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 March 31, 2015


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 or a smaller reporting company.  See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.


Large accelerated filer

o

 

Accelerated filer

o

  

 

 

  

 

Non-accelerated filer  

o

(Do not check if a smaller reporting company)

Smaller reporting company

þ


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 May 8, 2015

Common Stock, $0.001 par value per share

  

47,585,843 shares

 

  




 


Table of Contents

 

 

PART I – FINANCIAL INFORMATION

 

                             

 

                             

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

1

 

 

 

 

Condensed Consolidated Balance Sheets as of  March 31, 2015 (Unaudited) and June 30, 2014

1

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2015 and 2014 (Unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2015 and 2014 (Unaudited)

3

 

 

 

 

Notes to Condensed 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.

16

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

17

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS.

18

 

 

 

ITEM 1A.

RISK FACTORS.

18

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

18

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

18

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

18

 

 

 

ITEM 5.

OTHER INFORMATION.

18

 

 

 

ITEM 6.

EXHIBITS.

18

 

 

 

SIGNATURES

 

19

 



  





 


 

PART I – FINANCIAL INFORMATION

 

ITEM 1. 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

As of

March 31,

 

 

As of

June 30,

 

 

 

2015

 

 

2014

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,146

 

 

$

66,266

 

Trade accounts receivable, net

 

 

77,237

 

 

 

35,276

 

Inventories

 

 

1,056,740

 

 

 

843,864

 

Prepaid expenses and other current assets

 

 

98,443

 

 

 

88,836

 

Total current assets

 

 

1,309,566

 

 

 

1,034,242

 

 

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment, net

 

 

145,428

 

 

 

175,751

 

Deposits

 

 

16,086

 

 

 

30,086

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,471,080

 

 

$

1,240,079

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

173,171

 

 

$

228,063

 

Accrued expenses

 

 

136,395

 

 

 

189,933

 

Litigation accrual

 

 

56,956

 

 

 

505,000

 

Insurance premium finance contract

 

 

35,295

 

 

 

13,574

 

Total current liabilities

 

 

401,817

 

 

 

936,570

 

 

 

 

 

 

 

 

 

 

Convertible secured notes - related party, net of discounts

 

 

2,938,386

 

 

 

2,201,824

 

Convertible secured line of credit - related party, net of discounts

 

 

591,907

 

 

 

 

Total liabilities

 

 

3,932,110

 

 

 

3,138,394

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Preferred stock: $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

 

Common stock: $0.001 par value; 100,000,000 shares authorized; 47,329,925 and 40,301,979 shares issued and outstanding as of March 31, 2015 and June 30, 2014, respectively.

 

 

47,330

 

 

 

40,302

 

Additional paid in capital

 

 

36,443,477

 

 

 

33,194,961

 

Accumulated deficit

 

 

(38,951,837

)

 

 

(35,133,578

)

Total stockholders' equity (deficit)

 

 

(2,461,030

)

 

 

(1,898,315

)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$

1,471,080

 

 

$

1,240,079

 



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

  




1



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


 

 

For the

Three Months Ended

March 31,

 

 

For the

Nine Months Ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

     

                        

   

  

                        

   

  

                        

   

  

                        

 

Sales

 

$

100,357

 

 

$

122,038

 

 

$

367,119

 

 

$

717,884

 

Cost of goods sold

 

 

34,812

 

 

 

44,661

 

 

 

127,228

 

 

 

306,734

 

Gross profit

 

 

65,545

 

 

 

77,377

 

 

 

239,891

 

 

 

411,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

1,072,676

 

 

 

1,296,995

 

 

 

3,501,373

 

 

 

5,223,267

 

Research and development

 

 

10,982

 

 

 

96,861

 

 

 

106,787

 

 

 

234,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

1,083,658

 

 

 

1,393,856

 

 

 

3,608,160

 

 

 

5,457,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,018,113

)

 

 

(1,316,479

)

 

 

(3,368,269

)

 

 

(5,046,809

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

200

 

 

 

 

 

 

448,622

 

 

 

17,000

 

Interest income

 

 

2

 

 

 

14

 

 

 

18

 

 

 

274

 

Gain (loss) on conversion of interest

 

 

12,841

 

 

 

(201,175

)

 

 

12,841

 

 

 

(201,175

)

Loss on extinguishment of debt

 

 

(596,648

)

 

 

 

 

 

(596,648

)

 

 

 

Loss on settlement

 

 

 

 

 

 

 

 

 

 

 

(11,413

)

Interest expense

 

 

(88,216

)

 

 

(111,795

)

 

 

(314,823

)

 

 

(351,559

)

Total other income (expense)

 

 

(671,821

)

 

 

(312,956

)

 

 

(449,990

)

 

 

(546,873

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,689,934

)

 

$

(1,629,435

)

 

$

(3,818,259

)

 

$

(5,593,682

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.09

)

 

$

(0.16

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

46,982,084

 

 

 

37,539,224

 

 

 

44,419,146

 

 

 

35,403,321

 











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





2



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


 

 

For the Nine Months Ended

March 31,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Net loss

 

$

(3,818,259

)

 

$

(5,593,682

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

40,703

 

 

 

41,391

 

Amortization of debt discounts

 

 

140,363

 

 

 

173,490

 

Bad debt expense

 

 

4,719

 

 

 

5,801

 

Employee stock option compensation expense

 

 

658,527

 

 

 

1,438,050

 

Loss on extinguishment of debt

 

 

596,648

 

 

 

 

Loss on disposal of assets

 

 

 

 

 

11,413

 

(Gain) loss on stock issued for interest

 

 

(12,841

)

 

 

201,175

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(46,680

)

 

 

(52,355

)

Inventories

 

 

(212,876

)

 

 

(259,781

)

Prepaid expenses and other current assets

 

 

80,318

 

 

 

(15,687

)

Other assets

 

 

14,000

 

 

 

 

Accounts payable

 

 

(54,892

)

 

 

(64,280

)

Accrued expenses

 

 

171,273

 

 

 

133,315

 

Litigation accrual

 

 

(448,044

)

 

 

 

Accrual for severance agreement

 

 

 

 

 

(98,537

)

Deferred revenue

 

 

 

 

 

(7,019

)

Net cash used in operating activities

 

 

(2,887,041

)

 

 

(4,086,706

)

 

 

 

 

 

 

 

 

 

Cash flows from Investing Activities

 

 

 

 

 

 

 

 

Purchases of equipment

 

 

(10,380

)

 

 

(72,851

)

Net cash used in investing activities

 

 

(10,380

)

 

 

(72,851

)

 

 

 

 

 

 

 

 

 

Cash flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from sale of stock through private placements

 

 

46,505

 

 

 

2,038,538

 

Proceeds from sale of stock under stock purchase agreement

 

 

 

 

 

570,000

 

Proceeds from sale of stock and warrants

 

 

2,305,000

 

 

 

730,000

 

Proceeds from exercise of warrants

 

 

 

 

 

25,000

 

Proceeds from exercise of stock options

 

 

 

 

 

18,200

 

Proceeds from advances on secured convertible line of credit – related party

 

 

625,000

 

 

 

 

Repayments of convertible notes with related parties

 

 

 

 

 

(85,880

)

Repayments of convertible notes with third parties

 

 

 

 

 

(115,822

)

Proceeds from convertible notes with related parties

 

 

 

 

 

1,000,000

 

Payments on insurance finance contract

 

 

(68,204

)

 

 

(39,705

)

Net cash provided by financing activities

 

 

2,908,301

 

 

 

4,140,331

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

10,880

 

 

 

(19,226

)

Cash and cash equivalents - beginning

 

 

66,266

 

 

 

90,275

 

Cash and cash equivalents - ending

 

$

77,146

 

 

$

71,049

 



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


Continued



3



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)


 

 

For the

Nine Months Ended

March 31,

 

 

 

2015

 

 

2014

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,353

 

 

$

2,911

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplementary Disclosure of Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Financing of prepaid insurance contracts

 

$

89,925

 

 

$

92,846

 

Beneficial conversion feature of convertible notes

 

$

16,771

 

 

$

311,949

 

Loan discount from warrants

 

$

 

 

$

601,949

 

Stock issued for interest payable

 

$

224,811

 

 

$

149,811

 

Conversion of notes for common stock

 

$

 

 

$

82,132

 



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





4



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(Unaudited)


NOTE 1 Organization and Basis of Presentation


Organization


GelTech Solutions, Inc., or GelTech or the Company, generates revenue primarily from marketing the following three products: (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in urban firefighting, including underground utility fires, and in wildland firefighting and as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) Soil 2 O® “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 (3) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire. In addition to the sale of FireIce® and Soil 2 O® “Dust Control” product, the Company also sells equipment such as eductors and extinguishers which are used to dispense our products. Other products currently being marketed include (1) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires; and (2) Soil 2 O®, a product which reduces the amount of water needed for irrigation and is primarily marketed to golf courses, commercial landscapers and the agriculture market. During the fourth quarter of fiscal 2014, the Company developed and began marketing two new products, (1) GT-W14, an industrial absorbent powder used to contain and clean up industrial liquid spills; and (2) Soil 2 O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion . 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 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 Weather Tech Innovations, Inc. and GelTech International, Inc. These unaudited condensed 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 condensed 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 Annual Report on Form 10-K for the year ended June 30, 2014 filed on September 29, 2014.


Accounts Receivable


Accounts receivable are customer obligations due under normal trade terms. Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. During the nine months ended March 31, 2015, the Company increased the provision for bad debt in the amount of $4,019 and then wrote-off accounts receivable in the amount of $34,803 against the allowance for bad debt.


Inventories


Inventories as of March 31, 2015 consisted of raw materials and finished goods in the amounts of $584,247 and $472,493, respectively.





5



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(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 three and nine months ended March 31, 2015 include the allowance for doubtful accounts, depreciation and amortization, valuation 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.


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 March 31, 2015, there were options to purchase 10,245,340 shares of the Company’s common stock, warrants to purchase 7,665,271 shares of the Company’s common stock and 10,969,864 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.


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 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 option and warrant grants for the period from July 1, 2014 to March 31, 2015 were estimated using the following assumptions:


Risk free interest rate

 

0.58% - 1.79%

Expected term (in years)

 

2.0 - 5.5

Dividend yield

 

––

Volatility of common stock

 

80.5% - 88.55%

Estimated annual forfeitures

 

––


New Accounting Pronouncements

 

Accounting Standards Updates which were not effective until after March 31, 2015 are not expected to have a significant effect on the Company's consolidated financial position or results of operations.




6



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(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 March 31, 2015, the Company had an accumulated deficit and stockholders’ deficit of $38,951,837 and $2,461,030, respectively, and incurred losses from operations of $3,368,269 for the nine months ended March 31, 2015 and used cash in operations of $2,887,041 during the nine months ended March 31, 2015. In addition, the Company has not yet generated revenue sufficient to support ongoing operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.


Management believes that the actions presently being taken which consist of cost cutting measures, improved marketing focus and a strategy to raise capital primarily from insiders on an as needed basis, 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. 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.


NOTE 3 – Convertible Note Agreement s


The Company currently has three debt facilities outstanding, all of them held by its President 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. During the nine months ended March 31, 2015, the Company recognized interest expense of $23,052 related to the amortization of the discount resulting from the beneficial conversion feature of the note. In February 2015, the Company issued 428,032 shares of common stock to its President and principal shareholder in payment of accrued interest of $149,811. The stock was valued at $0.32 per share or $136,970. As such, the Company recorded a gain on settlement of $12,841 which was included in other income. As of March 31, 2015, the principal balance of the note is $1,997,483 and accrued interest amounted to $18,880.


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. This discount will be amortized over the remaining term of the note. For the nine months ended March 31, 2015 the Company recorded interest expense of $70,915 and $36,750 related to the amortization of the discounts related to the beneficial conversion feature and the warrants, respectively, of the note originated in July 2013. Since the modification of the note, the Company has recorded interest expense of $1,238 related to the amortization of the discount on the modified note. As of March 31, 2015, the balance of the unamortized discount related to the warrants was $59,097. In July 2014, the Company issued 107,143 shares of common stock to its President and principal shareholder in payment of accrued interest of $75,000 on this convertible note (see Note 4). As of March 31, 2015, the principal balance on this note is $1,000,000 and accrued interest amounted to $54,247.

 



7



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(Unaudited)



In connection with the debt modifications described above, the Company entered into a secured convertible line of credit agreement for up to $4 million with its President and principal shareholder. Under the agreement, the Company may, with the prior approval of its President and principal shareholder, receive advances under the secured convertible line of credit. 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 President 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.


From February 13, 2015 through March 31, 2015, the Company received four advances totaling $625,000 with conversion rates between $0.24 and $0.27 per share, and issued two warrants to purchase 1,202,814 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 $16,771 and $16,771, respectively. During the nine months ended March 31, 2015, the Company has recognized interest expense of $449 related to the amortization of these loan discounts. As of March 31, the principal balance of the advances is $625,000 and the balance of the unamortized discounts related to the warrants and the beneficial conversion feature was $16,547 and $16,546, respectively.


The calculated loan discounts was based on the relative fair value of the warrants which was calculated by the Company using the Black Scholes option pricing model loan discount, using volatilities of between 80.5% and 87.3%, based on the Company’s historical stock price, discount rates from 0.58% to 0.70%, and expected terms of 2 years, the term of the warrants.


NOTE 4 – Stockholders’ Equity


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


During the three months ended March 31, 2015, the Company issued 652,174 shares of common stock and two year warrants to purchase 326,087 shares of common stock at an exercise price of $2.00 per share in exchange for $150,000 in connection with private placements with our President and principal stockholder.


On February 2, 2015, the Company issued 428,032 shares of common stock to its president and principal shareholder as payment for annual accrued interest of $149, 811 related to convertible note agreement dated February 1, 2013. In accordance with the convertible note, the conversion rate for the accrued interest was $0.35 per shares. The fair market value of the Company’s common stock was $0.32 on the date of conversion. As such the Company recorded other income of $12,841 for the three months ended March 31, 2015 in connection with the interest conversion.


During the three months ended December 31, 2014 the Company issued 3,525,269 shares of common stock and two year warrants to purchase 1,762,635 shares of common stock at an exercise price of $2.00 per share in exchange for $1,055,000 in connection with private placements with three accredited investors, including the issuance of 915,968 shares and 457,984 warrants to its President and principal shareholder in exchange for $250,000.


In December 2014, the Company issued 110,000 shares of common stock to two directors in exchange for $21,505.


During the three months ended September 30, 2014, the Company issued 2,205,328 shares of common stock and two year warrants to purchase 1,081,656 shares of common stock at an exercise price of $2.00 per shares in exchange for $1,125,000 in connection with private placements with three accredited investors, including the issuance of 1,953,227 shares and 976,614 warrants to its President and principal shareholder in exchange for $975,000.


In July 2014, the Company issued 107,143 shares of common stock to its President and principal shareholder in payment of accrued interest of $75,000 on a $1 million convertible note (see Note 3).



8



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(Unaudited)



Options to Purchase Common Stock


Stock-based compensation expense recognized under ASC 718-10 for the period July 1, 2014 to March 31, 2015, was $642,209 for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited condensed 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 March 31, 2015, the total compensation cost for stock options not yet recognized was approximately $445,236. This cost will be recognized over the remaining vesting term of the options of approximately two years.


Employee Options and Stock Appreciation Rights


In December 2014, the Company granted employees five year options to purchase a total of 215,000 shares of common stock at an exercise price of $0.23 per share. The options vested 25% immediately, with the remainder vesting in equal increments of 25% each year on the grant date over three years. The Company valued the options at $31,145 using the Black-Scholes option pricing model using a volatility of 87.78%, based upon the historical price of the Company’s common stock, an estimated term of 4.0 years, using the Simplified Method and a discount rate of 1.31%.


In August 2014, the Company granted two summer employees five year options allowing each employee to purchase 1,000 shares of common stock at an exercise price of $0.66 per share. The options all vested immediately. The Company valued the options at $682 using the Black-Scholes option pricing model using a volatility of 87.99%, based upon the historical price of the Company’s common stock, an estimated term of 2.5 years, using the Simplified Method and a discount rate of 0.63%.


Options Issued to Directors


As prescribed by the Company's 2007 Equity Incentive Plan, on July 1, 2014, the Company issued options to purchase 470,000 shares of common stock to directors. The options have an exercise price of $0.73 per share, vest on June 30, 2015¸ subject to continuing service as a director and bear a ten year term. The options were valued using the Black-Scholes model using a volatility of 88.55%, 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 1.79%. The value of these options of $245,441 will be recognized as expense over the one year vesting period.


On January 23, 2015, the Company issued 10 year options to purchase 10,000 shares of the Company’s common stock at an exercise price of $0.27 per share to a director in connection with his appointment as audit committee chairman. The options vest annually over a three year period on the anniversary of the grant, subject to continued service as the audit committee chairman. The Company valued the options at $1,974 using the Black-Scholes option pricing model using a volatility of 84.16%, based upon the historical price of the Company’s common stock, an estimated term of 6.5 years, using the Simplified Method, and a discount rate of 1.61%. The fair value will be recognized in expense over the vesting period of the options.


Non-Employee, Non-Director Options


During the nine months ended March 31, 2015, there were no options granted to non-employees or non-directors.


Warrants to Purchase Common Stock


Warrants Issued as Settlements


During the nine months ended March 31, 2015, there were no warrants granted for settlements.


Warrants Issued for Cash or Services


During the three months ended March 31, 2015, the Company issued two year warrants to purchase 1,202,814 shares of common stock at an exercise price at $2.00 per share in connection with advances from its President and principal shareholder pursuant to a secured convertible line of credit agreement.




9



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(Unaudited)



On March 17, 2015, the Company issued five year warrants to purchase 10,000 shares of common stock at an exercise price of $0.25 per share to a consultant in connection with services provided to our wildland firefighting efforts. The Company valued the warrants at $1,667 using the Black-Scholes option pricing model using a volatility of 84.08%, based upon the historical price of the Company’s common stock, an estimated term of 5 years, the term of the warrants, and a discount rate of 1.61%. The warrants vested immediately and therefore the fair value was recognized in expense during the three months ending March 31, 2015.


During the three months ended March 31, 2015, the Company issued two year warrants to purchase 326,087 shares of common stock at an exercise price of $2.00 per share in connection with a private placement with its President and principal shareholder.


On January 23, 2015, the Company granted 5 year warrants to purchase 100,000 shares of the Company’s common stock in exchange for legal services. The warrants vest immediately and are exercisable at $0.27 per share. The Company valued the warrants at $17,611 using the Black-Scholes option pricing model using a volatility of 81.85%, based upon the historical price of the Company’s common stock, an estimated term of 5 years, the term of the warrants, and a discount rate of 1.39%. The warrants vested immediately and therefore the fair value was recognized in expense during the three months ending March 31, 2015.


During the three months ended December 31, 2014, the Company issued two year warrants to purchase 1,762,635 shares of common stock at an exercise price of $2.00 per share in connection with private placements with three accredited investors, including the issuance of 457,984 warrants to its President and principal shareholder.


During the three months ended September 30, 2014, the Company issued two year warrants to purchase 1,081,656 shares of common stock at an exercise price of $2.00 per share in connection with private placements with three accredited investors, including the issuance of 976,614 warrants to its President and principal shareholder.


NOTE 5 – Commitments and Contingencies


The Company was sued by a former employee on June 23, 2008, alleging breach of a consulting agreement and an employment agreement entered into in May and June 2007, respectively. In addition, the plaintiff seeks to recover certain of his personal property, which was used or stored in the Company’s offices and alleges the Company invaded his privacy by looking at his personal computer (which was used in the Company’s business) in the Company’s offices. A jury trial was held for the lawsuit in July 2012. At the conclusion of the trial, the plaintiff was awarded $200,000 under his invasion of privacy and fraudulent misrepresentation claim, $5,000 on the trespass claim, $841,000 on the breach of consulting agreement claim and $200,000 against the Company’s CEO on a claim of civil theft, which by law results in an award of $600,000 for the plaintiff. The Company’s board of directors approved the indemnification of the Company’s CEO for the $600,000. The Company filed a post-trial motion for Judgment Notwithstanding Verdict, New Trial and Remittitur, requesting that the judge set aside or reduce the amounts of the jury verdict.


Based upon the verdicts, the Company recorded a litigation accrual of $1,646,000 as of June 30, 2012. In November 2012, the insurance carrier paid the plaintiff $200,000 in settlement of the invasion of privacy and fraudulent misrepresentation awards. As a result, the Company reduced the amounts accrued for these awards resulting in other income of $200,000 for the period ended December 31, 2012.


In January 2013, the court ruled on the Company’s post-trial motions in this litigation dismissing the $200,000 civil theft verdict (which was subject to triple damages) against the CEO and reducing the $841,000 breach of the consulting agreement award to $500,000. The Company then filed a motion seeking a new trial on damages. The Company received a favorable ruling on this motion and received a new trial on the damages. As a result of the reduction in the award for breach of the consulting agreement from $841,000 to $500,000 and the vacating of the award for civil theft which the Company had previously accrued $600,000, the Company recorded other income of $941,000 for the year ended June 30, 2013.


On October 28, 2014 the Court issued a Final Judgment in this case. The Court awarded Mr. Hopkins $51,956 for the breach of consulting agreement. As such the total liability related to this matter is $56,956. In accordance with ASC 855-10-55-1, the Company recorded other income of $448,044 in the unaudited condensed consolidated statement of operations for the nine months ended March 31, 2015 resulting from the reduction of the accrual for litigation. Mr. Hopkins has filed an appeal.




10



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

(Unaudited)



On January 23, 2015, the Court approved the Company’s motion seeking reimbursement of attorneys’ fees and costs from Mr. Hopkins. An evidentiary hearing is scheduled for June 2015 to determine the amount of fees and costs to which the Company is entitled and a judgment will be entered for that amount.


NOTE 6 – Related Party Transactions


During the nine months ended March 31, 2015, the Company issued common stock and warrants to its President and principal shareholder in exchange for cash as more fully described in Note 4.


In November 2014, William Cordani, the father of the Company’s CEO, passed away unexpectedly. Prior to his passing, Mr. Cordani and the Company were negotiating a separation payment to Mr. Cordani in connection with his contemplated retirement.  The Company’s Board of Directors recognized that without Mr. Cordani’s contributions and efforts on behalf of the Company and the Company’s predecessor (over 20 years), the Company would not have been successful developing its portfolio of products.  Subsequent to his passing, the Company and Mr. Cordani’s wife agreed to 12 monthly payments of $5,000 in lieu of the contemplated separation payments to Mr. Cordani. These payments began in December 2014.


On January 23, 2015, the Company approved an amendment to the Employment Agreement of Mr. Peter Cordani, the Company's Founder, acting Chief Executive Officer and Chief Technology Officer. In addition to his current salary, Mr. Cordani will receive 5% of the first $2 million of revenue generated by the Company in 2015. The amendment is effective as of January 1, 2015.


NOTE 7 – 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 March 31, 2015. As of March 31, 2015, there were no cash equivalent balances held in depository accounts that are not insured.


At March 31 2015, two customers accounted for 40.1% and 27.6% of accounts receivable.


For the nine months ended March 31, 2015, two customers accounted for 18.2% and 14.9% of sales.


During the nine months ended March 31, 2015, sales primarily resulted from two products, FireIce® and Soil 2 O® which made up 64.4% and 34.0%, respectively, of total sales. Of the FireIce® sales, 65.4% related to the sale of FireIce® products and 34.6% related to sales of the FireIce Home Defense units and extinguishers. Of the Soil 2 O® sales, 7.5% related to traditional sales of Soil 2 O® and 92.5% related to sales of Soil 2 O® Dust Control, including 25.0% of our new Soil2O Soil Cap product.


One vendor accounted for 48.9% of the Company’s approximately $344,000 in purchases of raw material and packaging during the nine months ended March 31, 2015.


NOTE 8 Subsequent Events


In April 2015, the Company was awarded $65,000 for attorney’s fees related to the appeal of a binding arbitration ruling by a former distributor.  The Company is pursuing collection of this award.


Since April 1, 2015, the Company has received 2 advances under the secured convertible line of credit agreement totaling $350,000 at conversion rates between $0.24 and $0.29 per share and has issued two year warrants to purchase 643,237 shares of common stock at an exercise price of $2.00 per share to its president and principal shareholder.


In April 2015, the Company issued 6,230 shares of common stock to a consultant in exchange for services valued at $1,089.


In April 2015, the Company issued 249,688 shares of common stock in exchange for $100,000 in a private placement with an accredited investor.


In April 2015, the Company issued ten year warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share in connection with a marketing consulting agreement. The options vest 25% immediately, with remainder vesting equally at the end of each calendar quarter over the remainder of 2015, subject to the consultant remaining employed as a consultant.




11



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.


Overview


GelTech Solutions, Inc., or GelTech, generates revenue primarily from marketing the following three products: (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in urban firefighting, including underground utility fires, in wildland firefighting, and as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) Soil 2 O® “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 (3) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire.  Other products currently being marketed include (1) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires; and (2) Soil 2 O®, a product which reduces the use of water and is primarily marketed to golf courses, commercial landscapers and the agriculture market.


In the past year, the Company developed and began marketing two new products, (1) GT-W14, an industrial absorbent powder used to contain and clean up industrial liquid spills; and (2) Soil 2 O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion . We have yet to generate meaningful revenue from GT-W14 but are confident of the potential for commercialization of this product.


As the 2015 fire and dust seasons get underway, we believe that we have laid the groundwork to generate meaningful revenue from sales of FireIce to numerous state wildland agencies and from sales of Soil2O Dust Control and Soil2O Soil Cap to construction and aggregate mining operations in the western United States.   


Our 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 NINE MONTHS ENDED MARCH 31, 2015 COMPARED TO THE NINE MONTHS ENDED MARCH 31, 2014.


Sales


For the nine months ended March 31, 2015, we had sales of $367,119 as compared to $717,884 for the nine months ended March 31, 2014, a decrease of $350,765 or 48.86%. Sales of product during the nine months ended March 31, 2015 consisted primarily of $124,989 for Soil 2 O® and $236,495for FireIce® and related products. The Soil 2 O® sales consisted of sales of Soil 2 O® dust control amounting to $115,567 and sales of Soil2O of $9,422. FireIce® sales consisted of $149,877 related to product sales and $86,618 related to sales of extinguishers and HDU units. Subsequent to March 31, 2015, we have fulfilled orders amounting to $204,000 from the sale of FireIce® to state wildland agencies and municipalities which will be recognized as revenue during the three months ended June 30, 2015. We expect that our revenues will increase to the extent we are successful in obtaining orders for our products, as we continue to gain traction with state wildland organizations and with the beginning of dust season in the western states.


Cost of Goods Sold


Cost of goods sold was $127,228 for the nine months ended March 31, 2015 as compared to a cost of goods sold of $306,734 for the nine months ended March 31, 2014. The decrease was the direct result of the decrease in sales. Cost of sales as a percentage of sales was 34.7% for the nine months ended March 31, 2015 as compared to 42.7% for the nine months ended March 31, 2014. We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the nine months ended March 31, 2015.




12



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES



Selling, General and Administrative Expenses


Selling, General and Administrative expenses were $3,501,373 for the nine months ended March 31, 2015 as compared to $5,223,267 for the nine months ended March 31, 2014. The decrease in fiscal 2015 expenses resulted primarily from (1) a decrease in salaries and employee benefits of $431,046 relating to a decrease in personnel costs due to the closing of our Brooklyn facility in August 2014, lower commissions based on the lower sales volume and a reduction in staff in November 2014; (2) a decrease in non-cash compensation of $779,523 due to a reduction in employee stock and option grants during nine months ended March 31, 2015; (3) a decrease in professional fees of $277,729; (4) a decrease in sales and marketing expense of $113,986; (5) a decrease in facilities costs of $48,602 due to the closing of the Brooklyn facility; (6) a decrease in general and administrative expenses of  $46,983; and (7) a decrease in travel expense of $31,797.  


Research and Development Expenses


R&D expenses were $106,787 for the nine months ended March 31, 2015 as compared to $234,692 for the nine months ended March 31, 2014. The expenses for the nine months ended March 31, 2015 related to testing to obtain certain ratings for our fire extinguishers, research of potential product delivery system enhancements for FireIce®, including EMFIDS and independent testing of GT-W14, our new industrial absorbent product offering.


Loss from Operations


Loss from operations was $3,368,269 for the nine months ended March 31, 2015 as compared to $5,046,809 for the nine months ended March 31, 2014. The decreased loss resulted from the lower operating expenses which were only partially offset by the lower gross profit.


Other Income (Expense)


Other expense for the nine months ended March 31, 2015 was $449,990 as compared to other expense of $546,873 for the nine months ended March 31, 2014.  Other expense for the nine months ended March 31, 2015 included a gain on the conversion of interest of $12,841, other income of $448,044 relating to the reduction in the accrual for litigation in the Hopkins case as a result of the Final Judgment issued by the court, a loss on extinguishment of $596,648 related to the modification of two convertible notes and interest expense of $314,823 related to the notes and a secured convertible line of credit. Other expense for the nine months ended March 31, 2014 consisted primarily of a loss on conversion of interest of $201,175 and interest expense of $351,559.


Net Loss


Net loss was $3,818,259 for the nine months ended March 31, 2015 as compared to $5,593,682 for the nine months ended March 31, 2014. The higher net loss for the nine months ended March 31, 2014 resulted from the absence of other income and the higher selling, general and administrative costs as described above. Net loss per common share was $0.09 for the nine months ended March 31, 2015 as compared to $0.16 for the nine months ended March 31, 2014. The weighted average number of shares outstanding for the nine months ended March 31, 2015 and 2013 were 44,419,146 and 35,403,321, respectively.


FOR THE THREE MONTHS ENDED MARCH 31, 2015 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2014.


Sales


For the three months ended March 31, 2015, we had sales of $100,357 as compared to $122,038 for the three months ended March 31, 2014, a decrease of $21,681 or 17.8%. Sales of product during the three months ended March 31, 2015 consisted of $9,312 for Soil 2 O® and $87,005 for FireIce® and related. Subsequent to March 31, 2015, we have fulfilled orders amounting to $204,000 from the sale of FireIce® to state wildland agencies and municipalities which will be recognized as revenue during the three months ended June 30, 2015. The Soil 2 O® sales consisted of sales of Soil 2 O® Dust Control amounting to $1,300 and sales of Soil 2 O of $8,012. FireIce® sales consisted of $69,891 related to product sales and $17,144 related to sales of extinguishers and HDU units. We expect that our revenues will increase to the extent we are successful in obtaining orders for our products, as we continue to gain traction with state wildland organizations and with the beginning of dust season in the western states.




13



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES



Cost of Goods Sold


Cost of goods sold was $34,812 for the three months ended March 31, 2015 as compared to a cost of goods sold of $44,661 for the three months ended March 31, 2014. The decrease was the direct result of the decrease in sales. Cost of sales as a percentage of sales was 34.7% for the three months ended March 31, 2015 as compared to 36.6% for the three months ended March 31, 2014. We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the three and nine months ended March 31, 2015.


Selling, General and Administrative Expenses


Selling, General and Administrative expenses were $1,072,676 for the three months ended March 31, 2015 as compared to $1,296,995 for the three months ended March 31, 2014. The decrease in fiscal 2015 expenses resulted primarily from (1) a decrease in salaries and employee benefits of $118,772 relating to a decrease in personnel costs due a reduction in staffing in November 2014; (2) a decrease in professional fees of $65,772; and (4) a decrease in sales and marketing expense of $25,315.  


Research and Development Expenses


R&D expenses were $10,982 for the three months ended March 31, 2015 as compared to $96,861 for the three months ended March 31, 2014. The expenses for the three months ended March 31, 2015 related to testing to research of potential new product delivery systems for FireIce®.


Loss from Operations


Loss from operations was $1,018,113 for the three months ended March 31, 2015 as compared to $1,316,479 for the three months ended March 31, 2014. The decreased loss resulted from the lower operating expenses which was only partially offset by the lower gross profit.


Other Income (Expense)


Other expense for the three months ended March 31, 2015 was $671,821 as compared to other expense of $312,956 for the three months ended March 31, 2014. Other expense in fiscal 2015 was the result of the loss on extinguishment of debt of $596,648 related to the debt modifications and interest expense of $88,216 related to interest on the convertible notes and the secured convertible line of credit facility. In fiscal 2014 other expense resulted from a loss on conversion of interest of $201,175 and interest expense of $111,795.


Net Loss


Net loss was $1,689,934 for the three months ended March 31, 2015 as compared to $1,629,435 for the three months ended March 31, 2014. The higher net loss for the three months ended March 31, 2015 resulted from the higher other expense as described above. Net loss per common share was $0.04 for both the three months ended March 31, 2015 and the three months ended March 31, 2014. The weighted average number of shares outstanding for the three months ended March 31, 2015 and 2014 were 46,982,084 and 37,539,224, respectively.


LIQUIDITY AND CAPITAL RESOURCES


A summary of our cash flows is as follows:


 

Three Months Ended

March 31,

 

 

Nine Months Ended

March 31,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

   

Net cash used in operating activities

$

(858,377

)

 

$

(1,317,508

)

 

$

(2,887,041

)

 

$

(4,086,706

)

Net cash used in investing activities

 

(530

)

 

 

(15,758

)

 

 

(10,380

)

 

 

(72,851

)

Net cash provided by financing activities

 

740,438

 

 

 

1,263,207

 

 

 

2,908,301

 

 

 

4,140,331

 

Net increase in cash and cash equivalents

$

(118,469

)

 

$

(70,059

)

 

$

10,880

 

 

$

(19,226

)





14



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES



Net Cash Used in Operating Activities


For the nine months ended March 31, 2015, the Company used net cash of $2,887,041 in operating activities as compared to net cash used in operating activities of $4,086,706 for the nine months ended March 31, 2014. Net cash used during the nine months ended March 31, 2015 resulted primarily from the net loss of $3,818,259, an increase in inventories of $212,876 and accounts receivable of $46,680, a decrease in accounts payable of  $54,892 and the reduction of the accrual for litigation of $448,044, which were partially offset by non-cash stock based compensation of $658,527, non-cash amortization of debt discounts of $140,363, depreciation of $40,703, a decrease in prepaid expenses of $80,318and an increase in accrued expenses of $171,273.


Net cash used during the nine months ended March 31, 2014 resulted primarily from the net loss of $5,593,682, an increase in inventories of $259,781, an increase in accounts receivable of $52,355, payments on the accrual for severance agreement for our former president of $98,537 and a reduction of accounts payable of $64,280 which were partially offset by non-cash stock based compensation of $1,438,050, the loss on conversion of interest of 201,175, non-cash amortization of debt discounts of $173,490, depreciation of $41,391 and an increase in accrued expenses of $133,315.


Net Cash Used in Investing Activities


Cash flows used in investing activities for the nine months ended March 31, 2015 amounted to $10,380 and related to purchases of office equipment and computer peripherals as compared to cash used of $72,851 during the nine months ended March 31, 2014 which related to the purchase of a vehicle and a product label and marketing material printer.


Net Cash Provided By Financing Activities


Cash flows from financing activities for the nine months ended March 31, 2015 were $2,908,301 as compared to $4,140,331 for the nine months ended March 31, 2014. During the nine months ended March 31, 2015, the Company received $25,000 in exchange for 42,017 shares of common stock in connection with a private placement with an accredited investor, received $21,505 in exchange for 110,000 shares of common stock in connection with private placements with two directors and received $2,305,000 in exchange for 6,340,754 shares of common stock and two year warrants to purchase 3,170,378 shares of common stock at an exercise price of $2.00 per share in connection with private placements with four accredited investors, including the issuance of  3,521,369 shares of common stock and warrants to purchase 1,760,685 shares of common stock to our President and principal shareholder in exchange for $1,375,000. In addition, the Company received $625,000 in advances and issued two year warrants to purchase 1,202,814 shares of common stock at an exercise price of $2.00 per share under a secured convertible line of credit agreement with its President and principal shareholder. The amounts received were used to make payments on insurance premium finance contracts of $68,204 as well as provide us with working capital.


During the nine months ended March 31, 2014, the Company received $1,000,000 from its President and principal shareholder in exchange for a note convertible at $1.00 per share and five year warrants to purchase 500,000 shares at an exercise price of $1.30 per share in a private placement, received $18,200 from the exercise of options to purchase 20,000 shares of common stock at an exercise price of $0.91 per share, $2,038,538 from accredited investors in exchange for 3,200,471 shares of common stock in connection with private placements, $570,000 in exchange for 577,428 shares of common stock in connection with the Lincoln Park and $730,000 in exchange for the issuance of 957,647 shares of common stock and five year warrants to purchase 449,412 shares of common stock at an exercise prices between $1.00 and $1.25 per share in connection with a private placement with an accredited investor and received $25,000 in connection with the exercise of warrants to purchase 20,000 shares of common stock at an exercise price of $1.25 per share. The amounts received were used to make repayments on convertible notes payable to related parties of $85,880, to make payments of $115,822 on convertible notes with third parties and to make payments on insurance premium finance contracts of $39,705.


Historical Financings


Since July 1, 2014, GelTech has raised $2,305,000 from the sale of common stock and warrants in connection with private placements with five accredited investors including Michael Reger, our President and principal shareholder.  In consideration for their investments, GelTech issued 6,492,771 shares of common stock and two year warrants to purchase 3,170,378 shares of common stock at an exercise price of $2.00 per share. The Company has also received $146,505 from the sale of common stock to four accredited investors, including two directors.


In addition, the Company has received $625,000 and has issued two year warrants to purchase 1,202,814 shares of common stock at an exercise price of $2.00 per share under a secured convertible line of credit agreement with its President and principal shareholder.




15



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES



Liquidity and Capital Resource Considerations


As of May 8, 2015, we had approximately $314,000 in available cash.  Sustaining our current operations continues to rely on Mr. Michael Reger’s investments.  If Mr. Reger were to cease providing us with working capital or we are unable to generate material revenue or raise capital from other investors, we will have to cease doing business. 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.


Ultimately, if the Company is unable to generate substantial cash flows from sales of its products or complete financings, it may not be able to remain operational.


Related Person Transactions

 

For information on related party transactions and their financial impact, see Note 6 to the Unaudited Condensed Consolidated Financial Statements.


Principal Accounting Estimates

 

There have been no changes to our critical accounting estimates and policies since the filing of the Company’s Form 10-K for the fiscal year ended June 30, 2014.   

  

RECENT ACCOUNTING PRONOUNCEMENTS

 

For information on recent accounting pronouncements, see Note 1 to the Unaudited Condensed 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. 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, mining companies and state and federal agencies, 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, and failure to receive acceptance of our products.


Further information on our risk factors is contained in our filings with the SEC, including our Form 10-K for the year ended June 30, 2014. 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.


ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to smaller reporting companies

 



16



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES



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.




17



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES



PART II – OTHER INFORMATION

 

ITEM 1. 

LEGAL PROCEEDINGS.


On October 28, 2014, the Court issued a Final Judgment in the Hopkins case which is described in our Form 10-K for the year ended June 30, 2014.  The Court awarded Mr. Hopkins $51,956 for breach of the Consulting Agreement. Mr. Hopkins has filed an appeal and the Company has filed a cross appeal. On January 23, 2015, the Court approved the Company’s motion seeking reimbursement of attorneys’ fees and costs from Mr. Hopkins. An evidentiary hearing will be held to determine the amount of fees and costs to which the Company is entitled and a judgment will be entered for that amount.

 

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 Securities and Exchange Commission, 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)

 

January 23, 2015

 

Five year vested warrants to purchase 100,000 shares of common stock at an exercise price of $0.27 per share

 

Compensation for Services

Consultant (1)

 

March 17, 2015

 

Five year vested warrants to purchase 10,000 shares of common stock at an exercise price of $0.25 per share

 

Compensation for Services

————————

(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.



18



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.

 

 

 

 

 

May 8, 2015

 

/s/ Peter Cordani

 

 

 

Peter Cordani

 

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

May 8, 2015

 

/s/ Michael R. Hull

 

 

 

Michael R. Hull

 

 

 

Chief Financial Officer

(Principal Financial Officer)

 

 

 







19





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

 

 

10.1

 

Form of Secured Convertible Note

 

 

 

 

 

 

 

Filed

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.

+

Management compensation arrangement or agreement.



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.
















EXHIBIT 10.1

SECURED REVOLVING CONVERTIBLE PROMISSORY NOTE

$4,000,000.00

Palm Beach County, Florida

 

February 13, 2015


FOR VALUE RECEIVED, GelTech Solutions, Inc., a Delaware corporation (the " Borrower "), promises to pay to the order of Michal L. Reger (the " Lender ”) which term shall also include any subsequent holder of this Note), the principal sum of Four Million and 00/100 Dollars ($4,000,000.00) (the " Committed Sum ") or so much of that sum as may be advanced under this Note by the Lender pursuant to the Secured Revolving Convertible Promissory Note and Security Agreement , with interest until paid as set forth in this Note (the " Loan ").

 

Interest. This Note shall bear interest at a fixed annual rate of seven and one- half percent (7.5%). The rate of interest to be charged from time to time, pursuant to this paragraph is hereinafter called the " Interest Rate ," payable annually at the Lender’s option either in cash or in the Borrower’s Common Stock. If the Lender elects to receive Common Stock as payment for the accrued interest, the Borrower shall issue a number of shares based on the closing price of the Borrower’s Common Stock on the last trading day preceding the applicable one-year anniversary date. Notwithstanding anything to the contrary in this Note or Loan, interest shall only be paid on Advancements (defined below).

Repayment. All remaining unpaid principal together with interest accrued thereon shall be due and payable on December 31, 2020 (such date, or any earlier date upon which payment in full is due is hereinafter called the (" Maturity Date "). The principal balance of this Note may be prepaid, in whole or in part, at any time by Borrower provided, however, that any partial prepayment of principal shall be applied to the last principal and accrued interest payments coming due under the Note.

Late Charges. If any installment of interest or principal or any other payment due under this Note is not paid within ten (10) days after the date that the installment or payment is due, Borrower promises to pay Lender a "late charge" equal to the greater of Ten Dollars ($10.00) or 5% of the past due payment required by this Note.

Default Rate. In the event Borrower shall fail to make any one or more payments on account of interest, principal, charges, or premiums within five (5) days after the date the same shall become due and payable, as provided herein, Borrower shall pay to Lender interest on any overdue payment of principal, interest, charges and premiums at the highest rate allowed by applicable law (the " Default Rate "), from the date the same shall become due and payable until the date paid. Following an Event of Default hereunder, the term " Interest Rate " as used in this Note shall be deemed to be the Default Rate until such time as such Event of Default is cured, at which point the "Interest Rate" will no longer be deemed the Default Rate.




Security for Note. All outstanding principal and accrued and unpaid interest is secured by the “ Collateral ,” as defined in the Security Agreement of even date herewith.

Revolving Loan. Provided that Borrower is not in default under this Note, and provided further that no Event of Default (as that term is defined below) shall then exist, then Borrower may borrow, prepay and re-borrow under this Note (“ Advancement ”), provided however, that at no time shall the aggregate outstanding principal balance of this Promissory Note exceed the Committed Sum. In the event that the total amount advanced to or owed by Borrower hereunder, either at the request of Borrower or otherwise, is greater than the Committed Sum, then Borrower shall immediately pay to Lender the amount of such excess. Any requested Advancement to the Borrower made under this Loan shall be made at the complete discretion of the Lender. The Lender may at is sole and absolute discretion deny any requested Advancement under the Loan for any reason or no reason.

Advancement Warrant Coverage . The Lender shall be entitled to a fifty percent (50%) warrant coverage for any advancement made under this Agreement. The number of the shares to be issued under the Warrant shall be determined by (1) the number of shares of Common Stock based on the closing price of the Borrower’s Common Stock on the last trading preceding the Advancement divided by (2) fifty percent (50%). The Warrant issued under this Section shall be for a term of two (2) years with an exercise price of two and 0/100 dollars ($2.00).

Conversion to Common Stock . The Lender shall have the right to convert this Note, in whole or in part, at any time, into shares of Common Stock of the Borrower at a rate equal to a number of shares based on the closing price of the Borrower’s Common Stock on the last trading day preceding the date the parties agree to the Advancement (the “ Conversion Price ”). The number of shares of Common Stock issuable upon a conversion of this Note shall be determined by dividing (i) the amount of each Advancement made under this Note, which includes all interest that will be accrued as of the conversion date, including the Default Interest, (or the portion thereof to be converted in the event of a partial conversion), less any principal or interest that has been prepaid or paid, as applicable, as of the date of conversion, by (ii) the related Conversion Price for each Advancement. Notwithstanding anything to the contrary in this Note or Loan, conversions to common stock may only be made on Advancements (or related interest).

Anti-Dilution Protection. In the event, prior to the payment of this Note, the Borrower shall (i) issue any of its shares of Common Stock as a stock dividend on shares of Common Stock, (ii) subdivide the number of outstanding shares of Common Stock into a greater number of shares or (iii) reduce the number of outstanding shares of Common Stock by combining such shares into a smaller number of shares, then, in such event, the Conversion Price shall be adjusted to equal the product of (A) the total number of shares of Common Stock outstanding immediately prior to such event multiplied by the Conversion Price in effect immediately prior to such event, divided by (B) the total number of shares of Common Stock outstanding immediately after such event.




2



In the event, prior to the payment of this Note, the Borrower shall be recapitalized by reclassifying its outstanding Common Stock (other than into shares of Common Stock with a different par value, or by changing its outstanding shares of Common Stock to shares without par value), or in the event the Borrower or a successor corporation, partnership, limited liability company or other entity (any of which is defined as a “Corporation”) shall consolidate or merge with or convey all or substantially all of its, or of any successor Corporation’s property and assets to any other Corporation or Corporations (any such other Corporation being included within the meaning of the term “successor Corporation” used in the context of any consolidation or merger of any other Corporation with, or the sale of all or substantially all of the property of any such other Corporation to, another Corporation or Corporations), or in the event of any other material change in the capital structure of the Borrower or of any successor Corporation by reason of any reclassification, reorganization, recapitalization, consolidation, merger, conveyance or otherwise, then, as a condition of any such reclassification, reorganization, recapitalization, consolidation, merger or conveyance, a prompt, proportionate, equitable, lawful and adequate provision shall be made whereby the Lender of this Note shall thereafter have the right to purchase, upon the basis and the terms and conditions specified in this Note, in lieu of the securities of the Borrower theretofore purchasable upon the conversion of this Note, such shares, securities or assets as may be issued or payable with respect to or in exchange for the number of securities of the Borrower theretofore obtainable upon conversion of this Note as provided above had such reclassification, reorganization, recapitalization, consolidation, merger or conveyance not taken place; and in any such event, the rights of the Lender of this Note to any adjustment in the number of shares of Common Stock obtainable upon conversion of this Note, as provided, shall continue and be preserved in respect of any shares, securities or assets which the Lender becomes entitled to obtain. Notwithstanding anything herein to the contrary, this Section =shall not apply to a merger with a subsidiary provided the Borrower is the continuing Corporation and provided further such merger does not result in any reclassification, capital reorganization or other change of the securities issuable under this Note. The foregoing provisions of this Section shall apply to successive reclassification, capital reorganizations and changes of securities and to successive consolidation, mergers, sales or conveyances.


In the event the Borrower, at any time while this Note shall remain outstanding, shall sell all or substantially all of its assets, dissolve, liquidate, or wind up its affairs (each a “ Liquidation Event ”), a prompt, proportionate, equitable, lawful and adequate provision shall be made as part of the terms of any such Liquidation Event such that the Lender of this Note may thereafter receive, upon exercise hereof, in lieu of the securities of the Company which it would have been entitled to receive, the same kind and amount of any shares, securities or assets as may be issuable, distributable or payable upon any such Liquidation Event with respect to each share of Common Stock of the Company. Notwithstanding the preceding, in the event of any Liquidation Event, the right to convert this Note shall terminate on a date fixed by the Borrower, such date so fixed to be not earlier than (i) 6:00 p.m., New York time, on the 30th day after the date on which notice of such termination of the right to convert this Note has been given by mail to the Lender of this Note at such Lender’s address as it appears on the books of the Borrower or (ii) the



3



date that the Borrower received sufficient approval of the Liquidation Event from its shareholders and/or directors, as required by law, if later; provided, however, that if such Liquidation Event is abandoned prior to its consummation or is not otherwise consummated within 180 days from the date of notice referred to in (i) above, then the conversion right of the Holder shall be reinstated.


 

Subordination. This Note shall be subordinate to any other debt obligations of the Borrower to the extent the proceeds of such debt obligations are used primarily for the purchase of inventory and other working capital requirements of the Borrower.


First Right of Refusal . Until this Note has been paid in full or fully converted, the Lender shall be given not less than 10 days prior written notice of any proposed sale by the Borrower of its common stock or other securities convertible into its common stock, except in connection with (i) full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity, (ii) the Borrower’s issuance of securities in connection with strategic license or service agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital, (iii) the Borrower’s issuance of common stock or the issuances or grants of options to purchase common stock to employees, directors, and consultants, pursuant to the Borrower’s equity incentive plan or similar individual agreements, (iv) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of common stock issued and outstanding on the date of this Note, and (v) as a result of the exercise of warrants which are granted or issued pursuant in connection with the execution and delivery of this Note. The Lender shall have the right during the 10 days following receipt of the notice to purchase for cash or by using the outstanding balance of this Note including principal, interest, liquidated damages and any other amount then owing to Lender by the Borrower, such offered common stock, debt or other securities in accordance with the terms and conditions set forth in the notice of sale. In the event such terms and conditions are modified during the notice period, the Lender shall be given prompt notice of such modification and shall have the right during the 10 days following the notice of modification to exercise the right to participate in such offering.


Acceleration; Remedies. Upon the failure of Borrower to make any payment of principal or interest when due hereunder, or to timely perform any other obligation due hereunder, or upon the occurrence of an Event of Default, as that term may be defined below (each such default is hereinafter called an " Event of Default "), the unpaid principal with interest and all other sums shall at the option of Lender become immediately due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise this option in the event of any subsequent default. In addition to the right to accelerate all principal or interest due hereunder, upon the occurrence of an Event of Default, Lender shall have all rights and remedies available under this Note and the Security Agreement of even date herewith and all other documents which secure repayment hereof, available at law or in equity. Notwithstanding anything to the contrary herein, all such Events of Default hereunder shall be governed by the notice and cure periods, if any, set forth in the Note or the Security Agreement, if any.


4



For purposes of this Note, an “Event of Default” shall consist of any of the following events:

(a)

The Borrower fails to pay any installment of principal, interest or other sum due under this Note when due and such failure continues for a period of 30 days after the due date.

(b)

The Borrower shall commence any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to its debts; or a court shall enter an order for relief or any such adjudication or appointment, which case, proceeding or action or order, adjudication, or appointment, as the case may be, remains undismissed, undischarged or unbonded for a period of 30 days, then, or any time thereafter during the continuance of any of such events.

(c) The Borrower shall fail to issue the shares of Common Stock issuable upon any conversion of this Note within five days following the conversion date, or to perform in any material respect any of the other material covenants or agreements contained in this Note and not cure, if possible to cure, such failure within 10 business days after notice thereof.

(d)

The delisting of the Borrower’s Common Stock from any principal market (presently the Over-the-Counter Bulletin Board). The Company’s failure to comply with the requirements for continued listing on a principal market for a period of 30 consecutive trading days, or notification from the principal market that the Company is not in compliance with the conditions for such continued listing on such principal market. The Borrower is subject to a trading suspension on the principal market that lasts for five or more consecutive trading days.

(e)

The occurrence of a Liquidation Event.

(f)

The Borrower shall fail to timely pay any interest or principal pursuant to any material indebtedness of the Borrower which results in the acceleration of the maturity of such indebtedness.

Payment of Costs. In the event this Note is turned over to an attorney at law for collection after the occurrence of an Event of Default, in addition to the principal, interest, late charges, and/or premiums due hereunder, Lender shall be entitled to collect all costs of collection including but not limited to reasonable attorneys' fees, incurred in connection with protection of or realization of collateral or in connection with any of Lender's collection efforts, whether or not suit on this Note or any foreclosure proceeding is filed, and all such costs and expenses shall be payable on demand and shall also be secured by the Mortgage.



5



Waiver. As to this Note and the Security Agreement , and any other documents or instruments evidencing or securing the indebtedness (collectively, the " Loan Documents "), each Borrower and all guarantors, if any, severally waive all applicable exemption rights, whether under any state constitution, homestead laws or otherwise, and also severally waive valuation and appraisement presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and expressly agree that the maturity of this Note, or any payment under this Note, may be extended from time to time without in any way affecting the liability of Borrower.

Waiver of Jury Trial. BORROWER AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY OF ANY SUITS, CLAIMS, COUNTERCLAIMS, AND ACTIONS OF ANY KIND ARISING UNDER OR RELATING TO THIS NOTE. BORROWER AND LENDER ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL RIGHT AND REPRESENT TO ONE ANOTHER THAT THIS WAIVER IS MADE KNOWINGLY AND VOLUNTARILY. BORROWER AND LENDER AGREE THAT ALL SUCH SUITS, CLAIMS, COUNTERCLAIMS, AND ACTIONS SHALL BE TRIED BEFORE A JUDGE OF A COURT OF COMPETENT JURISDICTION, WITHOUT A JURY.

Usury Limitations. It is the intention of the parties to conform strictly to applicable usury laws from time to time in force, and all agreements between Borrower and Lender, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid to Lender, or collected by Lender, for the use, forbearance or detention of the money to be loaned hereunder or otherwise, exceed the maximum amount permissible under applicable usury laws. If under any circumstances whatsoever fulfillment of any provision hereof or any other Loan Documents, at the time performance of such provision shall be due, shall involve an amount or any portion thereof in excess of the limit of validity prescribed by law, then ipso facto, the payment to be made or the amount to be delivered to be fulfilled shall be reduced to the limit of such validity; and if under any circumstances Lender shall ever receive an amount deemed interest, by applicable law, which would exceed the highest lawful rate, such amount that would be excessive interest under applicable usury laws shall be applied to the reduction of the principal amount owing hereunder and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal and other indebtedness, the excess shall be deemed to have been a payment made by mistake and shall be refunded to Borrower or to any other person making such payment on Borrower's behalf. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the indebtedness of Borrower evidenced hereby, outstanding from time to time shall, to the extent permitted by applicable law, be amortized, pro-rated, allocated and spread from the date of disbursement of the proceeds of this Note until payment in full of such indebtedness so that the actual rate of interest on account of such indebtedness is uniform through the term hereof. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between Lender and Borrower and any endorser or guarantor of this Note.



6



Severability. In case any provision (or any part of any provision) contained in this Note shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note, but this Note shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had never been contained herein but only to the extent it is invalid, illegal, or unenforceable.

Governing Law. Borrower hereby acknowledges, consents and agrees (i) that the provisions of this Note and the rights of all parties mentioned herein shall be governed by the laws of the State of Florida and interpreted and construed in accordance with such laws (excluding the conflict of laws for the State of Florida) and (ii) that venue for any proceeding instituted to enforce this Note shall lie in Palm Beach County, Florida, and any objections to such jurisdiction or venue are hereby waived.

No Waiver by Lender. No failure on the part of Lender to exercise any right or remedy hereunder, whether before or after the happening of a default shall constitute a waiver thereof, and no waiver of any past default shall constitute a waiver of any future default or of any other default. No failure to accelerate the debt evidenced hereby by reason of default hereunder, or acceptance of a past due installment, or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter or to impose late charges retroactively or prospectively, or shall be deemed to be a novation of this Note or as a reinstatement of the debt evidenced hereby or as a waiver of such right or acceleration or any other right, or be construed so as to preclude the exercise of any right that Lender may have, whether by the laws of the State of Florida, by agreement, or otherwise. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced.

No Offsets. No indebtedness evidenced by this Note shall be deemed to have been offset or shall be offset or compensated by all or part of any claim, cause of action, counterclaim or cross-claim, whether liquidated or unliquidated, which Borrower may have or claim to have against Lender now or hereafter. Furthermore, in respect to the present indebtedness of, or any future indebtedness incurred by, Borrower to Lender, Borrower waives, to the fullest extent permitted by law, the benefits of any applicable law, regulation or procedure that substantially provides that, if (i) cross-demands for money have existed between persons at any point in time and (ii) neither demand was barred by the applicable statute of limitations and (iii) an action is thereafter commenced by one such person, then the other may assert in his answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the claim would at the time of filing the answer be barred by the applicable statute of limitations.



7



Loss, Theft, Destruction or Mutilation of Note. In the event of the loss, theft or destruction of this Note, upon Lender's written request, accompanied by an indemnification and/or security reasonably satisfactory to Borrower, or in the event of the mutilation of this Note, upon Lender's surrender to the Borrower of the mutilated Note, Borrower shall execute and deliver to such party or Lender, as the case may be, a new promissory note in form and content identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.

Relationship of Parties. THE RELATIONSHIP BETWEEN BORROWER AND LENDER IS, AND AT ALL TIMES SHALL REMAIN, SOLELY THAT OF DEBTOR AND CREDITOR, AND SHALL NOT BE, OR BE CONSTRUED TO BE, A JOINT VENTURE, EQUITY VENTURE, PARTNERSHIP OR OTHER RELATIONSHIP OF ANY NATURE.

Unconditional Payment. If any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand. No release of any security for this Note or any party liable for payment of this Note shall release or affect the liability of Borrower or any other party who may become liable for payment of all or any part of the indebtedness evidenced by this Note. Lender may release any guarantor, surety or indemnitor of this Note from liability, in every instance without the consent of Borrower hereunder and without waiving any rights which Lender may have hereunder or under the Loan Agreement or Mortgage or under applicable law or in equity.

Ambiguity and Construction of Certain Terms. Neither this Note nor any uncertainty or ambiguity herein shall be construed or resolved against Lender by virtue of the fact that such document has originated with Lender as drafter. Borrower acknowledges that it has reviewed this Note and has had the opportunity to consult with counsel on same. This Note, therefore, shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto. All personal pronouns used herein, whether used in the masculine, feminine or neuter gender, shall be deemed to include all other genders; the singular shall include the plural and vice versa. Titles of articles and sections are for convenience only and in no way define, limit, amplify or describe the scope or intent of any provisions hereof. "Herein," "hereof" and "hereunder" and other words of similar import refer to this Note as a whole and not to any particular section, paragraph or other subdivision; "Section" refers to the entire section and not to any particular subsection, paragraph of other subdivision. Reference to days for performance shall mean calendar days unless Business Days are expressly indicated.



8



Joint and Several Liability. If Borrower consists of more than one (1) person, corporation or other entity, the obligations and liabilities of such persons, corporations or other entities under this Note, under the Loan Agreement and the Mortgage shall be joint and several, and the word "Borrower" shall mean all or some or any of them, as the context may require.

Time of the Essence. Time is of the essence to each and every provision of this Note.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS.]












9



IN WITNESS WHEREOF, Borrower has caused this Note to be executed and delivered on its behalf under seal on the date first written above.


 

GELTECH SOLUTIONS, INC.

 

 

 

 

 

Michael Hull

 

Chief Financial Officer


















[Signature Page to $4,000,000.00 Revolving Promissory Note]






10




Exhibit 31.1


CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER


I, Peter Cordani, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of GelTech Solutions, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 8, 2015

 

/s/ Peter Cordani

Peter Cordani

Chief Executive Officer

(Principal Executive Officer)

 








Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

I, Michael Hull, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of GelTech Solutions, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 8, 2015

 

/s/ Michael Hull

Michael Hull

Chief Financial Officer

(Principal Financial Officer)

 








Exhibit 32.1


CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002




In connection with the quarterly report of GelTech Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof, I, Peter Cordani, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:


1.

The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and


2.

The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.




/s/ Peter Cordani

Peter Cordani

Chief Executive Officer

(Principal Executive Officer)

Dated: May 8, 2015






In connection with the quarterly report of GelTech Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof, I, Michael Hull, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:


1.

The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and


2.

The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Michael Hull

Michael Hull

Chief Financial Officer

(Principal Financial Officer)

Dated: May 8, 2015