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.
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, 2019
(Unaudited)
NOTE 1 Organization and Basis of Presentation
Organization
GelTech Solutions, Inc., or GelTech or the Company, generates revenue primarily from marketing products based around the following four product categories (1) the FireIce® family of products including FireIce® Pro and FireIce® 561, water enhancing powders 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; FireIce® XT and FireIce® ST, wet mixed suppressants for extinguishers and fire suppression systems and our new addition, FireIce® Polar Eco-Foam, an environmentally friendly Class A foam (2) FireIce Shield®, a line of products used in industry by manufacturers, plumbers, and welders, and by police departments and first responders to protect assets from fire; (3) Soil₂O® “Dust Control”, our application which is used for dust mitigation in the aggregate, road construction and mining Soil₂O® Soil Cap, a dust suppressant technology designed to stabilize stockpile dust and reduce soil erosion, and (4) Soil₂O®, a product which reduces the use of water and is primarily marketed to golf courses and commercial landscapers.
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 (See Note 2).
The corporate office is located in Jupiter, Florida and we also have an office in Niwot, Colorado to support our Wildland operations.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries: FireIce Gel, Inc., GelTech International, Inc. and Weather Tech Innovations, Inc. There has been no activity in FireIce Gel, Inc., Weather Tech Innovations, Inc. and GelTech International, Inc.
These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by "GAAP" for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The information included in these unaudited consolidated interim financial statements should be read in conjunction with 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, 2018 filed on March 28, 2019.
Inventories
Inventories as of September 30, 2019 consisted of raw materials and finished goods in the amounts of $972,372 and $1,097,880, respectively. As of September 30, 2019, the Company estimated that raw materials and finished goods in the amount $1,486,584 would most likely not be consumed in the next twelve months and therefore reclassified that amount to long term inventory in the unaudited consolidated balance sheet. As of September 30, 2019, the Company had approximately $82,847 of consignment inventory held by customers consisting primarily of FireIce 561, FireIce Pro, FireIce HVOF, HDU Wands and Equipment.
6
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(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, 2019 include the allowance for doubtful accounts, depreciation and amortization, valuation and classification of inventories, valuation of options granted for services, valuation of common stock granted for services or debt conversion and the valuation of deferred tax assets.
Revenue Recognition
On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. The Company used the modified prospective method upon adoption of the ASU. Our adoption of this ASU resulted in no cumulative effect adjustment.
The revenue that we recognize arises from purchase orders we receive from our customers. Our performance obligations under the purchase orders correspond to each shipment of product that we make to our customer under the purchase order. As a result, each purchase order generally contains more than one performance obligation based on the number of products ordered, the quantity of product to be shipped and the mode of shipment requested by the customer. Control of our products transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to our product or when the customer assumes risk of loss of our product. The transfer of control generally occurs at a point of shipment from either our warehouse or our third-party fulfillment centers. Once this occurs, we have satisfied our performance obligation and we recognize revenue.
When we receive a purchase order from a customer, we are obligated to provide the product during a mutually agreed upon time period. Depending on the terms of the purchase order, either we or the customer arranges delivery of the product to the customers intended destination. In situations where we have agreed to arrange delivery of the product to the customers intended destination and control of the product transfers upon loading of our product onto transportation equipment, we have elected to account for any freight income associated with the delivery of these products as freight revenue, since this activity fulfills our obligation to transfer the product to the customer.
Transaction Price
We agree with our customers on the selling price of each transaction. This transaction price is generally based on the product, market conditions, including supply and demand balances and freight. In our contracts with customers, we allocate the entire transaction price to the sale of product to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Returns of our product by our customers are permitted only when the product is not to specification and were not material for the nine months ended September 30, 2019. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue. Our revenues for FireIce, Soil₂O and Soil₂O Dust Control are seasonal in nature with our peak seasons occurring in the second and third quarters. Revenues from the sales of FireIce Shield are less seasonal.
Leases
In connection with entering into a new lease agreement for our Wildland operations in Colorado in February 2018, the Company elected to early adopt the provisions of ASU 2016-02, Leases. As such, the Company recorded an operating lease right of use asset and an operating lease liability as of March 31, 2018. As of September 30, 2019, the entire balance of the lease liability has been reflected as a current liability.
7
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
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, 2019, there were options to purchase 15,136,059 shares of the Companys common stock, warrants to purchase 15,816,066 shares of the Companys common stock and 9,134,594 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 stock-based compensation in accordance with ASC 718-10 Compensation Stock Compensation 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 stock appreciation rights are based on estimated fair values. Given the absence of adequate historical data, the Company uses the Simplified Method to estimate the term of options granted to employees and directors.
Effective January 1, 2019, the Company adopted ASU 2018-07 Compensation Stock Compensation (Topic718), Improvements to Nonemployee Share-Based Payment Accounting which modified the accounting for non-employee stock-based compensation. This standard requires the measurement and recognition of compensation expense for all share-based payment awards made to non-employees based on estimated fair values using the same method as for employees. The adoption resulted in no cumulative effect on the Companys retained earnings on the adoption date.
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 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, 2019 to September 30, 2019 were estimated using the following assumptions:
|
|
|
Risk free interest rate
|
|
1.81% - 2.59%
|
Expected term (in years)
|
|
2.5 - 5.5
|
Dividend yield
|
|
|
Volatility of common stock
|
|
72.89% - 79.98%
|
Estimated annual forfeitures
|
|
|
New Accounting Pronouncements
No Accounting Standards Updates (ASUs) which were not effective until after September 30, 2019 are expected to have a significant effect on the Company's consolidated financial position or results of operations.
8
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(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, 2019, the Company had an accumulated deficit and stockholders deficit of $59,111,023 and $3,403,022, respectively, and incurred losses from operations and net losses of $2,692,606 and $2,977,375, respectively, for the nine months ended September 30, 2019 and used cash in operations of $2,564,193 during the nine months ended September 30, 2019. 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 filing 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, 2019, the Company received $1,575,000 from private placements with two accredited investors, including $675,000 from its chairman and principal shareholder and $900,000 from a director, an accredited investor who is also a significant shareholder. In addition, the Company received $1,070,000 from its chairman and principal shareholder in exchange for a secured promissory note.
Management believes that additional funding from its chairman and principal shareholder, our other significant 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 Secured Convertible Note Agreements Related Party
The Company currently has three debt facilities outstanding, all of them held by its chairman and principal shareholder.
One convertible note in the amount of $1,000,000 dated July 11, 2013 related to a new funding on that date. The note bore annual interest of 7.5%, was convertible at $1.00 per share and was due July 10, 2018. In connection with the note, the Company issued 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. 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, 2019, the Company recorded interest expense of $7,675 related to the amortization of the note discounts related to the warrants. Interest expense for the nine months ended September 30, 2019 amounted to $37,534. As of September 30, 2019, the balance of the unamortized discount related to the warrants was $12,877. As of September 30, 2019, the principal balance on this note is $1,000,000 and accrued interest amounted to $82,055.
In connection with the February 2015 debt modifications described above, the Company entered into a Secured Revolving Convertible Line of Credit Agreement (the Notes) for up to $4 million with its chairman and principal shareholder. On April 8, 2016, the Company and its chairman and principal shareholder entered into the First Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $4 million to $5 million. On September 27, 2016, the Company and its chairman and principal shareholder entered into the Second Amendment to Secured Revolving Convertible Promissory Note Agreement increasing the credit facility from $5 million to $6 million. Under the agreements, the Company may, with the prior approval of its chairman and principal shareholder, receive advances under the secured convertible line of credit. Each advance bears an annual interest rate of 7.5%, is due December 31, 2020 and is convertible at the rate equal to the closing price of the 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.
9
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
In July 2018, the Company issued 9,379,473 shares of common stock to its chairman and principal shareholder upon the conversion of $2.5 million of the Notes. The Notes were converted at prices ranging from $0.21 to $0.35 per share. No gain or loss was recorded relating to the fair value of the shares exchanged because the debt was converted based upon the contractual terms of the Notes. In addition to the conversion, the Companys chairman, CEO and principal shareholder agreed to reduce the annual interest rate on the remaining Notes and a $1 million Secured Convertible Promissory Note from 7.5% to 5.0%. The remaining Notes are convertible at prices ranging from $0.35 to $0.82 per share. Because the change in interest rates did not significantly affect the present value of the remaining debt it has been treated as a debt modification.
During the nine months ended September 30, 2019, the Company has recognized interest expense of $101,818 related to the amortization of loan discounts. As of September 30, 2019, the principal balance of the advances was $3,395,000 and the balance of the unamortized discounts related to the warrants and the beneficial conversion feature was $85,407 and $85,408, respectively. Accrued interest on the advances amounted to $ 330,973 as of September 30, 2019.
On June 18, 2019, the Company received $500,000 from its Chairman and principal shareholder in exchange for a $500,000 secured promissory note bearing interest of LIBOR plus 2%, not to exceed 7%, payable quarterly with principal due September 30, 2022. In addition, during the three months ended September 30, 2019, the Company received an additional $570,000 in exchange for note amendments with the same terms. For the nine months ended September 30, 2019, the Company recognized interest expense of $8,009 related to this note. As of September 30, 2019, the principal balance of the notes was $1,070,000 and the accrued interest was $8,009.
A summary of notes payable and related discounts as of September 30, 2019 is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Unamortized
Discount
|
|
|
Debt,
Net of Discount
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
Secured Convertible notes payable
|
|
$
|
1,000,000
|
|
|
$
|
(12,877
|
)
|
|
$
|
987,123
|
|
Secured Convertible Line of Credit
|
|
|
3,395,000
|
|
|
|
(170,815
|
)
|
|
|
3,224,185
|
|
Secured promissory notes payable
|
|
|
1,070,000
|
|
|
|
|
|
|
|
1,070,000
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured convertible notes payable and line of credit, net of current portion
|
|
$
|
5,465,000
|
|
|
$
|
(183,692
|
)
|
|
$
|
5,281,308
|
|
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
The Company has authorized 200,000,000 shares of $0.001 par value common stock.
During the nine months ended September 30, 2019, the Company issued 9,255,164 shares of common stock and two-year warrants to purchase 4,627,582 shares of common stock with an exercise price of $2.00 per share to two accredited investors in exchange for $1,575,000 including the issuance of 3,911,766 shares of common stock and 1,955,883 warrants to the Companys chairman and principal shareholder in exchange for $675,000.
During the three months ended March 31, 2019, the Company issued 4,762 shares of common stock to consultants in exchange for consulting services rendered valued at $900, based upon the $0.189 quoted price per share of our common shares at the grant date.
During the nine months ended September 30, 2019, the Company issued 27,410 shares of common stock in payment of commissions in the amount of $4,735, based upon the fair market value of the common shares.
10
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
During the three months ended June 30, 2019, the Company issued 3,637 shares of common stock in connection with the exercise of options by a consultant with an exercise price of $0.165 per share.
During the three months ended September 30, 2019, the Company issued 3,637 shares of common stock in connection with the exercise of options by a consultant with an exercise price of $0.165 per share.
Stock-Based Compensation
Stock-based compensation expense recognized under ASC 718-10 for the period January 1, 2019 to September 30, 2019, was $103,446 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, 2019, the total compensation cost for stock options not yet recognized was approximately $49,184. This cost will be recognized over the remaining vesting term of the options of approximately one year.
Stock-based awards granted to non-employees, in the form of options to purchase the Companys common stock, are valued at the grant date at fair value in accordance ASU 2018-07 Compensation Stock Compensation (Topic718), Improvements to Nonemployee Share-Based Payment Accounting which modified the accounting for non-employee stock-based compensation in accordance with ASC 505-50-25, Equity Based Payments to Non-Employees, that requires the measurement and recognition of compensation expense for all share-based payment awards made to non-employees based on estimated fair values. Stock based compensation to non-employees recognized for the nine months ended September 30, 2019 was $816.
During the three months ended March 31, 2019, the Company granted five-year options to purchase 150,000 shares of common stock at an exercise price of $0.18 per share to our Vice President of Industrial Services. The options were valued on the grant date with the Black-Scholes option pricing model using a volatility of 79.98% based upon the historical price of the companys stock, a term of 2.5 years, using the simplified method, and a risk-free rate of 2.59%. The calculated fair value, $13,223 was included in the $86,958 expense noted above for the nine months ended September 30, 2019.
During the three months ended March 31, 2019, the Company granted five-year options to purchase 150,000 shares of common stock at an exercise price of $0.18 per share in exchange for legal services. The options were valued on the grant date with the Black-Scholes option pricing model using a volatility of 79.98% based upon the historical price of the Companys stock, a term of five years, the term of the options and a risk-free rate of 2.59%. The calculated fair value, $17,614 was recorded as prepaid expense and will be amortized over twelve months. For the nine months ended September 30, 2019, $7,341 was amortized to expense.
In June 2019, the Company granted five-year options to purchase 5,000 shares of common stock at an exercise price of $0.16 per share to a new employee. The options were immediately vested and were valued on the grant date with the Black-Scholes option pricing model using a volatility of 74.85% based upon the historical price of the companys stock, a term of 2.5 years, using the simplified method and a risk-free rate of 1.88%. The calculated fair value, $367 was included in the $86,958 expense noted above for the nine months ended September 30, 2019.
In accordance with the 2017 Equity Incentive Plan, on July 1, 2019 the non-employee directors were granted ten-year options to purchase 560,000 shares of common stock to non-employee directors at an exercise price of $0.166 per share. The options vest on June 30, 2020, subject to continued service as a director. The options were valued with the Black-Scholes option pricing model using an expected volatility of 72.89% 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 1.81%. The calculated fair value, $58,246, will be recorded as expense over the one-year vesting period.
Warrants to Purchase Common Stock
Warrants Issued as Settlements
During the nine months ended September 30, 2019, there were no warrants granted for settlements.
11
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
Warrants Issued for Cash or Services
During the nine months ended September 30, 2019, the Company issued two-year warrants to purchase 4,627,582 shares of common stock with an exercise price of $2.00 per share to two accredited investors, including the issuance of 1,955,883 warrants to the Companys chairman and principal shareholder in connection with the private placements described above.
During the nine months ended September 30, 2019, two-year warrants to purchase 4,704,329 shares of common stock at $2.00 per share, held by four accredited investors, expired, of which 1,688,879 were held by our chairman and principal shareholder.
NOTE 5 Related Party Transactions
During the nine months ended September 30, 2019, the Company issued stock and warrants, and entered into secured note agreements with its chairman and principal shareholder in exchange for cash as more fully described in Note 3 and Note 4.
In August 2017, the 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 chairman, continuing to serve as an officer of the Company. The Investor and our chairman were partners in a prior business. The Company had the right to direct the Investor to purchase up to $150,000 of shares in any calendar month (although the parties could mutually agree to increase it in any calendar month). The price paid for the shares was the closing price of the Companys common stock on the trading day immediately before the Company delivered its notice to the Investor. The Investor has purchased the full $1.8 million under the Agreement and is therefore not required to make any additional purchases. In June 2019, unrelated to the Stock Purchase Agreement, the Investor was appointed to the Companys Board of Directors. During the nine months ended September 30, 2019, the Company issued 5,343,398 shares of common stock and two-year warrants to purchase 2,671,699 shares of common stock at an exercise price of $2.00 per share to the Investor in exchange for $900,000 in connection with private placements.
NOTE 6 Commitments and Contingencies
In February 2018, the Company entered into a two-year operating lease agreement for an office in Niwot, Colorado to better serve our Wildland fire customers. The lease began on March 1, 2018 and calls for 24 monthly payments of $2,250. In accounting for this operating lease, the Company elected to early adopt ASU 2016-02, Leases. As such, the Company calculated the fair value of the operating lease right of use asset and the operating lease liability, $50,313, by calculating the present value of the lease payments, discounted at 7.5%, the Companys then incremental borrowing rate.
On November 14, 2012, the Compensation Committee approved new employment agreements for the Companys then Chief Executive Officer, then President, Chief Technology Officer and Chief Financial Officer. The employment agreements each provide for base salaries of $150,000 and 800,000 stock settled stock appreciation rights (SARS) of which (i) 200,000 vested immediately, (ii) 200,000 vest upon the Company generating $3,000,000 in revenue in any 12-month period, (iii) another 200,000 vest upon the Company generating $5,000,000 in revenue in any 12-month period and (iv) another 200,000 vest upon the Company generating $6,000,000 in revenue in any 12-month period. The SARs are exercisable at $0.45 per share over a 10-year period. The Companys then Chief Executive Officer, then President and Chief Technology Officer agreed to cancel the 250,000 stock options granted to each of them in their prior employment agreements. These executives base salary will increase to: (i) $170,000 upon the Company generating $3,000,000 in revenue in any 12-month period, (ii) $190,000 upon the Company generating $5,000,000 in any 12-month period and (iii) $200,000 upon the Company generating $6,000,000 in any 12-month period. On September 30, 2016, the employment agreement for the Companys Chief Financial Officer expired.
In January 2015, GelTech approved an amendment to the Employment Agreement of our Chief Technology Officer. In addition to his base salary, he will receive 5% of the first $2 million of revenue generated by GelTech. The Company paid the Chief Technology Officer $52,797 and $62,056, respectively, in 2017 and 2016 under this provision. The amendment was effective as of January 1, 2015. Additionally, in May 2015, GelTech approved an amendment to the Chief Technology Officers Employment Agreement to extend the term of the Agreement an additional four years (now expiring October 1, 2020).
12
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
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 Revenue Recognition
The revenue that we recognize arises from purchase orders we receive from our customers. Our performance obligations under the purchase orders correspond to each shipment of product that we make to our customer under the purchase order. As a result, each purchase order generally contains more than one performance obligation based on the number of products ordered, the quantity of product to be shipped and the mode of shipment requested by the customer. Control of our products transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to our product or when the customer assumes risk of loss of our product. The transfer of control generally occurs at a point of shipment from either our warehouse or our third-party fulfillment centers. Once this occurs, we have satisfied our performance obligation and we recognize revenue.
When we receive a purchase order from a customer, we are obligated to provide the product during a mutually agreed upon time period. Depending on the terms of the purchase order, either we or the customer arranges delivery of the product to the customers intended destination. In situations where we have agreed to arrange delivery of the product to the customers intended destination and control of the product transfers upon loading of our product onto transportation equipment, we have elected to account for any freight income associated with the delivery of these products as freight revenue, since this activity fulfills our obligation to transfer the product to the customer. For the nine months ended September 30, 2019, the total amount of freight recognized as revenue was $47,017.
Transaction Price
We agree with our customers on the selling price of each transaction. This transaction price is generally based on the product, market conditions, including supply and demand balances and freight. In our contracts with customers, we allocate the entire transaction price to the sale of product to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Returns of our product by our customers are permitted only when the product is not to specification and were not material for the nine months ended September 30, 2019. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue. Our revenues for FireIce, Soil₂O and Soil₂O Dust Control are seasonal in nature with our peak seasons occurring in the second and third quarters. Revenues from the sales of FireIce Shield are less seasonal.
Revenue Disaggregation
We track our revenue by product. The following table summarizes our revenue by product for the three and nine months ended September 30, 2019:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
2019
|
|
|
2019
|
|
FireIce
|
|
|
|
|
|
$
|
453,186
|
|
|
$
|
883,137
|
|
Soil₂O
|
|
|
|
|
|
|
30,307
|
|
|
|
62,051
|
|
FireIce Shield
|
|
|
|
|
|
|
8,434
|
|
|
|
362
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
36,151
|
|
Total
|
|
|
|
|
|
$
|
491,927
|
|
|
$
|
981,701
|
|
13
GELTECH SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
NOTE 8 Concentrations
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through September 30, 2019. As of September 30, 2019, there were no cash balances held in depository accounts that are not insured.
At September 30, 2019, three customers accounted for 33.1%, 32.8% and 11.4% of accounts receivable.
For the nine months ended September 30, 2019, two customers accounted for 18.8% and 11.0% of sales.
Approximately 37.9% of revenue was generated from customers outside the United States during the nine months ended September 30, 2019.
During the nine months ended September 30, 2019, sales primarily resulted from three product categories, FireIce®, Soil₂O® and FireIce Shield® which made up 90.0%, 6.3% and 3.7%, respectively, of total sales. Of the FireIce® sales, 39.9% related to the sale of FireIce® products, 33.2% related to sales of FireIce Polar Eco-Foam, 8.2% related to the sale of components and product for 15 stadium box suppression systems and 18.7% related to sales of FireIce extinguishers, eductors and other equipment. Of the Soil₂O® sales, 50% related to traditional sales of Soil₂O® and 50% related to sales of Soil₂O® Dust Control. Of the FireIce Shield® sales, 15.6% consisted sales of asset protection canisters and refills, 22.9% related to FireIce Shield® CTP units and products, and 61.6% consisted of sale of spray bottles and welding blankets for use by welders and plumbers.
Two vendors accounted for 28.3% and 11.6% of the Companys approximately $567,000 in purchases of raw material, finished goods and packaging during the nine months ended September 30, 2019.
NOTE 9 Subsequent Events
Since October 1, 2019, the Company has received additional advances in the amount of $310,000 from its chairman and principal shareholder in exchange for amendments to the secured promissory note entered into on June 18, 2019, increasing the amount due under the note to $1,380,000..
14
ITEM 2.