GelTech Solutions (GLTC) 10-Q 2009 Q4 Quarterly report

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, 2009
or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________

Commission file number: 0-52993

———————

GELTECH SOLUTIONS, INC.

 (Exact name of registrant as specified in its charter)

———————

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

(561) 427-6144

(Registrant’s telephone number, including area code)

———————

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 ¨

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 ¨   No ¨

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
(Do not check if smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of outstanding shares of the issuer’s common stock as of February 11, 2009, was 15,557,681.

Table of Contents

	PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements.	1
	Condensed Consolidated Balance Sheets as of December 31, 2009 (Unaudited) and June 30, 2009	1
	Condensed Consolidated Statements of Cash Flows for the three and six months ended December 31, 2009 and 2008 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	19
Item 4.	Controls and Procedures	19
Item 4T.	Controls and Procedures	19
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	21
Item 1A.	Risk Factors.	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	21
Item 3.	Defaults Upon Senior Securities.	21
Item 4.	Submission of Matters to a Vote of Security Holders.	21
Item 5.	Other Information.	21
Item 6.	Exhibits.	22
SIGNATURES		23

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	As of
	December 31,			June 30,
	2009			2009
ASSETS	(Unaudited)
Cash and cash equivalents	$	332,861		$	245,381
Accounts receivable trade, net		224,699			16,167
Inventories		177,917			249,409
Prepaid expenses and other current assets		47,304			11,103
Total current assets		782,781			522,060
Furniture, fixtures and equipment, net		19,650			23,207
Prepaid consulting		297,500			-
Debt issue costs, net		143,750			316,250
Deposits		32,586			30,630
	$	1,276,267		$	892,147
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable	$	62,661		$	51,778
Accrued expenses		96,385			27,753
Customer deposit		-			25,000
Line of credit		2,450,000			1,550,000
Due to related party		-			60,000
Insurance premium finance contract		24,801			7,060
Total current liabilities		2,633,847			1,721,591
Total liabilities		2,633,847			1,721,591
Commitments and contingencies (Note 6)
Stockholder's equity (deficit)
Preferred stock: $0.001 par value; 5,000,000 shares authorized;
no shares issued and outstanding		-			-
Common stock: $0.001 par value; 50,000,000 shares authorized;
14,529,016 and 13,858,986 shares issued and outstanding as of December 31, 2009 and June 30, 2009, respectively.		14,529			13,859
Additional paid in capital		6,290,588			5,262,999
Accumulated deficit		(7,662,697	)		(6,106,302	)
Total stockholders' equity (deficit)		(1,357,580	)		(829,444	)
Total liabilities and stockholders' equity (deficit)	$	1,276,267		$	892,147

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

1

GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2009			2008			2009			2008
Sales	$	237,867		$	(41,279	)	$	525,421		$	29,062
Cost of goods sold		68,924			(11,988	)		160,130			7,951
Gross profit		168,943			(29,291	)		365,291			21,111
Operating expenses:
Selling, general and administrative expenses		948,089			642,670			1,686,747			1,365,173
Research and development		3,071			95,980			6,837			112,797
Total operating expenses		951,160			738,650			1,693,584			1,477,970
Loss from operations		(782,217	)		(767,941	)		(1,328,293	)		(1,456,859	)
Other income (expense)
Interest income		49			1,746			61			14,513
Interest expense		(116,906	)		(7,152	)		(228,163	)		(7,490	)
Total other income (expense)		(116,857	)		(5,406	)		(228,102	)		7,023
Net loss	$	(899,074	)	$	(773,347	)	$	(1,556,395	)	$	(1,449,836	)
Net loss per common share - basic and diluted	$	(0.06	)	$	(0.06	)	$	(0.11	)	$	(0.11	)
Weighted average shares outstanding - basic and diluted		14,028,038			13,471,466			13,943,989			13,467,158

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

2

GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	For the Six Months Ended December 31,
	2009			2008
Cash flows from operating activities
Reconciliation of net loss to net cash used in operating activities:
Net loss	$	(1,556,395	)	$	(1,449,836	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		4,660			10,749
Amortization of debt issuance costs		172,500			-
Amortization of prepaid stock compensation		-			16,042
Amortization of prepaid consulting		42,500			-
Credit issued		-			65,570
Stock option compensation expense		203,259			116,166
Changes in assets and liabilities:
Accounts receivable		(233,532	)		(7,676	)
Inventories		71,492			(83,840	)
Prepaid expenses and other current assets		(3,098	)		7,430
Deposits and other assets		(1,956	)		938
Accounts payable		10,883			(67,532	)
Related party payable		(60,000	)		-
Accrued expenses		68,632			(40,034	)
Net cash used in operating activities		(1,281,055	)		(1,432,023	)
Cash flows from Investing Activities
Sales of short term marketable debt securities		-			750,000
Purchases of equipment		(1,103	)		(4,857	)
Net cash provided by (used in) investing activities		(1,103	)		745,143
Cash flows from Financing Activities
Payments on Insurance Finance Contract		(15,362	)		(10,903	)
Proceeds from sale of stock and warrants		470,000			-
Proceeds from exercise of stock options		15,000			-
Proceeds from revolving line of credit, net		900,000			558,000
Net cash provided by financing activities		1,369,638			547,097
Net increase in cash and cash equivalents		87,480			(139,783	)
Cash and cash equivalents - beginning		245,381			230,058
Cash and cash equivalents - ending	$	332,861		$	90,275
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	24,986		$	7,490
Cash paid for income taxes	$	-		$	-
Supplementary Disclosure of Non-cash Investing and Financing Activities:
Financing of prepaid insurance contracts	$	55,560		$	23,097
Prepaid stock-based consulting	$	340,000		$	38,500

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

3

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

1. Organization and Basis of Presentation

Organization

GelTech Solutions, Inc. (“GelTech” or the “Company”) is a Delaware corporation. GelTech is primarily engaged in business activities that include finalizing the development of products in three distinct markets and beginning the marketing and delivery of products in two of those markets: (i) FireIce®, a patented fire suppression product, which is non-toxic and when combined with water becomes a water-based gel product used to suppress fires involving structures, personal property and forest wildfires; (ii) RootGel, a moisture preservation solution that has many applications useful in the agricultural industry including water and nutrient retention in golf course maintenance, landscaping and forestry and (iii) IceWear™, a line of garments that help cool the core body temperature for individuals who work in extreme conditions (e.g., firefighters, police officers, construction workers, race car drivers). Additionally, GelTech owns a United States patent for a method to modify weather.

Beginning July 2008, the Company was no longer in the development stage as defined by Accounting Standards Codification (ASC)  915-10. “Accounting and Reporting for Development Stage Enterprises." The Company will no longer continue to report as a development stage company, since significant revenues have been generated and the company operations have moved beyond the activities of identifying and developing products to the activities of marketing, selling and distributing products. The corporate office is located in Jupiter, Florida.

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its two wholly owned subsidiaries: Weather Tech Innovations, Inc. and FireIce Gel, Inc. (formerly GelTech Innovations, Inc.). Prior to July 1, 2008, there had been no activity in either subsidiary. Beginning on July 1, 2008, the Company began operating the marketing, sales and distribution of FireIce® through FireIce Gel, 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 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, 2009 filed on September 28, 2009.

Inventories

Inventories as of December 31, 2009 consisted of raw materials and finished goods in the amounts of $96,405 and $81,512, respectively.

Revenues

The Company recognizes sales of its products when they are shipped FOB shipping point in accordance with ASC 605-15 and reduces revenues for any credits issued to customers. During the six months ended December 31, 2009, the Company issued credits to customers in the amount of $851 for products returned by a distributor. As a result, sales for the six months ended December 31, 2009 were reduced by the amount of the returns.

Accounting Standard Codification

In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the SEC, have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. Other than changes to authoritative references, there have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.

4

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

As a result of the Company’s implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to the both the old and new guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.  New references will use the term Accounting Standards Codification (ASC) followed by the relevant ASC section.

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 financial statements are reasonable; however, actual results could differ materially from these estimates. Significant estimates in the fiscal 2010 period include the allowance for doubtful accounts, valuation of inventories, valuation of options and warrants granted for services, valuation of common stock granted for services and the deferred tax assets.

Earnings (Loss) per Share

The Company computes earnings (loss) per share in accordance with SFAS No. 128 (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 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. At December 31, 2009, there were options to purchase 2,674,000 shares of the Company’s common stock and warrants to purchase 1,457,361 shares of the Company’s commons stock which may dilute future earnings per share.

Stock-Based Compensation

On July 19, 2006 (inception), the Company adopted SFAS No. 123 (revised 2004, “123R”) (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.

Stock-based compensation expense recognized under ASC 718-10 for the period July 1, 2009 to December 31, 2009 was $203,259 which consisted of compensation related to employee, director and advisor stock options, and is included in selling, general and administrative expenses on 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, 2009, the total compensation cost for stock options not yet recognized was approximately $531,381. This cost will be amortized on a straight-line basis over the remaining vesting term of the options.

On July 1, 2009, the Company granted options to purchase 100,000 shares of the Company’s common stock to directors of the Company. The options have an exercise price of $1.84 per share, vest over one year and have a ten year term. The options were valued using the Black-Scholes model using a volatility of 166.28% (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 3.03%. The value of the options will be recognized over the vesting term, one year.

5

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

A summary of stock option transactions for all stock options for the six months ended December 31, 2009 and 2008 is as follows:

Employee Options
	Number of Options			Weighted Average  Exercise Price		Weighted  Average Remaining Contractual Life		Aggregate  Intrinsic Value
Balance at June 30, 2008		1,175,000		$	0.82		7.53
Granted		1,540,000		$	1.00		10.0
Exercised		––		$	––		––
Forfeited		––		$	––		––
Expired		––		$	––		––
Outstanding at December 31, 2008		2,715,000		$	0.92		8.71	$	154,050
Exercisable at December 31, 2008		583,253		$	0.87		5.72	$	52,900
Weighted average fair value of options granted during the six months ended December 31, 2008				$	0.42
Balance at June 30, 2009		2,714,000		$	0.92		8.20
Granted		––		$	––		––
Exercised		––		$	––		––
Forfeited		(500,000	)	$	1.00		9.75
Expired		––		$	––
Outstanding at December 31, 2009		2,214,000		$	0.90		7.40	$	2,434,552
Exercisable at December 31, 2009		987,583		$	0.88		5.80	$	1,101,658
Weighted average fair value of options granted during the six months ended December 31, 2009					N/A

6

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

A summary of options issued to non-employees under the 2007 Plan and changes during the six month periods from June 30, 2008 to December 31, 2008 and from June 30, 2009 to December 31, 2009 is as follows:

Options Issued to Directors
	Number of Options		Weighted Average Exercise  Price		Weighted  Average Remaining Contractual Life		Aggregate  Intrinsic Value
Balance at June 30, 2008		110,000	$	0.85		5.89
Granted		95,000	$	0.88		10.00
Exercised		––	$	––		––
Forfeited		––	$	––		––
Expired		––	$	––		––
Outstanding at December 31, 2008		205,000	$	0.86		7.40	$	13,550
Exercisable at December 31, 2008		113,333	$	0.89		7.08	$	5,372
Weighted average fair value of options granted during the six months ended December 31, 2008			$	1.78
Balance at June 30, 2009		205,000	$	0.86		5.89
Granted		100,000	$	1.84		10.00
Exercised		––	$	––		––
Forfeited		––	$	––		––
Expired		––	$	––		––
Outstanding at December 31, 2009		305,000	$	1.18		7.42	$	249,050
Exercisable at December 31, 2009		238,336	$	1.01		6.89	$	236,432
Weighted average fair value of options granted during the six months ended December 31, 2009				N/A

7

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

Non-Employee, Non-Director Options
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Balance at June 30, 2008		170,000		$	1.00		4.53
Granted		––		$	––		––
Exercised		––		$	––		––
Forfeited		––		$	––		––
Expired		––		$	––		––
Outstanding at December 31, 2008		170,000		$	1.00		4.27	$	––
Exercisable at December 31, 2008		70,623		$	1.00		4.27	$	––
Weighted average fair value of options granted during the six months ended December 31, 2008					N/A
Balance at June 30, 2009		170,000		$	1.00		3.53
Granted		––		$	––		––
Exercised		(15,000	)	$	1.00		3.25
Forfeited		––		$	––		––
Expired		––		$	––		––
Outstanding at December 31, 2009		155,000		$	1.00		3.02	$	155,000
Exercisable at December 31,  2009		155,000		$	1.00		3.02	$	155,000
Weighted average fair value of options granted during the six months ended December 31, 2009					N/A

Determining Fair Value Under ASC 718-10

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. 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 using the simplified method.  The risk free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.

The fair value of stock option grants for the period from July 1, 2009 to December 31, 2009 was estimated to have a weighted average fair value of $1.78, using the following assumptions:

Risk free interest rate	3.03	%
Expected term (in years)	6.5
Dividend yield	––
Volatility of common stock	166.28	%
Estimated annual forfeitures	––

8

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

2. Going Concern

These unaudited condensed 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. As of December 31, 2009, the Company had a working capital deficit of $1,851,066 and had an accumulated deficit and stockholders’ deficit of $7,662,697 and $1,357,580, respectively, and incurred losses from operations of $1,328,293 for the six months ended December 31, 2009 and used cash from operations of $1,281,055 during the six months ended December 31, 2009. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. In May 2009, the Company entered into a $2,500,000 revolving line of credit agreement with its largest shareholder. As of December 31, 2009, the Company had drawn $2,450,000 against this line of credit. This shareholder/lender has assured the Company that he will provide any additional support the Company may require. The Company issued 455,000 shares of common stock and 455,000 warrants to purchase common stock in exchange for $470,000 during the six months ended December 31, 2009.  In addition, since January 1, 2010 the Company has received an additional $1,280,000 in cash through the sale of 128 units, each unit consisting of 10,000 shares of common stock and three year warrants to purchase 10,000 shares of common stock.  All of these transactions have been through private placements.  If the Company is unable to generate substantial cash flows from additional sales of its products, or through financings, including but not limited to the line of credit, the Company may not be able to remain operational.

The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. These 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.

3. Line of Credit Agreement

On May 29, 2009, GelTech Solutions, Inc. (the “Company”) entered into a Credit Enhancement and Financing Security Agreement with the Company’s largest shareholder. In connection with this agreement the Company executed a Revolving Promissory Note which permits the Company to borrow up to $2,500,000. Interest, at an annual rate of 5%, is due monthly on the 20th day of each month which commenced on July 20, 2009 and the principal and all accrued interest is due on May 29, 2010. Additionally, the Company may be compelled to pay the outstanding principal balance earlier during which it will not be permitted to borrow any sums for a period of 30 consecutive days.  As of December 31, 2009, the Company has received advances against the note of $2,450,000 of which $1,058,943 was used to repay amounts owed under previous lines of credit.  Interest expense on the note for the six months ended December 31, 2009 was $55,234.

9

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

4. Stockholders’ Equity

The issuances of common stock during the six months ended December 31, 2009 were as follows:

In October 2009, the Company issued 15,000 shares of common stock in exchange for $15,000 in cash upon the exercise of options by a member of the Company’s advisory board.

In November 2009, the Company issued 200,000 shares to an investment banking firm as compensation for a two year consulting agreement with an effective date of October 15, 2009.  The Company recorded the fair value of the shares, $340,000, based upon the quoted trade price of the shares on the date of the agreement, as prepaid consulting fees and will amortize the amount over the term of the agreement, two years.  The Company amortized $42,500 of this amount during the three months ended December 31, 2009.

In November 2009, the Company issued 30,000 shares of common stock and two year warrants to purchase 30,000 shares of common stock at an exercise price of $2.00 per share in exchange for $45,000 in cash in private placements with accredited investors.

In December 2009, the Company issued 425,000 shares of common stock and three year warrants to purchase 425,000 shares of common stock at an exercise price of $1.60 per share in exchange for $425,000 in cash in private placements with accredited investors.

Common Stock Warrants

A summary of outstanding warrants as of December 31, 2009 and 2008 and changes during the six month periods ended December 31, 2009 and 2008 is as follows:

Warrants Issued as Settlements
	Number of Options			Weighted Average Exercise Price		Remaining Contractual Life
Balance at June 30, 2008		504,058		$	1.05		1.92
Granted		––		$	––		––
Exercised		(30,000	)	$	1.00		––
Forfeited		––		$	––		––
Expired		––		$	––		––
Outstanding at December 31, 2008		474,058		$	1.05		1.41
Exercisable at December 31, 2008		474,058		$	1.05		1.41
Weighted average fair value of options granted during the six months ended December 31, 2008					N/A
Balance at June 30, 2009		474,058		$	1.05		0.91
Granted		––		$	––		––
Exercised		––		$	––		––
Forfeited		––		$	––		––
Expired		––		$	––		––
Outstanding at December 31, 2009		474,058		$	1.05		0.41
Exercisable at December31, 2009		474,058		$	1.05		0.41
Weighted average fair value of options granted during the six months ended December 31, 2009					N/A

10

A summary of warrants issued for cash and changes during the periods June 30, 2008 to December 31, 2008 and from June 30, 2009 to December 31, 2009 is as follows:

Warrants issued for cash
	Number of Options		Weighted Average Exercise Price		Remaining Contractual Life
Balance at June 30, 2008		528,303	$	1.14		2.29
Granted		––	$	––		––
Exercised		––	$	––		––
Forfeited		––	$	––		––
Expired		––	$	––		––
Outstanding at December 31, 2008		528,303	$	1.14		1.79
Exercisable at December 31, 2008		528,303	$	1.14		1.79
Weighted average fair value of options granted during the six months ended December 31, 2008				N/A
Balance at June 30, 2009		528,303	$	1.14		1.29
Granted		455,000	$	1.63		2.93
Exercised		––	$	––		––
Forfeited		––	$	––		––
Expired		––	$	––		––
Outstanding at December 31, 2009		983,303	$	1.37		1.77
Exercisable at December 31, 2009		983,303	$	1.37		1.77
Weighted average fair value of options granted during the six months ended December 31, 2009				N/A

In connection with private placement transactions, the Company issued two year warrants to purchase 30,000 shares of the Company’s common stock at an exercise price of $2.00 per share and issued an additional 425,000 three year warrants to purchase shares of the Company’s common at an exercise price of $1.60 per share.

5. Fair Value Measurements

In July 2009, the Company implemented FASB Accounting Standards Codification 850 “Fair Value Measurements and Disclosures” (formerly SFAS 157, “Fair Value Measurements”), relative to its financial assets and liabilities that are recognized or disclosed at fair value in the financial statements at least annually.

Our cash and cash equivalents are recorded at fair value as determined through market, observable and corroborated sources

As of December 31, 2009 the Company’s cash and cash equivalents that are carried at fair value on a recurring basis include the following:

	Fair Value Measurements Using
	Total		Quoted Prices  in Active Markets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Cash	$	332,861	$	332,861	$	––	$	––

11

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

6. Commitments and Contingencies

On September 15, 2006, the Company entered into employment agreements with two of its officers and on December 18, 2006 the Company entered into an employment agreement with a third officer. Each agreement is for a term of three years and requires the payment of $91,000 in annual compensation to each officer. In addition, two of the employment contracts include the issuance of incentive stock options to purchase 175,000 shares of the Company’s common stock to each of the officers. Effective March 17, 2008, the Board authorized an amendment to the employment agreements with the officers. The officers agreed to eliminate their automobile allowances of $875 per month. In exchange, their annual compensation has been increased from $91,000 to $125,000, and each officer was granted 200,000 stock options exercisable at $0.667 per share over a 10-year period, subject to semi-annual vesting if still employed by the Company on each applicable vesting date. The Board also granted an additional 175,000 stock options to the officer that did not receive an initial grant, exercisable at $1.00 per share over a 10-year period, subject to the same vesting described in the prior sentence. The Board also agreed to amend a provision of the officers’ employment agreements which permits them to resign for “Good Reason” and receive severance equal to three years base salary and have all unvested options vest. Under this provision, each officer has 180 days to resign in the event a shareholder acquires beneficial ownership of at least 30% of the Company’s common stock. On January 30, 2008, an investor passed this 30% threshold as described on a Form 8-K filed by the Company on the same day. The amendment gave each officer until December 31, 2008 to make this election. None made such an election. See Note 1 for additional information on the options granted the officers.

As discussed above, in December 2008, the Compensation Committee approved new employment terms for each of the Company’s three executive officers. Each received an annual salary of $125,000 for the balance of fiscal 2009 with increases to $150,000 and $175,000 for fiscal 2010 and 2011, which increases are subject to the discretion of the Compensation Committee. Target bonuses, subject to the discretion of the Compensation Committee, are $112,500 and $131,250 for fiscal 2010 and 2011, respectively based upon meeting job performance, revenue growth, positive cash flow and pre-tax income. No bonus was awarded for fiscal 2009. Additionally, each executive received a grant of 500,000 10-year options exercisable at $0.667 per share. The options vest annually subject to continued employment with the Company and subject to meeting budgeted revenue targets. If the Company fails to meet any revenue targets, the Compensation Committee has discretion to vest or cancel the options. Based upon the failure to meet fiscal 2009 revenue targets, a total of 500,000 options were forfeited.

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 in the Company’s offices. The Company has filed motions to dismiss and continues to contend that the lawsuit is baseless.

In October 2008, the Company entered into a Master Distributing Agreement with a California company (the "Distributor"). Under the agreement, the Company agreed to pay the Distributor up to $450,000 in costs toward the marketing of the Company’s FireIce® Gel product. As of June 30, 2009, the Company had paid $50,000 to the Distributor. In addition, the Company issued a credit in lieu of payment, in the amount of $50,000, against the accounts receivable of the Distributor. As such, the remaining amounts due under the agreement called for the payment of an additional $210,000 in calendar 2009 and $140,000 in calendar 2010. In September 2009, the Company and the Distributor entered into a settlement agreement whereby each party was relieved of any further obligations related to the Master Distributing Agreement.

7. Related Party Transactions

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

· the CEO’s wife is a bookkeeper at $1,000 per week,

· The CEO and CTO’s father is a researcher at $1,000 per week, and

· The CEO and CTO’s mother as a receptionist at $600 per week.

12

GelTech Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2009

(Unaudited)

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

In February 2008, the Board of Directors approved a Referral Agreement with one of its non-employee directors, whereby the director would receive a referral fee of 2% for business referred to the Company by the director.

The Company approved employment terms with its executive officers which are described under Note 6.

The Company has a Line of Credit with its largest shareholder as described in Note 3.

8. 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, 2009.  As of December 31, 2009, there were $159,465 of  cash equivalent balances held in depository accounts that are not insured.

At December 31, 2009, approximately 92% of accounts receivable was from one customer.

For the six months ended December 31, 2009 three customers accounted for approximately 79.2%, 6.8% and 6.5% of sales.

During the six months ended December 31, 2009 all sales resulted from two products, FireIce® and RootGel which made up 85% and 15%, respectively, of total sales.

During the six months ended December 31, 2009, the Company purchased approximately $53,000 of raw material from one vendor which amounted to 54% of the purchases for the period.

9. Subsequent Events

Since January 1, 2010, the Company has received $1,280,000 in cash through the sale of  128 units, each unit consisting of 10,000 shares of common stock and three year warrants to purchase 10,000 shares of the Company’s common stock in private transactions with accredited investors in exchange for  $10,000 per unit.

Effective January 1, 2010, the Company issued five year options to purchase 100,000 shares of the Company’s common stock for $1.60 per share to a consultant.  The options vested immediately.  The fair market value of the options, $85,872, was calculated using the Black-Scholes method using an expected term of five years, a volatility of 139.11% and a risk free rate of 2.69%, and using a stock price of $1.00, equal to the private placement pricing.

The Company issued 45,282 and 23,929 shares of the Company’s common stock to the Company’s Chairman and a Director, respectively.  These shares were issued to reimburse the Chairman and Director for the amount of their personal shares that were transferred to former Dyn-O-Mat shareholders who were not eligible to participate in prior exchange offers, and will be valued at $1.00 per share based upon the private placement pricing.

The Company extended the term of 474,058 warrants to purchase shares of the Company’s common stock, held by a Director.  The term was extended three years and the exercise price was adjusted from $1.05 per share to $1.50 per share.   The fair market value of the warrants, $215,629, was calculated using the Black-Scholes method using an expected term of 1.21 years, a volatility of 136.57% and a risk free rate of 0.3%, and using a stock price of $1.00, equal to the private placement pricing.

Management evaluated all activity of the Company through February 16, 2010 (the issue date of the Company’s condensed unaudited consolidated financial statements) and concluded that no subsequent events have occurred that would require recognition in the unaudited condensed consolidated financial statements.

13

ITEM 2. MANAGEMENT'S DISCCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in “Management’s Discussion and Analysis and 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

In 2007, we initiated marketing and sales of RootGel, a product which reduces the use of water and is primarily marketed to golf courses and the agriculture market. In 2008, we initiated marketing FireIce®, a water soluble fire retardant which protects firefighters and is useful in containing fires including wildfires. In March 2009, the Company entered into a distribution agreement for SkinArmor, an innovative new fire retardant skin ointment being developed that can be used to assist in protecting exposed skin from the effects of fire. In addition, in 2010 the Company expects to complete the development of IceWear™, a cooling vest which can be worn by firefighters, racecar drivers and others who work in extreme heat. Our financial statements have been prepared on a going concern basis, and we need to generate sufficient sales to support the ongoing business of the Company.

We were incorporated in July 2006 as a Florida corporation and reincorporated in Delaware in November 2006. Our products were initially developed by Dyn-O-Mat, Inc., a predecessor entity.  Our Chief Technology Officer, Mr. Peter Cordani, invented FireIce® and IceWear™ while at Dyn-O-Mat and developed an earlier version of RootGel at Dyn-O-Mat as well. Mr. Cordani developed the current version of RootGel on behalf of GelTech. WeatherTech, our hurricane suppression product was also developed by Mr. Cordani while at Dyn-O-Mat.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2008.

Sales

For the three months ended December 31, 2009, we had sales of $237,867 as compared to negative sales of $41,279 for the three months ended December 31, 2008, an increase of $279,146. The increase in sales resulted from one major sale of FireIce® amounting to $207,500 during the three months ended December 31, 2009.  Sales of product during the quarter consisted of $16,586 for RootGel and $221,281 for FireIce®. The negative sales in 2008 resulted from a credit issued to a customer in the amount of $62,700 relating to a FireIce® sale.

Cost of Goods Sold

Cost of goods sold was $68,924 for the three months ended December 31, 2009 as compared to a negative cost of goods sold of $11,988 for the three months ended December 31, 2008. The increase was the direct result of the increased sales.

Selling, General and Administrative Expenses

S,G&A expenses were $948,089 for the three months ended December 31, 2009 as compared to $642,670 for the three months ended December 31, 2008. The increase in 2009 expenses resulted from  increases in sales commissions of $68,000, option expense of $119,000, salary and employee benefits of $22,000, investor relations costs of $80,000 and professional fees of  $22,000.

Research and Development Expenses

R&D expenses were $3,071 for the three months ended December 31, 2009 as compared to $95,980 for the three months ended December 31, 2008. The decrease in fiscal 2010 expenses of $92,909 reflects the winding down of R&D costs for FireIce® and RootGel.

14

Loss from Operations

Loss from operations was $782,217 for the three months ended December 31, 2009 as compared to $767,941 for the three months ended December 31, 2008. The increase resulted from the higher operating expenses which were partially offset by an increase in gross profit of $198,234.

Interest Income

Interest income was $49 for the three months ended December 31, 2009 as compared to $1,746 for the three months ended December 31, 2009 primarily due to lower cash balances in the current year.

Interest Expense

Interest expense was $116,906 for the three months ended December 31, 2009 as compared to $7,152 for the three months ended December 31, 2008. The increase resulted from the higher balances on our Lines of Credit during the three months ended December 31, 2009. Interest expense for the three months ended December 31, 2009 also included $86,250 related to the amortization of debt issue costs.

Net Loss

Net loss was $899,074 for the three months ended December 31, 2009 as compared to $773,347 for the three months ended December 31, 2008. The higher net loss resulted from the higher operating expenses and interest expense, partially offset by higher gross profit. Net loss per common share was $0.06 for the three months ended December 31, 2009 as compared to $0.06 for the three months ended December 31, 2008. The weighted average number of shares outstanding for the three months ended  December 31, 2009 and 2008 were 14,028,038 and 13,471,466, respectively.

FOR THE SIX MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 2008.

Sales

For the six months ended December 31, 2009, we had sales of $525,421 as compared to sales of $29,062 for the six months ended December 31, 2008, an increase of $496,359. The increase in sales resulted from two major sales of FireIce® amounting to $416,000 during the six months ended December 31, 2009. Sales of product during the six months ended December 31, 2009  consisted of $77,436 for RootGel and $447,985 for FireIce®. The sales in 2008 are from the sale of  both RootGel and FireIce®.

Cost of Goods Sold

Cost of goods sold was $160,130 for the six months ended December 31, 2009 as compared to $7,951 for the six months ended December 31, 2008. The increase was the direct result of the increased sales.

Selling, General and Administrative Expenses

SG&A expenses were $1,686,747 for the six months ended December 31, 2009 as compared to $1,365,173 for the six months ended December 31, 2008. The increase in expenses for the six months ended December 31, 2009 resulted from  increases in sales commissions paid of $136,000, salary and employee benefits of $49,000,  investor relations costs of $97,000 and option expense of $87,000, which were partially offset by lower expense related to legal and professional fees of $29,000 and a reduction in marketing expenses of $18,000.

Research and Development Expenses

R&D expenses were $6,837 for the six months ended December 31, 2009 as compared to $112,797 for the six months ended December 31, 2008. The decrease in fiscal 2010 expenses of $105,960 reflects that the winding down of R&D costs for FireIce® and RootGel.

15

Loss from Operations

Loss from operations was $1,328,293 for the six months ended December 31, 2009 as compared to $1,456,859 for the six months ended December 31, 2008. The decrease in the loss from operations resulted from  an increase of $344,180 in gross profit related to the higher revenues which was partially offset by the increase in operating expenses.

Interest Income

Interest income was $61 for the six months ended December 31, 2009 as compared to $14,513 for the six months ended December 31, 2008.

Interest Expense

Interest expense was $228,163 for the six months ended December 31, 2009 as compared to $7,490 for the six months ended December 31, 2008. The increase resulted from the higher balances on our line of credit during the six months ended December 31, 2009. In addition, interest expense for the six months ended December 31, 2009 included $172,500 related to the amortization of debt issue costs.

Net Loss

Net loss was $1,556,395 for the six months ended December 31, 2009 as compared to $1,449,836 for the six months ended December 31, 2008. The higher net loss resulted from the increase in operating and interest expense during the six months ended December 31, 2009. These factors were partially offset by the increase in gross profit.  Net loss per common share was $0.11 for the six months ended December 31, 2009 as compared to $0.11 for the six months ended December 31, 2008. The weighted average number of shares outstanding for the six months ended as of December 31, 2009 and 2008 were 13,943,989 and 13,4672,158, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows used by operating activities for the three month period ended December 31, 2009 were $1,281,055 in which our net loss of $1,556,395 was negatively impacted by an increase in accounts receivable of $233,532 which was primarily offset by non-cash stock option compensation expense of $203,259, an increase in accounts payable of $10,883, an increase in accrued liabilities of $68,632 and a reduction of inventory of $71,492. For the three month period ended December 31, 2008, net cash used in operating activities was $1,432,023, comprised of the net loss for the period totaling $1,449,836 which was negatively impacted by an increase in inventories of $83,840, a decrease in account payable of $67,532, an increase in accrued liabilities of $40,034, which was offset by stock option expense of $116,166 and credits to customers of $65,570.

Cash flows used by investing activities for the six months ended December 31, 2009 were $1,103 which related to purchase of equipment. For the six month period ended December 31, 2008, net cash provided by investing was $745,143 which related to the sale of marketable debt securities of $750,000 which were partially offset by the acquisition of equipment costing $4,857.

Cash flows provided by financing activities for the three months ended December 31, 2009 were $1,369,638, resulting from advances against the Company’s line of credit agreement of $900,000, proceeds from the sale of common stock and warrants of $470,000 and cash received from the exercise of options to purchase common stock of $15,000.  These were partially offset by repayment of insurance premium finance contracts in the amount of $15,362. Cash flows provided by financing activities for the three months ended December 31, 2008 were $547,097 which consisted proceeds from advances against the Company’s line of credit agreement of $558,000 which were partially offset by repayment of insurance premium finance contracts.

As of December 31, 2009, we had a working capital deficit of approximately $1.9 million.  As of the date of this report, we have $1.2 million in available cash and marketable debt securities. We do not anticipate the need to purchase any material capital assets in order to carry out our business.

In May 2009, we entered into a one-year $2,500,000 revolving line of credit agreement with our largest shareholder. This line of credit has been used to repay prior debt to the shareholder, pay for working capital and provide the Company in financing the purchase of inventory for substantiated transactions. As of the date of this report, GelTech has borrowed $2,450,000 under the line of credit. The revolving line of credit note requires the Company to pay the outstanding principal balance prior to its due date during which it will not be permitted to borrow any sums for a period of 30 consecutive days.

16

Since January 1, 2010, GelTech has sold 128 units each consisting of 10,000 shares of common stock and three year warrants to purchase 10,000 shares of the Company’s common stock at an exercise price of $1.60 per share in exchange for $1,280,000 in cash.  We currently have approximately six months of working capital remaining and our line of credit is due in May 2010.  The Company is currently in negotiations with the holder of the line of credit to extend the payment term.  There is no guarantee that such extension will be granted.  If the extension is not granted, the Company will need to arrange financing to repay the line of credit.  There is no guarantee that such financing will be available to the Company. If the Company is unable to generate substantial cash flows from sales of our products, or through financings, the Company may not be able to remain operational.

Related Person Transactions

For information on related party transactions and their financial impact, see Note 7 to the Condensed Consolidated Financial Statements (Unaudited).

Principal Accounting Estimates

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

Revenue Recognition

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

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

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

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

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

Stock-Based Compensation

Under ASC 718-10 which was effective as of January 1, 2006, we recognize an expense for the fair value of our outstanding stock options as they vest, whether held by employees or others.

We estimate the fair value of each stock option and warrant at the grant date using the Black-Scholes option pricing model based upon certain assumptions which are contained in Note 1 to the unaudited condensed consolidated financial statements contained in this report. 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.

RECENT ACCOUNTING PRONOUNCEMENTS

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-01)

In June 2009, the Financial Accounting Standards Board (FASB) approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the six months ended December 31, 2009.

17

As a result of the Company’s implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

Subsequent Events

(Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)

SFAS No. 165 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.

Determination of the Useful Life of Intangible Assets

(Included in ASC 350 “Intangibles — Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)

FSP SFAS No. 142-3 amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS No. 142-3 became effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS No. 142-3 did not impact the Company’s financial statements.

Noncontrolling Interests

(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)

SFAS No. 160 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented SFAS No. 160 at the start of fiscal 2010. The adoption of ASC 810 did not have a material impact on the unaudited condensed consolidated financial statements of the Company.

18

Consolidation of Variable Interest Entities — Amended

(To be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

SFAS No. 167 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company will adopt SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on the Company’s financial statements.

Forward Looking Statements

Certain statements in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including the expected completion and development of IceWear in 2010, our liquidity, anticipated purchases of any material capital assets and the anticipated impact of recent accounting pronouncements.  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 global and domestic economic conditions, budgetary pressures facing state and local governments, failure to extend the due date of our line of credit and our failure to receive or the potential delay of anticipated orders for our products.

Further information on our risk factors is contained in our filings with the SEC, including the Form 10-K for the fiscal year ended June 30, 2009.  Any forward-looking statement made by the Company in this report speaks only as of the date on which this report is filed with the SEC.  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.

.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies

ITEM 4. CONTROLS AND PROCEDURES

Not applicable to smaller reporting companies

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls

We carried out an evaluation required by Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

19

Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in an issuer's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The evaluation of our disclosure controls and procedures included a review of our objectives and processes and effect on the information generated for use in this report. This type of evaluation is done quarterly so that the conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. We intend to maintain these controls as processes that may be appropriately modified as circumstances warrant.

Based on their evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information which is required to be included in our periodic reports filed with the SEC as of the filing of this report.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting 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.

20

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There were no material developments to any legal proceedings.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In addition to those unregistered securities previously disclosed in reports filed with the SEC, we have sold securities without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(2) and Rule 506 thereunder as described below.

Name of Class	Date Sold	No. of Securities	Reason for Issuance
Option Holder	October 9, 2009	15,000 shares of common stock	Exercise of stock option
Consultant	December 22, 2009	200,000 shares of common stock	Consulting services
Consultant	December 22, 2009	100,000 5 year stock options exercisable at $ 1.60 per share	Consulting services

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

ITEM 5. OTHER INFORMATION.

None

21

ITEM 6. EXHIBITS. 

No.	Description	Incorporated By Reference	Exhibit #
3.1	Certificate of Incorporation	Form SB-2 filed on July 20, 2007	3.1
3.2	Amended and Restated Bylaws	Form SB-2 filed on July 20, 2007	3.2
10.1	Credit Enhancement and Financing Security Agreement	Form 10-K filed on September 28, 2009	10.1
10.2	Revolving Line of Credit Agreement *	Form 10-K filed on September 28, 2009	10.2
31.1	Certification of Chief Executive Officer (Section 302)	Filed with this report
31.2	Certification of Chief Financial Officer (Section 302)	Filed with this report
32.1	Certification of Chief Executive Officer and Chief Financial Officer (Section 906)	Furnished with this report

———————

*The confidential disclosure schedules are not filed in accordance with SEC Staff policy, but will be provided to the Staff upon request.  Certain material agreements contain representations and warranties, which are qualified by the following factors:

(i) the representations and warranties contained in any agreements filed with this report were made for the purposes of allocating contractual risk between the parties and not as a means of establishing facts;

(ii) the agreement may have different standards of materiality than standards of materiality under applicable securities laws;

(iii) the representations are qualified by a confidential disclosure schedule that contains nonpublic information that is not material under applicable securities laws;

(iv) facts may have changed since the date of the agreements; and

(v) only parties to the agreements and specified third-party beneficiaries have a right to enforce the agreements.

Notwithstanding the above, any information contained in a schedule that would cause a reasonable investor (or that a reasonable investor would consider important in making a decision) to buy or sell our common stock has been included. We have been further advised by our counsel that in all instances the standard of materiality under the federal securities laws will determine whether or not information has been omitted; in other words, any information that is not material under the federal securities laws may be omitted. Furthermore, information which may have a different standard of materiality will nonetheless be disclosed if material under the federal securities laws.

22

SIGNATURES

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

	GELTECH SOLUTIONS, INC.
February 16, 2010	/s/ Michael Cordani
	Michael Cordani
	Chief Executive Officer (Principal Executive Officer)
February 16, 2010	/s/ Michael Hull
	Michael Hull
	Chief Financial Officer (Principal Financial Officer)

23