1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2002
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File Number 33-94318-C
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AMERITYRE CORPORATION
--------------------------
(Exact name of registrant as specified in charter)
Nevada 87-0535207
------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
705 Yucca Street, Boulder City, Nevada 89005
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (702) 293-1930
---------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
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(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 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. (1) Yes [X]
No [ ] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
2
State issuer's revenues for its most recent fiscal year: $506,250
--------
State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:
Based on the average of the high and low bid prices of our common stock at
September 20, 2002, of $2.25 per share, the market value of shares held by
nonaffiliates (11,388,286 shares) would be approximately $25,623,643.
As of September 20, 2002, we had 14,272,732 shares of common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business in General
-------------------
We were incorporated as a Nevada corporation on January 30, 1995 under the
name American Tire Corporation, to take advantage of certain proprietary and
nonproprietary technology available for the manufacturing of flatfree tires
from polyurethane. In December 1999 we changed our name to Amerityre
Corporation.
Since our inception, we have developed additional proprietary technology
relating to flatfree tires so that we have completed the fundamental technical
development of the processes to manufacture flatfree bicycle, lawn and garden
tires and other specialty tires (the "Products").
In August 2001, we signed an exclusive agreement with The Goodyear Tire and
Rubber Company to jointly develop polyurethane automobile tires with the
ultimate objective to replace rubber in automobile tires. We believe the joint
development agreement is a breakthrough for the tire industry, but it may take
two to three years to ultimately achieve the polyurethane automobile tires
contemplated under the agreement. A development team, consisting of experts
from both Amerityre and Goodyear are currently working to complete the
development of the polyurethane automobile tire.
"Flat-Free" Technology
----------------------
The Products produced from our flatfree tire technology differ from pneumatic
tires in that pneumatic tires are made from rubber and require an inner tube
which is inflated with air. Our Products could be considered "non-pneumatic"
in that they do not require inflation, however, they are multi-density in
nature and consist of a series of layers of specially formulated polyurethanes
and a closed foam construction to simulate the compliance of a pneumatic tire.
The closed foam contains millions of closed cells containing air. Therefore,
our Products are best identified as "flatfree" in that they have no inner tube
and do not require inflation, but rely on the infrastructure to maintain the
tires' stability. The flatfree tire is mounted on the wheel rim in much the
same way a pneumatic tire is mounted, with the assistance of a tire lever or
tire mounting press. Apart from cleaning, our Products are maintenance free
and eliminate tedious puncture repair or the need for air. Our current line
of Products are designed for use by "on/off" road and "highway" bicycles, lawn
and garden equipment and other specialty equipment, such as wheelbarrows and
handtrucks.
Product Marketing Plan
----------------------
Historically, we have been a technology company in the development stage,
manufacturing a limited number of products to validate our flatfree tire
technology. Now our primary marketing strategy has been to sell our Products
to original equipment manufacturers that make products such as commercial and
riding lawn mowers, wheelbarrows, handtrucks, etc., tire distributors and
dealers, and direct market to customers via our internet website
www.amerityre.com.
4
In October 2001, we implemented a plan to place our Products in bicycle shops,
hardware stores and tire stores in the United States through the use of
independent regional sales representatives who travel throughout their
respective regions making direct contacts with potential customers and
dealers. Since implementing our plan our Products are now available through
over 3,000 retail outlets in 43 states. Our goal is to have our Products
carried in at least 10,000 such outlets throughout the United States. Dealer
locations can be accessed through our website. In addition, by selling our
Products to tire distributors, we believe we will be able to take advantage of
existing distribution channels for moving our Products into the aftermarket,
while emphasizing the uniqueness of our flatfree and maintenance free
characteristics versus traditional pneumatic tires.
Competition
-----------
Currently, we know of a few companies that utilize a manufacturing process
similar to ours to produce tires from polyurethane foam (i.e., Green Tire, UK;
Alshin Tire, USA; KIK Technology International, Inc., USA; Woo Tire, China;
and Krypton-India, India). In addition to manufacturers of polyurethane foam
tires, we compete directly with firms that manufacture and market pneumatic
tires and tubes made from rubber. Our technology differs from existing
polyurethane foam tire technology in (1) the formulation of the polyurethane;
(2) the manner in which the polyurethane is distributed throughout the mold;
and (3) the use of a simple mechanical locking system that allows the tire to
stay secure on the wheel. The tire industry is highly competitive and several
of our competitors have financial resources which substantially exceed ours.
In addition, many competitors are large companies (i.e., Kenda, Japan;
Chengshin Rubber, China; and Carlyle Tire, USA) that have established name
recognition of their products, have established distribution networks for
their products, and have developed consumer loyalty to such products.
Principal factors in marketing our tires will be that they are domestically
produced with flatfree and maintenance free characteristics and may give us a
competitive advantage against pneumatic tires that are subject to puncture and
loss of air.
Manufacturing, Supplies, and Quality Control
--------------------------------------------
Substantially all of our Products are manufactured utilizing single and/or
multiple head, centrifugal molding machines. These machines centrifugally mold
Products by pouring a predetermined amount of polyurethane into a mold, which
is then spread out in the mold through centrifugal force. The molding process
occurs when the liquid polyurethane formula (made up of isocyanide and polyol)
is combined with a catalyst. This combination causes a chemical reaction that
results in the cross linking of the chemicals, which thereafter become solid.
The mold then moves to the next station where the Product is removed and the
process is repeated. We have manufacturing equipment that, based on
manufacturer's specifications, should permit us to produce approximately
1,500,000 tires annually. At that level of production, we would require
approximately 50 employees. Currently, our principal supplier of chemicals is
BASF. However, our chemicals are available from multiple suppliers. We believe
that we can obtain sufficient quantities of raw materials without significant
problems or delays.
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All of our Products are inspected following the manufacturing process and
prior to shipment to ensure quality. Any Product considered by our quality
control personnel to be defective can be ground into pellets, which can be
melted and reused to make other products and reduce waste of raw materials.
Patents
-------
Our technology is proprietary and we either own the technology directly or
have licensed it through third parties. Set forth in the schedule below are
the patents that have either been issued or for which a patent application is
pending with respect to our technology.
Description of Patent U.S. Patent Number Issued Date
--------------------- ------------------ -----------
Method For Making Polyurethane Tires
with an Outer Skin 4,855,096 8/08/1989
Apparatus for Making Foam Products 4,943,223 7/24/1990
Apparatus and Method for Manufacturing
an Item and the Like 5,906,836 5/25/1999
Method for Making Tires and the Like 6,165,397 12/26/2000
Non-Pnuematic Tire and Rim Combination 6,431,235 8/13/2002
Description of Patent Pending Application Status
----------------------------- ------------------
Run Flat Tire with Elastomeric Inner Support Pending
Method for Manufacturing a Tire with Belts,
Plies and Beads Utilizing a Precured Elastomer
and Cold Rolling Pending
Air No Air Elastomeric Tire Pending
Further Research and Development
--------------------------------
We did not make any significant expenditures for new research and development
during the recently completed fiscal year. We do not anticipate that our joint
development agreement with The Goodyear Tire and Rubber Company or any other
existing development projects will require us to commit any substantial funds
for new research and development during the fiscal year ended June 30, 2003.
Trademarks
----------
We use various trademarks in association with the marketing our Products,
including its logo design in conjunction with the name "American[TM]", and the
names "Amerityre[TM]" and "Urathon[TM]".
Regulation and Environmental Compliance
---------------------------------------
We know of no particular federal or state regulations applicable to our
manufacturing processes. We are subject to various local, state, and federal
laws and regulations including, without limitation, regulations promulgated by
federal and state environmental and health agencies, the federal Occupational
Safety and Health Administration, and laws pertaining to hiring, treatment,
safety, and discharge of employees. Our manufacturing operations must also
meet federal, state, and local regulatory standards in the areas of labor,
safety, and health. We believe that we will be able to operate in compliance
with such regulations, including laws related to the handling and use of
environmentally hazardous materials.
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Employees
---------
As of June 30, 2002, we had 14 full-time employees, including 9 administrative
and 5 hourly employees. We also hire temporary labor for manufacturing needs
as required. None of our employees are represented by a labor union. We
believe that we will be able to hire a sufficient quantity of qualified
laborers in the local area to meet our employment needs. Our manufacturing
process does not require special training, other than orientation to our
production techniques and specific equipment.
ITEM 2. DESCRIPTION OF PROPERTIES
Offices
-------
Our main manufacturing operations are located at 6967 Speedway Blvd., AA105,
Las Vegas, Nevada. We lease approximately 23,500 net rentable sq. ft. The term
of the lease is for 5 years at a base monthly rent of $0.25 per sq. ft. for
the first 12 months, subject to annual increase based on either (i) the
increase in the US Department of Labor, Bureau of Labor Statistics, U.S. All
Cities Average, Consumer Price Index for Urban Wage Earners and Clerical
Workers or (ii) minimum of 3.5% Cost of Living Increase annually not to exceed
4% over the term of the lease, and other pass through charges. We believe that
this facility is currently sufficient to handle our production needs. We may
lease a larger facility in the future so that we can consolidate our
administrative offices and production operations at one location, should the
opportunity present itself.
We maintain an executive office suite, consisting of approximately 4,000
square feet, at 705 Yucca Street, Boulder City, Nevada. The facility is leased
from a third-party. We issued our landlord 22,500 shares of our restricted
common stock as payment for the lease for the period from April 1, 2002
through March 31, 2003. The shares issued as consideration for the lease were
valued at $45,000, which has been treated as prepaid rent and is being
amortized over the term of the lease. The lease may be terminated at any time
by either party by giving prior notice of not less than 30 days. It is our
opinion that we maintain adequate insurance coverage for loss or damage to our
leased facilities under our existing insurance policy.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of the fiscal year ended June 30, 2002.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table below sets forth, for the respective periods indicated, the prices
for the Company's common stock in the over-the-counter market as reported by
the NASD's OTC Bulletin Board. The bid prices represent inter-dealer
quotations, without adjustments for retail mark-ups, mark-downs or commissions
and may not necessarily represent actual transactions.
Fiscal Year Ended June 30, 2000 High Bid Low Bid
------------------------------- -------- -------
First Quarter $1.125 $1.0625
Second Quarter $0.75 $1.0625
Third Quarter $1.9062 $3.8125
Fourth Quarter $2.0625 $2.8125
Fiscal Year Ended June 30, 2001
-------------------------------
First Quarter $1.125 $1.0625
Second Quarter $4.0625 $1.8125
Third Quarter $5.875 $2.6875
Fourth Quarter $5.05 $2.65
Fiscal Year Ended June 30, 2002
-------------------------------
First Quarter $5.55 $2.50
Second Quarter $3.15 $1.75
Third Quarter $4.02 $2.00
Fourth Quarter $3.80 $2.60
At September 20, 2002, the Company's Common Stock was quoted on the OTC
Bulletin Board at a high bid and low bid price of $2.39 and $2.10,
respectively.
Since our inception, we have not paid any dividends on our Common Stock, and
we do not anticipate that we will pay dividends in the foreseeable future. At
September 20, 2002, we had approximately 561 shareholders of record based on
information provided by our transfer agent, Interwest Transfer Company, 1981
E. Murray-Holladay Road, Holladay, Utah 84117.
During the three month period ended June 30, 2002, we issued an aggregate of
500,450 shares of our common stock, consisting of 22,500 shares valued at
$45,000 or $2.00 per share, for prepaid rent for the period April 1, 2002
through March 31, 2003; and 477,950 shares at $2.00 per share for $955,900
cash.
All of our shares issued in the foregoing transactions were issued in reliance
on the exemption from registration and prospectus delivery requirements of the
Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and
the regulations promulgated thereunder.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
---------------------------------------------------------
This report may contain "forward-looking" statements. Examples of forward-
looking statements include, but are not limited to: (a) projections of our
revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of our plans and
objectives; (c) statements of our future economic performance; (d) statements
of assumptions underlying other statements and statements about us and our
business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Year ended June 30, 2002 compared to year ended June 30, 2001
-------------------------------------------------------------
For a substantial portion of our operating history we focused on the
development of our technology and have been a development stage company.
During this time we had limited revenues from the sale of or Products.
Beginning in October 2001, we implemented a plan to place our Products in
bicycle shops, hardware stores and tire stores in the United States through
the use of independent regional sales representatives traveling throughout
their respective region contacting potential customers and dealers. As a
result, our revenues for the year ended June 30, 2002 were $506,250 compared
to $116,336 for the same period in 2001, an increase of $389,914. Our cost of
sales for the year ended June 30, 2002 was $525,154, or 104% of sales as
compared to $126,572, or 109% of sales for the year ended June 30, 2001,
resulting in a gross deficit of $18,904 and $10,236 for the respective
periods. Because we went from being a development stage company to commencing
planned principal operations during the fiscal year ended June 30, 2002, our
direct costs exceed revenues derived from the sale of our Products. We believe
that, for the fiscal year ending June 30, 2003, our direct costs as a percent
of sales will be reduced as our volume of Product sales exceeds the fixed
costs of minimum Product production (i.e., labor and raw material costs). We
believe we currently have sufficient employees to merit a substantial increase
in production without incurring a proportionately equivalent increase in labor
costs. In addition, we have negotiated a reduction in raw material cost from
our principal chemical supplier.
The Company knows of no other predictable events or uncertainties that may be
reasonably expected to have a material negative impact on the net sales
revenues or income from continuing operations other than the general downturn
in the U.S. economy over the several months and any reduced consumer
confidence resulting therefrom.
Corporate Expense. For fiscal 2002, total operating expenses were $2,538,585,
consisting mainly of consulting expenses of $285,435, payroll and payroll
taxes of $818,658, depreciation and amortization of $222,747, and selling,
general and administrative expenses of $1,174,916, resulting in a loss from
operations of $2,557,489. For fiscal year 2001, total operating expenses were
$4,615,805, consisting mainly of consulting expenses of $1,315,092, payroll
and payroll taxes of $755,208, depreciation and amortization of $175,383, and
selling, general and administrative expenses of $2,354,622, resulting in a
loss from operations of $4,626,041. The decrease in the operating expenses
during fiscal year 2002 can be attributed in large part to decreases in (i)
outside consulting expenses, and (ii) selling, general and administrative
expenses. These expenses were lower because of our decision to reduce outside
consulting expenses associated with marketing our Products.
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Our selling, general and administrative expenses for the fiscal year ended
June 30, 2002 do not include $103,433 in net deferred consulting expenses.
This amount is recorded as a reduction in shareholders' equity because it is
associated with the granting of options to non-employees for services not yet
performed. The fair value of these options was calculated using the Black-
Scholes option pricing model.
We have restated our financial statements for the years ended June 30, 2001
(as well as 2000 and 1999), as the result of a review of our application of
certain accounting principles related to the use of the Black-Scholes option-
pricing model used to value stock options issued to non-employees and to
calculate the pro-forma effect on net loss of options issued to employees and
erroneous recognition of interest income on stock subscriptions receivable
from related parties. These discoveries prompted us to restate our 2001
financial statements to recognize an additional expense of $1,157,589 and to
disclose an additional pro-forma expense of $440,905, and to de-recognize
$39,847 in interest income.
Interest Expense. Our interest expense for fiscal 2002 was $203, a reduction
from $6,950 in fiscal 2001.
Other Income (Expense). For fiscal year 2002, we had other income consisting
of: interest income of $13,463 associated with stock subscription receivables
and temporary investment of cash not immediately needed in ordinary daily
business; a $14,907 gain on the sale of our former manufacturing facility in
Ravenna, Ohio; and $2,911 of miscellaneous income. These other income items
were offset by an interest expense of $203. For fiscal year 2001 we had other
income of $62,377, consisting entirely of interest income of $74,452, and
offset by interest expense of $6,950 and a $5,125 loss on disposition of
assets. The reason for the reduction in interest income for fiscal year 2002
as compared to fiscal year 2001 is caused by the reduction in interest rates
on investment of excess cash during the reporting period.
We experienced a net loss of $2,526,411 for the year ended June 30, 2002,
compared with a net loss of $4,563,664 for the year ended June 30, 2001. The
basic loss per share for fiscal 2002 was $0.19 as compared to $0.38 for fiscal
year 2001, based on the weighted average number of shares outstanding of
13,662,411 and 12,106,491 for the respective periods.
Liquidity and Capital Resources
-------------------------------
During the fiscal year ended June 30, 2002, we financed our operations through
collecting accounts receivable and issuing common stock for: cash; prepayment
of certain salaries through June 30, 2002; prepayment of rent on our executive
offices through March 31, 2003; prepayment of board of directors' fees through
December 31, 2002; and payment of professional services.
At June 30, 2002, we had current assets of $1,340,705 and current liabilities
of $115,576, for a working capital surplus of $1,225,129, a significant
increase in the working capital surplus of $609,101 we had at June 30, 2001.
We had cash and cash equivalents of $774,345 and net accounts receivable of
$102,996 at June 30, 2002 compared to cash and cash equivalents of $530,052
and net accounts receivable of $13,678 at June 30, 2001. Our increase in cash
and equivalents and net accounts receivables at June 30, 2002, is attributable
to our significant increase in sales and our collection of accounts
receivables associated with those sales.
10
Net cash used by our operating activities for the fiscal year ended June 30,
2002 was $1,719,861, compared to $1,990,783 for the fiscal year ended June 30,
2001. Our operations for fiscal year 2002 were funded primarily by accounts
receivables, the sale of common stock and the issuance of common stock for
services and salary. Our operations for fiscal 2001 were funded primarily by
the sale of common stock and the issuance of common stock for services and
salary.
At June 30, 2002, we had net property and equipment of $615,556, after
deduction of $976,840 in accumulated depreciation. Our property and equipment
consists mainly of leasehold improvements, $41,613; equipment, $1,499,512;
furniture and fixtures, $19,730; and vehicles, $31,541.
Because we had an accumulated deficit during the development stage of
$14,831,189, and an additional deficit of $2,526,411 accumulated subsequent to
the development stage, our audit report contains a going concern modification
as to our ability to continue as a going concern. We have taken certain steps
to maintain our operating and financial requirements in an effort to enable us
to operate as a going concern and until such time as revenues from the sale of
our Products are adequate to cover our expenses, including:
(1) developing a direct marketing program supported by regional sales
representatives to sell the Company's products;
(2) reducing further consulting services and general and administrative
expenses;
(3) developing new technology for the production of higher margin flatfree
tires for the lawn and garden market and golf cart/turf equipment market;
(4) obtaining additional funding through the collection of subscriptions
receivable for common stock and/or private placement of the our common stock
to qualified investors; and
(5) issuing common stock in lieu of cash for legal and other professional
services.
We anticipate that we will need approximately $2,000,000 to implement our plan
and to meet our working capital requirements. We do not anticipate expending
any substantial sums for new research and development during the fiscal year
ending June 30, 2003.
Impact of Inflation
-------------------
We do not anticipate that inflation will have a material impact on our current
operations.
Principal Customers
-------------------
During the most recent fiscal year ended June 30, 2002, we had no individual
customer that accounted for more than 10% of our revenues.
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Seasonality
-----------
Because the significant portion of our current customers reside in the United
States, we anticipate that sales of certain of our lawn and garden Products to
those customers located in Northern portion of the United States could be
reduced as a result of fall and winter climate and weather conditions.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements are set forth immediately following the signature
page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no disagreements with our certified public accountants with
respect to accounting practices or procedures or financial disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the name, age, and position of each executive
officer and director that has served during the fiscal year ended June 30,
2002 and the term of office of each director of the Company.
Name Age Position Director or Officer Since
---- --- -------- -------------------------
Richard A. Steinke 60 Chairman, Director, CEO January 1995 (1)
Elliott N. Taylor 44 Executive Vice President June 2002
James G. Moore, Jr. 54 COO and VP Operations August 1999
David P. Martin 60 VP Sales and Marketing November 1999
David K. Griffiths 65 Secretary/Treasurer February 1995
Louis M. Haynie 75 Director July 1997
Henry D. Moyle 73 Director March 1999
William K. Watkins 79 Director March 1999
Alan F. Rypinski 63 Director October 2000 (2)
Gene Stipe 75 Director November 2000
---------------------
(1) Mr. Steinke became President and CEO in November 1999.
(2) Mr. Rypinski did not stand for reelection at the Company's annual meeting
of shareholders in December 2001.
The term of office of each of our directors is one year and until his
successor is elected and qualified at our annual meeting, subject to removal
by the Shareholders. The term of office for each Officer is one year and
until a successor is elected at the annual meeting of our Board of Directors
and is qualified, subject to removal by the Board of Directors. We reimburse
our Directors for their expenses associated with attending Directors'
meetings. See Item 10. EXECUTIVE COMPENSATION, Compensation of Directors.
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Biographical Information
------------------------
Set forth below is certain biographical information for each of the Company's
Officers and Directors and other key personnel at June 30, 2002.
Richard A. Steinke is our founder and currently serves as our President,
Chairman and Chief Executive Officer. He is also currently the Chairman of the
board of directors of Lew Corporation, a composite material designing company
located in Las Vegas, Nevada. From January 1992 to December 1994, he served as
Chairman and C.E.O. of Alanco Environmental Resources, Inc., a manufacturer of
environmental/pollution control equipment, Salt Lake City, Utah. From June
1985 to December 1991, he was the Chairman and C.E.O. of UTI Chemicals, Inc.,
a developer and manufacturer of urethane chemicals, El Toro, California. He
received a B.A. in Political Science and Economics from the University of
Arizona, Tucson, Arizona, in 1967.
Elliott N. Taylor joined us as our Executive Vice President in June 2002.
Prior to joining us, he was the principal attorney for Taylor and Associates,
Inc., a law firm in Salt Lake City, Utah, specializing in corporate and
securities law since May 1993. From August 1991 to March 1993, he was the
general counsel and chief financial officer for Carbon Fiber Products, Inc.,
Ogden, Utah, a manufacturer of composite products for the golf industry. From
November 1987 to July 1991, he was an associate attorney at Kruse, Landa &
Maycock, a law firm in Salt Lake City, Utah. He received a J.D. from the
University of Tulsa, Tulsa, Oklahoma in 1986 and a B.S. in Political Science
from Utah State University, Logan, Utah in 1982.
James G. Moore, Jr. joined us in August 1997 and has been our Chief Operating
Officer and Vice President of Operations since August 1999. Prior to his
employment by us, he worked at The Goodyear Tire & Rubber Company
("Goodyear"), in Akron, Ohio, where he had over 25 years of experience as a
master tire carver, which included five years at the Goodyear apprentice
school for tire tread pattern carving and mold carving.
David P. Martin has been our Vice President of Sales and Marketing since
November 1999. From November 1994 to November 1999, he was the General
Manager of Rocky Mountain Water Proofing, Salt Lake City, Utah. Prior to that
time, he spent 14 years with Paine Weber, Thomson McKinnon and Prudential
Securities as a registered representative. During his business career he has
had substantial sales experience including positions with Eastman-Kodak, GAF
Corporation, and Reproduction Systems, Inc.
David K. Griffiths has been Secretary/Treasurer since December 2000 and has
been our principal accounting officer since February 1995. From 1960 to 1995,
he was self-employed as an accountant/consultant for various small businesses.
He offers the Company 39 years experience in accounting and accounting related
systems. He received a B.S. in Accounting from Arizona State University,
Tempe, Arizona in 1959.
Louis M. Haynie has been a member of our board of directors since July 1997.
Mr. Haynie's past board services include, Research Medical, Inc., Salt Lake
City, Utah, the University of Utah Regents Advisory Board, Redwood Land Co.,
Salt Lake City, Utah, and MIS Corporation, Franklin, Tennessee. Mr. Haynie
has a law degree from the University of Utah and has been in the private
practice of law since 1951.
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Henry D. Moyle, Jr. has been a member of our board of directors since March
1999. Since 1992, he has been President and C.E.O. of Silver Lake Company,
and since 1989 has been President and C.E.O. of Brighton Properties, Inc.
From 1970 to 1983, He was was President and C.E.O. of Research Industries
Corporation. He received a B.A. from Stanford in 1957, and a J.D. degree from
the University of Utah in 1959. He is the owner of Sunset Canyon Ranch,
raising cattle and racehorses, and serves on the board of directors of Silver
Lake Company, Brighton Properties, Inc., and the Sunset Medical Corporation.
William K. Watkins has been a member of our board of directors since March
1999. He was formerly C.E.O., President and is currently a director of Lew
Corporation, Las Vegas, Nevada. Since September 1980, he has been involved in
researching, investing and developing various business ventures throughout the
United States. From 1954 through 1980, he owned and operated various car
dealerships including Market Motors Ford, Inc., Akron, Ohio, Costa Mesa
Chrysler Plymouth, Inc., Costa Mesa, California, and Bill Watkins Ford,
Scottsdale, Arizona.
Gene Stipe has been a member of our board of directors since April 2001. He
has served in the Oklahoma State Senate from 1956 until present. He also
served in the Oklahoma State House of Representatives prior to his service in
the Senate. He currently serves as Chairman of Oklahoma's Senate
Transportation Committee. He is Chairman of HCFS, Inc., a healthcare
financial services company with offices in Texas and Oklahoma. His other
ventures have included the newspaper business, at one time owning over 20
newspapers in Oklahoma, Arkansas, and Texas; ownership of five radio stations;
the convenience store and full service grocery store business, with 32 stores
in Oklahoma and Texas; a title insurance company and abstract offices;
ranching; and the oil and gas business, including ownership and a board
position with Rockwell Drilling, and participation and ownership in many
drilling ventures. He has a law degree from the University of Oklahoma Law
School and has been in private legal practice since 1949.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
We are not subject to the requirements of Section 16(a) of the Exchange Act.
14
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued during each of our last three completed fiscal
years to our chief executive officer and each of our other executive officers
who received compensation in excess of $100,000 during such period (as
determined at June 30, 2002, the end of our last completed fiscal year):
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
Richard A. Steinke 2002 $400,000 -0- $30,000 -0- -0- -0- -0-
CEO, Pres. and 2001 $346,875 -0- -0- -0- -0- -0- -0-
Chairman 2000 $210,000 -0- -0- -0- -0- -0- -0-
John Hoffman 2000 $ 33,333 -0- -0- -0- -0- -0- -0-
CEO, Pres.
[From 3/99 to 10/99]
Roger A. Fleming 2000 $ 9,000 $ -0- -0- -0- -0- -0- $ -0-
Pres. and Director
[From 7/97 to 7/99]
Employment Agreements and Benefits
----------------------------------
On expiration of Mr. Steinke's employment agreement its term was extended to
June 30, 2000 and we issued him 180,000 shares of our restricted common stock
as compensation for his services through that date. The share issuance was
recorded at the average trading price per share of our common stock ($1.00 per
share) on the date of issuance and resulted in prepaid compensation of
$180,000. Pursuant to a resolution of our board of directors, he was issued
another 150,000 shares of our restricted common stock in lieu of cash
compensation for employment service through December 31, 2000. Those shares
were valued at $346,875. Also, pursuant to a resolution of our board of
directors in December 2001, he was issued 100,000 shares of restricted common
stock in lieu of cash compensation for services through December 31, 2001 and
an additional 100,000 shares of restricted common stock as prepaid
compensation through June 30, 2002. The aggregate value of the 200,000 shares
was $400,000. The value per share was the closing price of our common stock on
the various dates of the board resolutions. We also provided health and
medical insurance, similar to that which will be made available to all full
time employees and reimbursed Mr. Steinke for reasonable out-of-pocket
expenses incurred in connection with our business.
As a condition to employment, our management and key personnel are required to
sign a nondisclosure and noncompetition agreement. Under the terms of the
agreement, employees are not able to provide services or information deemed
confidential by us to any other company or person which directly or indirectly
competes with us in the tire industry or an industry which we intended to
enter. There is no time limitation on the nondisclosure aspect of the
agreement. The noncompetition clause is for a period of two years and
prevents a former employee or consultant from acting as an employee,
consultant or in any other capacity for a competitor.
15
Additionally, all employees will be required, as a condition of their
employment, to enter into a nondisclosure agreement related to any information
or process deemed confidential by us.
Compensation of Directors
-------------------------
Pursuant to a resolution of our board of directors, we compensated the members
of our board by issuing each of them 15,000 shares of our restricted common
stock in lieu of cash compensation for board service for the calendar year
ending December 31, 2002. The common stock received by each of them was valued
at $30,000 for aggregate board compensation of $150,000. The value per share
was determined by averaging the closing price for our common stock for the
four days previous to the board's approval. In December 2001, following their
election to the board of directors by our shareholders, four non-officer
members of our board of directors were each granted options to acquire 200,000
shares of our restricted common stock at an exercise price of $4.00 per share.
The exercise price per share was set at approximately 110% of the closing
price of the stock on the date the options were granted. In addition, our
directors have been reimbursed for reasonable expenses incurred on our behalf.
Termination of Employment and Change of Control Arrangement
-----------------------------------------------------------
Unless otherwise disclosed below, as of June 30, 2002, the end our most recent
fiscal year, there are no compensatory plans or arrangements, including
payments to be received from us, with respect to any person named in Cash
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment or any change in our control, or a change in the
person's responsibilities following a change in our control.
16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth as of September 20, 2002 the name and address
and the number of shares of our Common Stock held of record or beneficially by
each person who held of record, or was known by us to own beneficially, more
than 5% of the 14,272,732 shares of our Common Stock issued and outstanding,
and the name and shareholdings of each director and of all officers and
directors as a group. The information on share numbers and percentage
ownership listed assumes: a) the exercise of options by the beneficial owner
(all included options are currently exercisable); and b) a corresponding
increase in the number of shares issued and outstanding.
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
Title
of Name and Address Amount and Nature of Percentage
Class Beneficial Owner Beneficial Ownership(1) of Class
----- ---------------- -------------------- ----------
Common Richard A. Steinke (2) 1,303,500 9.74
705 Yucca Street
Boulder City, NV 89005
Common Alan F. Rypinksi (3) 1,010,000 6.91
3101 North Pacific Coast Hwy.
Suite 100 A
Newport Beach, CA 92663
Common Henry D. Moyle, Jr. (4) 766,000 5.37
Sunset Canyon Ranch
Virgin, UT 84779
Security Ownership of Management of the Company
-----------------------------------------------
Title
of Name and Position of Amount and Nature of Percentage
Class Officer and/or Director Beneficial Ownership(1) of Class
----- ----------------------- -------------------- ----------
Common Richard A. Steinke, CEO/Pres. (2) 1,303,500 9.74
Common Elliott N. Taylor, Exec. VP (5) 270,000 1.81
Common James Moore, Vice President (6) 60,000 .41
Common David P. Martin, Vice President (7) 183,629 1.28
Common David K. Griffiths, Sec./Treas. (8) 90,817 .64
Common Louis M. Haynie, Director (9) 676,500 4.67
Common Henry D. Moyle, Jr. Director (4) 766,000 5.29
Common William K. Watkins, Director (10) 499,000 3.10
Common Gene Stipe, Director (11) 475,000 3.23
Total Beneficial Ownership of
All Officers and Directors as
a Group (9 persons) 4,274,446 27.29
[Footnotes continue on next page]
17
(1) All shares owned directly are owned beneficially and of record and such
shareholder has sole voting, investment, and dispositive power, unless
otherwise noted.
(2) Includes 455,000 shares owned beneficially and of record by Gemini Funding
Services Profit Sharing Account, of which Richard A. Steinke is the principal
beneficiary and 800,000 shares owned beneficially and of record by S102
Irrevocable Trust, for which Richard A. Steinke is the trustee.
(3) Includes options to acquire up to 500,000 shares at an exercise price of
$3.00 per share that expire July 31, 2004 and options to acquire an additional
500,000 shares at an exercise price of $3.00 per share that expire July 31,
2005, both owned beneficially and of record by Focus Sales and Marketing,
L.L.C. and of which Mr. Rypinski is a controlling principal.
(4) Includes options to acquire up to 200,000 shares at an exercise price of
$4.00 per share that expire April 01, 2005. Also includes 55,000 shares owned
beneficially and of record by Vickie L. Moyle, spouse of Henry B. Moyle, of
which Mr. Moyle may be deemed to have beneficial ownership.
(5) Includes options to acquire up to 45,000 shares at an exercise price of
$2.00 per share that expire December 14, 2006. Also includes options to
acquire up to 200,000 shares at an exercise price of $4.00 per share that
expire June 10, 2007.
(6) Includes options to acquire up to 50,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005.
(7) Includes options to acquire up to 20,000 shares at an exercise price of
$4.00 per share that expires April 1, 2005. Also includes 6,000 shares owned
beneficially and of record by Peggy Martin, the spouse of David P. Martin, and
of which Mr. Martin may be deemed to have beneficial ownership.
(8) Includes options to acquire up to 25,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005.
(9) Includes options to acquire up to 200,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005. Also includes 2,000 shares owned
beneficially and of record by Gae B. Haynie, spouse of Louis M. Haynie, of
which Mr. Haynie may be deemed to have beneficial ownership.
(10) Includes options to acquire up to 200,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005. Includes 32,500 shares owned
beneficially and of record by Dolores A. Watkins Family Trust, and of which
William K. Watkins is a beneficiary.
(11) Includes options to acquire up to 250,000 shares at an exercise price of
$3.00 per share that expire April 1, 2003. Also includes options to acquire
up to 200,000 shares at an exercise price of $4.00 per share that expire April
1, 2005.
18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock Subscriptions Receivables
-------------------------------
During the year ended June 30, 2000, we issued 1,000,000 shares of common
stock for various notes receivable totaling $750,000 to certain of our
affiliates. These notes bear interest at rates of 8.0% and 8.5% per annum and
are due in full on December 1, 2002. These notes are also being presented in
our financial statements as a reduction of stockholders equity. During the
year ended June 30, 2002, $424,570 was applied against the principal of the
notes receivable bringing the total balances owed at June 30, 2002 to
$405,493.
Technology License Agreement
----------------------------
On October 29, 1999, the Company entered into an exclusive license agreement
with the Company's President and two unrelated parties to license certain
intellectual property rights known as "Apparatus for Making Foam Products" and
"Method for Making Polyurethane Tires with an Outer Skin" embodied in United
States Patent No.'s 4,943,223 and 4,855,096, respectively. The agreement
grants the Company an exclusive license to use, sell, license, or otherwise
exploit the technology worldwide in exchange for a royalty of $0.25 of the net
selling price for all of units produced utilizing the technology. The
agreement provides for certain minimum production/royalty requirements
following the first year in order to maintain the exclusive license. The
licensors may terminate the agreement should the Company fail to pay any
required royalty when due or fail to meet the minimum production/royalty
requirements. Due to Mr. Steinke's relationship with the Company, the
agreement cannot be considered to have been negotiated at arm's length.
In June 2002, we entered into an agreement with Taylor and Associates, Inc.,
our SEC counsel ("Taylor and Associates"), whereby, in consideration for our
employment of Elliott Taylor as our Executive Vice President, we agreed to
compensate Taylor and Associates for the potential financial detriment it
might incur as the result of Mr. Taylor's employment by us. Mr. Taylor had
been the principal attorney for Taylor and Associates since 1993. We have
agreed to pay Taylor and Associates $2,750 per month for a period of 24
months, commencing on June 30, 2002 and continuing through May 31, 2004.
19
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
----------------- ----
Independent Auditors' Report of HJ & Associates, LLC..................... 23
Balance Sheet as of June 30, 2002........................................ 24
Statements of Operations for the years ended June 30, 2002
and 2001 ............................................................... 26
Statements of Stockholders' Equity....................................... 27
Statements of Cash Flows for the years ended June 30, 2002 and 2001...... 31
Notes to Financial Statements............................................ 33
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report:
None.
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
Exhibit No. Description
----------- -----------
99.01 Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.02 Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed with the Commission during the quarter
ended June 30, 2002.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. We believe our
disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-
14(c) of the Securities Exchange Act of 1934, as amended) are adequate, based
on our evaluation of such disclosure controls and procedures on September 20,
2002.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
AMERITYRE CORPORATION
Date: September 30, 2002 By /S/Richard A. Steinke, Chairman of
the Board, President and CEO
[Principal Executive Officer]
Date: September 30, 2002 By /S/David K. Griffiths, Secretary
Treasurer [Principal Accounting
Officer]
Date: September 30, 2002 /S/Louis M. Haynie, Director
Date: September 30, 2002 /S/Henry Moyle, Director
21
CERTIFICATIONS
I, Richard A. Steinke, certify that:
1. I have reviewed this annual report on Form 10-KSB of Amerityre Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether of not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 30, 2002 /S/Richard A. Steinke
22
CERTIFICATIONS
I, David K. Griffiths, certify that:
1. I have reviewed this annual report on Form 10-KSB of Amerityre Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether of not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 30, 2002 /S/David K. Griffiths
23
INDEPENDENT AUDITORS' REPORT
Board of Directors
Amerityre Corporation
Boulder City, Nevada
We have audited the accompanying balance sheet of Amerityre Corporation as of
June 30, 2002 and the related statements of operations, stockholders' equity
and cash flows for the years ended June 30, 2002 and 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amerityre Corporation as of
June 30, 2002, and the results of its operations and its cash flows for the
years ended June 30, 2002 and 2001, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 8 to the financial
statements, the Company has incurred significant losses, which have resulted
in an accumulated deficit, raising substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 8. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 10 to the financial statements, certain errors were
discovered during the current year regarding the fair market valuation of
stock options issued to non-employees during 2001 and the erroneous booking of
interest income on related party stock subscriptions receivable during 1999
through 2001. These errors resulted in the understatement of previously
reported net losses and accumulated deficit and an understatement of
additional paid-in capital. Adjustments have been made to the above-
mentioned accounts to correct these errors.
/S/ HJ & Associates
HJ & Associates, LLC
Salt Lake City, Utah
September 19, 2002
24
AMERITYRE CORPORATION
Balance Sheet
ASSETS
June 30,
2002
------------
CURRENT ASSETS
Cash and cash equivalents $ 774,345
Accounts receivable - net 102,996
Inventory (Note 1) 407,136
Prepaid expenses 56,228
------------
Total Current Assets 1,340,705
------------
PROPERTY AND EQUIPMENT (Note 1)
Leasehold improvements 41,613
Equipment 1,499,512
Furniture and fixtures 19,730
Vehicles 31,541
Less - accumulated depreciation (976,840)
------------
Total Property and Equipment 615,556
------------
OTHER ASSETS
Patents and trademarks - net (Note 1) 82,080
Deposits 7,180
------------
Total Other Assets 89,260
------------
TOTAL ASSETS $ 2,045,521
============
The accompanying notes are an integral part of these financial statements.
25
AMERITYRE CORPORATION
Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
2002
------------
CURRENT LIABILITIES
Accounts payable $ 95,584
Accrued expenses 10,992
Stock subscription deposit (Note 6) 9,000
------------
Total Current Liabilities 115,576
------------
Total Liabilities 115,576
------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock: 5,000,000 shares authorized of
$0.001 par value, -0- shares issued and outstanding -
Common stock: 25,000,000 shares authorized of
$0.001 par value, 14,187,731 shares issued and
outstanding 14,188
Additional paid-in capital 20,090,261
Stock subscriptions receivable (Note 2) (562,721)
Expenses prepaid with common stock (150,750)
Deferred consulting (Note 5) (103,433)
Deficit accumulated during the development stage (restated) (14,831,189)
Deficit accumulated subsequent to the development stage (2,526,411)
------------
Total Stockholders' Equity 1,929,945
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,045,521
============
The accompanying notes are an integral part of these financial statements.
26
AMERITYRE CORPORATION
Statements of Operations
For the Years Ended
June 30,
2002 2001
------------ ------------
(Restated)
NET SALES $ 506,250 $ 116,336
COST OF SALES 525,154 126,572
------------ ------------
GROSS DEFICIT (18,904) (10,236)
------------ ------------
EXPENSES
Consulting 285,435 1,315,092
Payroll and payroll taxes 818,658 755,208
Depreciation and amortization 222,742 175,383
Bad debt expense 36,834 15,500
Selling, general and administrative 1,174,916 2,354,622
------------ ------------
Total Expenses 2,538,585 4,615,805
------------ ------------
LOSS FROM OPERATIONS (2,557,489) (4,626,041)
------------ ------------
OTHER INCOME (EXPENSE)
Other income 2,911 -
Interest income 13,463 74,452
Interest expense (203) (6,950)
Gain (loss) on disposition of assets 14,907 (5,125)
------------ ------------
Total Other Income 31,078 62,377
------------ ------------
NET LOSS $ (2,526,411) $ (4,563,664)
============ ============
BASIC LOSS PER SHARE $ (0.19) $ (0.38)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 13,662,411 12,106,491
============ ============
The accompanying notes are an integral part of these financial statements.
27
AMERITYRE CORPORATION
Statements of Stockholders' Equity
Expenses
Additional Stock Prepaid with
Common Stock Paid-in Subscription Common Deferred Accumulated
Shares Amount Capital Receivable Stock Consulting Deficit
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30,
2000 (restated) 11,163,035 $ 11,163 $ 12,724,383 $ (1,206,230)$ (433,767)$ - $(10,267,525)
Common stock issued
for services at
$2.31 per share 150,000 150 346,725 - - - -
Common stock issued
for services at
$3.41 per share 50,000 50 170,575 - - - -
Common stock issued
for services at
$4.89 per share 2,000 2 9,785 - - - -
Common stock issued
for services at
$3.87 per share 2,581 3 9,997 - - - -
Common stock issued
for services at
$2.78 per share 10,000 10 27,790 - - - -
Common stock issued
for services at
$2.80 per share 7,000 7 19,593 - - - -
Common stock issued
for note receivable
(exercise of options)
at $0.75 per share 200,000 200 149,800 (150,000) - - -
Common stock issued
for note receivable
(exercise of options)
at $2.00 per share 50,000 50 99,950 (100,000) - - -
Common stock issued
for prepaid legal
fees at $1.50
per share 10,000 10 14,990 - (15,000) - -
Common stock issued
for prepaid legal
fees at $2.00
per share 10,000 10 19,990 - (20,000) - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 11,654,616 $ 11,655 $ 13,593,578 $ (1,456,230)$ (468,767)$ - $(10,267,525)
----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
28
AMERITYRE CORPORATION
Statements of Stockholders' Equity (Continued)
Expenses
Additional Stock Prepaid with
Common Stock Paid-in Subscription Common Deferred Accumulated
Shares Amount Capital Receivable Stock Consulting Deficit
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 11,654,616 $ 11,655 $ 13,593,578 $ (1,456,230)$ (468,767)$ - $(10,267,525)
Common stock issued
for prepaid rent
at $2.00 per
share 22,500 23 44,977 - (45,000) - -
Common stock issued
for cash at $0.50
per share 40,000 40 19,960 - - - -
Common stock issued
for cash at $1.00
per share 15,000 15 14,985 - - - -
Common stock issued
for cash at $1.50
per share 920,889 921 1,380,413 - - - -
Common stock issued
for cash at $2.00
per share 626,130 626 1,251,637 - - - -
Common stock issued
in exercise of
options at $2.00
per share 12,500 12 24,988 - - - -
Additional interest
recorded on related
party subscriptions
receivable (restated) - - 39,847 (39,847) - - -
Receipt of cash on
subscriptions
receivable - - - 37,770 - - -
Amortization of
prepaid expenses - - - - 448,517 - -
Expenses incurred
through issuance
of stock options (restated) - - 1,471,407 - - - -
Net loss for the
year ended June 30,
2001 (restated) - - - - - - (4,563,664)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June
30, 2001 (restated) 13,291,635 $ 13,292 $ 17,841,792 $ (1,458,307)$ (65,250)$ - $(14,831,189)
----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
29
AMERITYRE CORPORATION
Statements of Stockholders' Equity (Continued)
Expenses
Additional Stock Prepaid with
Common Stock Paid-in Subscription Common Deferred Accumulated
Shares Amount Capital Receivable Stock Consulting Deficit
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30,
2001(restated) 13,291,635 13,292 17,841,792 (1,458,307) (65,250) - (14,831,189)
Common stock issued
for cash at $1.00
per share 50,000 50 49,950 - - - -
Common stock issued
for cash at $2.00
per share 758,450 759 1,516,142 - - - -
Common stock issued
for stock subscription
receivable at $2.00
per share 20,000 20 39,980 (40,000) - - -
Common stock issued
for subscription
deposit at $2.00
per share 12,500 12 24,988 - - - -
Common stock issued
in lieu of royalty
payment at $2.00
per share 22,500 22 49,978 - - - -
Common stock issued
as payment of
accounts payable at
$1.33 per share 7,646 8 30,007 - - - -
Options granted to
non-employees for
deferred consulting - - 81,000 - - (81,000) -
Common stock issued
for prepaid services
at $2.00 per share 110,000 110 219,890 - (220,000) - -
Common stock issued
for rent and
prepaid rent at
$2.00 per share 22,500 22 44,978 - (45,000) - -
Commons stock issued
for prepaid board
of directors fees
at $2.00 per share 75,000 75 149,925 - (150,000) - -
Common stock issued
for consulting
services at $2.00
per share 100,000 100 199,900 - - - -
Common stock cancelled
due to court order at
$0.97 per share (300,000) (300) (289,551) - - - -
Stock subscription
receivable cancelled (20,000) (20) (39,980) 40,000 - - -
Common shares issued
for option exercise
paid for through
services rendered 37,500 38 74,962 - - - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 14,187,731 $ 14,188 $ 19,993,961 $ (1,458,307)$ (480,250)$ (81,000)$(14,831,189)
----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
30
AMERITYRE CORPORATION
Statements of Stockholders' Equity (Continued)
Expenses
Additional Stock Prepaid with
Common Stock Paid-in Subscription Common Deferred Accumulated
Shares Amount Capital Receivable Stock Consulting Deficit
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 14,187,731 $ 14,188 $ 19,993,961 $ (1,458,307)$ (480,250)$ (81,000)$(14,831,189)
Stock subscription
receivable -related
party written-off
due to court order - - - 502,000 - - -
Amortization of
prepaid expenses - - - - 329,500 - -
Additional interest
recorded on
subscriptions
receivable and
subscriptions
receivable - related
party - - 61,300 (67,722) - - -
Receipt of cash and
services for
subscriptions
receivable and
interest on
subscriptions
receivable - - - 51,640 - - -
Receipt of cash on
subscriptions
receivable - - - 409,668 - - -
Valuation
adjustment and
amortization of
deferred consulting - - 35,000 - - (22,433) -
Net loss for the
year ended June 30,
2002 - - - - - - (2,526,411)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June
30, 2002 14,187,731 $ 14,188 $ 20,090,261 $ (562,721)$ (150,750)$ (103,433)$(17,357,600)
=========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF
ACCUMULATED DEFICIT
Deficit accumulated during the
development stage (restated) $(14,831,189)
Deficit accumulated subsequent to
the development stage (2,526,411)
------------
Total accumulated deficit $(17,357,600)
============
The accompanying notes are an integral part of these financial statements.
31
AMERITYRE CORPORATION
Statements of Cash Flows
For the Years Ended
June 30,
2002 2001
------------ ------------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,526,411) $ (4,563,664)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 222,742 175,383
Bad debt expense 36,834 15,500
(Gain) loss on disposition of assets (14,907) 5,125
Equity instruments issued for services 654,500 2,056,094
Stock subscription receivable paid
through services 17,863 -
Re-valuation of deferred consulting 12,567 -
Changes in assets and liabilities:
Increase in accounts receivable
and accounts receivable - related (126,154) (10,314)
Increase in inventory (6,216) (33,840)
Increase in prepaid expenses (36,068) 438,392
Decrease in other assets - (15,543)
Increase (decrease) in account payable
and accrued expenses 45,389 (57,916)
------------ ------------
Net Cash Used by Operating Activities (1,719,862) (1,990,783)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for patents and trademarks (42,205) (6,375)
Proceeds from sale of fixed assets 298,680 5,500
Cash paid for fixed assets (277,890) (192,140)
------------ ------------
Net Cash Used by Investing Activities $ (21,415) $ (193,015)
------------ ------------
The accompanying notes are an integral part of these financial statements.
32
AMERITYRE CORPORATION
Statements of Cash Flows (Continued)
For the Years Ended
June 30,
2002 2001
------------ ------------
(Restated)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock subscription deposit $ 9,000 $ -
Receipt of subscriptions receivable 409,668 $ 37,770
Decrease in stock subscription deposit - (40,000)
Common stock issued for cash 1,566,901 2,693,597
------------ ------------
Net Cash Provided by Financing Activities 1,985,569 2,691,367
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 244,293 507,569
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 530,052 22,483
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 774,345 $ 530,052
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
CASH PAID FOR:
Interest $ - $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Equity investments issued for services
rendered $ 654,500 $ 2,056,094
Common stock issued in lieu of debt and
interest $ 80,015 $ -
Common stock issued for subscriptions
receivable $ - $ 250,000
Interest on related party subscription
receivable $ 61,300 $ 39,487
The accompanying notes are an integral part of these financial statements.
33
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Amerityre Corporation, (the "Company") was incorporated under the laws of the
State of Nevada on January 30, 1995, under the name American Tire Corporation.
The Company was organized to take advantage of existing proprietary and non-
proprietary technology available for the manufacturing of specialty tires.
The Company engages in the manufacturing, marketing, distribution, and sales
of "flatfree" specialty tires and tire-wheel assemblies and currently is
manufacturing these tires at its manufacturing facility located in Las Vegas,
Nevada. During the year ended June 30, 2001, the name of the Company was
changed to Amerityre Corporation.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a June 30 year-end.
c. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period.
For the Years Ended
June 30,
2002 2001
------------ ------------
(Restated)
Loss (numerator) $ (2,526,411) $ (4,563,664)
Shares (denominator) 13,662,411 12,106,491
Per share amount $ (0.19) $ (0.38)
The Company's outstanding stock purchase warrants and options have been
excluded from the basic net loss per share calculation as they are anti-
dilutive.
d. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
34
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely that not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Net deferred tax liabilities consist of the following components as of June
30, 2002 and 2001:
2002 2001
------------ ------------
Deferred tax liabilities:
$ - $ -
- -
------------ ------------
$ - $ -
============ ============
Deferred tax assets:
NOL Carryover $ 5,857,008 $ 4,982,248
Contribution Carryover 68 -
------------ ------------
$ 5,857,076 $ 4,982,248
============ ============
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of June 30, 2002 and 2001 as follows:
2002 2001
------------ ------------
Income tax benefit at statutory rate(39%)$ 5,857,000 $ 4,982,300
Valuation allowance (5,857,000) (4,982,300)
------------ ------------
$ - $ -
============ ============
The provision for income taxes charged to operations for the years ended June
30, 2002 and 2001 consist of the following:
2002 2001
------------ ------------
Income tax benefit at statutory rate(39%)$ 100 $ 100
Change in valuation allowance (100) (100)
------------ ------------
$ - $ -
============ ============
35
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Income Taxes (Continued)
At June 30, 2002, the Company had net operating loss carryforwards of
approximately $15,017,971 that may be offset against future taxable income
from the year 2000 through 2022. No tax benefit has been reported in the June
30, 2002 financial statements since the potential tax benefit is offset by a
valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
f. Inventory
Inventory is stated at the lower of cost (computed on a first-in, first-out
basis) or market. The inventory consists of chemicals, finished goods
produced in the Company's plant and products purchased for resale.
Raw Materials $ 110,106
Work in Progress -
Finished Goods 297,030
----------
Total Inventory $ 407,136
==========
g. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using
the straight-line method over estimated useful lives as follows:
Leasehold improvements 5 years
Equipment 5 to 7 years
Furniture and fixtures 7 years
Automobiles 5 years
Depreciation expense for the years ended June 30, 2002 and 2001 was $220,678
and $173,825, respectively.
h. Revenue Recognition
Revenue is recognized when the sales amount is determined, shipment of goods
to the customer has occurred, and collection is reasonably assured.
Product is shipped FOB origination.
36
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
i. Patents and Trademarks
Patent costs have been capitalized at June 30, 2002 totaling $87,844. The
patents which have been granted are being amortized over a period of 17 years.
Patents which are pending or are being developed are not being amortized.
Amortization will begin once the patents have been issued. Amortization
expense for the years ended June 30, 2002 and June 30, 2001 was $2,064 and
$1,558, respectively.
The Company evaluates the recoverability of intangibles and reviews the
amortization period on a continual basis as necessary. Several factors are
used to evaluate intangibles, including, but not limited to, management's
plans for future operations, recent operating results and projected,
undiscounted cash flows.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense for the years ended June 30, 2002 and 2001
was $122,314, and $336,934, respectively.
k. Newly Adopted Accounting Pronouncements
SFAS No.'s 141 and 142 -- In June 2001, the Financial Accounting
Standards Board ("FASB") adopted Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 141 is effective as to any business
combination occurring after June 30, 2001. Further, certain transition
provisions that affect accounting for business combinations occurring prior to
June 30, 2001 are effective as of the date that SFAS No. 142 was applied in
its entirety, which, for the Company was July 1, 2001.
SFAS No. 141 provides standards for accounting for business combinations.
Among other things, it requires that only the purchase method of accounting be
used and that certain intangible assets acquired in a business combination
(i.e., those that result from contractual or other legal rights or are
separable) be recorded as assets, apart from goodwill. The transition
provisions require that an assessment of previous business combinations be
made, and if appropriate, reclassifications to or from goodwill be made to
adjust the recording of intangible assets such that the criteria for recording
intangible assets apart from goodwill is applied to the previous business
combinations.
SFAS No. 142 provides, among other things, that goodwill and intangible assets
with indeterminate lives shall not be amortized. Rather, goodwill shall be
assigned to a reporting unit and annually assessed for impairment. Intangible
assets with determinate lives shall be amortized over their estimated useful
lives, with the useful lives reassessed continuously, and shall be assessed
for impairment under the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Goodwill is also assessed for impairment on an interim basis when events and
circumstances warrant.
The adoption of these new pronouncements had no effect on the Company.
37
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Newly Adopted Accounting Pronouncements (Continued)
SFAS No. 143 -- On August 16, 2001, the FASB issued SFAS No. 143, "Accounting
for Asset Retirement Obligations," which is effective for fiscal years
beginning after June 15, 2002. This pronouncement requires that obligations
associated with the retirement of tangible long-lived assets be recorded as
liabilities when those obligations are incurred, with the amount of the
liability initially measured at fair value. Upon initially recognizing a
liability for an accrued retirement obligation, an entity must capitalize the
cost by recognizing an increase in the carrying amount of the related long-
lived asset. Over time, the liability is accreted to its present value, and
the capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, the entity either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement. While the
Company has not completed the process of determining the effect of this new
accounting pronouncement on its financial statements, the Company currently
expects that the effect of SFAS No. 143 on the Company's financial statements,
when it becomes effective, will not be significant.
SFAS No. 144 -- On October 3, 2001, the Financial Accounting Standards Board
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, its provisions are to be
applied prospectively. SFAS 144 supersedes SFAS Statement No. 121 ("FAS
121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30 ("APB 30"), "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business."
SFAS 144 develops one accounting model (based on the model in SFAS 121) for
long-lived assets that are to be disposed of by sale, and addresses the
principal implementation issues. SFAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell. This requirement eliminates APB 30's
requirement that discontinued operations be measured at net realizable value
or that entities include under discontinued operations in the financial
statements amounts for operating losses that have not yet occurred.
Additionally, SFAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations
of the entity in a disposal transaction.
38
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
l. Recent Accounting Pronouncements
SFAS No. 145--On April 30, 2002, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 145 (SFAS 145), "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS 145 rescinds both FASB Statement No. 4 (SFAS
4)," Reporting Gains and Losses from Extinguishment of Debt," and the
amendment to SFAS 4, FASB Statement No. 64 (SFAS 64), "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements." Through this rescission, SFAS 145
eliminates the requirement (in both SFAS 4 and SFAS 64) that gains and losses
from the extinguishment of debt be aggregated and, if material, classified as
an extraordinary item, net of the related income tax effect. However, an
entity is not prohibited from classifying such gains and losses as
extraordinary items, so long as it meets the criteria in paragraph 20 of
Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Further, SFAS 145 amends paragraph 14(a) of FASB Statement No. 13, "Accounting
for Leases", to eliminate an inconsistency between the accounting for sale-
leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The amendment
requires that a lease modification (1) results in recognition of the gain or
loss in the 9 financial statements, (2) is subject to FASB Statement No. 66,
"Accounting for Sales of Real Estate," if the leased asset is real estate
(including integral equipment), and (3) is subject (in its entirety) to the
sale-leaseback rules of FASB Statement No. 98, "Accounting for Leases: Sale-
Leaseback Transactions Involving Real Estate," Sales-Type Leases of Real
Estate, Definition of the Lease Term, and Initial Direct Costs of Direct
Financing Leases. Generally, FAS 145 is effective for transactions occurring
after May 15, 2002. We do not expect that the adoption of SFAS 145 will have a
material effect on our financial performance or results of operations.
SFAS No. 146--In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit
or Disposal Activities" ("SFAS 146"). SFAS 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The scope
of SFAS 146 also includes costs related to terminating a contract that is not
a capital lease and termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002 and early
application is encouraged. The provisions of EITF No. 94-3 shall continue to
apply for an exit activity initiated under an exit plan that met the criteria
of EITF No. 94-3 prior to the adoption of SFAS 146. The effect on adoption of
SFAS 146 will change on a prospective basis the timing of when the
restructuring charges are recorded from a commitment date approach to when the
liability is incurred. The Company does not expect that the adoption will have
a material effect on its financial performance or results of operations.
39
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Equity Securities
Equity securities issued for services rendered have been accounted for at the
fair market value of the securities on the date of issuance.
n. Concentrations of Risk
The Company maintains several accounts with financial institutions. The
accounts are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company's balances regularly exceed that amount.
Credit losses, if any, have been provided for in the financial statements and
are based on management's expectations. The Company's accounts receivable are
subject to potential concentrations of credit risk. The Company does not
believe that it is subject to any unusual risks, or significant risks in the
normal course of its business.
o. Stock Options
As permitted by FASB Statement 123 "Accounting for Stock Based Compensation"
(SFAS No. 123), the Company elected to measure and record compensation cost
relative to employee stock option costs in accordance with Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations and make proforma disclosures of net
income and earnings per share as if the fair value method of valuing stock
options had been applied. Under APB opinion 25, compensation cost is
recognized for stock options granted to employees when the option price is
less that the market price of the underlying common stock on the date of
grant.
p. Valuation of Options and Warrants
The valuation of options and warrants granted to unrelated parties for
services are measured as of the earlier of (1) the date at which a commitment
for performance by the counterparty to earn the equity instrument is reached,
or (2) the date the counterparty's performance is complete. Pursuant to the
requirements of EITF 96-18, the options and warrants will continue to be
revalued in situations where they are granted prior to the completion of the
performance.
q. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
40
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 2 -STOCK SUBSCRIPTIONS RECEIVABLE
During the year ended June 30, 1998, an officer of the Company signed an
agreement and note to purchase 200,000 shares of the Company's common stock at
a price of $2.00 per share. The officer was subsequently terminated in July
1999. This subscription receivable has been presented as a reduction of
stockholders' equity. Originally, the note was to bear interest at 8.50% per
annum, and was to be paid in five equal annual installments beginning June 30,
1999, with the last payment due in full no later than June 30, 2003. At June
30, 2001, however, no payment had been received by the Company, and the entire
$400,000, plus accrued interest of $102,000, was still owed under the note.
Management of the Company elected to pursue a legal settlement in this matter,
which was finalized in December of 2001. Per the terms of the settlement
agreement, the Company wrote-off its subscription receivable, and all related
accrued interest. In return, the former officer returned his shares to the
Company. As of June 30, 2002, the Company had no further liability to the
former officer, and the former officer was cleared of all obligation to the
Company.
During the year ended June 30, 2000, the Company issued 1,000,000 shares of
common stock for various notes receivable totaling $750,000 to related
parties. These notes bear interest at rates of 8.0% and 8.5% per annum and
are due in full on December 1, 2002. These notes are also being presented as
a reduction of stockholders' equity. All interest accrued on related party
stock subscriptions are being presented as a credit to additional paid-in
capital.
During the year ended June 30, 2001, the Company issued 250,000 shares of
common stock for various notes receivable totaling $250,000. These notes are
presented as a reduction of stockholders equity. During the years ended June
30, 2001 and 2000, $37,770 and $12,016, respectively, was received on these
notes. Additional interest of $6,093 was also been recorded, bringing the
total subscription receivable balance at June 30, 2001 to $1,458,307.
During the year ended June 30, 2002, the Company issued 20,000 shares of its
common stock for a note receivable totaling $40,000. Later in the year, this
note was cancelled due to non-receipt of cash, and the shares were returned to
the Company. Further, the Company received cash on its subscriptions
receivable totaling $427,531. Additionally, the Company recorded $33,945 in
accrued interest on its stock subscription receivables, bringing the total
balance to $562,721 at June 30, 2002.
41
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 3 -RELATED PARTY TRANSACTIONS
As of June 30, 2001, the Company owed $93,597 ($77,000 principal plus $16,597
of accrued interest) to a former officer of the Company. Further, the former
officer claimed that the Company was indebted to him for an additional
$118,569 in accrued wages. In December 2001, the Company reached a settlement
agreement with the former officer such that the Company wrote-off its $400,000
stock subscription receivable and all related accrued interest (See Note 2).
In return, the former officer forgave all amounts due to him from the Company,
and returned to the Company 200,000 shares obtained through the stock
subscription receivable, as well as an additional 100,000 shares previously
issued to the former officer as compensation for services rendered in prior
years.
On October 29, 1999, the Company entered into an exclusive license agreement
with the Company's President and two unrelated parties to license certain
intellectual property rights known as "Apparatus for Making Foam Products" and
"Method for Making Polyurethane Tires with an Outer Skin" embodied in United
States Patent No.'s 4,943,223 and 4,855,096, respectively. The agreement
granted the Company an exclusive license to use, sell, license, or otherwise
exploit the technology worldwide in exchange for a royalty of $0.25 per unit
sold for all wholesale or retail sales of units produced utilizing the
technology. The agreement also provided for certain minimum
production/royalty requirements following the first year in order to maintain
the exclusive license. The licensors have the option to terminate the
agreement should the Company fail to pay any required royalty when due or fail
to meet the minimum production/royalty requirements.
At October 2001, the Company had failed to produce and sell enough units
utilizing the technology to meet the minimum production/royalty requirements
outlined in the agreement. Therefore, the parties agreed to amend the
original agreement such that the Company issued the licensors 22,500 shares of
its restricted common stock in lieu of all royalty payments accrued through
December 31, 2001. According to the amended agreement, the Company agreed to
pay a royalty of $0.25 per unit sold utilizing the technology subsequent to
December 31, 2001, except for those sold for promotional purposes. The
agreement was further amended such that in order to maintain the exclusive
license, the Company was required to sell units utilizing the technology in
the following minimum quantities:
Period Number of Units
------------------------------------ ---------------
January 1, 2002 to December 31, 2002 200,000
January 1, 2003 to December 31, 2003 300,000
January 1, 2004 to December 31, 2004 400,000
January 1, 2005 to December 31, 2005
and each calendar year thereafter 500,000
For the year ended June 30, 2002, the Company paid a total of $54,770 in
royalties relating to this agreement. At June 30, 2002 the Company had an
outstanding royalty obligation of approximately $3,513, which amount has been
included in the Company's accounts payable.
42
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 3 -RELATED PARTY TRANSACTIONS (Continued)
During the year ended June 30, 2002, the Company contracted for the design and
building of equipment with a company having common board members with
Amerityre. During the year, the Company made several "good faith" deposits on
this equipment totaling $82,332. In June of 2002, the related party performed
services for the Company valued at $15,201, leaving an outstanding balance of
$67,131. At this time it became clear to both parties that the related party
was not financially viable enough to be able to complete the contracted
performance. Therefore, the Company accepted certain fixed assets from the
related party in lieu of the agreed-upon services. The assets received from
the related party were valued at $32,084, with the remaining amount of $35,047
being written-off to a bad debt expense. As of June 30, 2002, the Company had
no outstanding obligation relating to this agreement.
During June 2002, the Company entered into an agreement with Taylor and
Associates, Inc. (Taylor and Associates), whereby, in consideration for the
Company's employ of Elliott Taylor as its executive vice-president and to
compensate Taylor and Associates for the potential financial detriment that
might occur to it as the result of his employment, the Company agreed to pay
Taylor and Associates $2,750 per month for a period of 24 months, commencing
on June 30, 2002 and continuing through May 31, 2004. Elliott Taylor was the
principle attorney for Taylor and Associates, prior to his employment by the
Company.
NOTE 4 -COMMITMENTS AND CONTINGENCIES
The Company maintains an executive office suite in Boulder City, Nevada.
During the year ended June 30, 2002, the Company renewed its lease for one
year, beginning in April 2002. The monthly rental payment on this property
throughout the lease term is $3,750.
On February 18, 2000, the Company entered into a separate lease agreement
relating to a manufacturing facility in Las Vegas, Nevada for five years
beginning on March 1, 2000. The monthly rental payment is $6,893 for the
first twelve months with annual increases based on the Consumer Price Index.
NOTE 5 -STOCK TRANSACTIONS
During the year ended June 30, 2001, the Company issued 1,614,519 shares of
its common stock for $2,693,597 in cash. In addition, the Company issued
42,500 shares for prepaid expenses valued at $80,000. The Company also issued
250,000 shares for notes receivable (exercise of options) totaling $250,000,
and 221,581 shares for services rendered, valued at $584,687.
43
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 5 -STOCK TRANSACTIONS (Continued)
During the year ended June 30, 2002, the Company issued 808,450 shares of its
common stock for $1,566,901 in cash. In addition, the Company issued 12,500
shares of its common stock for $25,000 in stock subscription deposits. The
Company also issued 30,146 shares in lieu of debt and royalty obligations.
The Company also issued 207,500 shares for prepaid services, and an additional
100,000 shares for consulting services rendered. Further, 37,500 shares were
issued on the exercise of stock options. Finally, the Company cancelled
320,000 shares of its common stock during the year for non-payment of
subscriptions receivable. The total number of common shares issued and
outstanding as of June 30, 2002 was 14,187,731.
NOTE 6 -STOCK SUBSCRIPTION DEPOSIT
During the year ended June 30, 2002 the Company issued 12,500 shares of its
common stock for $25,000 in stock subscription deposits which were received
during the year ended June 30, 2002.
During the year ended June 30, 2002, the Company received a total of $9,000
for the purchase of 4,500 shares of common stock. These 4,500 shares were
issued subsequent to June 30, 2002.
NOTE 7 -STOCK OPTIONS
During August 2002, the Company's board of directors ratified the "Amerityre
2002 Stock option and Award Plan," to be effective April 1, 2002. Under the
terms of this plan, the Company registered 2,000,000 shares of its $0.001 par
value common stock at a proposed maximum offering price per share of $2.80.
The proposed maximum aggregate offering price totaled $5,600,000. As of June
30, 2002, 1,186,000 options had been issued under this plan, each with an
exercise price of $4.00 per share and a three-year term.
During December 2001, the Company granted options to attorneys to purchase
50,000 shares of common stock. The options have an exercise price of $2.00
per share and a five-year term.
44
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 7 -STOCK OPTIONS (Continued)
A summary of the status of the Company's outstanding stock options as of June
30, 2002 and 2001 and changes during the years then ended is presented below:
2002 2001
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Outstanding, beginning of
year 3,417,500 $ 5.17 330,000 $ 0.79
Granted 1,236,000 3.92 3,450,000 5.14
Expired/Cancelled (2,500,000) 6.00 (100,000) 0.50
Exercised (37,500) 2.00 (262,500) 1.05
---------- ---------- ---------- ----------
Outstanding end of year 2,116,000 $ 3.52 3,417,500 $ 5.17
---------- ---------- ---------- ----------
Exercisable 2,116,000 $ 3.52 917,500 $ 2.93
---------- ---------- ---------- ----------
Outstanding Exercisable
----------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at June 30, Contractual Exercise at June 30, Exercise
Exercise Prices 2002 Life Price 2002 Price
---------- ---------- ---------- ---------- ---------- ----------
$ 2.00 80,000 3.13 $ 2.00 80,000 $ 2.00
3.00 850,000 1.56 3.00 850,000 3.00
4.00 1,186,000 2.79 4.00 1,186,000 4.00
---------- ---------- ---------- ---------- ----------
$ 2.00-4.00 2,116,000 2.31 $ 3.52 2,116,000 $ 3.52
========== ========== ========== ========== ==========
The Company estimates the fair value of each stock option at the grant date by
using the Black-Scholes option pricing model based on the following
assumptions:
For the Year Ended
June 30, 2002
------------------
Risk free interest rate 3.62% - 4.48%
Expected life 3 5 years
Expected volatility 91.49% - 114.84%
Dividend yield 0.00%
45
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 7 -STOCK OPTIONS (Continued)
Of the 1,236,000 options issued, 1,186,000 were issued to employees or
employee directors and were accounted for under APB 25, "Accounting for Stock
Issued to Employees." All of these shares were issued either at or above the
market price of the Company's common stock on the date of issue and no
compensation expense was recognized. Had compensation cost for the issuance
of the options been determined based on the fair value at the grant dates
consistent with the method of FASB Statement 123, "Accounting for Stock Based
Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
For the Years Ended
June 30,
2002 2001
----------- -----------
(Restated)
Net (loss) as reported $ (2,526,411) $ (4,563,664)
Pro forma (5,371,691) (5,004,569)
Basic (loss) per share as reported $ (0.19) $ (0.38)
Pro forma (0.39) (0.41)
NOTE 8 -GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has historically incurred significant losses, which
have resulted in an accumulated deficit of $17,357,600 at June 30, 2002, which
raises substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result from the
outcome of this uncertainty. The Company's management has taken certain steps
to maintain its operating and financial requirements in an effort to enable
the Company to continue as a going concern until such time that revenues are
sufficient to cover expenses, including:
(a) development of a direct marketing program supported by regional sales
representatives to sell the Company's products;
(b) reduction in outside consulting services and general and administrative
expenses;
(c) development of new technology for the production of higher-margin flatfree
tires for the lawn and garden market and golf cart/turf equipment market;
(d) obtaining equity funding through the private placement of the Company's
common stock to existing shareholders; and
(e) issuing common stock in lieu of cash for legal and other professional
services.
46
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 8 -GOING CONCERN (Continued)
Management anticipates that during the upcoming fiscal year the Company will
need approximately $2,000,000 to implement its plan and meet its working
capital requirements.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plan described above, and
eventually attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 9 -CESSATION OF THE DEVELOPMENT STAGE
Since inception, the Company has been deemed to be a "development stage
company" as that term is defined under Rule 1-02(h) of Regulation SX. This
regulation states that a company shall be considered in the development stage
if it is devoting all of its efforts to establishing a new business and either
of the following conditions exist: (1) planned principal operations have not
commenced, or (2) planned principal operations have commenced, but there has
been no significant revenue therefrom. During the year ended June 30, 2002,
the Company's management and board of directors determined that the Company's
operations were sufficiently established such that the Company was fit to exit
the development stage. Therefore, the Company's operations for the year ended
June 30, 2002 are considered to have transpired subsequent to the cessation of
the development stage. As such, the Company's deficit accumulated during the
development stage totaled $14,831,189, and the deficit accumulated subsequent
to the development stage totaled $2,526,411, as of June 30, 2002.
NOTE 10 -CORRECTION OF ERRORS
The Company has restated its financial statements for the years ended June 30,
2001, 2000, and 1999. This action was taken as the result of a review of the
Company's application of certain accounting principles as discussed below:
1. The Black-Scholes option-pricing model was used to value stock options
issued to non-employees and to calculate the pro-forma effect of options
issued to employees. Subsequent review of the application of this model
resulted in the discovery of errors in the formula used to calculate the
historical volatility of the Company's common stock. This discovery prompted
management to restate the Company's 2001 financial statements to recognize
additional expense of $1,157,589 and to disclose an additional pro-forma
expense of $440,905 associated with the issuance of these options.
47
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 10 -CORRECTION OF ERRORS (Continued)
2. During the years ended June 30, 2001, 2000, and 1999 the company issued
shares of its common stock to related parties in exchange for subscriptions
receivable. As of June 30, 2001, these receivables had accrued interest
totaling an aggregate of $108,093. This accrued interest was recorded as
interest income during the periods in which the interest accrued. Subsequent
review of these stock issuances resulted in the discovery of an error, in that
the Company should have recorded the accrued interest on the related party
receivables as additional paid-in capital, not as interest income. This
discovery prompted management to restate the Company's financial statements
such that income of $39,847 was reclassified as additional paid-in capital in
the 2001 fiscal year, an additional $34,246 in the 2000 fiscal year, and
$34,000 in the 1999 fiscal year.
In the opinion of management, all material adjustments necessary to correct
the financial statements have been recorded. The impact of these adjustments
on the Company's financial results as originally reported is summarized below:
June 30, 2001
As Reported As Adjusted Difference
------------ ------------ ------------
Additional paid-in capital $ 16,576,110 $ 17,841,792 $ 1,265,682
------------ ------------ ------------
Accumulated deficit (13,565,507) (14,831,189) (1,265,682)
------------ ------------ ------------
Consulting 1,153,807 1,315,092 (161,285)
Selling, general and
administrative 1,358,318 2,354,622 (996,304)
Interest income 114,299 74,452 (39,847)
Net loss $ (3,366,228) $ (4,563,664) $ (1,197,436)
------------ ------------ ------------
Pro Forma net loss $ (3,401,718) $ (4,599,154) $ (1,197,436)
============ ============ ============
Net loss per share $ (0.28) $ (0.38) $ (0.10)
============ ============ ============
Pro Forma net loss per share $ (0.28) $ (0.38) $ (0.10)
============ ============ ============
48
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2002 and 2001
NOTE 10 -CORRECTION OF ERRORS (Continued)
June 30, 2000
As Reported As Adjusted Difference
------------ ------------ ------------
Additional paid-in capital $ 12,656,137 $ 12,724,383 $ 68,246
------------ ------------ ------------
Accumulated deficit (10,199,279) (10,267,525) 68,246
------------ ------------ ------------
Interest income 45,461 11,395 (34,246)
Net loss $ (1,897,712) $ (1,931,958) $ (34,246)
============ ============ ============
Net loss per share $ (0.23) $ (0.23) $ (0.00)
============ ============ ============
June 30, 1999
As Reported As Adjusted Difference
------------ ------------ ------------
Additional paid-in capital $ 9,465,830 $ 9,499,830 $ 34,000
------------ ------------ ------------
Accumulated deficit (8,301,567) (8,335,567) (34,000)
------------ ------------ ------------
Interest income 34,460 460 (34,000)
------------ ------------ ------------
Net loss $ (1,779,346) $ (1,813,346) $ (34,000)
============ ============ ============
Net loss per share $ (0.22) $ (0.21) $ (0.01)
============ ============ ============
NOTE 11 -SUBSEQUENT EVENTS
Subsequent to June 30, 2002 the Company entered into agreements with two
unrelated parties for the purchase of operating equipment for $425,000 and
$33,600 in cash, respectively.
Subsequent to June 30, 2002, the Company issued 60,000 shares of its
restricted common stock to an unrelated investor for cash at $2.00 per share,
and collected $10,723 on its stock subscriptions receivable.