1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 33-94318-C
AMERITYRE CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 87-0535207
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 INDUSTRIAL ROAD, BOULDER CITY, NEVADA 89005
------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
(702) 294-2689
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, was 18,210,768 shares of common stock, par value $0.001, as of February
13, 2004.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
our financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles in the
United States of America. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature.
Our unaudited balance sheet as of December 31, 2003 and our audited balance
sheet as of June 30, 2003; the related unaudited statements of operations for
the three and six month periods ended December 31, 2003 and 2002, and the
unaudited statement of cash flows for the six month periods ended December 31,
2003 and 2002, are attached hereto and incorporated herein by this reference.
3
AMERITYRE CORPORATION
BALANCE SHEETS
ASSETS
DECEMBER 31, JUNE 30,
2003 2003
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 947,232 $ 2,490,604
Accounts receivable - net 171,187 128,481
Inventory 540,327 464,984
Prepaid expenses 64,717 52,667
------------ ------------
Total Current Assets 1,723,463 3,136,736
------------ ------------
PROPERTY AND EQUIPMENT
Leasehold improvements 154,756 127,976
Equipment 2,329,232 2,256,667
Furniture and fixtures 62,063 56,488
Vehicles 25,851 31,541
Software 182,629 103,991
Less - accumulated depreciation (1,407,445) (1,273,876)
------------ ------------
Total Property and Equipment 1,347,086 1,302,787
------------ ------------
OTHER ASSETS
Construction in progress 187,212 -
Patents and trademarks - net 114,611 101,052
Deposits 43,965 43,180
------------ ------------
Total Other Assets 345,788 144,232
------------ ------------
TOTAL ASSETS $ 3,416,337 $ 4,583,755
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
4
AMERITYRE CORPORATION
BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, JUNE 30,
2003 2003
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 54,393 $ 93,880
Accrued expenses 12,188 1,504
------------- ------------
Total Current Liabilities 66,581 95,384
------------- ------------
Total Liabilities 66,581 95,384
------------- ------------
COMMITMENTS AND CONTINGENCIES
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, 17,679,868 and 17,384,868
shares issued and outstanding, respectively 17,680 17,385
Additional paid-in capital 27,728,800 26,493,911
Stock subscriptions receivable - (16,632)
Expenses prepaid with common stock (779,553) (218,100)
Deferred consulting (131,455) (118,621)
Retained Deficit (23,485,716) (21,669,572)
------------ ------------
Total Stockholders' Equity 3,349,756 4,488,371
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,416,337 $ 4,583,755
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
5
AMERITYRE CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended
December 31,
----------------------------
2003 2002
------------ ------------
NET SALES $ 234,658 $ 239,772
COST OF SALES 159,712 247,907
------------ ------------
GROSS MARGIN (DEFICIT) 74,946 (8,135)
------------ ------------
EXPENSES
Consulting 146,250 82,093
Payroll and payroll taxes 397,961 244,930
Depreciation and amortization 77,304 60,607
Selling, general and administrative 301,987 395,293
Research and development 191,572 465
------------ ------------
Total Expenses 1,115,074 783,388
------------ ------------
LOSS FROM OPERATIONS (1,040,128) (791,523)
------------ ------------
OTHER INCOME
Interest income 3,272 4,123
Other Income 306 164
------------ ------------
TOTAL OTHER INCOME 3,578 4,287
------------ ------------
NET LOSS $ (1,036,550) $ (787,236)
------------ ------------
BASIC LOSS PER SHARE $ (0.06) $ (0.05)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 17,641,770 14,480,269
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
6
AMERITYRE CORPORATION
Statements of Operations
(Unaudited)
For the Six Months Ended
December 31,
----------------------------
2003 2002
------------ ------------
NET SALES $ 583,603 $ 440,001
COST OF SALES 529,534 461,343
------------ ------------
GROSS MARGIN (DEFICIT) 54,069 (21,342)
------------ ------------
EXPENSES
Consulting 235,800 108,470
Payroll and payroll taxes 704,808 471,965
Depreciation and amortization 135,957 119,534
Selling, general and administrative 603,525 704,841
Research and development 200,589 465
------------ ------------
Total Expenses 1,880,679 1,405,275
------------ ------------
LOSS FROM OPERATIONS (1,826,610) (1,426,617)
------------ ------------
OTHER INCOME
Interest income 8,950 10,879
Other Income 1,516 609
------------ ------------
TOTAL OTHER INCOME 10,466 11,488
------------ ------------
NET LOSS $ (1,816,144) $ (1,415,129)
------------ ------------
BASIC LOSS PER SHARE $ (0.10) $ (0.10)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 17,513,319 14,241,236
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
7
AMERITYRE CORPORATION
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
December 31,
----------------------------
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,816,144) $ (1,415,129)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Depreciation and amortization 135,957 119,534
Common stock issued for services 324,793 212,000
Stock options issued for services - 2,870
Services provided in lieu of cash payment
on subscriptions receivable - 14,249
Interest on subscriptions receivable - (4,408)
Exercise of stock options for services - 23,592
Amortization of expenses prepaid with
common stock 414,922 97,500
Amortization and revaluation of deferred
consulting expense (108,818) 2,746
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
and accounts receivable - related (42,706) 10,867
(Increase) decrease in inventory (75,333) 25,611
(Increase) decrease in prepaid expenses (12,050) (55,491)
(Increase) decrease in other assets (785) (36,000)
(Decrease) increase in accounts payable and
accrued expenses (30,426) 110,493
------------- -------------
Net Cash (Used) by Operating Activities (1,210,590) (891,566)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for patents (14,335) (7,955)
Purchase of equipment (365,080) (422,954)
------------- -------------
Net Cash (Used) by Investing Activities $ (379,415) $ (430,909)
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The accompanying notes are an integral part of these unaudited financial
statements.
8
AMERITYRE CORPORATION
Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
December 31,
---------------------------
2003 2002
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of subscriptions receivable $ 16,632 $ 362,262
Increase in stock subscription deposit - 25,000
Common stock issued for cash 30,000 190,000
------------ ------------
Net Cash Provided by Financing Activities 46,632 577,262
------------ ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (1,543,373) (745,213)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,490,604 774,345
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 947,231 $ 29,132
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
CASH PAID FOR:
Interest $ - $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services rendered $ 324,793 $ 212,000
Common stock issued for prepaid expenses $ - $ -
Common stock issued for subscriptions
receivable $ - $ -
The accompanying notes are an integral part of these unaudited financial
statements.
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AMERITYRE CORPORATION
Notes to the Unaudited Financial Statements
December 31, 2003 and June 30, 2003
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
by us pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles in the United States of America have been condensed or omitted in
accordance with such rules and regulations. The information furnished in the
interim condensed financial statements include normal recurring adjustments
and reflects all adjustments, which, in the opinion of management, are
necessary for a fair presentation of such financial statements. Although we
believe the disclosures and information presented are adequate to make the
information not misleading, it is suggested that these interim condensed
financial statements be read in conjunction with our most recent audited
financial statements and notes thereto included in our June 30, 2003 Annual
Report on Form 10-KSB. Operating results for the three and six months ended
December 31, 2003 are not necessarily indicative of the results that may be
expected for the current fiscal year ending June 30, 2004. Certain prior year
income statement balances have been reclassified to conform with current year
presentation.
NOTE 2 - GOING CONCERN
Our financial statements are prepared using generally accepted accounting
principles in the United States of America applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. We have historically incurred significant losses
which have resulted in a total accumulated deficit of approximately
$23,485,716 at December 31, 2003 which raises substantial doubt about our
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.
We have implemented certain steps to maintain our operating and financial
requirements in an effort to enable us to operate as a going concern until
such time as revenues from the sale of our Products are adequate to cover our
expenses, including:
(1) evaluating (A) our cost of goods and equipment utilization and
requirements of our manufacturing operations, and (B) our sales and marketing
plan on a product sector basis;
(2) incorporating revisions to our methods, processes and costs in order
to achieve necessary manufacturing efficiencies (i.e., line automation,
reduced material costs, reduced product weights, etc.).
(3) incorporating revisions to our sales and marketing plan to emphasis a
sector by sector market driven approach to achieve distribution and sell thru
support to maintain distribution. Therefore, we have shifted from our in-
house salesmen calling on independent retailer customers to using outside
sales representatives calling those customers, thereby allowing our in-house
salesmen to work directly with OEMs and distributors.
(4) implementing an in-house telemarketing program to maintain contact
with existing customer accounts.
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AMERITYRE CORPORATION
Notes to the Unaudited Financial Statements
December 31, 2003 and June 30, 2003
NOTE 2 - GOING CONCERN, Continued
(5) seeking reduced material and component costs from suppliers;
(6) if necessary, obtaining additional funding through the issuance of
stock through the exercise of previously outstanding options; and
(7) issuing common stock in lieu of cash as compensation for employment,
development, and other professional services.
In January 2004, we received an additional $1,510,000 cash through the
exercise of certain outstanding options to acquire our common stock. We
anticipate that these funds will be sufficient to implement our plan and to
meet our working capital requirements through June 30, 2004.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
During the reporting period we issued a purchase order to have a chemical
blending system built by an unrelated party for $188,640. The purchase order
calls for us to make five installment payments during the construction of the
equipment. The first payment was made in July 2003 and two additional payments
were made in September 2003. A fourth payment was made in October 2003. The
installment payments made during the period were classified as construction-
in-progress at December 31, 2003 and will be reclassified to equipment and
depreciated upon completion, installation and commencement of usage of the
equipment.
NOTE 4 - MATERIAL EVENTS
During October to December 2003, we issued 15,000 shares of our common stock
to employees for services rendered valued at $56,700, or $3.78 per share. We
issued 15,000 shares of our common stock in connection with the exercise of
outstanding options total $30,000, or $2.00 per share. We issued 100,000
shares of our restricted common stock for prepaid services related to a one-
year consulting agreement for services associated with the development of the
polyurethane passenger car tire, valued at $378,000, or $3.78 per share. We
issued 125,000 shares of our restricted common stock to our President and CEO,
in payment and prepayment of salary from July 1, 2003 to June 30, 2004, valued
at $472,500, or $3.78 per share. We issued 40,000 shares of restricted common
stock to our non-employee directors for prepayment of their services and
expenses from December 1, 2003 to November 30, 2004, valued at $6.10 per
share.
NOTE 5 - STOCK OPTIONS
During October 2003, we issued options to acquire 30,000 shares of our common
stock to an employee. The options are exercisable at $3.80 per share (the
closing market price on the date of grant was $3.78 per share) and vest 7,500
shares on the date of grant; 7,500 on December 31, 2003; 7,500 shares on March
31, 2004; and 7,500 shares on June 30, 2004.
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AMERITYRE CORPORATION
Notes to the Unaudited Financial Statements
December 31, 2003 and June 30, 2003
NOTE 5 - STOCK OPTIONS, continued
The 30,000 options issued to an employee were issued above the market price of
our common stock on the date of issue and are accounted for under APB 25,
"Accounting for Stock Issued to Employees". As such, no compensation expense
was recognized. Had compensation cost for the issuance of the options been
determined based on fair market value at the grant dates consistent with the
method of FASB Statement 123, "Accounting for Stock Based Compensation," our
net loss and loss per share would have been increased to the pro forma amounts
indicated below:
For the Three Months Ended For the Six Months Ended
December 31, December 31,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net (loss) as reported $ (1,036,550) $ (787,236) $ (1,816,144) $ (1,036,546)
Pro forma $ (1,066,250) $ (787,236) $ (1,845,844) $ (1,036,546)
Basic (loss) per share
as reported $ (0.06) $ (0.05) $ (0.10) $ (0.10)
Pro forma $ (0.06) $ (0.05) $ (0.11) $ (0.10)
A summary of the status of the Company's outstanding stock options as of
December 31, 2003 and 2002 and changes during the periods then ended is
presented below:
2003 2002
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Outstanding, beginning of
period 2,466,000 $ 3.37 2,616,000 $ 3.42
Granted 30,000 3.80 10,461 2.25
Expired/Cancelled - - - -
Exercised (15,000) 2.00 (10,461) 2.25
---------- ---------- ---------- ----------
Outstanding end of period 2,481,000 $ 3.38 2,616,000 $ 3.42
========== ========== ========== ==========
Exercisable 2,466,000 $ 3.38 2,616,000 $ 3.42
========== ========== ========== ==========
Outstanding Exercisable
----------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at Dec. 31, Contractual Exercise at Dec. 31, Exercise
Exercise Prices 2003 Life Price 2003 Price
---------- ---------- ---------- ---------- ---------- ----------
$ 2.00 265,000 1.51 $ 2.00 265,000 $ 2.00
3.00 1,000,000 1.08 3.00 1,000,000 3.00
3.80 30,000 2.75 3.80 15,000 3.80
4.00 1,186,000 1.62 4.00 1,186,000 4.00
---------- ---------- ---------- ---------- ----------
$ 2.00-4.00 2,481,000 1.41 $ 3.38 2,466,000 $ 3.38
========== ========== ========== ========== ==========
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AMERITYRE CORPORATION
Notes to the Unaudited Financial Statements
December 31, 2003 and June 30, 2003
NOTE 6 - SUBSEQUENT EVENTS
In January 2004, we issued 505,000 shares of our common stock for cash of
$1,510,000, in connection with the exercise of 5,000 outstanding stock options
at $2.00 per share and 500,000 outstanding stock options at $3.00 per share.
In January 2004, pursuant to a resolution of our Board of Directors, we
granted several employees (1) stock awards aggregating 3,900 shares of common
stock valued at $26,091, or $6.69 per share, and (2) stock options to purchase
an aggregate of 60,000 shares of common stock at an exercise price of $6.70
per share. The stock options expire on December 31, 2005.
In January 2004, pursuant to a resolution of our Board of Directors, we issued
20,000 shares of our common stock valued at $133,800, or $6.69 per share, to a
third-party consultant for professional services associated with product
marketing through June 30, 2004.
In December 2003, pursuant to a resolution of our Board of Directors, we
authorized the issuance of 2,000 shares of our common stock valued at $10,960,
or $5.48 per share, to non-affiliated parties as compensation for producing an
instructional Cd-rom/DVD relating to our products. These shares were
subsequently issued in February 2004.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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[TM]
tires from polyurethane. We changed our name to Amerityre Corporation in
December 1999. Since our inception, we have developed additional proprietary
technology relating to Flatfree[TM] tires. We have completed the fundamental
technical development of the processes to manufacture non-highway use
Flatfree[TM] tires for bicycles, wheelchairs, lawn and garden products,
commercial and riding lawnmowers, as well as golf cars (the "Products").
In addition to manufacturing the Flatfree [TM] Products referred to above,
since August 2001, we have also been engaged in the development of
polyurethane elastomer tires for highway and agricultural use based on our
proprietary technology and various methods and processes relating to the
manufacturing of those tires from liquid elastomers. This proprietary
technology is significant to us because we believe that it will result in a
tire that can be produced more quickly and less expensively than traditional
pneumatic tires, while meeting or exceeding the performance of those tires.
During the reporting period we produced a limited number of prototype
polyurethane car tires based on our "air, no-air" run flat technology. During
the reporting period we announced that we were conducting our own testing and
evaluation of the prototype tires and intended to produce additional
prototypes so we could submit those prototypes to an independent laboratory to
determine if the tires comply with applicable US DOT standards.
Subsequent to the period end we announced we had submitted prototype
polyurethane car tires to an independent lab for testing to determine if the
tires comply with Federal Motor Vehicle Safety Standard No. 109, applicable to
new pneumatic tires. FMVSS No. 109 specifies tire dimensions and laboratory
test requirements for bead unseating resistance, strength, endurance, and high
speed performance; defines tire load ratings; and specifies labeling
requirements for passenger car tires.
We originally estimated that the above referenced testing process would be
completed during January 2004. However, testing is ongoing and we expect
independent laboratory testing to continue during the subsequent reporting
period until such time as compliance with FMVSS No. 109 is obtained. Although
we can give no assurance that any of the prototype polyurethane car tires will
comply with FMVSS No. 109, we believe that if compliance is obtained,
additional testing beyond FMVSS No. 109 compliance will be required before we
can effectively exploit this technology. Even if the prototype polyurethane
car tire complies with FMVSS No. 109, fully commercialization of this
technology may depend on our ability to comply with the new standard for
testing, FMVSS 139, which takes effect June 1, 2007.
14
Our Results of Operations for the Three and Six Month Periods ended December
31, 2003 compared to the Three and Six Month Periods ended December 31, 2002
----------------------------------------------------------------------------
Net sales and cost of sales: Our net sales for the three and six month periods
ended December 31, 2003 were $234,658 and $583,603, respectively, compared to
$239,772 and $440,001 for the comparable periods ended December 31, 2002. Our
cost of sales for the three and six months ended December 31, 2003 were
$159,712 and $529,534, or 68% and 91% of sales, respectively. Our costs of
sales for the three and six months ended December 31, 2002 were $247,907 and
$461,343, or 103% and 105% of sales, respectively. Although total revenues
for the three month period ended December 31, 2003 were slightly lower than
the same three month period ended December 31, 2002, we are encouraged that we
were able to see a shift from a 3% gross deficit in the prior year to a 32%
gross margin. For the six month period ended December 31, 2003, our sales
increased $143,602 over the six month period ended December 31, 2002,
resulting in a gross margin of 9% for the six month period ended December 31,
2003, compared to a 5% gross deficit for the same period ended December 31,
2002. We believe the shift from a gross deficit to a gross margin will
continue through the remainder of this fiscal year as our cost of sales as a
percent of net sales continues to be reduced as a result of recently
introduced manufacturing efficiencies such as (a) increasing the size of
chemical formulation "batches", (b) dedicating production shifts to
manufacturing single products (i.e., longer production runs), and (c) reducing
labor costs by implementing line automation. To further assist in reaching
these objectives we have increased our sales efforts to generate additional
product orders in sufficient quantities to take advantage of manufacturing
efficiencies by targeting OEM customers in the lawn and garden sector for new
business.
We believe we currently have sufficient manufacturing equipment and employees
to merit a substantial increase in production without incurring a
proportionately equivalent increase in labor costs. In addition, we
continually seek reductions in raw material and component costs from our
suppliers.
A substantial amount of our Products are sold into markets that, in the
majority of the United States, are seasonal in nature (i.e., spring, summer
and fall). Aside from the seasonal nature of our product markets we know 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.
Operating Expenses: Our total operating expenses for the three and six months
ended December 31, 2003 were $1,115,074 and $1,880,679, respectively. These
expenses consisted as follows: consulting $146,250 and $235,800; payroll and
payroll taxes $397,961 and $704,808; depreciation and amortization $77,304 and
$135,957; selling general and administrative $301,987 and $603,525; and
research and development $191,572 and 200,589, resulting in losses from
operations of $1,040,128 and $1,826,610, respectively.
Our total operating expenses for the three and six months ended December 31,
2002 were $783,388 and $1,405,275, respectively. These expenses consisted of:
consulting expenses of $82,093 and $108,470; payroll and payroll taxes of
$244,930 and $471,965; depreciation and amortization of $60,607 and $119,534;
general and administrative expenses of $395,293 and $704,841; and research and
development $465 and $465, resulting in losses from operations of $791,523 and
$1,426,617, respectively.
15
The overall increase in our operating expenses during the current six month
period compared to the same period the prior year can almost entirely be
attributed to the shares of our common stock that have been issued by us for
services in lieu of cash compensation as follows: (1) payment and prepayment
of our CEO's annual salary through June 30, 2004; (2) payment and prepayment
of product marketing consulting through June 30, 2004; (3) payment and
prepayment of board of directors' fees and expenses through November 30, 2004;
and (4) payment and prepayment of consulting services associated with the
development of the polyurethane car tire through September 30, 2004. We had
not made any material expenditures in research and development related to the
polyurethane passenger car tire until October 2003 and we now estimate
expending an additional $250,000 for research and development during the
balance of our fiscal year ending June 30, 2004. As a result of this
anticipated research and development expense, we estimate our monthly
operating expenses to be approximately $375,000 through June 30, 2004, of
which approximately $100,725 per month has been prepaid.
Additionally, our selling, general and administrative expenses for the six
month period ended December 31, 2003, do not include $131,455 in deferred
consulting expenses. The aggregate amount is recorded as a reduction in
stockholders' equity because it is associated with the granting of options to
non-employees for services not yet performed. The variable fair value of these
options was calculated using the Black-Scholes option pricing model.
Other Income and Expense; Net Loss: During the three and six month periods
ended December 31, 2003, we had interest and other income of $3,578 and
$10,466, respectively, compared to $4,287 and $11,488, respectively, for the
comparable periods in 2002. Our interest income is derived from our cash and
cash equivalents held in interest bearing accounts. We experienced a net loss
from operations of $1,036,550 and $1,816,144, respectively, for the three and
six months ended December 31, 2003, with a basic loss per share of $0.06 and
$0.10 per share, based on the weighted average number of shares outstanding of
17,641,770 and 17,513,319. In the prior year periods, we experienced a net
loss of $787,236 and $1,415,129, respectively, for the three and six months
ended December 31, 2002, with a basic loss per share of $0.05 and $0.10, based
on the weighted average number of shares outstanding of 14,480,269 and
14,241,236.
Liquidity and Capital Resources: We had current assets of $1,723,463 and
current liabilities of $66,581, for a working capital surplus of $1,656,882 at
December 31, 2003. Current assets consisted of cash and cash equivalents of
$947,232, net accounts receivable of $171,187, inventory of $540,327, and
prepaid expenses of $64,717. Net cash used in operations was $1,210,590 and
$891,566 for the six month periods ended December 31, 2003 and 2002,
respectively. Our operations for the six months ended December 31, 2003 have
been funded primarily by accounts receivables, the sale of common stock and
the issuance of common stock for services and salary. Our operations for the
comparative period ended December 31, 2002 were funded primarily by the sale
of common stock, the issuance of common stock for services and salary, and the
collections of account receivables. At December 31, 2003, we had net property
and equipment of $1,347,086 after deduction of $1,407,445 in accumulated
depreciation, a net increase of $44,299 compared to June 30, 2003. The
increase was a direct result of placing additional equipment into production.
16
Because we had a retained deficit of $21,669,572, our audit report at June 30,
2003 contained a going concern paragraph as to our ability to continue as a
going concern. At December 31, 2003, the deficit accumulated is $23,485,716.
We are currently taking steps to maintain our operating and financial
requirements in an effort to enable us to operate as a going concern until
such time as revenues from the sale of our Products are adequate to cover our
expenses, including:
(1) evaluating (A) our cost of goods and equipment utilization and
requirements of our manufacturing operations, and (B) our sales and marketing
plan on a product sector basis;
(2) incorporating revisions to our methods, processes and costs in order
to achieve necessary manufacturing efficiencies (i.e., line automation,
reduced material costs, reduced product weights, etc.).
(3) incorporating revisions to our sales and marketing plan to emphasis a
sector by sector market driven approach to achieve distribution and sell thru
support to maintain distribution. Therefore, we have shifted from our in-
house salesmen calling on independent retailer customers to using outside
sales representatives calling those customers, thereby allowing our in-house
salesmen to work directly with OEMs and distributors.
(4) implementing an in-house telemarketing program to maintain contact
with existing customer accounts.
(5) seeking reduced material and component costs from suppliers;
(6) if necessary, obtaining additional funding through the issuance of
stock through the exercise of previously outstanding options; and
(7) issuing common stock in lieu of cash as compensation for employment,
development, and other professional services.
In January 2004, we received an additional $1,510,000 cash through the
exercise of certain outstanding options to acquire our common stock. We
anticipate that these funds will be sufficient to implement our plan and to
meet our working capital requirements through June 30, 2004.
Impact of Inflation: At this time we do not anticipate that inflation will
have a material impact on our current or future operations.
Principal Customers: Central Purchasing accounted for approximately 20.9% of
our sales revenue during the three month period ending December 31, 2003. For
the six month period ended December 31, 2002, Giant-Vac, a division of Snapper
Corp. accounted for approximately 11.6% of our revenues.
17
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
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Our management, under the supervision and with the participation of our
principal executive officer and our principal financial officer, has evaluated
the effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of December 31, 2003, which is the end of the period
covered by this Quarterly Report on Form 10-QSB. Based on that evaluation, our
principal executive officer and our principal financial officer have concluded
that these disclosure controls and procedures are effective to provide that
(i) material information relating to our business is made known to these
officers by other employees, particularly material information related to the
period for which this periodic report is being prepared; and (ii) this
information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the rules and forms
promulgated and adopted by the Securities and Exchange Commission.
(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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In October 2003, pursuant to a resolution of our Board of Directors, we issued
125,000 shares of restricted common stock valued at $472,500, or $3.78 per
share, in lieu of cash compensation to Richard A. Steinke, our CEO. This
issuance was made as a payment of employment compensation for the period from
July 1, 2003 through June 30, 2004.
In October 2003, pursuant to a resolution of our Board of Directors, we issued
100,000 shares of our restricted common stock valued at $378,000, or $3.78 per
share, to a third-party consultant for professional services associated with
our endeavor to develop polyurethane elastomer tires.
In November 2003, pursuant to a resolution of our Board of Directors, we
authorized the issuance to non-employee directors of an aggregate of 40,000
shares of restricted common stock valued at $244,000, or $6.10 per share, in
lieu of cash compensation and reimbursement of out-of-pocket expenses
associated with attending our board meetings through November 30, 2004.
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 21, 2003, at our annual meeting of shareholders, a majority of the
shareholders elected Richard A. Steinke, Louis M. Haynie, Henry D. Moyle,
Wesley G. Sprunk and Norman H. Tregenza to the board of directors. Each
director will serve until our next annual meeting and until his or her
successor is duly elected and qualified. In addition, a majority of the
shareholders approved the selection of HJ & Associates,LLC, as our independent
public accountants for fiscal 2004. The tabulation of the votes is set forth
below:
1. Election of directors:
Richard A. Steinke: for 12,956,565; against 222,835; withhold 109,530
Henry D. Moyle: for 12,652,803; against 541,067; withhold 95,030
Louis M. Haynie: for 13,140,190; against 541,867; withhold 45,030
Norman H. Tregenza: for 13,142,965; against 61,535; withhold 84,430
Wesley G. Sprunk: for 13,140,190; against 63,035; withhold 85,705
2. Ratification of HJ: for 13,127,392; against 18,250; withheld 104,780
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
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Exhibit 31.01 - Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.02 - Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.01 - Certification of Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.02 - Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K.
-------------------------
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 16, 2003 AMERITYRE CORPORATION
/S/RICHARD A. STEINKE
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President and Chief Executive Officer
AMERITYRE CORPORATION
Dated: February 16, 2003 /S/DAVID K. GRIFFITHS
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Secretary/Treasurer and
Principal Accounting Officer