UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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 number0-52993
GelTech Solutions, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 56-2600575 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
| | |
1460 Park Lane South, Suite 1, Jupiter, Florida | | 33458 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (561) 427-6144
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| |
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company þ |
(Do not check if a smaller reporting company) | Emerging growth company ¨ |
If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
| | |
Class | | Outstanding at May 8, 2018 |
Common Stock, $0.001 par value per share | | 85,238,790 shares |
Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS.
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | As of March 31, | | | As of December 31, | |
| | 2018 | | | 2017 | |
| | (Unaudited) | | | | |
ASSETS | | | | | | |
| | | | | | |
Cash | | $ | 149,292 | | | $ | 43,488 | |
Accounts receivable trade, net | | | 184,360 | | | | 77,700 | |
Inventories | | | 959,388 | | | | 1,434,411 | |
Prepaid expenses and other current assets | | | 114,434 | | | | 133,361 | |
Total current assets | | | 1,407,474 | | | | 1,689,360 | |
| | | | | | | | |
Furniture, fixtures and equipment, net | | | 165,855 | | | | 185,433 | |
Operating lease right of use assets | | | 48.217 | | | | — | |
Inventory not expected to be realized within one year | | | 960,960 | | | | 479,486 | |
Deposits | | | 18,336 | | | | 16,086 | |
| | | | | | | | |
Total assets | | $ | 2,600,842 | | | $ | 2,370,365 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | |
Accounts payable | | $ | 191,607 | | | $ | 133,303 | |
Accrued expenses | | | 754,031 | | | | 634,791 | |
Customer deposit | | | 14,970 | | | | — | |
Operating lease liability – current portion | | | 24,216 | | | | — | |
Insurance premium finance contract | | | 34,181 | | | | 63,364 | |
Total current liabilities | | | 1,019,005 | | | | 831,458 | |
Operating lease liability | | | 23,846 | | | | — | |
Convertible notes - related party, net of discounts | | | 971,717 | | | | 969,186 | |
Convertible line of credit – related party, net of discounts | | | 5,375,046 | | | | 5,328,530 | |
Total liabilities | | | 7,389,614 | | | | 7,129,174 | |
| | | | | | | | |
Commitments and contingencies (Note 6) | | | | | | | | |
| | | | | | | | |
Stockholders’ deficit | | | | | | | | |
Preferred stock: $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding | | | — | | | | — | |
Common stock: $0.001 par value; 150,000,000 shares authorized; 80,994,920 and 74,914,703 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively. | | | 80,995 | | | | 74,915 | |
Additional paid in capital | | | 48,266,467 | | | | 47,285,967 | |
Accumulated deficit | | | (53,136,234 | ) | | | (52,119,691 | ) |
Total stockholders' deficit | | | (4,788,772 | ) | | | (4,758,809 | ) |
| | | | | | | | |
Total liabilities and stockholders' deficit | | $ | 2,600,842 | | | $ | 2,370,365 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
1
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | |
| | For the Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
| | | | | | |
Sales | | $ | 262,879 | | | $ | 389,036 | |
Cost of goods sold | | | 81,198 | | | | 131,230 | |
| | | | | | | | |
Gross profit | | | 181,681 | | | | 257,806 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Selling, general and administrative expenses | | | 1,004,891 | | | | 1,006,634 | |
Research and development | | | 15,826 | | | | 12,591 | |
Total operating expenses | | | 1,020,717 | | | | 1,019,225 | |
| | | | | | | | |
Loss from operations | | | (839,036 | ) | | | (761,419 | ) |
| | | | | | | | |
Other income (expense) | | | | | | | | |
Interest income | | | — | | | | 5 | |
Interest expense | | | (177,507 | ) | | | (212,532 | ) |
Total other income (expense) | | | (177,507 | ) | | | (212,527 | ) |
| | | | | | | | |
Net loss | | $ | (1,016,543 | ) | | $ | (973,946 | ) |
| | | | | | | | |
Net loss per common share - basic and diluted | | $ | (0.01 | ) | | $ | (0.02 | ) |
| | | | | | | | |
Weighted average shares outstanding - basic and diluted | | | 78,179,403 | | | | 54,701,836 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
2
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | |
| | For the Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
Cash Flows from Operating Activities | | | | | | |
Reconciliation of net loss to net cash used in operating activities: | | | | | | |
Net loss | | $ | (1,016,543 | ) | | $ | (973,946 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation | | | 25,316 | | | | 22,189 | |
Amortization of debt discounts | | | 49,047 | | | | 48,574 | |
Stock issued for services | | | 2,900 | | | | — | |
Warrants issued for services | | | 15,572 | | | | 30,703 | |
Employee stock option compensation expense | | | 48,108 | | | | 64,208 | |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable | | | (106,660 | ) | | | (100,276 | ) |
Inventories | | | (6,451 | ) | | | (99,863 | ) |
Prepaid expenses and other current assets | | | 16,677 | | | | 13,237 | |
Accounts payable | | | 38,304 | | | | 48,622 | |
Accrued expenses | | | 139,240 | | | | 152,764 | |
Settlement accrual | | | — | | | | (26,789 | ) |
Operating lease liability | | | (2,251 | ) | | | — | |
Customer deposits | | | 14,970 | | | | — | |
Deferred revenue | | | — | | | | (4,000 | ) |
Net cash used in operating activities | | | (781,771 | ) | | | (824,577 | ) |
| | | | | | | | |
Cash flows from Investing Activities | | | | | | | | |
Purchases of equipment | | | (3,642 | ) | | | (1,257 | ) |
Net cash used in investing activities | | | (3,642 | ) | | | (1,257 | ) |
| | | | | | | | |
Cash flows from Financing Activities | | | | | | | | |
Proceeds from sale of stock under stock purchase agreement | | | — | | | | 123,620 | |
Proceeds from sale of stock and warrants | | | 900,000 | | | | 500,000 | |
Proceeds from sale of stock | | | 20,000 | | | | — | |
Proceeds from advances on convertible line of credit with related parties | | | — | | | | 200,000 | |
Payments on insurance finance contract | | | (29,183 | ) | | | (24,323 | ) |
Net cash provided by financing activities | | | 890,817 | | | | 799,297 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 105,404 | | | | (26,537 | ) |
Cash and cash equivalents - beginning | | | 43,888 | | | | 151,184 | |
Cash and cash equivalents - ending | | $ | 146,292 | | | $ | 124,647 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Continued
3
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
| | | | | | | | |
| | For the Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
Supplemental Disclosure of Cash Flow Information: | | | | | | | | |
Cash paid for interest | | $ | 949 | | | $ | 773 | |
Cash paid for income taxes | | $ | — | | | $ | — | |
| | | | | | | | |
Supplementary Disclosure of Non-cash Investing and Financing Activities: | | | | | | | | |
Beneficial conversion feature of convertible notes | | $ | — | | | $ | 9,661 | |
Loan discount from warrants | | $ | — | | | $ | 9,661 | |
Operating lease right of use assets and lease obligation | | $ | 50,313 | | | $ | — | |
Options issued for services | | $ | 15,572 | | | $ | 30,703 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
4
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
NOTE 1– Organization and Basis of Presentation
Organization
GelTech Solutions, Inc., or GelTech or the Company, generates revenue primarily from marketing products based around the following four product categories (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in urban firefighting, including fires in underground utility structures, and in wildland firefighting and as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) FireIce Shield®, a line of products used in industry by manufacturers, plumbers, and welders, and by police departments and first responders to protect assets from fire; (3) Soil₂O® “Dust Control”, our application which is used for dust mitigation in the aggregate, road construction and mining Soil₂O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion, and (4) Soil₂O®, a product which reduces the use of water and is primarily marketed to golf courses and commercial landscapers and most recently to homeowners via the Soil₂O® Home Lawn Kit.
The Company also markets equipment that is used to apply these primary products including (1) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire or explosion, (2) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires and (3) the FireIce Shield CTP System, a mobile spray unit that can be used to protect communication tower electronics during hot work.
Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, and we need to generate sufficient material revenues to support the ongoing business of GelTech.
The corporate office is located in Jupiter, Florida and we also have an office in Niwot, Colorado to support our Wildland operations.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries: FireIce Gel, Inc., GelTech International, Inc. and Weather Tech Innovations, Inc. There has been no activity in FireIce Gel, Inc., Weather Tech Innovations, Inc. and GelTech International, Inc.
These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (”SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by "GAAP" for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The information included in these unaudited consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained in this report and the audited consolidated financial statements and accompanying notes included in the Company’s Report on Form 10-K for the year ended December 31, 2017 filed on March 26, 2018.
Inventories
Inventories as of March 31, 2018 consisted of raw materials and finished goods in the amounts of $1,026,756 and $893,592, respectively. As of March 31, 2017, the Company estimated that raw materials in the amount $960,960 would most likely not be consumed in the next twelve months and therefore reclassified that amount to long term inventory in the unaudited consolidated balance sheet. As of March 31, 2018, the Company had approximately $5,490 of consignment inventory consisting of FireIce 561 and FireIce HVOF held by a customer.
5
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(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 months ended March 31, 2018 include the allowance for doubtful accounts, depreciation and amortization, valuation and classification of inventories, valuation of options and warrants granted for services, valuation of common stock granted for services or debt conversion and the valuation of deferred tax assets.
Revenue Recognition
On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Our payment terms are net 30 days for domestic sales with payments for international sales being due upon delivery of products to the customer’s freight forwarder. We do not incur incremental costs obtaining purchase orders from our customers, however, if we did, because all of our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASU, resulted in no change to our results of operations or our balance sheet.
Leases
In connection with entering into a new lease agreement for our Wildland operations in Colorado, the Company elected to early adopt the provisions of ASU 2016-02, Leases. As such, the Company has recorded an operating lease right of use asset and an operating lease liability as of March 31, 2018.
Net Earnings (Loss) per Share
The Company computes net earnings (loss) per share in accordance with ASC 260-10, “Earnings per Share.” ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The Company’s diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At March 31, 2018, there were options to purchase 13,247,333 shares of the Company’s common stock, warrants to purchase 16,476,605 shares of the Company’s common stock and 18,514,067 shares of the Company’s common stock are reserved for convertible notes which may dilute future earnings per share.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.
The Company accounts for non-employee stock-based compensation in accordance with ASC 505-50-25, “Equity Based Payments to Non-Employees,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to non-employees based on estimated fair values.
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.
6
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
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 options and warrants granted during the period from January 1, 2018 to March 31, 2018 were estimated using the following assumptions:
| | |
Risk free interest rate | | 2.49% - 2.70% |
Expected term (in years) | | 5.0 - 10.0 |
Dividend yield | | –– |
Volatility of common stock | | 65.97% |
Estimated annual forfeitures | | –– |
New Accounting Pronouncements
No Accounting Standards Updates (ASUs) which were not effective until after March 31, 2018 are expected to have a significant effect on the Company's consolidated financial position or results of operations.
NOTE 2 – Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize it assets and discharge its liabilities in the normal course of business. As of March 31, 2018, the Company had an accumulated deficit and stockholders’ deficit of $53,136,234 and $4,788,772, respectively, and incurred losses from operations and net losses of $839,036 and $1,016,543, respectively, for the three months ended March 31, 2018 and used cash in operations of $781,771 during the three months ended March 31, 2018. In addition, the Company has not yet generated revenue sufficient to support ongoing operations. Management believes these factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
During the three months ended March 31, 2018, the Company received $920,000 from private placements with four accredited investors, including $450,000 from its chairman and principal shareholder and $450,000 in connection with a Stock Purchase Agreement with an accredited investor.
Management believes that the Stock Purchase Agreement, additional funding from its chairman and principal shareholder and the revenue prospects from the Wildland industry provide the opportunity for the Company to continue as a going concern. Ultimately, the continuation of the Company as a going concern is dependent upon the ability of the Company to generate sufficient revenue to attain profitable operations.
NOTE 3 – Convertible Note Agreements – Related Party
The Company currently has two debt facilities outstanding, both of them held by its chairman and principal shareholder.
One convertible note in the amount of $1,000,000 dated July 11, 2013 related to a new funding on that date. The note bore annual interest of 7.5%, was convertible at $1.00 per share and was due July 10, 2018. In connection with the note, the Company issued five–year warrants to purchase 500,000 shares of common stock at an exercise price of $1.30 per share. On February 12, 2015, this note was modified by securing the note with all the assets of the Company, by extending the due date of the note from July 10, 2018 to December 31, 2020 and by reducing the conversion rate of the note from $1.00 to $0.35 per share. The modification was accounted for as a debt extinguishment in accordance with ASC 470. In connection with the modification, the Company recorded a note discount of $60,390, related to the relative fair value of the warrants attached to the note. For the three months ended March 31, 2018, the Company recorded interest expense of $2,531 related to the amortization of the note discounts related to the warrants. As of March 31, 2018, the balance of the unamortized discount related to the warrants was $28,283. As of March 31, 2018, the principal balance on this note is $1,000,000 and accrued interest amounted to $128,616.
7
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
In connection with the February 2015 debt modifications described above, the Company entered into a Secured Revolving Convertible Line of Credit Agreement for up to $4 million with its chairman and principal shareholder. On April 8, 2016, the Company and its chairman and principal shareholder entered into the First Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $4 million to $5 million. On September 27, 2016, the Company and its chairman and principal shareholder entered into the Second Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $5 million to $6 million. Under the agreements, the Company may, with the prior approval of its chairman and principal shareholder, receive advances under the secured convertible line of credit. Each advance bears an annual interest rate of 7.5%, is due December 31, 2020 and is convertible at the rate equal to the closing price of the Company’s common stock on the day prior to the date the parties agree to the advance. In addition, the Company will issue the Company’s chairman and principal shareholder two-year warrants to purchase shares of common stock at an exercise price of $2.00 per share. The number of warrants issued equals 50% of the number of shares issuable upon the conversion of the related advance.
During the three months ended March 31, 2018, the Company has recognized interest expense of $46,516 related to the amortization of loan discounts. As of March 31, 2018, the principal balance of the advances was $5,895,000 and the balance of the unamortized discounts related to the warrants and the beneficial conversion feature was $259,977 and $259,977, respectively. Accrued interest on the advances amounted to $497,845 as of March 31, 2018.
In addition, at March 31, 2018, there remained accrued interest of $93,170 due related to a prior secured convertible note in the amount of $1,997,483 which was converted in September 2017.
A summary of notes payable and related discounts as of March 31, 2018 is as follows:
| | | | | | | | | | | | |
| | Principal | | | Unamortized Discount | | | Debt, Net of Discount | |
| | | | | | | | | |
Related parties | | | | | | | | | |
Secured Convertible notes payable | | $ | 1,000,000 | | | $ | (28,283 | ) | | $ | 971,717 | |
Secured Convertible Line of Credit | | | 5,895,000 | | | | (519,954 | ) | | | 5,375,046 | |
Less current portion | | | — | | | | — | | | | — | |
Secured convertible notes payable and line of credit, net of current portion | | $ | 6,895,000 | | | $ | (548,237 | ) | | $ | 6,346,763 | |
NOTE 4 – Stockholders’ Deficit
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, par value $0.001 per share with such rights, preferences and limitation as may be set from time to time by resolution of the board of directors and the filing of a certificate of designation as required by Delaware General Corporation Law.
Common Stock
On August 12, 2015, GelTech signed a $10 million Purchase Agreement with Lincoln Park. The Company also entered into a Registration Rights Agreement with Lincoln Park whereby we agreed to file a registration statement related to the transaction with the SEC covering the shares that may be issued to Lincoln Park under the Purchase Agreement.
Under the terms and subject to the conditions of the Purchase Agreement, GelTech has the right to sell, and Lincoln Park is obligated to purchase, up to $10 million in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 30-month period commencing on October 16, 2015.
During the three months ended March 31, 2018, the Company did not sell shares to Lincoln Park. Beginning May 1, 2018, we will no longer able to sell shares to Lincoln Park under the Purchase Agreement.
8
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
During the three months ended March 31, 2018, the Company issued 5,938,450 shares of common stock and two-year warrants to purchase 2,969,226 shares of common stock for $2.00 per share to two accredited investors in exchange for $900,000, including the issuance of 2,785,714 shares of common stock and 1,392,857 warrants to the Company’s chairman and principal shareholder in exchange for $450,000.
During the three months ended March 31, 2018, the Company issued 125,000 shares of common stock to two accredited investors in exchange for $20,000.
During the three months ended March 31, 2018, the Company issued 16,767 shares of common stock to consultants in exchange for consulting services rendered valued at $2,900, based upon the market price of our common shares on the grant date.
Stock-Based Compensation
Stock-based compensation expense recognized under ASC 718-10 for the period January 1, 2018 to March 31, 2018, was $47,697 for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At March 31, 2018, the total compensation cost for stock options not yet recognized was approximately $70,945. This cost will be recognized over the remaining vesting term of the options of approximately two years.
Stock-based awards granted to non-employees, in the form of warrants to purchase the Company’s common stock, are valued at fair value in accordance with the measurement and recognition criteria of ASC 505-50 "Equity Based payments to Non-Employees.” Stock based compensation to non-employees recognized for the three months ended March 31, 2018 was $411.
During the three months ended March 31, 2018 the Company granted ten-year options to purchase 150,000 shares of common stock at an exercise price of $0.14 per share to our national Sales Director. The options were valued with the Black-Scholes option pricing model using a volatility of 65.97% based upon the historical price of the company’s stock, a term of five years, using the simplified method, and a risk-free rate of 2.49%. The calculated fair value, $11,918 was included in the $47,697 expense during the three months ended March 31, 2018.
During the three months ended March 31, 2018 the Company granted ten-year options to purchase 150,000 shares of common stock at an exercise price of $0.14 per share in exchange for legal services. The options were valued with the Black-Scholes option pricing model using a volatility of 65.97% based upon the historical price of the company’s stock, a term of ten years, the term of the warrants and a risk-free rate of 2.70%. The calculated fair value, $15,572 was recorded as prepaid expense and will be amortized over twelve months. For the three months ended March 31, 2018, $2,595 was amortized to expense.
Warrants to Purchase Common Stock
Warrants Issued as Settlements
During the three months ended March 31, 2018, there were no warrants granted for settlements.
Warrants Issued for Cash or Services
During the three months ended March 31, 2018, two-year warrants to purchase 783,963 shares of common stock at $2.00 per share expired, all of which were held by our chairman and principal shareholder.
9
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
NOTE 5 – Related Party Transactions
During the three months ended March 31, 2018, the Company issued stock and warrants to its chairman and principal shareholder in exchange for cash as more fully described in Notes 3 and 4.
In August 2017, Company and an accredited investor (the “Investor”) entered into a Stock Purchase Agreement whereby the Investor committed to purchase up to $1,800,000 shares of the Company’s common stock until August 1, 2018, subject to the Company’s president and chairman, continuing to serve as an officer of the Company. The Investor and our president and chairman were partners in a prior business. The Company will have the right to direct the investor to purchase up to $150,000 of shares in any calendar month (although the parties can mutually agree to increase it in any calendar month). The price paid for the shares will be the closing price of the Company’s common stock on the trading day immediately before the Company delivers its notice to the investor. The investor will not be obligated to make purchases under the Agreement if the price is above $0.50 per share. During the three months ended March 31, 2018, the Company issued 3,152,736 shares of common stock and two-year warrants to purchase 1,576,369 shares of common stock at an exercise price of $2.00 per share to the Investor in exchange for $450,000 in connection with private placements.
NOTE 6 – Commitments and Contingencies
In February 2018, the Company entered into a two-year operating lease agreement for an office in Niwot, Colorado to better serve our Wildland fire customers. The lease began on March 1, 2018 and calls for 24 monthly payments of $2,250. In accounting for this operating lease, the Company elected to early adopt ASU 2016-02,Leases.As such, the Company calculated the fair value of the operating lease right of use asset and the operating lease liability, $50,313, by calculating the present value of the lease payments, discounted at 7.5%, the Company’s incremental borrowing rate, over the term of the lease, 24 months. Amortization of the operating lease right of use asset amounted to $2,097 for the three months ended March 31, 2018 and was included in operating expense.
On November 14, 2012, the Compensation Committee approved new employment agreements for the Company’s then Chief Executive Officer, then President, Chief Technology Officer and Chief Financial Officer. The employment agreements each provide for base salaries of $150,000 and 800,000 stock settled stock appreciation rights (“SARS”) of which (i) 200,000 vested immediately, (ii) 200,000 vest upon the Company generating $3,000,000 in revenue in any 12-month period, (iii) another 200,000 vest upon the Company generating $5,000,000 in revenue in any 12-month period and (iv) another 200,000 vest upon the Company generating $6,000,000 in revenue in any 12-month period. The SARs are exercisable at $0.45 per share over a 10-year period. The Company’s then Chief Executive Officer, then President and Chief Technology Officer agreed to cancel the 250,000 stock options granted to each of them in their prior employment agreements. These executives’ base salary will increase to: (i) $170,000 upon the Company generating $3,000,000 in revenue in any 12-month period, (ii) $190,000 upon the Company generating $5,000,000 in any 12-month period and (iii) $200,000 upon the Company generating $6,000,000 in any 12-month period. On September 30, 2016, the employment agreement for the Company’s Chief Financial Officer expired.
In January 2015, GelTech approved an amendment to the Employment Agreement of our Chief Technology Officer. In addition to his base salary, he will receive 5% of the first $2 million of revenue generated by GelTech. The Company paid the Chief Technology Officer $52,797 and $62,056, respectively, in 2017 and 2016 under this provision. The amendment was effective as of January 1, 2015. Additionally, in May 2015, GelTech approved an amendment to the Chief Technology Officer’s Employment Agreement to extend the term of the Agreement an additional four years (now expiring October 1, 2020).
On August 16, 2017, the Company entered into a new three-year Employment Agreement with the Company’s chief financial officer. The Employment Agreement provides for a base salary of $150,000 per year and a car allowance of $600 per month. The Company’s Compensation Committee will also have the discretion to award a discretionary bonus. In consideration for entering into the Employment Agreement, the Company granted 125,000 fully vested 10-year stock options exercisable at $0.1849 per share.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
NOTE 7 – Revenue Recognition
The revenue that we recognize arises from purchase orders we receive from our customers. Our performance obligations under the purchase orders correspond to each shipment of product that we make to our customer under the purchase orders; as a result each purchase order generally contains more than one performance obligation based on the number of products ordered, the quantity of product to be shipped and the mode of shipment requested by the customer. Control of our products transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to our product or when the customer assumes risk of loss of our product. The transfer of control generally occurs at a point of shipment from either our warehouse or our third-party fulfillment centers. Once this occurs, we have satisfied our performance obligation and we recognize revenue.
When we receive a purchase order from a customer, we are obligated to provide the product during a mutually agreed upon time period. Depending on the terms of the purchase order, either we or the customer arranges delivery of the product to the customer’s intended destination. In situations where we have agreed to arrange delivery of the product to the customer’s intended destination and control of the product transfers upon loading of our product onto transportation equipment, we have elected to account for any freight income associated with the delivery of these products as freight revenue, since this activity fulfills our obligation to transfer the product to the customer. For the three months ended March 31, 2018, the total amount of freight recognized as revenue was $8,020.
Transaction Price
We agree with our customers on the selling price of each transaction. This transaction price is generally based on the product, market conditions, including supply and demand balances and freight. In our contracts with customers, we allocate the entire transaction price to the sale of product to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Returns of our product by our customers are permitted only when the product is not to specification and were not material for the three months ended March 31, 2018. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue. Our revenues for FireIce, Soil₂O and Soil₂O Dust Control are seasonal in nature with our peak seasons occurring in the second and third quarters. Revenues from the sales of FireIce Shield are less seasonal.
During the three months ended March 31, 2018, the Company received a deposit of $14,970 from a new distributor which will be credited toward their first product purchase.
If we continued to apply legacy revenue recognition guidance for the first three months of 2018, our revenues, gross margin, and net loss would not have changed. See Note 1—Revenue Recognition for the impact of our adoption of ASU No. 2014-09.
Revenue Disaggregation
We track our revenue by product. The following table summarizes our revenue by product for the three months ended March 31, 2018:
| | | | | | | | | | |
FireIce | | | | | | | | $ | 228,781 | |
Soil₂O | | | | | | | | | 25,996 | |
FireIce Shield | | | | | | | | | 6,929 | |
Other | | | | | | | | | 1,173 | |
Total | | | | | | | | $ | 262,879 | |
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)
NOTE 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 March 31, 2018. As of March 31, 2018, there were no cash balances held in depository accounts that are not insured.
At March 31, 2018, two customers accounted for 47.5% and 14.7% of accounts receivable.
For the three months ended March 31, 2018, four customers accounted for 33.5%, 14.2%, 12.3% and 10.2% of sales.
Approximately 14.1% of revenue was generated from customers outside the United States during the three months ended March 31, 2018.
During the three months ended March 31, 2017, sales primarily resulted from three products, FireIce®, Soil₂O® and FireIce Shield® which made up 87.0%, 9.9% and 2.6%, respectively, of total sales. Of the FireIce® sales, 93.2% related to the sale of FireIce® products and 5.8% related to sales of the FireIce extinguishers and eductor equipment. Of the Soil₂O® sales, 61.9% related to traditional sales of Soil₂O® and 38.1% related to sales of Soil₂O® Dust Control. Of the FireIce Shield® sales, after factoring out a credit of $12,928 for FireIce Shield canisters returned by a distributor, 12.6% consisted sales of asset protection canisters and refills, 49.5% related to FireIce Shield® CTP units and products, and 35.6% consisted of sale of spray bottles for use by welders and plumbers.
Two vendors accounted for 62.6% and 12.7% of the Company’s approximately $82,500 in purchases of raw material, finished goods and packaging during the three months ended March 31, 2018.
NOTE 9– Subsequent Events
In April 2017, the Company issued 312,394 shares of common stock to two accredited investors in exchange for $64,000.
In April 2017, the Company issued 682,128 shares of common and two-year warrants to purchase 341,064 shares of common stock for $2.00 per share to one accredited investors in exchange for $150,000.
In April 2018, the Company issued 266,201 shares of common stock, with a fair market value of $55,902 to our chairman and principle shareholder to convert accrued interest in the amount of $93,170, converted at $0.35 per share in connection with a secured convertible note agreement that was converted in September 2017. Because the shares were with a related party, the gain on conversion $37,268 was recorded to paid in capital.
In April 2018, the Company issued 2,983,146 shares of common stock, with a fair market value of $626,461, to its chairman and principle shareholder in conversion of accrued interest of $626,461 as of March 31, 2018 on a $1 million secured convertible note and its $6 million secured convertible line of credit.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 26, 2018.
Overview
GelTech Solutions, Inc. (“GelTech” or the “Company), generates revenue primarily from marketing products based around the following four product categories (1) FireIce®, a water enhancing powder that can be utilized both as a fire suppressant in wildland and urban firefighting, including fires in underground utility structures, and in wildland firefighting as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) FireIce Shield®, a line of products used by industry, police departments and first responders to protect assets from fire; (3) Soil₂O® “Dust Control”, our application which is used for dust mitigation in the aggregate, road construction, mining, as well as, other industries that deal with daily dust control issues and (4) Soil₂O®, a product which reduces the use of water and is primarily marketed to golf courses and commercial landscapers and most recently to homeowners via the Soil₂O® Home Lawn Kit. The Company also markets equipment that is used in the application of these primary products including (1) Emergency Manhole FireIce Delivery System, or EMFIDS, an innovative system designed to deliver FireIce® into a manhole in the event of a fire or explosion (2) the FireIce Shield CTP System, a mobile spray unit that can be used to protect communication tower electronics during hot work and (3) FireIce® Home Defense Unit, a system for applying FireIce® to structures to protect them from wildfires.
2018 Highlights
Thus far in 2018, we have added two additional customers to our Wildland line up, one in Texas and one in Oklahoma, and have set up two additional mixing bases, one in Florida and one in New Jersey. Our FireIce products were once again used to quickly bring under control a new flare-up of the continuing landfill fire in the Bahamas.
The Utility Division has initiated two additional pilot programs for FireIce extinguishers with electric utilities on the East Coast. Programs in the Utility Division continue to expand, with two new cities under one company’s umbrella in the process of starting an extinguisher program for their service vehicles. In addition, we processed a repeat order for FireIce to be used to fight manhole fires, with the Northeast electric utility we have been working with for the past five years.
We have engaged new distributors in Israel and Brazil, who have already placed initial purchases and started product demonstrations with their target clients in the Defense, Private Timber and Mining industries. We have executed new distribution agreements with two national distributors for our products specifically for the Cell Tower business and for Electric Utilities. We believe these additional distributors will improve our reach into these market segments and strengthen our resources to close deals in 2018.
GelTech has recently received inquiries and started projects with several major companies including companies who sell fire suppression systems or use or manufacture lithium batteries in large configuration systems, such as personal vehicles, storage, mass transportation and large recharging systems. Because FireIce can effectively cool, suppress and remain non-toxic over 5000 degrees F, we expect to continue to work with and be utilized in these applications. With these new inquiries, we have the opportunity to greatly capitalize on our already completed R&D with little additional expense.
Our unaudited consolidated financial statements have been prepared on a going concern basis, and we need to generate sufficient material revenues to support the ongoing business of the Company.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2017.
The following tables set forth, for the periods indicated, results of operations information from our interim unaudited consolidated financial statements:
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | Change | | | Change | |
| | 2018 | | | 2017 | | | (Dollars) | | | (Percentage) | |
Sales | | $ | 262,879 | | | $ | 389,036 | | | $ | (126,157 | ) | | | (32.4 | %) |
Cost of Goods Sold | | | 81,198 | | | | 131,530 | | | | (50,032 | ) | | | (38.1 | %) |
Gross Profit | | | 181,681 | | | | 257,806 | | | | (76,125 | ) | | | (29.5 | %) |
Operating Expenses: | | | | | | | | | | | | | | | | |
Selling General and Administrative | | | 1,004,891 | | | | 1,006,634 | | | | (1,743 | ) | | | (0.2 | %) |
Research and Development | | | 15,826 | | | | 12,591 | | | | 3,235 | | | | 25.7 | % |
Loss from Operations | | | (839,036 | ) | | | (761,419 | ) | | | (77,617 | ) | | | (10.2 | %) |
Other Income (Expense) | | | (177,507 | ) | | | (212,527 | ) | | | 35,025 | | | | 16.5 | % |
Net Loss | | $ | (1,016,543 | ) | | $ | (973,946 | ) | | $ | (42,597 | ) | | | (4.4 | %) |
Sales
Sales of product during the three months ended March 31, 2018 (“2018 Quarter”) consisted of $228,781 for FireIce® and related products, $25,996 forSoil₂O ® and $6,929 for FireIce Shield®. FireIce® sales primarily consisted of $213,177 related to product sales primarily to wildland firefighting agencies and to fight a landfill fire in the Bahamas and $13,240 related to sales of extinguishers and eductors. The Soil₂O ® sales consisted of sales of Soil₂O ® topical of $16,089 and sales of Soil₂O ® dust control of $9,907. Sales of FireIce Shield® consisted of sales FireIce Shield spray bottles of $7,070, FireIce Shield CTP units and product of $9,825 and FireIce Shield Welding Blankets of $459, which were partially offset by a net credit of $11,974 for canisters and refills due to return of product by one of our distributors. The decrease in 2018 sales as compared to 2017 sales is primarily related to a decrease in the amount of product used to fight the landfill fires in the Bahamas.
Both FireIce® and Soil₂O ® dust control sales are seasonal in nature with both peak seasons lasting from March through October; we anticipate FireIce Shield® sales to be less seasonal. We expect additional agencies to join our growing roster of wildland agencies using FireIce. Our FireIce and Soil₂O Dust Control products are gaining acceptance from industrial agricultural organizations needing to protect crop stockpiles and to control dust on unpaved roadways. In addition, our FireIce Shield product has generated sales from manufacturing plants, companies that perform welding, cutting and brazing (hot work) in a number of different industries such as plumbing and air conditioning repairs, communication tower fabrication and maritime and naval shipyards. Based on these factors, we expect that our revenues will increase in the future.
Cost of Goods Sold
The decrease in cost of goods sold was the direct result of the decrease in sales. Cost of sales as a percentage of sales was 30.9% for the 2018 Quarter as compared to 33.7% for the three months ended March 31, 2017 (“2017 Quarter”). The future cost of sales as a percentage of sales is dependent on the sales mix but we expect it will be consistent with the cost of sales percentage for the 2018 Quarter.
Selling, General and Administrative Expenses (SG&A)
SG&A expenses for the 2018 Quarter were consistent with the 2017 Quarter. Minor increases in investor relations, insurance, sales and marketing and travel were offset by decreases on compensation and benefits and equity-based compensation.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Research and Development Expenses
The research and development expenses for the 2018 Quarter and 2017 Quarter related primarily to initial research into potential new product applications.
Loss from Operations
The increase in loss from operations in the 2018 Quarter as compared to the 2017 Quarter resulted from the lower gross profit and the slightly higher research and development costs.
Other Income (Expense)
Other expense during the 2018 Quarter consisted of interest expense. Other expense for the 2017 Quarter consisted of interest expense. The decrease in interest expense is due to the reduction of our outstanding debt from the conversion of a secured convertible note in the amount of $1,997,483 in September 2017.
Net Loss
The higher net loss for the 2018 Quarter resulted from the lower gross profit which was only partially offset by the decrease in other expense. Net loss per common share was $0.01 and $0.02, respectively, for the 2018 Quarter and 2017 Quarter. The weighted average number of shares outstanding for the 2018 Quarter and 2017 Quarter were 78,179,403 and 54,701,836, respectively.
LIQUIDITY AND CAPITAL RESOURCES
A summary of our cash flows is as follows:
| | | | | | | | | | |
| | | | Quarter Ended March 31, | |
| | | | 2018 | | | 2017 | |
| | | | | | | | |
Net cash used in operating activities | | | | $ | (781,771 | ) | | $ | (824,577 | ) |
Net cash used in investing activities | | | | | (3,642 | ) | | | (1,257 | ) |
Net cash provided by financing activities | | | | | 890,817 | | | | 799,297 | |
Net increase (decrease) in cash and cash equivalents | | | | $ | 105,044 | | | $ | (26,537 | ) |
Net Cash Used in Operating Activities
Net cash used during the 2018 Quarter resulted primarily from the net loss of $1,016,543 and an increase in accounts receivable of $106,660, which were partially offset by increases in accounts payable and accrued expenses of $38,304 and $139,240, respectively, equity-based compensation of $48,108, decreases in prepaid expenses of $16,677 and an increase in customer deposits of $14,970.
Net cash used during the 2017 Quarter resulted primarily from the net loss of $973,946 and increases in inventories of $99,863 and accounts receivable of 100,276. These were partially offset by increases in accounts payable of $48,622 and accrued liabilities of $152,764 and equity-based compensation of $64,208.
Net Cash Used in Investing Activities
Net cash used in investing activities for the 2018 Quarter and the 2017 Quarter consisted of computer hardware and software upgrades and in 2018 purchases of furniture for the new Colorado office
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Net Cash Provided By Financing Activities
During the 2018 Quarter, the Company received $20,000 in exchange for the issuance of 125,000 shares of common stock in connection with private placements with two accredited investors. In addition, the Company issued 5,938,450 shares of common stock and two-year warrants to purchase 2,969,225 shares of common stock at an exercise price of $2.00 per share in exchange for $900,000 in connection with private placements with two accredited investors, including 2,785,714 shares and 1,392,857 warrants to its chairman and principal shareholder. The amounts received were used to make payments on insurance premium finance contracts of $26,214, as well as providing working capital.
During the 2017 Quarter, the Company received $500,000 in exchange for 2,081,637 shares of common stock and two year warrants to purchase 1,040,818 shares of common stock at an exercise price of $2.00 per share in connection with private placements with three accredited investors, including $100,000 in exchange for 384,616 shares of common stock and 192,308 warrants from our chairman and principal shareholder and received $200,000 from advances under the convertible line of credit facility, all from our chairman and principal shareholder. In addition, the Company issued two- year warrants to purchase 396,926 shares of common stock at an exercise price of $2.00 per share in connection with the convertible line of credit advances. The Company also received $123,620 in exchange for 504,843 shares of common stock in connection with the Lincoln Park Stock Purchase Agreement (“Purchase Agreement”). The amounts received were used to make payments on insurance premium finance contracts of $24,323 as well as providing working capital.
Historical Financings
Since January 1, 2018, the Company has received $84,000 in exchange for issuing 437,394 shares of common stock in private placements with three accredited investors, including 248,757 shares to an employee.
Since January 1, 2018 through the issuance date of this report, the Company has received $1,050,000 in exchange for the issuance of 6,620,578 shares of common stock and two-year warrants to purchase 13,310,289 shares of common stock for $2.00 per share in connection with private placements with two accredited investors, including $450,000 in exchange for 2,785,714 shares and 1,392,857 warrants from our chairman and principal shareholder.
In August 2017, the Company and Warren Mosler, a 10% shareholder, (the “Investor”) entered into a Stock Purchase Agreement whereby the Investor committed to purchase up to $1,800,000 shares of the Company’s common stock until August 1, 2018, subject to the Company’s president and chairman, continuing to serve as an officer of the Company. The Company will have the right to direct the Investor to purchase up to $150,000 of shares in any calendar month (although the parties can mutually agree to increase it in any calendar month). The price paid for the shares will be the closing price of the Company’s common stock on the trading day immediately before the Company delivers its notice to the Investor. The Investor will not be obligated to make purchases under the Agreement if the price is above $0.50 per share. Since August 2017 to the filing date of this report, the Investor has purchased 7,745,762 shares for $1,275,000.
Liquidity and Capital Resource Considerations
As of May 9, 2018, we had approximately $57,000 in available cash.
In August 2015, GelTech signed a $10 million Stock Purchase Agreement with Lincoln Park. Under the terms and subject to the conditions of the Purchase Agreement, GelTech had the right to sell, and Lincoln Park was obligated to purchase, up to $10 million in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 30-month period commencing on October 16, 2015.As of May 1, 2018 we were no longer able to sell shares to Lincoln Park under the Purchase Agreement.
As of the filing date of this report, we have $6,895,000 of outstanding debt owed to Mr. Michael Reger all of which is due December 31, 2020.
Until we generate sufficient revenue to sustain the business, our operations will continue to rely on Mr. Reger’s investments and the Investor Stock Purchase Agreement. If Mr. Reger were to cease providing us with working capital or our stock price were to increase above the $0.50 ceiling price in the Investor Stock Purchase Agreement or we are unable to generate substantial cash flows from sales of its products or complete financings, the Company may not be able to remain operational.
Although we do not anticipate the need to purchase any additional material capital assets in order to carry out our business, it may be necessary for us to purchase additional support vehicles or mixing base equipment in the future, depending on demand.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
Related Person Transactions
For information on related party transactions and their financial impact, see Note 5 to the Unaudited Consolidated Financial Statements.
Principal Accounting Estimates
In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has selected its most subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the Company’s financial condition. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition.
Other than the classification of inventory, there were no material changes to our principal accounting estimates during the period covered by this report.
RECENT ACCOUNTING PRONOUNCEMENTS
For information on recent accounting pronouncements, see Note 1 to the Unaudited Consolidated Financial Statements.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements including our liquidity, anticipated capital asset requirements, expected results from adding additional distributors, opportunities from our already completed R&D, increased revenues and expected increase in sales of our products (including additional agencies using FireIce). Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the failure to receive material orders from the utility and mining companies, global and domestic economic conditions, budgetary pressures facing state and local governments, our failure to receive or the potential delay of anticipated orders for our products, failure to receive acceptance of FireIce® by State and Local governments, or our principal shareholder and/or the Investor suffering unanticipated liquidity issues.
Further information on our risk factors is contained in our filings with the SEC, including our Form 10-K for the year ended December 31, 2017 filed on March 26, 2018. 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.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. During the period covered by this report, there were no new legal proceedings nor any material developments to any legal proceedings previously disclosed, if any.
ITEM 1A.
RISK FACTORS.
Not applicable to smaller reporting companies.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In addition to those unregistered securities previously disclosed in reports filed with the SEC, we have sold securities without registration under the Securities Act of 1933, or the Securities Act, as described below.
| | | | | | |
Name or Class of Investor | | Date of Sale | | No. of Securities | | Reason for Issuance |
Consultants (1) | | January 2018 | | 16,767 shares of common stock | | Shares issued to two consultants for services rendered |
| | | | | | |
Investors (1) | | January 2018 through March 2018 | | 125,000 shares of common stock | | Private Placements with two accredited investors |
————————
(1)
Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder. The securities were issued to accredited investors and there was no general solicitation.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4.
MINE SAFETY DISCLOSURES.
Not Applicable
ITEM 5.
OTHER INFORMATION.
Not Applicable
ITEM 6.
EXHIBITS.
The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.
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GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| | GELTECH SOLUTIONS, INC. | |
| | | |
May 9, 2018 | | /s/ Peter Cordani | |
| | Peter Cordani | |
| | Chief Executive Officer (Principal Executive Officer) | |
| | | |
May 9, 2018 | | /s/ Michael R. Hull | |
| | Michael R. Hull | |
| | Chief Financial Officer (Principal Financial Officer) | |
20
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 | | |
3.1(a) | | Certificate of Amendment to the Certificate of Incorporation – Increase of Authorized Capital to 100 million shares of common stock | | 10-Q | | 2/12/14 | | 3.2 | | |
3.1(b) | | Certificate of Amendment to the Certificate of Incorporation – Increase of Authorized Capital to 150 million shares of common stock | | 10-Q | | 2/16/16 | | 3.1(b) | | |
3.2 | | Amended and Restated Bylaws | | Sb-2 | | 7/20/07 | | 3.2 | | |
3.2(a) | | Amendment No. 1 to the Amended and Restated Bylaws | | 10-K | | 9/28/10 | | 3.3 | | |
3.2(b) | | Amendment No. 2 to the Amended and Restated Bylaws | | 8-K | | 9/26/11 | | 3.1 | | |
3.2(c) | | Amendment No. 3 to the Amended and Restated Bylaws | | 8-K | | 9/27/12 | | 3.1 | | |
10.1 | | Lincoln Park Purchase Agreement dated August 11, 2015 | | 8-K | | 8/12/15 | | 10.1 | | |
10.2 | | Lincoln Park Registration Rights Agreement dated August 11, 2015 | | 8-K | | 8/12/15 | | 10.2 | | |
10.3 | | Amendment No. 1 Lincoln Park Warrant | | 8-K | | 8/12/15 | | 10.3 | | |
10.4 | | Mosler Stock Purchase Agreement dated August 1, 2017 | | 10-Q | | 11/8/17 | | 10.4 | | |
10.5 | | Form of Stock Purchase Agreement - Reger | | 10-K | | 9/27/13 | | 10.16 | | |
31.1 | | Certification of Principal Executive Officer (Section 302) | | | | | | | | Filed |
31.2 | | Certification of Principal Financial Officer (Section 302) | | | | | | | | Filed |
32.1 | | Certification of Principal Executive Officer and Principal Financial Officer (Section 906) | | | | | | | | Furnished* |
101 INS | | XBRL Instance Document | | | | | | | | Filed |
101 SCH | | XBRL Taxonomy Extension Schema | | | | | | | | Filed |
101 CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | Filed |
101 LAB | | XBRL Taxonomy Extension Label Linkbase | | | | | | | | Filed |
101 PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | Filed |
101 DEF | | XBRL Taxonomy Extension Definition Linkbase | | | | | | | | Filed |
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*
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.
