UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


———————

FORM 10-K

———————


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


For the fiscal year ended: December 31, 2016

  

or

 

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

 

 

GelTech Solutions, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

0-52993

 

56-2600575

(State or Other Jurisdiction

 

(Commission

 

(I.R.S. Employer

of Incorporation or Organization)

 

File Number)

 

Identification No.)


Address of Principal Executive Office: 1460 Park Lane South, Suite 1, Jupiter, Florida 33458

 

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


Securities registered pursuant to Section 12(b) of the Act: None

 

 

 

Securities registered pursuant to Section 12(g) of the Act : Common Stock, $0.001, par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ¨  Yes   þ  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ¨  Yes   þ  No


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.  þ  Yes   ¨  No

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

þ


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

 

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $10 million based on the June 30, 2016 closing price of $0.365 per share.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 56,090,687 shares outstanding as of March 24, 2017.

 

 





 


INDEX


 

 

PAGE

         

PART I

 

 

 

 

Item 1.

Business.

1

 

 

 

Item 1A.

Risk Factors.

11

 

 

 

Item 1B.

Unresolved Staff Comments.

11

 

 

 

Item 2.

Properties.

11

 

 

 

Item 3.

Legal Proceedings.

11

 

 

 

Item 4.

Mine Safety Disclosures.

11

 

 

 

 

PART II

 

 

 

 

Item 5.

Market for Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities.

12

 

 

 

Item 6.

Selected Financial Data.

12

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

13

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

25

 

 

 

Item 8.

Financial Statements and Supplementary Data.

25

 

 

 

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

25

 

 

 

Item 9A.

Controls and Procedures.

25

 

 

 

Item 9B.

Other Information.

25

 

 

 

 

PART III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance.

26

 

 

 

Item 11.

Executive Compensation.

29

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

33

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

34

 

 

 

Item 14.

Principal Accountants Fees and Services.

35

 

 

 

 

PART IV

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules.

36

 

 

 

Item 16.

Form 10-K Summary.

37

 

 

 






 


PART I


ITEM 1. BUSINESS


GelTech Solutions, Inc. (“GelTech” or the “Company”) is a Delaware corporation organized in 2006. Our current business model is focused on the following environmentally friendly products:

 

·

FireIce® products – a line of fire suppression and fire retardant products and the equipment used for their varied applications, including the Emergency Manhole FireIce Delivery System (“EMFIDS”),


·

FireIce Shield®, a line of asset protection products including welding blankets used during “hot work” by plumbers and welders and the FireIce Shield® CTP unit used to protect communication towers during welding and cutting,


·

Soil O®Dust Control products including Soil Dust Control which is effective at controlling airborne particulate matter while substantially reducing water usage on traffic areas, and Soil O® Soil Cap, a product which is effective at controlling dust and erosion of non-traffic and storage areas, and

 

·

Soil a line of agricultural moisture retention products, including Soil O® Topical and Soil O® Granular.

 

FireIce®


Product Overview

 

We market FireIce® and the related equipment to deploy FireIce® to the following industry sectors:

 

·

State and Federal agencies responsible for protecting property and natural resources from wildfires.


·

Municipal fire departments and firefighting agencies responsible for responding to fires primarily in urban areas.


·

Utility companies responsible for protecting above ground and underground infrastructure and improving safety for workers and the public.


·

Other industrial and agricultural companies and organizations to protect assets and crop stockpiles.


Characteristics of our FireIce® Product  


FireIce® is the registered trade name of our fire suppression product. FireIce® is a dry powder that when added to water in very low concentrations, rapidly absorbs water to produce a gel whose viscosity depends on the selected concentration. The dry powder can be easily mixed with water. Within seconds of being mixed with water, FireIce® is ready to use, turning into a fire preventing, heat absorbing and fire suppressing gel. In many applications the gel forms a cohesive layer which acts as a vapor barrier prolonging the effectiveness of the water. Due to the gel layer created by FireIce® on burning and adjacent objects, FireIce® also has the ability to suffocate a fire.

 

FireIce® has the following properties. We believe it:

 

·

is non-toxic,

 

·

is environmentally safe,

 

·

is non-corrosive to metals,

 

·

mixes easily with water,

 

·

reduces the threat of a fire rekindling,


·

has superior vertical adhesion ability for structure / exposure protection,

 

·

extinguishes fires more rapidly than traditional methods, and

 

·

is lighter when mixed with water than competing products thus reducing airframe stress in aerial applications.



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Industry Segments


Wildland Agencies


The United States Forest Service (the “Forest Service”) and the Department of the Interior are responsible for protecting most federal lands from wildland fires. For their fiscal year ended September 30, 2017, approximately $4.9 billion has been appropriated to the Forest Service and the Department of the Interior for the purpose of protecting federal lands from wildland fires, which includes approximately $874 million to be used in the suppression of wildland fires.

 

FireIce® is used to combat wildland fires in several ways. Our product is dropped from airplanes either directly on wildland fires to extinguish them or it is dropped in the path of an advancing wildland fire to create a firebreak or to protect property. Aerial applications utilize FireIce® which is offered in several colored variations, designed to be visible from the air. Two of the colorants, a Fugitive Orange (Sunset Orange) and a Fugitive Blue (Cool Blue) were approved by the Forest Service Qualified Product List (“QPL”) in 2014. The colored products are designed specifically for wildland applications, and compete with existing long term retardant products that are on the market. In addition, wildland firefighters can use our non-colored product to fight wildland fires on the ground.


Recognizing the potential for FireIce® and the tremendous marketplace for aerial firefighting in conjunction with the Federal and State forestry agencies, GelTech applied and has been listed on the QPL List since March 2012. Inclusion on the QPL List qualifies our product for use to fight brush and wildland fires on Federal lands, including the Department of Agriculture and Department of Interior. Under the terms of our approval by the Forest Service, FireIce® may be deployed for use on wildland fires except in fixed-tank helicopters and multi-engine planes.


In addition, since 2014, FireIce® has been used by state agencies to suppress wildland fires in 14 states, and was used by provincial agencies in two provinces in Canada. During 2016, sales to wildland agencies accounted for approximately 54.7% of our revenues.


In October 2016, the Company received a letter from United States Department of Agriculture, which oversees the Forest Service regarding the clarification of the ingredients used in our FireIce product as well as a request by the Forest Service to provide an alternative name to be listed on the QPL which distinguishes the product from the Company’s brand of FireIce.

 

The Forest Service letter requested the Company provide an alternative name to distinguish the QPL listed product, FireIce, from the Company’s unique and registered brand name FireIce®. The Company submitted a name change request from FireIce to FireIce 561 which was approved by the USFS.


The FireIce HVO-F product currently being used by state and provincial agencies is a formulation that includes the product, FireIce 561 that is listed on the QPL, plus additional compounds to improve the visibility and performance of the product. The FireIce HVO-F product produced by the Company is its next generation line of product which is superior to FireIce 561, its QPL listed product formulation. The Company anticipates it will be applying for Forest Service approval with respect to its next generation line of products, including FireIce HVO-F.


Municipal Agencies


Municipal Agencies use FireIce® in multiple ways. FireIce® is educted (mixed on the fly), using our patented FireIce® educator, directly into firelines utilizing pumper trucks or fire hydrants to either be sprayed directly on structural fires to suppress them or sprayed on adjacent structures to protect them. In addition, FireIce® is also deployed from FireIce® fire extinguishers to combat fires in close quarters.


In September 2015, the Company entered into an exclusive distribution agreement with FireIce Solutions, LLC (“FireIce Solutions”) to sell FireIce® and its related equipment to municipal fire departments and first responders in the United States. This distributor has already made inroads in the northeast United States with numerous municipal departments in Massachusetts, New Hampshire and Maine. GelTech waived the minimum purchase requirements for year one ($750,000 requirement of which a total of $260,000 of products was purchased in year one) in order for FireIce Solutions to maintain its exclusivity. During 2016, sales of FireIce® and FireIce Shield® to this distributor represented 19.8% of our revenues.




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Power Utilities


According to a Harris Williams & Co. 2010 White Paper, power companies will invest between $1.5 and $2.0 billion in transmission and distribution infrastructure through 2030 to meet the growing demand for electrical power. The low voltage electricity transmission infrastructure includes approximately 64 million utility poles spanning 2.1 million overhead transmission miles and 1.1 million manholes servicing 66,000 underground transmission miles according to a February 2013 article in PowerGrid International magazine. FireIce® can be instrumental in protecting this infrastructure investment and by providing a safer work environment for utility workers. FireIce® is used by utility companies to protect wooden utility poles and surrounding property either by coating the poles during routine right of way controlled burn maintenance or by extinguishing poles that have ignited. To date these utilities have accomplished these tasks using FireIce® Fire Extinguishers which are rated for use on Class A combustibles such as wood, paper, plastic, cloth and the products derived from these materials.


We have performed research and development in conjunction with Consolidated Edison (“Con Ed”), to develop a preferred solution to combat or prevent fires in underground utility structures (manholes). This led to the development of the EMFIDS which is an innovative system designed to deliver a mixture of FireIce® and water into a manhole. This stream of FireIce® and water is intended to coat the ladder and the utility worker in the event of an incident involving an explosion or fire in the manhole while utility workers are performing routine repairs or maintenance. The unit has been designed by GelTech to be quickly set up and disassembled by utility crews. EMFIDS delivers FireIce® from custom designed strategically located spray nozzles. The FireIce® and water mixture is contained in a pressurized tank which is mounted to the utility company’s vehicle and is connected to the unit by one hose; that connects to the spray device which is deployed inside the manhole.  EMFIDS can be activated either manually by pressing an activation button on the control panel located in the maintenance vehicle or automatically by a heat sensor located near the opening to the manhole. Once activated, the system is designed to deliver FireIce® continuously for at least one minute. The main purpose of EMFIDS is to maintain the integrity of the ladder in the manhole and to coat the utility worker with FireIce®, providing the worker the opportunity to escape the manhole thereby improving the worker’s chance for survival.


In September 2013, we delivered an initial order of EMFIDS units to Con Ed resulting in revenue of $425,000. Since that order, we have not sold any additional EMFIDS units. Development of EMFIDS II, a more effective and easier-to-deploy version, has recently been completed. We sold one of these units in 2015, have begun marketing these EMFIDS II units to other utility companies and have received interest from several companies in the United States. Revenues from the utilities industry amounted to 7.7% of revenues during 2016.

 

Other Industries


Due to its environmentally friendly and nontoxic characteristics, FireIce® is uniquely suited to suppress and retard fires related to biomass and agricultural stockpiles that routinely spontaneously combust and easily spread.  FireIce® can be sprayed directly on these fires to extinguish them and can be used to protect adjacent stockpiles. As this is a new market for our products, we are encouraged by the initial response from customers.  Sales to these entities made up 1.5% of revenues during 2016.


In addition, to the biomass and agricultural market, the Company began in-house trials of FireIce in several manufacturing companies that employ processes that either use or create a great deal of heat, resulting in numerous fire events per day.  Using FireIce®, these entities are able to easily suppress any fire activity and in several instances are able to reduce the number of fire events.  These in-house trials in 2016 have been limited to single manufacturing plants, however the companies have begun to adopt the use of FireIce in other plants and we have begun discussions with these companies to adopt the use of FireIce® in all of their manufacturing facilities.




3



 


FireIce Shield®


In 2015, we began selling an asset protection product under the name FireIce Shield®. The initial product offering under this line is being marketed to plumbers and welders who use the product to protect areas in close proximity to welding or soldering.  In 2016, we began selling our FireIce Shield spray bottles in an 80 store plumbing supply chain in the Northeast through FireIce Solutions. Sales of this product in 2016 represented 7.4% of total revenues.


Communication Towers


Companies that own communication towers are constantly performing structural maintenance, equipment upgrades and additions to improve the towers and increase revenues.  This work involves cutting and welding on the tower structures which creates a high risk of setting fire to the extensive cabling within the tower as well as surrounding vegetation and property. These fires can result in significant property damage and loss of revenue to the tower owners. In 2015, we began working with Crown Castle, a company that owns cell phone towers to develop a portable system which can be used to spray FireIce Shield® CTP on cell phone towers and surrounding vegetation during cutting and welding. FireIce Shield® CTP is a special formulation to improve visibility and product adhesion.  We produced six production units for testing in March 2016 and began selling these units at the end of 2016. After a nearly two-year effort, we have begun training and delivering FireIce Shield® CTP Systems to Crown Castle contractors (who also do work for other cell tower owners) in Crown’s southeast region in December 2016, shortly after that region began asking contractors to include the CTP System in their bid proposals.


First Responders


In 2015, we began selling FireIce Shield® in two liter pressurized canisters for use by police departments and other first responders to protect property and people from fire until fire department personnel can arrive on scene. These units and refills for these units, which have primarily been sold through FireIce Solutions, represented 6.0% of our revenues during 2016.


Industrial Manufacturing Applications


In 2016, we began working with several industrial companies that manufacture products that are either flammable during the manufacturing process or that utilize manufacturing processes that create a high probability of fire during production.  These companies have shown an interest in the use of FireIce® for the suppression and FireIce Shield® to prevent fires in areas prone to frequent fires. Sales to industrial customers represented 1.2% of revenues in 2016.


During the fourth quarter of 2016, GelTech launched the following three new products under the FireIce Shield® banner:


·

FireIce Shield® welding blankets, a premium line of welding blankets that combines silica fabric and FireIce Shield® to better protect area in close proximity to welding and plumbing activities. These blankets have been tested and are currently being sold to shipyards across the United States.


·

FireIce Shield® ChargeSafe™ Case, a portable zippered case used to store a personal electronic device (cellphone, electronic cigarette, etc.) to eliminate the risk of a lithium battery fire during charging when the risk is highest.


·

FireIce Shield® Emergency Containment Unit, designed to provide a safe container, filled with FireIce Shield® in which an extinguished laptop or other personal electronic device, that has experience a lithium battery fire, can be placed to ensure the fire will not reignite.


Sales and Marketing


We market and sell FireIce® and FireIce Shield® through FireIce Solutions, our exclusive municipal distributor, through other fire equipment distributors, online and direct marketing, wildland fire industry conferences and through our sales staff members who call on potential customers and respond to inquiries.


In November and December 2016, the Company hired two experienced sales professionals, primarily to focus on increasing our sales in the FireIce Shield® line of products.

 



4



 


Although not a significant focus of our marketing efforts, we recognize the opportunities that international markets provide and have pursued numerous credible inquiries to sell FireIce® to certain markets overseas.


Raw Materials and Suppliers

 

The raw materials for FireIce® are in abundant supply. The base ingredients of FireIce® are manufactured by a third party and packaging is performed for us by other third parties. There are several other companies that are able to manufacture the base ingredients and there are numerous sources for the parts needed to manufacture the EMFIDS II and FireIce Shield CTP units.

 

Competition


The fire suppression market is highly competitive. However, we believe we will be able to compete effectively because:

 

·

FireIce® is more effective than other fire suppressants.

 

·

The price per mixed gallon of FireIce® is significantly less than our competitors’ products.

 

·

The effectiveness of FireIce® to rapidly extinguish and deter rekindling, allows fire departments to put out fires faster which save manpower and overtime costs associated with spending extra time on a fire scene.


·

Once a fire has been extinguished, any dispensing system used to apply FireIce® can be easily cleaned with water from a garden hose.

 

·

FireIce® is the only water enhancing gel that can be easily mixed and applied to fires as a suppressant.


·

When mixed with water, FireIce® weighs less than other fire retardants/suppressants currently being used thus reducing stress on aircraft airframes and improving pilot safety.

 

·

FireIce® is superior to foam. Foam consists of air bubbles in water and a small amount of surfactant. When the bubbles burst, the foam collapses. When mixed with FireIce®, water is held by a three-dimensional network of cross-linked polymers. When FireIce® is applied to the fire, the water evaporates and the liquid collapses, sapping the fire of not only heat but oxygen as well. It takes longer for water to evaporate from our polymer than for air bubbles to burst.

 

In the wildland firefighting industry, the market is made up of the numerous state and federal agencies responsible for protecting state and federal wildlands and parks. The market leader in the wildland chemicals industry is Phoschek. Because of the strong relationships Phoschek has with these agencies, many dating back to the 1960’s, and the natural resistance to change, which can be even greater in the government sector, we have encountered significant resistance as we attempt to gain market share. Nonetheless, we believe that FireIce® has distinct advantages over Phoschek’s products in aerial attack and ground operations. FireIce® is significantly less expensive to purchase and operate, more effective at suppressing fires, is non-corrosive to aircraft parts, is lighter than current Phoschek products thus reducing airframe stress and maximum load issues while increasing pilot safety, is not harmful to plant, fish or wildlife and has superior drop characteristics. Phoschek is classified by the Forest Service as a long-term retardant, but current tactics include using it in direct attack. FireIce® is classified by the Forest Service as a water enhancer and has been effectively used by multiple agencies in “direct attack” and as medium-term retardant used in “indirect attack”. Direct attack is when the product is dropped directly on the edge of a fire. Indirect attack is when the product is used to create a fire break in front of the fire. Some long-term retardant gels take time to dry and cure in order to create a fire break. FireIce® is ready immediately to be used on fires. Based on these factors and our successes with the state and federal agencies that have used FireIce®, we believe we will eventually overcome the competitive barriers.




5



 


Another significant competitor is Tyco Fire & Security, a major business segment of publicly-traded Tyco International Ltd. (NYSE: TYC). Tyco Fire & Security produces   ANSUL®, a premium brand of special hazard fire protection products including fire extinguishers and hand line units, pre-engineered restaurant, vehicle, and industrial systems; sophisticated fire detection/suppression systems and a complete line of dry chemical, foam, and gaseous extinguishing agents. Tyco Fire & Security is a well-funded company and has significantly more financial, marketing and sales resources than us. Ansul’s main sales thrust is the installation of “in building” fire suppression systems, but they manufacture a wide variety of products. They also have an extensive distributor list and have a significant share of the market that we are attempting to enter.

 

National Foam, part of the Kidde Fire Fighting organization, is a manufacturer of foam concentrate, foam proportioning systems, fixed and portable foam firefighting equipment, monitors, nozzles and specialized big flow pumping solutions. National Foam has historically been at the forefront of foam firefighting and fire control technology and is the acknowledged world leader in providing foam based solutions. National Foam has significant financial resources and is part of a large firefighting company conglomerate. Thus, it has significantly more financial, marketing and sales resources than we do.

 

Thermo-Gel® provides the firefighting industry with a product that can be used for structure protection, exposure protection, defensible perimeters and wet lines. This product consists of superabsorbent polymers-polyacrylamide and sodium polyacrylate, mineral oil, and surfactants, and is supplied as a liquid concentrate which is mixed in an eductor. It requires expensive specialized equipment to use. Thermo-Gel is used in fighting active fires, wildland fires, prescribed burns, aviation applications, and in the protection of all types of structures from homes to commercial and industrial investments. This product has been approved by the Forest Service. In addition to the expense of the equipment needed to use the product, ThermoGel also requires frequent agitation to remain usable, has poor drop characteristics, requires a 30 minute hydration time and is difficult to clean off of aircraft, mixing equipment and airport tarmacs.


There are no systems comparable to EMFIDS that are readily available in the market. There are other safety products for utility workers, but none are capable of delivering fire suppression and structure protection immediately following an underground event. 


Seasonality

 

There is no real seasonality to structural fires. These occur throughout the year. In wildland fires, FireIce® use will be more likely during the warmer, drier summer months when forest and other wildland fires are more prevalent. This seasonality may be minimized if we are able to expand our distribution internationally to countries in the Southern hemisphere.


Utility workers perform maintenance on underground systems year round. As such, demand for EMFIDS II should be year round, however there may be some seasonality based upon utility capital budgeting cycles. The occurrence rate for manhole fires is highest in the summer and winter months.


Dust Control

 

Industry Overview  


Dust control is vital to several industries including agriculture, construction, mining and transportation. In response to the level of dust emissions from agricultural, mining and other industries, the Environmental Protection Agency, or the EPA, issued proposed rules titled National Ambient Air Quality Standards for Particulate Matter which were published in the Federal Register on June 29, 2012. These proposed rules reduce the amount of allowable dust released in the air by one-half. According to the EPA’s website, dust accounts for over 25% of particle matter smaller than 2.5 micrometers in diameter, which are the major cause of reduced visibility or haze in parts of the U.S., and it accounts for over 78% of particle matter smaller than 10 micrometers in diameter, which causes respiratory related health issues. Dust also causes environmental damage such as acid rain, increased acidity in lakes and streams, depletion of nutrients in the soil and damage to sensitive forests and farm crops. In terms of agriculture, the U.S. Department of Agriculture (“USDA”), estimates the total annual cost of soil erosion from agriculture in the U.S. is about $44 billion per year. According to the Global Education Project, nearly one-third of the world s cropland has been abandoned because of soil erosion and degradation over the past 40 years.




6



 


The Product s


GelTech currently sells two products for dust control, Soil Dust Control and Soil O® Soil Cap.


Soil Dust Control


Soil Dust Control launched in 2011 is highly effective in a variety of commercial and industrial markets with dust control and moisture retention problems including road construction sites, rock pits, unpaved roadways, landfills and coal piles. In contrast to the standard product used on gravel roads and rock pits and other dust causing surfaces, Soil Dust Control is environmentally friendly and requires significantly less water. Water is commonly transported to sites in large trucks. Thus, Dust Control reduces a company s carbon footprint by reducing the number of vehicle trips. In addition, fewer trips reduces labor, water and fuel costs and reduces the wear and tear on vehicles and equipment.


Soil O® Soil Cap


GelTech launched Soil O® Soil Cap in July 2014. Soil O® Soil Cap is a dust control solution designed to stabilize stockpile erosion caused by wind and rain. Soil O® Soil Cap is an easy to use, non-corrosive, environmentally safe solution used by mining operations and quarries on non-traffic areas of construction sites. The product leaves no residue and is non-flammable and non-volatile, unlike many competing products.


Uses


Soil Dust Control may be used in a variety of ways to control dust in multiple industries, including the following:


·

Soil Dust Control may be sprayed on mining, rock quarry or landfill haul roads to eliminate dust from traffic areas, and

 

·

Soil Dust Control can be sprayed on quarry conveyor belts to reduce airborne dust, and

 

·

Soil Dust Control can be sprayed on horse tracks and corrals to reduce airborne dust, and


·

Soil Dust Control can be used to maintain unpaved raceways and parking lots at rural dirt tracks and other venues used for auto racing.


Soil O® Soil Cap may be used in a variety of ways to control dust in multiple industries, including the following:


·

Soil Dust Control may be sprayed on mining or rock quarry stockpiles to reduce erosion and dust, and

 

·

Soil Dust Control can be sprayed on non-traffic areas of construction sites.


Benefits


Soil Dust Control is beneficial because it will reduce the number of times companies will need to spray haul roads, thus reducing water usage, fuel, vehicle maintenance and labor costs. In addition, the product is non-toxic and environmentally friendly and can be integrated into the reclamation process for mining companies.


Soil O® Soil Cap is beneficial because it very easy to mix and apply, is environmentally friendly and reduces erosion of product stockpiles while also reducing airborne dust on mining and construction sites.


Sales and Marketing  


We began sales of Soil Dust Control in Southern California in March 2011 and currently have one full-time and one part-time employee responsible for selling the product, focusing on dust control for rural unpaved roads, construction sites, agricultural applications and most recently solar farms.


In January 2014, we entered into a national vendor agreement with White Cap HD Supply, the leading distributor of specialty hardware, tools and materials for large and medium-sized contractors. Under the agreement, White Cap is currently stocking Soil Dust Control , Soil O® Soil Cap and related equipment in the southwestern United States, primarily in the southern California and Arizona markets.


Sales of dust control products accounted for 11.3% of revenues during 2016.



7



 


Competition


Competition in the dust control industry runs the gamut from regional providers of product, trucks and equipment to multinational chemical companies providing chemical solutions and application equipment on a global basis. Generally speaking, the industry consists of products made up of chemical compounds that are in some form or fashion petroleum based, are much more expensive per application and are not environmentally friendly. A large number of companies have

chosen to use water alone to mitigate airborne particulate matter. For these companies, our product can be most helpful by reducing the number of watering trips necessary to control dust thus reducing the overall cost of dust control and reducing the cost of any remediation which may be required by current EPA guidelines.


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


Soil O®- Agricultural Application


Industry Overview

 

According to the USDA, although less than 15% of U.S. cropland is irrigated, agriculture accounts for 80 percent of the nation s consumptive water use. According to the World Bank, agricultural water management is a vital practice in ensuring food security, poverty reduction, and environmental protection. However, irrigation in all forms costs billions of dollars a year. Specifically, irrigation for golf courses can be costly as well. According to the United States Golf Association, it is not uncommon for irrigation systems to cost more than $1 million per golf course. Effective irrigation and water management practices can help maintain profitability for farmers and golf course managers in an era of increasingly limited and more costly water supplies.


The Product

 

We are marketing two distinct versions of Soil O®: a unique, topically applied version, called Soil O® Topical, and a long term version called Soil O® Granular, that is applied prior to planting. Soil O® Topical is a fine particle blend that is mixed with water and is for use on existing grass and can be applied using any type of spray rig or backpack sprayer. Soil O® Granular has been formulated to be tilled into the top four to six inches of the soil to assist in replacing and replanting of grass, including sodding and seeding, and is also recommended to be used during the planting of trees, shrubs, and annuals. Soil O® Granular is appropriate for planting situations in which the grass is not already established. We are now selling both versions to our distributors which are marketing the products to the agricultural and other markets.


Soil O® Granular s main ingredient is polyacrilamide cross-linked polymer. Versions of this product have been used in the agricultural industry for many years. Soil O® can absorb hundreds of times its weight in water. Water is rapidly drawn into a polymer network where it is stored. As the soil dries out, the polymer releases up to 95% of the water it has absorbed back into the soil. Therefore, the water becomes available when the plants need it most.


Both Soil O® Topical and Granular naturally degrade over time in soil. Sunlight and salinity exposure make it break down faster. Soil O® Topical is used as a top dressing and sprayed onto already established turf and grasses. Our formulation provides a specifically formulated particle size which, with irrigation, gets down to the roots to supply turf and grasses with water and nutrients. Since the Soil O® Topical particle size is very small and not as protected from the ultraviolet light given off by the sun as the granular form, it is broken down much more rapidly than the granular. Soil O® Granular is tilled directly into the soil and will last for three to five years without having to be reapplied. The market for the granular product includes newly-designed golf courses, courses doing replanting as part of their continual golf course maintenance or any new landscaping project. Although granular form re-orders for large scale use may be limited due to its long duration in soil, we expect it to be used in both industrial and retail markets for the planting of landscaping which always has constant turnover due to landscaping re-design, re-planting and young tree mortality rates. We are marketing both versions of Soil O® to the agricultural market.

 



8



 


Uses


Soil O® has multiple potential uses in the agricultural market:

 

·

Soil O® products are specially designed for use as a soil conditioner for water and nutrient retention, interior and exterior farming including growers, turf farms and greenhouses, landscaping, forestry, horticulture and golf course maintenance. Each product’s goal is to increase the water holding capacity of soils and potting mixes, thereby reducing the frequency of irrigation, as well as reducing leaching of valuable nutrients.

 

·

Soil O® can also be beneficial for lawns and sod by improving germination and promoting regular even growth of lawns. This is especially useful for turf farms, golf courses and grass in parks and gardens.

 

·

Soil O® can be effective in agriculture, particularly in commercial farming. By storing water for later release as the soil becomes drier, Soil O® delays wilting and makes it possible for certain plants to become better established while waiting for rain or irrigation to begin.

 

·

By absorbing fertilizer, Soil O® reduces the amount that runs out of the soil and makes it available to the plants for a longer period of time.

 

·

Soil O® can be used in the planting of trees, bushes and saplings by enhancing root development and reducing mortality rates due to transplant shock.

 

·

Soil O® can keep plants, trees and cut flowers hydrated and thereby facilitate their transportation over long distances.


We believe that the water scarcity in the U.S. has created an opportunity to demonstrate to governments that Soil O® can provide a solution for the agricultural market in areas where farmers use irrigation to water crops. In addition, the agriculture market has a substantial problem in related to fertilizer and nutrient leaching. Soil O® has been shown to be successful in retaining fertilizer and nutrients at the root level, thus reducing leaching.


Sales and Marketing

 

GelTech has focused its marketing efforts for Soil O® Topical and Granular to applications for agriculture, golf courses and commercial landscapers. Golf course superintendents find the product works well on berms and around sand traps where water run-off is an issue. Commercial landscapers use our granular product to improve growth and reduce plant mortality for new plantings.


During 2016, Soil O® accounted for 4.9% of our revenue.


Raw Materials and Suppliers

 

Our Soil O® base ingredients are manufactured for us by a third party. There are several other companies that are also capable of manufacturing the main ingredients.

 

Competition


Polymers have been marketed on and off for over 20 years as additions to soil to increase water retention and reduce irrigation. Numerous companies appear to have products that are very similar to Soil O®. Some of these companies are:

 

·

Horticultural Alliance, Inc.

 

·

Turbo Technologies, Inc.

 

·

American Soil Technologies, Inc. [OTCPINK: SOYL]

 



9



 


The first two are private companies and it is unclear what financial, marketing and sales resources they have compared to us. On the other hand, American Soil Technologies, Inc. files reports with the SEC. However, from American Soil’s filings with the SEC, it is clear that it has experienced significant losses, has nominal revenue and assets, has a large accumulated deficit and has a working capital deficit which may hamper its ability to compete. It supplies polymer soil additions and other related products. American Soil has an exclusive license to two method patents with cross-linked and linear polymers as their basis. They also have a patent on a slow release liquid fertilizer. American Soil also has two patents on a machine designed to install its liquid products in mature turf as well as some standing crops. Since we do not currently have a patent on Soil O® itself or on any of its uses, it is possible that a competitor could reverse engineer Soil O® and market it under its own brand name.


Seasonality

 

We anticipate that sales of Soil O® will be higher during the spring and summer quarters. However, we do not expect as much seasonality in the Southeastern areas that generally experience year round growing cycles, with the sale of the agricultural products preceding the growing cycle of various crops. We also believe a demand for Soil O® may be higher in areas where drought conditions persist.


Intellectual Property


The following are patents and patents pending for products we currently market or expect to market:

 

·

U.S. patent, Patent No. 8,555,991 – Process and Device for Fire Prevention and Extinguishing;

 

·

U.S. patent, Patent No. 7,992,647 – Process and Device for Fire Prevention and Extinguishing;

 

·

U.S. patent, Patent No. D649,294  – Firehose Eductor;

 

·

U.S. patent application, Serial No. 62/064,011 – Battery Storage Device and Method of Manufacture;

 

·

U.S. patent application, Serial No. 14/314,538 – Method and Device for Suppressing Electrical Fires in Underground Conduits;


·

U.S. patent application, Serial No. 61/754,068 – Device for Treating Manhole Electrical Fires;


·

U.S. patent application, Serial No. 61/755,237 – Device for Suppressing Electrical Conduit Fires;


·

U.S. patent, Patent No. 9,072,922 – Fluid Dispensing ladder;


·

U.S. patent, Patent No. 8,757,280 – Method of Extinguisher Underground Electrical Fires;

 

·

U.S. patent, Patent No. D637,357 – Fire Extinguisher Dispensing Hose;


·

U.S. patent, Patent No. D684,662 – Firehose Handheld Eductor Nozzle;


·

U.S. patent, Patent No. 9,511,246 – Method and Apparatus for Treating Underground Conduits;

 

·

U.S. patent, Patent No. 8,833,476 – Method and Apparatus for Extinguishing Fires;


·

U.S. patent application, Serial No. 62/406,638 – Method of Treating Silica Fabric;


·

U.S. patent application, Serial No. 62/008,525 – Colorized Fire Extinguishing Compounds


·

U.S. patent application, Serial No. 15/427,915 – Cellular Telephone Fire Suppression Packet;


·

U.S. patent application, Serial No. 62/078,463 – Wind Turbine Fire Suppression Systems;


·

U.S. patent application, Serial No. 62/453,657 – Race Car Fire Suppression System;


·

U.S. patent application, Serial No. 14/309,229 – Device for Distribution of Fire Suppressant;


·

U.S. patent application, Serial No. 14/682,542 – Fire Suppression Packaging;


·

U.S. patent application, Serial No. 15/243,367 – Amphibious Aircraft Fire Fighting Enhancement.

 



10



 


We continue to develop potential new products. We recently filed new patent applications, some of which are to improve our existing technologies and others are for new products.

 

We claim trademark rights to the following marks. Federal trademark applications are on file with the United States Trademark Office:

 

·

GelTech Solutions®

 

·

FireIce®

 

·

SkinArmor™

 

·

Soil


·

FireIce Shield®


·

ChargeSafe


Employees

 

As of March 24, 2017, we had 19 employees all of which are full-time employees. We hire independent contractors on an as needed basis only.  None of our employees are subject to collective bargaining agreements. We believe that our employee relationships are satisfactory.


Research and Development


During 2016 and 2015, GelTech spent $233,939 and $192,499, respectively, on research and development expenses.


ITEM 1A. RISK FACTORS


Not applicable to smaller reporting companies. However, our principal risk factors are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our corporate office is located in Jupiter, Florida. We lease our office on a month-to-month basis at a monthly rental fee of $8,966. If we were required to move, we believe that there is a large supply of commercial property available in the general area which we could lease at comparable prices.

 

ITEM 3. LEGAL PROCEEDINGS

 

None


ITEM 4. MINE SAFETY DISCLOSURE


Not Applicable



11



 


PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is quoted on the OTCQB under the symbol “GLTC”. Our common stock last traded at $0.26 on March 24, 2017. As of that date there were approximately 250 shareholders of record. We believe that additional beneficial owners of our common stock hold shares in street name. The following table provides the high and low bid price information for our common stock for each quarterly period within the two most recent fiscal years as reported by the OTC Markets. The quotation reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  


 

 

High

 

 

Low

 

     

 

 

 

 

 

 

October 1, 2016 to December 31, 2016

 

$

0.34

 

 

$

0.19

 

July 1, 2016 to September 30, 2016

 

$

0.37

 

 

$

0.26

 

April 1, 2016 to June 30, 2016

 

$

0.47

 

 

$

0.31

 

January 1, 2016 to March 31, 2016

 

$

0.57

 

 

$

0.33

 

October 1, 2015 to December 31, 2015

 

$

0.62

 

 

$

0.30

 

July 1, 2015 to September 30, 2015

 

$

0.90

 

 

$

0.31

 

April 1, 2015 to June 30, 2015

 

$

0.95

 

 

$

0.20

 

January 1, 2015 to March 31, 2015

 

$

0.40

 

 

$

0.21

 

 

Dividend Policy

 

We have not paid cash dividends on our common stock and do not plan to pay such dividends in the foreseeable future. Our Board of Directors (“Board”) will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions. Dividends, under Delaware General Corporation Law, may only be paid from our net profits or surplus. To date, we have not had a fiscal year with net profits and do not have surplus.

 

Recent Sales of Unregistered Securities

 

None

 

ITEM 6. SELECTED FINANCIAL DATA


Not required for smaller reporting companies.




12



 


ITEM 7. 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 generates revenue primarily from marketing products based around the following four product categories (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in wildland and urban firefighting, including fires in underground utility structures, and in wildland firefighting as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) FireIce Shield®, a line of products used by welders, plumbers, manufacturers, first responders and consumers to protect assets from fire; (3) Soil Dust Control , our application which is used for dust mitigation in the road construction and mining industries, as well as in rural communities with unpaved roads to deal with daily dust control issues and (4) Soil O®, a product which reduces the use of water required for irrigation and is primarily marketed to golf courses and commercial landscapers and most recently to homeowners via the Soil O® Home Lawn Kit. The Company also markets equipment that is used in the application of these primary products including (1) Emergency Manhole FireIce Delivery System (“EMFIDS”), an innovative system designed to deliver FireIce® into a manhole in the event of a fire or explosion; (2) the FireIce Shield CTP System, a mobile spray unit that can be used to protect communication tower electronics during hot work and (3) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires.


Critical Accounting Estimates


In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has selected its most subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the Company’s financial condition. The accounting estimates discussed below involve certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition.

 

Revenue Recognition

 

Under ASC 605-15-25 we recognize sales of our products when each of the following has occurred:

 

 

-

The price of the product sold is fixed or determinable and evidence of an agreement is present.

 

 

 

 

-

The title and risk of loss of the product has passed to the buyer and the sale is not contingent upon the buyer being able to resell the product.

 

 

 

 

-

We have a reasonable expectation that the buyer has the intent and the ability to pay for the product ordered.

 

 

 

 

-

We have no future obligation to the seller related to the product sold.

 

Stock-Based Compensation

 

We have granted stock options to our officers and directors at exercise prices equal to or greater than the fair value of the shares at the date of grant.


Under ASC 718-10 we recognize an expense for the fair value of our outstanding stock options as they vest, whether held by employees or others.

 



13



 


We estimate the fair value of each stock option and warrant at the grant date using the Black-Scholes option pricing model based upon certain assumptions which are contained in Note 7 to the Consolidated Financial Statements contained herein. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because our stock options and warrants have characteristics different from those of traded options, and because changes in the subjective input of assumptions can materially affect the fair value estimate, in our management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of such stock options.


We use the trading price of our common stock, or alternatively, the price of recent private placement sales of our common stock in making our estimates.


Results of Operations


FOR THE YEAR ENDED DECEMBER 31, 2016 COMPARED TO THE YEAR ENDED DECEMBER 31, 2015.


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

 

 

 

Year Ended

December 31,

 

 

Change

 

 

Change

 

 

 

2016

 

 

2015

 

 

(Dollars)

 

 

(Percentage)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,201,322

 

 

$

1,310,210

 

 

$

(108,888

)

 

 

(8.3)

%

Cost of Goods Sold

 

 

384,257

 

 

 

516,034

 

 

 

(131,777

)

 

 

(25.5)

%

Gross Profit

 

 

817,065

 

 

 

794,176

 

 

 

22,889

 

 

 

2.9

%

Operating Expenses:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

Selling General and Administrative

 

 

4,210,080

 

 

 

5,184,762

 

 

 

(974,682

 

 

 

(18.8)

%

Research and Development

 

 

233,939

 

 

 

192,499

 

 

 

41,440

 

 

 

21.5

%

Loss from Operations

 

 

(3,626,954

)

 

 

(4,583,085

)

 

 

956,131

 

 

 

20.9

%

Other Income (Expense)

 

 

(1,045,089

)

 

 

(1,440,895

)

 

 

395,806

 

 

 

27.4

%

Net Loss

 

$

(4,472,043

)

 

$

(6,023,980

)

 

$

1,351,937

 

 

 

22.4

%


For the year ended December 31, 2016, we had revenue of $1,201,322 as compared to revenue of $1,310,210 for the year ended December 31, 2015. Revenue in 2016 consisted of sales of FireIce®, Soil O® and FireIce Shield amounting to approximately $789,349, and $195,397 and $174,379, respectively. Revenue in 2015 consisted of sales of FireIce®, Soil O® and FireIce Shield® amounting to $1,156,322, $47,975 and $23,181, respectively. In addition, the Company recognized revenue of $34,692 and $78,550 from paid for research and development in 2016 and 2015, respectively.  We anticipate that our revenues from both FireIce® and Soil O® will increase in 2017 due to an increase in the number of state forestry agencies using FireIce®, an expected increase in the number of utility companies using FireIce® and its related equipment offerings such as the EMFIDS system, expected increased sales of Soil O® Dust Control and Soil O® Topical and Granular as result of  renewed interest in these products and a significant increase in FireIce Shield® sales due to our hiring of two sales professionals to pursue this market and as cell tower contractors begin to integrate our product into their cutting and welding activities.  


Cost of Goods Sold


In 2016, our costs of goods sold were $384,257 as compared to $516,034 in 2015. The change is consistent with the respective revenue from product sales. Cost of goods sold in 2015 included $67,439 related to an inventory written off for obsolescence. We expect that our cost of sales will follow the same trend as our revenues in 2017.


Selling, General and Administrative Expenses


Selling, general and administrative expenses were $4,210,080 in 2016 as compared to $5,184,762 in 2015. This decrease is reflective of decreases in the following major expense categories:


Professional fees - Professional fees decreased $189,317 due to the settlement of a lawsuit by a former employee and the settlement of a lawsuit filed by the Company against its employment practices insurance company.




14



 


Equity based compensation – Equity based compensation related to director, executive and employee stock options decreased $921,599 in 2016 primarily due to a decline in the number of options and warrants vesting during 2016. We would anticipate that these expenses would be the same or lower in future years.


Sales and marketing – Sales and Marketing costs decreased $91,321 in 2016 resulting from our discontinuance of a Soil O® Topical product marketing campaign undertaken in 2015.  It is anticipated that these costs may increase slightly in 2017as we explore several retail applications of our products through test marketing.


These selling, general and administrative expense decreases were partially offset by increases in the following major expense categories:


Salaries and employee benefits – Salaries and employee benefits increased $192,259 due to an increase in consulting fees, the addition of one wildland contract staff member in the summer of 2016 and the hiring of two sales professionals in November of 2016.


Travel expense – Travel expense increased $77,048 due to increased travel to set up additional wildland airbases in Oregon and Saskatchewan.


Research and Development Costs


Research and development costs for 2016 were $233,939 as compared to $192,499 during 2015. The increase in 2016 related to a paid for research and development project we began in late 2015 to explore additional delivery systems for our FireIce products. We expect that these costs will continue to decline in 2017 as we look to focus on marketing our existing products.  


Other Income (Expense)


Net other expense for 2016 amounted to $1,045,089 consisting of (1) interest expense of $718,636; (2) a loss on settlement of $347,420 resulting from claims brought against the Company by two former employees, which were partially offset by a gain on settlement of $300,000 relating to a claim filed by the Company against its employment practices insurance carrier; (3) a loss resulting from extending the term of certain outstanding warrants for an additional one year period of $206,620; and (4) a loss on conversion of interest of $72,765.  Other expense for 2015 consisted of (1) a loss on extinguishment of debt of $596,648; (2) losses on settlement of $492,867 related to a former director and employee and a former vendor, and (3) interest expense of $423,090 which was partially offset by a gain on conversion of interest of $12,841 and the reversal of a litigation accrual of $56,956 based on a court ruling.


Net Loss


The decrease in the net loss in 2016 was the result of the lower total operating expenses, higher gross profit and the lower net other expense. Net loss per common share was $0.09 for 2016 as compared to a net loss per common share of $0.13 for 2015. The weighted average number of shares outstanding was 51,263,804 and 47,812,775 for 2016 and 2015, respectively.


Liquidity and Capital Resources


A summary of our cash flows is as follows:


 

 

 

 

Year Ended

December 31,

 

 

 

 

 

2016

 

 

2015

 

 

  

 

  

                      

  

  

                      

  

Net cash used in operating activities

 

 

 

$

(3,344,593

)

 

$

(3,377,610

)

Net cash used in investing activities

 

 

 

 

(202,480

)

 

 

(18,864

)

Net cash provided by financing activities

 

 

 

 

3,562,991

 

 

 

3,736,125

 

Net increase (decrease) in cash and cash equivalents

 

 

 

$

15,918

 

 

$

(60,349

)




15



 


Net Cash Used in Operating Activities


In 2016, net cash used in operating activities resulted from our net loss, a loss on extinguishment of debt, a reduction of the litigation accrual due to a court ruling and loss on settlement which were partially offset by equity based compensation.  Other major factors that impacted the cash used in operations were the amortization of discounts on convertible notes of $153,971, a loss on extension of warrants of $206,620 and an increase in accrued expenses, primarily interest, of $550,864.


In 2015, net cash used in operating activities resulted from our net loss, an increase in inventory, a reduction of accounts payable the litigation accrual due to a court ruling and loss on settlement which were partially offset by equity based compensation.  Other major factors that impacted the cash used in operations were the amortization of discounts on convertible notes of $76,791 while the net change in working capital was negligible.


Net Cash Used in Investing Activities


Cash flows used in investing activities in 2016 amounted to $202,480 consisting of investments in vehicles and airbase equipment in support of our wildland operations.


Cash flows used in investing activities in 2015 amounted to $18,864 consisting of investments in computer and office equipment upgrades.

 

Net Cash Provided By Financing Activities


During 2016, GelTech received $500,000 from the sale of common stock and warrants, $715,075 from the sale of common stock to Lincoln Park Capital Fund LLC (“Lincoln Park”) and received $2,430,000 in advances against its convertible secured line of credit. These receipts were used for working capital, capital expenditures and to repay $82,084 of insurance financing.


During 2015, GelTech received $199,120 from the sale of stock to Lincoln Park, $214,250 from the sale of common stock to accredited investors in private placement transactions, $150,000 from the sale of common stock and warrants to its president and principal shareholder and received $3,265,000 in advances against its convertible secured line of credit. These receipts were used for working capital, capital expenditures and to repay $92,245 of insurance financing.


Historical Financings


Since January 1, 2015, GelTech has raised $414,250 from the sale of common stock to three accredited investors and issued these investors 545,865 shares of common stock. Since January 1, 2015, GelTech has raised $960,000 from the sale of a combination of common stock and warrants to six r accredited investors (including our chairman and principal shareholder and a director and his wife) and issued these investors 3,925,511 shares of common stock and two year warrants to purchase 1,962,756shares of common stock for $2.00 per share.


From February 2, 2015 until the filing date of this report, GelTech has received $5,895,000 in advances, at conversion rates from $0.21 to $0.82 per share under its $6 million convertible secured line of credit agreement with its president and principal shareholder. In connection with these advances the Company has issued two-year warrants to purchase 7,648,937 shares of common stock at $2.00 per share.


Under the terms and subject to the conditions of the Lincoln Park Purchase Agreement, GelTech has the right to sell, and Lincoln Park is obligated to purchase, up to $10 million in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 30-month period commencing on the date that a registration statement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC. The Company filed the registration statement and it was declared effective by the SEC on October 16, 2015. The Company may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase up to 50,000 shares of common stock on any business day, provided that at least one business day has passed since the most recent purchase, increasing to up to 150,000 shares, depending upon the closing sale price of the common stock (such purchases, “Regular Purchases”). However, in no event shall a Regular Purchase be more than $500,000. The purchase price of shares of common stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales, but in no event will shares be sold to Lincoln Park on a day the common stock closing price is less than $0.25 per share. In addition, the Company may direct Lincoln Park to purchase additional amounts as accelerated purchases if on the date of a Regular Purchase the closing sale price of the common stock is not below $1.00 per share.  Since October 2015, the Company has issued 2,586,289 shares of common stock (representing 2,550,000 shares under Regular Purchases and 36,289 commitment shares) in exchange for $926,500 in connection with the Lincoln Park Purchase Agreement.




16



 


Liquidity and Capital Resource Considerations


As of March 24, 2017, we had approximately $240,000 in available cash.


Until we generate sufficient revenue to sustain the business, our operations will continue to rely on Mr. Reger’s investments and the Purchase Agreement with Lincoln Park. If Mr. Reger were to cease providing us with working capital or we are unable to generate material revenue, we will have to scale back our operations or cease doing business. Although we do not anticipate the need to purchase significant additional material capital assets in order to carry out our business, it may be necessary for us to purchase additional support vehicles in the future, depending on demand.


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


Related Party Transactions


For information on related party transactions and their financial impact, see Note 7 and Note 9 to the consolidated financial statements contained herein.


New Accounting Pronouncements


See Note 1 to our consolidated financial statements included herein for discussion of recent accounting pronouncements contained herein.


Cautionary Note Regarding Forward-Looking Statements

 

This report includes forward-looking statements including statements regarding our expectations of future revenues and cost of sales, anticipated capital expenditures, expectations regarding our working capital, and our liquidity.


All statements other than statements of historical facts contained herein, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.


The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the Risk Factors that follow. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the Risk Factors below.




17



 


Risk Factors


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


Risk Factors Relating to Our Company


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


We incurred net losses of approximately $4.7 million in 2016 and $6.0 million in 2015. We anticipate these losses will continue for the foreseeable future. We have not reached a profitable level of operations, which raises substantial doubt about our ability to continue as a going concern. Since January 2014, we have received $6.1 million from our principal shareholder in consideration for common stock and warrants and advances against a secured convertible line of credit facility. These funds have enabled us to sustain our operations. Our continued existence is dependent upon our achieving sufficient sales levels of our products including FireIce®, EMFIDS and Soil Dust Control and obtaining adequate financing.


As described above, we entered into a $10 million purchase agreement with Lincoln Park. The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources, such as through the sale of our products. If obtaining sufficient funding from Lincoln Park does not occur, Lincoln Park suffers liquidity issues and is unable to comply with its obligations under the Purchase Agreement, or if we are unable to sell enough of our products, we will need to secure another source of funding in order to satisfy our working capital needs. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.


If we do not raise additional debt or equity capital, we may not be able to remain operational.

 

We owe approximately $8.7 million in long-term convertible debt held by our principal shareholder, which is due in December 2020. Because we are not currently generating positive cash flow, we need to sell debt or equity securities whether to Lincoln Park or any other party. If our closing stock price is below the $0.25 minimum price, we will be unable to sell shares to Lincoln Park to help support our operations.


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

 

Because we have not generated material sales of FireIce®, there can be no assurances it will be accepted by potential customers.

 

We launched FireIce® in 2009 and have not yet achieved a consistent sustainable revenue stream. There are multiple factors, which may prevent us from successfully commercializing FireIce®, our fire suppression gel:


·

We need to convince potential customers, including federal and state governments, that FireIce® is superior to and less costly than competitive products.

 

·

We may need additional capital in order to demonstrate to governments that we can rapidly fulfill orders.

 

·

We face substantial competition and must deal with the natural reluctance of people to change.

 

·

Internationally, we are required to comply with local laws which may require certification of FireIce®, a local partner, local licenses and other matters which are barriers to our selling FireIce®.

 



18



 


Because we have yet to generate material revenue on which to evaluate our potential for future success and to determine if we will be able to execute our business plan, it is difficult to evaluate our future prospects and the risk of success or failure of our business.


While we have conducted development and sales and marketing activities, we have not generated material revenue to date. During 2016, we generated revenues of approximately $1.2 million.


You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company. These risks include:


·

our ability to effectively and efficiently market and distribute our products,

 

·

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

 

·

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


We may not be able to address these risks and difficulties, which could materially and adversely affect our revenue, operating results and our ability to continue to operate our business.

 

Because we have not yet generated material revenue to date, it may never result in the generation of material revenue or profitability.


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


·

In seeking to sell FireIce® to government agencies, we will encounter typical risks such as a reluctance to change, the impact of the recession on local government budgets and competition; and

 

·

Although we have a pending U.S. patent application for Soil O® Topical, we have no patent protection for the granular form and there are many products on the market which are advertised as performing similar functions to Soil O® Granular.


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


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


We may not be able to implement our growth strategy reflected in our business plan rapidly enough for us to achieve profitability. Our growth strategy is dependent on a number of factors, including market acceptance of our fire suppression gel and our moisture preservation products. We cannot assure you that our potential markets will purchase our products or that those parties will purchase our products at the cost and on the terms assumed in our business plan.

 

Among other things, implementation of our growth strategy would be adversely affected if:

 

·

we are not able to attract sufficient customers to the products we offer in light of the price and other terms required in order for us to attain the level of profitability that will enable us to continue to pursue our growth strategy;

 

·

adequate penetration of new markets at reasonable cost becomes impossible limiting the future demand for our products below the level assumed by our business plan;

 

·

we were forced to significantly adapt our business plan to meet changes in our markets; and

 

·

for any reason, we are not able to attract, hire, retain and motivate qualified personnel.




19



 


If we cannot manage our growth effectively, we may not become profitable.


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


We may not be able to maintain and expand our business if we are not able to retain, hire and integrate key management and operating personnel.


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


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


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

 

Although we began marketing of Soil O® in 2007, we have not achieved material sales.

 

We launched Soil O® in 2007 and have not yet achieved material sales. During 2016, we generated revenue of approximately $195,397 from the sale of Soil O®. We have to expand our sales and distribution efforts. Additionally, we must recruit distributors for agricultural usage of Soil O®. If we cannot expand our sales and distribution network, our future sales of Soil O® will be limited since our sales efforts have been aimed primarily at the agriculture industry in the Southwestern U.S., and at potential sales to homeowners, all in California.


Because we do not have a patent on Soil O® or its uses, if our competitors are able to reverse engineer our product, our ability to compete effectively may be harmed.


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


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


While we believe that FireIce® and Soil O® (including Soil Dust Control ) are environmentally friendly, we may become subject to changing environmental regulations that could adversely affect the use of it. If we do become subject to environmental regulations, the use of FireIce® and Soil O® may be limited as compared to other technologies which may be less expensive or more efficient.


FireIce® and Soil O® face substantial competition in the fire suppression and moisture preservation markets, respectively, and there is no guarantee potential customers will select our products over those of our competitors.


We face multiple competitors in the fire suppression, fire retardation and moisture preservation markets. In the fire suppression and retardation fields, we face substantial competition including with one company that is the principal vendor to the Forest Service. In the moisture preservation areas, we face competition from numerous independently owned businesses that have competing and in some case very similar products. In addition, companies may be developing or may, in the future, engage in the development of products and/or technologies competitive with our products. We expect that technological developments will occur and that competition is likely to intensify as new technologies are employed.




20



 


Many of our competitors are capable of developing or have developed and are capable of continuing to develop products based on similar or other technology, which are or may be competitive with our products and technologies. We believe several of our competitors in the fire-fighting business have substantially greater financial and other resources, research and development capabilities and more experience in obtaining regulatory approvals, manufacturing and marketing than we do. Because our competitors in the moisture preservation markets are private companies, we are unable to determine the amount of financial and other resources they have available. However, some of these companies appear to have had much greater marketing experience than we have. Potential customers may prefer the pricing terms or service offered by competitors. Furthermore, competitors may have an advantage as a result of having existing business relationships with potential customers.


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


We are seeking to sell our products, including FireIce®, to federal and state governments. In selling to the government, we will be subject to a number of significant risks including:

 

·

Increasing state, local and federal budget deficits which can delay and impede our receipt of orders;

 

·

We may not be successful in selling our products to the government, although we will incur material costs as part of our sales efforts;

 

·

Government contracts often contain unfavorable termination provisions; and

 

·

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


The government can unilaterally:


·

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

 

·

terminate our existing contracts;

 

·

reduce the scope and value of our existing contracts;

 

·

audit and object to our contract-related costs and fees; and

 

·

change certain terms and conditions in our contracts.


Further, as part of any audit or review, the government may review the adequacy of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property, compensation and/or management information systems. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the government or any of its agencies. We could also suffer serious harm to our reputation if allegations of impropriety were made against us.

 

Even if we are able to successfully enter into contracts to supply federal and state governments with our products, there can be no assurances these contracts will result in substantial revenues or be renewed.


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




21



 


If we face intellectual property litigation filed by third parties, we will be subject to a number of possible adverse consequences including being required to finance very expensive litigation.


Third parties may assert patent and other intellectual property infringement litigation against us claiming our products infringe on its patents or otherwise violates its intellectual property rights. Any lawsuit, whether or not successful, could:

 

·

divert management’s attention;

 

·

result in prohibitive costs; or

 

·

require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all.

 

As a result, any third-party intellectual property claims against us could increase our expenses and adversely affect our business. In addition, agreements with third parties may require us to indemnify them for intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling on any such claim. Even if we have not infringed any intellectual property rights, we cannot be sure our legal defenses will be successful, and even if we are successful in defending against such claims, our legal defense could require significant financial resources and management time.


If we are unable to protect our intellectual property rights, we may be unable to compete with competitors developing similar technologies.


Our intellectual property including our patents is our key asset. We currently expect to commercialize eight U.S. patents and ten patents pending. We regard the protection of our intellectual property as critical to our success. In addition to pursuing patents, we have taken steps to protect our intellectual property by entering into confidentiality agreements with our employees, licensees, independent contractors and other advisors. These agreements may not be enforceable or may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of an unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain protection of our intellectual property rights could adversely affect our business and financial results.


We may be subject to a successful cyber-attack, which would have significant adverse consequences to our business.

 

In the normal course of business, our information technology systems hold sensitive customer information including names, addresses and partial credit card information. Additionally, we utilize those same systems to perform our day-to-day activities, such as receiving customer calls and maintaining an accurate record of all transactions. We have not experienced any known attacks on our information technology systems that compromised customer data or the Company’s proprietary data. We maintain our information technology systems with safeguard protection against cyber-attacks including intrusion detection and protection services, firewalls and virus detection software. However, these safeguards do not ensure that a significant cyber-attack could not occur. A successful attack on our information technology systems could have significant consequences to the business including liability for compromised customer information, which could increase our expenses, business interruption, damage our reputation, or result in legal or regulatory proceedings.

 

We may be subject to theft, loss, or misuse of personal data about our employees, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings. 

 

The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business could result in significantly increased security costs or costs related to defending legal claims. Additionally, global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. In addition, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others.




22



 


Risks Related to Our Common Stock


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


Our common stock trades on the OTC Markets, Inc., which is not a liquid market. With some limited exceptions, there has not been an active public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may decline.


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


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


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


Due to factors beyond our control, our stock price may be volatile.

 

Any of the following factors could affect the market price of our common stock:


·

sales by Lincoln Park,


·

short selling or manipulative conduct by market makers and others,


·

our failure to generate recurring sustainable revenue,

 

·

our failure to achieve and maintain profitability,


·

actual or anticipated variations in our quarterly results of operations,

 

·

announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments,


·

disclosure of any adverse results in litigation,

 

·

the loss of major customers or product or component suppliers,


·

the loss of significant business relationships,

 

·

our failure to meet financial analysts’ performance expectations,

 

·

changes in earnings estimates and recommendations by financial analysts, or

 

·

changes in market valuations of similar companies.

 

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.



23



 


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


As of March 24, 2017, we had outstanding 56,090,687 shares of common stock, of which our directors and executive officers beneficially own approximately 22.7 million shares, which are subject to the limitations of Rule 144 under the Securities Act of 1933, which we refer to as the “Act”. Substantially all of the remaining outstanding shares are freely tradable.


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


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


The sale of our common stock to Lincoln Park may cause dilution and the sale of the shares by Lincoln Park could cause the price of our common stock to decline.


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


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


In order to raise additional capital to fund our strategic plan, we may issue additional shares of common stock or securities convertible, exchangeable or exercisable into common stock from time to time, which could result in substantial dilution to any person who purchases our common stock. Because we have a negative net tangible book value, purchasers will suffer substantial dilution. We cannot assure you that we will be successful in raising funds from the sale of common stock or other equity securities.


In the future, we may issue preferred stock without the approval of our shareholders, which could make it more difficult for a third party to acquire us and could depress our stock price.


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


If our common stock becomes subject to a “chill” or a “freeze” imposed by the Depository Trust Company, or DTC, your ability to sell your shares may be limited.

 

The DTC acts as a depository or nominee for street name shares or stock that investors deposit with their brokers. Although through DTC our common stock is eligible for electronic settlement rather than delivery of paper certificates, DTC in the last several years has imposed a chill or freeze on the deposit, withdrawal and transfer of common stock of issuers whose common stock trades on the OTC Markets. Depending on the type of restriction, it can prevent shareholders from buying or selling our shares and prevent us from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period of time (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed against our common stock, if it were your ability to sell your shares would be limited.



24



 


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


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


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

See pages F-1 through F-30.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.


None .


ITEM 9A. 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, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Management’s Annual Report on Internal Control over Financial Reporting . Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this report. In making this assessment, our management used the criteria set forth by the Committee of Sponsor Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework) . Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this report based on that criteria.


Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, or GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.


Changes in Internal Control over Financial Reporting . There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION.


None.




25



 


PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.


The following table represents our Board of Directors:


Name

 

Age

 

Appointed

Peter Cordani

 

55

 

July 2007

Michael Becker

 

65

 

January 2012  

David Gutmann

 

48

 

June 2015

Leonard Mass

 

75

 

May 2010  

Phil O’Connell, Jr.

 

76

 

November 2006  

Michael Reger

 

53

 

October 2016

Neil Reger

 

78

 

October 2013  

Victor Trotter

 

53

 

April 2016


Peter Cordani . Mr. Cordani has been our Chief Technology Officer since inception and our Chief Executive Officer since January 21, 2014. He is the inventor of all of our intellectual property. Mr. Cordani was selected as a director because he is the inventor of our technologies.

 

Michael Becker . Mr. Becker has been President of the accounting firm Michael C. Becker & Co. since 1979. From 1976 until August 2007, Mr. Becker served on the Miami-Dade Fire Department and retired as the Chief Fire Officer. Mr. Becker is a Certified Public Accountant in Florida. Mr. Becker was selected as a director because of his experience as an accountant, his knowledge of the fire industry and because he is independent.


David Gutmann . From April 2015 until his appointment, Mr. Gutmann was a consultant to GelTech providing advice on sales strategy development and accountability. Since 2010, Mr. Gutmann has been an independent sales and marketing consultant and private investor.  Prior to 2010, Mr. Gutmann held various senior sales and marketing positions with Proctor and Gamble and the Coca-Cola Company.  Mr. Gutmann was appointed as a director for his extensive sales and marketing experience.   


Leonard Mass . Since September 2005, Mr. Mass has been the Vice President of Land Development in the Real Estate Development division of the Drummond Company, Inc. a company which is principally engaged in the business of mining, purchasing, processing and selling of both thermal and metallurgical coal. Mr. Mass was selected as a director for his 40 years of experience in executive management and his background in finance and management and because he is independent.


Phil O’Connell, Jr . Mr. O’Connell is an attorney and has been a partner at the law firm of Ciklin Lubitz & O’Connell and predecessor law firms since 1969. Mr. O’Connell was selected as a director because of his experience as a lawyer.


Michael Reger has been our President since November 7, 2014 and was our Chief Operating Officer from March 25, 2013 until being appointed President.  On October 24, 2016, Mr. Reger was appointed a director and Chairman of the Board.  For over 20 years, Mr. Reger has been a partner at III Associates, a registered investment advisor, and AVM, L.P., an institutional broker dealer.


Neil Reger . Since his retirement over six years ago, Mr. Reger has been an active investor. Since his son Michael Reger has been an investor in GelTech, Mr. Reger has consulted with management on GelTech’s operations (without compensation). Mr. Reger was selected as a director because of his 45 years of business and management experience.


Victor Trotter . Mr. Trotter has been the President and Technical Director of Trotter Controls, a product development and automation control systems company since 2004. Mr. Trotter was selected as a director for his experience and knowledge in the aerial firefighting industry. Mr. Trotter worked with Air Tractor to develop the first constant flow control firegate system for SEAT aircraft in 1992 and has been heavily involved with the aviation firefighting market for over 25 years. Trotter Controls and the previous company Mr. Trotter was affiliated with have shipped over 400 firefighting gate systems world-wide and continue to be the OEM gate controls supplier and world-wide support provider for Air Tractor, Inc.

 




26



 


Executive Officers


Name

 

Age

 

Position

Peter Cordani

 

55

 

Chief Executive Officer and Chief Technology Officer

Michael Reger

 

53

 

President

Michael Hull

 

63

 

Chief Financial Officer

Daniel Simon

 

61

 

Chief Operating Officer


See above for Mr. Peter Cordani’s and Mr. Michael Reger’s biography.


Michael Hull has served as our Chief Financial Officer since March 2008. From January 2010 until August 2011, Mr. Hull was President of Accounting Outsource Solutions LLC which provided Chief Financial Officer and related services to small public companies.


Daniel Simon has been our Chief Operating Officer since November 7, 2014 and prior to that was our Director of Utility Markets beginning in October 2013. Prior to that, Mr. Simon spent approximately 40 years with Con Edison with his last position being Emergency and Environmental Manager in Manhattan.


Mr. Michael Reger, our President, is the son of Neil Reger, a director of GelTech. There are no other family relationships between any of the executive officers and directors. Our Bylaws require that each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified. See the section titled “Certain Relationships, Related Transactions and Director Independence” below for further information concerning our employment of Cordani family members.


Corporate Governance


Board Responsibilities


The Board oversees, counsels, and directs management in the long-term interest of GelTech and its shareholders. The Board’s responsibilities include establishing broad corporate policies and reviewing the overall performance of GelTech. The Board is not, however, involved in the operating details on a day-to-day basis.


Board Committees and Charters


The Board and its Committees meet throughout the year and act by written consent from time-to-time as appropriate. The Board delegates various responsibilities and authority to different Board Committees. Committees regularly report on their activities and actions to the Board.


The Board currently has and appoints the members of: the Audit Committee, the Compensation Committee, the Nominating Committee and the Executive Committee. The Audit Committee has a written charter approved by the Board which was attached as Exhibit 99.1 to our Form 10-K for the fiscal year ended June 30, 2014.

 

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


Name

 

 

Independent

 

 

Audit

 

 

Compensation

 

 

Nominating

 

 

Executive

Peter Cordani

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Becker

 

 

ü

 

 

ü

 

 

ü

 

 

 

 

 

ü

David Gutmann

 

 

ü

 

 

 

 

 

 

 

 

 

 

 

 

Leonard Mass

 

 

ü

 

 

ü

 

 

ü

 

 

 

 

 

ü

Phil O Connell, Jr.

 

 

ü

 

 

ü

 

 

ü

 

 

ü

 

 

ü

Neil Reger

 

 

 

 

 

 

 

 

ü

 

 

 

 

 

 

Victor Trotter

 

 

ü

 

 

 

 

 

 

 

 

 

 

 

 




27



 


Director Independence


Our Board has determined that Messrs. Becker, Gutmann, Mass, Trotter and O’Connell are independent in accordance with standards under the Nasdaq Listing Rules. Our Board determined that as a result of being (or having a family member who was) employed as an executive officer, Messrs. Peter Cordani and Neil Reger were not independent under the Nasdaq Listing Rules. The Board also considered: (i) the consulting arrangement with Mr. Gutmann prior to being appointed director in determining that Mr. Gutmann was independent and (ii) the research and development arrangement between the Company and Trotter Controls in determining that Mr. Trotter was independent.


Our Board has also determined that Messrs. Becker, Mass and O’Connell are independent under the Nasdaq Listing Rules independence standards for Audit Committee members and Compensation Committee members.


Committees of the Board of Directors


Audit Committee

 

The Audit Committee reviews GelTech’s financial reporting process on behalf of the Board and administers our engagement of the independent registered public accounting firm. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its examinations, the evaluations of our internal controls, and the overall quality of our financial reporting. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. 


Audit Committee Financial Expert


Our Board has determined that Mr. Michael Becker is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.

 

Compensation Committee


The function of the Compensation Committee is to determine the compensation of our executive officers. The Compensation Committee has the power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations with respect to shareholder proposals related to compensation matters. Additionally, the Compensation Committee is responsible for administering the 2007 Equity Incentive Plan, which we refer to as the “Plan.”


Nominating Committee


The responsibilities of the Nominating Committee include the identification of individuals qualified to become Board members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of the Board, establish procedures for the nomination process including procedures and the oversight of the evaluations of the Board and management. The Nominating Committee has not established a policy with regard to the consideration of any candidates recommended by shareholders since no shareholders have made any recommendations. If we receive any shareholder recommended nominations, the Nominating Committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith.


Executive Committee


Our Executive Committee has the authority during intervals between the meetings of the Board to exercise all powers allowed under Delaware law and authority of the Board in the management of our business and affairs.




28



 


Code of Ethics


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


Communication with our Board of Directors


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


Section 16(a) Beneficial Ownership Reporting Compliance


Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our common stock to file initial reports of ownership and changes in ownership of our common stock and other equity securities with the SEC. These individuals are required by the regulations of the SEC to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of the forms furnished to us, and written representations from reporting persons that no Forms 5 were required to report delinquent filings, we believe that all filing requirements applicable to our officers, directors and 10% beneficial owners were complied with during 2016, except for one Form 4 that was not filed by Mr. Gary Nacht, our former Executive Vice President, disclosing one transaction. The Company’s legal counsel failed to file on behalf of Mr. Nacht.


ITEM 11. EXECUTIVE COMPENSATION.

The following information is related to the compensation paid, distributed or accrued by us to our Chief Executive Officer (principal executive officer) and the two other most highly compensated executive officers serving as of December 31, 2016 whose compensation exceeded $100,000, which we refer to as “Named Executive Officers.”


Summary Compensation Table


      Name and

Principal Position

            (a)

 

Year
(b)(1)

 

Salary
($)(c)(2)

 

Bonus
($)(d)(2)

 

Option
Awards
($)(f)(3)

 

All Other
Compensation
($)(i)(4)

 

Total
($)(j)

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter Cordani

Chief Executive Officer and Chief Technology Officer

 

2016

 

212,056

 

38,125

 

-0-

 

7,200

 

257,381

 

2015

 

205,900

 

-0-

 

135,559

 

7,200

 

348,659

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel Simon

Chief Operating Officer

 

2016

 

152,651

 

-0-

 

-0-

 

2,400

 

155,051

 

2015

 

150,000

 

-0-

 

-0-

 

7,200

 

157,200

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Hull

Chief Financial Officer

 

2016

 

150,000

 

-0-

 

-0-

 

7,200

 

157,200

 

2015

 

150,000

 

-0-

 

-0-

 

7,200

 

157,200

 

 

 

 

 

 

 

 

 

 

 

 

 

Gary Nacht

 

2016

 

182,898

 

-0-

 

3,280

 

-0-

 

186,178

Former Executive Vice President

 

 

 

 

 

 

 

 

 

 

 

 

———————

(1)

Mr. Nacht was not a Named Executive Officer in 2015.




29



 


(2)

Salary and Bonus : Represents cash compensation or discretionary bonus paid to the Named Executive Officers. See below for a description of Messrs. Cordani’s, Mr. Simon’s and Nacht’s commissions.


(3)

Option Awards : The amounts in this column represents the fair value of the award as of the grant date as computed in accordance with FASB Accounting Standards Codification Topic 718. Represent awards that are paid in options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the Named Executive Officer.


(4)

All Other Compensation : Represents car allowance.


Named Executive Officer Compensation Arrangements


The chart below summarizes the terms and conditions of compensation arrangement with our Named Executive Officers.

 

Executive

 

Term

 

Base Salary

 

Equity Grants

Peter Cordani

 

October 1, 2012 through October 1, 2020

 

$150,000 per year with increases if performance milestones are met (1)

 

800,000 stock appreciation rights (2)

 

 

 

 

 

 

 

Daniel Simon

 

August 1, 2013 through July 31, 2018

 

$150,000 per year (3)

 

150,000 stock appreciation rights (4)

 

 

 

 

 

 

 

Michael Hull

 

October 1, 2012 through September 30, 2016 (5)

 

$150,000 per year

 

800,000 stock appreciation rights (2)

 

 

 

 

 

 

 

Gary Nacht

 

Month-to-Month Basis (6)

 

$12,500 per month

 

N/A

———————

(1)

Base salary will increase to: (i) $170,000 upon GelTech generating $3,000,000 in revenue in any 12-month period, (ii) $190,000 upon GelTech generating $5,000,000 in any 12-month period and (iii) $200,000 upon GelTech generating $6,000,000 in any 12-month period.


(2)

Of the securities: (i) 200,000 vested immediately, (ii) 200,000 vest upon GelTech generating $3,000,000 in revenue in any 12-month period, (iii) another 200,000 vest upon GelTech generating $5,000,000 in revenue in any 12-month period and (iv) another 200,000 vest upon GelTech generating $6,000,000 in revenue in any 12-month period. The SARs are exercisable at $0.45 per share over a 10-year period.


(3)

Mr. Simon is also entitled to 4% commissions on sales generated by him. As of the date of this filing, Mr. Simon has been paid commissions of approximately $2,600.


(4)

Of the securities: (i) 50,000 vested immediately, (ii) 33,334 vest upon GelTech generating $3,000,000 in revenue in any 12-month period, (iii) another 33,333 vest upon GelTech generating $5,000,000 in revenue in any 12-month period and (iv) another 33,333 vest upon GelTech generating $6,000,000 in revenue in any 12-month period. The SARs are exercisable at $1.52per share over a 10-year period.


(5)

On September 30, 2016, Mr. Hull’s employment agreement expired. The Company continues to pay his base salary on a month-to-month basis.


(6)

Mr. Nacht is a former consultant to GelTech and was compensated under a Consulting Agreement with Synergy Enterprises, LLC (“Synergy”), a company that he controls. Synergy received a 3% commission on the first $3.5 million of revenue generated by the Company. Additionally, Synergy was to receive a commission on revenues generated by the Company from sales made to third-parties introduced to the Company by Synergy. The Consulting Agreement expired in November 2016 and the Consultant continued to provide services on a month-to-month basis until its services were terminated in March 2017.


The Compensation Committee has the discretion to increase each of the Named Executive Officers base salary. Any such discretionary increase must be based on profitability, positive cash flow or such other factors as the Compensation Committee deems important.  Additionally, the Compensation Committee will have the discretion to award each of the Named Executive Officers a bonus based upon job performance or any other factors determined by the Committee.




30



 


On January 23, 2015, GelTech approved an amendment to the Employment Agreement of Mr. Cordani.  In addition to his base salary, Mr. Cordani receives a 5% commission on the first $2 million of revenue generated by GelTech in 2015. Subsequently, this commission was extended until the end of 2016.  The amendment was effective as of January 1, 2015. As of the filing date, Mr. Cordani had been paid an additional $130,824 as a result of this amendment. Additionally, on May 21, 2015, GelTech approved an amendment to Mr. Cordani’s Employment Agreement to extend the term of the Agreement an additional four years.


Termination Provisions


The table below describes the severance payments that Messrs. Cordani and Simon are entitled to in connection with a termination of their employment upon death, disability, dismissal without cause, or for Good Reason. All of the termination provisions are intended to comply with Section 409A of the Internal Revenue Code of 1986 and the Regulations thereunder.

 

Death or Total Disability

 

 

One year base salary and all equity shall vest

 

 

 

 

Dismissal Without Cause or Termination by Executive for Good Reason (1)

 

 

Greater of one year base salary and continuation of base salary through the end of the remaining term of the agreement and all equity shall vest

———————

(1)

Good Reason is generally defined as the material diminution of the officers’ duties due to no fault of the executive or any other action or inaction that constitutes a material breach by GelTech under the Employment Agreements.


Outstanding Awards at Fiscal Year End


Listed below is information with respect to unexercised options, stock that has not vested, and equity incentive plan awards for each Named Executive Officer outstanding as of December 31, 2016:


Outstanding Equity Awards As of December 31, 2016


Name

   (a)

 

Number of

Securities
Underlying
Unexercised
Securities

(#)
Exercisable
(b)

 

Number of

Securities

Underlying

Unexercised

Securities

(#)

Unexercisable

(c)

 

Equity

Incentive
Plan

Awards:
Number of

Securities
Underlying

Unexercised
Unearned

Securities
(#)
(d)

 

Exercise

Price
($)

(e)

 

Expiration

Date
(f)

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter Cordani

 

185,008

 

0

 

0

 

0.667

 

March 16, 2018

 

 

 

750,000

 

0

 

0

 

1.22

 

December 7, 2020

 

 

 

175,000

 

0

 

0

 

0.81

 

September 19, 2021

 

 

 

150,000

 

0

 

0

 

0.74

 

June 20, 2022

 

 

 

200,000

 

0

 

600,000 (1)

 

0.45

 

October 1, 2022

 

 

 

125,000

 

0

 

0

 

1.10

 

June 26, 2023

 

 

 

0

 

0

 

250,000 (2)

 

1.30

 

July 28, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel Simon

 

50,000

 

0

 

100,000 (3)

 

1.52

 

August 13, 2023

 

 

 

5,000

 

0

 

0

 

1.30

 

August 30, 2023

 

 

 

10,000

 

0

 

0

 

0.72

 

December 20,2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Hull

 

150,000

 

0

 

0

 

0.60

 

June 2, 2021

 

 

 

150,000

 

0

 

0

 

0.74

 

September 19, 2021

 

 

 

200,000

 

0

 

600,000 (1)

 

0.45

 

October 1, 2022

 

 

 

125,000

 

0

 

0

 

1.10

 

June 26, 2023

 

 

 

0

 

0

 

250,000 (2)

 

1.30

 

July 28, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Gary Nacht

 

250,000

 

 

 

 

 

0.50

 

November 15, 2020

 

 

 

250,000

 

 

 

 

 

0.50

 

May 4, 2020

 

 

 

5,000

 

15,000

 

 

 

0.22

 

December 22, 2021

 

———————

(1)

Of the stock appreciation rights (“SARs”): (i) 200,000 vested immediately, (ii) 200,000 vest upon GelTech generating $3,000,000 in revenue in any 12-month period, (iii) another 200,000 vest upon GelTech generating $5,000,000 in revenue in any 12-month period and (iv) another 200,000 vest upon GelTech generating $6,000,000 in revenue in any 12-month period.



31



 


(2)

Vests based on GelTech’s stock price meeting certain milestones.


(3)

Of the SARs: (i) 50,000 vested immediately, (ii) 33,334 vest upon GelTech generating $3,000,000 in revenue in any 12-month period, (iii) another 33,333 vest upon GelTech generating $5,000,000 in revenue in any 12-month period and (iv) another 33,333 vest upon GelTech generating $6,000,000 in revenue in any 12-month period. The SARs are exercisable at $1.52 per share over a 10-year period.


Risk Assessment Regarding Compensation Policies and Practices as they Relate to Risk Management


Our compensation program for employees does not create incentives for excessive risk taking by our employees or involve risks that are reasonably likely to have a material adverse effect on us. Our compensation has the following risk-limiting characteristics:


·

Our base pay programs consist of competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks;

·

A portion of executive incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term company results;

·

Awards are not tied to formulas that could focus executives on specific short-term outcomes;

·

Equity awards may be recovered by us should a restatement of earnings occur upon which incentive compensation awards were based, or in the event of other wrongdoing by the recipient; and

·

Equity awards, generally, have multi-year vesting which aligns the long-term interests of our executives with those of our shareholders and, again, discourages the taking of short-term risk at the expense of long-term performance.


Director Compensation


We do not pay cash compensation to our directors for service on our Board and our employees do not receive compensation for serving as members of our Board. Directors are reimbursed for reasonable expenses incurred in attending meetings and carrying out duties as board and committee members. Under the Plan, our non-employee directors receive automatic grants of stock options as compensation for their services on our Board. Because we do not pay compensation to employee directors, Messrs. Peter Cordani and Michael Reger were not compensated for their service as directors in 2016.


Director Compensation

 

Name

  (a)

 

 

 

 

 

Option

Awards

($)(d) (1)

 

 

 

Total

($)(j)

 

David Gutmann

 

 

 

 

 

29,152

 

 

 

29,152

 

Leonard Mass

 

 

 

 

 

34,983

 

 

 

34,983

 

Phil O’Connell, Jr.

 

 

 

 

 

37,898

 

 

 

37,898

 

Neil Reger

 

 

 

 

 

29,192

 

 

 

29,192

 

Victor Trotter

 

 

 

 

 

38,783

 

 

 

38,783

 

———————

(1)

This represents the fair value of the award as of the grant date in accordance with FASB ASC Topic 718. These amounts represent awards that are paid in options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the directors. All of these Option Awards were granted to the directors in connection with automatic initial and/or annual grants made under the Plan.  




32



 


Equity Compensation Plan Information Table


The following chart reflects the number of securities granted and the weighted average exercise price for our compensation plans as of December 31, 2016.


Name Of Plan

 

Aggregate
Number of
Securities
Underlying
Outstanding

Options
and Rights

 

Weighted
Average
Exercise
Price Per
Share ($)

 

Aggregate
Number of
Securities
Available for
Grant

 

Equity compensation plans approved by security holders (1)

 

 

11,676,340

 

 

0.80

 

 

3,323,660

 

Equity compensation plans not approved by security holders

 

 

20,000

 

 

1.18

 

 

 

Total

 

 

11,696,340

 

 

0.80

 

 

3,323,660

 

———————

(1)

Includes stock options and SARs issued under the Plan.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.


The following table sets forth the number of shares of our common stock beneficially owned as of March 24, 2017 by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director, (iii) our Named Executive Officers, and (iv) all of our executive officers and directors of as a group. Unless otherwise specified in the notes to this table, the address for each person is: c/o GelTech Solutions, Inc., 1460 Park Lane South, Suite 1, Jupiter, Florida 33458.

 

Title of Class

 

Name and Address

of Beneficial Owner

 

Amount and

Nature of Beneficial

Ownership (1)

 

 

Percent of

Class (1)

Directors and Named Executive Officers:

  

 

 

 

 

 

 

 

Common Stock

 

Peter Cordani (2)

 

 

2,309,344

 

 

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Daniel Simon (3)

 

 

15,000

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Michael Hull (4)

 

 

426,500

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Gary Nacht (5)

 

 

505,000

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Michael Becker (6)

 

 

596,667

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

David Gutmann (7)

 

 

210,000

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Leonard Mass (8)

 

 

888,738

 

 

 

1.6

%

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Phil O’Connell, Jr. (9)

 

 

2,275,898

 

 

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Neil Reger (10)

 

 

2,314,630

 

 

 

4.1

%

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Victor Trotter (11)

 

 

10,000

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

All directors and executive officers as a group (9 persons) (12)

 

 

64,491,448

 

 

 

66.0

%

 

 

 

 

 

 

 

 

 

 

 

5% Shareholder:

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Michael Reger (13)

 

 

54,944,671

 

 

 

59.8

%

———————

* Less than 1%.

 



33



 


(1)

Applicable percentages are based on 56,090,687 shares outstanding as of March 24, 2017, adjusted as required by rules of the SEC. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock underlying options, SARs and warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, GelTech believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. The table includes only vested options, SARs and warrants or options and warrants that have or will vest and become exercisable within 60 days.


(2)

Cordani : Mr. Cordani is a director and an executive officer. Includes shares held by North Carolina River Ridge II LLC, a company managed by Mr. Cordani. It owns 652,987 shares of common stock. Thus, under SEC rules, Mr. Peter Cordani is considered the beneficial owner as explained in Note (1). Also includes 1,385,008 shares issuable upon the exercise of vested options. Mr. Cordani is the trustee of three trusts which own 271,349 shares of GelTech. Does not include vested SARs which are out-of-the-money.


(3)

Simon : Mr. Simon is an executive officer. Includes 15,000 shares issuable upon the exercise of vested options. Does not include vested SARs which are out-of-the-money.


(4)

Hull : Mr. Hull is an executive officer. Includes 425,000 shares issuable upon the exercise of vested options. Does not include vested SARs which are out-of-the-money.


(5)

Nacht: Mr. Nacht is a former executive officer. Represents shares issuable upon the exercise of warrants.


(6)

Becker : Mr. Becker is a director. Includes 565,000 shares issuable upon the exercise of vested options.


(7)

Gutmann : Mr. Gutmann is a director. Represents shares issuable upon the exercise of warrants and vested options.


(8)

Mass : Mr. Mass is a director. Includes 760,000 shares issuable upon the exercise of vested options and 15,000 shares issuable upon the exercise of warrants.


(9)

O’Connell : Mr. O’Connell is a director. Includes 350,000 shares issuable upon the exercise of warrants and 860,000 shares issuable upon the exercise of vested options. Also includes: (i) 95,241 shares jointly held by Mr. O’Connell and his wife, (ii) 915,407 shares held by the Phil D. O’Connell, Jr. Revocable Trust, of which Mr. O’Connell is the trustee, (iii) 23,750 shares held by Mr. O’Connell’s wife and (iv) 40,500 shares held in trusts for Mr. O’Connell’s children, of which Mr. O’Connell is the trustee. Mr. O’Connell disclaims beneficial ownership of the securities held by his wife and this disclosure shall not be deemed an admission that he is the beneficial owner of the securities held by his wife.


(10)

Neil Reger : Mr. Reger is a director. Includes: (i) 756,593 shares of common stock and 200,000 shares issuable upon the exercise of warrants and 307,143 shares issuable upon the exercise of vested options directly held by Mr. Reger and (ii) 683,751 shares of common stock and 307,143 shares issuable upon exercise of warrants held by Mr. Reger’s wife.


(11)

Trotter : Mr. Mr. Trotter is a director. Represents shares issuable upon the exercise of vested options.


(12)

Total D&O : Includes securities beneficially owned by Michael Reger, our President, Chairman of the Board and an executive officer who is not a Named Executive Officer under the SEC’s regulations.


(13)

Michael Reger : Mr. Reger is an executive officer. These shares are also included in the “All directors and executive officers as a group” beneficial ownership amount. See Note 12 above. Includes 434,681 shares of common stock held in a grantor retained annuity trust of which Mr. Reger is the trustee. Also includes 24,221,163 shares issuable upon the conversion of convertible notes and 11,502,933 shares issuable upon the exercise of warrants.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE .


The following related parties are employed at GelTech:


·

Peter Cordani’s sister-in-law is our controller and is paid $1,269 per week,


·

Peter Cordani’s mother is our receptionist and is paid $600 per week.


We believe that these salaries are at or are below the going rate of what such services would cost on the open market.



34



 


Mr. Michael Reger, son of Neil Reger, a director, is employed as President. Michael Reger has been paid no compensation for his employment with GelTech.


Since July 1, 2013, Michael Reger has purchased 6,573,361 shares of common stock for approximately $3,275,000. In connection with these purchases, Mr. Reger was issued 2,569,651 two year warrants with an exercise price of $2.00 per share.


On February 12, 2015, GelTech and Michael Reger, agreed to amend two outstanding notes held by Mr. Reger. The maturity date of Mr. Reger’s $1,000,000 (“1M Note”) and $1,997,483 (“2013 Note”) 7.5% convertible notes (collectively, the “Notes”) were extended to December 31, 2020. The maturity dates on the $1M Note and 2013 Note were originally July 11, 2018 and December 31, 2016, respectively. In consideration for extending the maturity dates, the Company amended the Notes to make them secured by all of the Company’s assets including its intellectual property and inventory and reduced the conversion price of the $1M Note to $0.35 per share.


In addition to the Notes (described above), since February 12, 2015, Mr. Reger has lent the Company $5,895,000 in consideration for the issuance of 7.5% secured convertible notes. The notes are convertible at prices ranging from $0.21 to $0.82 per share and mature on December 31, 2020. Repayment of these notes are secured by all of the Company’s assets including its intellectual property and inventory in accordance with a $6 million secured line of credit agreement between the Company and Mr. Reger. Additionally, in connection with these loans, the Company has issued Mr. Reger 7,828,382 two-year warrants exercisable at $2.00 per share.


Since July 1, 2013, Mr. Reger has been issued 1,997,295 shares of common stock in lieu of cash payments totaling $822,799 interest due under outstanding notes.


Prior to his appointment as a director, Mr. Gutmann served as a consultant for the Company. In consideration for those services, Mr. Gutmann was issued 100,000 warrants exercisable at $0.76 per share.


On January 22, 2016, the Company extended all of the outstanding warrants (3,968,258) set to expire in 2016 by 12 months. The warrants have an average exercise price of $1.94 per share. Of the warrants extended, approximately 2.4 million are beneficially owned by Messrs. Michael and Neil Reger, our president and a director.


In 2016 and 2015, the Company paid Trotter Controls, a company controlled by Victor Trotter, a director, approximately $191,000 and $154,000, respectively, for a research and development project to design an onboard mixing apparatus for airtankers that scoop water from lakes and rivers.


In 2015 and extended in January 2016, the Company entered into a one-year Consulting Agreement with Synergy, a company controlled by Mr. Gary Nacht, a former executive officer, under which Mr. Nacht provided consulting services to the Company.  Synergy was paid $12,500 per month and received a 3% commission on the first $3.5 million of revenue generated by the Company of which Synergy was paid $36,178 from 2016 until its services were terminated in 2017.


ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES .

 

All of the services provided and fees charged by Salberg & Company, P.A., or Salberg, were approved by our Audit Committee. The following table shows the fees paid to Salberg, our principal accountant for the years ended December 31, 2016 and 2015.


 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

2015

 

 

  

 

 

($)

 

 

($)

  

Audit Fees (1)

 

 

 

 

53,005

 

 

 

107,263

 

Audit Related Fees (2)

 

 

 

 

1,999

 

 

 

2,228

 

Tax Fees

 

 

 

 

 

 

 

 

All Other Fees

 

 

 

 

 

 

 

 

Total

 

 

 

 

55,003

 

 

 

109,491

 

———————

(1)

Audit fees – these fees relate to the audit of our financial statements and the review of our interim quarterly financial statements.  Fees for 2015 include a transition audit as of December 31, 2015 as the Company changed its fiscal year from June 30 to December 31.

(2)

Audit related consulting for filings on Form S-1.




35



 


PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.


(1)

Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.

 

(2)

Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the Consolidated Financial Statements or notes included herein.

 

(3)

Exhibits.


EXHIBIT INDEX


Exhibit

 

 

 

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

 

 

3.1(a)

 

Certificate of Amendment to the Certificate of Incorporation

 

10-Q

 

2/12/14

 

3.2

 

 

3.1(b)

 

Certificate of Amendment to the Certificate of Incorporation

 

10-Q

 

2/16/16

 

3.1(b)

 

 

3.2

 

Amended and Restated Bylaws

 

Sb-2

 

7/20/07

 

3.2

 

 

3.2(a)

 

Amendment No. 1 to the Amended and Restated Bylaws

 

10-K

 

9/28/10

 

3.3

 

 

3.2(b)

 

Amendment No. 2 to the Amended and Restated Bylaws

 

8-K

 

9/26/11

 

3.1

 

 

3.2(c)

 

Amendment No. 3 to the Amended and Restated Bylaws

 

8-K

 

9/27/12

 

3.1

 

 

10.1

 

Amended and Restated 2007 Equity Incentive Plan*

 

10-K/A

 

10/25/13

 

10.1

 

 

10.2

 

Form of Executive Employment Agreement*

 

10-Q

 

2/11/13

 

10.4

 

 

10.3

 

Form of Stock Appreciation Rights Agreement*

 

10-Q

 

2/11/13

 

10.7

 

 

10.4

 

Form of Stock Purchase Agreement – Reger

 

10-K

 

9/27/13

 

10.16

 

 

10.5

 

Form of Warrant – Reger

 

10-K

 

9/21/15

 

10.5

 

 

10.6

 

Secured Revolving Convertible Promissory Note Agreement – Reger

 

10-Q

 

5/8/15

 

10.1

 

 

10.6(a)

 

Amendment to Secured Revolving Convertible Promissory Note Agreement – Reger

 

 

 

 

 

 

 

Filed

10.7

 

Lincoln Park Purchase Agreement dated August 11, 2015

 

8-K

 

8/12/15

 

10.1

 

 

10.8

 

Lincoln Park Registration Rights Agreement dated August 11, 2015

 

8-K

 

9/7/10

 

10.2

 

 

10.9

 

Lincoln Park Warrant dated September 1, 2010

 

8-K

 

9/7/10

 

10.3

 

 

10.10

 

Amendment No. 1 Lincoln Park Warrant

 

8-K

 

8/12/15

 

10.3

 

 

10.11

 

Form of Executive Stock Option Agreement*

 

10-Q

 

11/14/13

 

10.4

 

 

10.12

 

Form of Director Stock Option Agreement*

 

 

 

 

 

 

 

Filed

10.13

 

Form of Indemnification Agreement

 

 

 

 

 

 

 

Filed

14.1

 

Code of Ethics

 

10-K

 

9/29/08

 

14.1

 

 

21.1

 

List of Subsidiaries

 

10-K

 

9/28/12

 

21.1

 

 

23.1

 

Consent of Salberg & Company, P.A.

 

 

 

 

 

 

 

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



36



 





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


*

Management contract or compensatory agreement plan or arrangement.

**

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

 

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


ITEM 16. FORM 10-K SUMMARY.


None

 




37



 


SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 28, 2017

 

 

GelTech Solutions, Inc.

 

 

 

 

 

 

 

By:

/s/ P ETER C ORDANI

 

 

Peter Cordani

Chief Executive Officer

(Principal Executive Officer)


In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures

 

Title

 

Date

 

 

 

 

 

/s/ M ICHAEL H ULL

 

Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer)

 

March 28, 2017

Michael Hull

 

 

 

 

 

 

 

 

/s/ M ICHAEL R EGER

 

Chairman of the Board

 

March 28, 2017

Michael Reger

 

 

 

 

 

 

 

 

 

/s/ N EIL R EGER

 

Director

 

March 28, 2017

Neil Reger

 

 

 

 

 

 

 

 

 

/s/ P ETER C ORDANI

 

Director

 

March 28, 2017

Peter Cordani

 

 

 

 

 

 

 

 

 

/s/ M ICHAEL B ECKER

 

Director

 

March 28, 2017

Michael Becker

 

 

 

 

 

 

 

 

 

/s/ L EONARD M ASS

 

Director

 

March 28, 2017

Leonard Mass

 

 

 

 

 

 

 

 

 

/s/ P HIL O’C ONNELL , J R .

 

Director

 

March 28, 2017

Phil O’Connell, Jr.

 

 

 

 

 

/s/ D AVID G UTMANN

 

Director

 

March 28, 2017

David Gutmann

 

 

 

 

 

 

 

 

 

/s/ V ICTOR T ROTTER

 

Director

 

March 28, 2017

Victor Trotter

 

 

 

 





38



 


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


 

 

Page

 

 

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

 

 

Consolidated Balance Sheets

 

F-3

 

 

 

Consolidated Statements of Operations

 

F-4

 

 

 

Consolidated Statements of Changes in Stockholders’ Deficit

 

F-5

 

 

 

Consolidated Statements of Cash Flows

 

F-6

 

 

 

Notes to Consolidated Financial Statements

 

F-8







F-1



 


[GLTC_10K001.JPG]


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

GelTech Solutions, Inc.


We have audited the accompanying consolidated balance sheets of GelTech Solutions, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of GelTech Solutions, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss and net cash used in operating activities in of $4,672,043 and $3,344,593, respectively, for the year ended December 31, 2016 and has an accumulated deficit and stockholders’ deficit of $47,957,926 and $6,363,616, respectively, at December 31, 2016. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management’s Plan in regards to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Salberg & Company, P.A.


Salberg & Company, P.A.

Boca Raton, Florida

March 28, 2017


2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431-7328

Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920

www.salbergco.com • info@salbergco.com

Member National Association of Certified Valuation Analysts • Registered with the PCAOB

Member CPAConnect with Affiliated Offices Worldwide • Member AICPA Center for Audit Quality





F-2



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

As of December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

151,184

 

 

$

135,266

 

Accounts receivable trade, net

 

 

108,659

 

 

 

156,733

 

Inventories

 

 

1,662,429

 

 

 

1,428,157

 

Prepaid expenses and other current assets

 

 

109,801

 

 

 

89,808

 

Total current assets

 

 

2,032,073

 

 

 

1,809,964

 

 

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment, net

 

 

253,294

 

 

 

134,259

 

Deposits

 

 

16,086

 

 

 

16,086

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,301,453

 

 

$

1,960,309

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

141,794

 

 

$

271,566

 

Accrued expenses

 

 

521,781

 

 

 

344,094

 

Deferred revenue

 

 

6,667

 

 

 

 

Accrual for settlement

 

 

26,789

 

 

 

80,000

 

Insurance premium finance contract

 

 

51,957

 

 

 

54,611

 

Total current liabilities

 

 

748,988

 

 

 

750,271

 

Convertible notes - related party, net of discounts

 

 

2,956,407

 

 

 

2,946,118

 

Convertible Line of Credit - related party, net of discounts

 

 

4,959,674

 

 

 

2,746,336

 

Total liabilities

 

 

8,665,069

 

 

 

6,442,725

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock: $0.001 par value; 150,000,000 shares authorized; 53,605,180 and 48,972,496 shares issued and outstanding as of December 31, 2016 and 2015, respectively.

 

 

53,605

 

 

 

48,972

 

Additional paid in capital

 

 

41,540,705

 

 

 

38,754,495

 

Accumulated deficit

 

 

(47,957,926

)

 

 

(43,285,883

)

Total stockholders' deficit

 

 

(6,363,616

)

 

 

(4,482,416

)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$

2,301,453

 

 

$

1,960,309

 


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




F-3



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


 

 

For the Years Ended

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Sales

 

$

1,201,322

 

 

$

1,310,210

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

384,257

 

 

 

516,034

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

817,065

 

 

 

794,176

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

4,210,080

 

 

 

5,184,762

 

Research and development

 

 

233,939

 

 

 

192,499

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

4,444,019

 

 

 

5,377,261

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(3,626,954

)

 

 

(4,583,085

)

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

12

 

 

 

13

 

Gain on settlement

 

 

300,000

 

 

 

 

Gain (loss) on conversion of interest

 

 

(72,765

)

 

 

12,841

 

Other income

 

 

340

 

 

 

58,856

 

Loss on settlement

 

 

(347,420

)

 

 

(492,867

)

Loss on extension of warrants

 

 

(206,620

)

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

(596,648

)

Interest expense

 

 

(718,636

)

 

 

(423,090

)

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(1,045,089

)

 

 

(1,440,895

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,672,043

)

 

$

(6,023,980

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.09

)

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

51,263,804

 

 

 

47,812,775

 



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




F-4



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015


 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid In

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance January 1, 2015

 

 

46,249,719

 

 

$

46,250

 

 

$

35,902,286

 

 

$

(37,261,903

)

 

$

(1,313,367

)

Common stock issued for cash

 

 

545,865

 

 

 

546

 

 

 

213,704

 

 

 

 

 

 

214,250

 

Common stock and warrants issued for cash

 

 

652,174

 

 

 

652

 

 

 

149,348

 

 

 

 

 

 

150,000

 

Common stock issued for cash in connection with stock purchase agreement

 

 

457,797

 

 

 

458

 

 

 

198,662

 

 

 

 

 

 

199,120

 

Common stock issued for services

 

 

24,542

 

 

 

24

 

 

 

11,603

 

 

 

 

 

 

11,627

 

Common stock issued for interest

 

 

529,384

 

 

 

529

 

 

 

211,441

 

 

 

 

 

 

211,970

 

Common stock issued as a commitment fee

 

 

291,097

 

 

 

291

 

 

 

(291

)

 

 

 

 

 

 

Common stock issued for settlement

 

 

200,000

 

 

 

200

 

 

 

135,800

 

 

 

 

 

 

136,000

 

Common stock issued to purchase vehicle

 

 

21,918

 

 

 

22

 

 

 

15,978

 

 

 

 

 

 

16,000

 

Options, warrants and stock appreciation rights vested

 

 

 

 

 

 

 

 

1,356,286

 

 

 

 

 

 

1,356,286

 

Loan discount from beneficial conversion feature and warrants

 

 

 

 

 

 

 

 

559,678

 

 

 

 

 

 

559,678

 

Net loss for the year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

(6,023,980

)

 

 

(6,023,980

)

Balance December 31, 2015

 

 

48,972,496

 

 

 

48,972

 

 

 

38,754,495

 

 

 

(43,285,883

)

 

 

(4,482,416

)

Common stock issued for cash

 

 

1,591,700

 

 

 

1,592

 

 

 

498,408

 

 

 

 

 

 

500,000

 

Common stock issued for cash in connection with stock purchase agreement

 

 

2,078,008

 

 

 

2,078

 

 

 

712,997

 

 

 

 

 

 

715,075

 

Common stock issued for services

 

 

30,240

 

 

 

31

 

 

 

13,036

 

 

 

 

 

 

13,067

 

Common stock issued for interest

 

 

932,736

 

 

 

933

 

 

 

445,009

 

 

 

 

 

 

445,942

 

Extension of warrant expiration dates

 

 

 

 

 

 

 

 

206,620

 

 

 

 

 

 

206,620

 

Warrants issued as settlement

 

 

 

 

 

 

 

 

70,631

 

 

 

 

 

 

70,631

 

Warrants issued for services

 

 

 

 

 

 

 

 

44,477

 

 

 

 

 

 

44,477

 

Options, warrants and stock appreciation rights vested

 

 

 

 

 

 

 

 

434,687

 

 

 

 

 

 

434,687

 

Loan discount from beneficial conversion feature and warrants

 

 

 

 

 

 

 

 

360,344

 

 

 

 

 

 

360,344

 

Net loss for the year ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

(4,672,043

)

 

 

(4,672,043

)

Balance December 31, 2016

 

 

53,605,180

 

 

$

53,605

 

 

$

41,540,705

 

 

$

(47,957,926

)

 

$

(6,363,616

)




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




F-5



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

For the Year Ended
December 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

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

 

 

 

 

 

 

Net loss

 

$

(4,672,043

)

 

$

(6,023,980

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

83,445

 

 

 

59,660

 

Bad debt expense

 

 

(21,875

)

 

 

23,900

 

Amortization of convertible debt discounts

 

 

153,971

 

 

 

76,791

 

Warrants issued for services

 

 

44,477

 

 

 

 

Equity compensation expense

 

 

434,687

 

 

 

1,356,286

 

Loss on extinguishment of debt

 

 

 

 

 

596,648

 

Loss on extension of warrants

 

 

206,620

 

 

 

 

(Gain) Loss on stock issued for interest

 

 

72,765

 

 

 

(12,841

)

Stock issued for services

 

 

13,067

 

 

 

 

Reversal of litigation accrual

 

 

 

 

 

(56,956

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

69,949

 

 

 

(116,392

)

Inventories

 

 

(234,272

)

 

 

(458,972

)

Prepaid expenses and other current assets

 

 

59,437

 

 

 

92,285

 

Accounts payable

 

 

(129,772

)

 

 

123,532

 

Deferred revenue

 

 

6,667

 

 

 

 

Settlement accrual

 

 

17,420

 

 

 

216,000

 

Accrued expenses

 

 

550,864

 

 

 

346,429

 

Net cash used in operating activities

 

 

(3,344,593

)

 

 

(3,777,610

)

Cash flows from Investing Activities

 

 

 

 

 

 

 

 

Purchases of equipment

 

 

(202,480

)

 

 

(18,864

)

Net cash used in investing activities

 

 

(202,480

)

 

 

(18,864

)

Cash flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from sale of stock through private placements

 

 

 

 

 

214,250

 

Proceeds from sale of stock and warrants through private placements

 

 

500,000

 

 

 

150,000

 

Proceeds from sale of stock under stock purchase agreement

 

 

715,075

 

 

 

199,120

 

Proceeds from advances on convertible line of credit –related party

 

 

2,430,000

 

 

 

3,265,000

 

Payments on insurance finance contract

 

 

(82,084

)

 

 

(92,245

)

Net cash provided by financing activities

 

 

3,562,991

 

 

 

3,736,125

 

Net increase (decrease) in cash and cash equivalents

 

 

15,918

 

 

 

(60,349

)

Cash and cash equivalents - beginning

 

 

135,266

 

 

 

195,615

 

Cash and cash equivalents - ending

 

$

151,184

 

 

$

135,266

 


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




F-6



 


GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


 

 

For the Year Ended
December 31,

 

 

 

2016

 

 

2015

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

2,430

 

 

$

3,192

 

Cash paid for income taxes

 

$

 

 

$

 

Supplementary Disclosure of Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Financing of prepaid insurance contracts

 

$

79,430

 

 

$

83,999

 

Beneficial conversion feature of convertible notes

 

$

180,172

 

 

$

279,839

 

Loan discount from issuance of warrants

 

$

180,172

 

 

$

340,229

 

Warrants issued for settlement

 

$

70,631

 

 

$

 

Stock issued for vehicle purchase

 

$

 

 

$

16,000

 

Common stock issued for accrued interest

 

$

445,942

 

 

$

224,811

 

Stock issued for settlement

 

$

 

 

$

136,000

 



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




F-7



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


1.

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Operations


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


The Company also markets equipment that is used to apply these primary products including (1) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire or explosion. (2) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires and (3) the FireIce Shield® CTP unit used by contractors performing cutting and welding on communication towers to protect equipment and surrounding landscaping.


On January 25, 2016, our Board of Directors approved a change in our fiscal year-end from June 30 to December 31, with the change to the calendar year reporting cycle beginning January 1, 2016.


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. (See Note 2)


The corporate office is located in Jupiter, Florida.


Principles of Consolidation


The accompanying 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 the subsidiaries during the years ended December 31, 2016 and 2015. All intercompany balances and transactions have been eliminated in consolidation.


Cash and Cash Equivalents


For the purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company’s cash equivalents consist of a brokerage money market account.


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.


Inventories


Inventories are stated at the lower of cost or market, with cost determined using a first-in, first-out method.



F-8



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Property and Equipment and Depreciation


Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of 3 to 7 years. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements. Expenditures for maintenance and repairs are expensed as incurred.


Impairment of Long-Lived Assets


The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.


Fair Value of Financial Instruments and Fair Value Measurements


We measure our financial assets and liabilities in accordance with ASC 820 "Fair Value Measurements and Disclosures". For certain of our financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The carrying amount of our convertible and other debt approximates the fair value because the interest rate on those debts do not vary materially from the market rate for similar debt instruments.


We adopted accounting guidance for fair value measurements of financial assets and liabilities and adopted the same guidance for non-financial assets and liabilities effective July 1, 2009. The adoption did not have a material impact on our results of operations, financial position or liquidity. The standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:


 

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2:

Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3:

Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.


The Company had no financial or non-financial assets or liabilities measured at fair value and subject to this accounting standard as of December 31, 2016 or 2015.


Revenue Recognition


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




F-9



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


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


The Company follows the guidance of ASC 605-50-25, “Revenue Recognition, Customer Payments”. Accordingly, any incentives received from vendors are recognized as a reduction of the cost of products. Promotional products or samples given to customers or potential customers are recognized as a cost of goods sold. However, products we utilize to perform demonstrations for potential customers are recorded as a marketing expense in operations.


In June 2016, the Company entered into two agreements with a state forestry agency whereby the Company agreed to pay for and build two fixed airport mixing facilities in order to support the state agency’s aerial wildland firefighting operations. In connection with the agreement, the state agency has the use of the equipment in exchange for paying a premium price per bucket for our HVO-F aerial FireIce product and also making an initial minimum purchase of 200 buckets per year. As such, the Company has deferred the premium portion of the bucket price for the minimum purchase amount and will recognize the revenue related to the premium over 12 months. For the year ended December 31, 2016, the Company has recognized $9,333 in revenue and has deferred $6,667 of the minimum purchase amounts.


Shipping and Handling Costs

 

Amounts invoiced to customers for shipping and handling are included in revenues. Shipping and handling costs related to sales of products are included in cost of sales in the amount of $27,754 and $23,384 for the years ended December 31, 2016 and 2015, respectively.


Research and Development


In accordance with ASC 730-10 expenditures for research and development of the Company's products are expensed when incurred, and are included in operating expenses. The Company recognized research and development costs of $233,939 and $192,499 during the years ended December 31 2016 and 2015, respectively.


Advertising


The Company conducts advertising for the promotion of its products and services. In accordance with ASC 720-35, advertising costs are charged to operations when incurred; such amounts aggregated $11,192 and $50,684, respectively, during the years ended December 31, 2016 and 2015.


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 consolidated 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 during the years ended December 31, 2016 and 2015 include the allowance for doubtful accounts, depreciation and amortization, valuation of inventories, valuation of the beneficial conversion features associated with convertible notes, valuation of options and warrants granted for services or settlements, valuation of common stock granted for services or for debt conversion, accruals for litigation losses and the valuation of deferred tax assets.




F-10



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Net Earnings (Loss) per Share


The Company computes net earnings (loss) per share in accordance with ASC 260-10. 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 shareholders 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. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. For the years ended December 31, 2016 and 2015, there was no separate computation of dilutive net loss per share since the common stock equivalents outstanding were anti-dilutive due to the net losses. At December 31, 2016, there were options to purchase 11,696,340 shares and warrants to purchase 15,733,564 shares of common stock outstanding which may dilute future earnings per share. In addition, there are 23,427,312 shares reserved for issuance related to convertible note agreements.


Stock-Based Compensation


The Company accounts for stock-based compensation in accordance with ASC 718-10 “Compensation – Stock Compensation” 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 stock appreciation rights are based on estimated fair values. Stock option compensation expense recognized under ASC 718-10 for the years ended December 31, 2016 and 2015 was $416,586 and $1,030,568, respectively, related to employee, director and advisory board stock options, and is included in selling, general and administrative expenses in the 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 December 31, 2016, the total compensation cost for stock options not yet recognized was $198,542. This cost will be recognized over the remaining vesting period of the options.


The Company accounts for non-employee stock based awards at fair value in accordance with the measurement and recognition criteria of ASC 505-50 "Equity Based payments to Non-Employees. Stock based compensation to non-employees recognized for the years ended December 31, 2016 and 2015 was $18,101 and $325,718, respectively.


2007 Equity Incentive Plan


In January 2007, the Company established the 2007 Equity Incentive Plan under which provided for the issuance of up to 1,500,000 stock options, stock appreciation rights, restricted stock or restricted stock units to our directors, employees and consultants. In September 2008, the Board of Directors approved an amendment to the Company’s 2007 Equity Incentive Plan to increase the number of shares authorized by the plan from 1,500,000 to 3,500,000. In fiscal 2012, Board of Directors increased the number of share authorized under the Plan to 4,500,000. In June 2013, the Board of Directors approved an amendment to increase the number of shares authorized by the plan to 15,000,000.


Under the Equity Incentive Plan, all directors who are not employees or own 10% or more of the Company’s outstanding stock at the time of grant shall automatically receive a grant of stock options as follows:


Initial Grants


A – Chairman of the Board

- 50,000 options

B – Director

- 30,000 options

C – Chair of a Committee

- 10,000 options

D – Member of a Committee

- 5,000 options




F-11



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


In June 2013, the Board of Directors increased the annual grants to the following amounts:


Annual Grants


A – Chairman of the Board

- 70,000 options

B – Director

- 100,000 options

C – Chair of a Committee

- 20,000 options

D – Member of a Committee

- 10,000 options


All initial grants of options to new non-employee directors and committee members vest annually over a three year period on the anniversary date of the grant, subject to continuing service as a director, Committee member, Chairman of the Board or Chairman of a Committee on the applicable vesting date. Options automatically granted annually under the 2007 Equity Incentive Plan vest the following June 30th, subject to continuing service as a director. The exercise price of options or stock appreciation rights granted under the 2007 Equity Incentive Plan shall not be less than the fair market value of the underlying common stock at the time of grant. In the case of incentive stock options, the exercise price may not be less than 110% of the fair market value in the case of 10% shareholders. Options and stock appreciation rights granted under the 2007 Equity Incentive Plan shall expire no later than ten years after the date of grant. The option price may be paid in United States dollars by check or wire transfer or, at the discretion of the Board of Directors or Compensation Committee, by delivery of shares of our common stock having fair market value equal as of the date of exercise to the cash exercise price, or a combination thereof.


The identification of individuals entitled to receive awards, the terms of the awards, and the number of shares subject to individual awards, are determined by the Board of Directors or the Compensation Committee, in their sole discretion. The purchase price per share, if applicable, shall be adjusted for any increase or decrease in the number of issued shares resulting from a recapitalization, reorganization, merger, consolidation, exchange of shares, stock dividend, stock split, reverse stock split, or other subdivision or consolidation of shares.


The Board of Directors or the Compensation Committee may from time to time alter, amend, suspend, or discontinue the Equity Incentive Plan with respect to any shares as to which awards of stock rights have not been granted. However no rights granted with respect to any awards under this Equity Incentive Plan before the amendment or alteration shall be impaired by any such amendment, except with the written consent of the grantee. Under the terms of the Equity Incentive Plan, the Board of Directors or the Compensation Committee may also grant awards which will be subject to vesting under certain conditions. The vesting may be time-based or based upon meeting performance standards, or both.


In April 2010, the Company amended the 2007 Equity Incentive Plan to increase the number of stock options granted annually to directors from 20,000 to 50,000. In June 2013, the Company amended the 2007 Equity Incentive Plan to increase the number of stock options granted annually to directors to 100,000.


All of our Stock Option Agreements provide for “clawback” provisions, which enable our Board of Directors to cancel stock awards and recover past profits if the person is dismissed for cause or commits certain acts which harm us.


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.




F-12



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Income Taxes


The Company accounts for income taxes pursuant to the provisions of ASC 740-10, "Accounting for Income Taxes," which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.


The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

Effective July 1, 2007, the Company adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of December 31, 2016, the fiscal tax years ended June 30, 2013 and 2014 and the stub period from July 1, 2015 through December 31, 2015 are still subject to audit.


Legal Costs and Contingencies


In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.


If a loss is considered probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss. If the Company has the potential to recover a portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss, if recovery is also deemed probable.


New Accounting Pronouncements


In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. In August 2015, the FASB issued an update (“ASU 2015-14”) to ASC 606, Deferral of the Effective Date , which defers the adoption of ASU 2014-09 to interim and annual reporting periods in fiscal years that begin after December 15, 2017. In March 2016, the FASB issued an update (“ASU 2016-08”) to ASC 606, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU 2014-09. In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC 606 , Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09. In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC 606, Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. We are permitted to use either the retrospective or the modified retrospective method when adopting these standards. The Company does not believe this accounting standard will have a material impact on the Company’s financial statements.



F-13



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory , which requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The accounting standard is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not believe this accounting standard will have a material impact on the Company’s financial statements.


In February 2016, the FASB issued (“ASU 2016-02”) Leases , which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements, including the timing of adopting this standard.

 

No other Accounting Standards Updates (ASUs) which were not effective until after December 31, 2016 are expected to have a significant effect on the Company's consolidated financial position or results of operations.


2.

GOING CONCERN


These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize it assets and discharge its liabilities in the normal course of business. The Company has a net loss and net cash used in operating activities of $4,672,043 and $3,344,593, respectively, for the year ended December 31, 2016 and has an accumulated deficit and stockholders’ deficit of $47,957,926 and $6,363,616, respectively, at December 31, 2016. 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. The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders, the ability of the Company to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.


During the year ended December 31, 2016, the Company received $2,430,000 in advances from its convertible line of credit with its president and principal shareholder. The Company also received $715,075 from Lincoln Park Capital Fund LLC in connection with a $10 million stock purchase agreement entered into in August 2015. See Note 7.


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




F-14



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


3.

ACCOUNTS RECEIVABLE


Accounts receivable at December 31, 2016 and 2015 was as follows:


 

As of
December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

Accounts receivable

$

108,659

 

 

$

178,608

 

Allowance for doubtful accounts

 

 

 

 

(21,875

)

 

$

108,659

 

 

$

156,733

 


Bad debt expense on trade accounts receivable for the years ended December 31, 2016 and 2015 was $-0- and $21,875, respectively.  During the year ended December 31, 2016, the company recognized a bad debt recovery amounting to $21,875.


4.

INVENTORIES


Inventories consisted of the following at December 31, 2016 and 2015:


 

As of
December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

Finished goods

$

741,588

 

 

$

967,800

 

Raw materials

 

920,841

 

 

 

460,357

 

 

$

1,662,429

 

 

$

1,428,157

 


As of December 31, 2016, the Company had approximately $3,100 of consignment inventory consisting of FireIce 561 with a certain customer. No inventory was held on consignment as of December 31, 2015. Cost of goods sold for the year ended December 31, 2015 included $67,439 related to inventory written off for obsolescence. There were no inventory obsolescence writes-offs during the year ended December 31, 2016.


5.

FURNITURE, FIXTURES AND EQUIPMENT


Furniture, fixtures and   equipment consisted of the following as of December 31, 2016 and 2015:


 

Estimated

 

December 31,

 

 

Useful Life

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Wildland equipment

3 - 5 years

 

$

155,659

 

 

$

11,274

 

Wildland vehicles

5 - 7 years

 

 

204,117

 

 

 

158,185

 

Equipment

3 - 5 years

 

 

125,530

 

 

 

123,086

 

Storage facilities

3 years

 

 

38,986

 

 

 

29,266

 

Other vehicles

5 years

 

 

63,545

 

 

 

63,545

 

Furniture and fixtures

5 years

 

 

20,420

 

 

 

20,420

 

 

 

 

 

608,256

 

 

 

405,776

 

Accumulated depreciation

 

 

 

(354,962

)

 

 

(271,517

)

 

 

 

$

253,294

 

 

$

134,259

 


Depreciation expense was $83,445 and $59,660, respectively, for the years ended December 31, 2016 and 2015.




F-15



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


6.

SECURED CONVERTIBLE NOTE AGREEMENTS


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. As of December 31, 2016, the principal balance of the note is $1,997,483 and accrued interest amounted to $137,088.


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 year ended December 31, 2016 the Company recorded interest expense of $10,290 related to the amortization of the discounts related to the warrants. As of December 31, 2016, the balance of the unamortized discount related to the warrants was $41,075. As of December 31, 2015, the principal balance on this note is $1,000,000 and accrued interest amounted to $35,041. In July 2016, the Company issued 208,333 shares of common stock to its president and principal shareholder in payment of accrued interest of $75,000 on this convertible note.


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. On April 8, 2016, the Company and its president and principal shareholder entered into the First Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $4 million to $5 million. On September 27, 2016, the Company and its president and principal shareholder entered into the Second Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $5 million to $6 million. Under the agreements, the Company may, with the prior approval of its 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.


The Company received 16 advances totaling $2,430,000 with conversion rates between $0.2108 and $0.55 per share, and issued two year warrants to purchase 3,795,498 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 $180,172 and $180,172, respectively. During the year ended December 31, 2016, the Company has recognized interest expense of $143,681 related to the amortization of these loan discounts. As of December 31, 2016, the principal balance of the advances is $5,695,000 and the balance of the unamortized discounts related to the warrants and the beneficial conversion feature was $367,663 and $367,663, respectively. In addition, accrued interest due on these advances amounted to $310,122 at December 31, 2016.


The calculated loan discounts were 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 99.01% and 105.41%, based on the Company’s historical stock price, discount rates from 0.58% to 1.22%, and expected terms of 2 years, the term of the warrants.



F-16



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


A summary of notes payable and related discounts as of December 31, 2016 is as follows:


 

 

Principal

 

 

Unamortized

Discount

 

 

Debt,

Net of Discount

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

 

 

 

 

 

 

 

 

Secured Convertible notes payable

 

$

2,997,483

 

 

$

(41,076

)

 

$

2,956,407

 

Secured Convertible Line of Credit

 

 

5,695,000

 

 

 

(735,326

)

 

 

4,959,674

 

Less current portion

 

 

 

 

 

 

 

 

 

Secured convertible notes payable and line of credit, net of current portion

 

$

8,692,483

 

 

$

(776,402

)

 

$

7,916,081

 


A summary of notes payable and related discounts as of December 31, 2015 is as follows:


 

 

Principal

 

 

Unamortized

Discount

 

 

Debt,

Net of Discount

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

 

 

 

 

 

 

 

 

Secured Convertible notes payable

 

$

2,997,483

 

 

$

(51,365

)

 

$

2,946,118

 

Secured Convertible Line of Credit

 

 

3,265,000

 

 

 

(518,664

)

 

 

2,746,336

 

Less current portion

 

 

 

 

 

 

 

 

 

Secured convertible notes payable and line of credit, net of current portion

 

$

6,262,483

 

 

$

(570,029

)

 

$

5,692,454

 


7.

STOCKHOLDERS’ DEFICIT


Preferred Stock


The Company has authorized 5,000,000 shares of preferred stock, par value $0.001 per share with such rights, preferences and limitations 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


Common Stock Issued for Cash


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


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


In consideration for entering into the $10 million Purchase Agreement, in August 2015 the Company issued 291,097 shares of common stock to Lincoln Park as a commitment fee. The shares were valued at $189,213, based upon the closing price of the common stock on the day preceding the execution of the agreement and were recorded as a reduction of the offering proceeds.


During the year ended December 31, 2015, the Company issued 457,797 shares of common stock, including 7,797 commitment shares, to Lincoln Park in exchange for $199,120.



F-17



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


During the year ended December 31, 2016, the Company issued 2,078,008 shares of common stock, including 28,008 commitment shares, to Lincoln Park in exchange for $715,075.


Private Placements


During the year ended December 31, 2015, the Company issued 545,865 shares of common stock in exchange for $214,250 in private placements with three accredited investors.


Issuances of Common Stock and Warrants for Cash


During the year ended December 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 a private placement with its president and principal shareholder.


During the year ended December 31, 2016 the Company issued 1,591,700 shares of common stock and two year warrants to purchase 795,850 shares of common stock at an exercise price of $2.00 per share in exchange for $500,000 in connection with private placements with three accredited investors, including issuances of 428,572 shares and two year warrants to purchase 214,286 shares of common stock to a director and his wife in exchange for $150,000.


C ommon Stock Issued for Interest


In February 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 share. The fair market value of the Company’s common stock was $0.32, or $136,970, on the date of conversion. As such the Company recorded other income of $12,841 for the year ended December 31, 2015 in connection with the interest conversion.


In July 2015, the Company issued 101,352 shares of common stock valued at $75,000 to its president and principal shareholder in payment of accrued interest of $75,000 on a $1 million convertible note.


In February 2016, 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 share. The fair market value of the Company’s common stock was $0.52, or $222,577, on the date of conversion. As such the Company recorded other expense of $72,765 for the year ended December 31, 2016 in connection with the interest conversion.


In April 2016, the Company issued 296,371 shares of common stock valued at $148,365 to its president and principal shareholder in payment of accrued interest on the secured convertible line of credit as of February 13, 2016 of $148,365.


In July 2016, the Company issued 208,333 shares of common stock valued at $75,000 to its president and principal shareholder in payment of accrued interest of $75,000 on a $1 million convertible note.


Other Issuances of Common Stock


During the year ended December 31, 2015, the Company issued 12,307 shares of common stock, valued at $5,627, to a consultant in exchange for services.


In June 2015, the Company issued 21,918 shares of common stock to its President and principal shareholder to purchase a vehicle, valued at $16,000, to be used by the Company.


In August 2015, the Company issued 200,000 shares of common stock in connection with a settlement with a former executive chairman and director of the Company. The shares were valued at $0.68 per share, the closing price of the Company’s common stock on the date of the settlement. The value of the shares issued was recorded as a reduction of the settlement accrual.



F-18



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


During the year ended December 31, 2015, the Company issued 12,235 shares of common stock valued at between $0.35 and $0.60 per share in exchange for investor relations services valued at $6,000.


During the year ended December 31, 2016, the Company issued 12,126 shares of common stock, valued at $5,067, to a consultant in exchange for services.


During the year ended December 31, 2016 the Company issued 18,114 shares of common stock valued at between $0.36 and $0.52 per share in exchange for investor relations services valued at $8,000.


Options and Warrants to Purchase Common Stock


The fair value of stock option grants for the year ended December 31, 2016 and 2015 were estimated using the following weighted- average assumptions:


 

 

For the Years Ended
December 31,

 

 

2016

 

2015

Risk free interest rate

 

0.58% – 1.90%

 

0.54% – 2.28%

Expected term in years

 

2.0 – 10.0

 

2.0 – 10.0

Dividend yield

 

 

Volatility of common stock

 

99.01% – 105.08%

 

79.66% – 99.31%

Estimated annual forfeitures

 

 


The Black-Scholes option-pricing model was developed for use in estimating the fair value of non-traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options and warrants have characteristics different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. During the years ended December 31, 2016 and 2015, the Company used the Company’s trading prices in calculating the stock price volatility and based its volatility on historical volatility. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate historical exercise data to estimate the expected term.




F-19



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Options to Purchase Common Stock


A summary of stock option transactions issued to employees under the 2007 Plan for the year ended December 31, 2015 and the fiscal years ended June 30, 2015 and 2014 is as follows:


Employee Options and Stock Appreciation Rights


 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

 

Aggregate

Intrinsic

Value

 

Balance at December 31, 2014

 

 

7,784,507

 

 

$

0.85

 

 

 

5.44

 

 

 

 

Granted

 

 

367,500

 

 

$

0.41

 

 

 

5.0

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

Outstanding at December 31, 2015

 

 

8,152,007

 

 

$

0.85

 

 

 

5.36

 

 

$

6,000

 

Exercisable at December 31, 2015

 

 

5,006,675

 

 

$

0.94

 

 

 

4.65

 

 

$

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of options granted during the year ended December 31, 2015

 

 

 

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

8,152,007

 

 

$

0.85

 

 

 

5.36

 

 

 

 

 

Granted

 

 

301,000

 

 

$

0.22

 

 

 

5.00

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

 

Expired

 

 

(257,500

)

 

$

1.88

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

8,195,507

 

 

$

0.82

 

 

 

4.71

 

 

$

 

Exercisable at December 31, 2016

 

 

5,107,679

 

 

$

0.92

 

 

 

4.12

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of options granted during the year ended December 31, 2016

 

 

 

 

 

$

0.15

 

 

 

 

 

 

 

 

 


In May 2015, the Company granted three employees five year options to purchase a total of 62,500 shares of common stock at an exercise price of $0.70 per share. The options vested immediately. The Company valued the options at $24,590 using the Black-Scholes option pricing model using a volatility of 97.15%, 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 0.82%.


In September 2015, the Company granted a new employee five year options to purchase 5,000 shares of common stock at an exercise price of $0.64 per share. The options vest one year from the date of the grant. The Company valued the options at $1,913 using the Black-Scholes option pricing model using a volatility of 95.65%, based upon the historical price of the Company’s common stock, an estimated term of 3.0 years, using the Simplified Method and a discount rate of 0.88%.


In December 2015, the Company issued five year options to purchase 300,000 shares of common stock at an exercise price of $0.34 per share to employees. The options vest 25% immediately with 25% vesting annually over three years from the date of the grant, subject to continued employment. The options were valued using the Black-Scholes model using a volatility of 99.26%, derived using the historical market price for the Company’s common stock, an expected term of 4.0 years (using the simplified method) and a discount rate of 1.53%. The value of these options, $70,258, will be recognized as expense over the three year vesting period.




F-20



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


In December 2015, the Company extended the expiration date on two grants of options for an additional five years, Each of the grants allowed the purchase of 750,000 shares of common stock, were issued to our CEO and our former CEO’s wife, and are exercisable at $1.22 per share. The options were valued using the Black-Scholes model using a volatility of 98.68%, derived using the historical market price for the Company’s common stock, an expected term of 2.5 years (using the simplified method) and a discount rate of 1.10%. The value of these options, $271,118, was recognized as expense during the year ended December 31, 2015.


In November 2016, the Company issued five year options to purchase 25,000 shares of common stock at an exercise price of $0.26 per share to a new employee. The options vest ratably over a one year period. The options were valued using the Black-Scholes model using a volatility of 102.8%, derived using the historical market price for the Company’s common stock, an expected term of 3.0 years (using the simplified method) and a discount rate of 1.27%. The value of these options, $4,119, will be recognized as expense over the vesting period.


In December 2016, the Company issued five year options to purchase 25,000 shares of common stock at an exercise price of $0.23 per share to a new employee. The options vest ratably over a one year period. The options were valued using the Black-Scholes model using a volatility of 99.28%, derived using the historical market price for the Company’s common stock, an expected term of 3.0 years (using the simplified method) and a discount rate of 1.44%. The value of these options, $3,556, will be recognized as expense over the vesting period.


In December 2016, the Company issued five year options to purchase 251,000 shares of common stock at an exercise price of $0.22 per share to employees. The options vest 25% immediately with 25% vesting annually over three years from the date of the grant, subject to continued employment. The options were valued using the Black-Scholes model using a volatility of 99.29%, derived using the historical market price for the Company’s common stock, an expected term of 4.0 years (using the simplified method) and a discount rate of 1.67%. The value of these options, $38,092, will be recognized as expense over the three year vesting period.


A summary of options issued to directors under the 2007 Plan and changes for the year ended December 31, 2015 and for the years ended December 31, 2016 and 2015 is as follows:


Options Issued to Directors


 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

 

Aggregate

Intrinsic

Value

 

Balance at December 31, 2014

 

 

2,145,833

 

 

$

1.03

 

 

 

7.65

 

 

 

 

Granted

 

 

620,000

 

 

$

0.79

 

 

 

10.00

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

Outstanding at December 31, 2015

 

 

2,765,833

 

 

$

0.98

 

 

 

7.28

 

 

$

900

 

Exercisable at December 31, 2015

 

 

1,377,501

 

 

$

1.15

 

 

 

6.6

 

 

$

900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of options granted during the year ended December 31, 2015

 

 

 

 

 

$

0.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

2,765,833

 

 

$

0.98

 

 

 

7.28

 

 

 

 

 

Granted

 

 

715,000

 

 

$

0.37

 

 

 

10.00

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

3,480,833

 

 

$

0.86

 

 

 

6.93

 

 

$

 

Exercisable at December 31, 2016

 

 

2,812,500

 

 

$

0.98

 

 

 

6.31

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of options granted during the year ended December 31, 2016

 

 

 

 

 

$

0.29

 

 

 

 

 

 

 

 

 



F-21



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


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.


In June 2015, the Company issued ten year options to purchase 30,000 shares of common stock at an exercise price of $0.76 per share to a new director. The options vest annually over three years subject to continued service. The options were valued using the Black-Scholes model using a volatility of 97.97% (derived using the historical market price for the Company’s common stock since it began trading in June 2008), an expected term of 6.5 years (using the simplified method) and a discount rate of 2.03%. The value of these options, $18,283 will be recognized as expense over the vesting period.


As prescribed by the Company's 2007 Equity Incentive Plan, on July 1, 2015, the Company issued options to purchase 580,000 shares of common stock to directors. The options have an exercise price of $0.80 per share, vest on June 30, 2016¸ 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 98.15%, 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 1.74%. The value of these options, $353,553, will be recognized as expense over the one year vesting period.


In April 2016, the Company issued ten year options to purchase 30,000 shares of common stock at an exercise price of $0.39 per share to a new director. The options vest annually over three years, subject to the continued service on the board. The options were valued using the Black-Scholes option pricing model using a volatility of 103.79% based upon the historical price of the company’s stock, a term of 6.5 years, using the simplified method and a risk free rate of 1.52%. The calculated fair value, $9,631 will be recognized over the requisite service period.


As prescribed by the Company's 2007 Equity Incentive Plan, on July 1, 2016, the Company issued options to purchase 680,000 shares of common stock to directors. The options have an exercise price of $0.37 per share, vest on June 30, 2017¸ 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 104.37%, 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 1.49%. The value of these options, $198,236, will be recognized as expense over the one year vesting period.


On October 24, 2016, the Company issued 10 year options to purchase 5,000 shares of the Company’s common stock at an exercise price of $0.27 per share to a director in connection with his appointment to the compensation committee. 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 $1,117 using the Black-Scholes option pricing model using a volatility of 105.08 %, 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 1.42%. The fair value will be recognized in expense over the vesting period of the options.



F-22



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Non-Employee, Non-Director Options


A summary of options issued to non-employees, non-directors under the 2007 Plan and changes during the year ended December 31, 2016 and 2015 is as follows:


 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

 

Aggregate

Intrinsic

Value

 

Balance at December 31, 2014

 

 

270,00

 

 

$

1.21

 

 

 

1.2

 

 

 

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

Expired

 

 

(250,000

)

 

$

 

 

 

 

 

 

 

Outstanding at December 31. 2015

 

 

20,000

 

 

$

1.18

 

 

 

2.75

 

 

$

 

Exercisable at December 31, 2015

 

 

20,000

 

 

$

1.182

 

 

 

2.75

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of options granted during the year ended December 31, 2015

 

 

 

 

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

20,000

 

 

$

1.18

 

 

 

2.75

 

 

 

 

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

20,000

 

 

$

1.189

 

 

 

1.75

 

 

$

 

Exercisable at December 31, 2016

 

 

20,000

 

 

$

1.18

 

 

 

1.75

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of options granted during the year ended December 31, 2016

 

 

 

 

 

 

N/A

 

 

 

 

 

 

 

 

 


During the year ended December 31, 2015, options to purchase 250,000 shares of common stock at an exercise price of $1.22 per share expired.


During the years ended December 31, 2016 and 2015 and the year ended June 30, 2015, no options were granted to non-employees or non-directors.




F-23



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Warrants Issued for Settlement


 

 

Number of

Warrants

 

 

Weighted

Average

Exercise

Price

 

 

Remaining

Contractual

Life

 

Balance at December 31, 2014

 

 

350,000

 

 

$

0.63

 

 

 

2.7

 

Granted

 

 

 

 

$

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

Outstanding at December 31, 2015

 

 

350,000

 

 

$

0.63

 

 

 

1.7

 

Exercisable at December 31, 2015

 

 

350,000

 

 

$

0.63

 

 

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of warrants granted during the year ended December 31, 2015

 

 

 

 

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

350,000

 

 

$

0.63

 

 

 

1.7

 

Granted

 

 

250,000

 

 

$

0.37

 

 

 

5.0

 

Exercised

 

 

 

 

$

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

Outstanding at December 31, 2016

 

 

600,000

 

 

$

0.52

 

 

 

2.3

 

Exercisable at December 31, 2016

 

 

600,000

 

 

$

0.52

 

 

 

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of warrants granted during the year ended December 31, 2016

 

 

 

 

 

$

0.28

 

 

 

 

 


In July 2016, the Company issued five year warrants to purchase 250,000 shares of common stock at an exercise price of $0.37 per share as part of a settlement. The warrants were valued using the Black-Scholes option pricing model using a volatility of 104.54% based upon the historical price of the company’s stock, a term of five years, the term of the warrants and a risk free rate of 1.01%, resulting in a fair value of $70,631 which was included in loss on settlement for the year ended December 31, 2016.




F-24



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


Warrants issued for cash or services


A summary of warrants issued for cash or services and changes during the years ended December 31, 2016 and 2015 is as follows:


 

 

Number of

Warrants

 

 

Weighted

Average

Exercise

Price

 

 

Remaining

Contractual

Life

 

Balance at December 31, 2014

 

 

5,746,370

 

 

$

1.71

 

 

 

2.63

 

Granted

 

 

4,832,134

 

 

$

1.72

 

 

 

2.76

 

Exercised

 

 

 

 

$

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

Expired

 

 

(236,200

)

 

$

1.60

 

 

 

 

Outstanding at December 31, 2015

 

 

10,342,304

 

 

$

1.73

 

 

 

1.68

 

Exercisable at December 31, 2015

 

 

10,342,304

 

 

$

1.73

 

 

 

1.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of warrants granted during the year ended December 31, 2015

 

 

 

 

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

10,342,304

 

 

$

1.73

 

 

 

1.68

 

Granted

 

 

4,791,260

 

 

$

1.93

 

 

 

2.5

 

Exercised

 

 

 

 

$

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

Outstanding at December 31, 2016

 

 

15,133,564

 

 

$

1.77

 

 

 

1.27

 

Exercisable at December 31, 2016

 

 

15,066,898

 

 

$

1.78

 

 

 

1.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value of warrants granted during the year ended December 31, 2016

 

 

 

 

 

$

0.26

 

 

 

 

 


During the year ended December 31, 2015, the Company issued two year warrants to purchase 3,636,047 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.


During the year ended December 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 placements with its president and principal shareholder.


In January 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 legal expense during year ended June 30, 2015.


During the year ended December 31, 2015, the Company issued warrants to purchase 690,000 shares of common stock to six consultants. Of the warrants granted, a portion vest immediately, with the remainder ratably over a one year period. The warrants have exercise prices from $0.34 to $0.76 per share and have exercise periods from 5 to 10 years. The Company valued the warrants at $324,833 using the Black-Scholes option pricing model using a volatility of from 81.85% to 99.31%, based upon the historical price of the Company’s common stock, an estimated term of from 5 to ten years, the term of the warrants, and a discount rate of from 1.51% to 2.28%. The value of these warrants will be recognized as consulting expense over the vesting period.



F-25



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


In connection with executing the Stock Purchase Agreement with Lincoln Park, in August 2015, the Company extended the expiration date of warrants to purchase 200,000 shares of common stock at an exercise price of $1.25 per share from September 1, 2015 to August 11, 2020. The difference in the value of the warrants resulting from the change in the term, $86,448, was recorded as a reduction of the proceeds of the offering.


During the year ended December 31, 2016, the Company issued two year warrants to purchase 795,850 shares of common stock at an exercise price of $2.00 per share in connection with private placements with three accredited investors including warrants to purchase 214,286 shares of common stock to a director and his wife.


During the year ended December 31, 2016, the Company issued two year warrants to purchase 3,795,409 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.


In January 2016, the Company issued five year warrants to purchase 150,000 shares of common stock at an exercise price of $0.39 per share in exchange for legal services. The warrants were valued with the Black-Scholes option pricing model using a volatility of 103.14% based upon the historical price of the company’s stock, a term of five years, the term of the warrants and a risk free rate of 1.49%. The calculated fair value, $44,477 was recorded as legal expense for the year ended December 31, 2016.


In December 2016, the Company issued five year warrants to purchase 50,000 shares of common stock at an exercise price of $0.22 per share to four consultants. The warrants vest 25% immediately, with the remainder vesting annually over a three year period, subject to continued employment. The warrants were valued with the Black-Scholes option pricing model using a volatility of 99.29% based upon the historical price of the company’s stock, a term of five years, the term of the warrants and a risk free rate of 1.90%. The calculated fair value, $8,200 will be recorded as expense over the vesting period.


8.

INCOME TAXES


Due to the net losses incurred, there was no income tax provision for the years ended December 31, 2016 and 2015. Deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:


 

 

December 31,

 

 

 

2016

 

 

2015

 

Deferred Tax Assets:

 

 

 

 

 

 

Net operating loss carryforward

 

$

14,625,674

 

 

$

13,055,795

 

Allowance for bad debt

 

 

60,567

 

 

 

65,281

 

Stock-based compensation

 

 

2,223,337

 

 

 

2,167,730

 

Depreciation

 

 

19,373

 

 

 

10,702

 

Gross deferred tax asset

 

 

16,928,951

 

 

 

15,299,508

 

Less: deferred tax asset valuation allowance

 

 

(16,928,951

)

 

 

(15,299,508

)

Total net deferred tax asset

 

 

 

 

 

 

Less: Deferred tax liability - depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred taxes

 

$

 

 

$

 




F-26



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


The Company had available at December 31, 2016, net operating loss carryforwards for federal and state tax purposes of approximately $38,867,000 that could be applied against taxable income in subsequent years through December 31, 2036. The amount of net operating loss carryforward that can offset future taxable income may be limited in accordance with IRC Section 382 following certain ownership changes.


Based on the weight of available evidence, both positive and negative, a valuation allowance to fully provide for the net deferred tax assets has been recorded since it is more likely than not that the deferred tax assets will not be realized. The valuation allowance was increased by $1,629,443 and $2,562,677during the years ended December 31, 2016 and 2015, respectively.


Reconciliation of the differences between income tax benefit computed at the federal and state statutory tax rates and the provision for income tax benefit for the years ended December 31, 2016 and 2015 was as follows:


 

 

For the Years Ended

December 31,

 

 

 

2016

 

 

2015

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax at U.S. statutory rate

 

$

(1,588,495

)

 

 

-34.00

%

 

$

(2,048,153

)

 

 

-34.00

%

State taxes, net of federal benefit

 

 

(168,053

)

 

 

-3.60

%

 

 

(218,670

)

 

 

-3.63

%

Other

 

 

127,105

 

 

 

2.72

%

 

 

(295,854

)

 

 

-4.91

%

Change in valuation allowance

 

 

1,629,443

 

 

 

34.88

%

 

 

2,562,677

 

 

 

42.54

%

 

 

$

 

 

 

0.00

%

 

$

 

 

 

0.00

%

 

9.

RELATED PARTY TRANSACTIONS


In addition to the acting Chief Executive Officer (CEO) and the Chief Technology Officer (CTO) the following related parties are employed at GelTech:


 

·

The CEO s sister in-law is our Controller and her compensation is $1,269 per week,

 

 

 

 

·

The CEO s mother is a receptionist and her compensation is $600 per week.


The Company has employment arrangements with its executive officers which are described in Note 10.


The Company has entered into a series of credit facilities with its president and principal stockholder as more fully described in Note 6.


During the years ended December 31, 2016 and 2015, the Company issued common stock and warrants to its president and principal shareholder in exchange for cash as more fully described in Note 7.


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 salary, Mr. Cordani received 5% of the first $2 million of revenue generated by the Company in 2016 and 2015.




F-27



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


10.

COMMITMENTS AND CONTINGENCIES


The Company leases office and warehouse space located in Jupiter, Florida. Rent expense for the years ended December 31, 2016 and 2015 was $118,392 and $116,004, respectively.


On November 14, 2012, the Compensation Committee approved new employment agreements for the Company’s then Chief Executive Officer, then President, Chief Technology Officer and Chief Financial Officer. The employment agreements each provide for base salaries of $150,000 and 800,000 stock settled stock appreciation rights (“SARS”) of which (i) 200,000 vested immediately, (ii) 200,000 vest upon the Company generating $3,000,000 in revenue in any 12-month period, (iii) another 200,000 vest upon the Company generating $5,000,000 in revenue in any 12-month period and (iv) another 200,000 vest upon the Company generating $6,000,000 in revenue in any 12-month period. The SARs are exercisable at $0.45 per share over a 10-year period. The Company’s then Chief Executive Officer, then President and Chief Technology Officer agreed to cancel the 250,000 stock options granted to each of them in their prior employment agreements. These executives’ base salary will increase to: (i) $170,000 upon the Company generating $3,000,000 in revenue in any 12-month period, (ii) $190,000 upon the Company generating $5,000,000 in any 12-month period and (iii) $200,000 upon the Company generating $6,000,000 in any 12-month period. On September 30, 2016, the employment agreement for the Company’s Chief Financial Officer expired.


In January 2015, GelTech approved an amendment to the Employment Agreement of our Chief Technology Officer. In addition to his base salary, he will receive 5% of the first $2 million of revenue generated by GelTech. The amendment was effective as of January 1, 2015. Additionally, in May 2015, GelTech approved an amendment to the Chief Technology Officer’s Employment Agreement to extend the term of the Agreement an additional four years (now expiring October 1, 2020).


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 sought 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. On October 14, 2015, the Court issued an order on Defendant GelTech’s Motion for Attorney’s Fees and Costs granting GelTech attorney fees and costs in excess of the amount of its litigation accrual for the case. As such, the Company reversed the litigation accrual resulting in other income of $56,956 which was included in the Company’s statement of operations for the nine months ended December 31, 2015. In November 2015, the Court issued a Final Judgement against the plaintiff in the amount of $510,499. The plaintiff filed appeals which were pending.


In July 2016, the Company entered into a settlement agreement with the plaintiff whereby the Company agreed to pay the plaintiff $250,000 and issue the plaintiff five year warrants to purchase 250,000 shares of common stock at an exercise price of $0.37 per share, in exchange for the dismissal of all claims against the Company. The warrants were valued using the Black-Scholes option pricing model using a volatility of 104.54% based upon the historical price of the company’s stock, a term of five years, the term of the warrants and a risk free rate of 1.01%, resulting in a fair value of $70,631. As such, the Company recorded a loss on settlement of $320,631 for the year ended December 31, 2016.


In June 2016, the Company entered into a settlement agreement with its employment practices insurance company related to the Company’s suit against the insurance company for failure to cover post trial legal costs related to the suit described above in this Note 5. Under the settlement agreement, the insurance company agreed to pay the Company $300,000, which payment was received in July 2016. As such the Company recorded a gain on settlement of $300,000 for the year ended December 31, 2016.




F-28



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


In June 2013, GelTech filed a lawsuit against its director and former Executive Chairman, for inducing GelTech to enter into an Employment Agreement based on representations that he would facilitate a $25 million financing on behalf of GelTech. In November 2013, the former Executive Chairman countersued GelTech for breach of the Employment Agreement. Effective August 12, 2015, GelTech entered into a settlement agreement and release of claims (the “Settlement Agreement”) related to the lawsuit and countersuit. Under the employment agreement, the executive chairman was entitled to $800,000 of salary, up to 800,000 restricted stock units and $28,800 in auto allowance. Under the Settlement Agreement, the Company issued the former executive chairman 200,000 shares of restricted common stock and made two cash payments totaling $315,000. As a result of the Settlement Agreement, the Company recognized a loss on settlement in the amount of $412,867 during the year ended December 31, 2015.


11.

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 December 31, 2016. As of December 31, 2016 the Company had no cash equivalent balances that were not insured.


At December 31, 2016, two customers accounted for 49.4% and 19.0% of accounts receivable.


For the year ended December 31, 2016, five customers accounted for 19.8%, 15.6%, 12.0%, 10.4% and 10.1% of sales.


During the year ended December 31, 2016, sales primarily resulted from four sources, sales of FireIce®, Soil O® and FireIce Shield® which made up 65.7%, 16.3% and 14.5%, respectively, plus paid for research of 2.9% of total revenues. Of the FireIce® sales, 85.2% related to the sale of FireIce® products and 14.8% related to sales of the FireIce Eductors, EMFIDS and extinguishers. Of the Soil O® sales, 27.4% related to traditional sales of Soil O® and 54.4% related to sales of Soil O® Dust Control, including 11.2% of our new Soil2O Soil Cap product. Of the FireIce Shield® sales, 50.7% consisted of sales of spray bottles, 41.2% were sales of canisters and refills.


Two vendors accounted for 49.0% and 14.2% of the Company’s approximately $631,000 in purchases of raw material and packaging during the year ended December 31, 2016.


Approximately 14.5% of revenue was generated from customers outside the United States during the year ended December 31, 2016.


During the year ended December 31, 2016, our chairman and principal shareholder provided 100% of our debt financing.


12.

SUBSEQUENT EVENTS


Since January 1, 2017, the Company has issued two year warrants to purchase 396,925 shares of common stock at an exercise price of $2.00 per share in exchange for advances in the amount of $200,000 from the Company’s chairman and principal shareholder in connection with the secured convertible line of credit agreement. The conversion rates of these advances were between $0.23 and $0.28 per share.


Since January 1, 2017, the Company has issued 403,870 shares of common stock to Lincoln Park in exchange for $98,785 in connection with the Stock Purchase Agreement.


Since January 1, 2017, the Company has issued 2,081,637 shares of common stock and two year warrants to purchase 1,040,818 shares of common stock at $2.00 per share in exchange for $500,000 in connection with private placements with three accredited investors, including the issuance of 384,616 shares and 192,308 warrants to its chairman and principal shareholder in exchange for $100,000.




F-29



GELTECH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 


On February 7, 2017, the Company entered into a settlement and release agreement with a former employee related to claim filed by the employee under the Americans with Disabilities Act. In connection with the agreement, the Company agreed to pay the employee $125,100, plus payroll taxes of $1,449 and expenses of $340 in full settlement of the claim. In connection with the agreement, the Company was reimbursed $100,100 by its employment practices insurer resulting in net settlement expense of $26,789 which was included in accrued settlements as of December 31, 2016 and in loss on settlements for the year then ended.


On February 10, 2017, the Company granted five year warrants to purchase 150,000 shares of the Company’s common stock in exchange for legal services. The warrants vest immediately and are exercisable at $0.275 per share. The Company valued the warrants at $30,703 using the Black-Scholes option pricing model using a volatility of 99.06%, 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 1.88%. The fair value will be recognized in legal expense during the three months ending March 31, 2017.



 

 


 



F-30


EXHIBIT 10.6(a)


THE SECOND AMENDMENT TO THE


SECURED REVOLVING CONVERIBLE PROMISSORY NOTE


This Second Amendment To The Secured Revolving Convertible Promissory Note (the “Amendment”) is entered into as of September 27, 2016 by and between GelTech Solutions, Inc. (the “Borrower”) and Michael L. Reger (the “Lender”).


WHEREAS, the Lender extended a secured revolving convertible line of credit to the Borrower as evidenced by a Secured Revolving Convertible Promissory Note dated February 13, 2015 in the principal balance of Four Million 00/100 Dollars ($4,000,000.00) (the “Note”), (all documents and agreements executed by the Borrower in connection with the Note are hereinafter referred to as the “Loan Documents”);


WHEREAS, the Lender and Borrower agreed to increase the principal balance of the Note to Five Million and 00/100 Dollars ($5,000,000.00) by the First Amendment to the Secured Revolving Convertible Promissory Note dated April 5, 2016 (the “First Amendment”); and


WHEREAS, the Borrower has requested, and the Lender has agreed, to make further amendments to the Note.


NOW THEREFORE, the parties, intending to be legally bound, hereby agree as follows:


1. Any term not defined herein shall have the same meaning as in the Note.  


2. The Note is amended by increasing the principal sum to Six Million and 00/100 Dollars ($6,000,000.00) (the “Maximum Amount”).  


3. The Borrower hereby represents and warrants to the Lender that:  


(a)

Each and every one of the representations and warranties set forth in the Loan Documents is true as of the date hereof and with the same effect as though made on the date hereof, and is hereby incorporated herein in full by reference as if fully restated herein in its entirety.  


(b)

No Default or Event of Default and no event or condition which, with the giving of notice or lapse of time or both, would constitute such a Default or Event of Default, now exists or would exist.  





4. Except as set forth herein and amended and modified hereby, the Note and Loan Documents have not been amended or modified and remain in full force and effect except for the First Amendment increasing the principal sum to Five Million and 00/100  Dollars ($5,000,000.00).  


5. Borrower waives any offset defense or counterclaim Borrower may now have or may have in the future with regard to the Note and Loan Documents.  






[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOWS ON NEXT PAGE]














[SIGNATURE PAGE TO THE SECOND AMENDMENT TO THE SECURED REVOLVING CONVERIBLE PROMISSORY NOTE BETWEEN GELTECH SOLUTIONS, INC. AND MICHAEL L. REGER DATED FEBRUARY 15, 2015]


IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered on the date first written above.




 

BORROWER:

 

 

 

 

GelTech Solutions, Inc.

 

 

 

 

 

 

 

By:

 

 

 

Michael Hull, Chief Financial Officer

 

 

 

 

 

 

 

LENDER:

 

 

 

 

 

 

Michael L. Reger




 


EXHIBIT 10.12


NON-QUALIFIED STOCK OPTION AGREEMENT


THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) entered into as of ____________ (the “Grant Date”) between GelTech Solutions, Inc. (the “Company”) and ______________ (the “Optionee”).


WHEREAS, by action taken by the Board of Directors (the “Board”) it has adopted the 2007 Equity Incentive Plan (the “Plan”); and


WHEREAS, pursuant to the Plan, it has been determined that in order to enhance the ability of the Company to attract and retain qualified employees, consultants and directors, the Company has granted the Optionee the right to purchase the common stock of the Company pursuant to stock options.


NOW THEREFORE, in consideration of the mutual covenants and promises hereafter set forth and for other good and valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:


1.

Grant of Non-Qualified Options .  The Company irrevocably granted to the Optionee, as a matter of separate agreement and not in lieu of salary or other compensation for services, the right and option to purchase all or any part of ____________ shares of authorized but unissued or treasury common stock of the Company (the “Options”) on the terms and conditions herein set forth.  The Options are not intended to be Incentive Stock Options as defined by Section 422 of the Internal Revenue Code of 1986 (the “Code”).  The Optionee acknowledges receipt of a copy of the Plan, as amended.


2.

Price .  The exercise price of the Options is $0.______ per share.


3.

Vesting - When Exercisable .  


(a)

The Options shall vest on _________, subject to the Optionee’s continued service with the Company in the capacity for which the Options were granted on the applicable vesting date.  Any fractional vesting shall be rounded up to the extent necessary.  Notwithstanding any other provision in this Agreement, the Options shall vest immediately on the occurrence of a Change of Control as defined under the Plan (a “Triggering Event”); provided , however , that there shall be no immediate vesting under romanette (ii) of the definition of Change of Control if the directors serving just prior to the Triggering Event remain the majority of the Board after the Triggering Event. Additionally, all Options shall vest immediately (subject to the preceding sentence) on the date the Company publicly announces, by press release, by disclosure in a filing with the Securities and Exchange Commission or otherwise (the “Public Announcement”), its intention to sell substantially all of the Company’s assets or to enter into a merger or consolidation as described in clauses (i) and (ii) under the definition of Change of Control in the Plan.  If the Optionee exercises the Options within 10 calendar days from the date of the Public Announcement, the Optionee shall be deemed a record holder of the shares underlying the Options as of the record date of the Change of Control.



1



 



(b)

Subject to Sections 3(c) and 4 of this Agreement, the vested Options may be exercised until 6:00 p.m. New York time for 10 years from the Grant Date (the “Expiration Date”).


(c)

Notwithstanding any other provision of this Agreement, at the discretion of the Board, all Options, whether vested or unvested, shall be immediately forfeited and no longer exercisable if any of the following events occur:


(1)

The Optionee purchases or sells securities of the Company in violation of the Company’s insider trading guidelines then in effect;


(2)

The Optionee breaches any duty of confidentiality including that required by the Company’s insider trading guidelines then in effect;


(3)

The Optionee competes with the Company; or


(4)

The Optionee recruits Company personnel for another entity or business within 24 months following termination of services.


4.

Termination of Relationship .


(a)

If for any reason, except death or disability as provided below, the Optionee ceases to perform services in the capacity for which the Options were granted, all vested Options as of the date of the termination of services may be exercised by the Optionee at any time within three months following termination of services.


(b)

If the Optionee’s services in the capacity for which the Options were granted are terminated as a result of his death, the Optionee’s estate or any Transferee, as defined herein, shall have the right to exercise the Optionee’s vested Options within the time provided in the Plan subject to Section 3(c).  For the purpose of this Agreement, “Transferee” shall mean a person to whom such shares are transferred by will or by the laws of descent and distribution.


(c)

If the Optionee is unable to perform services in the capacity for which the Options were granted as a result of becoming disabled, within the meaning of Section 22(e)(3) of the Code, the Optionee shall have the right to exercise the Optionee’s vested options within the time provided in the Plan.


(d)

Notwithstanding anything contained in this Section 4, the Options may not be exercised after the Expiration Date.


(e)

Any of the Options that were not vested immediately prior to ceasing to perform the services for which the Options were granted shall terminate at that time.  



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For purposes of this Section 4 “Company” shall include subsidiaries and/or affiliates of the Company.


5.

Profits on the Sale of Certain Shares; Redemption .  If any of the events specified in Section 3(c) of this Agreement occur within one year following the date the Optionee last performed services in the capacity for which the Options were granted (the “Termination Date”) (or such longer period required by any written agreement), all profits earned from the sale of the Company’s securities, including the sale of shares of common stock underlying the Options, during the two-year period commencing one year prior to the Termination Date shall be forfeited and immediately paid by the Optionee to the Company.  Further, in such event, the Company may at its option redeem shares of common stock acquired upon exercise of the Options by payment of the exercise price to the Optionee.  The Company’s rights under this Section 5 do not lapse one year from the Termination Date but are a contract right subject to any appropriate statutory limitation period.


6.

Method of Exercise .  The Options shall be exercisable by a written notice which shall:


(a)  

state the election to exercise the Options, the number of shares to be exercised, the person in whose name the stock certificate or certificates for such shares of common stock is to be registered, address and social security number of such person (or if more than one, the names, addresses and social security numbers of such persons);


(b)  

if applicable, contain such representations and agreements as to the holder’s investment intent with respect to such shares of common stock as set forth in Section 11 hereof;


(c)  

be signed by the person or persons entitled to exercise the Options and, if the Options are being exercised by any person or persons other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Options;


(d)

be accompanied by full payment of the exercise price by tender to the Company of an amount equal to the exercise price multiplied by the number of underlying shares being purchased either in cash, by wire transfer, or by certified check or bank cashier’s check, payable to the order of the Company; and  


(e)

be accompanied by payment of any amount that the Company, in its sole discretion, deems necessary to comply with any federal, state or local withholding requirements for income and employment tax purposes.  If the Optionee fails to make such payment in a timely manner, the Company may: (i) decline to permit exercise of the Options or (ii) withhold and set-off against compensation and any other amounts payable to the Optionee the amount of such required payment. Such withholding may be in the shares underlying the Options at the sole discretion of the Company.


The certificate or certificates for shares of common stock as to which the Options shall be exercised shall be registered in the name of the person or persons exercising the Options.



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7.

Sale of Shares Acquired Upon Exercise of Options .  If the Optionee is an officer (as defined by Section 16(b) of the Securities Exchange Act of 1934 (“Section 16(b)”)) or a director of the Company, any shares of the Company’s common stock acquired pursuant to the Options cannot be sold by the Optionee until at least six months elapse from the Grant Date except in case of death or disability or if the grant was exempt from the short-swing profit provisions of Section 16(b).


8.

Anti-Dilution Provisions .  The Options shall have the anti-dilution rights set forth in the Plan.


9.  

Necessity to Become Holder of Record .  Neither the Optionee, the Optionee’s estate, nor any Transferee shall have any rights as a shareholder with respect to any of the shares underlying the Options until such person shall have become the holder of record of such shares.  No cash dividends or cash distributions, ordinary or extraordinary, shall be provided to the holder if the record date is prior to the date on which such person became the holder of record thereof.


10.  

Reservation of Right to Terminate Relationship .  Nothing contained in this Agreement shall restrict the right of the Company to terminate the relationship of the Optionee at any time, with or without cause.  The termination of the relationship of the Optionee by the Company, regardless of the reason therefor, shall have the results provided for in Sections 3 and 4 of this Agreement.


11.  

Conditions to Exercise of Options .  If a Registration Statement on Form S-8 (or any other successor form) is not effective as to the shares of common stock issuable upon exercise of the Options, the remainder of this Section 11 is applicable as to federal law.  In order to enable the Company to comply with the Securities Act of 1933 (the “Securities Act”) and relevant state law, the Company may require the Optionee, the Optionee’s estate, or any Transferee as a condition of the exercising of the Options granted hereunder, to give written assurance satisfactory to the Company that the shares underlying the Options are being acquired for such persons own account, for investment only, with no view to the distribution of same, and that any subsequent resale of any such shares either shall be made pursuant to a registration statement under the Securities Act and applicable state law which has become effective and is current with regard to the shares being sold, or shall be pursuant to an exemption from registration under the Securities Act and applicable state law.


The Options are subject to the requirement that, if at any time the Board shall determine, in its discretion, that the listing, registration, or qualification of the shares of common stock underlying the Options upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with the issue or purchase of the shares underlying the Options, the Options may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected.  


12.  

Transfer .  No transfer of the Options by the Optionee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the letters testamentary or such other evidence as the Board may deem necessary to establish the authority of the estate and the acceptance by the Transferee or Transferees of the terms and conditions of the Options.



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13.  

Duties of the Company .  The Company will at all times during the term of the Options:


(a)  

Reserve and keep available for issue such number of shares of its authorized and unissued common stock as will be sufficient to satisfy the requirements of this Agreement;


(b)  

Pay all original issue taxes with respect to the issuance of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith;


(c)  

Use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto.


14.

Parties Bound by Plan .  The Plan and each determination, interpretation or other action made or taken pursuant to the provisions of the Plan shall be final and shall be binding and conclusive for all purposes on the Company and the Optionee and the Optionee’s respective successors in interest.


15.

Severability .  In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.


16.

Arbitration .  Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach or enforcement which the parties are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim or dispute to binding arbitration in Palm Beach County, Florida (unless the parties agree in writing to a different location), before a single arbitrator in accordance with the rules of the American Arbitration Association then in effect.  The decision and award made by the arbitrator shall be final, binding and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.  Any arbitration proceeding brought under this Agreement shall be subject to all statutes of limitation in the same manner as if an action were filed in court.  


17.

Benefit .  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.


18.

Notices and Addresses .  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar receipted delivery, or email (followed by receipted delivery) as follows:


The Optionee:

To the Optionee at the address on the

signature page of this Agreement




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The Company:

GelTech Solutions, Inc.

1460 Park Lane South, Suite 1

Jupiter, FL 33458

 

Attention: Michael Hull

Facsimile: (561) 427-6182


with a copy to:

Brian Bernstein, Esq.

Nason, Yeager, Gerson, White & Lioce P.A.

3001 PGA Blvd., Suite 305

Palm Beach Gardens, FL 33410

bbernstein@nasonyeager.com  

Facsimile:  (561) 420-0068


or to such other address as either of them, by notice to the other may designate from time to time.  


19.

Attorney’s Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to a reasonable attorneys’ fees, costs and expenses.


20.

Governing Law .  This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the laws of the State of Delaware without regard to choice of law considerations.  


21.

Oral Evidence .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against whom enforcement or the change, waiver discharge or termination is sought.


22.

Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual, pdf, electronic or facsimile signature.


23.

Section or Paragraph Headings .  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.



[Signature Page to Follow]




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IN WITNESS WHEREOF the parties hereto have set their hand and seals the day and year first above written.



 

GELTECH SOLUTIONS, INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Michael Hull

 

 

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

OPTIONEE:

 

 

 

 

 

 

 

 

 

 

 

 

Address of the Optionee:

 

 

 

 

 

 

 

 

 







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EXHIBIT 10.13


INDEMNIFICATION AGREEMENT


This Indemnification Agreement (the “Agreement”) is entered into as of _________, 2017, by and between GelTech Solutions, Inc., a Delaware corporation (the “Company”), and ___________________(the “Indemnitee”) and replaces any and all Indemnification Agreements previously entered into between the Parties:


WHEREAS, competent and experienced persons are becoming increasingly reluctant to serve publicly-held corporations as directors, officers, or in other capacities unless they are provided with adequate protection through liability insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to the corporation;


WHEREAS, the board of directors of the Company (the “Board”) has determined that the inability to attract and retain such persons is detrimental to the best interests of the Company’s shareholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;


WHEREAS, Section 145 of the Delaware General Corporation Law (the “DGCL”) empowers the Company to indemnify its officers, directors, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises;


WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;


WHEREAS, the Indemnitee is willing to serve as a director or officer of the Company on the condition that he be so indemnified.


NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company and the Indemnitee do hereby covenant and agree as follows:


1.

Definitions .  For purposes of this Agreement:


(a)

“Act” means the Securities Exchange Act of 1934.


(b)

“Beneficial Owner” means (as defined in Rule 13d-3 under the Act), any Person who directly or indirectly, owns securities of the Company representing 10% or more of the combined voting power of the Company’s then outstanding securities.


(c)

“Change of Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 5.01 on Form 8-K (or in response to any similar item on any similar schedule or form) promulgated under the Act, whether or not the Company is then subject to such reporting requirement; provided ,




 


however , that, without limitation, such a Change of Control shall be deemed to have occurred after the Effective Date if a Person (as defined below) becomes the Beneficial Owner without the prior approval of at least two-thirds of the directors in office immediately prior to such person attaining such percentage; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, individuals who, at the beginning of such period, constituted the Board (including for this purpose, any new director whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board.


 (d)

“Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company.


(e)

“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee.


(f)

“Effective Date” means the date first above written.


(g)

“Expenses” shall include all reasonable attorney’s fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.


(h)

“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or the Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s rights under this Agreement.


(i)

“Person” means (as such term is used in Sections 13(d) and 14(d) of the Act) an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).


(j)

“Proceeding” includes any actual or threatened action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, whether or not initiated prior to the Effective Date, except a proceeding initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce his rights under this Agreement.




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(k)

“Standard” shall mean the applicable standard of conduct set forth in Sections 145(a) and (b) of the DGCL.


2.

Agreement to Serve .  The Indemnitee agrees to serve as a director or officer of the Company.  The Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). Similarly, the Company shall have no obligation under this Agreement to continue the Indemnitee in any position with the Company.


3.

Indemnification — General .  The Company shall indemnify and advance Expenses to the Indemnitee as provided in this Agreement and to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit.  However, no indemnification shall be made by the Company (except as ordered by a court) unless a determination has been made in the manner provided for in Section 145(d) of the DGCL and Section 9(b) herein that the Indemnitee has met the applicable Standard.  The rights of the Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other sections of this Agreement.


4.

Third-Party Actions .  The Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any Proceeding, other than a Proceeding by or in the right of the Company.  Pursuant to this Section 4, the Indemnitee shall be indemnified against Expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such Proceeding or any claim, issue or matter therein, if (i) he acted in good faith, and in a manner he reasonably believed to be in or not opposed to the Company’s best interests; and (ii) with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful.  The Indemnitee shall not be entitled to indemnification in connection with any Proceeding charging improper personal benefit to the Indemnitee, whether or not involving action in his official capacity, in which he was judged liable on the basis that personal benefit was improperly received by him.


5.

Direct and Derivative Actions .  The Indemnitee shall be entitled to the rights of indemnification provided in this Section 5, by reason of his Corporate Status, if he is, or is threatened to be made, a party to any Proceeding brought by a shareholder directly or on behalf of the Company to procure a judgment in its favor.  Pursuant to this Section, the Indemnitee shall be indemnified against Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.   Notwithstanding the foregoing , no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which the Indemnitee shall have been adjudged to be liable to the Company unless the Delaware Court of Chancery or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnification for such Expenses which the Delaware Court of Chancery or such other court shall deem proper.





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The Indemnitee shall not be entitled to the rights of indemnification provided in this Section 5, by reason of his corporate status, if he is, or is threatened to be made, a party to any Proceeding brought by the Company, or files any claim against the Company in a Proceeding.


6.

Indemnification for Expenses of an Indemnitee .  Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him in connection therewith.  If the Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section 6 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.


7.

Indemnification for Expenses of a Witness .   Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.


8.

Advancement of Expenses .  The Company shall advance all reasonable Expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding within 20 working days after the receipt by the Company of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by the Indemnitee including providing detailed invoices from attorneys and other parties (unless an advance retainer) and shall include, be preceded by or accompanied by, as the case may be, the following: (i) a written affirmation of the Indemnitee’s good-faith that he has met the Standard; (ii) an undertaking by or on behalf of the Indemnitee to repay any Expenses advanced if it shall be determined that the Indemnitee did not meet the Standard or that the Indemnitee is not entitled to be indemnified against such Expenses; and (iii) a determination that the facts then known to those making the determination would not preclude indemnification under the DGCL.


The Indemnitee understands and agrees that the undertaking required by this Section 8(ii) shall be an unlimited general obligation of the Indemnitee.


9.

Indemnification Procedure .


(a)

To obtain indemnification under this Agreement, the Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that the Indemnitee has requested indemnification.





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(b)

Upon written request by the Indemnitee for indemnification pursuant to Section 9(a) hereof, a determination, if required by applicable law, with respect to the Indemnitee’s entitlement thereto shall be made (i) by the Board by a majority vote of a quorum consisting of Disinterested Directors; or (ii) if a quorum cannot be obtained or, even if attainable, a quorum of Disinterested Directors so directs, by (a) Independent Counsel in a written opinion; or (b) by the shareholders of the Company.  If it is determined that the Indemnitee is entitled to indemnification, payment to the Indemnitee shall be made within 10 working days after such determination. The Indemnitee shall cooperate with the person, persons or entity making such determination with respect to the Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination.  


10.

Presumptions and Effect of Certain Proceedings .


(a)

If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification hereunder, and following the procedures in Section 9, as applicable, it shall be presumed that the Indemnitee is entitled to indemnification under this Agreement if the Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.


(b)

If the Indemnitee’s right to indemnification shall not have been made within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by the Indemnitee of a material fact, or an omission of a material fact necessary to make the Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of Section 10(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the shareholders pursuant to Section 9(b) of this Agreement and if (A) within 15 days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the shareholders for their consideration at an annual meeting thereof to be held within 75 days after such receipt and such determination is made thereat, or (B) a special meeting of shareholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(b) of this Agreement.


(c)

The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good




5



 


faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful.


11.

Remedies of the Indemnitee .


(a)

In the event that (i) a determination is made pursuant to Section 9 of this Agreement that the Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(b) of this Agreement and such determination shall not have been made and delivered in a written opinion within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 of this Agreement within 10 days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within 10 days after a determination has been made that the Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 9 or 10 of this Agreement, the Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware , or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses.  The Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which the Indemnitee first has the right to commence such proceeding pursuant to this Section 11(a).  


(b)

In the event that a determination shall have been made pursuant to Section 9 of this Agreement that the Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 11 shall be conducted in all respects as a de novo trial on the merits and the Indemnitee shall not be prejudiced by reason of that adverse determination.  If a Change of Control shall have occurred, in any judicial proceeding commenced pursuant to this Section 11, the Company shall have the burden of proving the the Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.


(c)

If a determination shall have been made or deemed to have been made pursuant to Section 9 or 10 of this Agreement that the Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 11, absent (i) a misstatement by the Indemnitee of a material fact, or an omission of a material fact necessary to make the Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.


(d)

The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 11 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.


(e)

In the event that the Indemnitee, pursuant to this Section 11, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Agreement, the Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses (of the types described in the definition of Expenses in




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Section 1 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, but only if he prevails therein.  If it shall be determined in said judicial adjudication that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by the Indemnitee in connection with such judicial adjudication shall be appropriately prorated.


12.

Non-Exclusivity; Survival of Rights; Insurance; Subrogation .


(a)

The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may at any time be entitled under applicable law, the Certifciate of Incorporation, the Bylaws, any agreement, a vote of shareholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.


(b)

To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, the Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies.


(c)

In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.


(d)

The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.


(e)

The Company may, to the full extent authorized by law, create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and other similar arrangements) to ensure the payment of such amounts as may become necessary to effect indemnification provided hereunder.


13.

Duration of Agreement .  This Agreement shall continue until and terminate upon the later of:  (a) six years after the date that the Indemnitee shall have ceased to serve as a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which the Indemnitee served at the request of the Company; or (b) the final termination of all pending Proceedings in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Section 11 of this Agreement relating thereto.





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14.

Exceptions to Indemnification Rights .   Notwithstanding any other provision of this Agreement, except for Indemnification or advancement of Expenses in a Proceeding to enforce or claim therein to enforce the provisions of that Agreement, the Indemnitee shall not be entitled to Indemnification or advancement of Expenses with respect to any Proceeding, or any claim therein, brought or made by him against the Company or the Company against the Indemnitee.   Provided further that no right of indemnification under the provisions set forth herein shall be available to the Indemnitee unless within 10 days after the later of (i) the filing of or (ii) learning of any such Proceeding he shall have offered the Company in writing the opportunity to handle and defend such Proceeding at its own expense.


15.

Gender .  Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.


16.

Successors .  Subject to the provisions of this Agreement, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.


17.

Severability .  In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.


18.

Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.


19.

Benefit .  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.


20.

Notices and Addresses .  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressee in person, by Federal Express or similar receipted delivery, or by email delivery as follows:


The Company:

GelTech Solutions, Inc.

1460 Park Lane South, Suite 1

Jupiter, FL 33458

Attention: Mr. Michael Hull

Email: mhull@geltechsolutions.com


with a copy to:

Brian Bernstein, Esq.

Nason, Yeager, Gerson, White& Lioce, P.A.

3001 PGA Boulevard, Suite 305

Palm Beach Gardens, FL 33410

Email: bbernstein@nasonyeager.com






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To the Indemnitee:

___________________

___________________

___________________

Email:


or to such other address as either of them, by notice to the other may designate from time to time.  Time shall be counted to, or from, as the case may be, the delivery in person or by mailing.


21.

Attorneys’ Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding relating to this Agreement is filed, the prevailing party shall be entitled to an award by the court of reasonable attorneys’ fees, costs and expenses.


22.

Oral Evidence .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.


23.

Governing Law .  This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the State of Delaware without regard to choice of law considerations.  


24.

Arbitration .  Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach or enforcement which the parties are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim or dispute to binding arbitration in Palm Beach County, Florida (unless the parties agree in writing to a different location), before a single arbitrator in accordance with the rules of the American Arbitration Association then in effect.  In any such arbitration proceeding the parties agree to provide all discovery deemed necessary by the arbitrator.  The decision and award made by the arbitrator shall be final, binding and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.


25.

Section or Paragraph Headings .  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.


[Signature Page To Follow]




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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.



 

GELTECH SOLUTIONS, INC.:

 

 

 

 

 

 

 

By:

 

 

 

Michael Hull

 

 

Chief Financial Officer

 

 

 

 

 

 

 

INDEMNITEE:

 

 

 

 

 

 

 

By:

 

 

 

 




























10


EXHIBIT 23.1




Consent of Independent Registered Public Accounting Firm




We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 of GelTech Solutions, Inc. filed on September 29, 2008 and Form S-1/A filed on April 4, 2016 of our report dated March 28, 2017 on the consolidated financial statements of GelTech Solutions, Inc. and Subsidiaries, as of December 31, 2016 and 2015 and for the each of the two years in the period ended December 31, 2016.


SALBERG & COMPANY, P.A.


/s/ Salberg & Company, P.A.


Boca Raton, Florida

March 28, 2017



Exhibit 31.1


CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER


I, Peter Cordani, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K 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: March 28, 2017

 

/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 Annual Report on Form 10-K 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: March 28, 2017

 

/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 Annual Report of GelTech Solutions, Inc. (the “Company”) on Form 10-K for the 12 months ended December 31, 2016, 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 Annual 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 Annual 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: March 28, 2017





In connection with the Annual Report of GelTech Solutions, Inc. (the “Company”) on Form 10-K for the 12 months ended December 31, 2016, 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 Annual 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 Annual 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: March 28, 2017