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 March 31, 2004
[ ] 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
------------------------------------------------------
(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
----------------------------------------------------
(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 18,275,268 shares of common stock, par value $0.001, as of May 17,
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 March 31, 2004 and our audited balance sheet
as of June 30, 2003; the related unaudited statements of operations for the
three and nine month periods ended March 31, 2004 and 2003, and the unaudited
statement of cash flows for the nine month periods ended March 31, 2004 and
2003, are attached hereto and incorporated herein by this reference.
3
AMERITYRE CORPORATION
BALANCE SHEETS
ASSETS
MARCH 31, JUNE 30,
2004 2003
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 2,058,124 $ 2,490,604
Accounts receivable - net 268,046 128,481
Inventory 535,983 464,984
Prepaid expenses 51,131 52,667
------------ ------------
Total Current Assets 2,913,284 3,136,736
------------ ------------
PROPERTY AND EQUIPMENT
Leasehold improvements 163,896 127,976
Molds and Models 314,268 266,081
Equipment 2,056,282 1,990,586
Furniture and fixtures 63,624 56,488
Vehicles 25,851 31,541
Software 182,629 103,991
Less - accumulated depreciation (1,486,509) (1,273,876)
------------ ------------
Total Property and Equipment 1,320,041 1,302,787
------------ ------------
OTHER ASSETS
Construction in progress 178,072 -
Patents and trademarks - net 123,989 101,052
Deposits 43,180 43,180
------------ ------------
Total Other Assets 345,241 144,232
------------ ------------
TOTAL ASSETS $ 4,578,566 $ 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
MARCH 31, JUNE 30,
2004 2003
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 91,502 $ 93,880
Accrued expenses 20,171 1,504
------------- ------------
Total Current Liabilities 111,673 95,384
------------- ------------
Total Liabilities 111,673 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, 18,254,768 and 17,384,868
shares issued and outstanding, respectively 18,255 17,385
Additional paid-in capital 29,598,126 26,493,911
Stock subscriptions receivable - (16,632)
Expenses prepaid with common stock (567,284) (218,100)
Deferred consulting - (118,621)
Retained Deficit (24,582,204) (21,669,572)
------------ ------------
Total Stockholders' Equity 4,466,893 4,488,371
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,578,566 $ 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
March 31,
----------------------------
2004 2003
------------ ------------
NET SALES $ 448,753 $ 291,295
COST OF SALES 294,854 294,385
------------ ------------
GROSS MARGIN (DEFICIT) 153,899 (3,090)
------------ ------------
EXPENSES
Consulting 67,373 128,636
Payroll and payroll taxes 383,688 254,818
Depreciation and amortization 79,461 7,846
Research and development 199,628 340
Selling, general and administrative 524,928 346,018
------------ ------------
Total Expenses 1,255,078 737,658
------------ ------------
LOSS FROM OPERATIONS (1,101,179) (740,748)
------------ ------------
OTHER INCOME
Interest income 4,691 3,488
Other Income - 117
------------ ------------
TOTAL OTHER INCOME 4,691 3,605
------------ ------------
NET LOSS $ (1,096,488) $ (737,143)
============ ============
BASIC LOSS PER SHARE $ (0.06) $ (0.05)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 18,040,426 14,701,603
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
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AMERITYRE CORPORATION
Statements of Operations (Continued)
(Unaudited)
For the Nine Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
NET SALES $ 1,032,356 $ 731,296
COST OF SALES 824,388 755,728
------------ ------------
GROSS MARGIN (DEFICIT) 207,968 (24,432)
------------ ------------
EXPENSES
Consulting 303,173 237,106
Payroll and payroll taxes 1,088,496 726,783
Depreciation and amortization 215,418 127,380
Research and Development 400,217 805
Selling, general and administrative 1,128,453 1,050,859
------------ ------------
Total Expenses 3,135,757 2,142,933
------------ ------------
LOSS FROM OPERATIONS (2,927,789) (2,167,365)
------------ ------------
OTHER INCOME
Interest income 13,641 14,367
Other Income 1,516 726
------------ ------------
TOTAL OTHER INCOME 15,157 15,093
------------ ------------
NET LOSS $ (2,912,632) $ (2,152,272)
============ ============
BASIC LOSS PER SHARE $ (0.16) $ (0.15)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 17,687,515 14,460,457
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
7
AMERITYRE CORPORATION
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
March 31,
---------------------------
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,912,632) $ (2,152,272)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Depreciation and amortization 215,418 127,380
Common stock issued for services 335,753 260,518
Stock options issued for services - 2,870
Services provided in lieu of cash payment
on subscriptions receivable - 14,249
Interest on subscriptions receivable - (20,229)
Exercise of stock options for services - 23,592
Amortization of expenses prepaid with
common stock 760,991 287,875
Amortization and revaluation of deferred
consulting expense 115,687 4,483
Changes in assets and liabilities:
(Increase) in accounts receivable
and accounts receivable - related (139,565) (34,892)
(Increase) decrease in inventory (70,999) 19,018
(Increase) decrease in prepaid expenses 1,536 (37,208)
(Increase) in other assets - (36,000)
Increase in accounts payable and
accrued expenses 14,677 112,867
------------- -------------
Net Cash (Used) by Operating Activities (1,679,134) (1,427,749)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for construction in progress (178,072) -
Cash paid for patents and trademarks (24,110) (10,180)
Purchase of equipment (229,887) (583,947)
------------- -------------
Net Cash Provided (Used) by
Investing Activities $ (432,069) $ (594,127)
------------- -------------
The accompanying notes are an integral part of these unaudited financial
statements.
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AMERITYRE CORPORATION
Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended
March 31,
---------------------------
2004 2003
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of subscriptions receivable $ 16,632 $ 391,168
Increase in stock subscription deposit
deposit - 80,020
Common stock issued for cash 1,662,091 869,030
------------ ------------
Net Cash Provided by Financing Activities 1,678,723 1,340,218
------------ ------------
NET (DECREASE) IN CASH (432,480) (681,658)
CASH AT BEGINNING OF PERIOD 2,490,604 774,345
------------ ------------
CASH AT END OF PERIOD $ 2,058,124 92,687
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
CASH PAID FOR:
Interest $ - $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services rendered $ 335,753 $ 260,518
Common stock issued for prepaid expenses $ $ 309,500
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
March 31, 2004 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 accounting principles
generally accepted 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 nine
months ended March 31, 2004 are not necessarily indicative of the results that
may be expected for the current fiscal year ending June 30, 2004. Certain
prior year balance sheet and income statement balances have been reclassified
to conform with current year presentation.
NOTE 2 - GOING CONCERN
Our financial statements are prepared using accounting principles generally
accepted 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 $24,582,204 at March 31,
2004 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 waste, etc.).
(3) incorporating revisions to our sales and marketing plan to emphasize
sector-by-sector market driven approach to achieve distribution and sell
through 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
March 31, 2004 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.
During the three month period ended March 31, 2004, we received $1,606,000
cash through the exercise of certain outstanding options to acquire our common
stock. We anticipate that these funds will be sufficient 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 March 31, 2004 and will be reclassified to equipment and
depreciated upon completion, installation and commencement of usage of the
equipment.
NOTE 4 - MATERIAL EVENTS
During the period from 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.
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.
In January 2004, pursuant to a resolution of our Board of Directors, we
granted various employees stock awards aggregating 3,900 shares of common
stock valued at approximately $28,252, or $7.24 per share.
11
AMERITYRE CORPORATION
Notes to the Unaudited Financial Statements
March 31, 2004 and June 30, 2003
NOTE 5 - STOCK OPTIONS
During the three month period ended March 31, 2004 we issued 549,000 shares of
our common stock for cash of $1,606,000, in connection with the exercise of
45,000 outstanding stock options at $2.00 per share, 500,000 outstanding stock
options at $3.00 per share and 4,000 outstanding stock options at $4.00 per
share.
During the three month period ended March 31, 2004 we issued options to
acquire an aggregate of 60,000 shares of our common stock to various
employees. The options are exercisable at $6.70 per share (the closing market
price on the date of grant was $6.69 per share) and expire on December 31,
2005.
In 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 shares on December 31, 2003; 7,500 shares
on March 31, 2004; and 7,500 shares on June 30, 2004.
The 90,000 options issued to the employees 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 Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net (loss) as reported $ ( 1,096,488)$ (737,143) $ (2,912,632) $ (2,152,272)
Pro forma $ ( 1,286,613) $ (737,143) $ (3,132,457) $ (2,152,272)
Basic (loss) per share
as reported $ (0.06) $ (0.05) $ (0.16) $ (0.15)
Pro forma $ (0.07) $ (0.05) $ (0.22) $ (0.15)
A summary of the status of the Company's outstanding stock options as of March
31, 2004 and 2003 and changes during the periods then ended is presented
below:
2004 2003
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Outstanding, beginning of
year 2,466,000 $ 3.37 2,616,000 $ 3.42
Granted 90,000 5.73 260,461 2.01
Expired/Cancelled - - (380,000) 2.92
Exercised (564,000) 2.90 (30,461) 2.09
---------- ---------- ---------- ----------
Outstanding end of period 1,992,000 $ 3.61 2,466,000 $ 3.42
========== ========== ========== ==========
Exercisable 1,984,500 $ 3.61 2,466,000 $ 3.42
========== ========== ========== ==========
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AMERITYRE CORPORATION
Notes to the Unaudited Financial Statements
March 31, 2004 and June 30, 2003
NOTE 5 - STOCK OPTIONS, Continued
Outstanding Exercisable
----------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at Mar. 31, Contractual Exercise at Mar. 31, Exercise
Exercise Prices 2004 Life Price 2004 Price
---------- ---------- ---------- ---------- ---------- ----------
$ 2.00 220,000 1.51 $ 2.00 220,000 $ 2.00
3.00 500,000 1.08 3.00 500,000 3.00
3.80 30,000 2.75 3.80 22,500 3.80
4.00 1,182,000 1.62 4.00 1,182,000 4.00
6.70 60,000 1.97 6.70 60,000 6.70
---------- ---------- ---------- ---------- ----------
$ 2.00-6.70 1,992,000 1.20 $ 2.88 1,984,500 $ 2.88
========== ========== ========== ========== ==========
NOTE 6 - SUBSEQUENT EVENTS
In April 2004, pursuant to a resolution of our Board of Directors, we granted
an employee a stock award of 500 shares of common stock valued at
approximately $4,927, or $9.85 per share.
In May 2004, we issued 20,000 shares of our common stock for cash of $40,000,
in connection with the exercise of 20,000 outstanding stock options at $2.00
per share.
In May 2004, we entered into a Manufacturing and Distribution License
Agreement and related agreements (collectively, the "Agreement") with Liberty
Circle S.A., a Panamanian corporation. This Agreement is dependent upon
Liberty Circle obtaining funding totaling approximately $6.5 million dollars
within 120 days of the execution date of the Agreement. The Agreement provides
for(1) an exclusive license for Liberty Circle to manufacture and market
certain of our polyurethane foam Flatfree[TM] tire products in Latin America;
(2) us to produce and install the necessary manufacturing equipment for the
products; and (3) us to supply the proprietary chemical systems needed for
Liberty Circle to produce the products. In connection with the Agreement, we
will also provide Liberty Circle with equipment setup, training and
manufacturing support. The exclusivity of the license is dependent on Liberty
Circle meeting annual minimum requirements for the purchase of chemical
systems from us once the installation of the manufacturing equipment is
completed and production commences. We anticipate that it will take
approximately 9 to 12 months from funding to have the manufacturing equipment
installed and ready to produce products. In addition to the above, upon
funding by Liberty Circle, we have committed to design and develop moped,
motor scooter and motorcycle tires to be produced by Liberty Circle for the
Latin American marketplace.
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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 quickly and less expensively than traditional rubber
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 and
announced we had submitted prototypes 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. Subsequent to the
end of the reporting period, we received results of laboratory tests
indicating the prototype tires complied with the test requirements of FMVSS
109. We believe that passing the test requirements is the first significant
step required to advance our polyurethane tire technology. Compliance with
FMVSS 109 is necessary to commercially market tires within the United States.
FMVSS 109 is the current standard applicable to new pneumatic car tires and
new standards under FMVSS 139 take effect in 2007. However, several classes of
new pneumatic tires are not required to meet the FMVSS 139 standard, therefore
our ability to commercialize our technology is not completely dependent on our
ability to demonstrate that tires produced utilizing our technology can comply
with FMVSS 139.
14
Our Results of Operations for the Three and Nine Month Periods ended March 31,
2004 compared to the Three and Nine Month Periods ended March 31, 2003
----------------------------------------------------------------------------
Net sales and cost of sales: Our net sales for the three and nine month
periods ended March 31, 2004 were $448,753 and $1,032,356, respectively,
compared to $291,295 and $731,296 for the comparable periods ended March 31,
2003. Our cost of sales for the three and nine months ended March 31, 2004
were $294,854 and $824,388, or approximately 66% and 80% of net sales,
respectively. Our costs of sales for the three and nine months ended March
31, 2003 were $294,385 and $755,728, or 101% and 103% of net sales,
respectively.
Total revenues for the three month period ended March 31, 2004 increased
approximately 54% over total revenues for the same three month period ended
March 31, 2003. We remain encouraged that we are able to see a shift from a 1%
gross deficit in the prior year to a 34% gross margin for the current period.
For the nine month period ended March 31, 2004, our net sales were increased
$301,060 over the nine month period ended March 31, 2003, resulting in a gross
margin of approximately 20% for the nine month period ended March 31, 2004,
compared to a 3% gross deficit for the same period ended March 31, 2003.
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 obtaining better
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 offered competitive payment terms to existing customers,
and have created new marketing tools and product promotional material. By
increasing our sales and marketing effort, we hope to generate additional
product orders in sufficient quantities to take further advantage of
manufacturing efficiencies.
We believe we currently have sufficient manufacturing equipment and employees
to sustain a substantial increase in production without incurring a
proportionately equivalent increase in labor costs. We believe that material
costs will remain constant, however, we may see as much as a 10% increase in
steel wheel component costs from our vendors as a result of the increased cost
of steel.
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), therefore, we anticipate an increase in sales during the next three
month period ended June 30, 2004. Aside from the seasonal nature of our
product markets and the increase in the cost of steel we know of no other
predictable events or uncertainties that may be reasonably expected to have a
material impact on the net sales revenues or income from continuing
operations.
Operating Expenses: Our total operating expenses for the three and nine months
ended March 31, 2004 were $1,255,078 and $3,135,757, respectively. These
expenses consisted as follows: consulting $67,373 and $303,173; payroll and
payroll taxes $383,688 and $1,088,496; depreciation and amortization $79,461
and $215,418; research and development $199,628 and $400,217; and selling
general and administrative $524,928 and $1,128,453, resulting in losses from
operations of $1,109,179 and $2,927,789, respectively.
15
Our total operating expenses for the three and nine months ended March 31,
2003 were $737,658 and $2,142,933, respectively. These expenses consisted of:
consulting expenses of $128,636 and $237,106; payroll and payroll taxes of
$254,818 and $726,783; depreciation and amortization of $7,846 and $127,380;
research and development $340 and $805; and selling, general and
administrative expenses of $346,018 and $1,050,859, resulting in losses from
operations of $740,748 and $2,167,365, respectively.
The overall increase in our operating expenses during the current nine month
period compared to the same period the prior year can almost entirely be
attributed to amortization of the cost of 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 spending between an additional $150,000 to $200,000 for
research and development during the balance of our fiscal year ending June 30,
2004. As a result, we estimate our monthly operating expenses to be
approximately $375,000 through June 30, 2004, of which approximately $113,500
per month has been prepaid.
Additionally, our selling, general and administrative expenses for the three
and nine month periods ended March 31, 2004, includes $209,490 and $250,640,
in variable deferred consulting expenses, respectively. All of the options
subject to variable calculation were exercised during the reporting period.
Other Income and Expense; Net Loss: During the three and nine month periods
ended March 31, 2004, we had interest and other income of $4,691 and $15,157,
respectively, compared to $3,605 and $15,093, respectively, for the comparable
periods in 2003. Our interest income is derived from our cash and cash
equivalents held in interest bearing accounts. We experienced a net loss from
operations of $1,094,488 and $2,912,632, respectively, for the three and nine
months ended March 31, 2004, with a basic loss per share of $0.06 and $0.16
per share, based on the weighted average number of shares outstanding of
18,040,426 and 17,687,515. In the prior year periods, we experienced a net
loss of $737,143 and $2,152,272, respectively, for the three and nine months
ended March 31, 2003, with a basic loss per share of $0.05 and $0.15, based on
the weighted average number of shares outstanding of 14,701,603 and
14,460,457.
Liquidity and Capital Resources: We had current assets of $2,913,284 and
current liabilities of $111,673, for a working capital surplus of $2,801,611
at March 31, 2004. Current assets consisted of cash and cash equivalents of
$2,058,124, net accounts receivable of $268,046, inventory of $535,983, and
prepaid expenses of $51,131. Net cash used in operations was $1,679,134 and
$1,427,749 for the nine month periods ended March 31, 2004 and 2003,
respectively. Our operations for the nine months ended March 31, 2004 have
been funded primarily by collection of accounts receivable, the issuance of
common stock for services and salary and the exercise of outstanding options.
16
Our operations for the comparative period ended March 31, 2003 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 March 31,
2004, we had net property and equipment of $1,320,041 after deduction of
$1,486,509 in accumulated depreciation, a net increase of $17,254 compared to
June 30, 2003. The increase was a direct result of placing additional
equipment into production.
Because at June 30, 2003, we had a retained deficit of $21,669,572, our audit
report contained a going concern paragraph as to our ability to continue as a
going concern. At March 31, 2004, our accumulated deficit is $24,582,204. 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 waste, etc.).
(3) incorporating revisions to our sales and marketing plan to emphasize
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.
During the three month period ended March 31, 2004, we received $1,606,000
cash through the exercise of certain outstanding options to acquire our common
stock. We anticipate that these funds will be sufficient 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.
17
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
-----------------------------------------------------
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 March 31, 2004, 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 January 2004, we issued 500,000 shares of our restricted common stock for
cash of $1,500,000, in connection with the exercise of outstanding stock
options at $3.00 per share.
In January 2004, pursuant to a resolution of our Board of Directors, we
granted several employees 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.
All of our securities 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
-------------
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.
-------------------------
On May 3, 2004, we filed a Form 8-K, Current Report, ITEM 5. OTHER EVENT,
reporting that effective May 3, 2004, we entered into a Manufacturing and
Distribution License Agreement and related agreements (collectively, the
"Agreement") with Liberty Circle S.A., a Panamanian corporation. Liberty
Circle is part of a business consortium that is designing and building a high-
tech industrial development and manufacturing park in Panama. This Agreement
is dependent upon Liberty Circle obtaining funding totaling approximately $6.5
million dollars within 120 days of the execution date of the Agreement.
Subject to Liberty Circle obtaining the necessary funding commitment, the
Agreement provides an exclusive license for Liberty Circle to manufacture and
market certain of our polyurethane foam Flatfree[TM] tire products (the
"Products")in Latin America. The Agreement also includes provisions for us
to produce and install the necessary manufacturing equipment for the Products,
and to supply the proprietary chemical systems needed for Liberty Circle to
produce the Products. In connection with the Agreement, we will also provide
Liberty Circle with equipment setup, training and manufacturing support. The
exclusivity of the license is dependent on Liberty Circle meeting annual
minimum requirements for the purchase of chemical systems from us once the
installation of the manufacturing equipment is completed and production
commences. We anticipate that it will take approximately 9 to 12 months from
funding to have the manufacturing equipment installed and ready to produce
Products.
In addition to the above, upon funding by Liberty Circle, we have committed to
design and develop moped, motor scooter and motorcycle tires to be produced by
Liberty Circle for the Latin American marketplace.
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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: May 17, 2004 AMERITYRE CORPORATION
/S/RICHARD A. STEINKE
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President and Chief Executive Officer
AMERITYRE CORPORATION
Dated: May 17, 2004 /S/DAVID K. GRIFFITHS
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Secretary/Treasurer and
Principal Accounting Officer