UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




———————


FORM
10-Q


———————





þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended:  December31,
      2009or ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from: _____________ to
  _____________




Commission
file number: 0-52993




———————


GELTECH
SOLUTIONS, INC.


(Exact
name of registrant as specified in its charter)


———————





Delaware
            
            56-2600575(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)1460
      Park Lane South, Suite 1, Jupiter, Florida
            
            33458(Address
      of principal executive offices)
            
            (Zip
      Code)




(561)
427-6144


(Registrant’s telephone number,
including area code)


———————





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the




Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.  Yes þ  No  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).  Yes  ̈   No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.




Large
      accelerated
      filer            ̈
            
            Accelerated
      filer                  
          ̈Non-accelerated
      filer            
       ̈
            
            Smaller
      reporting company    þ(Do
      not check if smaller reporting
company)




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).   Yes  ̈   No þ




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.




The
number of outstanding shares of the issuer’s common stock as of February 11,
2009, was 15,557,681.
















Table
of Contents




PART
      I – FINANCIAL INFORMATIONItem
    1.
              Consolidated Financial
      Statements.
              1Condensed
      Consolidated Balance Sheets as of December 31, 2009 (Unaudited) and June
      30, 2009
              1Condensed
      Consolidated Statements of Cash Flows for the three and six months ended
      December 31, 2009 and 2008 (Unaudited)
              3Notes to Condensed
      Consolidated Financial Statements (Unaudited)
              4Item
    2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              14Item
      3.
              Quantitative and
      Qualitative Disclosures About Market Risk.
              19Item 4.
              Controls and
      Procedures
              19Item
      4T.
              Controls and
      Procedures
              19PART II – OTHER INFORMATIONItem
    1.
              Legal
      Proceedings.
              21Item 1A.
              Risk
      Factors.
              21Item
      2.
              Unregistered Sales
      of Equity Securities and Use of Proceeds.
              21Item
      3.
              Defaults Upon Senior
      Securities.
              21Item
      4.
              Submission of
      Matters to a Vote of Security Holders.
              21Item
    5.
              Other
      Information.
              21Item
    6.
              Exhibits.
              22SIGNATURES
              23





PART
I – FINANCIAL INFORMATION




ITEM 1. CONSOLIDATED FINANCIAL
STATEMENTS


GELTECH
      SOLUTIONS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSAs
      ofDecember
      31,
            
            
            June
      30,2009
            
            
            2009ASSETS
            
            (Unaudited)Cash
      and cash equivalents
            
            $
            332,861
            
            
            $
            245,381Accounts
      receivable trade, net
            
            
            224,699
            
            
            
            16,167Inventories
            
            
            177,917
            
            
            
            249,409Prepaid
      expenses and other current assets
            
            
            47,304
            
            
            
            11,103Total
      current assets
            
            
            782,781
            
            
            
            522,060Furniture,
      fixtures and equipment, net
            
            
            19,650
            
            
            
            23,207Prepaid
      consulting
            
            
            297,500
            
            
            
            -Debt
      issue costs, net
            
            
            143,750
            
            
            
            316,250Deposits
            
            
            32,586
            
            
            
            30,630$
            1,276,267
            
            
            $
            892,147LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Accounts
      payable
            
            $
            62,661
            
            
            $
            51,778Accrued
      expenses
            
            
            96,385
            
            
            
            27,753Customer
      deposit
            
            
            -
            
            
            
            25,000Line
      of credit
            
            
            2,450,000
            
            
            
            1,550,000Due
      to related party
            
            
            -
            
            
            
            60,000Insurance
      premium finance contract
            
            
            24,801
            
            
            
            7,060Total
      current liabilities
            
            
            2,633,847
            
            
            
            1,721,591Total
      liabilities
            
            
            2,633,847
            
            
            
            1,721,591Commitments
      and contingencies (Note 6)Stockholder's
      equity (deficit)Preferred
      stock: $0.001 par value; 5,000,000 shares authorized;no
      shares issued and outstanding
            
            
            -
            
            
            
            -Common
      stock: $0.001 par value; 50,000,000 shares authorized;14,529,016
      and 13,858,986 shares issued and outstanding as of December 31, 2009 and
      June 30, 2009, respectively.
            
            
            14,529
            
            
            
            13,859Additional
      paid in capital
            
            
            6,290,588
            
            
            
            5,262,999Accumulated
      deficit
            
            
            (7,662,697
            )
            
            
            (6,106,302
            )Total
      stockholders' equity (deficit)
            
            
            (1,357,580
            )
            
            
            (829,444
            )Total
      liabilities and stockholders' equity (deficit)
            
            $
            1,276,267
            
            
            $
            892,147





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.





1


GELTECH
      SOLUTIONS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)For
      the Three Months Ended December 31,
              
              
              For
      the Six Months Ended December 31,2009
              
              
              2008
              
              
              2009
              
              
              2008Sales
              
              $
              237,867
              
              
              $
              (41,279
              )
              
              $
              525,421
              
              
              $
              29,062Cost
      of goods sold
              
              
              68,924
              
              
              
              (11,988
              )
              
              
              160,130
              
              
              
              7,951Gross
      profit
              
              
              168,943
              
              
              
              (29,291
              )
              
              
              365,291
              
              
              
              21,111Operating
      expenses:Selling,
      general and administrative expenses
              
              
              948,089
              
              
              
              642,670
              
              
              
              1,686,747
              
              
              
              1,365,173Research
      and development
              
              
              3,071
              
              
              
              95,980
              
              
              
              6,837
              
              
              
              112,797Total
      operating expenses
              
              
              951,160
              
              
              
              738,650
              
              
              
              1,693,584
              
              
              
              1,477,970Loss
      from operations
              
              
              (782,217
              )
              
              
              (767,941
              )
              
              
              (1,328,293
              )
              
              
              (1,456,859
              )Other
      income (expense)Interest
      income
              
              
              49
              
              
              
              1,746
              
              
              
              61
              
              
              
              14,513Interest
      expense
              
              
              (116,906
              )
              
              
              (7,152
              )
              
              
              (228,163
              )
              
              
              (7,490
              )Total
      other income (expense)
              
              
              (116,857
              )
              
              
              (5,406
              )
              
              
              (228,102
              )
              
              
              7,023Net
      loss
              
              $
              (899,074
              )
              
              $
              (773,347
              )
              
              $
              (1,556,395
              )
              
              $
              (1,449,836
              )Net
      loss per common share - basic and diluted
              
              $
              (0.06
              )
              
              $
              (0.06
              )
              
              $
              (0.11
              )
              
              $
              (0.11
              )Weighted
      average shares outstanding - basic and diluted
              
              
              14,028,038
              
              
              
              13,471,466
              
              
              
              13,943,989
              
              
              
              13,467,158
 
 The
accompanying unaudited notes are an integral part of these condensed
consolidated financial statements.


2




GELTECH
      SOLUTIONS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)For
      the Six Months Ended December 31,2009
              
              
              2008Cash
      flows from operating activitiesReconciliation
      of net loss to net cash used in operating activities:Net
      loss
              
              $
              (1,556,395
              )
              
              $
              (1,449,836
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
              
              
              4,660
              
              
              
              10,749Amortization
      of debt issuance costs
              
              
              172,500
              
              
              
              -Amortization
      of prepaid stock compensation
              
              
              -
              
              
              
              16,042Amortization
      of prepaid consulting
              
              
              42,500
              
              
              
              -Credit
      issued
              
              
              -
              
              
              
              65,570Stock
      option compensation expense
              
              
              203,259
              
              
              
              116,166Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (233,532
              )
              
              
              (7,676
              )Inventories
              
              
              71,492
              
              
              
              (83,840
              )Prepaid
      expenses and other current assets
              
              
              (3,098
              )
              
              
              7,430Deposits
      and other assets
              
              
              (1,956
              )
              
              
              938Accounts
      payable
              
              
              10,883
              
              
              
              (67,532
              )Related
      party payable
              
              
              (60,000
              )
              
              
              -Accrued
      expenses
              
              
              68,632
              
              
              
              (40,034
              )Net
      cash used in operating activities
              
              
              (1,281,055
              )
              
              
              (1,432,023
              )Cash
      flows from Investing ActivitiesSales
      of short term marketable debt securities
              
              
              -
              
              
              
              750,000Purchases
      of equipment
              
              
              (1,103
              )
              
              
              (4,857
              )Net
      cash provided by (used in) investing activities
              
              
              (1,103
              )
              
              
              745,143Cash
      flows from Financing ActivitiesPayments
      on Insurance Finance Contract
              
              
              (15,362
              )
              
              
              (10,903
              )Proceeds
      from sale of stock and warrants
              
              
              470,000
              
              
              
              -Proceeds
      from exercise of stock options
              
              
              15,000
              
              
              
              -Proceeds
      from revolving line of credit, net
              
              
              900,000
              
              
              
              558,000Net
      cash provided by financing activities
              
              
              1,369,638
              
              
              
              547,097Net
      increase in cash and cash equivalents
              
              
              87,480
              
              
              
              (139,783
              )Cash
      and cash equivalents - beginning
              
              
              245,381
              
              
              
              230,058Cash
      and cash equivalents - ending
              
              $
              332,861
              
              
              $
              90,275Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest
              
              $
              24,986
              
              
              $
              7,490Cash
      paid for income taxes
              
              $
              -
              
              
              $
              -Supplementary
      Disclosure of Non-cash Investing and Financing Activities:Financing
      of prepaid insurance contracts
              
              $
              55,560
              
              
              $
              23,097Prepaid
      stock-based consulting
              
              $
              340,000
              
              
              $
              38,500


The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.


3


GelTech
Solutions, Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements


For
the Three and Six Months Ended December 31, 2009


(Unaudited)




1.
      Organization and Basis of
Presentation




Organization




GelTech
Solutions, Inc. (“GelTech” or the “Company”) is a Delaware corporation. GelTech
is primarily engaged in business activities that include finalizing the
development of products in three distinct markets and beginning the marketing
and delivery of products in two of those markets: (i) FireIce®, a patented fire
suppression product, which is non-toxic and when combined with water becomes a
water-based gel product used to suppress fires involving structures, personal
property and forest wildfires; (ii) RootGel, a moisture preservation solution
that has many applications useful in the agricultural industry including water
and nutrient retention in golf course maintenance, landscaping and forestry and
(iii) IceWearTM, a line of garments that help cool the core body temperature for
individuals who work in extreme conditions (e.g., firefighters, police officers,
construction workers, race car drivers). Additionally, GelTech owns a United
States patent for a method to modify weather.




Beginning
July 2008, the Company was no longer in the development stage as defined by
Accounting Standards Codification (ASC)  915-10. “Accounting and
Reporting for Development Stage Enterprises." The Company will no longer
continue to report as a development stage company, since significant revenues
have been generated and the company operations have moved beyond the activities
of identifying and developing products to the activities of marketing, selling
and distributing products. The corporate office is located in Jupiter,
Florida.




Basis
of Presentation




The
accompanying unaudited condensed consolidated interim financial statements
include the accounts of the Company and its two wholly owned subsidiaries:
Weather Tech Innovations, Inc. and FireIce Gel, Inc. (formerly GelTech
Innovations, Inc.). Prior to July 1, 2008, there had been no activity in
either subsidiary. Beginning on July 1, 2008, the Company began operating
the marketing, sales and distribution of FireIce® through FireIce Gel, Inc.
These unaudited, condensed consolidated interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) in accordance with the rules and regulations
of the U.S. Securities and Exchange Commission (”SEC”) for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by "GAAP" for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The information
included in these unaudited condensed consolidated financial statements should
be read in conjunction with Management’s Discussion and Analysis of Financial
Conditions and Results of Operations contained in this report and the audited
consolidated financial statements and accompanying notes included in the
Company’s Annual Report on Form 10-K for the year ended June 30, 2009
filed on September 28, 2009.




Inventories




Inventories
as of December 31, 2009 consisted of raw materials and finished goods in
the amounts of $96,405 and $81,512, respectively.




Revenues




The
Company recognizes sales of its products when they are shipped FOB shipping
point in accordance with ASC 605-15 and reduces revenues for any credits issued
to customers. During the six months ended December 31, 2009, the Company
issued credits to customers in the amount of $851 for products returned by a
distributor. As a result, sales for the six months ended December 31, 2009 were
reduced by the amount of the returns.




Accounting
Standard Codification




In
June 2009, FASB approved the FASB Accounting Standards Codification (“the
Codification”) as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the SEC, have been superseded by the
Codification. All other non-grandfathered, non-SEC accounting literature not
included in the Codification has become nonauthoritative. The Codification did
not change GAAP, but instead introduced a new structure that combines all
authoritative standards into a comprehensive, topically organized online
database. The Codification is effective for interim or annual periods ending
after September 15, 2009, and impacts the Company’s financial statements as
all future references to authoritative accounting literature will be referenced
in accordance with the Codification. Other than changes to authoritative
references, there have been no changes to the content of the Company’s financial
statements or disclosures as a result of implementing the Codification during
the quarter ended September 30, 2009.




4
 
 GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December 31, 2009
 (Unaudited)


As a
result of the Company’s implementation of the Codification during the quarter
ended September 30, 2009, previous references to new accounting standards
and literature are no longer applicable. In the current quarter financial
statements, the Company will provide reference to the both the old and new
guidance to assist in understanding the impacts of recently adopted accounting
literature, particularly for guidance adopted since the beginning of the current
fiscal year but prior to the Codification.  New references will use
the term Accounting Standards Codification (ASC) followed by the relevant ASC
section.




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 financial statements are reasonable;
however, actual results could differ materially from these estimates.
Significant estimates in the fiscal 2010 period include the allowance for
doubtful accounts, valuation of inventories, valuation of options and warrants
granted for services, valuation of common stock granted for services and the
deferred tax assets.




Earnings
(Loss) per Share




The
Company computes earnings (loss) per share in accordance with SFAS No. 128
(ASC 260-10), “Earnings per
Share.” ASC 260-10 requires presentation of both basic and diluted
earnings per share (“EPS”) on the face of the income statement. Basic EPS is
computed by dividing net income (loss) available to common shareholders by the
weighted average number of common shares outstanding during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the
period. Diluted EPS excludes all dilutive potential common shares if their
effect is anti-dilutive. At December 31, 2009, there were options to purchase
2,674,000 shares of the Company’s common stock and warrants to purchase
1,457,361 shares of the Company’s commons stock which may dilute future earnings
per share.




Stock-Based
Compensation




On
July 19, 2006 (inception), the Company adopted SFAS No. 123 (revised
2004, “123R”) (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.




Stock-based
compensation expense recognized under ASC 718-10 for the period July 1,
2009 to December 31, 2009 was $203,259 which consisted of compensation related
to employee, director and advisor stock options, and is included in selling,
general and administrative expenses on the consolidated statements of
operations. Stock-based compensation expense recognized during the period is
based on the value of the portion of share-based payment awards that is
ultimately expected to vest during the period. At December 31, 2009, the total
compensation cost for stock options not yet recognized was approximately
$531,381. This cost will be amortized on a straight-line basis over the
remaining vesting term of the options.




On July 1, 2009, the Company
granted options to purchase 100,000 shares of the Company’s common stock to
directors of the Company. The options have an exercise price of $1.84 per share,
vest over one year and have a ten year term. The options were valued using the
Black-Scholes model using a volatility of 166.28% (derived using the historical
market price for the Company’s common stock since it began trading in
June 2008), an expected term of 6.5 years (using the simplified method) and
a discount rate of 3.03%. The value of the options will be recognized over the
vesting term, one year.




5
 
 GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December 31, 2009
 (Unaudited)


A summary
of stock option transactions for all stock options for the six months ended
December 31, 2009 and 2008 is as follows:




Employee
      OptionsNumber
      ofOptions
            
            Weighted
              AverageExercisePrice
            
            WeightedAverageRemainingContractualLife
            
            AggregateIntrinsicValueBalance
      at June 30, 2008
            
            
            1,175,000
            
            
            $
            0.82
            
            
            
            7.53Granted
            
            
            1,540,000
            
            
            $
            1.00
            
            
            
            10.0Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2008
            
            
            2,715,000
            
            
            $
            0.92
            
            
            
            8.71
            
            
            $
            154,050Exercisable
      at December 31, 2008
            
            
            583,253
            
            
            $
            0.87
            
            
            
            5.72
            
            
            $
            52,900Weighted
      average fair value of options granted during the six months ended December
      31, 2008
            
            $
            0.42Balance
      at June 30, 2009
            
            
            2,714,000
            
            
            $
            0.92
            
            
            
            8.20Granted
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            (500,000
            )
            
            $
            1.00
            
            
            
            9.75Expired
            
            
            ––
            
            
            $
            ––Outstanding
      at December 31, 2009
            
            
            2,214,000
            
            
            $
            0.90
            
            
            
            7.40
            
            
            $
            2,434,552Exercisable
      at December 31, 2009
            
            
            987,583
            
            
            $
            0.88
            
            
            
            5.80
            
            
            $
            1,101,658Weighted
      average fair value of options granted during the six months ended December
      31, 2009
            
            
            N/A


6
 GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December 31, 2009
 (Unaudited)


A summary
of options issued to non-employees under the 2007 Plan and changes during the
six month periods from June 30, 2008 to December 31, 2008 and from June 30, 2009
to December 31, 2009 is as follows:




Options
      Issued to DirectorsNumber
      ofOptions
            
            WeightedAverageExercisePrice
            
            WeightedAverageRemainingContractualLife
            
            AggregateIntrinsicValueBalance
      at June 30, 2008
            
            
            110,000
            
            
            $
            0.85
            
            
            
            5.89Granted
            
            
            95,000
            
            
            $
            0.88
            
            
            
            10.00Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2008
            
            
            205,000
            
            
            $
            0.86
            
            
            
            7.40
            
            
            $
            13,550Exercisable
      at December 31, 2008
            
            
            113,333
            
            
            $
            0.89
            
            
            
            7.08
            
            
            $
            5,372Weighted
      average fair value of options granted during the six months ended December
      31, 2008
            
            $
            1.78Balance
      at June 30, 2009
            
            
            205,000
            
            
            $
            0.86
            
            
            
            5.89Granted
            
            
            100,000
            
            
            $
            1.84
            
            
            
            10.00Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2009
            
            
            305,000
            
            
            $
            1.18
            
            
            
            7.42
            
            
            $
            249,050Exercisable
      at December 31, 2009
            
            
            238,336
            
            
            $
            1.01
            
            
            
            6.89
            
            
            $
            236,432Weighted
      average fair value of options granted during the six months ended December
      31, 2009
            
            
            N/A





7


GelTech
Solutions, Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements


For
the Three and Six Months Ended December 31, 2009


(Unaudited)





Non-Employee,
      Non-Director OptionsNumber
      ofOptions
            
            WeightedAverageExercisePrice
            
            WeightedAverageRemainingContractualLife
            
            AggregateIntrinsicValueBalance
      at June 30, 2008
            
            
            170,000
            
            
            $
            1.00
            
            
            
            4.53Granted
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2008
            
            
            170,000
            
            
            $
            1.00
            
            
            
            4.27
            
            
            $
            ––Exercisable
      at December 31, 2008
            
            
            70,623
            
            
            $
            1.00
            
            
            
            4.27
            
            
            $
            ––Weighted
      average fair value of options granted during the six months ended December
      31, 2008
            
            
            N/ABalance
      at June 30, 2009
            
            
            170,000
            
            
            $
            1.00
            
            
            
            3.53Granted
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Exercised
            
            
            (15,000
            )
            
            $
            1.00
            
            
            
            3.25Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2009
            
            
            155,000
            
            
            $
            1.00
            
            
            
            3.02
            
            
            $
            155,000Exercisable
      at December 31,  2009
            
            
            155,000
            
            
            $
            1.00
            
            
            
            3.02
            
            
            $
            155,000Weighted
      average fair value of options granted during the six months ended December
      31, 2009
            
            
            N/A




Determining Fair
Value Under ASC 718-10




The
Company estimates the fair value of stock options granted using the
Black-Scholes option-pricing formula and a single option award approach. This
fair value is then amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period. The Company’s
determination of fair value using an option-pricing model is affected by the
stock price as well as assumptions regarding the number of highly subjective
variables.




The
Company estimates volatility based upon the historical stock price of the
Company and estimates the expected term using the simplified
method.  The risk free rate is determined based upon the prevailing
rate of United States Treasury securities with similar maturities.




The fair
value of stock option grants for the period from July 1, 2009 to December
31, 2009 was estimated to have a weighted average fair value of $1.78, using the
following assumptions:




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


8
 GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December 31, 2009
 (Unaudited)




2.
Going Concern




These
unaudited condensed consolidated financial statements have been prepared on a
going concern basis, which implies the Company will continue to realize it
assets and discharge its liabilities in the normal course of business. As of
December 31, 2009, the Company had a working capital deficit of $1,851,066 and
had an accumulated deficit and stockholders’ deficit of $7,662,697 and
$1,357,580, respectively, and incurred losses from operations of $1,328,293 for
the six months ended December 31, 2009 and used cash from operations of
$1,281,055 during the six months ended December 31, 2009. These factors raise
substantial doubt regarding the Company’s ability to continue as a going
concern. In May 2009, the Company entered into a $2,500,000 revolving line
of credit agreement with its largest shareholder. As of December 31, 2009, the
Company had drawn $2,450,000 against this line of credit. This
shareholder/lender has assured the Company that he will provide any additional
support the Company may require. The Company issued 455,000 shares of common
stock and 455,000 warrants to purchase common stock in exchange for $470,000
during the six months ended December 31, 2009.  In addition, since
January 1, 2010 the Company has received an additional $1,280,000 in cash
through the sale of 128 units, each unit consisting of 10,000 shares of common
stock and three year warrants to purchase 10,000 shares of common
stock.  All of these transactions have been through private
placements.  If the Company is unable to generate substantial cash
flows from additional sales of its products, or through financings, including
but not limited to the line of credit, the Company may not be able to remain
operational.




The
continuation of the Company as a going concern is dependent upon the continued
financial support from its shareholders, the ability of the Company to obtain
necessary debt or equity financing to continue operations, and the attainment of
profitable operations. These financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.




3.
Line of Credit Agreement




On
May 29, 2009, GelTech Solutions, Inc. (the “Company”) entered into a Credit
Enhancement and Financing Security Agreement with the Company’s largest
shareholder. In connection with this agreement the Company executed a Revolving
Promissory Note which permits the Company to borrow up to $2,500,000. Interest,
at an annual rate of 5%, is due monthly on the 20th day of each month which
commenced on July 20, 2009 and the principal and all accrued interest is
due on May 29, 2010. Additionally, the Company may be compelled to pay the
outstanding principal balance earlier during which it will not be permitted to
borrow any sums for a period of 30 consecutive days.  As of December
31, 2009, the Company has received advances against the note of $2,450,000 of
which $1,058,943 was used to repay amounts owed under previous lines of
credit.  Interest expense on the note for the six months ended
December 31, 2009 was $55,234.





9


GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December
31, 2009
 (Unaudited)


4.
Stockholders’ Equity




The
issuances of common stock during the six months ended December 31, 2009 were as
follows:




In
October 2009, the Company issued 15,000 shares of common stock in exchange for
$15,000 in cash upon the exercise of options by a member of the Company’s
advisory board.




In
November 2009, the Company issued 200,000 shares to an investment banking firm
as compensation for a two year consulting agreement with an effective date of
October 15, 2009.  The Company recorded the fair value of the shares,
$340,000, based upon the quoted trade price of the shares on the date of the
agreement, as prepaid consulting fees and will amortize the amount over the term
of the agreement, two years.  The Company amortized $42,500 of this
amount during the three months ended December 31, 2009.




In
November 2009, the Company issued 30,000 shares of common stock and two year
warrants to purchase 30,000 shares of common stock at an exercise price of $2.00
per share in exchange for $45,000 in cash in private placements with accredited
investors.




In
December 2009, the Company issued 425,000 shares of common stock and three year
warrants to purchase 425,000 shares of common stock at an exercise price of
$1.60 per share in exchange for $425,000 in cash in private placements with
accredited investors.




Common Stock
Warrants




A summary
of outstanding warrants as of December 31, 2009 and 2008 and changes during the
six month periods ended December 31, 2009 and 2008 is as follows:




Warrants
      Issued as SettlementsNumber
      ofOptions
            
            WeightedAverageExercisePrice
            
            RemainingContractualLifeBalance
      at June 30, 2008
            
            
            504,058
            
            
            $
            1.05
            
            
            
            1.92Granted
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Exercised
            
            
            (30,000
            )
            
            $
            1.00
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2008
            
            
            474,058
            
            
            $
            1.05
            
            
            
            1.41Exercisable
      at December 31, 2008
            
            
            474,058
            
            
            $
            1.05
            
            
            
            1.41Weighted
      average fair value of options granted during the six months ended December
      31, 2008
            
            
            N/ABalance
      at June 30, 2009
            
            
            474,058
            
            
            $
            1.05
            
            
            
            0.91Granted
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2009
            
            
            474,058
            
            
            $
            1.05
            
            
            
            0.41Exercisable
      at December31, 2009
            
            
            474,058
            
            
            $
            1.05
            
            
            
            0.41Weighted
      average fair value of options granted during the six months ended December
      31, 2009
            
            
            N/A







10





A summary
of warrants issued for cash and changes during the periods June 30, 2008 to
December 31, 2008 and from June 30, 2009 to December 31, 2009 is as
follows:




Warrants
      issued for cashNumber
      ofOptions
            
            WeightedAverage
              ExercisePrice
            
            Remaining
              ContractualLifeBalance
      at June 30, 2008
            
            
            528,303
            
            
            $
            1.14
            
            
            
            2.29Granted
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2008
            
            
            528,303
            
            
            $
            1.14
            
            
            
            1.79Exercisable
      at December 31, 2008
            
            
            528,303
            
            
            $
            1.14
            
            
            
            1.79Weighted
      average fair value of options granted during the six months ended December
      31, 2008
            
            
            N/ABalance
      at June 30, 2009
            
            
            528,303
            
            
            $
            1.14
            
            
            
            1.29Granted
            
            
            455,000
            
            
            $
            1.63
            
            
            
            2.93Exercised
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Forfeited
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Expired
            
            
            ––
            
            
            $
            ––
            
            
            
            ––Outstanding
      at December 31, 2009
            
            
            983,303
            
            
            $
            1.37
            
            
            
            1.77Exercisable
      at December 31, 2009
            
            
            983,303
            
            
            $
            1.37
            
            
            
            1.77Weighted
      average fair value of options granted during the six months ended December
      31, 2009
            
            
            N/A




In connection with private placement
transactions, the Company issued two year warrants to purchase 30,000 shares of
the Company’s common stock at an exercise price of $2.00 per share and issued an
additional 425,000 three year warrants to purchase shares of the Company’s
common at an exercise price of $1.60 per share.




5.
Fair Value Measurements




In
July 2009, the Company implemented FASB Accounting Standards Codification
850 “Fair Value Measurements and Disclosures” (formerly SFAS 157, “Fair Value
Measurements”), relative to its financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements at least
annually.




Our cash
and cash equivalents are recorded at fair value as determined through market,
observable and corroborated sources




As of
December 31, 2009 the Company’s cash and cash equivalents that are carried at
fair value on a recurring basis include the following:




Fair
      Value Measurements UsingTotal
            
            
            Quoted
      Prices
              in
      ActiveMarkets
              (Level
      1)
            
            
            Significant
      Other ObservableInputs(Level
      2)
            
            
            SignificantUnobservableInputs
              (Level
      3)Cash
            
            $
            332,861
            
            
            $
            332,861
            
            
            $
            ––
            
            
            $
            ––




11


GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December 31, 2009
 (Unaudited)





6.
Commitments and Contingencies




On
September 15, 2006, the Company entered into employment agreements with two
of its officers and on December 18, 2006 the Company entered into an
employment agreement with a third officer. Each agreement is for a term of three
years and requires the payment of $91,000 in annual compensation to each
officer. In addition, two of the employment contracts include the issuance of
incentive stock options to purchase 175,000 shares of the Company’s common stock
to each of the officers. Effective March 17, 2008, the Board authorized an
amendment to the employment agreements with the officers. The officers agreed to
eliminate their automobile allowances of $875 per month. In exchange, their
annual compensation has been increased from $91,000 to $125,000, and each
officer was granted 200,000 stock options exercisable at $0.667 per share over a
10-year period, subject to semi-annual vesting if still employed by the Company
on each applicable vesting date. The Board also granted an additional 175,000
stock options to the officer that did not receive an initial grant, exercisable
at $1.00 per share over a 10-year period, subject to the same vesting described
in the prior sentence. The Board also agreed to amend a provision of the
officers’ employment agreements which permits them to resign for “Good Reason”
and receive severance equal to three years base salary and have all unvested
options vest. Under this provision, each officer has 180 days to resign in the
event a shareholder acquires beneficial ownership of at least 30% of the
Company’s common stock. On January 30, 2008, an investor passed this 30%
threshold as described on a Form 8-K filed by the Company on the same day.
The amendment gave each officer until December 31, 2008 to make this
election. None made such an election. See Note 1 for additional information on
the options granted the officers.




As
discussed above, in December 2008, the Compensation Committee approved new
employment terms for each of the Company’s three executive officers. Each
received an annual salary of $125,000 for the balance of fiscal 2009 with
increases to $150,000 and $175,000 for fiscal 2010 and 2011, which increases are
subject to the discretion of the Compensation Committee. Target bonuses, subject
to the discretion of the Compensation Committee, are $112,500 and $131,250 for
fiscal 2010 and 2011, respectively based upon meeting job performance, revenue
growth, positive cash flow and pre-tax income. No bonus was awarded for fiscal
2009. Additionally, each executive received a grant of 500,000 10-year options
exercisable at $0.667 per share. The options vest annually subject to continued
employment with the Company and subject to meeting budgeted revenue targets. If
the Company fails to meet any revenue targets, the Compensation Committee has
discretion to vest or cancel the options. Based upon the failure to meet fiscal
2009 revenue targets, a total of 500,000 options were forfeited.




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 seeks to
recover certain of his personal property, which was used or stored in the
Company’s offices, and alleges the Company invaded his privacy by looking at his
personal computer in the Company’s offices. The Company has filed motions to
dismiss and continues to contend that the lawsuit is baseless.




In
October 2008, the Company entered into a Master Distributing Agreement with
a California company (the "Distributor"). Under the agreement, the Company
agreed to pay the Distributor up to $450,000 in costs toward the marketing of
the Company’s FireIce® Gel product. As of June 30, 2009, the Company had
paid $50,000 to the Distributor. In addition, the Company issued a credit in
lieu of payment, in the amount of $50,000, against the accounts receivable of
the Distributor. As such, the remaining amounts due under the agreement called
for the payment of an additional $210,000 in calendar 2009 and $140,000 in
calendar 2010. In September 2009, the Company and the Distributor entered
into a settlement agreement whereby each party was relieved of any further
obligations related to the Master Distributing Agreement.




7.
Related Party Transactions




In
addition to the Chief Executive Officer (CEO) and the Chief Technology Officer
(CTO) the following related parties are employed at GelTech:




·
            the
      CEO’s wife is a bookkeeper at $1,000 per
week,




·
            The
      CEO and CTO’s father is a researcher at $1,000 per week,
    and




·
            The
      CEO and CTO’s mother as a receptionist at $600 per
  week.




12
 
 GelTech
Solutions, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended December 31, 2009
 (Unaudited)


We
believe all of these salaries are at or are below the going rate of what such
services would cost on the open market.




In
February 2008, the Board of Directors approved a Referral Agreement with
one of its non-employee directors, whereby the director would receive a referral
fee of 2% for business referred to the Company by the director.




The
Company approved employment terms with its executive officers which are
described under Note 6.




The
Company has a Line of Credit with its largest shareholder as described in Note
3.




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 December 31, 2009.  As of
December 31, 2009, there were $159,465 of  cash equivalent balances
held in depository accounts that are not insured.




At
December 31, 2009, approximately 92% of accounts receivable was from one
customer.




For the
six months ended December 31, 2009 three customers accounted for approximately
79.2%, 6.8% and 6.5% of sales.




During
the six months ended December 31, 2009 all sales resulted from two products,
FireIce® and RootGel which made up 85% and 15%, respectively, of total
sales.




During
the six months ended December 31, 2009, the Company purchased approximately
$53,000 of raw material from one vendor which amounted to 54% of the purchases
for the period.




9.
Subsequent Events




Since
January 1, 2010, the Company has received $1,280,000 in cash through the sale
of  128 units, each unit consisting of 10,000 shares of common stock
and three year warrants to purchase 10,000 shares of the Company’s common stock
in private transactions with accredited investors in exchange
for  $10,000 per unit.




Effective
January 1, 2010, the Company issued five year options to purchase 100,000 shares
of the Company’s common stock for $1.60 per share to a
consultant.  The options vested immediately.  The fair
market value of the options, $85,872, was calculated using the
Black-Scholes method using an expected term of five years, a volatility of
139.11% and a risk free rate of 2.69%, and using a stock price of $1.00, equal
to the private placement pricing.




The
Company issued 45,282 and 23,929 shares of the Company’s common stock to the
Company’s Chairman and a Director, respectively.  These shares were
issued to reimburse the Chairman and Director for the amount of their
personal shares that were transferred to former Dyn-O-Mat
shareholders




The
Company extended the term of 474,058 warrants to purchase shares of the
Company’s common stock, held by a Director.  The term was extended
three years and the exercise price was adjusted from $1.05 per share to $1.50
per share.   The fair market value of the
warrants, $215,629, was calculated using the Black-Scholes method using an
expected term of 1.21 years, a volatility of 136.57% and a risk free rate of
0.3%, and using a stock price of $1.00, equal to the private placement
pricing.




Management
evaluated all activity of the Company through February 16, 2010 (the issue date
of the Company’s condensed unaudited consolidated financial statements) and
concluded that no subsequent events have occurred that would require recognition
in the unaudited condensed consolidated financial statements.  13


ITEM 2. MANAGEMENT'S DISCCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




Certain
statements in “Management’s Discussion and Analysis and of Financial Condition
and Results of Operations” are forward-looking statements that involve risks and
uncertainties. Words such as may, will, should, would, anticipates, expects,
intends, plans, believes, seeks, estimates and similar expressions identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management’s analysis only as of
the date hereof. We assume no obligation to update these forward-looking
statements to reflect actual results or changes in factors or assumptions
affecting forward-looking statements.




Overview




In 2007,
we initiated marketing and sales of RootGel, a product which reduces the use of
water and is primarily marketed to golf courses and the agriculture market. In
2008, we initiated marketing FireIce®, a water soluble fire retardant which
protects firefighters and is useful in containing fires including wildfires. In
March 2009, the Company entered into a distribution agreement for
SkinArmor, an innovative new fire retardant skin ointment being developed that
can be used to assist in protecting exposed skin from the effects of fire. In
addition, in 2010 the Company expects to complete the development of IceWearTM, a
cooling vest which can be worn by firefighters, racecar drivers and others who
work in extreme heat. Our financial statements have been prepared on a going
concern basis, and we need to generate sufficient sales to support the ongoing
business of the Company.




We were
incorporated in July 2006 as a Florida corporation and reincorporated in
Delaware in November 2006. Our products were initially developed by
Dyn-O-Mat, Inc., a predecessor entity.  Our Chief Technology Officer,
Mr. Peter Cordani, invented FireIce® and IceWearTM while at Dyn-O-Mat and
developed an earlier version of RootGel at Dyn-O-Mat as well. Mr. Cordani
developed the current version of RootGel on behalf of GelTech. WeatherTech, our
hurricane suppression product was also developed by Mr. Cordani while at
Dyn-O-Mat.




RESULTS
OF OPERATIONS




FOR
THE THREE MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 2008.




Sales




For the
three months ended December 31, 2009, we had sales of $237,867 as compared to
negative sales of $41,279 for the three months ended December 31, 2008, an
increase of $279,146. The increase in sales resulted from one major sale of
FireIce® amounting to $207,500 during the three months ended December 31,
2009.  Sales of product during the quarter consisted of $16,586 for
RootGel and $221,281 for FireIce®. The negative sales in 2008 resulted from a
credit issued to a customer in the amount of $62,700 relating to a FireIce®
sale.




Cost
of Goods Sold




Cost of
goods sold was $68,924 for the three months ended December 31, 2009 as compared
to a negative cost of goods sold of $11,988 for the three months ended December
31, 2008. The increase was the direct result of the increased
sales.




Selling,
General and Administrative Expenses




S,G&A
expenses were $948,089 for the three months ended December 31, 2009 as compared
to $642,670 for the three months ended December 31, 2008. The increase in 2009
expenses resulted from  increases in sales commissions of $68,000,
option expense of $119,000, salary and employee benefits of $22,000, investor
relations costs of $80,000 and professional fees
of  $22,000.




Research
and Development Expenses




R&D
expenses were $3,071 for the three months ended December 31, 2009 as compared to
$95,980 for the three months ended December 31, 2008. The decrease in fiscal
2010 expenses of $92,909 reflects the winding down of R&D costs for FireIce®
and RootGel.  14


Loss
from Operations




Loss from
operations was $782,217 for the three months ended December 31, 2009 as compared
to $767,941 for the three months ended December 31, 2008. The increase resulted
from the higher operating expenses which were partially offset by an increase in
gross profit of $198,234.




Interest
Income




Interest
income was $49 for the three months ended December 31, 2009 as compared to
$1,746 for the three months ended December 31, 2009 primarily due to lower cash
balances in the current year.




Interest
Expense




Interest
expense was $116,906 for the three months ended December 31, 2009 as compared to
$7,152 for the three months ended December 31, 2008. The increase resulted from
the higher balances on our Lines of Credit during the three months ended
December 31, 2009. Interest expense for the three months ended December 31, 2009
also included $86,250 related to the amortization of debt issue
costs.




Net
Loss




Net loss
was $899,074 for the three months ended December 31, 2009 as compared to
$773,347 for the three months ended December 31, 2008. The higher net loss
resulted from the higher operating expenses and interest expense, partially
offset by higher gross profit. Net loss per common share was $0.06 for the three
months ended December 31, 2009 as compared to $0.06 for the three months ended
December 31, 2008. The weighted average number of shares outstanding for the
three months ended  December 31, 2009 and 2008 were 14,028,038
and 13,471,466, respectively.




FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 2008.




Sales




For the
six months ended December 31, 2009, we had sales of $525,421 as compared to
sales of $29,062 for the six months ended December 31, 2008, an increase of
$496,359. The increase in sales resulted from two major sales of FireIce®
amounting to $416,000 during the six months ended December 31, 2009. Sales of
product during the six months ended December 31, 2009  consisted of
$77,436 for RootGel and $447,985 for FireIce®. The sales in 2008 are
from the sale of  both RootGel and FireIce®.




Cost
of Goods Sold




Cost of
goods sold was $160,130 for the six months ended December 31, 2009 as compared
to $7,951 for the six months ended December 31, 2008. The increase was the
direct result of the increased sales.




Selling, General and Administrative
Expenses




SG&A
expenses were $1,686,747 for the six months ended December 31, 2009 as compared
to $1,365,173 for the six months ended December 31, 2008. The increase in
expenses for the six months ended December 31, 2009 resulted
from  increases in sales commissions paid of $136,000, salary and
employee benefits of $49,000,  investor relations costs of $97,000 and
option expense of $87,000, which were partially offset by lower expense related
to legal and professional fees of $29,000 and a reduction in marketing expenses
of $18,000.




Research
and Development Expenses




R&D
expenses were $6,837 for the six months ended December 31, 2009 as compared to
$112,797 for the six months ended December 31, 2008. The decrease in fiscal 2010
expenses of $105,960 reflects that the winding down of R&D costs for
FireIce® and RootGel.  15


Loss
from Operations




Loss from
operations was $1,328,293 for the six months ended December 31, 2009 as compared
to $1,456,859 for the six months ended December 31, 2008. The decrease in the
loss from operations resulted from  an increase of $344,180 in gross
profit related to the higher revenues which was partially offset by the increase
in operating expenses.




Interest
Income




Interest
income was $61 for the six months ended December 31, 2009 as compared to $14,513
for the six months ended December 31, 2008.




Interest
Expense




Interest
expense was $228,163 for the six months ended December 31, 2009 as compared to
$7,490 for the six months ended December 31, 2008. The increase resulted from
the higher balances on our line of credit during the six months ended December
31, 2009. In addition, interest expense for the six months ended December 31,
2009 included $172,500 related to the amortization of debt issue
costs.




Net
Loss




Net loss
was $1,556,395 for the six months ended December 31, 2009 as compared to
$1,449,836 for the six months ended December 31, 2008. The higher net loss
resulted from the increase in operating and interest expense during the six
months ended December 31, 2009. These factors were partially offset by the
increase in gross profit.  Net loss per common share was $0.11 for the
six months ended December 31, 2009 as compared to $0.11 for the six months ended
December 31, 2008. The weighted average number of shares outstanding for the six
months ended as of December 31, 2009 and 2008 were 13,943,989 and 13,4672,158,
respectively.




LIQUIDITY
AND CAPITAL RESOURCES




Cash
flows used by operating activities for the three month period ended December 31,
2009 were $1,281,055 in which our net loss of $1,556,395 was negatively impacted
by an increase in accounts receivable of $233,532 which was primarily offset by
non-cash stock option compensation expense of $203,259, an increase in accounts
payable of $10,883, an increase in accrued liabilities of $68,632 and a
reduction of inventory of $71,492. For the three month period ended December 31,
2008, net cash used in operating activities was $1,432,023, comprised of the net
loss for the period totaling $1,449,836 which was negatively impacted by an
increase in inventories of $83,840, a decrease in account payable of $67,532, an
increase in accrued liabilities of $40,034, which was offset by stock option
expense of $116,166 and credits to customers of $65,570.




Cash
flows used by investing activities for the six months ended December 31, 2009
were $1,103 which related to purchase of equipment. For the six month period
ended December 31, 2008, net cash provided by investing was $745,143 which
related to the sale of marketable debt securities of $750,000 which were
partially offset by the acquisition of equipment costing $4,857.




Cash
flows provided by financing activities for the three months ended December 31,
2009 were $1,369,638, resulting from advances against the Company’s line of
credit agreement of $900,000, proceeds from the sale of common stock and
warrants of $470,000 and cash received from the exercise of options to purchase
common stock of $15,000.  These were partially offset by repayment of
insurance premium finance contracts in the amount of $15,362. Cash flows
provided by financing activities for the three months ended December 31, 2008
were $547,097 which consisted proceeds from advances against the Company’s line
of credit agreement of $558,000 which were partially offset by repayment of
insurance premium finance contracts.




As of
December 31, 2009, we had a working capital deficit of approximately
$1.9 million.  As of the date of this report, we have $1.2
million in available cash and marketable debt securities. We do not
anticipate the need to purchase any material capital assets in order to carry
out our business.




In
May 2009, we entered into a one-year $2,500,000 revolving line of credit
agreement with our largest shareholder. This line of credit has been used to
repay prior debt to the shareholder, pay for working capital and provide the
Company in financing the purchase of inventory for substantiated transactions.
As of the date of this report, GelTech has borrowed $2,450,000 under the line of
credit. The revolving line of credit note requires the Company to pay the
outstanding principal balance prior to its due date during which it will not be
permitted to borrow any sums for a period of 30 consecutive days.




16


Since
January 1, 2010, GelTech has sold 128 units each consisting of 10,000 shares of
common stock and three year warrants to purchase 10,000 shares of the Company’s
common stock at an exercise price of $1.60 per share in exchange for $1,280,000
in cash.  We currently have approximately six months of working
capital remaining and our line of credit is due in May 2010.  The
Company is currently in negotiations with the holder of the line of credit to
extend the payment term.  There is no guarantee that such extension
will be granted.  If the extension is not granted, the Company will
need to arrange financing to repay the line of credit.  There is no
guarantee that such financing will be available to the Company. If the Company
is unable to generate substantial cash flows from sales of our products, or
through financings, the Company may not be able to remain
operational.




Related
Person Transactions




For information on related party
transactions and their financial impact, see Note 7 to the Condensed
Consolidated Financial Statements (Unaudited).




Principal
Accounting Estimates





In
response to the SEC’s financial reporting release, FR-60, Cautionary Advice
Regarding Disclosure About Critical Accounting Policies, the Company has
selected its most subjective accounting estimation processes for purposes of
explaining the methodology used in calculating the estimate, in addition to the
inherent uncertainties pertaining to the estimate and the possible effects on
the Company’s financial condition. The accounting estimates are discussed below.
This estimate involves certain assumptions that if incorrect could create a
material adverse impact on the Company’s results of operations and financial
condition.





Revenue
Recognition




Under ASC
605-15-25 we recognize sales of our products when each of the following has
occurred:





-
            The
      price of the product sold is fixed or determinable and evidence of an
      agreement is present




-
            The
      title and risk of loss of the product has passed to the buyer and the sale
      is not contingent upon the buyer being able to resell the
      product.




-
            We
      have a reasonable expectation that the buyer has the intent and the
      ability to pay for the product
ordered.




-
            We
      have no future obligation to the seller related to the product
      sold.





Stock-Based
Compensation




Under ASC
718-10 which was effective as of January 1, 2006, we recognize an expense
for the fair value of our outstanding stock options as they vest, whether held
by employees or others.




We
estimate the fair value of each stock option and warrant at the grant date using
the Black-Scholes option pricing model based upon certain assumptions which are
contained in Note 1 to the unaudited condensed consolidated financial statements
contained in this report. The Black-Scholes model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
our stock options and warrants have characteristics different from those of
traded options, and because changes in the subjective input of assumptions can
materially affect the fair value estimate, in our management’s opinion, the
existing models may not necessarily provide a reliable single measure of the
fair value of such stock options.




RECENT
ACCOUNTING PRONOUNCEMENTS




FASB Accounting Standards
Codification




(Accounting Standards Update (“ASU”)
2009-01)





In
June 2009, the Financial Accounting Standards Board (FASB) approved the
FASB Accounting Standards Codification (“the Codification”) as the single source
of authoritative nongovernmental GAAP. All existing accounting standard
documents, such as FASB, American Institute of Certified Public Accountants,
Emerging Issues Task Force and other related literature, excluding guidance from
the Securities and Exchange Commission (“SEC”), have been superseded by the
Codification. All other non-grandfathered, non-SEC accounting literature not
included in the Codification has become nonauthoritative. The Codification did
not change GAAP, but instead introduced a new structure that combines all
authoritative standards into a comprehensive, topically organized online
database. The Codification is effective for interim or annual periods ending
after September 15, 2009, and impacts the Company’s financial statements as
all future references to authoritative accounting literature will be referenced
in accordance with the Codification. There have been no changes to the content
of the Company’s financial statements or disclosures as a result of implementing
the Codification during the six months ended December 31, 2009.




17


As a
result of the Company’s implementation of the Codification during the quarter
ended September 30, 2009, previous references to new accounting standards
and literature are no longer applicable. In the current quarter financial
statements, the Company will provide reference to both new and old guidance to
assist in understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.




Subsequent Events




(Included in Accounting Standards
Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165
“Subsequent Events”)




SFAS
No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the financial
statements are issued or available to be issued (“subsequent events”). An entity
is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
financial statements are issued. SFAS No. 165 does not apply to subsequent
events or transactions that are within the scope of other GAAP and did not
result in significant changes in the subsequent events reported by the Company.
SFAS No. 165 became effective for interim or annual periods ending after
June 15, 2009 and did not impact the Company’s financial statements. The
Company evaluated for subsequent events through the issuance date of the
Company’s financial statements. No recognized or non-recognized subsequent
events were noted.




Determination of
the Useful Life of Intangible Assets




(Included in ASC 350 “Intangibles —
Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the
Useful Lives of Intangible Assets”)




FSP SFAS
No. 142-3 amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under previously issued goodwill and intangible
assets topics. This change was intended to improve the consistency between the
useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset under topics related to
business combinations and other GAAP. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FSP SFAS No. 142-3 became effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of FSP SFAS No. 142-3 did not impact the
Company’s financial statements.




Noncontrolling
Interests




(Included in ASC 810
“Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB
No. 51”)




SFAS
No. 160 changed the accounting and reporting for minority interests such
that they will be recharacterized as noncontrolling interests and classified as
a component of equity. SFAS No. 160 became effective for fiscal years
beginning after December 15, 2008 with early application prohibited. The
Company implemented SFAS No. 160 at the start of fiscal 2010. The adoption
of ASC 810 did not have a material impact on the unaudited condensed
consolidated financial statements of the Company.




18


Consolidation of
Variable Interest Entities — Amended




(To be included in ASC 810
“Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation
No. 46(R)”)




SFAS
No. 167 amends FASB Interpretation No. 46(R) “Consolidation of
Variable Interest Entities regarding certain guidance for determining whether an
entity is a variable interest entity and modifies the methods allowed for
determining the primary beneficiary of a variable interest entity. The
amendments include: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. SFAS
No. 167 is effective for the first annual reporting period beginning after
November 15, 2009, with earlier adoption prohibited. The Company will adopt
SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on
the Company’s financial statements.




Forward
Looking Statements




Certain
statements in this report are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 including the expected
completion and development of IceWear in 2010, our liquidity, anticipated
purchases of any material capital assets and the anticipated impact of recent
accounting pronouncements.  Forward-looking statements can be
identified by words such as “anticipates,” “intends,” “plans,” “seeks,”
“believes,” “estimates,” “expects” and similar references to future
periods.





Forward-looking
statements are based on our current expectations and assumptions regarding our
business, the economy and other future conditions.  Because
forward-looking statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to
predict.  Our actual results may differ materially from those
contemplated by the forward-looking statements.  We caution you
therefore against relying on any of these forward-looking
statements.  They are neither statements of historical fact nor
guarantees or assurances of future performance.  Important factors
that could cause actual results to differ materially from those in the
forward-looking statements include global and domestic economic conditions,
budgetary pressures facing state and local governments, failure to extend the
due date of our line of credit and our failure to receive or the potential delay
of anticipated orders for our products.





Further
information on our risk factors is contained in our filings with the SEC,
including the Form 10-K for the fiscal year ended June 30, 2009.  Any
forward-looking statement made by the Company in this report speaks only as of
the date on which this report is filed with the SEC.  Factors or
events that could cause our actual results to differ may emerge from time to
time, and it is not possible for us to predict all of them.  We
undertake no obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments or
otherwise.


.


ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




Not
applicable to smaller reporting companies




ITEM 4. CONTROLS AND
PROCEDURES




Not
applicable to smaller reporting companies




ITEM 4T. CONTROLS AND
PROCEDURES




Disclosure
Controls




We
carried out an evaluation required by Rule 13a-15 or Rule 15d-15 of
the Securities Exchange Act of 1934 (the “Exchange Act”) under the supervision
and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures.




19


Disclosure
controls and procedures are designed with the objective of ensuring that (i)
information required to be disclosed in an issuer's reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and (ii) information is accumulated
and communicated to management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.




The
evaluation of our disclosure controls and procedures included a review of our
objectives and processes and effect on the information generated for use in this
report. This type of evaluation is done quarterly so that the conclusions
concerning the effectiveness of these controls can be reported in our periodic
reports filed with the SEC. We intend to maintain these controls as processes
that may be appropriately modified as circumstances warrant.




Based on
their evaluation, our Principal Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures are effective
in timely alerting them to material information which is required to be included
in our periodic reports filed with the SEC as of the filing of this
report.




Changes in Internal Controls
Over Financial Reporting




There
were no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.  20


PART II – OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.




There
were no material developments to any legal proceedings.




ITEM 1A. RISK FACTORS




Not
applicable to smaller reporting companies




ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.





In
addition to those unregistered securities previously disclosed in reports filed
with the SEC, we have sold securities without registration under the Securities
Act of 1933 in reliance upon the exemption provided in Section 4(2) and
Rule 506 thereunder as described below.




Name
      of Class
            Date
      Sold
            No. of
      Securities
            Reason
      for IssuanceOption
      Holder
            October
      9, 2009
            15,000
      shares of common stock
            Exercise
      of stock optionConsultant
            December
      22, 2009
            200,000
      shares of common stock
            Consulting
      servicesConsultant
            December
      22, 2009
            100,000
      5 year stock options exercisable at $ 1.60 per share
            Consulting
      services







ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.




None




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.




None




ITEM 5. OTHER INFORMATION.




None




21


ITEM 6. EXHIBITS.




No.
            
            Description
            
            Incorporated
      By Reference
            
            Exhibit #3.1
            
            Certificate
      of Incorporation
            
            Form SB-2
      filed on July 20, 2007
            
            3.13.2
            
            Amended
      and Restated Bylaws
            
            Form SB-2
      filed on July 20, 2007
            
            3.210.1
            
            Credit
      Enhancement and Financing Security Agreement
            
            Form 10-K
      filed on September 28, 2009
            
            10.110.2
            
            Revolving
      Line of Credit Agreement *
            
            Form 10-K
      filed on September 28, 2009
            
            10.231.1
            
            Certification
      of Chief Executive Officer (Section 302)
            
            Filed
      with this report31.2
            
            Certification
      of Chief Financial Officer (Section 302)
            
            Filed
      with this report32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer
      (Section 906)
            
            Furnished
      with this report


———————


*The
confidential disclosure schedules are not filed in accordance with SEC Staff
policy, but will be provided to the Staff upon request.  Certain
material agreements contain representations and warranties, which are qualified
by the following factors:





(i)
            the
      representations and warranties contained in any agreements filed with this
      report were made for the purposes of allocating contractual risk between
      the parties and not as a means of establishing
  facts;


(ii)
            the
      agreement may have different standards of materiality than standards of
      materiality under applicable securities
laws;


(iii)
            the
      representations are qualified by a confidential disclosure schedule that
      contains nonpublic information that is not material under applicable
      securities laws;


(iv)
            facts
      may have changed since the date of the agreements;
  and


(v)
            only
      parties to the agreements and specified third-party beneficiaries have a
      right to enforce the agreements.




Notwithstanding
the above, any information contained in a schedule that would cause a reasonable
investor (or that a reasonable investor would consider important in making a
decision) to buy or sell our common stock has been included. We have been
further advised by our counsel that in all instances the standard of materiality
under the federal securities laws will determine whether or not information has
been omitted; in other words, any information that is not material under the
federal securities laws may be omitted. Furthermore, information which may have
a different standard of materiality will nonetheless be disclosed if material
under the federal securities laws.


22


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





GELTECH
      SOLUTIONS, INC.February 16,
      2010
            
            /s/ MichaelCordaniMichael
      CordaniChief
      Executive Officer
              (Principal
      Executive Officer)February 16,
      2010
            
            /s/
      Michael
      HullMichael
      HullChief
      Financial Officer
              (Principal
      Financial Officer)







23