Edgar Filing: AMERITYRE CORP

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

AMENDMENT NO. 1

For the quarterly period ended December 31, 2005

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________.

Commission file number: 000-50053

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AMERITYRE CORPORATION

(Exact name of small business issuer 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

(Issuer=s telephone number)

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 twelve (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 ninety (90) days Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer [ ]

Accelerated filer [X]

Non-accelerated filer [ ]

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The number of shares outstanding of Registrant's Common Stock as of February 8, 2006: 20,988,580

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q 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 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 at December 31, 2005 and our audited balance sheet at June 30, 2005; the related unaudited statements of operations for the three and six month periods ended December 31, 2005 and 2004; and the related unaudited statement of cash flows for the six month periods ended December 31, 2005 and 2004, are attached hereto.


AMERITYRE CORPORATION
Balance Sheets

			December 31, 2005	June 30, 2005
			Restated (Unaudited)
ASSETS

CURRENT ASSETS

	Cash and cash equivalents		$ 2,577,694	$ 2,122,320
	Accounts receivable – net		75,617	168,838
	Inventory		567,387	646,798
	Prepaid expenses and other current assets		106,151	62,489
	Special projects in progress		-	752
	Deferred stock offering expenses		83,278	80,151
	Deposit on equipment		294,254	-

		Total Current Assets	3,704,381	3,081,348

PROPERTY AND EQUIPMENT

	Leasehold improvements		120,767	120,767
	Molds and models		353,591	343,031
	Equipment		2,324,730	2,280,888
	Furniture and fixtures		73,652	70,678
	Software		280,337	184,901
	Less - Accumulated depreciation		(2,027,326)	(1,858,950)

		Total Property and Equipment	1,125,751	1,141,315

OTHER ASSETS

	Patents and trademarks – net		398,830	368,011
	Deposits		36,000	36,000

		Total Other Assets	434,830	404,011

TOTAL ASSETS			$ 5,264,962	$ 4,626,674

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


AMERITYRE CORPORATION
Balance Sheets (Continued)

			December 31, 2005	June 30, 2005
			Restated (Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

	Accounts payable		$ 246,372	$ 49,904
	Accrued expenses		32,559	27,424
	Stock subscription deposits		836,820	-
	Deferred revenue - special projects		100,000	7,500

		Total Current Liabilities	1,215,751	84,828

TOTAL LIABILITIES			1,215,751	84,828

STOCKHOLDERS' EQUITY

	Preferred stock: 5,000,000 shares authorized
	of $0.001 par value, -0- shares issued and
	Outstanding		-	-
	Common Stock: 40,000,000 shares authorized of
	$0.001 par value, 20,065,480 and 19,505,216
	shares issued and outstanding, respectively		20,065	19,505
	Additional paid-in capital		44,200,866	41,986,176
	Expenses prepaid with common stock		(100,000)	-
	Deferred stock offering cost		(1,000,000)	(1,000,000)
	Deferred consulting and directors compensation		(64,167)	-
	Retained deficit		(39,007,553)	(36,463,835)

		Total Stockholders' Equity	4,049,211	4,541,846

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$ 5,264,962	$ 4,626,674

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


AMERITYRE CORPORATION
Statements of Operations
(Unaudited)

			For the Three Months Ended		For the Six Months Ended
			December 31,		December 31,
			2005	2004	2005	2004
			Restated		Restated

NET SALES			$ 302,255	$ 303,801	$ 738,224	$ 643,573

COST OF SALES			258,439	215,891	612,781	462,678

GROSS PROFIT			43,816	87,910	125,443	180,895

EXPENSES
	Consulting		99,498	-	99,498	-
	Advisory group expense		-	-	-	6,134,000
	Payroll and payroll taxes		519,060	428,908	1,009,407	846,470
	Depreciation and amortization		91,873	102,607	181,129	194,953
	Research & development		151,825	110,798	388,208	409,166
	Bad debt expense		211	191	211	773
	Selling, general & administrative		521,472	310,620	1,016,722	630,795

		Total Expenses	1,383,939	953,124	2,695,175	8,216,157

LOSS FROM OPERATIONS			(1,340,123)	(865,214)	(2,569,732)	(8,035,262)

OTHER INCOME
	Interest income		7,649	5,702	24,953	13,628
	Other income		9	1,705	1,061	7,548

		Total Other Income	7,658	7,407	26,014	21,176

NET LOSS			$ (1,332,465)	$ (857,807)	$ (2,543,718)	$ (8,014,086)

BASIC AND FULLY DILUTED LOSS PER SHARE			$ (0.07)	$ (0.05)	$ (0.13)	$ (0.43)

WEIGHTED AVG NUMBER OF SHARES			20,038,287	18,731,168	19,877,047	18,696,978


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


AMERITYRE CORPORATION
Statements of Cash Flows
(Unaudited)
					Six Months Ended	Six Months Ended
					December 31, 2005 Restated	December 31, 2004

CASH FLOWS FROM OPERATING ACTIVITIES

	Net loss				$ (2,543,718)	$ (8,014,086)
	Adjustments to reconcile net loss to
		net cash used by operating activities:
			Depreciation & amortization expense		181,129	194,953
			Stock-based compensation expense related to employee options		317,900	-
			Common stock issued for services rendered		126,350	-
			Amortization of expense prepaid with common stock		105,834	472,053
			Options issued for advisory group services		-	6,134,000
	Changes in operating assets and liabilities:
			Decrease in accounts receivable		93,221	89,184
			Increase in prepaid expenses		(43,662)	(35,895)
			Increase in other assets		(296,629)	(600)
			Decrease (increase) in inventory		79,411	(87,087)
			Increase in accounts payable and accrued expenses		294,103	35,739


				Net Cash Used by Operating Activities	(1,686,061)	(1,211,739)

CASH FLOWS FROM INVESTING ACTIVITIES
	Cash paid for patents and trademarks				(43,572)	(60,897)
	Purchase of property and equipment				(61,813)	(32,712)

				Net Cash Used by Investing Activities	(105,385)	(93,609)

CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from stock subscription				836,820	-
	Proceeds from issuance of common stock				1,410,000	880,000

				Net Cash Provided by Financing Activities	2,246,820	880,000

NET INCREASE (DECREASE) IN CASH
	AND CASH EQUIVALENTS				455,374	(425,348)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					2,122,320	1,591,289

CASH AND CASH EQUIVALENTS AT END OF PERIOD					$ 2,577,694	$ 1,165,941

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


AMERITYRE CORPORATION
Statements of Cash Flows (Continued)
(Unaudited)
		Six Months Ended	Six Months Ended
		December 31, 2005 Restated	December 31, 2004

SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
	Cash paid for interest	$ -	$ -
	Cash paid for income taxes	$ -	$ -

NON-CASH OPERATING ACTIVITIES
	Common stock issued for services rendered	$ 126,350	$ -
	Common stock issued for prepaid services	$ 270,000	$ 598,000
	Stock-based compensation expense related to employee options	$ 317,900	$ -

NON-CASH INVESTING/ FINANCING ACTIVITIES
	Common stock issued for property & equipment	$ 91,000	$ -
	Options issued for advisory group service receivable	$ -	$ 6,134,000

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

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

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 includes 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, 2005 Annual Report on Form 10-KSB. Operating results for the six months ended December 31, 2005 are not necessarily indicative of the results that may be expected for the current fiscal year ending June 30, 2006.

NOTE 2 – RESTATEMENT

Although the Company disclosed in its Form 10-KSB for the year ended June 30, 2005, that it was adopting Statement of Financial Accounting Standard No. 123 (revised 2004) “Share-Based Payment,” (“SFAS 123(R)”) for the first quarter of 2006, the Company incorrectly determined that SFAS was not applicable to its financial statement presentation until January 1, 2006, instead of July 1, 2005 (the first day of the Company’s fiscal year 2006). The Company has restated its financial statements to correctly reflect the adoption of SFAS 123(R) as of July 1, 2005. SFAS 123(R) requires the measurement and recognition of compensation expense for all stock based awards made to employees and directors based on estimated fair value.

During the three and six month periods ended December 31, 2005, we issued options to acquire an aggregate of 625,000 shares and 150,000 shares of our common stock , respectively, to certain employees in connection with their employment (the “Employment Options”). The Employment Options vest annually over a period of one to three years based on the employees continued employment by the Company. The exercise prices for the Employment Options are $6.60 and $5.36 per share, respectively. The options issued to the employees were issued at or above the market price of our common stock on the date of grant. However, the compensation cost for the issuance of the options has been determined based on fair market value at the grant dates consistent with the method of SFAS 123(R). The effect of the restatement includes an increase of $173,136 and $317,900 in selling, general and administrative costs for the three and six month periods ending December 31, 2005, respectively , thereby increasing net loss for the respectively periods to $1,332,465 and $2,543,718, or a loss of $0.07 and $0.13 per share, as indicated below:


STOCKHOLDERS' EQUITY	As Reported at December 31, 2005	Restatement Adjustment	As Restated
Preferred stock: 5,000,000 shares authorized of $0.001 par value, -0- shares issued and outstanding	-		-
Common stock: 40,000,000 shares authorized of $0.001 par value, 20,065,480 shares issued and outstanding	20,065		20,065
Additional paid-in capital	43,882,966	317,900	44,200,866
Expenses prepaid with common stock	(100,000)		(100,000)
Deferred stock offering costs	(1,000,000)		(1,000,000)
Deferred consulting and directors’ compensation	(64,167)		(64,167)
Retained deficit	(38,689,653)	(317,900)	(39,007,553)
Total Stockholders' Equity	4,049,211		4,049,211
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 5,264,962		$ 5,264,962

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 2 – RESTATEMENT, Continued


	As Reported for the three month period ended December 31, 2005	Restatement Adjustment	As Restated	As Reported For the six month period ended December 31, 2005	Restatement Adjustment	As Restated

Net Sales	$ 302,255	$ -	$ 302,255	$ 738,224	$ -	$ 738,224
Cost of Sales	258,439	-	258,439	612,781	-	612,781
Gross Profit	43,816	-	43,816	125,443	-	125,443
Expenses
Consulting	99,498	-	99,498	99,498	-	99,498
Advisory Group Expense	-	-	-	-	-	-
Payroll & Payroll Taxes	519,060	-	519,060	1,009,407	-	1,009,407
Depreciation & Amortization	91,873	-	91,873	181,129	-	181,129
Research & Development	151,825	-	151,825	388,208	-	388,208
Bad Debt Expense	211	-	211	211	-	211
Selling General & Administrative	348,336	173,136	521,472	698,822	317,900	1,016,722
Total Expenses	1,210,803	173,136	1,383,939	2,377,275	317,900	2,695,175
Loss From Operations	(1,166,987)	(173,136)	(1,340,123)	(2,251,832)	(317,900)	(2,569,732)
Other Income
Interest Income	7,649	-	7,649	24,953	-	24,953
Other Income	9	-	9	1,061	-	1,061
Total Other Income	7,658	-	7,658	26,014	-	26,014
Net Loss	$ (1,159,329)	$ (173,136)	$ (1,332,465)	$(2,225,818)	$(317,900)	$(2,543,718)
Basic and Fully Diluted Loss Per Share	$ (0.06)	$ (0.01)	$ (0.07)	$ (0.11)	$ (0.02)	$ (0.13)
Weighted Average Number Shares Outstanding	20,038,287	-	20,038,287	19,877,047	-	19,877,047

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Stock Based-Compensation Expense

On July 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payments to employees and directors including employee stock options and stock purchases related to the Company’s employee stock option and award plans based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Option No. 25, “Accounting for Stock Issued to Employees” (“APB25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of July 1, 2005, the first day of the Company’s fiscal year 2006. The Company’s financial statements as of and for the three month and six month periods ended December 31, 2005 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for the prior year have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three and six month periods ended December 31, was $173,136 and $317,900, respectively, and related to employee stock options issued during the respective periods. There was no stock-based compensation expense related to employee stock options and employee stock purchases recognized during the three and six month periods ended December 31, 2004. See Note 5 for additional information.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Statement of Operations, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At June 30, 2005, the Company had no unvested share-based payment awards for which compensation expense should be recognized during the three and six month periods ended December 31, 2005. Stock-based compensation expense recognized in the Company’s Statement of Operations for the three and six month periods ended December 31, 2005 only includes compensation expense for share-based payment awards granted, but not yet vested after July 1, 2005, and is based on the grant date fair value estimated in accordance with SFAS 123(R). Stock-based compensation expense recognized in the Company’s Statement of Operation for the three and six month periods ended December 31, 2005 assumes all awards will vest, therefore no reduction has been made for estimated forfeitures.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Basic and Fully Diluted Loss Per Share

Basis and Fully Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period.


	For the Six Months Ended
	December 31,
	2005	2004
Loss (numerator)	$ (2,543,718)	$ (8,014,086)
Shares (denominator)	19,877,047	18,696,978
Per share amount	$ (0.13)	$(0.43)

The Company’s outstanding stock options have been excluded from the basic net loss per share calculation. The Company excluded 4,190,000 and 4,877,000 common stock equivalents for the three and six month periods ended December 31, 2005 and 2004, respectively, because they are antidilutive.

NOTE 4 - STOCK OPTIONS

General Option Information

During the three month period ended December 31, 2005, we issued options to acquire an aggregate of 150,000 shares of our common stock to certain employees in connection with their employment (the “Employment Options”). The Employment Options vest annually over a period of three years based on the employees continued employment by the Company. The exercise price for the Employment Options is $5.36 per share. The Company use the Black-Scholes model to value stock options. The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. As the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero. We estimated the fair value of the stock above options at the grant based on the following assumptions:


	For the period ended December 31, 2005
Risk free interest rate	4.13%
Expected life	3 years
Expected volatility	58.103%
Dividend yield	0.00%

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 4 - STOCK OPTIONS, Continued

A summary of the status of the Company=s outstanding stock options as of December 31, 2005 and June 30, 2005 and changes during the periods then ended is presented below:


	December 31, 2005		June 30, 2005
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Outstanding beginning of period	3,945,000	$6.31	1,922,000	$3.66
Granted	775,000	$6.36	3,185,000	$6.97
Expired/Cancelled	(60,000)	$(6.70)	(195,252)	$(0.18)
Exercised	(470,000)	$(3.00)	(966,748)	$(4.14)
Outstanding end of period	4,190,000	$6.74	3,945,000	$6.31
Exercisable	415,000	$5.05	945,000	$4.14

The following table summarizes the range of outstanding and exercisable options as of December 31, 2005:


	Outstanding			Exercisable
Range of Exercise Prices	Number Outstanding at Dec 31, 2005	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable at Dec 31, 2005	Weighted Average Exercise Price
$3.80	30,000	0.75	$0.05	30,000	$3.80
4.00	200,000	1.44	$0.32	200,000	$4.00
5.36	150,000	6.50	$0.24	-	-
6.40	185,000	3.09	$0.30	185,000	$6.40
6.60	625,000	6.46	$1.00	-	-
7.00	3,000,000	3.70	$4.78	-	-
$3.80-$7.00	4,190,000	3.97	$6.69	415,000	$5.05

As of December 31, 2005, the unrecognized stock-based compensation related to stock options was approximately $1,759,728. This cost is expected to be expensed over a weighted average period of 3 years.

NOTE 5 - STOCK ISSUANCES

During the quarter, we issued 5,000 shares of common stock for outside consulting services valued at $26,250, based on a price of $5.25 per share and 15,000 shares of common stock for outside consulting services valued at $68,250, based on a price of $4.55 per share. We also issued 20,000 shares of common stock for software development services valued and capitalized at $91,000, based on a price of $4.55 per share. These shares were issued pursuant to our 2002 Stock Option and Award Plan.

During the quarter, we issued 7,000 shares of our restricted common stock to an investor and media relations firm as payment for services. The value of the shares was $31,850, based on the closing price of $4.55 per share.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 5 - STOCK ISSUANCES (continued)

During the quarter, we issued 1,852 shares of our restricted common stock to the Chairman of our audit committee as partial compensation for his services as Chairman. The value of the shares was $10,000, based on the closing price of $5.40 per share.

During the quarter, we issued an aggregate of 11,112 shares (1,852 shares each) of our restricted common stock to our six (6) non-employee directors as annual compensation for their services as members of our board of directors for the period commencing December 1, 2005 through November 30, 2006. The aggregate value of the shares was $60,000, based on the closing price of $5.40 per share.

NOTE 6 - 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.


	December 31, 2005 (Unaudited)	June 30, 2005
Raw Materials	$142,866	$122,834
Work in Progress	-	-
Finished Goods	424,521	523,964
Total Inventory	$567,387	$646,798

NOTE 7 - SIGNIFICANT EVENTS

1. Employment of Chief Operating Officer

Effective October 16, 2005, the Company hired Gary N. Benninger as our Chief Operating Officer. Dr. Benninger=s employment contract with the Company is for an initial term of one year beginning October 16, 2005, at an annual salary of $250,000, renewable by mutual agreement. The contract also includes provisions for the payment of a bonus share award of 10,000 shares of the Company=s common stock vesting January 15, 2006, and a grant of options for the purchase of 150,000 shares of the Company=s common stock, subject to annual vesting provisions (50,000 options on June 30th 2006-2008). The bonus share award and the options are being issued under the terms of the Company=s 2005 Stock Option and Award Plan. Both the bonus share award and the vesting of the options are subject to continuing employment with the Company.

2. Settlement of Legal Proceeding

Effective October 20, 2005, we entered into a settlement and release agreement with the defendant in case number A505333, 8th Judicial District Court for the State of Nevada, Amerityre Corporation vs. Prototype Engineering, Inc., an Ohio corporation, and Frederick F. Vannan, Jr., collectively “Prototype. The Company paid $100,000 to Prototype and agreed that the settlement resolved the lawsuit. The settlement is in no way an admission of fault, guilt, liability, or wrongdoing on the part of either party, and any possible fault, guilt, liability, or wrongdoing by either party was expressly denied. Each of the parties agreed, on its own behalf and on behalf of its officers, directors, agents and employees not to disparage or demean the business, the reputation, the good faith, character, ability or products of the other party. The Company recognized the settlement expense during the three month period ended September 30, 2005, which is included in the selling, general and administrative expenses for that period.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 6 - SUBSEQUENT EVENTS

A. Stock Issuances

On January 3, 2006, we issued 53,100 shares of our common stock to various employees as compensation pursuant to our 2002 Stock Option and Award Plan, valued at $239,481, or $4.51 share.

On January 15, 2006, 10,000 shares of our restricted common stock vested to Gary N. Benninger, our Chief Operating Officer, pursuant to the terms of his employment agreement with the Company. The value of the shares was $53,600, based on the closing price of the shares on October 16, 2005, the date of grant. With respect to the issuance of the shares on vesting, the Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(2) of said Act.

Effective February 1, 2006 (the “Closing Date”), we completed a private placement for $3,870,000 in offering proceeds. The Company sold 107,500 Units of the Company’s securities at a purchase price of $36.00 per Unit. Each Unit consists of eight (8) shares of the Company's Common Stock, a Class A Warrant (the “Class A Warrant”) for the purchase of one share of Common Stock at an exercise price of $5.00 exercisable for a 3 year period and a Class B Warrant (the “Class B Warrant”) for the purchase of one share of Common Stock at an exercise price of $5.50 exercisable for a 5 year period. The Warrants may also be exercised through a cashless exercise based on the difference between the market price on the date of exercise and the exercise price. The exercise prices of the Class A Warrants and Class B Warrants are subject to adjustment in certain events, including, without limitation, upon the Company’s consolidation, merger or sale of all or substantially all of its assets, a reclassification of the Company’s Common Stock, or any stock splits or combinations with respect to the Common Stock.

Purchasers of the Units have been granted registration rights in connection with the private placement. The Company shall use its best efforts to file a registration statement with the Commission within 45 days after the Closing Date and cause the registration statement to be declared effective by the SEC within 120 days after the Closing Date (if there are no comments from the SEC) or 180 days (if comments are received from the SEC) (the "Effective Date") in order to register the shares of Common Stock underlying the Units sold in the offering (the “Registrable Securities”) for resale and distribution by the investors (the "Registration Statement"). The Company will register approximately 1,075,000 shares of Common Stock which represents the total number of shares of Common Stock plus the shares of Common Stock issuable upon exercise of the Class A and Class B Warrants. The Registrable Securities shall be reserved and set aside exclusively for the benefit of each investor.

The Class A and Class B Warrants are subject to redemption by the Company. The Company has the right to redeem either the Class A or Class B Warrants beginning ninety (90) days from the Effective Date of the Registration Statement, if at any time following the Effective Date, the average closing bid price for the Common Stock in the over-the-counter market is at least $5.50 per share (with respect to the Class A Warrants) or $6.05 per share (with respect to the Class B Warrants), for the 20 consecutive trading day period ending not more than 15 days prior to notice of redemption of the Class A and Class B Warrants. The Company’s right to redeem the Class A and Class B Warrants requires the Company to give the holders written notice of redemption of not less than 30 days, and is subject to the right of the holders of the Class A and Class B Warrants to exercise the same in accordance with the terms hereof during the redemption period. The redemption price for each Class A and Class B Warrant is $0.10 per share.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2005 (Restated) and June 30, 2005

NOTE 6 - SUBSEQUENT EVENTS (Continued)

With respect to the sale of the Units described above, the Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder since, among other things, (1) the transaction did not involve a public offering, (2) the investors were accredited investors and/or qualified institutional buyers, (3) the investors had access to information about the Company and their investment, (4) the investors took the securities for investment and not resale, (5) the Company took appropriate measures to restrict the transfer of the securities, and (6) no commissions were paid in connection with the placement and/or sale of the securities.

B. Deferred Stock Issuance Costs

During the three six month period ended December 31, 2004, we recognized an expense of $6,134,000 for advisory group services associated with the grant of options to acquire an aggregate of 3,000,000 shares of our common stock to third-party consultants during the period. The value of the options was calculated using the Black-Scholes option pricing model. Our selling, general and administrative expenses since that time have not included deferred stock offering costs, which at December 31, 2005 aggregated $1,083,278. This amount has been recorded as a reduction in stockholders' equity due to its association with the proposed offering of our securities. In February 2006, we closed a private placement of our securities for gross offering proceeds of $3.87 million .. The Company intends to charge the deferred amount against the gross proceeds of the offering in its third quarter ended March 31, 2006.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements

You should read the following discussion and analysis in conjunction with the Financial Statements and related Notes contained elsewhere in this Form 10-Q ("Report"). The information in this Report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the SEC, including our Annual Report on Form 10-KSB for the year ended June 30, 2005.

The section entitled "Risk Factors" set forth in our Annual Report on Form 10-KSB for the year ended June 30, 2005 and similar types of discussions in other SEC filings discuss some of the important risks that may affect our business, results of operations and financial condition. Some of those risks are as follows:

*Our business depends on the protection of our intellectual property and may suffer if we are unable to adequately protect our intellectual property.

*Proposed new products for highway use must meet safety standards prior to marketing which could delay anticipated revenues and increase expenses.

*Our stock price can be extremely volatile.

You should carefully consider those risks, in addition to the other information in this Report and in our other filings with the SEC, before deciding to invest in our Company or to maintain or decrease your investment.

This Report may contain Aforward-looking@ statements within the meaning of Section 17A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. 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 "believes," "budget," "target," "goal," Aanticipate," Aexpect," "plan," "outlook," "objective," Amay," Aproject," Aintend," "estimate," or similar expressions. These statements are only predictions. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.

The Company has restated the financial statements contained in this report to give effect to the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) as of July 1, 2005. See notes 2 and 3 of the financial statements for additional information. Management’s discussion and analysis of financial condition and results of operations below reflects the restatement.

General

We were incorporated as a Nevada corporation on January 30, 1995 under the name American Tire Corporation and changed our name to Amerityre Corporation in December 1999. We own certain proprietary and nonproprietary technology to manufacture tires from polyurethane foam and polyurethane elastomer.

Polyurethane Foam Tire Technology

We currently produce AFlatfree™@ polyurethane foam tires for bicycles, wheelchairs, lawn and garden products, and outdoor power equipment products (the AProducts@).

Polyurethane Elastomer Passenger Car Tire Technology

We are 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. The polyurethane elastomer material is identified by us as Elastothane™. Elastothane ™ and the technology to produce tires using Elastothane™ are significant to us because we believe that combined they 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.

We have produced a limited number of prototype polyurethane car tires and conducted independent laboratory testing to demonstrate that these tires comply with existing federal safety standards for new-pneumatic tires, FMVSS 109, and the proposed revisions to those standards, FMVSS 139, which takes effect in July 2007. Compliance with FMVSS 109 and subsequently, FMVSS 139, is necessary to commercially market pneumatic car tires within the United States. FMVSS 139 retains many of the test components of FMVSS 109, with the following major changes:

(1) Endurance and Low Inflation Pressure Test. Test remains 34 hours, but extends the final load step from 22 hours to 24 hours. Load percentages have been reduced from 90/100/110% to 85/90/100%. In addition, at the end of the 34 hours of endurance testing, the tire will be run under-inflated (20psi) at 120 km/h (75 mph) for 90 minutes;

(2) Speed test. Test remains a total of 90 minutes with a 2 hour warm-up; however, speeds for each 30 minute segment have been increased from 75/80/85 mph to 140/150/160 km/h [87/93/99 mph], respectively; and

(3) Aging effects performance test. Implementation of the aging effects performance test has been deferred until the NHTSA has completed additional research and issues a new proposal.

In addition to inventing polyurethane elastomer passenger car tires, we have invented the manufacturing equipment necessary to produce these tires in limited quantities. We have filed several applications for method and process patents with respect to various aspects of this technology. We have completed fabrication of prototype manufacturing equipment to mold the polyurethane elastomer tires and we are fabricating certain additional pieces of manufacturing equipment that are necessary to assemble the reinforcement materials (i.e., beads, belts and plies) utilized in connection with manufacturing the tire. This work is continuing and we expect to make improvements to the method, process and equipment as needed so that these tires can be produced in commercial qualities.

During the quarter we announced that we had entered into a Product Development Agreement with Genmar Holdings, Inc., Minneapolis, Minnesota, one of the world’s largest manufacturers of recreational boats, to design and develop prototype polyurethane “run-flat” boat trailer tires based on our passenger car tire technology. We estimated the time frame for completing the development project to be approximately six months (May 2006). If the development project is successfully completed, and evaluation and testing by Genmar is satisfactory, the parties will move to an agreement that will allow Genmar to commercially manufacture “run-flat” boat trailer tires.

Non-pneumatic Temporary/Spare Tire Technology

We also are developing a temporary/spare tire out of polyurethane elastomer. Our initial project, a >zero= pressure non-pneumatic temporary/spare tire, was developed for prospective use as a temporary/spare tire for passenger vehicles. These tires do not contain air and do not require inflation. In April 2005, we announced that prototype non-pneumatic temporary/spare tire had passed FMVSS 129 testing. FMVSS 129, is the applicable safety standard for new, non-pneumatic tires that must be met before the tires can be offered commercially. We believe that this is a major breakthrough in tire technology because, to the best of our knowledge, no other company has developed a non-pneumatic tire that has successfully met FMVSS 129 standard. We have initiated discussions with automobile manufacturers about making these tires available to their customers as original equipment temporary/spare tires. In addition, we continue testing prototype designs of the non-pneumatic temporary/spare tire for other vehicles/applications.

Polyurethane Retread Material

During the quarter we began development of a compound and manufacturing process for retreading medium commercial truck tires with a polyurethane elastomer tread compound. We believe our retreading process has broad application for the medium commercial truck tire market. The tire retreading process being developed by Amerityre involves applying the polyurethane tread compound to the rubber tire casing in such a way that the tread “seamlessly locks” to the tire casing without pressure or re-vulcanization. We have conducted a series of pull tests at an independent laboratory to test the adhesion of our polyurethane elastomer tread compound to rubber tire casings. The results of the test have indicated that our compounds meet acceptable industry requirements. We are continuing with the development of the process for applying the polyurethane tread materials to the rubber tire casings.

In addition to laboratory testing, we have been conducting field tests of the polyurethane elastomer retreads on a

number of truck tires that are being evaluated by a mining company. We are continuing to test these tires to better assess their performance characteristics in such a high duty application.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation and contingencies. We base our estimates on historical performance and on various other assumptions that are believed to be reasonable under the circumstances. The results of which for the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We believe the following to be our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that are uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.

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.

Patents and Trademarks

Patent and trademark costs have been capitalized at June 30, 2005 totaling $407,642. The patents which have been granted are being amortized over a period of 20 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, 2005 and June 30, 2004 was $30,847 and $1,309, respectively. The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis utilizing the guidance of SFAS 142, "Goodwill and Other Intangible Assets." We test our patents and trademarks for impairment at least annually and whenever events or changes in circumstances indicated that the carrying value may not be recoverable. We consider the following indicators, among others, when determining whether or not our patents are impaired: 1) any changes in the market relating to the patents that would decrease the life of the asset; 2) any adverse change in the extent or manner in which the patents are being used; 3) any significant adverse change in legal factors relating to the use of the patents; 4) current-period operating or cash flow loss combined with our history of operating or cash flow losses; 5) future cash flow values based on the expectation of commercialization through licensing; and 6) current expectations that, more likely than not, the patents will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

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.

Equity Securities

Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of authorization.

Stock Options

On July 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payments to employees and directors including employee stock options and stock purchases related to the Company’s employee stock option and award plans based on estimated fair values. SFAS 123(R) supersedes our previous accounting under Accounting Principles Board Option No. 25, “Accounting for Stock Issued to Employees” (“APB25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). We have applied the provisions of SAB 107 in its adoption of SFAS 123(R).

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of July 1, 2005, the first day of our fiscal year 2006. Our financial statements as of and for the three month period ended September 30, 2005 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, our financial statements for the prior year have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three and six month periods ended December 31, 2005 was $173,136 and $317,900, respectively, related to employee stock options issued during the respective periods. There was no stock-based compensation expense related to employee stock options and employee stock purchases recognized during the three and six month periods ended December 31, 2004. See Note 5 to the financial statements for additional information.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Statement of Operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Statement of Operations, because the exercise price of our stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At June 30, 2005, we had no unvested share-based payment awards for which compensation expense should be recognized during the three and six month periods ended December 31, 2005. Stock-based compensation expense recognized in our Statement of Operations for the three and six month periods ended December 31, 2005 only includes compensation expense for share-based payment awards granted, but not yet vested after July 1, 2005, and is based on the grant date fair value estimated in accordance with SFAS 123(R). Stock-based compensation expense recognized in our Statement of Operation for the three and six month periods ended December 31, 2005 assumes all awards will vest, therefore no reduction has been made for estimated forfeitures.

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.

Results of Operations for the Three and Six Month Period Ended December 31, 2005

compared to the Three and Six Month Period Ended December 31, 2004

Net Sales

For the three month period ended December 31, 2005 we had net sales of $302,255, a slight decrease from net sales of $303,801, for the same period last year. However, for the six month period ended December 31, 2005, we had net sales of $738,224, a 15% increase over net sales of $643,573 for the comparable period last year. The increase in net sales for the six month period in 2005 over 2004 was due primarily to further expansion of our Products sales among retail chain customers and distributors.

Cost of Sales

Our cost of sales consists primarily of expense related to the cost of raw materials, components and production of our Products. It includes salaries, benefits expenses, maintenance, facilities and other operating costs associated with the production of our Products. Our cost of sales for the three month period ended December 31, 2005 was $258,439, or 86% of sales as compared to $215,891, or 71% of sales for the same period last year, resulting in a gross profit of $43,816, or 14% as compared to a gross profit of $87,910 or 29% for the prior year period. Our cost of sales for the six month period ended December 31, 2005 was $612,781, or 83% of sales as compared to $462,678, or 72%, resulting in a gross profit of $125,443, or 17% of sales compared to a gross profit of $180,895, or 28% for the prior year period. The reduction in our gross profit as compared to the prior year periods is a result of a revaluation of our standard costs after taking into account increases in base chemicals and steel wheel component costs for tire/wheel assemblies. To offset these increases in material costs, we have increased the sales price of our Products effective January 1, 2006 in an attempt to recapture the decrease in gross margin we have experienced.

Selling, General and Administrative

For three and six month periods ended December 31, 2005, total operating expenses were $1,383,939 and $2,695,175, respectively, consisting primarily of consulting expense of $99,498 and $99,498, payroll and payroll taxes of $519,060 and $1,009,407, depreciation and amortization of $91,873 and $181,129, research and development costs of $151,825 and $388,208, and selling, general and administrative expenses of $521,472 and $1,016,722, respectively.

For the three and six month periods ended December 31, 2004, total operating expenses were $953,124 and $8,216,157, respectively, consisting primarily of payroll and payroll taxes of $428,908 and $846,470, depreciation and amortization of $102,607 and $194,953, research and development of $110,798 and $409,166, selling, general and administrative expenses of $310,620 and $630,795, respectively, and, in the six month period, an expense of $6,134,000 for advisory group services associated with the grant of options to acquire an aggregate of 3,000,000 shares of our common stock to third-party consultants during the period. The value of the options was calculated using the Black-Scholes option pricing model.

During the six month period ended December 31, 2004, we recognized an expense of $6,134,000 for advisory group services associated with the grant of options to acquire an aggregate of 3,000,000 shares of our common stock to third-party consultants during the period. The value of the options was calculated using the Black-Scholes option pricing model. Our selling, general and administrative expenses since that time have not included deferred stock offering costs, which at December 31, 2005 aggregated $1,083,278. This amount has been recorded as a reduction in stockholders' equity due to its association with the proposed offering of our securities. In February 2006, we closed a private placement of our securities for gross offering proceeds of $3.87 million .. The Company intends to charge the deferred amount against the gross proceeds of the offering in its third quarter ended March 31, 2006.

.Excluding the effect of the one-time $6,134,000 expense for advisory group services associated with the grant of options for the 2004 periods as detailed above, our corporate expenses for the six month period ended December 31, 2005, when compared to our corporate expenses for the six month period ended December 31, 2004, increased approximately $295,000 due to the hiring of a chief operating officer, annual increases in salary and payroll, stock based compensation expense related to employee stock options under SFAS 123(R), the settlement of outstanding litigation, increased marketing and media relations expenses, and the payment of outside consulting fees for specialty services. We anticipate that our monthly operating expenses for the next six months will remain consistent with the average monthly expenses of the first six months, at approximately $400,000 per month.

Interest Expense. We had no interest expense during the three and six month periods ended December 31, 2005 and 2004, respectively.

Other Income. For the three and six month periods ended December 31, 2005, we had other income of $7,658 and $26,014, respectively, earned on account receivables and temporary investments of cash not immediately needed in ordinary daily business. For the three and six month periods ended December 31, 2004, we had other income of $7,407 and $21,176, respectively, earned on account receivables and temporary investments of cash not immediately needed in ordinary daily business.

We experienced net losses of $1,332,465 and t$2,543,718, respectively, for the three and six month periods ended December 31, 2005, compared to net losses of $857,807 and $8,014,086 for the same periods in 2004. The basic losses per share for the current periods were $0.07 and $0.13, respectively, compared to basic losses per share of $0.05 and $0.43 for prior year periods.

Net loss for the six month period ended December 31, 2005, includes a $100,000 expense associated with the settlement of outstanding litigation and a stock-based compensation expense under SFAS 123(R) of $317,900 related to employee stock options granted during the period. There was no stock-based compensation expense related to employee stock options under SFAS 123(R) during the six month period ended December 31, 2004 because we did not adopt the recognition provisions of SFAS 123 with respect to employee stock options granted during that period.

With the adoption of SFAS 123(R), we will continue to use the Black-Scholes option-pricing model (“Black-Scholes model”), which was previously used by us in the pro forma information required under SFAS 123. For additional information see note 5 of our financial statements. Our determination of fair value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behavior. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affected the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of fair value of the employee stock options. Although fair value of employee stock options is determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing model, the value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Liquidity and Capital Resources

During the three and six month periods ended December 31, 2005, we financed our operations through collecting accounts receivable and issuing common stock for cash paid in connection with the exercise of outstanding stock options and prepayment of certain salaries.

At December 31, 2005, we had current assets of $3,704,381 and current liabilities of $1,215,751, for a working capital surplus of $2,488,630, a decrease of $507,890 over the working capital surplus of $2,996,520 we had at June 30, 2005. We had cash and cash equivalents of $2,577,694 and net accounts receivable of $75,617 at December 31, 2005 compared to cash and cash equivalents of $2,122,320 and net accounts receivable of $168,838 at June 30, 2005. Our increase in cash and equivalents at December 31, 2005, is attributable to the exercise of $1,410,000 of outstanding options during the period. Our cash and cash equivalents include $836,820 of cash received as part of an ongoing private offering of our securities during the period. The subscription amounts were recorded at December 31, 2005, as a current liability under the line item “stock subscription deposits.” Subsequent to December 31, 2005, we completed the stock offering. As a result of completing the offering the “stock subscription deposits” liability will be reduced to $0 for the period ending March 31, 2006.

At December 31, 2005, we had net property and equipment of $1,125,751, after deduction of accumulated depreciation of $2,027,326. At December 31, 2005, our property and equipment consisted mainly of leasehold improvements, $120,767; molds and models, $353,591; equipment, $2,324,730; furniture and fixtures, $73,652; and software, $280,337.

Net cash used by our operating activities for the six month period ended December 31, 2005 was $1,686,062, compared to $1,211,739 for the same period in 2004 .. The increase in cash used by operating activities for the six month period ended December 31, 2005 can be attributed to a deposit on the purchase of new production equipment and the prepayment of operating expenses, including health insurance and property taxes. Our operations for the six month period ended December 31, 2005 were funded primarily by cash and cash equivalents, accounts receivables, and the issuance of common stock for services and salaries. Our operations for the six month period ended December 31, 2004 were funded primarily the same way.

Net cash used by investing activities for the six month period ended December 31, 2005 was $105,384, including payments for patents and trademarks and purchase of property and equipment, compared to $93,609 in the prior year period for similar purposes.

Cash provided by financing activities for the six month period ended December 31, 2005 totaled $2,246,820 comprised of $836,820 in proceeds from a stock subscription deposits and additional cash proceeds from the issuance of common stock for the exercise of outstanding options. Cash provided by financing activities for the prior year period totaled $880,000 in proceeds from the issuance of common stock.

To supplement our cash needs during the 2006 fiscal year we have (1) obtained approximately $1,400,000 in funding through the exercise of outstanding options; (2) issued common stock in lieu of cash as compensation for employment, development, and other professional services; and (3) raised $3.87 million in working capital through the private offering of our securities. Although we have consistently operated at a loss and a negative cash flow, we have always had little, if any, debt and have consistently had a positive net tangible book value. In connection with the preparation of our financial statement for the period ended December 31, 2005, we analyzed our cash needs. Based on this analysis, we concluded that the $3,870,000 in cash received during January 2006 (from the private placement of common stock), coupled with our approximately $2,600,000 in cash and cash equivalents and the potential business prospects for our products and technology, was sufficient to meet our short-term and long-term cash requirements, thus eliminating the need for the going concern qualification in our December 31, 2005 financial statements. We do not anticipate needing any additional working capital through the balance of the 2006 fiscal year to implement our operating plan.

Impact of Inflation

We do not anticipate that inflation will have a material impact on our current operations.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in prevailing market interest rates affecting the return on its investments but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in United States Treasury instruments with short-term (less than one year) maturities. The carrying amount of these investments approximates fair value due to the short-term maturities. Under its current policies, the Company does not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage its exposure to changes in interest rates or commodity prices.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. As a result of the restatement outlined below, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report.

Although the Company disclosed in its Form 10-KSB for the year ended June 30, 2005, that it was adopting Statement of Financial Accounting Standard No. 123 (revised 2004) “Share-Based Payment,” (“SFAS 123(R)”) for the first quarter of 2006, the Company incorrectly determined that SFAS 123(R) was not applicable to its financial statement presentation until January 1, 2006, instead of July 1, 2005 (the first day of the Company’s fiscal year 2006). The Company was made aware of the error in April 2006 through a review by the Securities and Exchange Commission of its registration statement on Form S-1, filed in March 2006 (file no. 333-132305). SFAS 123(R) requires the measurement and recognition of compensation expense for all stock based awards made to employees and directors based on estimated fair value. Accordingly, the Company is filing this amended Form 10-Q to correct the accounting treatment for options issued during the quarters ended September 30, 2005 and December 31, 2005.

The Company has adopted changes to its internal controls and procedures in order to prevent future misstatements of a similar nature. These changes have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting. Specifically, the Company has now adopted a formal procedure to insure that new accounting standards are reviewed and applied correctly. Under this procedure, the CFO will monitor the release of new accounting standards. Once the CFO becomes aware of a new accounting standard, he will present the new standard to the Executive Vice-president and the Chairman of the Audit Committee and schedule a meeting with them to discuss the application of the new standard to the Company. Thereafter, once a determination concerning the application of a new standard has been made, the Company will present its determination to its auditor for review and comment.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Effective October 20, 2005, we entered into a settlement and release agreement with the defendants in case number A505333, 8th Judicial District Court for the State of Nevada, Amerityre Corporation vs. Prototype Engineering, Inc., an Ohio corporation, , and Frederick F. Vannan, Jr., collectively “Prototype .. The Company paid $100,000 to Prototype and agreed that the settlement resolved the lawsuit. The settlement is in no way an admission of fault, guilt, liability, or wrongdoing on the part of either party, and any possible fault, guilt, liability, or wrongdoing by either party was expressly denied. Each of the parties agreed, on its own behalf and on behalf of its officers, directors, agents and employees not to disparage or demean the business, the reputation, the good faith, character, ability or products of the other party. The Company recognized the settlement expense during the three month period ended September 30, 2005, which is included in the selling, general and administrative expenses for that period.

In November 2005, Continental Automotive Licensing Corp. (“Petitioner”) filed a Petition for Cancellation #92045199 (“Petition”) in the United States Patent and Trademark Office (the “Trademark Office”) against Richard A. Steinke, our Chairman, President and Chief Executive Officer. Petitioner alleges that it is being, has been, and will be damaged by the continued existence of the Amerityre® trademark and has asked the Trademark Office to cancel the registration. This registered trademark (Registration No. 2,401,989) was issued November 7, 2000 by the Trademark Office to Mr. Steinke and assigned by him to us in June 2001. We believe that the Petition is without merit and we expect to vigorously defend our use of the trademark. The potential financial impact is impossible for the Company to evaluate or quantify at this early stage of the proceedings. We are currently in discovery and we have made extensive discovery requests in response to the petition. The Petitioner has requested and been granted an extension to reply to our requests ..

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

Effective July 1, 2005, our Board of Directors authorized the issuance of 30,300 shares of restricted common stock to Richard A. Steinke, the Company=s President and Chief Executive Officer as part of his employment compensation for the period beginning July 1, 2005 and ending June 30, 2006. The value of the shares was $200,000, based on the closing price of $6.60 per share.

On November 8, 2005, we issued 7,000 shares of our restricted common stock to CCG Investor Relations as payment for investor relations and media relation services. The value of the shares was $31,850, based on the closing price of $4.55 per share.

On December 28, 2005, we issued 1,852 shares of our restricted common stock to Steve M. Hanni, as partial compensation for his services as Chairman of our audit committee. The value of the shares was $10,000, based on the closing price of $5.40 per share.

On December 28, 2005, we issued an aggregate of 11,112 shares (1,852 shares each) of our restricted common stock to our six (6) non-employee directors as annual compensation for their services as members of our board of directors for the period commencing December 1, 2005 through November 30, 2006. The aggregate value of the shares was $60,000, based on the closing price of $5.40 per share.

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. With respect to the sale of the Units described above, the Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder since, among other things, (1) the transaction did not involve a public offering, (2) the investors were accredited investors and/or qualified institutional buyers, (3) the investors had access to information about the Company and their investment, (4) the investors took the securities for investment and not resale, (5) the Company took appropriate measures to restrict the transfer of the securities, and (6) no commissions were paid in connection with the placement and/or sale of the securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

Our annual meeting of the shareholders (the AAnnual Meeting@) was held in the Sunset Room at the Sunset Station Hotel and Casino, 1301 West Sunset Road, Henderson, Nevada 89014, on Thursday, December 1, 2005, at 10:00 am, Pacific Time. At the meeting we:

Elected seven directors to serve until the expiration of their respective terms and until their respective successors are elected and qualified;

Ratified the selection of HJ & Associates, LLC as our independent auditor for our fiscal year ending June 30, 2006; and

Ratified the 2005 Stock Option and Award Plan.

Voting results on the above matters were as follows:


1. Directors	For	Against	Withheld
Richard A. Steinke	16,806,208	70,700	315,825
Henry D. Moyle	16,778,588	100,030	315,815
Louis M. Haynie	16,756,654	99,030	315,815
Wesley G. Sprunk	16,779,034	36,530	315,825
Norman H. Tregenza	17,114,858	2,150	23,575
Steve M. Hanni	16,760,654	75,084	315,825
Kenneth C. Johnsen	16,901,431	74,204	52,005

2. Ratify HJ & Associates, LLC	17,049,090	71,756	30,717

3. Ratify 2005 Stock Option and Award Plan	15,984,842	851,641	315,080

A total of 17,151,563 shares were represented at the meeting in person or by proxy, or approximately 86% of the total 20,005,516 shares eligible to vote.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. 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.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 24, 2006

AMERITYRE CORPORATION

/S/RICHARD A. STEINKE

Richard A. Steinke

President and Chief Executive Officer

/S/ANDERS A. SUAREZ

Anders A. Suarez

Chief Financial Officer and

Principal Accounting Officer