UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

OR

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

For the transition period from ________________ to ________________

Commission file number 000-21394

Gelstat Corporation

(Exact name of registrant as specified in its charter)

Minnesota		90-0075732
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3557 SW Corporate Parkway Palm City, Florida		34990
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (772) 283-0020

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£ No S

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 S

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £	Accelerated filer £

Non-accelerated filer £ (Do not check if a smaller reporting company)	Smaller reporting company S

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

Class		Date of Filing this Report
Common Stock, $0.01 par value per share		127,447,078 shares

(1)

Table of Contents

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)				3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				12

Item 3. Qualitative and Quantitative Disclosures about Market Risk				14

Item 4. Controls and Procedures				14

PART II – OTHER INFORMATION

Item 1. Legal Proceedings				15

Item 1A. Risk Factors				15

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				15

Item 3. Defaults Upon Senior Securities				15

Item 4. Mine Safety Disclosures				15

Item 5. Other Information				15

Item 6. Exhibits				15

SIGNATURES				16

(2)

Table of Contents

PART I — FINANCIAL INFORMATION

Explanatory Note. This report on Form 10-Q has been compiled from information which is believed to be true and correct in all material respects. This Report has been prepared in 2012 in order to correct filing delinquencies.

(3)

Table of Contents

Item 1. Financial Statements.

Gelstat Corporation
BALANCE SHEETS
AS OF MARCH 31, 2008 AND DECEMBER 31, 2007



ASSETS	3/31/2008			12/31/2007
	(UNAUDITED)			(AUDITED)
Current Assets
Cash and cash equivalents	$	2,611		$	1,161
Accounts receivable		53,811			49,200
Prepaid consulting		—			5,000
Other current assets		20,000			20,000
Total Current Assets		76,422			75,361

Other Assets
Patents		24,491			24,813
Lease deposits		2,500			2,500
Total Other Assets		26,991			27,313

TOTAL ASSETS	$	103,413		$	102,674

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Current Liabilities
Accounts payable	$	1,110,920		$	1,019,758
Accrued expenses		502,240			491,440
Notes payable		472,000			472,000
Notes payable - related parties		91,505			86,005
Total Current Liabilities		2,176,665			2,069,203


Stockholder's (Deficit)
Common stock ($0.01 par value; 50,000,000 shares authorized; 25,653,020 and 25,653,020 issued and outstanding at March 31, 2008 and December 31, 2007, respectively.		256,529			256,529
Additional paid in capital		14,060,108			14,060,108
Additional paid in capital-warrants		219,916			219,916
Common stock to be issued		95,000			95,000
Deferred compensation		(19,862	)		(55,487	)
Retained deficit		(16,684,943	)		(16,542,595	)
Total Stockholders' (Deficit)		(2,073,252	)		(1,966,528	)

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)	$	103,413		$	102,674

(4)

Table of Contents

Gelstat Corporation
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007


	For the three months ended March 31,
	2008			2007

Revenues	$	10,883		$	10,566
Cost of Goods Sold		164			57
Gross Profit (Loss)		10,720			10,509

Operating Expenses
Selling, general and administrative expenses		26,643			17,193
Management fees		75,000			27,500
Consulting expense		40,625			137,500
Total expenses		142,268			182,193

Loss from operations		(131,548	)		(171,684	)

Other Income and (Expense)
Interest expense		(10,800	)		(10,700	)
Net Other Income (Expense)		(10,800	)		(10,700	)

Loss before income taxes		(142,348	)		(182,384	)

Provision for income taxes		—			—


Net loss	$	(142,348	)	$	(182,384	)

Loss per common share:
Basic and fully diluted	($	0.01	)	($	0.01	)


Weighted average common shares outstanding		25,653,020			23,966,353

(5)

Table of Contents

Gelstat Corporation
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007


	For the three months ended March 31,
	2008			2007

Cash Flows from Operating Activities
Net (loss)	$	(142,348	)	$	(182,384	)
Adjustments to reconcile net (loss) to net cash flows (used in) operating activities:
Amortization of patent		322
Amortization of deferred compensation		35,625			177,500
Changes in operating assets and liabilitites:
Accounts receivable		(4,611	)		(4,178	)
Prepaid consulting		5,000			—
Accounts payable		91,162			(5,302	)
Accrued expenses		10,800			10,700
NET CASH (USED IN) OPERATING ACTIVITIES		(4,050	)		(3,664	)

Cash Flows from Investing Activities
Patent acquisition costs		—			(1,501	)
NET CASH (USED IN) INVESTING ACTIVITIES		—			(1,501	)

Cash Flows from Financing Activities
Proceeds from short-term convertible notes payable and warrants issued		5,500			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		5,500			—

NET (DECREASE) IN CASH AND CASH EQUIVALENTS		1,450			(5,165	)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR		1,161			9,287

CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	2,611		$	4,123

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest	$	—		$	—
Taxes	$	—		$	—

(6)

Table of Contents

GELSTAT CORPORATION

NOTES TO FINANCIAL STATEMENTS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

NOTE 1 - Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The unaudited financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited financial statements for the preceding fiscal year. Accordingly, these unaudited financial statements should be read in conjunction with the audited financial statements and the related notes for the years ended December 31, 2007 and 2006 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2007.

NOTE 2 - Organization and Business Background

GelStat Corporation ("the Company" or "GelStat") is a consumer health care company dedicated to the cost-effective development and marketing of over-the-counter (OTC) and other non-prescription consumer health care products. While development efforts ceased in 2005 due to lack of capital, its efforts were focused on proprietary, innovative products that addressed multi-billion dollar global markets.

On May 9, 2003, Developed Technology Resource, Inc. (DTR) filed a Current Report on Form 8-K with the Securities and Exchange Commission reporting the merger of GelStat Corp. with NP Acquisition Corp. (NP Acquisition), then a wholly owned subsidiary of DTR. The stock exchange transaction has been accounted for as a reverse acquisition and recapitalization of NP Acquisition, whereby Gelstat is deemed to be the accounting acquirer (legal acquiree) and NP Acquisition to be the accounting acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of Gelstat, with the assets and liabilities, and revenues and expenses, of NP Acquisition being included effective from the date of stock exchange transaction. NP Acquisition is deemed to be a continuation of the business of Gelstat. Accordingly, the accompanying consolidated financial statements include the following:

(1) The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost;

(2) The financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction.

On October 6, 2003, the Company's Board of Directors approved a stock dividend in the amount of one share for each share held of record. All share data is presented to give effect to the retroactive application of the stock dividend as if it occurred on June 25, 2002 (date of inception of GelStat Corp.) All share data has been restated to give effect of the merger under which each GelStat Corp. share was converted into .4360083 shares of DTR as adjusted for the stock dividend declared on July 19, 2004.

Effective July 14, 2003, DTR changed its name to GelStat Corporation. Effective March 17, 2004, GS Corp. was merged into its parent, GelStat Corporation.

In 2004, the Company formed a wholly-owned subsidiary, GS Pharma, Inc. (GS Pharma), to pursue various pharmaceutical (prescription drug) opportunities that might exist relative to the Company's intellectual property. During the remainder of 2004, this subsidiary evaluated potential business opportunities, but had no financial activity or licensing agreements in place.

Effective January 1, 2005, GS Pharma entered into a license agreement with DTLL, Inc. ("DTLL"), a Minnesota corporation, in exchange for 12,500,000 shares of DTLL common stock. Effective March 25, 2005, GS Pharma changed its name to GSC Subsidiary, Inc. On November 14, 2005, the Company sold 12.4 million of its shares in DTLL for gross cash proceeds of $500,000. As a result of the transaction, the Company will no longer be consolidating DTLL results in the Company’s future financial statements.

(7)

Table of Contents

NOTE 3 - Summary of Significant Accounting Policies

Basis of presentation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.

Management's Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivables, inventories, income taxes and the estimation on useful lives of property, plant and equipment. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes of the statement of cash flows.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. As of March 31, 2008, the Company did not record an allowance for uncollectible accounts

Inventories

Inventories are valued at the lower of cost (using the first-in, first out (FIFO) method) or market. Inventory items replaced by an alternative and rendered unusable or diminished in value are considered to be obsolete. Obsolete inventory items are written down to zero.

Intangible Assets

Patent cost, including legal fees and other costs associated with obtaining this patent, will be amortized over the life of the patent using the straight-line method after the patent is approved by the authorities.

Revenue Recognition

The Company sells its products to a number of leading regional and national retailers, wholesalers, specialty distributors and catalog merchandisers, both directly and through the services of external sales brokers. In accordance with the Securities Exchange Commission's Staff Accounting Bulletin No. 104 (SAB 104) "Revenue Recognition in Financial Statements", the Company recognizes revenue when persuasive evidence of a customer or distributor arrangement exists, shipment has occurred, the price is fixed or determinable, and the sales revenues are considered collectible. Subject to these criteria, except with respect to customers that buy products on Pay on Scan terms, the Company recognizes revenue at the time of shipment of the merchandise. The Company recognizes Pay-on-Scan sales as revenues at the earliest of the following events: 1) the Company is notified of the customer's sales through periodic sales reports; 2) the Company receives payments from the customer; or 3) the customer reorders a specified quantity of the relevant product. Pay-on-Scan revenue recognition treatment typically ends when persuasive evidence exists that a customer or distributor has agreed to terminate the Pay-on-Scan arrangement in favor of a traditional sales arrangement.

Cost of Revenue

Cost of revenues consists primarily of product costs and shipping and handling, which are directly attributable to the sale of products.

Advertising

Advertising costs are charged to operations when incurred.

Research and Development Costs

The company expenses research and development costs as incurred.

Depreciation

Property and equipment are recorded at cost. Depreciation is provided for using the straight-line method over estimated useful lives ranging from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. Maintenance, repairs and minor renewals are expensed when incurred.

Impairment

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes

The Company accounts for income tax using FASB ASC 740 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the statement of operations and comprehensive income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which the employees do not render the requisite service.

The Company recognizes expenses for the fair value of its outstanding stock warrants and options as they vest, whether held by employees or others. The fair value of each stock warrant and option at the grant date is evaluated by using the Black-Scholes option pricing model based upon certain assumptions, including the expected stock price volatility.

Net Loss per Common Share

The Company calculates net loss per share in accordance with FASB ASC 260, “Earnings per Share”. Basic loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding. No diluted loss per share is required to be represented.

Recent Accounting Standards

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

(8)

Table of Contents

NOTE 4 – Patents

On June 6, 2003, the Company filed a patent application with the United States Patent and Trademark Office (USPTO) for “Compositions and methods of treatment to alleviate or prevent migrainous headaches and their associated symptoms”. The patent #7,192,614 was issued on March 7, 2007. Legal fees and other costs associated with obtaining this patent were $25,780 and are being amortized over the 20 year useful life of the patent, using the straight-line method. As of the date of this report, the carrying value of the patent is $24,491.

NOTE 5 - Short Term Convertible Notes Payable

The Company had outstanding balances on its short-term notes payable of the following amounts at the respective dates:

	3/31/2008		12/31/2007
Related Party, interest rate 6%, original due date, February 2, 2005; extended to June 2, 2005.	$	63,000	$	63,000
Non-affiliate third party, interest rate 6%, original due date, February 2, 2005; extended to June 2, 2005.		72,000		72,000
Non-affiliate third party, interest rate 6%, original due date, February 2, 2005; extended to June 2, 2005.		60,000		60,000
Non-affiliate third party, interest rate 6%, original due date, February 2, 2005; extended to June 2, 2005.		60,000		60,000
Non-affiliate third party, interest rate 6%, original due date, February 2, 2005; extended to June 2, 2005.		60,000		60,000
Non-affiliate third party, interest rate 6%, original due date, February 2, 2005; extended to June 2, 2005.		120,000		120,000
Non-affiliate third party, interest rate 6%, original due date, October 5, 2005.		100,000		100,000
Related Parties, interest rate 8%, due date, September 24, 2007.		13,500		13,500
Related Parties, interest rate 8%.		15,005		9,505
Total	$	563,505	$	558,005

On December 2, 2004, the Company issued unsecured convertible promissory notes related to a private placement of short term debt. The notes were issued to six individuals in principal amounts ranging from $60,000 to $120,000 for a total of $474,000. The Company agreed to repay the principal amount in its entirety within three business days after the Company closed on net proceeds of at least $2,000,000 obtained through any offering of its securities, including any debt, common stock or preferred stock, or if earlier, on February 2, 2005. If the Company closed on $2,000,000 or more in net proceeds through an offering of its securities, the promissory note holders had the option to convert the principal amount into securities of the Company according to the same terms and provisions. The conversion of the short-term notes payable was contingent upon the closing of a $2,000,000 stock offering and the incremental intrinsic value would have been recognized when the triggering event occurred. In lieu of interest, the Company issued to the note holders five-year warrants to purchase 79,000 shares of common stock at an exercise price of $3.00. The warrants were valued using the Black-Scholes pricing model using the following factors: dividend yield of 0%, expected volatility of 158%, risk-free interest rate of 3.5% and expected lives of five years. The resulting original issue discount and the fair value of the warrants were amortized over the life of the notes using the straight-line method, which approximates the interest method.

The Company paid $24,000 of the principal balance of the notes during the three months ended March 31, 2005. During the first quarter the note holders agreed to extend the payment of the remaining balance of $450,000 to June 2, 2005. In lieu of interest during the period up to the extended due date, the Company issued to the note holders five-year warrants to purchase 75,000 shares of common stock at an exercise price of $1.00. The warrants were valued using the Black-Scholes pricing model using the following factors: dividend yield of 0%, expected volatility of 163%, risk-free interest rate of 3.5% and expected lives of five years. The resulting original issue discount and the fair value of the warrants of $276,000 were amortized over the extended life of the notes using the straight-line method, which approximates the interest method. April 2005, the Company paid $15,000 of the principal balance. An additional $100,000 was borrowed by the Company during the three months ended September 30, 2005 bringing the outstanding balance to $535,000. No further principal payments were made on the notes. A settlement agreement was reached on the $100,000 note payable November 2009. Settlement agreements were reached on the remaining notes payable July 2011.

During the quarter ended September 30, 2007, the Company borrowed $13,500 from various related parties at an interest rate of 8%. The Company agreed to repay the principal amount in its entirety, with all unpaid interest then accrued on September 24, 2007. No principal or interest payments were made on the notes. Settlement agreements were reached with each of the related parties on July 2011.

During the quarter ended December 31, 2007, the Company borrowed $9,505 from various related parties at an interest rate of 8%. No principal or interest payments were made. Settlement agreements were reached with each of the related parties on July 2011.

During the quarter ended March 31, 2008, the Company borrowed $5,500 from various related parties at an interest rate of 8%. No principal or interest payments were made. Settlement agreements were reached with each of the related parties on July 2011.

(9)

Table of Contents

NOTE 6 - Related Party Transactions

On December 2, 2004, the Company borrowed $102,000 from a director of the Company for a term ending on February 2, 2005, or, if earlier, upon a $2,000,000 financing, as discussed in Note 5, above. In lieu of interest, the Company issued to the director a five-year warrant to purchase 17,000 shares of common stock at an exercise price of $3.00. The repayment date for $78,000 of the note was extended to June 2, 2005, and in lieu of interest for the extension period, the Company issued to the director a five-year warrant to purchase 13,000 shares of common stock at an exercise price of $1.00. The Company paid $24,000 of the principal during the three months ended March 31, 2005. The Company paid an additional $15,000 of the principal note balance during the three months ended June 30, 2005. During the six months ended December 31, 2005, the Company did not make any principal payments, and accrued 6% interest on the outstanding balance. The Company negotiated a settlement of the remaining note balance of $63,000 outstanding in July 2011.

NOTE 7 – Deferred Compensation

The Company’s deferred compensation includes common stock or warrants issued to consultants for services to be rendered related to public relations, sales distribution consulting, investor relations and general operations conducted in the normal course of business. The following table sets forth the details of deferred compensation:

	3/31/2008			12/31/2007
728,000 shares of common stock at prices ranging from $0.54 - $0.98 per share were issued during the year ended December 31, 2005 for consulting services rendered from 05/01/2005 to 10/03/2006.	$	(468,140	)	$	(468,140	)

Five-year warrants to purchase 285,000 shares of common stock were granted during the year ended December 31, 2005 with exercise prices ranging from $.50-$3.00 per share for services rendered from 5/1/2005 to 10/03/2006. The Company determined the fair value of the warrants based on the Black Scholes pricing model using the following assumptions: dividend yield of 0%, expected volatility of 201.89%, and risk-free interest rates ranging from 3.63% - 4.1%		(195,650	)		(195,650	)

1,700,000 shares of common stock at a share price of $0.10 were issued during the period ending 09/30/2006 for consulting services rendered from 08/28/2006 to 08/27/2007.		(170,000	)		(170,000	)

Five-year warrants to purchase 3,000,000 shares of common stock were granted during the period ended 09/30/2006 with exercise prices ranging from $0.25 - $0.50 per share for services rendered from 08/28/2006 to 08/27/2007. The Company determined the fair value of the warrants based on the Black Scholes pricing model using the following assumptions: dividend yield of 0%, expected volatility of 216.54%, and risk-free interest rate of 4.77%.		(300,000	)		(300,000	)

1,500,000 shares of common stock at a share price of $0.08 were issued during the period ending 12/31/2006 for consulting services rendered from 11/01/2006 to 10/31/2007.		(120,000	)		(120,000	)

400,000 shares of common stock at a share price of $0.10 were issued during the period ending 03/31/2007 for consulting services rendered from 03/28/2007 to 03/28/2008.		(40,000	)		(40,000	)

Five-year warrants to purchase 250,000 shares of common stock were granted during the period ended 06/30/2007 with an exercise price of $0 .10 per share for services rendered from 05/01/2007 to 04/30/2010. The Company determined the fair value of the warrants based on the Black Scholes pricing model using the following assumptions: dividend yield of 0%, expected volatility of 468.93%, and risk-free interest rate of 4.54%.		(27,500	)		(27,500	)

350,000 shares of common stock at a share price of $0.20 were issued during the period ending 09/30/2007 for consulting services rendered from 09/04/2007 to 03/03/2008.		(70,000	)		(70,000	)

Amortization of deferred compensation		1,371,429			1,335,803

Total	$	(19,862	)	$	(55,487	)

(10)

Table of Contents

NOTE 8 – Common Stock to be Issued

As of March 31, 2008, the balance of common stock to be issued was $95,000 due to the transactions as follows:

During the three months ended September 30, 2007, the Board of Directors of the Company approved the issuance of 250,000 shares of common stock at a price of $.01 per share, in exchange for cash payment of total $25,000. The cash payment was received in full during the three months ended September 30, 2007, but the 250,000 shares had not been issued as of the date of this report.

Pursuant to a consulting agreement, the Company agreed to issue 2,333,333 shares of common stock to a consultant at $.03 per share for services rendered or to be rendered valued at $70,000. The shares have not been issued as of the date of this report.

NOTE 9 - Stockholders' Equity

During the three months ended March 31, 2008, the Company did not issue shares of common stock, warrants or options.

During the three months ended March 31, 2007, the Company issued 400,000 shares of common stock at $.10 per share for services rendered or to be rendered valued at $40,000.

NOTE 10 - Legal Proceedings

On January 19^th, 2006, the Company was served with a Summons and Complaint entitled “Milgaard RE Partnership vs. Gelstat Corporation.” Milgarrd RE Partnership, a promissory note holder, alleged Gelstat owed $76,734 regarding the note, interest and fees. On July 1, 2011, a settlement agreement was reached among parties wherein Milgarrd RE Partnership was issued 114,000, $0.03, 5 year warrants and $3,600 cash.

On September 7, 2006, the Company was served with a Summons and Complaint entitled “Dr. Steven Klos vs. Gelstat Corporation.” Dr. Steven Klos, a promissory note holder, alleged Gelstat owed $100,000 regarding the note, interest and fees. On November 3, 2009, a settlement agreement was reached among parties wherein Dr. Steven Klos was paid $25,000 cash.

On September 10, 2007, the Company was served with a Summons and Complaint entitled “Unicep Packaging, Inc. vs. Gelstat Corporation.” Unicep Packaging, Inc., a vendor, alleged Gelstat owed $190,340 on an agreement entered into by the parties regarding packaging of Gelstat’s products. On July 11, 2011, a settlement agreement was reached among parties wherein Unicep was issued 400,000, $0.03, 5 year warrants and $20,000 cash.

On December 11, 2007, the Company was served with a Summons and Complaint entitled “Angela Diliddo and Bioinitiate Capital, LLC. vs. Gelstat Corporation.” Angela Diliddo and Eleanor Kelly (sole principal of Bioninitiate), promissory note holders, alleged Gelstat owed $120,000 and $60,000, respectively, regarding the notes. On July 1, 2011, a settlement agreement was reached among parties wherein Angela Diliddo was issued 240,000 $0.03, 5 year warrants and $6,000 cash and Eleanor Kelly was issued 120,000, $0.03, 5 year warrants and $3,000 cash.

On December 14, 2007, the Company was served with a Summons and Complaint entitled “Stepping Stones Partners, LP and Daniel D. Hickey vs. Gelstat Corporation.” Stepping Stones Partners, LP/Daniel D. Hickey, a promissory note holder, alleged Gelstat owed $120,000 regarding the note. On July 1, 2011, a settlement agreement was reached among parties wherein Stepping Stones Partners, LP/Daniel D. Hickey was issued 120,000, $0.03, 5 year warrants and $16,000 cash.

NOTE 10 – Going Concern

As shown in the accompanying unaudited financial statements, the Company has suffered recurring losses from operations to date. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management’s plan includes obtaining additional funds by equity financing and/or related party advances; however, there is no assurance of additional funding being available. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might arise as a result of this uncertainty.

(11)

Table of Contents

PART II— OTHER INFORMATION

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operation

Please refer to the financial statements and related notes thereto which is a part of this report for further information regarding the results of operations of the Company.

Company Overview

Gelstat Corporation ("the Company" or "Gelstat") is a consumer health care company dedicated to the cost-effective development and marketing of over-the-counter (OTC) and other non-prescription consumer health care products. The Company's first product is "Gelstat® Migraine", a patented OTC homeopathic drug intended for use as a first-line, acute treatment for migraine and migraine-like headaches. Gelstat Migraine is intended to provide acute (at the time of an attack) relief from headache pain as well as other symptoms frequently associated with migraine. Gelstat(TM) Sleep is presently under final development and is intended to be marketed as a sleep aid. It was introduced to consumers in 2010 on a test basis to obtain data to determine product viability. Gelstat Sleep is expected to be classified as a dietary supplement.

Current sales and marketing efforts are focused primarily on Gelstat Migraine.

Critical Accounting Policies

Inventories

We value our inventory at the lower of the actual cost or the current estimated market value of the inventory. Management reviews sales, shipped goods and available inventory quantities on a weekly basis and record a provision for excess and obsolete inventory if considered necessary. Changes in the marketplace or introduction of new products could result in an increase in the amount of obsolete inventory quantities.

Revenue Recognition

In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 104 (SAB 104) "Revenue Recognition", the Company recognizes revenue when persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, shipment has occurred, the price is fixed or determinable, and the sales revenues are considered collectible. Subject to these criteria, except with respect to customers that buy products on Pay on Scan terms, we recognize revenue at the time of shipment of the merchandise.

Stock-Based Compensation

The Company follows the provisions of ASC 718-10 Compensation – Stock Compensation which establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under ASC 718-10, 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 at the grant date by using the Black-Scholes option pricing model based upon certain assumptions which are contained in Notes to the 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 do not necessarily provide a reliable single measure of the fair value of such stock options.

(12)

Table of Contents

Fair Value of Liabilities for Warrant and Embedded Conversion Option Derivative Instruments

We estimate the fair value of each warrant and embedded conversion option at the issuance date and at each subsequent reporting date by using the Black-Scholes option pricing model based upon certain assumptions which are contained in Notes to the 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 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 do not necessarily provide a reliable single measure of the fair value of such warrants.

New Accounting Pronouncements

There are no recent accounting pronouncements that have a material impact on our financial statements.

Results of Operations

The Company had revenues of $10,883 and $10,566, during the three months ended March 31, 2008 and 2007, respectively. The increase in revenue in 2008 is attributable to the Company’s new website marketing.

Cost of goods sold were $164 and $57 during the three months ended March 31, 2008 and 2007, respectively. The increase in cost of goods sold expense in 2008 is attributable to the increase in shipping charges.

Selling, general and administrative expenses were $26,643 and $17,193, during the three months ended March 31, 2008 and 2007 respectively. The increase in 2008 is due to the increase in in insurance, warehouse rent, and website expense.

The Company did not research and development expenses during the three months ended March 31, 2008 and 2007 respectively. The Company discontinued clinical trials in 2007 due to capital constraints.

The Company recorded $10,800 and $10,700 of interest expense during the three months ended March 31, 2008 and 2007, respectively. The interest expense relates to a 7% accrual on the outstanding notes payable balance.

Liquidity and Capital Resources

Cash flows used in operating activities were $4,050 and $3,664 for the three months ended March 31, 2008 and 2007, respectively. Negative cash flows from operations for the three months ended March 31, 2008 were due primarily to the net loss of $142,348, partially offset by amortization of deferred compensation and increase in accounts payable. Negative cash flows from operations for the three months ended March 31, 2007 were due primarily to the net loss of $182,384, partially offset by the amortization of deferred compensation.

Cash flows used in investing activities were $0 and $1,501 during the three months ended March 31, 2008 and 2007, respectively. Cash flows used in investing activities during the three months ended March 31, 2007 were solely due to patent acquisition costs.

Cash flows provided by financing activities were $5,500 and $0 during the three months ended March 31, 2008 and 2007, respectively. Positive cash flows from financing activities during the three months ended March 31, 2008 were due solely from proceeds from notes payable.

As of the date of filing this Report, the Company had approximately $5,000 cash. The Company needs to raise additional capital to continue operations. There can be no assurance that additional capital will be available on terms acceptable to the Company or on any terms what so ever. In addition, the Company may evaluate potential acquisitions and alliances, which may require equity or cash resources. The Company's ability to continue the present operations and successfully implement its development plans is contingent upon its ability to increase revenues and ultimately attain and sustain profitable operations and/or raise additional capital.

(13)

Table of Contents

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements including those relating to our liquidity. 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 the condition of the credit and financial markets, the effects of the global recession, the market for smaller public companies in general including their ability to raise capital and our inability to develop a robust marketing plan.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. 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, except as may be required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

During the course of their audit of our consolidated financial statements for 2007, our independent registered public accounting firm, Bongiovanni, advised management and the Audit Committee of our Board of Directors that they had identified deficiencies in internal control. The deficiencies are considered to be a "material weakness" as defined under standards established by the American Institute of Certified Public Accountants. The material weakness relates to the lack of segregation of duties and financial oversight controls, which in aggregate created an ineffective control environment. Because the Company has no employees and only one officer, it is not practical to remediate this material weakness.

Evaluation of Disclosure Controls and Procedures

We have discussed our corrective actions and future plans with our Audit Committee and Bongiovanni. Further, our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered by this report. Based on such evaluation and due to the Company’s limited operations, our Chief Executive Officer and Chief Financial Officer has concluded that the material weakness noted above will not, however, impact the quality of the financial information provided on a quarterly or annual basis. In addition, because of this material weakness, the Company’s disclosure controls are considered to be ineffective.

In addition, there can be no assurances that our disclosure controls and procedures will detect or uncover all failure of persons with the Company to report material information otherwise required to be set forth in the reports that we file with the Securities and Exchange Commission.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act 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.

(14)

Table of Contents

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

From time to time, we are involved in litigation in the ordinary course of business. We are not party to any material litigation.

On January 19, 2006, the Company was served with a Summons and Complaint entitled “Milgaard RE Partnership vs. Gelstat Corporation.” Milgaard RE Partnership, a promissory note holder, alleged Gelstat owed $76,734 under the note, including interest and fees. On July 1, 2011, a settlement agreement was reached among parties wherein Milgaard RE Partnership was issued 114,000, $0.03, five year warrants and $3,600 cash.

In September 2006, the Company was served with a Summons and Complaint entitled “Dr. Steven Klos vs. Gelstat Corporation.” Dr. Klos, a promissory note holder, alleged Gelstat owed $100,000 regarding the note. November 3, 2009 a settlement agreement was reached among parties whereby Gelstat paid Dr. Klos $25,000.

Item 1A.

Risk Factors.

Not applicable to smaller reporting companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2008, the Company had no equity transactions.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not Applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

Exhibit		Incorporated by Reference			Filed or Furnished
No.	Exhibit Description	Form	Date	Number	Herewith

3.1	Certificate of Incorporation				Filed
3.2	Bylaws				Filed
31.1	Certification of Principal Executive Officer (302)				Furnished
31.2	Certification of Principal Financial Officer (302)				Furnished
32.1	Certification of Principal Executive and Principal Financial Officer (906)				Furnished

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to GelStat Corporation, 3557 SW Corporate Parkway Palm City, Florida, 34990 Attention: Mr. Gerald Kieft.

(15)

Table of Contents

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.

		GELSTAT CORPORATION

October 18, 2012		/s/ Gerald Kieft
		Gerald Kieft
		Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

(16)

GELSTAT CORP 10-Q