UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-52993
GelTech Solutions, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 56-2600575 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
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1460 Park Lane South, Suite 1, Jupiter, Florida |
| 33458 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (561) 427-6144
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o |
| Accelerated filer | o |
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Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Class |
| Outstanding at February 11, 2015 |
Common Stock, $0.001 par value per share |
| 47,329,925 shares |
Table of Contents
| PART I – FINANCIAL INFORMATION |
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1 | ||
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| Condensed Consolidated Balance Sheets as of December 31, 2014 (Unaudited) and June 30, 2014 | 1 |
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| 2 | |
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| 3 | |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) | 5 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 11 | |
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15 | ||
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16 | ||
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| PART II – OTHER INFORMATION |
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17 | ||
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17 | ||
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 17 | |
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17 | ||
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17 | ||
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17 | ||
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17 | ||
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| 18 |
PART I – FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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| As of December 31, |
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| As of June 30, |
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| 2014 |
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| 2014 |
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| (Unaudited) |
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ASSETS |
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Cash and cash equivalents |
| $ | 195,615 |
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| $ | 66,266 |
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Accounts receivable trade, net |
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| 64,241 |
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| 35,276 |
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Inventories |
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| 969,185 |
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| 843,864 |
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Prepaid expenses and other current assets |
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| 98,094 |
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| 88,836 |
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Total current assets |
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| 1,327,135 |
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| 1,034,242 |
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Furniture, fixtures and equipment, net |
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| 159,055 |
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| 175,751 |
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Deposits |
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| 16,086 |
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| 30,086 |
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Total assets |
| $ | 1,502,276 |
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| $ | 1,240,079 |
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Accounts payable |
| $ | 149,708 |
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| $ | 228,063 |
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Accrued expenses |
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| 232,429 |
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| 189,933 |
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Litigation accrual |
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| 56,956 |
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| 505,000 |
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Insurance premium finance contract |
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| 62,857 |
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| 13,574 |
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Total current liabilities |
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| 501,950 |
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| 936,570 |
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Convertible notes - related party, net of discounts |
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| 2,313,693 |
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| 2,201,824 |
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Total liabilities |
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| 2,815,643 |
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| 3,138,394 |
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Commitments and contingencies (Note 5) |
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Stockholders’ equity (deficit) |
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Preferred stock: $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding |
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| — |
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| — |
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Common stock: $0.001 par value; 100,000,000 shares authorized; 46,249,719 and 40,301,979 shares issued and outstanding as of December 31, 2014 and June 30, 2014, respectively. |
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| 46,250 |
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| 40,302 |
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Additional paid in capital |
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| 35,902,286 |
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| 33,194,961 |
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Accumulated deficit |
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| (37,261,903 | ) |
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| (35,133,578 | ) |
Total stockholders' equity (deficit) |
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| (1,313,367 | ) |
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| (1,898,315 | ) |
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Total liabilities and stockholders' equity (deficit) |
| $ | 1,502,276 |
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| $ | 1,240,079 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| For the Three Months Ended December 31, |
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| For the Six Months Ended December 31, |
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| 2014 |
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| 2013 |
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| 2014 |
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| 2013 |
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Sales |
| $ | 155,895 |
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| $ | 65,034 |
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| $ | 266,762 |
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| $ | 595,846 |
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Cost of goods sold |
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| 52,070 |
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| 34,340 |
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| 92,416 |
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| 262,073 |
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Gross profit |
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| 103,825 |
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| 30,694 |
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| 174,346 |
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| 333,773 |
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Operating expenses: |
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Selling, general and administrative expenses |
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| 1,132,519 |
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| 1,894,228 |
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| 2,428,697 |
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| 3,926,272 |
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Research and development |
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| 36,119 |
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| 50,663 |
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| 95,805 |
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| 137,831 |
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Total operating expenses |
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| 1,168,638 |
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| 1,944,891 |
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| 2,524,502 |
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| 4,064,103 |
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Loss from operations |
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| (1,064,813 | ) |
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| (1,914,197 | ) |
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| (2,350,156 | ) |
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| (3,730,330 | ) |
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Other income (expense) |
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Loss on settlement |
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| — |
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| (11,413 | ) |
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| — |
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| (11,413 | ) |
Other income |
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| 378 |
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| — |
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| 448,422 |
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| 17,000 |
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Interest income |
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| 16 |
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| 17 |
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| 16 |
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| 260 |
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Interest expense |
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| (113,813 | ) |
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| (127,392 | ) |
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| (226,607 | ) |
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| (239,764 | ) |
Total other income (expense) |
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| (113,419 | ) |
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| (138,788 | ) |
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| 221,831 |
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| (233,917 | ) |
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Net loss |
| $ | (1,178,232 | ) |
| $ | (2,052,985 | ) |
| $ | (2,128,325 | ) |
| $ | (3,964,247 | ) |
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Net loss per common share - basic and diluted |
| $ | (0.03 | ) |
| $ | (0.06 | ) |
| $ | (0.05 | ) |
| $ | (0.12 | ) |
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Weighted average shares outstanding - basic and diluted |
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| 44,885,854 |
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| 35,147,692 |
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| 43,165,535 |
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| 34,358,586 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| For the Six Months Ended December 31, |
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| 2014 |
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| 2013 |
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Cash flows from operating activities |
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Reconciliation of net loss to net cash used in operating activities: |
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Net loss |
| $ | (2,128,325 | ) |
| $ | (3,964,247 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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| 26,546 |
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| 26,112 |
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Amortization of debt discounts |
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| 111,869 |
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| 118,771 |
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Bad debt expense |
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| 4,197 |
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| 5,801 |
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Employee stock option compensation expense |
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| 436,768 |
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| 1,235,650 |
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Loss on stock issued for interest |
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| — |
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| 4,440 |
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Changes in assets and liabilities: |
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Accounts receivable |
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| (33,162 | ) |
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| 6,454 |
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Inventories |
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| (125,321 | ) |
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| (274,441 | ) |
Prepaid expenses and other current assets |
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| 73,667 |
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| 12,716 |
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Other assets |
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| 14,000 |
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| — |
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Accounts payable |
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| (78,355 | ) |
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| (30,636 | ) |
Accrued expenses |
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| 117,496 |
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| 124,642 |
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Litigation accrual |
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| (448,044 | ) |
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| — |
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Accrual for severance agreement |
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| — |
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| (84,460 | ) |
Deferred revenue |
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| — |
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| 50,000 |
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Net cash used in operating activities |
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| (2,028,664 | ) |
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| (2,769,198 | ) |
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Cash flows from Investing Activities |
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Purchases of equipment |
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| (9,850 | ) |
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| (57,093 | ) |
Net cash used in investing activities |
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| (9,850 | ) |
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| (57,093 | ) |
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Cash flows from Financing Activities |
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Proceeds from sale of stock through private placements |
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| 46,505 |
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| 775,000 |
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Proceeds from sale of stock under stock purchase agreement |
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| — |
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| 570,000 |
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Proceeds from sale of stock and warrants |
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| 2,155,000 |
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| 730,000 |
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Proceeds from exercise of warrants |
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| — |
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| 25,000 |
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Proceeds from exercise of stock options |
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| — |
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| 18,200 |
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Repayments of convertible notes with related parties |
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| — |
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| (85,880 | ) |
Repayments of convertible notes with third parties |
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| — |
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| (115,822 | ) |
Proceeds from convertible notes with related parties |
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| — |
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| 1,000,000 |
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Payments on insurance finance contract |
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| (33,642 | ) |
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| (39,374 | ) |
Net cash provided by financing activities |
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| 2,167,863 |
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| 2,877,124 |
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Net increase in cash and cash equivalents |
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| 129,349 |
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| 50,833 |
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Cash and cash equivalents - beginning |
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| 66,266 |
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| 90,275 |
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Cash and cash equivalents - ending |
| $ | 195,615 |
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| $ | 141,108 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Continued
3
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
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| For the Six Months Ended December 31, |
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| 2014 |
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| 2013 |
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Supplemental Disclosure of Cash Flow Information: |
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Cash paid for interest |
| $ | 1,408 |
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| $ | 1,219 |
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Cash paid for income taxes |
| $ | — |
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| $ | — |
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Supplementary Disclosure of Non-cash Investing and Financing Activities: |
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Financing of prepaid insurance contracts |
| $ | 82,925 |
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| $ | 92,846 |
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Beneficial conversion feature of convertible notes |
| $ | — |
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| $ | 311,949 |
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Loan discount from warrants |
| $ | — |
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| $ | 601,949 |
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Stock issued for interest |
| $ | 75,000 |
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| $ | 4,440 |
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Conversion of notes for common stock |
| $ | — |
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| $ | 82,132 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)
NOTE 1 – Organization and Basis of Presentation
Organization
GelTech Solutions, Inc., or GelTech or the Company, generates revenue primarily from marketing the following three products: (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in urban firefighting, including underground utility fires, and in wildland firefighting and as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) Soil2O® “Dust Control”, our application which is used for dust mitigation in the aggregate, road construction, mining, as well as, other industries that deal with daily dust control issues and (3) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire. In addition to the sale of FireIce® and Soil2O® “Dust Control” product, the Company also sells equipment such as eductors and extinguishers which are used to dispense our products. Other products currently being marketed include (1) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires; and (2) Soil2O®, a product which reduces the amount of water needed for irrigation and is primarily marketed to golf courses, commercial landscapers and the agriculture market. During the fourth quarter of fiscal 2014, the Company developed and began marketing two new products, (1) GT-W14, an industrial absorbent powder used to contain and clean up industrial liquid spills; and (2) Soil2O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion. Our consolidated financial statements have been prepared on a going concern basis, and we need to generate sufficient material revenues to support the ongoing business of GelTech.
The corporate office is located in Jupiter, Florida.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries: FireIce Gel, Inc., GelTech International, Inc. and Weather Tech Innovations, Inc. There has been no activity in Weather Tech Innovations, Inc. and GelTech International, Inc. These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (”SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by "GAAP" for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The information included in these unaudited condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained in this report and the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014 filed on September 29, 2014.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms. Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. During the six months ended December 31, 2014, the Company increased the provision for bad debt in the amount of $4,019 and then wrote-off accounts receivable in the amount of $34,803 against the allowance for bad debt. During the six months ended December 31, 2013, the Company recorded an allowance for bad debt in the amount of $5,801.
Inventories
Inventories as of December 31, 2014 consisted of raw materials and finished goods in the amounts of $477,598 and $491,587, respectively.
5
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Significant estimates for the three and six months ended December 31, 2014 include the allowance for doubtful accounts, depreciation and amortization, valuation of inventories, valuation of options and warrants granted for services or settlements, valuation of common stock granted for services or debt conversion, valuation of debt discount related to the beneficial conversion feature of convertible notes, accruals for litigation losses and the valuation of deferred tax assets.
Net Earnings (Loss) per Share
The Company computes net earnings (loss) per share in accordance with ASC 260-10, “Earnings per Share.” ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The Company’s diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At December 31, 2014, there were options to purchase 10,235,340 shares of the Company’s common stock, warrants to purchase 6,126,370 shares of the Company’s common stock and 6,707,094 shares of the Company’s common stock are reserved for convertible notes which may dilute future earnings per share.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.
Determining Fair Value Under ASC 718-10
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Company’s determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.
The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for employee stock options using the simplified method for employees and directors and the contractual term for non-employees. The risk free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.
The fair values of stock option grants for the period from July 1, 2014 to December 31, 2014 were estimated using the following assumptions:
Risk free interest rate |
| 0.63% - 1.79% |
Expected term (in years) |
| 2.5 - 5.5 |
Dividend yield |
| –– |
Volatility of common stock |
| 87.78% - 88.55% |
Estimated annual forfeitures |
| –– |
New Accounting Pronouncements
Accounting Standards Updates which were not effective until after December 31, 2014 are not expected to have a significant effect on the Company's consolidated financial position or results of operations.
6
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)
NOTE 2 – Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize it assets and discharge its liabilities in the normal course of business. As of December 31, 2014, the Company had an accumulated deficit and stockholders’ deficit of $37,261,903 and $1,313,367, respectively, and incurred losses from operations of $2,350,156 for the six months ended December 31, 2014 and used cash in operations of $2,028,664 during the six months ended December 31, 2014. In addition, the Company has not yet generated revenue sufficient to support ongoing operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
Management believes that the actions presently being taken which consist of cost cutting measures, improved marketing focus and a strategy to raise capital primarily from insiders on an as needed basis, provide the opportunity for the Company to continue as a going concern. Ultimately, the continuation of the Company as a going concern is dependent upon the ability of the Company to generate sufficient revenue to attain profitable operations. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – Convertible Note Agreements
The Company currently has two convertible notes outstanding, both held by its President and principal shareholder.
One convertible note in the amount of $1,997,483, dated February 1, 2013 is a consolidation of prior debt instruments. The note bears annual interest of 7.5%, is convertible at $0.35 per share and is due December 31, 2016. During the six months ended December 31, 2014, the Company recognized interest expense of $19,728 related to the amortization of the discount resulting from the beneficial conversion feature of the note. As of December 31, 2014, the balance of the unamortized discount related to this note amounts to $39,304. As of December 31, 2014, 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 relates to a new funding on that date. The note bears annual interest of 7.5%, is convertible at $1.00 per share and is 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. For the six months ended December 31, 2014 the Company recorded interest expense of $60,690 and $31,452 related to the amortization of the discounts related to the beneficial conversion feature and the warrants, respectively. As of December 31, 2014, the balance of the unamortized discount related to the beneficial conversion feature and the warrants was $424,498 and $219,988, respectively. In July 2014, the Company issued 107,143 shares of common stock to its President and principal shareholder in payment of accrued interest of $75,000 on this convertible note (see Note 4). As of December 31, 2014, the principal balance on this note is $1,000,000 and accrued interest amounted to $37,808.
NOTE 4 – Stockholders’ Equity
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, par value $0.001 per share with such rights, preferences and limitation as may be set from time to time by resolution of the board of directors and the filing of a certificate of designation as required by Delaware General Corporation Law.
Common Stock
During the three months ended December 31, 2014 the Company issued 3,525,269 shares of common stock and two year warrants to purchase 1,762,635 shares of common stock at an exercise price of $2.00 per share in exchange for $1,055,000 in connection with private placements with three accredited investors, including the issuance of 915,968 shares and 457,984 warrants to its President and principal shareholder in exchange for $250,000.
In December 2014, the Company issued 110,000 shares of common stock to two directors in exchange for $21,505.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)
During the three months ended September 30, 2014, the Company issued 2,205,328 shares of common stock and two year warrants to purchase 1,081,656 shares of common stock at an exercise price of $2.00 per shares in exchange for $1,125,000 in connection with private placements with three accredited investors, including the issuance of 1,953,227 shares and 976,614 warrants to its President and principal shareholder in exchange for $975,000.
In July 2014, the Company issued 107,143 shares of common stock to its President and principal shareholder in payment of accrued interest of $75,000 on a $1 million convertible note (see Note 3).
Options to Purchase Common Stock
Stock-based compensation expense recognized under ASC 718-10 for the period July 1, 2014 to December 31, 2014, was $436,768 for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At December 31, 2014, the total compensation cost for stock options not yet recognized was approximately $677,156. This cost will be recognized over the remaining vesting term of the options of approximately two years.
Employee Options and Stock Appreciation Rights
In December 2014, the Company granted employees five year options to purchase a total of 215,000 shares of common stock at an exercise price of $0.23 per share. The options vested 25% immediately, with the remainder vesting in equal increments of 25% each year on the grant date over three years. The Company valued the options at $31,145 using the Black-Scholes option pricing model using a volatility of 87.78%, based upon the historical price of the Company’s common stock, an estimated term of 4.0 years, using the Simplified Method and a discount rate of 1.31%.
In August 2014, the Company granted two summer employees five year options allowing each employee to purchase 1,000 shares of common stock at an exercise price of $0.66 per share. The options all vested immediately. The Company valued the options at $682 using the Black-Scholes option pricing model using a volatility of 87.99%, based upon the historical price of the Company’s common stock, an estimated term of 2.5 years, using the Simplified Method and a discount rate of 0.63%.
Options Issued to Directors
As prescribed by the Company's 2007 Equity Incentive Plan, on July 1, 2014, the Company issued options to purchase 470,000 shares of common stock to directors. The options have an exercise price of $0.73 per share, vest on June 30, 2015¸ subject to continuing service as a director and bear a ten year term. The options were valued using the Black-Scholes model using a volatility of 88.55%, derived using the historical market price for the Company’s common stock, an expected term of 5.5 years (using the simplified method) and a discount rate of 1.79%. The value of these options of $245,441 will be recognized as expense over the one year vesting period.
Non-Employee, Non-Director Options
During the six months ended December 31, 2014, there were no options granted to non-employees or non-directors.
Warrants to Purchase Common Stock
Warrants Issued as Settlements
During the six months ended December 31, 2014, there were no warrants granted for settlements.
Warrants Issued for Cash or Services
During the three months ended December 31, 2014, the Company issued two year warrants to purchase 1,762,635 shares of common stock at an exercise price of $2.00 per share in connection with private placements with three accredited investors, including the issuance of 457,984 warrants to its President and principal shareholder.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)
During the three months ended September 30, 2014, the Company issued two year warrants to purchase 1,081,656 shares of common stock at an exercise price of $2.00 per share in connection with private placements with three accredited investors, including the issuance of 976,614 warrants to its President and principal shareholder.
NOTE 5 – Commitments and Contingencies
The Company was sued by a former employee on June 23, 2008, alleging breach of a consulting agreement and an employment agreement entered into in May and June 2007, respectively. In addition, the plaintiff seeks to recover certain of his personal property, which was used or stored in the Company’s offices and alleges the Company invaded his privacy by looking at his personal computer (which was used in the Company’s business) in the Company’s offices. A jury trial was held for the lawsuit in July 2012. At the conclusion of the trial, the plaintiff was awarded $200,000 under his invasion of privacy and fraudulent misrepresentation claim, $5,000 on the trespass claim, $841,000 on the breach of consulting agreement claim and $200,000 against the Company’s CEO on a claim of civil theft, which by law results in an award of $600,000 for the plaintiff. The Company’s board of directors approved the indemnification of the Company’s CEO for the $600,000. The Company filed a post-trial motion for Judgment Notwithstanding Verdict, New Trial and Remittitur, requesting that the judge set aside or reduce the amounts of the jury verdict.
Based upon the verdicts, the Company recorded a litigation accrual of $1,646,000 as of June 30, 2012. In November 2012, the insurance carrier paid the plaintiff $200,000 in settlement of the invasion of privacy and fraudulent misrepresentation awards. As a result, the Company reduced the amounts accrued for these awards resulting in other income of $200,000 for the period ended December 31, 2012.
In January 2013, the court ruled on the Company’s post-trial motions in this litigation dismissing the $200,000 civil theft verdict (which was subject to triple damages) against the CEO and reducing the $841,000 breach of the consulting agreement award to $500,000. The Company then filed a motion seeking a new trial on damages. The Company received a favorable ruling on this motion and received a new trial on the damages. As a result of the reduction in the award for breach of the consulting agreement from $841,000 to $500,000 and the vacating of the award for civil theft which the Company had previously accrued $600,000, the Company recorded other income of $941,000 for the year ended June 30, 2013.
On October 28, 2014 the Court issued a Final Judgment in this case. The Court awarded Mr. Hopkins $51,956 for the breach of consulting agreement. As such the total liability related to this matter is $56,956. In accordance with ASC 855-10-55-1, the Company recorded other income of $448,044 in the unaudited condensed consolidated statement of operations for the six months ended December 31, 2014 resulting from the reduction of the accrual for litigation. Mr. Hopkins has filed an appeal.
NOTE 6 – Related Party Transactions
During the six months ended December 31, 2014, the Company issued common stock and warrants to its President and principal shareholder in exchange for cash as more fully described in Note 4.
In November 2014, William Cordani, the father of the Company’s CEO, passed away unexpectedly. Prior to his passing, Mr. Cordani and the Company were negotiating a separation payment to Mr. Cordani in connection with his contemplated retirement. The Company’s Board of Directors recognized that without Mr. Cordani’s contributions and efforts on behalf of the Company and the Company’s predecessor (over 20 years), the Company would not have been successful developing its portfolio of products. Subsequent to his passing, the Company and Mr. Cordani’s wife agreed to 12 monthly payments of $5,000 in lieu of the contemplated separation payments to Mr. Cordani. These payments began in December 2014.
NOTE 7 – Concentrations
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through December 31, 2014. As of December 31, 2014, there were no cash equivalent balances held in depository accounts that are not insured.
At December 31, 2014, three customers accounted for 48.2%, 14.8% and 14.5% of accounts receivable.
9
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)
For the six months ended December 31, 2014, four customers accounted for 20.5%, 12.58%, 12.55% and 12.1% of sales.
During the six months ended December 31, 2014, sales primarily resulted from two products, FireIce® and Soil2O® which made up 56.0% and 43.44%, respectively, of total sales. Of the FireIce® sales, 56.7% related to the sale of FireIce® products and 43.3% related to sales of the FireIce Home Defense units and extinguishers. Of the Soil2O® sales, 4.3% related to traditional sales of Soil2O® and 95.6% related to sales of Soil2O® Dust Control, including 27.0% of our new Soil2O Soil Cap product.
Two vendors accounted for 51.0% and 14.2% of the Company’s approximately $220,000 in purchases of raw material and packaging during the six months ended December 31, 2014.
NOTE 8 – Subsequent Events
Since January 1, 2015, the Company has issued 652,174 shares of common stock and two year warrants to purchase 326,087 shares of common stock at an exercise price of $2.00 per share in exchange for $150,000 in connection with private placements with our President and principal stockholder.
On January 23, 2015, the Company granted 5 year warrants to purchase 100,000 shares of the Company’s common stock in exchange for legal services. The warrants vest immediately and are exercisable at $0.27 per share. The Company valued the warrants at $17,611 using the Black-Scholes option pricing model using a volatility of 81.85%, based upon the historical price of the Company’s common stock, an estimated term of 5 years, the term of the warrants, and a discount rate of 1.39%. The fair value will be recognized in expense during the three months ending March 31, 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.
On February 2, 2015, the Company issued 428,032 shares of common stock to its president and principal shareholder as payment for annual accrued interest of $149, 811 related to convertible note agreement dated February 1, 2013. In accordance with the convertible note, the conversion rate for the accrued interest was $0.35 per shares. The fair market value of the Company’s common stock was $0.32 on the date of conversion. As such the Company will record other income of $12,841 for the three months ended March 31, 2015 in connection the interest conversion.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
Overview
GelTech Solutions, Inc., or GelTech, generates revenue primarily from marketing the following three products: (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in urban firefighting, including underground utility fires, in wildland firefighting, and as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) Soil2O® “Dust Control”, our application which is used for dust mitigation in the aggregate, road construction, mining, as well as other industries that deal with daily dust control issues and (3) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire. Other products currently being marketed include (1) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires; and (2) Soil2O®, a product which reduces the use of water and is primarily marketed to golf courses, commercial landscapers and the agriculture market.
Beginning in the fourth quarter of fiscal 2014, the Company developed and began marketing two new products, (1) GT-W14, an industrial absorbent powder used to contain and clean up industrial liquid spills; and (2) Soil2O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion. We have yet to generate meaningful revenue from GT-W14 but are confident of the potential for commercialization of this product.
During the three months ended December 31, 2014, the Company finalized the preliminary design and received SFI Foundation, Inc. (SFI) certification for a new onboard FireIce® delivery system for race vehicles. This system is designed to coat the driver of a race vehicle with FireIce® in the case of an onboard fire. SFI is a non-profit organization which is sanctioned by virtually every organization affiliated with automotive racing in the world to issue and administer standards for the quality assurance of specialty performance and racing equipment. SFI certification is required for equipment to be installed in racing vehicles competing in the major motorsport circuits.
Our financial statements have been prepared on a going concern basis, and we need to generate sufficient material revenues to support the ongoing business of the Company.
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2014 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 2013.
Sales
For the six months ended December 31, 2014, we had sales of $266,762 as compared to $595,846 for the six months ended December 31, 2013, a decrease of $329,084 or 55.23%. Sales of product during the six months ended December 31, 2014 consisted primarily of $115,677 for Soil2O® and $149,490 for FireIce® and related products. The Soil2O® sales consisted of sales of Soil2O® dust control amounting to $112,622 and sales of Soil2O of $3,055. FireIce® sales consisted of $84,793 related to product sales and $64,697 related to sales of extinguishers and HDU units. We expect that our revenues will increase to the extent we are successful in obtaining orders for our products, as we gain traction with state wildland organizations and with the beginning of dust season in the western states.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Cost of Goods Sold
Cost of goods sold was $92,416 for the six months ended December 31, 2014 as compared to a cost of goods sold of $262,073 for the six months ended December 31, 2013. The decrease was the direct result of the decrease in sales. Cost of sales as a percentage of sales was 34.6% for the six months ended December 31, 2014 as compared to 44.0% for the six months ended December 31, 2013. We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the six months ended December 31, 2014.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses were $2,428,697 for the six months ended December 31, 2014 as compared to $3,926,272 for the six months ended December 31, 2013. The decrease in fiscal 2015 expenses resulted primarily from (1) a decrease in salaries and employee benefits of $312,274 relating to a decrease in personnel costs due to the closing of our Brooklyn facility during the six months ended December 31, 2014 and lower commissions based on the lower sales volume; (2) a decrease in non-cash compensation of $798,882 due to a reduction in employee stock and option grants during six months ended December 31, 2014; (3) a decrease in professional fees of $211,957; (4) a decrease in sales and marketing expense of $88,671; and (5) a decrease in travel expense of $28,385.
Research and Development Expenses
R&D expenses were $95,805 for the six months ended December 31, 2014 as compared to $137,831 for the six months ended December 31, 2013. The expenses for the six months ended December 31, 2014 related to testing to obtain certain ratings for our fire extinguishers, research of potential product delivery system enhancements for FireIce®, including EMFIDS and independent testing of GT-W14, our new industrial absorbent product offering.
Loss from Operations
Loss from operations was $2,350,156 for the six months ended December 31, 2014 as compared to $3,730,330 for the six months ended December 31, 2013. The decreased loss resulted from the lower operating expenses which were only partially offset by the lower gross profit.
Other Income (Expense)
Other income for the six months ended December 31, 2014 was $221,831 as compared to other expense of $233,917 for the six months ended December 31, 2013. The difference was the result of other income of $448,044 relating to the reduction in the accrual for litigation in the Hopkins case as a result of the Final Judgment issued by the court. The other primary factor affecting other expense is interest expense on the Company’s convertible debt.
Net Loss
Net loss was $2,128,325 for the six months ended December 31, 2014 as compared to $3,964,247 for the six months ended December 31, 2013. The higher net loss for the six months ended December 31, 2013 resulted from the absence of other income and the higher selling, general and administrative costs as described above. Net loss per common share was $0.05 for the six months ended December 31, 2014 as compared to $0.12 for the six months ended December 31, 2013. The weighted average number of shares outstanding for the six months ended December 31, 2014 and 2013 were 43,165,535 and 34,358,586, respectively.
FOR THE THREE MONTHS ENDED DECEMBER 31, 2014 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2013.
Sales
For the three months ended December 31, 2014, we had sales of $155,895 as compared to $65,034 for the three months ended December 31, 2013, an increase of $90,861 or 139.71%. Sales of product during the three months ended December 31, 2014 consisted of $33,154 for Soil2O® and $122,723 for FireIce® and related. The Soil2O® sales consisted of sales of Soil2O® Dust Control amounting to $32,396 and sales of Soil2O of $758. FireIce® sales consisted of $66,384 related to product sales and $56,339 related to sales of extinguishers and HDU units. We expect that our revenues will increase to the extent we are successful in obtaining orders for our products, as we gain traction with state wildland organizations and with the beginning of dust season in the western states
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Cost of Goods Sold
Cost of goods sold was $52,070 for the three months ended December 31, 2014 as compared to a cost of goods sold of $34,340 for the three months ended December 31, 2013. The increase was the direct result of the increase in sales. Cost of sales as a percentage of sales was 33.4% for the three months ended December 31, 2014 as compared to 52.8% for the three months ended December 31, 2013. We expect future cost of sales as a percentage of sales will be consistent with the cost of sales percentage for the three and six months ended December 31, 2014.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses were $1,132,519 for the three months ended December 31, 2014 as compared to $1,894,228 for the three months ended December 31, 2013. The decrease in fiscal 2015 expenses resulted primarily from (1) a decrease in salaries and employee benefits of $167,664 relating to a decrease in personnel costs due to the closing of our Brooklyn facility at the end of August 2014; (2) a decrease in non-cash compensation of $420,641 due to a reduction in fair value of employee option grants vesting during three months ended December 31, 2014; (3) a decrease in professional fees of $120,143; and (4) a decrease in sales and marketing expense of $19,579.
Research and Development Expenses
R&D expenses were $36,119 for the three months ended December 31, 2014 as compared to $50,663 for the three months ended December 31, 2013. The expenses for the three months ended December 31, 2014 related to testing to obtain certain ratings for our fire extinguishers and research of potential new product delivery systems for FireIce®.
Loss from Operations
Loss from operations was $1,064,813 for the three months ended December 31, 2014 as compared to $1,914,197 for the three months ended December 31, 2013. The decreased loss resulted from the lower operating expenses and the higher gross profit.
Other Income (Expense)
Other expense for the three months ended December 31, 2014 was $113,419 as compared to other expense of $138,788 for the three months ended December 31, 2013. The lower expense in fiscal 2014 was the result of lower interest expense in fiscal 2014 and the Company incurred losses on the sale of equipment and obsolete inventory in fiscal 2013.
Net Loss
Net loss was $1,178,232 for the three months ended December 31, 2014 as compared to $2,052,985 for the three months ended December 31, 2013. The higher net loss for the three months ended December 31, 2013 resulted from the absence of other income and the higher selling, general and administrative costs as described above. Net loss per common share was $0.03 for the three months ended December 31, 2014 as compared to $0.06 for the three months ended December 31, 2013. The weighted average number of shares outstanding for the three months ended December 31, 2014 and 2013 were 44,885,854 and 35,147,692, respectively.
LIQUIDITY AND CAPITAL RESOURCES
A summary of our cash flows is as follows:
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash used in operating activities | $ | (951,910 | ) |
| $ | (1,199,063 | ) |
| $ | (2,028,664 | ) |
| $ | (2,769,198 | ) |
Net cash used in investing activities |
| (4,874 | ) |
|
| (13,628 | ) |
|
| (9,850 | ) |
|
| (57,093 | ) |
Net cash provided by financing activities |
| 1,055,810 |
|
|
| 1,296,678 |
|
|
| 2,167,863 |
|
|
| 2,877,124 |
|
Net increase in cash and cash equivalents | $ | 99,026 |
|
| $ | 83,987 |
|
| $ | 129,349 |
|
| $ | 50,833 |
|
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Net Cash Used in Operating Activities
For the six months ended December 31, 2014, the Company used net cash of $2,028,664 in operating activities as compared to net cash used in operating activities of $2,769,198 for the three months ended December 31, 2013. Net cash used during the six months ended December 31, 2014 resulted primarily from the net loss of $2,128,325, an increase in inventories of $125,321 and accounts receivable of $33,162, a decrease in accounts payable of $78,355 and the reduction of the accrual for litigation of $448,044, which were partially offset by non-cash stock based compensation of $436,768, non-cash amortization of debt discounts of $111,869, depreciation of $26,546, a decrease in prepaid expenses of $73,667and an increase in accrued expenses of $117,496.
Net cash used during the six months ended December 31, 2013 resulted primarily from the net loss of $3,964,247, an increase in inventories of $274,441, an increase in accounts payable of $30,636 and a decrease in the severance accrual of $84,460, which were partially offset by non-cash stock based compensation of $1,235,650, amortization of convertible note discounts of $118,771, depreciation of $26,112, increases in accrued expenses of $124,642 and a decrease in prepaid expenses of $12,716.
Net Cash Used in Investing Activities
Cash flows used in investing activities for the six months ended December 31, 2014 amounted to $9,850 and related to purchases of office equipment and computer peripherals as compared to cash used of $57,093 during the six months ended December 31, 2013 which related to the purchase of a vehicle and a product label and marketing material printer.
Net Cash Provided By Financing Activities
Cash flows from financing activities for the six months ended December 31, 2014 were $2,167,863 as compared to $2,877,124 for the six months ended December 31, 2013. During the six months ended December 31, 2014, the Company received $25,000 in exchange for 42,017 shares of common stock in connection with a private placement with an accredited investor, received $21,505 in exchange for 110,000 shares of common stock in connection with private placements with two directors and received $2,155,000 in exchange for 5,688,580 shares of common stock and two year warrants to purchase 2,844,291 shares of common stock at an exercise price of $2.00 per share in connection with private placements with four accredited investors, including the issuance of 2,869,195 shares of common stock and warrants to purchase 1,434,598 shares of common stock to our President and principal shareholder in exchange for $1,225,000. The amounts received were used to make payments on insurance premium finance contracts of $33,642 as well as provide us with working capital.
During the six months ended December 31, 2013, the Company received $1,000,000 from its President and principal shareholder in exchange for a note convertible at $1.00 per share and five year warrants to purchase 500,000 shares at an exercise price of $1.30 per share in a private placement, received $18,200 from the exercise of options to purchase 20,000 shares of common stock at an exercise price of $0.91 per share, $775,000 from accredited investors in exchange for 1,092,750 shares of common stock in connection with private placements, $570,000 in exchange for 577,428 shares of common stock in connection with the Lincoln Park and $730,000 in exchange for the issuance of 957,647 shares of common stock and five year warrants to purchase 449,412 shares of common stock at an exercise prices between $1.00 and $1.25 per share in connection with a private placement with an accredited investor and received $25,000 in connection with the exercise of warrants to purchase 20,000 shares of common stock at an exercise price of $1.25 per share. The amounts received were used to make repayments on convertible notes payable to related parties of $85,880, to make payments of $115,822 on convertible notes with third parties and to make payments on insurance premium finance contracts of $39,374.
Historical Financings
Since July 1, 2014, GelTech has raised $2,351,505 from the sale of common stock and warrants in connection with private placements with eight accredited investors including Michael Reger, our President and principal shareholder and two directors. In consideration for their investments, GelTech issued 6,492,771 shares of common stock and two year warrants to purchase 2,844,291 shares of common stock at an exercise price of $2.00 per share.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Liquidity and Capital Resource Considerations
As of February 11, 2015, we had approximately $36,000 in available cash. Sustaining our current operations continues to rely on Mr. Reger’s investments. If Mr. Reger were to cease providing us with working capital or we are unable to generate material revenue or raise capital from other investors, we will have to cease doing business. Although we do not anticipate the need to purchase any additional material capital assets in order to carry out our business, it may be necessary for us to purchase additional mobile mixing trucks and support vehicles in the future, depending on demand. Additionally, although a Final Judgment has been issued in the Hopkins trial, in the event his appeal is successful, we may be subject to paying a substantial award to Mr. Hopkins in addition to legal fees. See Legal Proceedings on page 17.
Ultimately, if the Company is unable to generate substantial cash flows from sales of its products or complete financings, it may not be able to remain operational.
Related Person Transactions
For information on related party transactions and their financial impact, see Note 6 to the Unaudited Condensed Consolidated Financial Statements.
Principal Accounting Estimates
There have been no changes to our critical accounting estimates and policies since the filing of the Company’s Form 10-K for the fiscal year ended June 30, 2014.
RECENT ACCOUNTING PRONOUNCEMENTS
For information on recent accounting pronouncements, see Note 1 to the Unaudited Condensed Consolidated Financial Statements.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements including our liquidity and anticipated capital asset requirements and expected increase in sales of our products. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the failure to receive material orders from the utility, mining companies and state and federal agencies, global and domestic economic conditions, budgetary pressures facing state and local governments, our failure to receive or the potential delay of anticipated orders for our products, failure to receive acceptance of our products and an adverse result in the pending litigation.
Further information on our risk factors is contained in our filings with the SEC, including our Form 10-K for the year ended June 30, 2014. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
ITEM 4.
Evaluation of Disclosure Controls and Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
16
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
PART II – OTHER INFORMATION
ITEM 1.
On October 28, 2014, the Court issued a Final Judgment in the Hopkins case which is described in our Form 10-K for the year ended June 30, 2014. The Court awarded Mr. Hopkins $51,956 for breach of the Consulting Agreement. Mr. Hopkins has filed an appeal and the Company has filed a cross appeal. On January 23, 2015, the Court approved the Company’s motion seeking reimbursement of attorneys’ fees and costs from Mr. Hopkins. An evidentiary hearing will be held to determine the amount of fees and costs to which the Company is entitled and a judgment will be entered for that amount.
ITEM 1A.
Not applicable to smaller reporting companies.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission, we have sold securities without registration under the Securities Act of 1933, or the Securities Act, as described below.
Name or Class of Investor |
| Date of Sale |
| No. of Securities |
| Reason for Issuance |
Investor (1) |
| October 1, 2014 |
| 367,647 shares of common stock and two year warrants to purchase 183,824 shares at $2.00 per share |
| Purchase of shares and warrants at $0.27 per share by one investor. |
Directors (1) |
| December 17, 2014 |
| 110,000 shares of common stock |
| Purchase of shares at $0.20 per share by two directors. |
————————
(1)
Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder. The securities were issued to accredited investors and there was no general solicitation.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4.
Not Applicable
ITEM 5.
None
ITEM 6.
The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.
17
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| GELTECH SOLUTIONS, INC. |
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February 11, 2015 |
| /s/ Peter Cordani |
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| Peter Cordani |
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| Chief Executive Officer (Principal Executive Officer) |
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February 11, 2015 |
| /s/ Michael R. Hull |
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| Michael R. Hull |
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| Chief Financial Officer (Principal Financial Officer) |
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18
INDEX TO EXHIBITS
|
|
|
| Incorporated by Reference |
| Filed or Furnished | ||||
No. |
| Exhibit Description |
| Form |
| Date |
| Number |
| Herewith |
|
|
|
|
|
|
|
|
|
|
|
3.1 |
| Certificate of Incorporation |
| Sb-2 |
| 7/20/07 |
| 3.1 |
|
|
3.2 |
| Certificate of Amendment to the Certificate of Incorporation – Increase of Authorized Capital |
| 10-Q |
| 2/12/14 |
| 3.2 |
|
|
3.3 |
| Amended and Restated Bylaws |
| Sb-2 |
| 7/20/07 |
| 3.2 |
|
|
3.4 |
| Amendment No. 1 to the Amended and Restated Bylaws |
| 10-K |
| 9/28/10 |
| 3.3 |
|
|
3.5 |
| Amendment No. 2 to the Amended and Restated Bylaws |
| 8-K |
| 9/26/11 |
| 3.1 |
|
|
3.6 |
| Amendment No. 3 to the Amended and Restated Bylaws |
| 8-K |
| 9/27/12 |
| 3.1 |
|
|
10.1 |
| Form of Subscription Agreement |
| 10-Q |
| 11/14/13 |
| 3.2 |
|
|
10.2 |
| Form of Warrant |
| 10-Q |
| 11/14/13 |
| 3.3 |
|
|
31.1 |
| Certification of Principal Executive Officer (Section 302) |
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|
|
|
|
| Filed |
31.2 |
| Certification of Principal Financial Officer (Section 302) |
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|
|
|
|
| Filed |
32.1 |
| Certification of Principal Executive Officer and Principal Financial Officer (Section 906) |
|
|
|
|
|
|
| Furnished* |
101 INS |
| XBRL Instance Document |
|
|
|
|
|
|
| Filed |
101 SCH |
| XBRL Taxonomy Extension Schema |
|
|
|
|
|
|
| Filed |
101 CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
|
|
|
| Filed |
101 LAB |
| XBRL Taxonomy Extension Label Linkbase |
|
|
|
|
|
|
| Filed |
101 PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
|
|
|
| Filed |
101 DEF |
| XBRL Taxonomy Extension Definition Linkbase |
|
|
|
|
|
|
| Filed |
———————
*
This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to GelTech Solutions, Inc., 1460 Park Lane South, Suite 1, Jupiter, Florida 33458, Attention: Corporate Secretary.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Peter Cordani, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of GelTech Solutions, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 11, 2015
/s/ Peter Cordani |
Peter Cordani Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Michael Hull, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of GelTech Solutions, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 11, 2015
/s/ Michael Hull |
Michael Hull Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of GelTech Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Peter Cordani, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Peter Cordani Peter Cordani Chief Executive Officer (Principal Executive Officer) |
Dated: February 11, 2015
In connection with the quarterly report of GelTech Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Michael Hull, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael Hull |
Michael Hull Chief Financial Officer (Principal Financial Officer) |
Dated: February 11, 2015