The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
NOTE 1
Organization, Basis of Presentation and Summary of Significant Accounting Policies
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 wildland and urban firefighting, including fires in underground utility structures, and in wildland firefighting as a medium-term fire retardant to protect wildlands, structures and firefighters; (2) FireIce Shield®, a line of products used by welders, plumbers, first responders and consumers to protect assets from fire; (3) Soil
2
O® Dust Control, our application which is used for dust mitigation in the construction and mining industries, in rural communities with unpaved roads, as well as by equestrian facilities and (4) Soil
2
O®, a product which reduces the use of water and is primarily marketed to golf courses and commercial landscapers and most recently to homeowners via the Soil
2
O® Home Lawn Kit. The Company also markets equipment that is used in the application of these primary products including (1) Emergency Manhole FireIce Delivery System, 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® spray unit which can be used to protect assets for industrial applications including protecting communication towers during welding.
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 GelTech. See further discussion in Note 2.
The corporate office is located in Jupiter, Florida.
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. and these entities are in the process of being dissolved.
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 Managements 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 Companys Transition Report on Form 10-KT for the six months ended December 31, 2015 filed on March 31, 2016.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out method. Inventories as of September 30, 2016 consisted of raw materials and finished goods in the amounts of $779,221 and $858,170, respectively.
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 nine months ended September 30, 2016 include the allowance for
doubtful accounts, depreciation and amortization, valuation of inventories, valuation of options and warrants granted for services or settlements, valuation of common stock granted for services or debt conversion, valuation of debt discount related to the beneficial conversion feature of convertible notes, accruals for litigation losses and the valuation of deferred tax assets.
5
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
Revenue Recognition
Revenue from sales of products is recognized when persuasive evidence of an arrangement exists, products have been shipped to the customer, economic risk of loss has passed to the customer, the price is fixed or determinable, collection is reasonably assured, and any future obligations of the Company are insignificant. Revenue is shown net of returns and allowances. The Company provides certain customers with the right of return for unsold product. Sales to these customers are recorded as the customer sells the product, thus removing the right of return.
Products shipped from either our third-party fulfillment companies or our Jupiter, Florida or Irwindale, California locations are shipped FOB shipping point. Normal payment terms are net 30 days depending on the arrangement we have with the customer. As such, revenue is recognized when product has been shipped from either the third-party fulfillment company or from the Jupiter, Florida or Irwindale, California locations.
The Company follows the guidance of ASC 605-50-25, Revenue Recognition, Customer Payments. Accordingly, any incentives received from vendors are recognized as a reduction of the cost of products. Promotional products or samples given to customers or potential customers are recognized as a cost of goods sold. However, products we utilize to perform demonstrations for potential customers are recorded as a marketing expense in operations.
In June 2016, the Company entered into two agreements with a state forestry agency whereby the Company agreed to pay for and build two fixed airport mixing facilities in order to support the state agencys aerial wildland firefighting operations. In connection with the agreement, the state agency has the use of the equipment in exchange for paying a premium price per bucket for our HVO-F aerial FireIce product and also making an initial minimum purchase of 200 buckets per year. As such, the Company has deferred the premium portion of the bucket price for the minimum purchase amount and will recognize the revenue related to the premium over 12 months. For the nine months ended September 30, 2016, the Company has recognized $5,333 in revenue and has deferred $10,667 of the minimum purchase amounts.
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 Companys diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At September 30, 2016, there were options to purchase 11,412,840 shares of the Companys common stock, warrants to purchase 14,012,579 shares of the Companys common stock and 20,978,023 shares of the Companys common stock are reserved for convertible notes which may dilute future earnings per share.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with ASC 718-10,
Share-Based Payment
, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.
Determining Fair Value Under ASC 718-10
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. 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 Companys determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.
The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for employee stock options using the simplified method for employees and directors and the contractual term for non-employees. The risk free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.
6
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
The fair values of stock options and warrants granted during the period from January 1, 2016 to September 30, 2016 were estimated using the following assumptions:
|
|
|
Risk free interest rate
|
|
0.58% - 1.49%
|
Expected term (in years)
|
|
2.0 - 5.5
|
Dividend yield
|
|
|
Volatility of common stock
|
|
103.14% - 104.54%
|
Estimated annual forfeitures
|
|
|
New Accounting Pronouncements
In July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory
, which requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The accounting standard is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not expect this accounting standard to have a significant impact on the Companys consolidated financial position or results of operations.
No additional Accounting Standards Updates (ASUs) which were not effective until after September 30, 2016 are expected to have a significant effect on the Company's consolidated financial position or results of operations.
NOTE 2 Going Concern
These unaudited 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 September 30, 2016, the Company had an accumulated deficit and stockholders deficit of $46,919,381 and $5,803,758, respectively, incurred a loss from operations of $2,817,209 for the nine months ended September 30, 2016 and used cash in operations of $2,440,732 during the nine months ended September 30, 2016. In addition, the Company has not yet generated revenue sufficient to support ongoing operations. These factors raise substantial doubt regarding the Companys ability to continue as a going concern. These unaudited 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 nine months ended September 30, 2016, the Company received $1,805,000 in advances from its convertible line of credit with its president and principal shareholder. The Company also received $610,955 from Lincoln Park Capital Fund LLC in connection with a $10 million stock purchase agreement entered into in August 2015. See Note 4.
Management believes that the Purchase Agreement with Lincoln Park and additional funding from its president and principal shareholder 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.
7
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
NOTE 3 Convertible Note Agreement
s Related Party
The Company currently has three debt facilities outstanding, all of them held by its president and principal shareholder.
One convertible note in the amount of $1,997,483, dated February 1, 2013 was a consolidation of prior debt instruments. The note bore annual interest of 7.5%, was convertible at $0.35 per share and due December 31, 2016. On February 12, 2015, this note was modified by securing the note with all the assets of the Company and by extending the due date of the note from December 31, 2016 to December 31, 2020. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification the Company recorded a loss on extinguishment of debt of $34,586. During the nine months ended September 30, 2016, the Company recognized interest expense of $112,358. As of September 30, 2016, the principal balance of the note is $1,997,483 and accrued interest amounted to $99,737. In February 2016, the Company issued 428,032 shares of common stock to its president and principal shareholder in payment of accrued interest of $149,811 resulting in a loss on conversion of interest of $72,765.
A second convertible note in the amount of $1,000,000 dated July 11, 2013 related to a new funding on that date. The note bore annual interest of 7.5%, was convertible at $1.00 per share and was due July 10, 2018. In connection with the note, the Company issued fiveyear warrants to purchase 500,000 shares of common stock at an exercise price of $1.30 per share. On February 12, 2015, this note was modified by securing the note with all the assets of the Company, by extending the due date of the note from July 10, 2018 to December 31, 2020 and by reducing the conversion rate of the note from $1.00 to $0.35 per share. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a loss on extinguishment of debt of $562,062. Also, in connection with the modification the Company recorded a note discount of $60,390, related to the relative fair value of the warrants attached to the note. For the nine months ended September 30, 2016 the Company recorded interest expense of $7,703 to amortize the discounts related to the warrants of the note, originated in July 2013. As of September 30, 2016, the balance of the unamortized discount related to the warrants was $43,662. In July 2016, the Company issued 208,333 shares of common stock in payment of accrued interest of $75,000. As of September 30, 2016, the principal balance on this note is $1,000,000 and accrued interest amounted to $16,644.
In connection with the debt modifications described above, the Company entered into a Secured Revolving Convertible Promissory Note Agreement for up to $4 million with its president and principal shareholder. On April 8, 2016, the Company and its president and principal shareholder entered into the First Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $4 million to $5 million. On September 27, 2016, the Company and its president and principal shareholder entered into the Second Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $5 million to $6 million. Under the agreement, the Company may, with the prior approval of its president and principal shareholder, receive advances under this agreement. 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 Companys common stock on the day prior to the date the parties agree to the advance. In addition, the Company will issue the Companys president and principal shareholder two year warrants to purchase shares of common stock at an exercise price of $2.00 per share. The number of warrants issued equals 50% of the number of shares issuable upon the conversion of the related advance.
For the nine months ended September 30, 2016, the Company received twelve advances totaling $1,805,000 with conversion rates between $0.28 and $0.55 per share, and issued two year warrants to purchase 2,481,568 shares of common stock at an exercise price of $2.00 per share. In connection with these advances, the Company has recorded loan discounts related to the warrants and the beneficial conversion features of the advances amounting to $151,788 and $151,788, respectively. During the nine months ended September 30, 2016, the Company has recognized interest expense of $60,538 related to the amortization of loan discounts. As of September 30, 2016, the principal balance of the advances was $5,070,000, the balance of the unamortized discounts related to the warrants and the beneficial conversion feature was $361,298 and $361,298, respectively, and the balance of accrued interest was $210,740.
The calculated loan discounts were based on the relative fair value of the warrants which were calculated by the Company using the Black Scholes option pricing model, using volatilities of between 103.14% and 105.41%, based on the Companys historical stock price, discount rates from 0.58% to 0.90%, and expected terms of 2 years, the term of the warrants.
8
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
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 Companys common stock, subject to certain limitations, from time to time, over the 30-month period commencing on the date that a registration statement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC. The Company filed the registration statement with the SEC on October 5, 2015 and it was declared effective by the SEC on October 16, 2015.
During the three months ended March 31, 2016, the Company issued 508,822 shares of common stock in exchange for $225,245 in connection with the Lincoln Park Purchase Agreement.
During the three months ended June 30, 2016, the Company issued 507,129 shares of common stock in exchange for $182,030 in connection with the Lincoln Park Purchase Agreement.
During the three months ended September 30, 2016, the Company issued 657,946 shares of common stock in exchange for $203,680 in connection with the Lincoln Park Purchase Agreement.
In February 2016, the Company issued 428,032 shares of common stock to its president and principal shareholder in payment of accrued interest of $149,811 resulting in a loss on conversion of interest of $72,765.
During the three months ended March 31, 2016, the Company issued 13,947 shares of common stock in payment of investor relation services values at $6,000. In addition, the Company issued 3,581 shares of common stock in payment of consulting services valued at $1,656.
During the three months ended June 30, 2016, the Company issued 4,167 shares of common stock in payment of investor relation services valued at $2,000. In addition, the Company issued 3,489 shares of common stock in payment of consulting services valued at $1,611.
In April 2016, the Company issued 296,371 shares of commons stock to its president and principal shareholder upon the conversion of accrued interest in the amount of $148,365 related to the advances under the Secured Revolving Convertible Promissory Note Agreement. No gain or loss will be recognized on the conversion as the conversion price used was the current price of the stock.
In June 2016, the Company issued 428,572 shares of common stock and two year warrants to purchase 214,286 shares of common stock at an exercise price of $2.00 per share to a director and his wife in exchange for $150,000 in connection with a private placement.
In July 2016, the Company issued 270,270 shares of common stock and two year warrants to purchase 135,135 shares of common stock for $2.00 per share in exchange for $100,000 in a private placement with an accredited investor.
In July 2016, the Company issued 208,333 shares of common stock to its president and principal shareholder in payment of interest of $75,000 on a convertible note.
9
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
In August 2016, the Company issued 2,328 shares of common stock to a consultant in exchange for services with a value of $900.
Stock-Based Compensation
Stock-based compensation expense recognized under ASC 718-10 for the period January 1, 2016 to September 30, 2016, was $351,053 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 September 30, 2016 the total compensation cost for stock options not yet recognized was approximately $195,076. 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 Companys 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 nine months ended September 30, 2016 was $61,211.
In April 2016, the Company issued ten year options to purchase 30,000 shares of common stock at an exercise price of $0.39 per share to a new director. The options vest annually over three years, subject to the continued service on the board. The options were valued using the Black-Scholes option pricing model using a volatility of 103.79% based upon the historical price of the companys stock, a term of 6.5 years, using the simplified method and a risk free rate of 1.52%. The calculated fair value, $9,631 will be recognized over the requisite service period.
Warrants to Purchase Common Stock
Warrants Issued as Settlements
In July 2016, the Company issued five year warrants to purchase 250,000 shares of common stock at an exercise price of $0.37 per share as part of a settlement. The warrants were valued using the Black-Scholes option pricing model using a volatility of 104.54% based upon the historical price of the companys stock, a term of five years, the term of the warrants and a risk free rate of 1.01%, resulting in a fair value of $70,631 which was included in loss on settlement for the nine months ended September 30, 2016.
Warrants Issued for Cash or Services
In January 2016, the Company granted a one year extension for warrants to purchase 3,968,258 shares of common stock which were set to expire at various dates in 2016. Of the warrants extended, 2,443,565 were held by our president and principal shareholder and a director. In connection with the extension, the Company recorded other expense of approximately $207,000 for the nine months ended September 30, 2016 representing the difference between the fair value of the old warrants and the extended warrants.
In January 2016, the Company issued five year warrants to purchase 150,000 shares of common stock at an exercise price of $0.39 per share in exchange for legal services. The warrants were valued with the Black-Scholes option pricing model using a volatility of 103.14% based upon the historical price of the companys stock, a term of five years, the term of the warrants and a risk free rate of 1.49%. The calculated fair value, $44,477 was recorded as expense for the nine months ended September 30, 2016.
During the nine months ended September 30, 2016, the Company issued two year warrants to purchase 2,570,854 shares of common stock at an exercise price of $2.00 per shares in connection with advances of $1,805,000 from its president and principal shareholder related to the convertible line of credit agreement.
In June 2016, the Company issued two year warrants to purchase 214,286 shares of common stock at an exercise price of $2.00 per share to a director and his wife in connection with a private placement.
In July 2016, the Company issued two year warrants to purchase 135,135 shares of common stock at an exercise price of $2.00 per share in exchange for $100,000 in private placement with an accredited investor.
10
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
NOTE 5 Commitments and Contingencies
In January 2016, the Company entered into a settlement agreement with a former shareholder of the Companys predecessor company under which the Company paid $80,000 in exchange for a general release. The Company recorded an accrual for this settlement as of December 31, 2015.
The Company was sued by a former employee on June 23, 2008, alleging breach of a consulting agreement and an employment agreement entered into in May and June 2007, respectively. In addition, the plaintiff sought to recover certain of his personal property, which was used or stored in the Companys offices and alleges the Company invaded his privacy by looking at his personal computer (which was used in the Companys business) in the Companys offices. On October 14, 2015, the Court issued an order on Defendant GelTechs Motion for Attorneys Fees and Costs granting GelTech attorney fees and costs in excess of the amount of its litigation accrual for the case. As such, the Company reversed the litigation accrual resulting in other income of $56,956 which was included in the Companys statement of operations for the nine months ended December 31, 2015. In November 2015, the Court issued a Final Judgement against the plaintiff in the amount of $510,499. The plaintiff filed appeals which were pending.
In July 2016, the Company entered into a settlement agreement with the plaintiff whereby the Company agreed to pay the plaintiff $250,000 and issue the plaintiff five year warrants to purchase 250,000 shares of common stock at an exercise price of $0.37 per share, in exchange for the dismissal of all claims against the Company. The warrants were valued using the Black-Scholes option pricing model using a volatility of 104.54% based upon the historical price of the companys stock, a term of five years, the term of the warrants and a risk free rate of 1.01%, resulting in a fair value of $70,631. As such, the Company recorded a loss on settlement of $320,631 for the nine months ended September 30, 2016.
In June 2016, the Company entered into a settlement agreement with its employment practices insurance company related to the Companys suit against the insurance company for failure to cover post trial legal costs related to the suit described above in this Note 5. Under the settlement agreement, the insurance company agreed to pay the Company $300,000, which payment was received in July 2016. As such the Company recorded a gain on settlement of $300,000 for the nine months ended September 30, 2016.
NOTE 6 Related Party Transactions
During the nine months ended September 30, 2016, the Company issued warrants to its president and principal shareholder in exchange for cash as more fully described in Notes 3 and 8.
In April 2016, the Company appointed a new director to its board. The new board member is a principal in a firm the Company hired to perform engineering and design services for the Company. For the nine months ended September 30, 2016, the Company has paid $154,000 to the board members firm for engineering and design services, which are include in research and development costs in the consolidated statement of operations.
In August 2016, the board of directors awarded our acting CEO and Chief Technology Officer an incentive bonus of $75,000 to be paid over a 12 month period in recognition of the new products developed for the Company during 2016.
NOTE 7 Concentrations
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through September 30, 2016. As of September 30, 2016, there were no cash balances held in depository accounts that are not insured.
At September 30, 2016, three customers accounted for 23.3%, 21.0%, and 13.0% of accounts receivable.
For the nine months ended September 30, 2016, four customers accounted for 19.0%, 16.8%, 15.7% and 13.2% of sales.
Approximately 18.3% of revenue was generated from customers outside the United States during the nine months ended September 30, 2016.
11
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
During the nine months ended September 30, 2016, sales primarily resulted from three products, FireIce®, Soil
2
O® and FireIce Shield® which made up 68.9%, 16.8% and 11.2%, respectively, of total sales. Of the FireIce® sales, 89.2% related to the sale of FireIce® products and 10.8% related to sales of the FireIce extinguishers and educator equipment. Of the Soil
2
O® sales, 37.8% related to traditional sales of Soil
2
O® and 62.2% related to sales of Soil
2
O® Dust Control. Of the FireIce Shield® sales, 47.9% consisted sales of asset protection canisters and refills and 52.1% consisted of sale of spray bottles for use by welders and plumbers.
Two vendors accounted for 40.8% and 17.7% of the Companys approximately $505,000 in purchases of raw material, finished goods and packaging during the nine months ended September 30, 2016.
During the nine months ended September 30, 2016, our president and principal shareholder provided 100% of the Companys debt financing.
NOTE 8
Subsequent Events
In accordance with the 2007 Equity Incentive Plan, on October 24, 2016, the Company issued options to purchase 5,000 shares of common stock to a director upon his appointment to the compensation committee. The options have an exercise price of $0.27 per share and vest over a three year period, subject to continued service on the committee. The options were valued using the Black-Scholes model using a volatility of 105.8% (derived using the historical market price for the Companys common stock), an expected term of 6.5 years (using the simplified method) and a discount rate of 1.42%. The fair value of these options, $1,117, will be recognized as expense over the requisite service period.
Since October 1, the Company has issued two year warrants to purchase 218,596 shares of common stock at an exercise price of $2.00 per share in exchange for advances in the amount of $125,000 from the Companys president and principal shareholder in connection with the secured convertible line of credit agreement. The conversion rate of the advances ranged from $0.28 to $0.29.
Since October 1, 2016, the Company has issued 404,081 shares of common stock to Lincoln Park in exchange for $104,120 in connection with the Purchase Agreement.
Since October 1, 2016, the Company has issued 892,858 shares of common stock and two year warrants to purchase 446,429 shares of common stock at an exercise price of $2.00 per share in exchange for $250,000 in connection with a private placement with an accredited investor.
12
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
ITEM 2.