers, including in the District of Columbia, have begun to make initial purchases of our FireIce UL Extinguishers and related refills for the extinguishers plus an initial purchase of a FireIce Rapid Response Unit, but we have not, as yet, seen broad acceptance of our EMFIDS units. In June, we hired a seasoned sales professional who has over 30 years of experience selling to the utility industry.  

Two of our manufacturing customers have begun to adopt the use of FireIce and FireIce Shield into additional manufacturing plant locations. We continue working with numerous other manufacturing facilities to explore other applications of our FireIce and FireIce Shield products. Our distributor, FireIce Solutions, has been successful in securing orders for our FireIce Shield spray bottles, canisters and welding blankets for use at four major shipyards.

We have successfully designed and quoted pricing for a system to prevent lithium-ion batteries from reaching runaway for use in installations that employ large banks of lithium-ion batteries as an alternative power source or for use in large central charging stations where lithium-ion batteries are recharged.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

During the six months ended June 30, 2017, the Company identified raw materials in the amount of $479,486 that the Company estimated would not be used within one year, based on current sales volumes. These materials have been reclassified to long term assets. The Company believes these raw materials will be realized and are necessary given the unpredictable nature of wildfire events and the need for the Company to be able to respond quickly.

Our unaudited 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.

RESULTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2017 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2016.

The following tables set forth, for the periods indicated, results of operations information from our interim unaudited consolidated financial statements:

 

		Six Months Ended June 30,								Change				Change
		2017				2016				(Dollars)				(Percentage)
Sales		$	570,505			$	703,304			$	(132,799	)			(18.9	%)
Cost of Goods Sold			184,641				211,135				(26,494	)			(12.6	%)
Gross Profit			385,864				492,169				(106,305	)			(21.6	%)
Operating Expenses:
Selling General and Administrative			2,017,923				2,179,675				(161,752	)			(7.4	%)
Research and Development			22,830				155,463				(132,633	)			(85.3	%)
Loss from Operations			(1,654,889	)			(1,842,969	)			188,080				10.2	%
Other Income (Expense)			(423,748	)			(627,394	)			203,654				(32.5	%)
Net Loss		$	2,078,629	)		$	(2,470,363	)		$	391,734				15.9	%

Sales

Sales of product during the six months ended June 30, 2017 consisted of $419,363 for FireIce® and related products, $71,646 for Soil₂O® and Soil₂O® Dust Control, $78,942 for FireIce Shield® and $554 for GT-W14.  FireIce® sales consisted of $359,891 related to product sales to wildland firefighting agencies and the Bahamas and $52,805 related to sales of extinguishers and product to our municipal distributor. The Soil₂O® sales consisted of sales of Soil₂O® topical of $14,025 and sales of Soil₂O® dust control of $57,621. Sales of FireIce Shield® consisted of sales of asset protection canisters, spray bottles and refills of $55,334 plus sales of FireIce Shield CTP systems and refills of $20,400.  Both FireIce® wildland sales and Soil₂O® dust control sales are seasonal in nature with both peak seasons lasting from March through October.  We anticipate FireIce Shield® sales to be less seasonal. We expect additional states to join our growing roster of wildland agencies using FireIce. In addition, our FireIce Shield product is gaining acceptance with welders, plumbers and others working under flammable and hot conditions. Based on these factors, we expect that our revenues will increase in the future.

Cost of Goods Sold

The decrease in cost of goods sold was the result of the decrease in sales Cost of sales as a percentage of sales was 32.4% for the six months ended June 30, 2017 as compared to 30.0% for the six months ended June 30, 2016. We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the six months ended June 30, 2017, but as always it is dependent upon the sales mix.

Selling, General and Administrative Expenses (SG&A)

The decrease in SG&A expenses for the six months ended June 30, 2017 resulted primarily from (1) a decrease in equity base compensation of $165,125 resulting from fewer warrants granted to consultants during the six months ended June 30, 2017; (2) a decrease in professional fees resulting from a reduction of fees related to litigation of approximately $113,580; (3) a decrease in investor relations expense of $40,186 as a result of a negotiated reduction in our monthly fee  and (4) a decrease in travel expense of $26,828 resulting from the relocation of our Wildland team to Colorado.  These decreases were partially offset by an increase in salaries and employee benefits of $125,066 as a result of the hiring of two sales professionals which were partially offset by a reduction of consulting.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2017 decreased $132,633 due to the inclusion of third party testing to determine the efficacy of GelTech’s products for new and existing applications during the six months ended June 30, 2016.

Loss from Operations

The decrease in loss from operations resulted from the lower operating expenses as described above.

Other Income (Expense)

Other expense for the six months ended June 30, 2017 consisted of interest expense of $423,748.  Other expense during the six months ended June 30, 2016 consisted of (1) interest expense of $327,384; (2) a loss on litigation settlement of $320,631 resulting from claims brought against the Company by a former employee, which was partially offset by a gain on settlement of $300,000 relating to a claim filed by the Company against its employment practices insurance carrier; (3) a loss on extending the term of certain warrants for an additional one year period of $206,620; and (4) a loss on conversion of interest of $72,765.

Net Loss

The lower net loss for the six months ended June 30, 2017 resulted from lower operating costs and lower other expense as described above. Net loss per common share was $0.04 and $0.05, respectively, for the six months ended June 30, 2017 and 2016. The weighted average number of shares outstanding for the six months ended June 30, 2016 and 2015 were 56,487,308 and 49,894,633, respectively.

FOR THE THREE MONTHS ENDED JUNE 30, 2017 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2016.

The following tables set forth, for the periods indicated, results of operations information from our interim unaudited consolidated financial statements:

 

		Three Months Ended June 30,								Change				Change
		2017				2016				(Dollars)				(Percentage)
Sales		$	181,469			$	484,934			$	(303,465	)			(62.7	%)
Cost of Goods Sold			53,411				135,112				(81,701	)			(60.5	%)
Gross Profit			128,058				349,822				(221,764	)			(63.4	%)
Operating Expenses:
Selling General and Administrative			1,011,289				1,005,203				6,086				(0.6	%)
Research and Development			10,239				37,514				(27,275	)			(72.7	%)
Loss from Operations			(893,470	)			(692,895	)			(200,575	)			29.0	%
Other Income (Expense)			(211,213	)			(194,498	)			(16,715	)			8.6	%
Net Loss		$	(1,104,683	)		$	(887,393	)		$	(217,290	)			(24.5	%)

Sales

Sales of product during the three months ended June 30, 2017 consisted of $122,475 for FireIce® and related products, $32,565 for Soil₂O®, $26,056 for FireIce Shield® and $374for GT-W14.  FireIce® sales consisted of $97,953 related to product sales primarily to wildland firefighting agencies and $21,856 related to sales of extinguishers and product to our municipal distributor. The Soil₂O® sales consisted of sales of Soil₂O® topical of $11,318 and sales of Soil₂O® dust control of $29,858. Sales of FireIce Shield® consisted primarily of sales of asset protection canisters and spray bottles of $24,846 And   Both FireIce® and Soil₂O® dust control sales are seasonal in nature with both peak seasons lasting from March through October.  We anticipate that FireIce Shield® sales will be less seasonal. We expect additional states to join our growing roster of wildland agencies using FireIce. In addition, our FireIce Shield product is gaining acceptance with welders, plumbers and others working under flammable and hot conditions. Based on these factors, we expect that our revenues will increase in the future.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

Cost of Goods Sold

The decrease in cost of goods sold was the result of the decrease in sales. Cost of sales as a percentage of sales was 29.4% for the three months ended June 30, 2017 as compared to 27.9% for the three months ended June 30, 2016.  We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the six months ended June 30, 2017, but as always is dependent upon the sales mix.

Selling, General and Administrative Expenses (SG&A)

There was a slight increase in SG&A expenses for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016.  Increase in salaries and employee benefits of $44,421 resulting from additional sales professionals and an increase in general and administrative expenses of $14,395 were partially offset by a decrease in equity based compensation.

Research and Development Expenses

The research and development expenses for the three months ended June 30, 2017 related to third party testing of new applications of our products as well as development of new products and systems.

Loss from Operations

The increase in the loss from operations for the three months ended June 30, 2017 resulted from the lower gross profit and relatively flat operating expenses as described above.

Other Income (Expense)

Other expense for the three months ended June 30, 2017 consisted of interest expense of $211,216. Other expense during the three months ended June 30, 2016 consisted of (1) interest expense of $173,870 and (2) a loss on litigation settlement of $320,631 resulting from claims brought against the Company by a former employee, which was partially offset by a gain on settlement of $300,000 relating to a claim filed by the Company against its employment practices insurance carrier.

Net Loss

The higher net loss for the three months ended June 30, 2017 resulted from the lower gross profit which was only partially offset by the lower research and development expense and lower other expense as described above. Net loss per common share was $0.02 for the three months ended June 30, 2017 and 2016. The weighted average number of shares outstanding for the three months ended June 30, 2017 and 2016 were 58,253,159 and 50,409,090, respectively.

LIQUIDITY AND CAPITAL RESOURCES

A summary of our cash flows is as follows:

	Three Months Ended June 30,								Six Months Ended June 30,
	2017				2016				2017				2016
Net cash used in operating activities	$	(683,039	)		$	(649,362	)		$	(1,507,616	)		$	(1,528,815	)
Net cash used in investing activities		––				(101,585	)			(1,257	)			(153,943	)
Net cash provided by financing activities		682,719				836,646				1,482,016				1,715,677
Net increase (decrease) in cash	$	(320	)		$	85,699			$	(26,857	)		$	32,919

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

Net Cash Used in Operating Activities

Net cash used during the six months ended June 30, 2017 resulted primarily from the net loss of $2,078,629 and an increase in inventories of $145,384.  These were partially offset by depreciation of $44,992, amortization of debt discount of $98,166, stock based compensation of $133,693, increases in accounts payable and accrued liabilities of $84,279 and $299,323, respectively, and a decrease in prepaid expenses of $49,375.

Net cash used during the six months ended June 30, 2016 resulted primarily from the net loss of $2,470,363, a decrease in accounts payable of $78,502 and increases in accounts receivable and settlement receivable of $18,547 and $300,000, respectively, which were partially offset by the losses on extension of warrants and conversion of interest of $206,620 and $72,765, respectively, stock based compensation of $298,808 and increases in accrued liabilities and accrued settlements of, $276,206 and $240,631, respectively.

Net Cash Used in Investing Activities

The major difference in net cash used in investing activities for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 resulted from the purchase of equipment to mix and store our wildland product on airbases and for an additional vehicle for the Company’s wildland operations in 2016.

Net Cash Provided By Financing Activities

During the six months ended June 30, 2017, the Company received $1,115,000 in exchange for 4,604,706 shares of common stock and two year warrants to purchase 2,272,354 shares of common stock at an exercise price of $2.00 per share in connection with private placements with four accredited investors, including 2,063,069 shares and 1,031,536 warrants in exchange for $500,000 from its chairman and principal shareholder and received $200,000 from advances under the convertible line of credit facility from our chairman and principal shareholder.  In addition, the Company issued two year warrants to purchase 396,926 shares of common stock at an exercise price of $2.00 per share in connection with the convertible line of credit advances. The Company also received $210,555 in exchange for 858,250 shares of common stock in connection with a stock purchase agreement with Lincoln Park. The amounts received were used to make payments on insurance premium finance contracts of $43,539 as well as providing working capital.

During the six months ended June 30, 2016, the Company received $407,275 in exchange for 1,015,951 shares of common stock in connection with a stock purchase agreement with Lincoln Park, received $1,205,000 from advances under the $5 million secured convertible line of credit facility with our chairman and principal shareholder, and received $150,000 in exchange for 428,572 shares of common stock and two year warrants to purchase 214,286 shares of common stock at an exercise price of $2.00 per share in connection with private placements with a director and his wife. In addition, the Company issued two year warrants to purchase 1,491,593 shares of common stock at an exercise price of $2.00 per share in connection with the convertible line of credit advances. The amounts received were used to make payments on insurance premium finance contracts of $46,598, as well as providing working capital.

Historical Financings

Since January 1, 2017, GelTech has received $200,000 in advances, at conversion rates from $0.23 to $0.2785 per share against its convertible secured line of credit agreement with its chairman and principal shareholder. In connection with these advances the Company has issued two-year warrants to purchase 396,926 shares of common stock at $2.00 per share.  

Since January 1, 2017, the Company has received $210,555 in exchange for 858,250 shares of common stock in connection with the stock purchase agreement with Lincoln Park and has received $1,115,000 in exchange for 4,604,706 shares of common stock and two year warrants to purchase 2,302,354 shares of common stock at an exercise price of $2.00 per share in connection with private placements four accredited investors including our chairman and principal shareholder.

Liquidity and Capital Resource Considerations

As of August 11, 2017, we had approximately $168,000 in available cash.

In August 2015, GelTech signed a $10 million Purchase Agreement with Lincoln Park. The Company also entered into a Registration Rights Agreement with Lincoln Park whereby we agreed to file a registration statement related to the transaction with the SEC covering the shares that may be issued to Lincoln Park under the Purchase Agreement.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

Under the terms and subject to the conditions of the Purchase Agreement, GelTech has the right to sell, and Lincoln Park is obligated to purchase, up to $10 million in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 30-month period commencing on October 16, 2015. Failure of our stock price to increase to, and remain above, $0.25 per share will impact our ability to meet our working capital needs through Lincoln Park.

Until we generate sufficient revenue to sustain the business, our operations will continue to rely on Mr. Michael Reger’s investments and the Lincoln Park Purchase Agreement. If Mr. Reger were to cease providing us with working capital, our stock price were to remain below the floor price in the Purchase Agreement with Lincoln Park or we are unable to generate substantial cash flows from sales of its products or complete financings, the Company may not be able to remain operational. 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 support vehicles or mixing base equipment in the future, depending on demand.

 

Related Party Transactions

 

For information on related party transactions and their financial impact, see Note 5 to the Unaudited Consolidated Financial Statements.

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. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition.  

There were no material changes to our principal accounting estimates during the period covered by this report.

RECENT ACCOUNTING PRONOUNCEMENTS

 

For information on recent accounting pronouncements, see Note 1 to the Unaudited Consolidated Financial Statements.

 

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements including our liquidity and anticipated capital asset requirements and expected increase in sales of our products, revenues and number of states ordering our products. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the failure to receive material orders from the utility and mining companies, global and domestic economic conditions, budgetary pressures facing state and local governments, our failure to receive or the potential delay of anticipated orders for our products, failure to receive acceptance of FireIce® by State and Local governments, failure to obtain regulatory approval on our products, the failure to keep the Lincoln Park registration statement effective or Lincoln Park or our principal shareholder suffering unanticipated liquidity issues.

Further information on our risk factors is contained in our filings with the SEC, including our Prospectus dated April 7, 2017.  Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to smaller reporting companies

 

ITEM 4. 

CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

18

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

PART II – OTHER INFORMATION

 

ITEM 1. 

LEGAL PROCEEDINGS.

From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business.  As of the date of this report, the Company is not a party to any legal proceedings that could have a material effect on the Company’s business or financial condition.  

ITEM 1A.

RISK FACTORS.

 

Not applicable to smaller reporting companies.

ITEM 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In addition to those unregistered securities previously disclosed in reports filed with the SEC, we have sold securities without registration under the Securities Act of 1933, or the Securities Act, as described below:

Name or Class of Investor		Date of Sale		No. of Securities		Reason for Issuance
Consultant (1)		April 2017		7,172 shares of common stock		Consulting services valued at $1,800
Investors  (1)		April 2017 through June 2017		2,541,637 shares of common stock and two year warrants to purchase 1,240,818 shares at $2.00 per share		Private Placements with three accredited investors
Investors  (1)		July 2017 through August 10, 2017		1,421,405 shares of common stock and two year warrants to purchase 710,703 shares at $2.00 per share		Private Placements with one accredited investor

————————

(1)

Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder. The securities were issued to accredited investors and there was no general solicitation.

ITEM 3. 

DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM 4. 

MINE SAFETY DISCLOSURES.

Not Applicable

ITEM 5. 

OTHER INFORMATION.

None.

ITEM 6. 

EXHIBITS.

 

The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.

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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GELTECH SOLUTIONS, INC.
August 11, 2017		/s/ Peter Cordani
		Peter Cordani
		Chief Executive Officer (Principal Executive Officer)
August 11, 2017		/s/ Michael R. Hull
		Michael R. Hull
		Chief Financial Officer (Principal Financial Officer)

 

 

20

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INDEX TO EXHIBITS

				Incorporated by Reference						Filed or Furnished
No.		Exhibit Description		Form		Date		Number		Herewith
3.1		Certificate of Incorporation		Sb-2		7/20/07		3.1
3.2		Certificate of Amendment to the Certificate of Incorporation – Increase of Authorized Capital		10-Q		2/12/14		3.2
3.3		Amended and Restated Bylaws		Sb-2		7/20/07		3.2
3.4		Amendment No. 1 to the Amended and Restated Bylaws		10-K		9/28/10		3.3
3.5		Amendment No. 2 to the Amended and Restated Bylaws		8-K		9/26/11		3.1
3.6		Amendment No. 3 to the Amended and Restated Bylaws		8-K		9/27/12		3.1
4.1		2017 Equity Incentive Plan		8-K		8/10/17		4.1
10.1		Lincoln Park Purchase Agreement dated August 11, 2015		8-K		8/12/15		10.1
10.2		Lincoln Park Registration Rights Agreement dated August 11, 2015		8-K		8/12/15		10.2
10.3		Amendment No. 1 Lincoln Park Warrant		8-K		8/12/15		10.3
31.1		Certification of Principal Executive Officer (Section 302)								Filed
31.2		Certification of Principal Financial Officer (Section 302)								Filed
32.1		Certification of Principal Executive Officer and Principal Financial Officer (Section 906)								Furnished*
101 INS		XBRL Instance Document								Filed
101 SCH		XBRL Taxonomy Extension Schema								Filed
101 CAL		XBRL Taxonomy Extension Calculation Linkbase								Filed
101 LAB		XBRL Taxonomy Extension Label Linkbase								Filed
101 PRE		XBRL Taxonomy Extension Presentation Linkbase								Filed
101 DEF		XBRL Taxonomy Extension Definition Linkbase								Filed

———————

*

This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to GelTech Solutions, Inc., 1460 Park Lane South, Suite 1, Jupiter, Florida 33458, Attention: Corporate Secretary.