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, 2017
(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 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) Soil
₂
O®
“
Dust Control
”
, our application which is used for dust mitigation in the aggregate, road construction and mining Soil
₂
O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion, 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 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries: FireIce Gel, Inc., GelTech International, Inc. and Weather Tech Innovations, Inc. There has been no activity in 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 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 Report on Form 10-K for the year ended December 31, 2016 filed on March 28, 2017.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method. Inventories as of September 30, 2017 consisted of raw materials and finished goods in the amounts of $936,288 and $936,903, respectively. As September 30, 2017, the Company had approximately $5,490 of consignment inventory consisting of FireIce 561 and FireIce HVOF with a customer. As of September 30, 2017, the Company estimated that raw materials in the amount $479,486 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.
5
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(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 nine months ended September 30, 2017 include the allowance for doubtful accounts, depreciation and amortization, valuation and classification 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 and the valuation of deferred tax assets.
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 705-20 Accounting for Consideration Received from a Vendor and ASC 605-50, Revenue Recognition, Customer Payments and Incentives. 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.
During the nine months ended September 30, 2017, the Company received $33,000 related to the lease of mixing equipment used at two state agency run airbases. The Company provided the equipment to the state agency for the period from September 2017 through October 2017. The Company recognized revenue of $24,750 related to this lease for the nine months ended September 30, 2017. As of September 30, 2017, the balance of deferred revenue related to this lease is $8,250.
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, 2017, there were options to purchase 13,001,340 shares of the Companys common stock, warrants to purchase 14,079,274 shares of the Companys common stock and 18,514,067 shares of the Companys common stock are issuable upon conversion of 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.
6
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
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 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 expected 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, 2017 to September 30, 2017 were estimated using the following assumptions:
|
|
|
Risk free interest rate
|
|
0.58% - 1.88%
|
Expected term (in years)
|
|
2.0 5.5
|
Dividend yield
|
|
|
Volatility of common stock
|
|
79.39% - 105.41%
|
Estimated annual forfeitures
|
|
|
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 and apply the full retrospective approach. Because the Company's primary source of revenues is sales of products, the Company believes the impact of this new standard will be immaterial to the results of operations and will only impact the Companys disclosure.
In February 2016, the FASB issued ASU 2016-02,
Leases
. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Because the Company has not entered into any lease transactions, there will be no impact to the Company by this standard.
In May 2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718).
The objective of this release was to provide further guidance as to when changes to the terms and conditions of share-based payments require an entity to apply modification accounting. The ASU provides that modification accounting shall be used unless three specific criteria are met. Because the Company has always used modification accounting for changes in the terms and condition of equity-based payments, there will be no impact to the Company by this standard.
No additional Accounting Standards Updates (ASUs) which were not effective until after September 30, 2017 are expected to have a significant effect on the Company's consolidated financial position or results of operations.
7
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
NOTE 2 Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize it assets and discharge its liabilities in the normal course of business. As of September 30, 2017, the Company had an accumulated deficit and stockholders deficit of $51,022,519 and $4,486,225, respectively, and incurred losses from operations and net losses of $2,427,763 and $3,064,593, respectively, for the nine months ended September 30, 2017 and used cash in operations of $2,344,244 during the nine months ended September 30, 2017. In addition, the Company has not yet generated revenue sufficient to support ongoing operations. Management believes these factors raise substantial doubt regarding the Companys 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 nine months ended September 30, 2017, the Company received $200,000 in advances from its convertible line of credit with its chairman and principal shareholder and $1,921,000 from private placements with four accredited investors, including $650,000 from its chairman and principal shareholder. The Company also received $210,555 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, 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 Agreement
s Related Party
The Company currently has two debt facilities outstanding, all of them held by its chairman 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. During the nine months ended September 30, 2017, the Company recognized interest expense of $92,760. In September 2017, the Companys chairman and principal shareholder elected to convert the note into shares of the Companys common stock. As such, in accordance with the terms of the note, the Company issued 5,707,095 shares. As of September 30, 2017, the principal balance of the note is $ -0- and accrued interest amounted to $92,760.
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. 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, 2017, the Company recorded interest expense of $7,676 related to the amortization of the note discounts related to the warrants. As of September 30, 2017, the balance of the unamortized discount related to the warrants was $33,400. As of September 30, 2017, the principal balance on this note is $1,000,000 and accrued interest amounted to $91,644.
8
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
In connection with the February 2015 debt modifications described above, the Company entered into a Secured Revolving Convertible Promissory Note Agreement for a credit facility of 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 credit facility. 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 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.
For the nine months ended September 30, 2017, the Company received two advances totaling $200,000 with conversion rates of $0.23 and $0.2785 per share, and issued two-year warrants to purchase 396,925 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 $9,662 and $9,662, respectively. During the nine months ended September 30, 2017, the Company has recognized interest expense of $148,303 related to the amortization of loan discounts. As of September 30, 2017, 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 $307,010 and $307,010, respectively. Accrued interest on the advances amounted to $277,373 as of September 30, 2017.
The calculated loan discounts for warrants were based on the relative fair value of the warrants which were calculated by the Company based on the Black Scholes option pricing model, using expected volatilities of between 97.04% and 99.04%, based on the Companys historical stock price, discount rates from 1.19% to 1.22%, and expected terms of 2 years, the term of the warrants.
A summary of notes payable and related discounts as of September 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Unamortized
Discount
|
|
|
Debt,
Net of Discount
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
Secured Convertible notes payable
|
|
$
|
1,000,000
|
|
|
$
|
(33,400
|
)
|
|
$
|
966,600
|
|
Secured Convertible Line of Credit
|
|
|
5,895,000
|
|
|
|
(614,020
|
)
|
|
|
5,280,980
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured convertible notes payable and line of credit, net of current portion
|
|
$
|
6,895,000
|
|
|
$
|
(647,420
|
)
|
|
$
|
6,247,580
|
|
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.
9
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
During the nine months ended September 30, 2017, the Company issued 858,250 shares of common stock in exchange for $210,555 in connection with the Lincoln Park Purchase Agreement.
In May 2017, the Company issued 428,032 shares of common stock to its chairman and principal shareholder in payment of accrued interest of $149,811. The shares were valued at $107,008 based on the quoted trading price at the conversion agreement date. The gain of $42,803 was recorded to paid in capital on the conversion as the conversion was by a related party.
In May 2017, the Company issued 1,275,277 shares of common stock to its chairman and principal shareholder in payment of accrued interest of $357,064 related to the advances under the Secured Revolving Convertible Promissory Note Agreement. The shares were valued at $320,095 based on the quoted trading price at the conversion agreement date. The gain of $36,969 was recorded to paid in capital on the conversion as the conversion was by a related party.
During the nine months ended September 30, 2017, the Company issued 7,172 shares of common stock in payment of consulting services valued at $1,800.
During the nine months ended September 30, 2017, the Company issued 8,614,801 shares of common stock and two-year warrants to purchase 4,307,403 shares of common stock exercisable at $2.00 per share in exchange for $1,915,000 in connection with private placements with four accredited investors, including 2,583,903 shares and warrants to purchase 1,291,473 shares to the Companys chairman and principal shareholder in exchange for $650,000.
In July 2017, the Company issued 25,000 shares of common stock in exchange for $6,000 in connection with a private placement with an accredited investor.
In September 2017, the Company issued 5,707,095 shares of common stock to its chairman and principal investor in connection with the conversion at the contractual conversion price of a secured convertible note in the amount of $1,997,483.
Stock-Based Compensation
Stock-based compensation expense recognized under ASC 718-10 for the period January 1, 2017 to September 30, 2017, was $253,152 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, 2017, the total compensation cost for stock options not yet recognized was approximately $147,716. 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, 2017 was $1,094.
In June 2017, the Company granted five year options to purchase 150,000 shares of the Companys common stock at an exercise price of $0.25 per share to an employee in connection with the employees appointment as an officer of the Company. The options vested 25% immediately, with the remainder vesting annually over a three year period, subject to continued employment with the Company. The options were valued with the Black-Scholes option pricing model using an expected volatility of 79.39% based upon the historical price of the companys stock, a term of four years, calculated using the simplified method and a risk-free rate of 1.63%. The calculated fair value, $21,996 will be amortized ratably over the vesting period.
10
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
During the nine months ended September 30, 2017 the Company granted five year options to purchase 150,000 shares of common stock at an exercise price of $0.275 per share in exchange for legal services. The options were valued with the Black-Scholes option pricing model using an expected volatility of 99.06% based upon the historical price of the companys stock, an expected term of five years, the term of the warrants and a risk-free rate of 1.88%. The calculated fair value, $30,703 was recorded as prepaid expense and will be amortized over the twelve month service period. For the nine months ended September 30, 2017, $12,793 was amortized to expense.
On August 4, 2017, the Board adopted the 2017 Equity Incentive Plan (the Equity Incentive Plan). Employees, directors and consultants of the Company are eligible to participate in the Equity Incentive Plan. The Equity Incentive Plan is administered by the Compensation Committee of the Board or the full Board during such times as no committee is appointed by the Board or during such times as the Board is acting in lieu of the committee (in either case, the Committee). The Equity Incentive Plan provides for the grant of equity-based compensation in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance cash and other share-based awards.
In accordance with the adoption of the Plan, the non-employee directors were granted options identical to the automatic option grants that were previously issued each year for Board service under the Old Plan. As such, the Company issued ten year options to purchase 690,000 shares of common stock to non-employee directors at an exercise price of $0.211 per share. The options vest on June 30, 2018, subject to continued service as a director. The options were valued with the Black-Scholes option pricing model using an expected volatility of 80.03% based upon the historical price of the companys stock, an expected term of 5.5 years using the simplified method, and a risk-free rate of 1.88%. The calculated fair value, $100,918 will be recorded as expense over the vesting period.
On August 7, 2017, the Company granted ten year options to purchase 500,000 shares of common stock at an exercise price of $0.2039 per share to its chief executive and chief technology officer. The options were valued with the Black-Scholes option pricing model using an expected volatility of 80.03% based upon the historical price of the companys stock, an expected term of five years using the simplified method and a risk-free rate of 1.82%. The calculated fair value, $65,833 was recorded as expense during the nine months ended September 30, 2017.
On August 16, 2017, the Company granted ten year options to purchase 125,000 shares of common stock at an exercise price of $0.185 per share to its chief financial officer in connection with the signing of new employment agreement. (See Note 6.) The options were valued with the Black-Scholes option pricing model using an expected volatility of 79.98% based upon the historical price of the companys stock, an expected term of five years using the simplified method, and a risk-free rate of 1.77%. The calculated fair value, $14,907 was recorded as expense during the nine months ended September 30, 2017.
On August 28, 2017, the Company granted five year options to purchase 25,000 shares of common stock at an exercise price of $0.20 per share to a new employee in connection with his employment. The options were valued with the Black-Scholes option pricing model using an expected volatility of 79.68% based upon the historical price of the companys stock, an expected term of 2.5 years using the simplified method, and a risk-free rate of 1.29%. The calculated fair value, $2,399 was recorded as expense during the nine months ended September 30, 2017.
NOTE 5 Related Party Transactions
During the nine months ended September 30, 2017, the Company issued warrants to its president and principal shareholder in exchange for cash as more fully described in Notes 3 and 4.
In August 2017,
Company and Warren Mosler (the Investor) entered into a Stock Purchase Agreement whereby the Investor committed to purchase up to $1,800,000 shares of the Companys common stock until August 1, 2018, subject to the Companys 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 Companys 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.
11
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
During the nine months ended September 30, 2017, the Company issued 5,570,898 shares of common stock and two year warrants to purchase 2,785,450 shares of common stock at an exercise price of $2.00 per share to Mr. Mosler in exchange for $1,175,000 in connection with private placements.
NOTE 6 Commitments
On August 16, 2017, the Company entered into a new three-year Employment Agreement with the Companys 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 Companys 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.
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, 2017. As of September 30, 2017, there were no cash balances held in depository accounts that are not insured.
At September 30, 2017, three customers accounted for 22.1%, 16.2% and 10.2% of accounts receivable.
For the nine months ended September 30, 2017, four customers accounted for 19.5%, 15.3%, 11.4% and 10.8% of sales.
Approximately 33.2% of revenue was generated from customers outside the United States during the nine months ended September 30, 2017, including sales to two countries of 19.5% and 11.4%.
During the nine months ended September 30, 2017, sales primarily resulted from three products, FireIce®, Soil
2
O® and FireIce Shield® which made up 74.7%, 12.5% and 12.3%, respectively, of total sales. Of the FireIce® sales, 76.5% related to the sale of FireIce® products and 12.5% related to sales of the FireIce extinguishers and eductor equipment. Of the Soil
2
O® sales, 20.1% related to traditional sales of Soil
2
O® and 79.9% related to sales of Soil
2
O® Dust Control. Of the FireIce Shield® sales, 23.5% consisted sales of asset protection canisters and refills, 22.8% related to FireIce Shield® CTP units and products, and 53.0% consisted of sale of spray bottles for use by welders and plumbers.
One vendor accounted for 53.4% of the Companys approximately $483,000 in purchases of raw material, finished goods and packaging during the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, our chairman and principal shareholder provided 100% of the Companys debt financing.
NOTE 8
Subsequent Events
Since October 1, 2017, the Company has issued 857,142 shares of common stock and two year warrants to purchase 428,571 shares of common stock at an exercise price of $2.00 per share in exchange for $150,000 in connection with private placements with two accredited investors, including 285,714 shares and 142,857 warrants to its chairman and principal shareholder in exchange for $50,000.
On October 2, 2017, the Company granted five year options to purchase 25,000 shares of common stock at an exercise price of $0.20 per share to a new employee in connection with his employment. The options were valued with the Black-Scholes option pricing model using an expected volatility of 79.68% based upon the historical price of the companys stock, an expected term of 2.5 years, the term of the options and a risk-free rate of 1.56%. The calculated fair value, $2,385 will recorded as expense during the three months ended December 31, 2017.
On October 24, 2017, the Company issued of 11,111 shares of common stock in exchange for investor relations services valued at $2,000 and issued 4,398 shares of common stock in exchange for consulting valued at $900.
12
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
ITEM 2.