gltc_10q.htm

PART I – FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements.	1
	Condensed Consolidated Balance Sheets as of March 31, 2010 and June 30, 2009	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months ended March 31, 2010 and 2009 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months ended March 31, 2010 and 2009 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	20
Item 4.	Controls and Procedures	20
Item 4T.	Controls and Procedures	20

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	22
Item 1A.	Risk Factors.	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22
Item 3.	Defaults Upon Senior Securities.	22
Item 4.	(Removed and Reserved).	22
Item 5.	Other Information.	22
Item 6.	Exhibits.	22
SIGNATURES		23

	As of
	March 31,			June 30,
	2010			2009
ASSETS	(Unaudited)

Cash and cash equivalents	$	1,396,206		$	245,381
Accounts receivable trade, net		3,367			16,167
Inventories		198,831			249,409
Prepaid expenses and other current assets		29,822			11,103
Total current assets		1,628,226			522,060

Furniture, fixtures and equipment, net		21,424			23,207
Prepaid consulting		319,405			-
Debt issue costs, net		57,500			316,250
Deposits		41,980			30,630

Total assets	$	2,068,535		$	892,147

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable	$	42,574		$	51,778
Accrued expenses		15,892			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		16,147			7,060
Total current liabilities		2,524,613			1,721,591
Total liabilities		2,524,613			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;
16,333,378 and 13,858,986 shares issued and outstanding as of March 31, 2010 and June 30, 2009, respectively.		16,333			13,859
Additional paid in capital		8,215,698			5,262,999
Accumulated deficit		(8,688,109	)		(6,106,302	)
Total stockholders' equity (deficit)		(456,078	)		(829,444	)

Total liabilities and stockholders' equity (deficit)	$	2,068,535		$	892,147

	For the Three Months Ended March 31,						For the Nine Months Ended March 31,
	2010			2009			2010			2009

Sales	$	34,297		$	288,248		$	559,718		$	317,310

Cost of goods sold		9,025			98,375			169,155			106,327

Gross profit		25,272			189,873			390,563			210,983

Operating expenses:
Selling, general and administrative expenses		931,229			715,594			2,617,999			2,080,766
Research and development		6,239			6,409			13,076			119,206

Total operating expenses		937,468			722,003			2,631,075			2,199,972

Loss from operations		(912,196	)		(532,130	)		(2,240,512	)		(1,988,989	)

Other income (expense)
Loss on conversion		-			(841	)		-			(841	)
Other income (expense)		-			(33,000	)		-			(33,000	)
Interest income		4,463			-			4,524			14,513
Interest expense		(117,679	)		(24,686	)		(345,819	)		(32,176	)

Total other income (expense)		(113,216	)		(58,527	)		(341,295	)		(51,504	)

Net loss	$	(1,025,412	)	$	(590,657	)	$	(2,581,807	)	$	(2,040,493	)


Net loss per common share - basic and diluted	$	(0.07	)	$	(0.04	)	$	(0.18	)	$	(0.15	)

Weighted average shares outstanding - basic and diluted		15,759,271			13,619,523			14,542,433			13,517,205

	For the Nine Months Ended March 31,
	2010			2009
Cash flows from operating activities
Reconciliation of net loss to net cash used in operating activities:
Net loss	$	(2,581,807	)	$	(2,040,493	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		7,667			14,255
Bad debt expense		7,463			-
Amortization of debt issuance costs		258,750			-
Amortization of prepaid stock compensation		-			55,730
Amortization of prepaid consulting		106,468			-
Credit issued		-			65,570
Stock option compensation expense		419,301			238,470
Loss on settlement		-			841
Stock issued for settlement		-			41,967
Changes in assets and liabilities:
Accounts receivable		(19,663	)		(206,883	)
Inventories		50,578			(70,182	)
Prepaid expenses and other current assets		14,384			(6,416	)
Deposits and other assets		(11,351	)		1,000
Accounts payable		(9,204	)		30,154
Related party payable		(60,000	)		-
Customer deposits		-			50,000
Accrued expenses		(11,861	)		(38,655	)
Net cash used in operating activities		(1,829,275	)		(1,864,642	)
Cash flows from Investing Activities
Sales of short term marketable debt securities		-			750,000
Purchases of equipment		(5,884	)		(4,857	)
Net cash provided by (used in) investing activities		(5,884	)		745,143
Cash flows from Financing Activities
Payments on Insurance Finance Contract		(24,016	)		(19,649	)
Proceeds from sale of stock and warrants, net		2,085,000			100,000
Proceeds from related party debt		-			10,000
Proceeds from exercise of stock options		25,000			-
Proceeds from revolving line of credit, net		900,000			808,000
Net cash provided by financing activities		2,985,984			898,351
Net increase in cash and cash equivalents		1,150,825			(221,148	)
Cash and cash equivalents - beginning		245,381			230,058
Cash and cash equivalents - ending	$	1,396,206		$	8,910

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	90,177		$	10,031
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	$	425,872		$	38,500

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) Soil2O™(formerly 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.

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.

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 nine months ended March 31, 2009, the Company issued credits to customers in the amount of $8,880 for products returned by a distributor. As a result, sales for the nine months ended March 31, 2009 were reduced by the amount of the returns.

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 March 31. 2010.

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.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management believes that the estimates utilized in preparing its unaudited condensed consolidated 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.

The Company computes 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 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 March 31, 2010, there were options to purchase 2,659,007 shares of the Company’s common stock and warrants to purchase 3,277,361 shares of the Company’s common stock which may dilute future earnings per share.

Stock-based compensation expense recognized under ASC 718-10 for the period July 1, 2009 to March 31, 2010 was $419,301 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 March 31, 2010, the total compensation cost for stock options not yet recognized was approximately $313,323. 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.

During the three months ended March 31, 2010, the Company’s CEO sold 50,000 options to purchase shares of the Company’s common stock which were exercisable at $0.667 per share. These options are included in options sold to third party in the following schedule and are included in options purchased from officer in the Non-Employee, Non-Director schedule. In addition, the Company’s Chief Technology Officer was issued 14,993 shares of common stock in exchange for a payment of $10,000 to exercise options with an exercise price of $0.667 per share.

	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 March 31, 2009		2,715,000		$	0.92		8.71	$	154,050
Exercisable at March 31, 2009		583,253		$	0.87		5.72	$	52,900

Weighted average fair value of options granted during the nine months ended March 31, 2009				$	0.42

Balance at June 30, 2009		2,714,000		$	0.92		8.20
Granted		––		$	––		––
Exercised		(14,993	)	$	0.667		7.97
Options sold to third party		(50,000	)	$	0.667		7.97
Forfeited		(500,000	)	$	1.00		9.75
Expired		––		$	––
Outstanding at March 31, 2010		2,149,007		$	0.91		7.13	$	1,810,664
Exercisable at March 31, 2010		922,590		$	0.86		5.51	$	781,575

Weighted average fair value of options granted during the nine months ended March 31, 2010					N/A

	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 March 31, 2009		205,000	$	0.86		7.40	$	13,550
Exercisable at March 31, 2009		113,333	$	0.89		7.08	$	5,372

Weighted average fair value of options granted during the nine months ended March 31, 2009			$	0.43

Balance at June 30, 2009		205,000	$	0.86		5.89
Granted		100,000	$	1.84		10.00
Exercised		––	$	––		––
Forfeited		––	$	––		––
Expired		––	$	––		––
Outstanding at March 31, 2010		305,000	$	1.18		7.17	$	181,800
Exercisable at March 31, 2010		269,168	$	1.10		6.92	$	180,899

Weighted average fair value of options granted during the nine months ended March 31, 2010			$	1.78

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 March 31, 2009		170,000		$	1.00		3.78	$	34,000
Exercisable at March 31, 2009		103,665		$	1.00		3.78	$	20,733

Weighted average fair value of options granted during the nine months ended March 31, 2009					N/A

Balance at June 30, 2009		170,000		$	1.00		3.53
Granted		––		$	––		––
Options purchased from officer		50,000		$	0.667		7.97
Exercised		(15,000	)	$	1.00		3.25
Forfeited		––		$	––		––
Expired		––		$	––		––
Outstanding at March 31, 2010		205,000		$	0.92		4.04	$	170,400
Exercisable at March 31, 2010		205,000		$	0.92		4.04	$	170,400

Weighted average fair value of options granted during the nine months ended March 31, 2010					N/A

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.

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 March 31, 2010, the Company had a working capital deficit of $896,387 and had an accumulated deficit and stockholders’ deficit of $8,688,109 and $456,078, respectively, and incurred net losses of $2,581,807 for the nine months ended March 31, 2010 and used cash from operations of $1,829,275 during the nine months ended March 31, 2010. 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 March 31, 2010 the Company had drawn $2,450,000 against this line of credit. In May 2010, the shareholder/lender extended the due date of the line of credit to May 2011. This shareholder/lender has assured the Company that he will provide any additional support the Company may require. During the nine months ended March 31, 2010 the Company issued 2,175,000 shares of common stock and 2,175,000 warrants to purchase common stock in exchange for $2,085,000, net of expenses. 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.

On May 29, 2009, 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 March 31, 2010, 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 nine months ended March 31, 2010 was $90,177. The Company has been advised that the shareholder/lender has agreed to renew the loan for an additional one-year term on the same terms and conditions. In connection with the renewal, the Company will issue the shareholder/lender 150,000 shares of common stock, 150,000 two year warrants to purchase shares of common stock for $1.50 per share and a cash payment of $60,000. The transaction is anticipated to close shortly after the shareholder/lender renews a loan from a commercial bank.

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 March 31, 2010.

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, or $1.50 per unit, in private placements with accredited investors. In March 2010, the Company issued these investors an additional 15,000 shares of common stock and issued them additional warrants to purchase 15,000 shares of common stock at an exercise price of $1.60 per share for three years and modified the initial 30,000 warrants to extend the term to three years at an exercise price of $1.60 per share, to make their investments equal to the subsequent private placement investors.

In total, from November 2009 through March 31, 2010 the Company issued 2,175,000 shares of common stock and three year warrants to purchase 2,175,000 shares of common stock at an exercise price of $1.60 per share in exchange for $2,175,000 in cash or $1.00 per unit, in private placements with accredited investors including the shares and warrants in the preceding paragraph. The Company paid $90,000 in commissions related to these private placements.

In January 2010, 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 compensate the Chairman and Director for the amount of their personal shares that were used to exchange shares of the Company to former Dyn-O-Mat shareholders in a prior year. The fair value of the shares, $69,211 was recorded as stock compensation expense.

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

	For the quarterly period ended March 31, 2010

	OR

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

	For the transition period from ________________ to ________________

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)

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company þ

Class		Outstanding at May 14, 2010
Common Stock, $0.001 par value per share		16,382,674 shares

	GelTech Solutions, Inc.
	(Exact name of registrant as specified in its charter)

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