UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

Form 10-K

 


 

 (Mark One)

 

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

For the fiscal year ended June 30, 2020

OR

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

For the transition period from                       to                     

 

Commission file number   000-50053

 

AMERITYRE CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of

incorporation or organization)

87-0535207

(I.R.S. Employer

Identification No.)

 

1501 Industrial Road

Boulder City, Nevada 89005

(702) 293-1930

 (Address of principal executive office and telephone number)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Name of each exchange on which registered

N/A

N/A

 

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock

 

 

 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐  NO ☒

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES ☐  NO

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒  NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒   NO ☐

  

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

 

Large accelerated filer ☐          Accelerated filer ☐          Non-accelerated filer ☒     Smaller reporting company ☒      Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐  NO ☒  

 

On September 9, 2020 there were 70,172,868 shares of common stock of the Registrant outstanding.

 

As of December 31, 2019, the Registrant's most recent second quarter, there were 41,552,787 shares of common stock of the Registrant held by non-affiliates outstanding with a market value $831,056 (based upon the closing price of $0.02 per share of common stock as quoted on the OTCQB).

 

Documents Incorporated by Reference

 

Portions of the Registrant's definitive proxy statement, which will be issued in connection with the 2020 Annual Meeting of Shareholders of Amerityre Corporation, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 

 

AMERITYRE CORPORATION

2020 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 

 

Page

PART I

 

ITEM 1.

BUSINESS

5

ITEM 1A.

RISK FACTORS

9

ITEM 1B.

UNRESOLVED STAFF COMMENTS

17

ITEM 2.

PROPERTIES

17

ITEM 3.

LEGAL PROCEEDINGS

17

ITEM 4.

MINE SAFETY DISCLOSURES

17

PART II

 

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

18

ITEM 6.

SELECTED FINANCIAL DATA

18

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

18

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

25

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

25

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

26

ITEM 9A.

CONTROLS AND PROCEDURES

26

ITEM 9B.

OTHER INFORMATION

26

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

ITEM 11.

EXECUTIVE COMPENSATION

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

28

 

 

 

AMERITYRE CORPORATION

2020 ANNUAL REPORT ON FORM 10-K

 

This report contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “may,” “will,” “should,” “anticipates,” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

 

All forward-looking statements, including without limitation, management's examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management's expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

 

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks set forth in “Part I. Item 1A. Risk Factors” and elsewhere in this report.

 

This report may include information with respect to market share, industry conditions and forecasts that we obtained from internal industry research, publicly available information (including industry publications and surveys), and surveys and market research provided by consultants. The publicly available information and the reports, forecasts and other research provided by consultants generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, our internal research and forecasts are based upon our management's understanding of industry conditions, and such information has not been verified by any independent sources.

 

For convenience in this report, the terms “Amerityre,” “Company,” “our,” “us” or “we” may be used to refer to Amerityre Corporation.

 

 

 

 

PART I

 

ITEM 1.  BUSINESS

 

Overview

 

Amerityre incorporated as a Nevada corporation on January 30, 1995.

 

Amerityre engages in the development, manufacturing and sale of polyurethane tires. We believe that we have developed unique polyurethane formulations that allow us to make products with superior performance characteristics, such as high abrasion resistance, increased energy efficiency, and higher load-bearing capabilities, when compared to conventional rubber tires and imported flat free polyurethane tires. We also believe that our manufacturing processes are more energy efficient than the traditional rubber tire manufacturing processes, in part because our polyurethane compounds do not require the multiple processing steps, extreme heat, and high pressure that are necessary to cure rubber. Using our polyurethane-based technologies, we produce tires that last longer, are less susceptible to failure and are friendlier to the environment.

 

Products

 

Our polyurethane material technology is based on two main proprietary formulations; closed-cell polyurethane foam, a lightweight material with high load-bearing capabilities for low duty cycle applications, and Elastothane®, a high performance polyurethane elastomer with high load-bearing capabilities for high duty applications.  Closed cell foam tires and components accounted for approximately 97% of fiscal year 2020 tire revenues, with elastomer tires making up approximately 3% of fiscal year 2020 tire revenues. Our closed-cell polyurethane products are categorized as flat-free because they have no inner tube, do not require inflation and will not go flat even if punctured. Our tires are virtually maintenance free, non-toxic, provide extended tire life, and offer superior energy efficiency compared to rubber based tires. Our marketing efforts are divided among three distinct segments: light duty polyurethane foam tires for items such as bicycles, hand trucks, small industrial vehicles, and lawn/garden applications, polyurethane elastomer industrial tires, and agricultural tires. Our business model focuses on applications and opportunities where our advantages in product technology and tire performance give us an opportunity to obtain premium pricing. The majority of our sales are to domestic customers as international sales are adversely affected by exchange rates and high freight costs.

 

Closed-Cell Polyurethane Foam Tires

 

We currently manufacture closed-cell polyurethane foam tires for bicycles, golf and baggage carts, hand trucks, lawn and garden equipment, wheelbarrows, personnel carriers, and medical mobility products, as well as custom designed applications.  Our proprietary formulations produce foam tires that enjoy a reputation of superior quality and performance relative to competitor offerings.

 

Our efforts in custom product development and marketing allow us to build customer relationships and expand sales with original equipment manufacturers and tire distributors. We continue our focus on creating unique product solutions for customers with specific tire performance requirements. The demand for our golf cart, personnel carrier and baggage cart tires has been increasing as the marketplace recognizes the superior performance of our tires in this market segment. Management cannot predict whether and the extent to which this trend may continue in light of the recent economic downturn caused by the coronavirus pandemic. Since the inception of the pandemic and government ordered business shutdowns in March 2020, Amerityre has been able to operate as an “essential business”. The closure of many of our customers in March and April adversely impacted our revenues, but we have not experienced any COVID-19 related issues with our raw material suppliers or with the operation of our manufacturing facility. See ‘Risk Factors.”

 

Polyurethane Elastomer Industrial Tires

 

We have developed solid polyurethane industrial tires made of Elastothane®, our family of proprietary polyurethane elastomer formulations.  We currently offer over 20 sizes for Class 1, 4 and 5 forklifts, as well as elastomer tires for scissor lifts. Over the past few years we have not seen great sales levels for our forklift tires. Our introduction of Elastothane® 500, a lighter density formulation than our standard polyurethane elastomer, has been well received by the market. This formulation has been used in baggage carts, personnel carriers, stock chasers, and lawn mowers, for applications where enhanced abrasion resistance and increased weight bearing capacity is required. We believe our polyurethane tires are superior to rubber tires as they are non-marking, more energy efficient, carry greater load weight, are made of non-toxic materials, operate in lower temperature environments and have longer comparative service life.  The pursuit of new joint product development initiatives is a key component of our market penetration strategy.

 

 

Agricultural Tires

 

Amerityre has developed three products for the agricultural tire market, flat-free pivot tires used in irrigation systems, seeder tires, and hay baler tires.  Some of our larger tires, such as our 18 x 8.50 and 5.70 x 12 tires, have been purchased for use in some agricultural applications. Overall sales in the agricultural market continued to be negatively impacted in fiscal year 2020 by low commodity prices.  As with our industrial tires, we continue to pursue joint product development opportunities to increase our agricultural market base. We continue to promote lawn and garden tires produced from our newest elastomer formulation, Elastothane®, which offers advantages in abrasion resistance and durability compared to our standard polyurethane foam products.

 

Raw Materials and Supplies

 

The two principal chemical raw materials required to develop our proprietary formulations used in the manufacture of our products are known generically as polyols and isocyanates.  We also purchase various chemical additives that are blended with the polyols and isocyanates.  We maintain multiple sources for chemical raw materials to assure adequate supply and competitive pricing. The quality of our raw materials is critical to the superior performance of our proprietary formulations.

 

In addition to the chemical raw materials, we purchase steel and plastic wheel components for use in tire assemblies.  We purchase these components from domestic and overseas suppliers.  The imposition of tariffs on Chinese goods over the past year has increased the cost to procure our imported wheel rims. We have not had any issues with raw material supply or costs due to COVID-19

 

Operations/Manufacturing

 

Our closed-cell polyurethane foam and elastomer products are primarily manufactured utilizing multiple–stationed, carousel molding machines.  We produce closed-cell foam products by pouring a proprietary polyurethane formula into a mold.  The molding process occurs by reacting monomeric diphenylmethanediisocyanate (MDI) with polyol and other chemicals.  The reaction causes a cross linking of the chemicals, which cures into a solid foam. The closed-cell polyurethane foam or elastomer product is then removed from the mold and the process is repeated.

 

All of our products are inspected prior to shipment to ensure quality.  Any products considered defective by our quality control personnel are disposed of through traditional refuse disposal services.  All of our tires are manufactured at our Boulder City, Nevada facility.

 

Information Systems

 

We use commercial computer aided design (CAD) and finite element analysis (FEA) software tools in the engineering and design of our products.  This software allows us to integrate our proprietary manufacturing and production data with our design technology, enabling us to leverage our previous manufacturing and test results to predict the performance characteristics of new product designs and product improvements.  For general business purposes, we use commercially available software for financial, distribution, manufacturing, customer relationships and payroll management. Our computer system is protected by commercially available security and antivirus software.

 

Sales, Marketing and Distribution

 

Amerityre utilizes independent manufacturer representatives with tire industry experience to promote and sell our products. These representatives sell all of our products in a designated sales territory. These independent sales professionals complement our in-house sales department in Boulder City. The majority of our sales is direct to OEMs or sold to tire distributors who in turn sell to individual end users. We sell to individual consumers through our website, although the website is designed primarily as an education tool for current and potential customers. The majority of our product promotion is through direct mail, electronic mail, and attendance at select trade shows. All product shipments originate directly from our manufacturing facility in Boulder City, Nevada.

 

Internationally, we have several distribution partners located in Canada, Australia, and Europe. We continue to seek additional international sales and marketing partners to expand the worldwide sales and distribution of our products.

 

 

Customers

 

Amerityre has a diversified customer base, providing tires and assemblies to OEMs, distributors, equipment dealers, and individuals. Our largest OEM customer accounted for approximately 27% of our sales for the year ended June 30, 2020, compared to fiscal year 2019 where this same customer accounted for approximately 16% of our sales. The increase in this percentage of sales is due to higher purchases by this customer in fiscal year 2020 compared with fiscal year 2019. Our discussions with this customer indicate that fiscal year 2021 sales are expected to be similar to fiscal year 2020 levels. Our customers include OEMs of lawn and garden products and outdoor power equipment, regional tire distributors, retail cooperatives, agricultural tire distributors, and retailers of lawn and garden products, bicycle tires and hand truck tires. With the added exposure provided by our upgraded website, along with the ability to make purchases online, we expect market awareness among consumers to continue to increase.

 

Competition

 

There are companies that produce not-for-highway-use or light-duty tires from polyurethane foam such as Greentyre, who manufactures in the UK; Carefree Tire, who manufactures in China; Marastar (a division of Carlstar), who manufactures in China, and Custom Engineered Wheels and Krypton Industries, who manufacture in India.  We believe our closed-cell polyurethane foam tires are superior to the polyurethane foam tires offered by these competitors. Our closed cell technology gives our products higher load bearing characteristics than competitor tire products that have open-cell polyurethane foam, while producing a ride quality comparable to a pneumatic tire. We believe we are the largest USA-based manufacturer of polyurethane flat free tires.

 

In addition to manufacturers of polyurethane foam tires, we compete directly with companies that manufacture and market traditional not-for-highway-use, low-duty pneumatic, semi-pneumatic, and solid tires made from rubber.  The not-for-highway use tire industry historically has been highly competitive, and most of these competitors have financial resources that substantially exceed ours. In addition, many of our competitors are very large companies, such as Kenda, Taiwan; Maxxis International, Taiwan; Cheng Shin, China; and Carlstar, USA.  These competitors have established brand name recognition, distribution networks for their products, and have strong consumer loyalty to their products.

 

Despite the presence of larger competitors, we believe that our superior proprietary formulations give us some competitive advantages in certain market segments. We produce the only flat free polyurethane foam tires in the bicycle tire, golf cart tire, and personnel carrier tire market segments. The performance advantage of our formulation is evident in these market segments, where load bearing capability and ride quality is important. Consequently, we have focused our attention on these product segments in our sales and marketing efforts.

 

In the agricultural tire market, the market leaders are Titan International and Carlisle, global manufacturers of agriculture pneumatic tire and wheel assemblies.  OEM manufacturers of pivot irrigation systems, such as Valmont Industries and Lindsay, have developed their own flat free tires for their irrigation systems. The continuing challenging economic landscape in the agricultural sector, which has been exacerbated by the recent downturn in the global economy due to the coronavirus pandemic, has hurt all participants in the agricultural tire market, and we expect the poor market conditions to continue. Farmers are less likely to upgrade their equipment to flat free tires until agricultural commodity prices begin to rise again. The poor market conditions in the Agricultural segment over the past three years has forced the Company to adjust its focus away from this market, particularly the pivot tire market, and redeploy resources in the small agricultural tire market and the lawn and garden market segments.

 

Intellectual Property Rights

 

We seek to obtain patent protection for, or to maintain as trade secrets, those inventions that we consider important to the development of our business.  We rely on a combination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and branding.  We control access to our proprietary technology and enter into confidentiality agreements with our employees and other third parties.  We own twelve issued U.S. patents.  We use various trademarks in association with marketing our products, including the names Amerityre®, Elastothane®, Arcus®, Atmospheric®, Logo®, and Kik®.

 

Trade Secrets

 

Our polyurethane formulation technology is based on two key proprietary formulation types; a closed-cell polyurethane foam, which is a lightweight material with high load-bearing capabilities for low duty cycle applications, and a polyurethane elastomer, which is a high performing material with high load-bearing capabilities for high duty applications, like forklift tires and other industrial tires. Our technology has been maintained as a trade secret by combination of limited and controlled access to our facility along with a use of non-disclosure agreements with persons that have been afforded access.  To the best of our knowledge and belief, we have maintained our technology and formulations as trade secrets to provide for the protection of our polyurethane material technology under U.S. trade secret laws. 

 

 

Patents

 

Set forth in the schedule below are the issued patents that we have received.

 

Description of Patent

 

U.S. Patent

App/Serial No.

 

Issued Date or

Date Filed

 

Brief Description/Purpose

Improved Method and Apparatus for Making Tires and the Like

 

6,165,397

 

12/26/2000

 

Applies to pouring the material at the inside diameter (where the tire starts) during the manufacturing process.

Run-Flat Tire with Elastomeric Inner Support

 

6,679,306

 

1/20/2004

 

Applies to a polyurethane insert within a tire to create a “run-flat” system.

Method and Apparatus for Vacuum Forming a Wheel from a Urethane Material

 

 

7,377,596

 

 

5/27/2008

 

 

Applies to the method we employ to coat a light gauge steel or aluminum wheel by evacuating air from the mold while moving material through the mold utilizing a vacuum process to eliminate pockets of air within the matrix of the material. The resulting product becomes a “Composite” wheel.

Elastomeric Tire with Arch Shaped Shoulders

 

6,971,426

 

12/06/2005

 

Applies the design of the Arcus® run-flat tire (the first polyurethane elastomer tire to run with or without air).

Method for Manufacturing a Tire with Belts, Plies and Beads Using a Pre-cured Elastomer and Cold Rolling Method

 

6,974,519

 

 

12/13/2005

 

 

Applies to how we put the plies, beads and belts on a mandrel or bladder to be placed inside a mold for manufacturing a tire.

 

Improved Vacuum Forming Apparatus for Vacuum Forming a Tire, Wheel or Other Item from an Elastomeric Material

 

7,527,489

 

 

5/5/2009

 

 

Applies to an improvement in the vacuum forming equipment used to manufacture a tire and other items.

 

Method for Vacuum Forming an Elastomeric Tire

 

8,114,330

 

2/14/2012

 

Applies to polyurethane tires and methods we employ to evacuate air from mold while moving material through the mold.

Run Flat Tire Insert System

 

7,398,809

 

7/15/2008

 

Applies to how to utilize an insert on a wheel within a corresponding pneumatic tire.

Method and Apparatus for Vacuum Forming an Elastomeric Tire

 

 

7,399,172

 

 

7/15/2008

 

 

Applies to polyurethane tires and the method we employ to evacuate air from the mold while moving material through the mold utilizing a vacuum process to eliminate air pockets within the matrix of the material.

System for Retreading a Transport Tire with Polyurethane Tread

 

8,206,141

 

6/26/2012

 

Applies to apparatus we used to retread transport tires with polyurethane tread.

Method for Retreading a Heavy Duty Tire with a Polyurethane Tread

 

8,603,377

 

12/10/2013

 

Applies to the method we employ for applying a polyurethane tread to a rubber tire casing.

Pivot Wheel Segment

 

D710,913

 

8/12/2014

 

Applies to irrigation wheels used in special soil conditions.

 

Trademarks

 

Set forth in the schedule below are the United States trademarks that have been registered.

 

Trademarks

 

Registration/Serial #

 

Issued

Amerityre®

 

2,401,989

 

8/14/2001

Elastothane®

 

3,139,489

 

9/5/2006

Elastothane®

 

3,497,302

 

9/2/2008

Arcus®

 

2,908,077

 

4/24/2004

Atmospheric®

 

3,089,313

 

5/9/2006

Logo®

 

4,404,548

 

9/17/2013

Kik®

 

3,608,633

 

4/21/2009

 

We also own certain trademark applications and/or trademark registrations relating to the Arcus® trademark in several foreign jurisdictions.

 

 

Employees

 

As of September 9, 2020, we had 13 full-time employees and 1 part time employee, including 4 salaried and 9 hourly employees.  We hire temporary labor as required to meet peak manufacturing needs.  We believe that we will be able to hire a sufficient quantity of qualified laborers in the local area to meet our business needs, with the increased level of unemployment in Nevada due to COVID-19 potentially easing the tightness in the supply of available labor in the market.  Our manufacturing process does not require special skills, other than training in our production techniques and specific equipment.  Our employees are not represented by a labor union or a collective bargaining agreement.  We consider our relations with our employees to be good.

 

Research and Development

 

We consider research and development (R&D) activities to be an important part in our growth strategy.  Our current research and development activities are focused on new product development in partnership with potential OEM partners with a specific product needs and improving our current formulation processing to make our manufacturing processes more cost efficient.  We utilize R&D resources on a contract basis when required to investigate new, potentially lower cost polyurethane foam formulations, to design custom sized tires for specific customer requirements, and to increase the Company’s competitive position in specific market segments.  Due to the Company’s limited resources, tire projects are limited to those where an exceptional return on investment is expected. Other, less profitable, projects have been put on hold and will be revisited at a later date when sufficient resources are available.  Research and development expenses of an external testing nature were $16,821 and $5,341, for fiscal 2020 and 2019, respectively.  In fiscal 2020 we completed an evaluation of Amerityre bike tires in an e-bike application. All research and development expenses of the Company, including both internal and external expenses, were $117,525 and $91,680, for fiscal years 2020 and 2019, respectively.

 

ITEM 1A. RISK FACTORS

 

Risks Related to our Business

 

Investing in our common stock involves a high degree of risk. You should carefully consider the following Risk Factors before deciding whether to invest in Amerityre. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of the common stock could decline.

 

If as a result of the weakening economy or otherwise, we incur material losses, we may encounter difficulty in raising capital to meet our working capital needs.

 

While we incurred a small net income from operations in three of the past four fiscal years, Amerityre lost money from operations in all periods prior to fiscal year 2017. While we are optimistic that we will be able to continue this positive profitability trend, there is no guarantee that this will be the case. In particular, the economic disruption caused by COVID-19 is uncertain.

 

Since inception, we have been able to cover our operating losses from the sale of our securities. If we were to experience losses or negative net cash flow from operations in the future, there is no guarantee that funding sources will be available to cover future operating losses, and funding sources that are available could have a dilutive effect on our current investors. If we are unable to obtain adequate sources of funds to operate our business, we may not be able to continue as a going concern. Based on our financial results of the past two fiscal years we do not anticipate liquidity issues.

 

Our business operations and plans could be adversely affected in the event we need additional financing and are unable to obtain such funding.  The capital markets in general and for microcap companies in particular are subject to a variety of risks including COVID-19, a lack of business diversification and domestic and global economic declines. To the extent that our business strategy requires expanding our operations, such expansion could be costly to implement and may cause us to experience significant losses.  Insufficient funds may prevent us from implementing our business strategy or may require us to delay, scale back or eliminate certain opportunities for the commercialization of our technology and products.  If we cannot generate adequate sales of our products, or increase our revenues through licensing of our technology or other means, we may be forced to cease operations.

 

 

Because we face competition in all phases of our business, we may not be able to increase or maintain revenue or profitability, which may have an adverse effect our results of operations or stock price.

 

A number of factors may affect future sales of our products even if we are successful in increasing our revenue base.  These factors include whether competitors produce alternative or superior products, whether the cost of our products is competitive in the marketplace, and whether we can establish effective product sales and distribution networks. The tire industry is a highly competitive, global industry. Most of our competitors are larger companies with greater financial resources. Their access to greater resources enables them to adapt more quickly to changes in the markets we have targeted. Our competitors are able to devote greater resources to the development and marketing of new products. Most of the products we have developed have not obtained broad market acceptance and rely on our emerging technologies. To significantly improve our competitive position, we will need to make significant ongoing investments in manufacturing, customer support, marketing, sales, research and development and intellectual property protection. Intense competitive activity in the tire industry has caused and will likely continue to cause pressures on our business, as well as pressure on certain of our customers or suppliers. Further, to the extent negative macroeconomic events, such as COVID-19 pandemic, affect the industry generally, we may have difficulty navigating and adjusting to such circumstances relative to our larger, better-capitalized competitors in the tire industry.  To succeed as a company, we must continue to manufacture quality products and sell adequate quantities of products at prices sufficient to generate profits.  We may not accomplish these objectives, which may have an adverse effect on our results of operations or stock price.

 

Further, we trade on the OTCQB which generally is an illiquid market, are subject to the Securities and Exchange Commission (the “SEC”)’s penny stock rules and have no analyst coverage, all of which creates illiquidity and makes raising capital more difficult and expensive.

 

A reduction in the growth rate of the U.S. or global economy could have an adverse impact on our business, operating results and financial position.

 

Until March 2020, the U.S. economy experienced increased growth over the past fiscal year. However, the national shutdown of the U.S. economy due to COVID-19 has put the U.S. economy in a tailspin, and similar trends have occurred globally, the full extent and duration of which remain uncertain. This has negatively affected our sales revenues in the most recent quarter, and it is unknown how long it will take for the U.S. or global economy to fully recover. Poor market conditions in the agricultural commodity markets continue to impair our agricultural tire sales, and we expect continued dismal farm incomes this year. Other potential headwinds to economic growth overall are the continuation and/or increase in tariffs, a trade war, renegotiated trade agreements with international trading partners, and Federal Reserve policies that tighten credit or cause other imbalances in the economy. A continuation or worsening of these conditions, including credit and capital markets disruptions, could have an adverse impact on our business, operating results and financial position. We may experience declines in revenues and cash flows as a result of reduced orders, payment delays or other factors caused by the economic problems of our customers and prospective customers. We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and customers or arising from prolonged shutdowns due to government orders or related safety precautions to address COVID-19 concerns. We may incur increased costs or experience difficulty with our ability to borrow in the future or to finance our operating, investing or financing activities. Any of these potential problems could hinder our efforts to increase our sales and might, if severe and extensive enough, cause our sales to decline, jeopardizing our ability to successfully operate.

 

We may experience delays in resolving unexpected technical issues in the development of new technology, resulting in increased development costs and delays of anticipated sales and revenues.

 

As we develop and improve our products, we frequently address chemical, manufacturing and/or equipment-related issues.  Some of these challenges cannot be anticipated because the products we are developing are new. The revision of existing manufacturing processes or procurement of specialized equipment may result in delays, and we may not meet our projected timetable for bringing products to market.  Such delays may interfere with existing manufacturing activities, negatively affect revenues and/or increasing our cost of operations.

 

We have entered new market segments where we have limited resources, and we may be unable to successfully manage planned growth.

 

We have less marketing and product development resources at our disposal compared to our competitors in the tire industry.  To remain profitable, our products must be cost-effective, economical to produce, and have the ability to be distributed on a commercially viable scale.  Furthermore, if our technologies and products do not achieve or maintain market acceptance, we may not be profitable.

 

 

Our success depends on our ability to license, market and distribute, and commercialize our technologies and products effectively.  We have limited manufacturing, marketing and distribution resources. Those resources we do have will therefore be critical to the success of new product offerings, and any unexpected issues therewith could be materially harmful to our business plans.  We may not properly ascertain or assess any and all risks inherent in the industry.  We may not be successful in entering into new licensing or marketing arrangements on favorable terms or at all.  If we are unable to meet the challenges posed by our planned licensing, manufacturing, distribution and sales growth, our business may fail.

 

Our limited resources and working capital levels may hinder our ability to take advantage of business development opportunities in our various market segments, reducing growth and profitability of the Company.

 

Although our available working capital has increased over the past fiscal year, we continue to have limited resource levels relative to our competitors. This has forced us to prioritize choices regarding the pursuit of new market opportunities. Our inability to raise significant additional working capital has resulted in the Company deferring potentially attractive market opportunities. The Company continues to finance new business opportunities using internally generated cash flow. If we are not able to raise additional capital going forward, it is possible that additional opportunities to improve the Company’s market position will be lost.

 

We are subject to governmental regulations, including environmental and health and safety regulations.

 

Our business operations are subject to a variety of national, state and local laws and regulations, many of which deal with environmental, health and safety, and employment issues. While we believe we are in material compliance with applicable environmental, worker health and safety and employment requirements, there can be no assurances that we are correct, that we will continue to comply, or that new laws or regulations will not be passed that limit our ability to continue or expand our operations without expending significant additional funding on compliance. Our raw materials and tire manufacturing process are less hazardous than traditional rubber tire manufacturing. However, significant expenditures may be necessary if future compliance standards change or unknown conditions that require remediation are discovered. Further, there is a trend in some neighboring states, like California, Washington, and Oregon, towards passing employee friendly legislation. For example, a California court recently upheld a challenge to a statute classifying “gig economy” workers such as Uber drivers as employees under California employment law, rather than independent contractors. These laws increase compliance costs and the cost of doing business. We cannot predict what legislation Nevada may pass, or what case law may develop interpreting such laws. If we fail to comply with present and future laws and regulations, we could be subject to future liabilities or interruptions in our operations and costs, which could have a material adverse effect on our business.

 

We attempt to protect the critical elements of our proprietary technology as trade secrets.  Because of our reliance on trade secrets, we are unable to prevent third parties from independently developing technologies that are similar or superior to our technology or from successfully reverse engineering or otherwise replicating our technology.

 

In certain cases, where the disclosure of information required to obtain a patent would divulge critical proprietary data, we may choose not to patent elements of our proprietary technology and intellectual property. Instead, we rely on trade secret laws to protect certain elements of our proprietary technology and processes, such as our key polyurethane formulations.  These formulations are critical elements of our proprietary technology.  While we enter into non-disclosure agreements with our employees and certain third parties with which we do business, our trade secrets could nonetheless be compromised by third parties, or intentionally or accidentally by our employees.  It is also possible that others will independently develop technologies that are similar or superior to our technology.  Third parties may also legally reverse engineer our products.  Independent development, reverse engineering, or other legal copying of those elements of our proprietary technology could enable third parties to benefit from our technologies without compensating us.  The protection of proprietary technology through claims of trade secret status has been the subject of increasing claims and litigation by various companies both in order to protect proprietary rights as well as for competitive reasons, even when proprietary claims are unsubstantiated.  The prosecution of litigation to protect our trade secrets or the defense of such claims is costly and unpredictable given the uncertainty and rapid development of the principles of law pertaining to this area.  Intellectual property litigation has had two trends which can make it prohibitively expensive - (i) the use of litigation funding companies and (ii) the presence of large law firms. The effect is to increase legal and expert litigation fees. These factors also arise with respect to the following patent risk factors. We may also be subject to claims by other parties with regard to the use of technology information and data that may be deemed proprietary to others.  The independent development of technologies that are similar or superior to our technology or the reverse engineering of our products by third parties would have a material adverse effect on our business and results of operations.  In addition, the loss of our ability to use any of our trade secrets or other proprietary technology would have a material adverse effect on our business and results of operations.  Because trade secrets do not ensure exclusivity and pose such issues with respect to enforcement, third parties may decline to partner with us or may pay lesser compensation for use of our technology which is protected only by trade secrets.

 

 

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

 

Our success and ability to compete are substantially dependent upon our intellectual property.  We rely on patent, trademark and copyright laws, trade secret protection and confidentiality or license agreements with our employees, customers, strategic partners and others to protect our intellectual property rights.  However, the steps we take to protect our intellectual property rights may be inadequate.  There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services.  For example, effective intellectual property protection may not be available in every country in which we license our technology or our products are distributed.  Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. The risk of unauthorized access to our intellectual property and other confidential business information is further exacerbated with the general trend toward remote working in the past six-months, and as a result we may be more susceptible to computer hackers seeking access to our proprietary information. Any impairment of our intellectual property rights could harm our business and our ability to compete.  Also, protecting our intellectual property rights is costly and time consuming.  Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.  In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us.

 

We have been granted a number of U.S. patents relating to certain aspects of our manufacturing technology and processes and use of polyurethane to make tires, and we may seek further patents on future innovations.  Our ability to either manufacture products or license our technology is substantially dependent on the validity and enforcement of these patents and patents pending.  We cannot guarantee that our patents will not be invalidated, circumvented or challenged, that patents will be issued for our patents pending, that the rights granted under the patents will provide us competitive advantages or that our current and future patent applications will be granted.

  

Third parties may invalidate our patents.

 

Third parties may seek to challenge, invalidate, circumvent or render unenforceable any patents or proprietary rights owned by or licensed to us based on, among other things:

 

 

●  

subsequently discovered prior art or engineering designs;

 

 

●  

lack of entitlement to the priority of an earlier, related application; or

 

 

●  

failure to comply with the written description, best mode, enablement or other applicable requirements.

 

United States patent law requires that a patent must disclose the “best mode” of creating and using the invention covered by a patent.  If the inventor of a patent knows of a better way, or “best mode,” to create the invention and fails to disclose it, that failure could result in the loss of patent rights.  Our decision to protect certain elements of our proprietary technologies as trade secrets and to not disclose such technologies in patent applications, may serve as a basis for third parties to challenge and ultimately invalidate certain of our related patents based on a failure to disclose the best mode of creating and using the invention claimed in the applicable patent.  If a third party is successful in challenging the validity of our patents, our inability to enforce our intellectual property rights could seriously harm our business.

 

We may be liable for infringing the intellectual property rights of others.

 

Our products and technologies may be the subject of claims of intellectual property infringement in the future.  Our technologies may not be able to withstand any third-party claims or rights against their use.  Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle, could divert resources and attention and could require us to obtain a license to use the intellectual property of third parties.  We may be unable to obtain licenses from these third parties on favorable terms, if at all.  Even if a license is available, we may have to pay substantial royalties to obtain it.  If we cannot defend such claims or obtain necessary licenses on reasonable terms, we may be precluded from offering most or all of our products or services and our business and results of operations will be adversely affected.

 

 

Because our tire products are derived from relatively new technology, our product liability insurance costs will likely increase and we may be exposed to product liability risks that could adversely affect profitability.

 

Even if tests indicate that our tires meet industry performance standards, these products may subject us to significant product liability claims because the technology is relatively new and there is little history of long term use in particular applications.  Moreover, because our products are and will be used in applications where their failure could result in injury, we could also be subject to product liability claims.  Introduction of such new products and increased use of our existing products will most likely increase our product liability premiums and defense of potential claims could increase insurance costs even further, which could substantially increase our expenses.  Any insurance we obtain may not be sufficient to cover the losses incurred through such lawsuits.

 

Significant increases in the price of chemicals, steel and other raw materials used in our products could increase our production costs and decrease our profit margins or make our products less competitive in the marketplace due to price increases.

 

The materials used to produce our products are susceptible to price fluctuations due to supply and demand trends, economic factors, and other unforeseen trends. If we are successful in implementing our business strategy, the quantities of chemical raw materials required by us or by others that utilize our technology may increase significantly. Shortages, if any, may result in chemical price increases. We have experienced increases in the cost of wheel components due to the increased cost of steel and the imposition of tariffs. Existing trade agreements with foreign countries may be subject to change in the future, with tariffs or import duties being levied by the US government increasing the cost of our foreign-based raw materials. Because we are introducing products that will compete, in part, on the basis of price, we may be unable to pass cost increases on to our customers in order to stay competitive.  If we are unable to pass on raw material cost increases to our customers, our future results of operations and cash flow will be materially adversely affected. Because of COVID-19, we may encounter issues with our manufacturing facility and the economic slowdown may materially and adversely impact our business.

 

Because of COVID-19, federal, state and local governmental authorities have issued stay-at-home orders (which vary at the state and local level), proclamations and/or directives aimed at minimizing the spread of COVID-19. Additionally, more restrictive proclamations and/or directives may be issued in the future. To date, Amerityre has continued normal operations as we provide products which support essential businesses and operations. However, there is no guarantee that we will be able to continue regular operations going forward in light of COVID-19. These government restrictions have also negatively impacted the operations of some of our customers, leading to delay and/or cancellation of orders and uncertain order levels going forward. There is also a risk that some customers may not be able to pay for Amerityre products already shipped due to reductions in their revenues and a deterioration of their financial position as a result of COVID-19. To date we have not had any employees with confirmed cases of COVID-19 illness.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations remains unknown at this time and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 pandemic, government restrictions and other effects thereof, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, the Company, or our customers or suppliers may direct, which may result in an extended period of continued business disruption, reduced customer traffic or orders and reduced operations and revenue. Further, we cannot be certain when businesses will begin hiring back unemployed workers and the extent to which workers may elect to remain unemployed. All of these factors may affect supply chains which can impact our needs and expenditures required to fill customer orders and reduce demand for our products. For example, in the 4th quarter of fiscal 2020 we saw a decline in customer demand for our products, and a commensurate reduction in sales relative to expectations, likely caused primarily by the pandemic. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and operational results.

 

The counter-COVID-19 measures taken to date will likely negatively impact the Company’s business during some or all of the 2021 fiscal year and potentially beyond. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 pandemic on the Company’s business and the duration for which it may have an impact cannot be determined at this time. There can therefore be no assurance that the pandemic will not have a material adverse impact on the future results of the Company. The extent of the impact will depend on future developments, including actions that have been or may be taken to contain COVID-19 and the duration of time until businesses can reopen following government shutdowns and resume normal operations. In addition, COVID-19 has had a significant negative impact on the U.S. and global economies. We cannot predict when the economy will fully recover.

 

 

Our ability to execute our business plan would be harmed if we are unable to retain or attract key personnel.

 

Our technology has been developed by a small team and only a limited number of team members maintain the technical knowledge to produce our products.  Our future success depends, to a significant extent, upon our ability to retain and attract the services of our key personnel.  The loss of the services of our Chief Executive Officer could hinder our ability to effectively manage our business and implement our growth strategies. Finding suitable replacements could be difficult, and competition for experienced personnel is intense.  We do not carry key person insurance on any of our officers.

 

If our data or our users’ content is hacked, including through privacy and data security breaches, our business could be damaged, and we could be subject to liability. Because the personal information that we, our customers or our vendors collect may be vulnerable to breach, theft or loss, any of these factors could adversely affect our reputation and operations.

 

      Our business is and we expect it will continue to be reliant upon the Internet. Cyber security events have caused significant damage to large well-known companies. If our systems are hacked and our confidential information is misappropriated, we could be subject to liability. Further, if third party vendors experience data or cyber security breaches, sensitive business or customer information could be subject to similar risks.

 

Possession and use of personal information of our customers and vendors subjects us to risks and costs that could harm our business. We also collect and maintain personal information of our employees in the ordinary course of our business. Errors in the storage, use or transmission of personal information could result in a breach of customer or employee privacy. Possession and use of personal information in our operations also subjects us to possible regulatory burdens that could require notification of data breaches, and restrict our use of personal information. We cannot guarantee that there will not be a breach, loss or theft of personal information that we store or our third parties store. If we are hacked and there is a breach, theft or loss of personal information could have a material adverse effect on our reputation and results of operations and result in liability under state and federal privacy statutes and legal or administrative actions by state attorneys general, private litigants, and federal regulators and by such other international laws including the European Union’s GDPR and their respective enforcement mechanisms, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

We may fail to detect the existence of a breach of user content and be unable to prevent unauthorized access to user and company content. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often not recognized until launched against a target. They may originate from less regulated third world countries where lax local enforcement and poverty create opportunities for hacking. If our security measures are breached, or our personal information or that of our customers, suppliers, employees or independent contractors is otherwise accessed through unauthorized means, or if any such actions are believed to occur, we may be materially harmed.

 

If we fail to comply with laws and regulations relating to privacy, data protection, information security, advertising and consumer protection, government access requests, or, new laws in one or more of these areas are enacted, it could result in proceedings, actions, or penalties against us and could adversely affect our business, financial condition, and results of operations.

 

We rely on a variety of marketing techniques, and we are or may become subject to various laws and regulations that govern such marketing and advertising practices. A variety of federal, state, and international laws and regulations govern the collection, use, retention, sharing, and security of personal data.

 

 

Laws and regulations relating to privacy, data protection, information security, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other regulations or our current practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements, and obligations. We have implemented various features, integrations, and capabilities as well as contractual obligations intended to enable us to comply with applicable privacy and security requirements in our collection, use, and transmittal of data, but these features do not ensure our compliance and may not be effective against all potential privacy concerns. In particular, as a United States company, we may be obliged to disclose data pursuant to government requests under United States law. Compliance with such requests may be inconsistent with local laws in other countries where our customers reside. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject, or other legal obligations relating to privacy or consumer protection, whether federal, state, or international, could adversely affect our reputation, brand, and business, and may result in claims, proceedings, or actions against us by governmental entities, customers, users of our website, third party service providers, or others, or may require us to change our operations and/or cease using certain types of data. Any such claims, proceedings, or actions could hurt our reputation, brand, and business, force us to incur significant expenses in defense of such proceedings or actions, result in adverse publicity, distract our management, increase our costs of doing business, result in a loss of customers or vendors, and result in the imposition of monetary penalties.

 

The legislative and regulatory bodies or self-regulatory organizations in various jurisdictions both inside and outside the United States may expand current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, information security, and online advertising. For example, in June 2018 the State of California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which took effect on January 1, 2020. The CCPA requires companies that process personal information on California residents to make new disclosures to consumers about such companies’ data collection, use, and sharing practices and inform consumers of their personal information rights such as deletion rights, allows consumers to opt out of certain data sharing with third parties, and provides a new cause of action for data breaches. The State of Nevada has also passed a law, which took effect on October 1, 2019, that amends the state’s online privacy law to allow consumers to submit requests to prevent websites and online service providers (“Operators”) from selling personally identifiable information that Operators collect through a website or online service. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business model or practices, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct. In addition, any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition, and results of operations.

 

In addition, federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes. The U.S. government has enacted, has considered, or is considering legislation or regulations that could significantly restrict the ability of companies and individuals to utilize online behavioral tracking, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which could, if widely adopted, result in the use of third-party cookies and other methods of online tracking becoming significantly less effective. The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms and consequently, materially and adversely affect our business, financial condition, and results of operations.

 

 

Risks Related to our Common Stock

 

Because our common stock is subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and market price.

 

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTCQB is presently less than $5.00 per share and therefore our common stock is considered a penny stock according to SEC rules. Further, we do not expect our stock price to rise above $5.00 in the immediate future. The penny stock designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.

 

Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors to purchase and sell or otherwise make it difficult to sell shares of penny stocks. The penny stock designation may continue to have a depressive effect upon our common stock price.

 

If our common stock becomes subject to a “chill” imposed by the Depository Trust Company (the “DTC”), your ability to sell your shares may be limited.

 

The DTC acts as a depository or nominee for street name shares that investors deposit with their brokers. DTC in the last several years has increasingly imposed a chill or freeze on the deposit, withdrawal and transfer of common stock of issuers whose common stock trades on the tiers of the OTC Markets like that of the Company. Depending on the type of restriction, a chill or freeze can prevent shareholders from buying or selling shares and prevent companies from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period of time (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed against our common stock in the future, if it were your ability to sell your shares would be limited. In such event, your investment will be adversely affected.

 

Due to factors beyond our control, our stock price may be volatile.

 

Any of the following factors could affect the market price of our common stock:

 

 

Our future financial results;

 

Any downturn in the economy in the United States, including currently as a result of COVID-19;

 

The effect of tariffs and other political factors which increases our costs and causes economic issues for farmers who cease or reduce purchases of our products;

 

Regulatory changes including new laws and rules which adversely affect us;

 

Our public disclosure of the terms of any financing which we consummate in the future;

 

Our failure to generate increasing material revenues;

 

Our failure to remain profitable;

 

Any acquisitions we may consummate;

 

Announcements by us or our competitors of significant contracts;

 

Changes in our management; or

 

Changes in market valuations of similar companies.

 

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.

 

Because we may issue preferred stock without the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire us and could depress our stock price.

 

In general, our Board of Directors may issue, without a vote of our shareholders, one or more additional series of preferred stock that have more than one vote per share. Without these restrictions, our Board could issue preferred stock to investors who support us and our management and give effective control of our business to our management. Additionally, issuance of preferred stock could block an acquisition resulting in both a drop in our stock price and a decline in interest of our common stock. This could make it more difficult for shareholders to sell their common stock. This could also cause the market price of our common stock shares to drop significantly, even if our business is performing well.

 

 

Because we may not be able to attract the attention of major brokerage firms, it could have a material impact upon the price of our common stock.

 

It is not likely that securities analysts of major brokerage firms will provide research coverage for our common stock since these firms cannot recommend the purchase of our common stock under the penny stock rules referenced in an earlier risk factor. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It may also make it more difficult for us to attract new investors at times when we require additional capital.

 

Our common stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our common stock.

 

There has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our common stock may experience significant price and volume fluctuations in the future, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our shareholders sell substantial amounts of our outstanding common stock, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, could make it difficult to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. In May 2020, our 2013 Series Preferred Shares automatically converted into 20,000,000 shares of common stock. These shares are subject to the limitations of Rule 144(i) under the Securities Act of 1933 which, among other things, limit the number of shares which can be sold to 1% of our outstanding stock every three months.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

As of the date of this Report, we did not have any unresolved comments with the staff of the SEC.

 

ITEM 2. PROPERTIES

 

In March 2019, we negotiated a five-year extension of the lease on our executive office and manufacturing facility located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square foot building.  We currently occupy all 49,200 square feet, inclusive of approximately 5,500 square feet of office space, situated on approximately 4.15 acres.  The extended lease commenced on July 1, 2019 for the base rent as follows:

 

 

●  

July 1, 2019 to June 30, 2020: $11,750

 

●  

July 1, 2020 to June 30, 2021: $12,150

 

●  

July 1, 2021 to June 30, 2022: $12,300

 

●  

July 1, 2022 to June 30, 2023: $12,450

 

●  

July 1, 2023 to June 30, 2024: $12,600

 

All other terms and conditions of the building lease remain in effect.

 

ITEM 3. LEGAL PROCEEDINGS

 

As of the date of this Report, we were not involved in any legal proceedings.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is quoted on the OTCQB Venture Market (“OTCQB”) under the symbol AMTY. The closing price of our common stock on the OTCQB on September 9, 2020 was $0.038 per share.  There were approximately 465 holders of record of our common stock.

 

Dividends

 

We have not paid any dividends on our common stock since our inception and do not anticipate paying any dividends in the foreseeable future.  Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon then-existing conditions, including our financial condition, results of operations, state law constraints, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors deems relevant.

 

In order to conserve cash, we have suspended payment of dividends on our Preferred Stock since March 2016. We have accrued these dividends and will pay these dividends once Amerityre management has determined that the company cash position can support such payments. 

 

Unregistered Sales of Equity Securities

 

We have previously disclosed all sales of securities without registration under the Securities Act of 1933.

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are a “Smaller Reporting Company” as defined under §229.10(f)(1) of Regulation S-K and are not required to provide the information required by this Item.

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This discussion and analysis contain statements of a forward-looking nature relating to future events or our future financial performance or financial condition.  Such statements are only predictions and the actual events or results may differ materially from the results discussed in or implied by the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Part I. Item 1A. Risk Factors” as well as those discussed elsewhere in this report.  The historical results set forth in this discussion and analyses are not necessarily indicative of trends with respect to any actual or projected future financial performance.  This discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report.

 

Overview

 

Amerityre engages in the research and development, manufacturing, and sale of polyurethane tires.  We have developed unique polyurethane formulations that allow us to make products with superior performance characteristics in the areas of abrasion resistance, energy efficiency and load-bearing capabilities, when compared to conventional rubber tires.  We also believe that our manufacturing processes are more energy efficient than the traditional, rubber tire, manufacturing processes, in part because our polyurethane compounds do not require the multiple processing steps, extreme heat, and high pressure that are necessary to cure rubber. We believe tires produced with our proprietary polyurethane formulations last longer, are less susceptible to failure and are friendlier to the environment when compared to competitor offerings.

 

We concentrate on three segments of the flat free tire market:  light duty polyurethane foam tires, polyurethane elastomer industrial tires and agricultural tires. Our focus continues to be applications and markets where our advantages in product technology, tire performance, and customer service give us an opportunity to obtain premium pricing. Our most recent activities in these areas are set forth below:

 

 

Light Duty Polyurethane Foam Tires – The sale of polyurethane foam tires to original equipment manufacturers, distributors and dealers accounts for the majority of our revenue. We produce a broad range of products for the light duty tire market. Our product development and marketing efforts are focused on building customer relationships and expanding sales with original equipment manufacturers and tire distributors.  Our competitive advantage is creating unique product solutions for customers who have challenging tire performance requirements that cannot be met by competitor offerings.

 

Due to the effect of COVID-19, we experienced lower than expected demand for our polyurethane foam tires in the 4th quarter of fiscal year 2020. However, sales steadily increased throughout the quarter from a heavily depressed level in April 2020. While the tariffs imposed by the US government on imported Chinese products continue to impact our wheel hub costs, a favorable product mix of higher margin tires helped us to overcome these higher costs.

 

Polyurethane Elastomer Industrial Tires – Overall sales volumes of our forklift tires continue to be very small, less than 0.1% of our total sales revenue. Price sensitive consumers continue to favor imported rubber tires rather than our products. Due to other project priorities, we have not put significant resources towards promoting this product line, and we do not expect this to change in the near future. 

 

The Company continued to promote its new elastomer formulation for use in tire applications where customers have asked for a more durable tire in specific applications. Elastothane TM 500 formulation provides higher static load bearing capability as well as higher abrasion resistance compared to our closed cell foam formulation. We have seen increased sales of this formulation for tires in lawn and garden applications We continue to believe this new formulation represents a significant upside opportunity for our product portfolio.

 

Agricultural Tires – Agricultural tires sales continue again to be negatively impacted by low commodity prices and resulting low farm income. Chinese tariffs on US grown soybeans has lowered demand for US grown soybeans in China and has hurt US farmers. The prospect for improved agricultural commodity pricing is not promising in our opinion. We have initiated discussions with some OEMs and large distributors about using our tires for certain applications, but their belief that farmers will not pay extra for a premium product has limited our success to date. The introduction of our ElastothaneTM 500 formulation has enabled us to offer a better product alternative for abrasive applications.

 

Due to the Company’s limited resources, tire projects requiring significant resources and investment have been put on hold. We believe investment in R&D for new and improved products is important to the continued success of our overall business, and we will selectively invest in promising opportunities that fit in our current financial model. We have several product evaluation programs ongoing in different applications which have the potential to develop into significant business in the coming quarters. We expect our current R&D investments to continue to prove to be a prudent investment of our capital resources.

 

As described above, our product line covers diverse market segments which are unrelated in terms of customer base, product distribution, market demands and competition. Our external sales team is comprised of independent manufacturer representatives, whose experience is complementary to our product portfolio.  The Company’s continued emphasis on proper product pricing and new marketing campaigns continue to drive more profitable sales.   Our website has educated the marketplace about our products as well as generate some online sales. As expected, the increasingly challenging economic environment, worsened by the COVID-19 pandemic and the trade war with China, negatively impacted sales performance during the fiscal 4th quarter of fiscal year 2020, and sales for this period were approximately 20% lower than expected.

 

Other than the cost of our imported wheel rims, raw material pricing was fairly stable during the fiscal year 2020. Our wheel rims, which we largely import from China, are still subject to larger pricing fluctuations and the threats of larger tariffs as the trade dispute shows no sign of abating. We continued to exhibit stringent cost controls in the 4th quarter, resulting in higher gross profit and record net income for fiscal year 2020 despite revenues in the 4th quarter that were approximately 20% lower than expected. We are anticipating that raw material costs will remain fairly stable through the first half of fiscal year 2021.

 

The biggest issue for our business remains sales revenue growth. We continue to work at broadening our customer base, and our strategy is to focus on market applications and market segments where we have identified technological and product advantages. Despite an overall decline in demand during the 4th quarter of fiscal year 2020, we were successful in securing business from several new customers. to offset some of this decline. We see the upcoming year as an opportunity to further leverage these gains, provided there is no new shutdown of the economy due to COVID-19 and the negative impacts of the pandemic do not adversely affect the economy.

 

 

Factors Affecting Results of Operations

 

Our operating expenses consisted primarily of the following:

 

 

●  

Cost of sales, which consists primarily of raw materials, components and production of our products, including applied labor costs and benefits expenses, maintenance, facilities and other operating costs associated with the production of our products;

 

 

●  

Selling, general and administrative expenses, which consist primarily of salaries, commissions and related benefits paid to our employees and related selling and administrative costs including professional fees;

 

 

●  

Research and development expenses, which consist primarily of direct labor conducting research and development, equipment and materials used in new product development and product improvement using our technologies;

 

 

●  

Consulting expenses, which consist primarily of amounts paid to third-parties for outside services;

 

 

●  

Depreciation and amortization expenses which result from the depreciation of our property and equipment, including amortization of our intangible assets; and

 

 

●  

Stock based compensation expense related to stock and stock option awards issued to employees and consultants for services performed for the Company.

 

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 United States generally accepted accounting principles.  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 we believe to be reasonable under the circumstances.  These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

We believe the following accounting policies are 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 may be 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

 

The majority of our revenue is derived from short-term sales contracts. We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”.

 

Revenue for our products is recognized at the time in which our performance obligation is satisfied which we have defined as “control” of the product by the customer. “Control” is defined as a customer having “rights/obligations of physical control over the product or has the rights and intention to control the product.” Based on the terms of our contracts, a customer’s “control” is based on analysis of the following; (i) when a customer arranges their own shipping, and once the product has left our dock, Amerityre recognizes revenue for the product.  In effect by arranging their own shipping the customer is “taking control” of the product when it leaves our warehouse; or (ii) when a customer does not arrange their own shipping, we cannot recognize revenue until it is delivered and the customer takes “control” of the product. 

 

This establishes a “deferred revenue” event until such time as delivery of the product has been completed and we have proof from the shipper of the delivery (and change in control).

 

Shipping and Handling

 

Shipping and Handling fees require that freight costs charged to customers be classified as revenues. Freight expenses are included in costs of sales and are recognized as incurred.  Due to our adoption of ASC 606 as discussed above, we defer the revenues of shipping and handling until the related revenue is also recognized.

 

 

Valuation of Intangible Assets and Goodwill

 

Patent and trademark costs have been capitalized at June 30, 2020, totaling $487,633 with accumulated amortization of $394,728 for a net book value of $92,905. Patent and trademark costs have been capitalized at June 30, 2019, totaling $487,633 with accumulated amortization of $377,032 for a net book value of $110,601.

 

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 amortized. Amortization begins once the patents have been issued. As of June 30, 2020 and 2019, respectively, there were no pending patents.  Annually, pending or expired patents are inventoried and analyzed, which resulted in the recognition of a loss on abandonment, expiration or retirement of patents and trademarks of $-0- for the years ended June 30, 2020 and 2019, respectively.

 

Amortization expense for the years ended June 30, 2020 and 2019 was $17,696 and $22,004 respectively.  The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis utilizing the guidance of FASB Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other.  We consider the following indicators, among others, when determining whether or not our patents are impaired:

 

 

●  

any changes in the market relating to the patents that would decrease the life of the asset;

 

 

●  

any adverse change in the extent or manner in which the patents are being used;

 

 

●  

any significant adverse change in legal factors relating to the use of the patents;

 

 

●  

current period operating or cash flow loss combined with our history of operating or cash flow losses;

 

 

●  

future cash flow values based on the expectation of commercialization through licensing; and

 

 

●  

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 net realizable value. The cost of finished goods includes the cost of raw material, direct and indirect labor, and other indirect manufacturing costs. The inventory consists of chemicals, finished goods produced in the Company’s plant and products purchased for resale.

 

Stock-Based Compensation

 

We account for stock-based compensation under the provisions of FASB ASC 718, Compensation – Stock Compensation.  Our financial statements as of and for the fiscal years ended June 30, 2020 and June 30, 2019 reflect the impact of FASB ASC 718. Stock-based compensation expense recognized under FASB ASC 718 for the fiscal years ended June 30, 2020 and 2019 was $44,300 and $38,015, respectively, related to employee stock options and employee stock grants.

 

FASB ASC 718 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 our Statement of Operations. Stock-based compensation expense recognized in our Statements of Operations for fiscal years ended June 30, 2020 and June 30, 2019 assume all awards will vest; therefore no reduction has been made for estimated forfeitures.

 

 

Results of Operations

 

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our sales and cash flows.  These key performance indicators include:

 

 

●  

Revenues, net of returns and trade discounts, which consists of product sales and services and is an indicator of our overall business growth and the success of our sales and marketing efforts;

 

 

●  

Gross profit, which is an indicator of both competitive pricing pressures and the cost of goods sold of our products and the mix of product and license fees, if any;

 

 

●  

Growth in our customer base, which is an indicator of the success of our sales efforts; and

 

 

●  

Distribution of sales across our products offered.

 

During fiscal year 2020, the Company achieved record positive annual net income (before preferred dividends), reversing a prior year net loss. The following summary table presents a comparison of our results of operations for the fiscal years ended June 30, 2020 and June 30, 2019, with respect to certain key financial measures.  The comparisons illustrated in the table are discussed in greater detail below.

 

                   

Percent

 
   

Fiscal Years Ended June 30,

   

Change

 
   

(in 000’s)

         
   

2020

   

2019

   

2020 vs. 2019

 

Net revenues

  $ 3,941     $ 3,590       9.8

%

Cost of revenues

    (2,839

)

    (2,536

)

    11.9

%

Gross profit

    1,103       1,054       4.6

%

Research and development expenses

    (118

)

    (92

)

    28.3

%

Sales and marketing expense

    (193

)

    (198

)

    (2.5

)%

General and administrative expense (1)

    (744

)

    (746

)

    (0.3

)%

Loss on assets, due to write down or disposal

    (17

)

    -       100

%

Other income (expense)

    12       23       (47.8

)%

Net income

    43       41       7.5

%

Preferred stock dividend

    (83

)

    (100

)

    (17.0

)%

Net loss attributable to common shareholders

  $ (40

)

  $ (59

)

    (33.3

)%


(1)  Includes stock-based compensation expense of $44,300 and $38,015 for the fiscal years ended June 30, 2020 and 2019, respectively.

  

Year Ended June 30, 2020 Compared to the Year Ended June 30, 2019

 

Net revenues. Net revenues of $3,941,204 for the year ended June 30, 2020, represents an increase of $350,987 or 9.8%, over net revenues of $3,590,217 during the year ended June 30, 2019.  We achieved our highest annual sales revenue since fiscal year 2015,despite the negative effect of COVID-19 on product demand during the fiscal year 2020 4th quarter .

 

Cost of revenues.  Cost of revenues for the year ended June 30, 2020 was $2,838,667 or 72.0% of revenues compared to $2,536,581 or 70.7% of revenues for the year ended June 30, 2019. Slightly higher raw material costs along with the effect of selling lower margin products were the main drivers of performance.

 

Gross Profit.  Gross profit for the year ended June 30, 2020 of $1,102,537 represents a 4.6% increase over gross profit of $1,053,636 for the year ended June 30, 2019. The fiscal year 2020 gross profit reflects a 28.0% gross margin for product sales compared to a gross margin on product sales of 29.3% for fiscal 2019. While our overall gross profit did increase 4.6% due to higher sales, the gross profit margin decreased year over year due higher costs listed above. The higher sales allowed us to increase total gross profit despite lower gross margins.

 

 

Research and Development expenses.  Research and development expense of $117,525 for the year ended June 30, 2020 represents a 28.3% increase over the same expense of $91,680 for the year ended June 30, 2019. The difference between periods is attributed to costs of a bike tire evaluation program during fiscal year 2020 and contractor costs for new tire development. We continue to invest in product formulation and new product development where appropriate to support our business plan.

 

Sales and Marketing expenses.  Sales and marketing expense of $192,951 for the year ended June 30, 2020 represents a 2.5% decrease over expenses of $197,545 for the year ended June 30, 2019. The difference between periods relates to lower sales commission expense due to the mix of products sold, when compared to the same period in 2019.

 

General and Administrative expenses. General and administrative expenses of $744,525 for the year ended June 30, 2020 represents a 0.3% decrease over the same expense of $746,876 for the year ended June 30, 2019.  We continue to control costs and find more efficient ways to conduct our business activities.

 

Other Income (Expense).  Other expense of $5,003 for the year ended June 30, 2020 includes charges for impairment of equipment available for sale and the write down of obsolete inventory. Other income of $23,477 in the year ended June 30, 2019 is reflective of the receipt of a federal grant from the USDA to upgrade our facility lighting.

 

Net Income. The net income for the year ended June 30, 2020 of $42,533 represents a 7.5% increase from the $41,012 net income for the year ended June 30, 2019. Despite the negative impact of COVID -19 on 4th quarter fiscal year 2020 sales performance and the one-time expenses mentioned above this net income result represents a record year for Amerityre profitability.  

 

Liquidity and Capital Resources

 

Cash Flows

 

The following table sets forth our cash flows for the fiscal years ended June 30, 2020 and 2019.

 

   

Years ended June 30,

 
   

(in 000’s)

 
   

2020

   

2019

 

Net cash provided by operating activities

  $ 42     $ 485  

Net cash used in investing activities

    (56

)

    (105

)

Net cash provided by/(used in) financing activities

    124       (37

)

Net increase in cash during period

  $ 110     $ 343  

 

Net Cash Provided By Operating Activities. Our primary sources of operating cash during fiscal year 2020 came from our net income and collection of accounts receivable and sales of inventory, offset by lower accounts payable and lease liability balances at year end due to the timing of payment of our accounts payable. Net cash provided by operating activities was $41,809for the year ended June 30, 2020 compared to net cash provided of $484,659 for the same period in 2019.

 

Non-cash items include depreciation and amortization and stock-based compensation. Our net income was $42,533 for the year ended June 30, 2020 compared to a net income of $41,012 for the same period in 2019.  The net income for fiscal year 2020 included non-cash expenses for stock-based compensation (primarily stock issued) of $44,300 and a significant increase in amortization expense related to our right to use operating lease for our facility.  In fiscal year 2019, stock-based compensation (both stock issued and options) totaled $38,015 and our liability related to our right to use operating lease was lower due to coming to the end of one lease period and adopting the new lease accounting standard.

 

Net Cash Used In Investing Activities.  Net cash used by investing activities was $56,488 for the year ended June 30, 2020 and $104,504 for the same period in 2019.   In fiscal year 2020, we invested in manufacturing equipment and upgraded our in-house computer infrastructure and server. In fiscal year 2019, we upgraded our plant lighting.

 

Net Cash Provided By/(Used In) Financing Activities.  Net cash provided by financing activities was $124,409 for the year ended June 30, 2020, versus $36,983 used for the same period in 2019. In line with the Company’s initiative to pay off high interest term debt, a total of $25,161 was used in financing activities to retire our long term debt for the year ended June 30, 2020 and $36,983 for the same period in 2019. In the fourth quarter of fiscal year 2020 the Company secured a Small Business Administration Paycheck Protection Program loan for $149,570.

 

 

Our principal sources of liquidity consist of cash and payments received from our customers.  In February 2020, the Company secured a $50,000 line of credit with a local community bank. As of June 30, 2020, the line had not been used. In April 2020, the Company secured a Small Business Administration Paycheck Protection Program loan for $149,570, which has a term of 2 years at 1% interest. The first payment is expected to be due on or about November 15, 2020. However, an analysis of the terms of the loan leads management to conclude that it is likely that the Company can meet all requirements necessary to have this loan forgiven before any loan payments need to be made, provided the Small Business Administration finalizes the forgiveness application process in the fiscal 1st quarter of 2021.

 

Historically, management has been reluctant to pursue financing at terms that subject the Company to the high costs of debt, or raise money through the sale of equity at prices we believe do not reflect the true value of the Company. 

 

As part of its effort to maintain adequate working capital levels, Amerityre did not declare dividends on its preferred stock since June 2016. These unpaid dividends have accrued in the amount of $25,000 per quarter since that time. The preferred stock automatically converted on May 13, 2020 into 20,000,000 shares of common stock.

 

We continue to have access to a short-term receivable factoring agreement with a third party to sell our receivable invoices. This agreement enables us to sell individual customer invoices for faster cash flow to the Company. As of September 9, 2020, we have not needed to activate this financing option due to increased focus on enforcement of established collection policies and proactive communication with customers.

 

Cash Position, Outstanding Indebtedness, and Future Capital Requirements

 

At September 9, 2019, our total cash balance was $522,272, none of which is restricted; accounts receivables were $303,800; and inventory, net of reserves for slow moving or obsolete inventory, and other current assets was $570,430. Our total indebtedness was $1,219,827 and includes $382,568 in accounts payable, $63,514 in accrued expenses, $2,776 in deferred revenue, $230,583 in current portion of long-term debt, and $540,385 in long-term debt.

 

We continue to take actions to improve our liquidity and access to capital resources. To fully execute the annual strategic business plan discussed during our shareholder meeting in December 2019, we require more capital resources. However, management continues to maintain that an equity financing in the current market environment would be too dilutive and not in the best interests of our shareholders. We have been successful in securing a line of credit with our bank, and additional financing was secured in April 2020 from the U.S. government Paycheck Protection Program, a Small Business Administration loan program initiated to combat the negative effects of COVID-19 on U.S. small businesses. These new sources of liquidity have been key tools to help the Company overcome negative effects of the coronavirus on our business.

 

We are focused on the sale and distribution of profitable product lines. Management continues to look for further financing facilities at affordable terms that will allow the Company to maintain sufficient raw material and finished goods inventory to capitalize on sales growth opportunities. We are limiting our capital expenditures to that required to maintain current manufacturing capability or support key business initiatives identified in our strategic sales plan.

 

In assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments and other obligations.  In connection with the preparation of our financial statements for the period ended June 30, 2020, we have analyzed our cash needs for the next twelve months. We have concluded that our available cash and accounts receivables are sufficient to meet our current minimum working capital, capital expenditure and other cash requirements for this period.  We expect to limit manufacturing and sales operation investments beyond the current level until the negative effects of the COVID-19 pandemic can be quantified and addressed. Although we believe that the economy will ultimately improve over this 12-month period, we cannot assure that the economy will rebound as anticipated. If either the pandemic does not sufficiently abate or the economic consequences are more severe, we may lack sufficient working capital to meet our needs for the next 12 months.

 

The Company has, on occasion, instituted initiatives to incentivize sales of slower-moving inventory through promotional pricing. These programs will continue to be selectively utilized in the upcoming quarters to monetize inventory, promote individual product lines, and improve our cash flow.

 

As of September 9, 2020, the Company has approximately 25,707,000 shares authorized and available for issuance. Although we are reluctant to raise money through stock sales at what we believe are dilutive share prices, these authorized but unissued and unreserved shares of our common stock can be utilized if necessary, to raise new funds.

 

 

Off-Balance Sheet Arrangements

 

We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

 

Cautionary Note Regarding Forward Looking Statements

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the negative impact of COVID-19 on our business and the economy, our profitability and future growth, including with respect to our customer base and our ability to expand our operations and products into international markets, economic conditions in general and in the agricultural market in particular, tariffs imposed by China and the U.S. arising from the current geo-political tension between those jurisdictions, our ability to pursue future financings, our sales prospects in light of new products, increased sales and resulting profits, continued strength of our current polyurethane foam tire market segment, our ability to timely obtain raw materials at reasonable costs and in sufficient quantities to manufacture products and meet consumer demand, our ability to have all or a portion of our Paycheck Protection Program loan forgiven and the amount that will ultimately be forgiven, and liquidity. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. 

 

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in this report. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the duration and significance of negative economic conditions resulting from the COVID-19 pandemic and government, customer and supplier actions in response thereto, demand for our products and the growth rate of our customer base and operations in the wake of the COVID-19 pandemic. Further information on the risks and uncertainties affecting our business is contained in Part I. Item 1A. – Risk Factors. New risk factors emerge from time-to-time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements described in this report, whether as a result of new information, future events, changed circumstances or any other reason after the date this report is filed. 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a “Smaller Reporting Company” as defined under §229.10(f)(1) of Regulation S-K and are not required to provide the information required by this Item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements required by this item are included on the pages immediately following the Index to Financial Statements appearing on page F-1.

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Management’s Report On Internal Control Over Financial Reporting

 

The Company’s management is responsible for the preparation and integrity of our published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include amounts based on judgments and estimates made by our management. The Company’s management also prepared the other information included in the annual report and is responsible for its accuracy and consistency with the financial statements.

 

The Company’s management is responsible for establishing and maintaining a system of internal control over financial reporting, which is intended to provide reasonable assurance to our management and the Board of Directors regarding the reliability of our financial statements. The system includes but is not limited to:

 

 

●  

a documented organizational structure and division of responsibility;

 

 

●  

established policies and procedures, including a code of conduct to foster a strong ethical climate which is communicated throughout the Company;

 

 

●  

regular reviews of our financial statements by qualified individuals; and

 

 

●  

the careful selection, training and development of our people.

 

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Also, the effectiveness of an internal control system may change over time. We have implemented a system of internal control that was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

 

The Company’s management has assessed our internal control system in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on its assessment, the Company’s management has concluded that, as of June 30, 2020, the Company’s system of internal controls over financial reporting was effective in providing reasonable assurance based on those criteria.  The Company used the 2013 version of the COSO framework.

 

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this annual report.

  

 Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive and Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

ITEM 9B. OTHER INFORMATION

 

None. 

 

 

PART III

 

The information called for by Part III of Form 10-K (Item 10—Directors, Executive Officers and Corporate Governance of the Registrant, Item 11—Executive Compensation, Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, Item 13—Certain Relationships and Related Transactions, and Director Independence, and Item 14—Principal Accounting Fees and Services) is incorporated by reference from our Proxy Statement related to our 2020 Annual Meeting of Shareholders, which will be filed with the SEC not later than October 28, 2020 (120 days after the end of the fiscal year covered by this Annual Report on Form 10-K).

 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)           Documents filed with this report.

 

1.                Financial Statements:

 See Index to Financial Statements on page F-1

 

2.                Financial Statement Schedules:

 Financial statement schedules are omitted because they are not required or are not applicable or the required information is shown in the financial statements or notes thereto.

 

3.                Exhibits:

 The exhibits to this report are listed on the Exhibit Index below.

 

(b)           Description of exhibits

 

        Incorporated by Reference  

Filed or

Furnished

Exhibit #   Exhibit Description  

Form

 

Date

 

Number

 

Herewith

3.1

 

Articles of Incorporation of the Company

 

8-A12G

 

10/28/02

 

3.01

 

 

3.2

 

Certificate of Amendment to the Articles of Incorporation of the Company

 

8-A12G

 

10/28/02

 

3.01

 

 

3.3

 

Certificate of Amendment to the Articles of Incorporation

 

10-Q

 

2/14/13

 

3(i)

 

 

3.4

 

Certificate of Amendment to the Articles of Incorporation

  

8-K

 

6/1/20

 

3.1

 

 

3.5

 

Bylaws of the Company

 

8-K

 

9/25/13

 

3.02

 

 

3.6

 

Certificate of Amendment to the 2013 Series Convertible Preferred Stock

 

8-K

 

4/28/20

 

3.1

 

 

4.1

 

Description of securities registered under Section 12 of the Exchange Act of 1934

             

Filed

10.1

 

Employment Agreement between the Company and Michael Sullivan

 

8-K

 

12/20/19

 

5.02

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

Filed

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

Filed

32.1

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

Filed

32.2

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

Filed

101 INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

101 SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

Filed

101 CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

Filed

101 DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

Filed

101 LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

Filed

101 PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

Filed

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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:  September 11, 2020

 

AMERITYRE CORPORATION

 

 

 

By:

 

 

 

/s/ Michael F. Sullivan

 

/s/ Lynda R. Keeton-Cardno

 

Michael F. Sullivan

Chief Executive Officer

(Principal Executive Officer)

 

Lynda R. Keeton-Cardno

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 11th day of September 2020.

 

/s/ Michael F. Sullivan

 

/s/ David Clark

 

Michael F. Sullivan

Chairman of the Board

 

 

David Clark

Director

 

 

 

 

 

/s/ David Hollister

 

/s/ George Stoddard

 

David Hollister

Director

 

George Stoddard

Director

 

 

 

/s/ Terry Gilland

 

 

 

Terry Gilland

Director

 

 

 

 

 

 

AMERITYRE CORPORATION

 

INDEX TO FINANCIAL STATEMENTS

 

Audited Financial Statements

 

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Balance Sheets as of June 30, 2020 and 2019

F-3

 

 

Statements of Operations for the years ended June 30, 2020 and 2019

F-4

 

 

Statements of Stockholders' Equity for the years ended June 30, 2020 and 2019

F-5

 

 

Statements of Cash Flows for the years ended June 30, 2020 and 2019

F-6

 

 

Notes to Financial Statements

F-7

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and
Stockholders of Amerityre Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Amerityre Corporation (the Company) as of June 30, 2020, and 2019, and the related statements of operation, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

Haynie & Company

We have served as the Company’s auditor since 2016.

Salt Lake City, Utah

September 11, 2020

 

 

 

AMERITYRE CORPORATION

Balance Sheets

 

   

June 30, 2020

   

June 30, 2019

 

ASSETS

               
                 

CURRENT ASSETS

               

  Cash

  $ 666,756     $ 557,026  

  Accounts receivable

    292,642       277,690  

  Current inventory – net

    493,892       448,407  

  Prepaid and other current assets

    86,467       82,596  

     Total Current Assets

    1,539,757       1,365,719  
                 

RIGHT TO USE LEASE ASSETS, OPERATING, NET

    692,007       845,256  
                 

PROPERTY AND EQUIPMENT

               

  Molds and models

    583,611       583,611  

  Equipment

    3,037,474       3,003,797  

  Furniture and fixtures

    73,423       66,173  

  Software

    247,610       247,610  

  Less – accumulated depreciation

    (3,816,004

)

    (3,763,672

)

     Total Property and Equipment - net

    126,114       137,519  
                 

OTHER ASSETS

               

  Patents and trademarks – net

    92,905       110,601  

  Non-current inventory

    300,778       269,824  

  Deposits

    11,000       11,000  

     Total Other Assets

    404,683       391,425  

TOTAL ASSETS

  $ 2,762,561     $ 2,739,919  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

CURRENT LIABILITIES

               

  Accounts payable and accrued expenses

  $ 691,962     $ 649,046  

  Current portion of long-term debt

    59,440       13,609  

  Current portion of lease liability

    145,800       141,000  

 Deferred revenue

    12,192       19,408  

     Total Current Liabilities

    909,394       823,063  
                 

  Long-term debt, net of current portion

    153,996       75,418  

  Long-term lease liability, net of current portion

    448,200       594,000  

TOTAL LIABILITIES

    1,511,590       1,492,481  
                 

COMMITMENTS AND CONTINGENCIES  

   
 
     
 
 
                 

STOCKHOLDERS’ EQUITY

               

  Preferred stock: 5,000,000 shares authorized of $0.001 par value, -0- and 2,000,000 shares issued and outstanding, respectively

    -       2,000  

  Common stock: 100,000,000 shares authorized of $0.001 par value, 70,172,868 and 47,727,867 shares issued and outstanding, respectively

    70,173       47,728  

  Additional paid-in capital

    62,719,473       62,695,035  

  Stock payable

    -       583  

  Accumulated deficit

    (61,538,675

)

    (61,497,908

)

     Total Stockholders’ Equity

    1,250,971       1,247,438  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 

  $ 2,762,561     $ 2,739,919  

 

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

 

 

AMERITYRE CORPORATION

Statements of Operations

 

   

For the Years Ended June 30,

 
   

2020

   

2019

 
                 

NET SALES

  $ 3,941,204     $ 3,590,217  
                 

COST OF REVENUES

    2,838,667       2,536,581  
                 

GROSS PROFIT

    1,102,537       1,053,636  
                 

EXPENSES

               

 Research and development

    117,525       91,680  

 Sales and marketing

    192,951       197,545  

 General and administrative

    744,525       746,876  
                 

   Total Expenses

    1,055,001       1,036,101  
                 

INCOME FROM OPERATIONS

    47,536       17,535  
                 

OTHER (EXPENSE)/ INCOME

               

  Interest expense

    (1,223

)

    (3,658

)

  Loss on assets, due to impairment

    (17,226

)

    -  

  Other income

    13,446       27,135  
                 

   Total Other (Expense) Income

    (5,003

)

    23,477  
                 

NET INCOME

    42,533       41,012  
                 

  Preferred Stock Dividend

    (83,300

)

    (100,000

)

                 

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS

  $ (40,767

)

  $ (58,988

)

                 

BASIC AND DILUTED LOSS PER SHARE

  $ (0.00

)

  $ (0.00

)

                 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

    51,123,318       45,897,154  

 

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

 

 

AMERITYRE CORPORATION

Statements of Stockholders’ Equity

 

   

Preferred Stock

   

Common Stock

   

Additional

Paid in

   

Stock

   

Accumulated

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Payable

   

Deficit

 

Balance, June 30, 2018

    2,000,000       2,000       44,476,346       44,476       62,638,754       14,601       (61,438,919

)

Preferred stock dividends

    -       -       -       -       -       -       (100,000

)

Stock option based compensation expense – options

    -       -       -       -       3,868       -       -  

Stock based compensation expense for employee and Board of Director service

    -       -       3,251,521       3,252       52,413       (14,017

)

    -  

Net income for the year ended June 30, 2019

    -       -       -       -       -       -       41,012  

Balance, June 30, 2019

    2,000,000       2,000       47,727,867     $ 47,728     $ 62,695,035     $ 583     $ (61,497,908

)

Preferred stock dividends

    -       -       -       -       -       -       (83,300

)

Preferred stock conversion to common stock

    (2,000,000

)

    (2,000

)

    20,000,000       20,000       (18,000

)

    -       -  

Stock based compensation expense for employee and Board of Director service

    -       -       2,445,001       2,445       42,438       (583

)

    -  

Net income for the year ended June 30, 2020

    -       -       -       -       -       -       42,533  

Balance, June 30, 2020

    -     $ -       70,172,868     $ 70,173     $ 62,719,473     $ -     $ (61,538,675

)

 

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

 

 

 

AMERITYRE CORPORATION

Statements of Cash Flows

 

   

For the Years Ended June 30,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 42,533     $ 41,012  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization expense

    238,838       90,799  

Stock based compensation, employee and Board of Directors

    44,300       38,015  

Loss on assets, due to impairment

    17,226       -  

Changes in operating assets and liabilities:

               

Accounts receivable

    (14,952

)

    132,735  

Prepaid and other current assets

    (3,870

)

    1,570  

Inventory and change in inventory reserve

    (93,667 )     4,945  

Accounts payable and accrued expenses

    (40,383

)

    176,887  

              Deferred revenue

    (7,216

)

    (1,304

)

               Lease liability, operating lease

    (141,000

)

    -  

       Net Cash Provided by Operating Activities

    41,809       484,659  

CASH FLOWS FROM INVESTING ACTIVITIES

               

  Purchase of property and equipment

    (56,488

)

    (26,202

)

  Cash paid for leasehold improvements of an operating lease asset

    -       (78,302

)

       Net Cash Provided by/ (Used in) Investing Activities

    (56,488

)

    (104,504

)

CASH FLOWS FROM FINANCING ACTIVITIES

               

   Proceeds from notes payable

    149,570       -  

   Payments on notes payable

    (25,161

)

    (36,983

)

       Net Cash Used by Financing Activities

    124,409       (36,983

)

NET INCREASE IN CASH

    109,730       343,172  

CASH AT BEGINNING OF YEAR

    557,026       213,854  

CASH AT END OF YEAR

  $ 666,756     $ 557,026  

 

NON-CASH FINANCING ACTIVITIES

               
                 

   Interest paid

  $ 1,223     $ 3,658  

   Income taxes paid

  $ -     $ -  

 

SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES

               
                 

Accrued preferred stock dividends

  $ 83,300     $ 100,000  

Issuance of stock for stock payable

  $ 583     $ 14,017  

Preferred stock conversion to common stock

  $ 2,000     $ -  

Application of last payment of lease liability prepaid in previous period

  $ -     $ 726  

Reclassifications of accrued expense to stock payable

  $ -     $ 7,500  

Recognition of operating lease right to use asset and related liability

  $ -     $ 735,000  

 

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

 

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

Amerityre Corporation (the “Company”) incorporated as a Nevada corporation on January 30, 1995.  The Company was organized to take advantage of existing proprietary and non-proprietary technology available for the manufacturing of specialty tires. The Company engages in the manufacturing, marketing, distribution and sales of “flat free” specialty tires and tire-wheel assemblies and currently is manufacturing these tires at its facility located in Boulder City, Nevada.

 

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a June 30 year-end.

 

Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

 

Concentrations of Risk

 

The Company places its cash accounts with high credit quality financial institutions and generally limits the amount of credit exposure to the amount in excess of the FDIC insurance coverage limit of $250,000 for interest bearing accounts.  As of June 30, 2020 and 2019, the Company had one account exceeding this amount at each year end.  The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk to cash.

 

Credit losses, if any, have been provided for in the financial statements and are based on management’s expectations. The Company’s accounts receivables are subject to potential concentrations of credit risk. The Company does not believe that it is subject to any unusual risks or significant risks in the normal course of its business.

 

We have one customer who accounted for 27% of our sales for the year ended June 30, 2020. This same customer accounted for 16% of our sales for the year ended June 30, 2019

 

Cash and Cash Equivalents

 

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.  As of June 30, 2020 and 2019, respectively, we had no cash equivalents.

 

Trade Receivables

 

We generally charge-off trade receivables that are more than 120 days outstanding as bad-debt expense, unless management believes the amount to be collectable. The charge-off amounts are included in general and administrative expenses.   As of June 30, 2020 and 2019, the reserve for uncollectible accounts was $0, respectively.  

 

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

Inventory

 

Inventory is stated at the lower of cost (computed on a first-in, first-out basis) or net realizable value.  The inventory consists primarily of chemicals, finished goods produced in our plant and products purchased for resale.

 

   

June 30,

 
   

2020

   

2019

 

Raw materials

  $ 263,573     $ 221,767  

Finished goods

    618,104       557,977  

Inventory reserve

    (87,006

)

    (61,513

)

Inventory – net (current and long term)

  $ 794,671     $ 718,231  

 

Our inventory reserve reflects items that were deemed to be defective or obsolete based on an analysis of all inventories on hand.

 

In fiscal years 2020 and 2019, the Company critically reviewed all slow moving inventory to determine if defective or obsolete.  If not defective or obsolete, but slow moving, we presented these items as non-current inventory, although all inventory is ready and available for sale at any moment.  

 

For those items that are spare maintenance materials or parts kept on hand as backup components of major production lines, or “store inventories”, the Company capitalizes the amount if above our capitalization policy for property and equipment. 

 

Right to Use Assets – Leases

 

We account for all Company leases following a multi-step analysis process which includes:

 

 

Analysis of all agreements to determine if a lease exists, inclusive of this analysis is the length of the agreement and amount of the resulting liability. Based on this we have determined the following:

 

Assets with a length less than 1 year are not considered leases and,

 

Assets with a value of less than our capitalization policy of $2,500 are not considered a lease.

 

Items that do not qualify as leases are treated similar to service agreements and expensed as incurred.

 

Once an item qualifies for lease accounting, we analyze the item for operating or finance lease treatment with the major difference that finance leases include interest as a term note would. In the case that a finance lease does not have a stated interest rate, we will impute the interest.

 

Both operating and finance leases result in a right to use asset and related lease liability on our balance sheet.

 

Items that enhance a lease asset, such as leasehold improvements, are capitalized with the related right to use asset. Amortization of that improvement is based on all known facts inclusive of the lease term. 

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

Property and Equipment

 

Property and equipment are stated at cost, generally with a cost of $2,500 or greater. Expenditures for small tools, ordinary maintenance and repairs are charged to operations as incurred. Major additions and improvements are capitalized. When we retire or dispose of assets, the costs and accumulated depreciation or amortization are removed from the respective accounts and we recognize any related gain or loss. Major replacements that substantially extend the useful life of an asset are capitalized and depreciated. Assets which qualify for capital lease treatment and follow our property and equipment capitalization policy are also capitalized. Depreciation and amortization, collectively depreciation expense, is computed using the straight-line method over estimated useful lives as follows:

 

Leasehold improvements

5 years, or over lease term

Equipment

5 to 10 years

Furniture and fixtures

7 years

Software

2 years

 

Depreciation expense for the years ended June 30, 2020 and 2019 was $67,893 and $59,995, respectively.

 

Patents and Trademarks

 

Patent and trademark costs have been capitalized at June 30, 2020, totaling $487,633 with accumulated amortization of $394,728 for a net book value of $92,905. Patent and trademark costs capitalized at June 30, 2019, totaled $487,633 with accumulated amortization of $377,032 for a net book value of $110,601.

 

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 amortized. Amortization begins once the patents have been issued. As of June 30, 2020 and 2019, respectively, there were no pending patents.  Annually, pending or expired patents are inventoried and analyzed, which resulted in the recognition of a loss on abandonment, expiration or retirement of patents and trademarks of $-0- for the years ended June 30, 2020 and 2019, respectively.

 

Amortization expense for the years ended June 30, 2020 and 2019 was $17,696 and $22,004 respectively.  The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis utilizing the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other.  We consider the following indicators, among others, when determining whether or not our patents are impaired:

 

 

●  

any changes in the market relating to the patents that would decrease the life of the asset;

 

●  

any adverse change in the extent or manner in which the patents are being used;

 

●  

any significant adverse change in legal factors relating to the use of the patents;

 

●  

current period operating or cash flow loss combined with our history of operating or cash flow losses;

 

●  

future cash flow values based on the expectation of commercialization through licensing; and

 

●  

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.

 

The estimated amortization expense, based on current intangible balances, for the next five fiscal years beginning July 1, 2020 is as follows:

 

2021

 

$

16,927

 

2022

 

$

17,763

 

2023

 

$

13,896

 

2024

 

$

16,337

 

2025

 

$

7,464

 

Thereafter

 

$

20,518

 

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

Financial and Derivative Instruments

 

The Company periodically enters into financial instruments. Upon entry, each instrument is reviewed for debt or equity treatment.  In the event that the debt or equity treatment is not readily apparent, FASB ASC 480-10-S99 is consulted for temporary treatment.  Once an event takes place that removes the temporary element the Company appropriately reclassifies the instrument to debt or equity.

 

The Company periodically assesses its financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt, equity, and common stock equivalents in excess of available authorized common shares, and contracts with variable share settlements.  In the event of derivative treatment, we mark the instrument to market.

 

Stock-Based Compensation

 

We account for stock-based compensation under the provisions of FASB ASC 718, Compensation – Stock Compensation.  Our financial statements as of and for the fiscal years ended June 30, 2020 and 2019 reflect the impact of FASB ASC 718. Stock-based compensation expense recognized under FASB ASC 718 for the fiscal years ended June 30, 2020 and 2019 was $44,300 and $38,015, respectively, related to employee stock options and employee stock grants.

 

FASB ASC 718 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 our Statement of Operations. Stock-based compensation expense recognized in our Statements of Operations for fiscal years ended June 30, 2020 and 2019 assume all awards will vest; therefore no reduction has been made for estimated forfeitures.

 

Basic and Fully Diluted Net Loss per Share

 

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

 

The Company’s outstanding stock options, warrants, stock grants not yet earned and shares issuable upon conversion of outstanding convertible notes, if any, have been excluded from the diluted net loss per share calculation. The Company excluded a total of 2,870,000 and 3,970,000 common stock equivalents for the years ended June 30, 2020 and 2019, respectively because they are anti-dilutive.

 

Income Taxes

 

FASB ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of FASB ASC 740, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740.

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  Net deferred tax assets consist of the following components as of June 30, 2020 and 2019:

 

   

2020

   

2019

 

Deferred tax assets:

               

  Net operating loss (“NOL”) carryover

  $ 8,892,000     $ 8,946,000  

  Section 1231 loss carryover

    200       19,000  

  Inventory reserve

    18,300       12,900  

  R & D carryover

    207,100       207,100  

Related party accruals

    4,300       7,400  

Deferred revenue

    2,600       4,100  

Deferred tax liabilities:

               

  Depreciation

    29,700       (9,400

)

Valuation allowance

    (9,154,200

)

    (9,187,100

)

Net deferred tax asset

  $ -     $ -  

 

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended June 30, 2020 and 2019 due to the following:

 

   

2020

   

2019

 

Book income (loss) tax effected

  $ 8,900     $ 8,600  

Depreciation

    6,200       6,800  

Nondeductible expenses

    9,300       8,000  

Inventory reserve

    5,400       100  

Deferred revenue

    (1,500

)

    (300

)

Related party accruals

    (3,000

)

    7,400  

Loss on asset impairment

    3,800       -  

Valuation allowance

    (29,100

)

    (30,600

)

    $ -     $ -  

 

At June 30, 2020, the Company had net operating loss carry-forwards of approximately $42,343,000 that may be offset against future taxable income. Effective with tax years beginning June 30, 2018, future net operating losses may be offset against future taxable income, subject to annual limitations. No tax benefit has been reported in the June 30, 2020 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

NOL’s arising in tax years beginning in 2018 or earlier are subject to a 20 year limit. Because Amerityre’s NOL’s were generated from fiscal year end June 30, 2000 to fiscal year end June 30, 2016, there will be some NOL’s expiring each year through fiscal year 2036. The following table shows the amounts that would expire per year it not utilized:

 

2021

 

 

2,655,947

 

2022

 

 

2,523,700

 

2023

 

 

2,568,876

 

2024

 

 

4,921,923

 

2025

 

 

9,912,014

 

2026

 

 

4,478,509

 

2027

 

 

3,954,682

 

2028

 

 

3,434,035

 

2029

 

 

2,893,639

 

2030

 

 

1,161,192

 

2031

 

 

1,027,013

 

2032

 

 

780,467

 

2033

 

 

1,035,050

 

2034

 

 

651,035

 

2035

 

 

237,572

 

2036

 

 

107,053

 

 

NOL’s arising in tax years beginning in 2018 or later will be subject to 80% of taxable income limitations. NOL carryforwards arising in year beginning in 2018 or earlier are not subject to these limitations.

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.

 

The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of June 30, 2020 the Company had no accrued interest or penalties related to uncertain tax positions.

 

The Company files income tax returns in the U.S. federal jurisdiction.  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2015.

 

Fair Value Accounting

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

Revenue Recognition

 

The majority of our revenue is derived from short-term sales contracts. We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, which we adopted on July 1, 2017, using the modified retrospective method. This change in revenue principle was applied to all contracts effective on the adoption date above.

 

Revenue for our products is recognized at the time in which our performance obligation is satisfied which we have defined as “control” of the product by the customer. “Control” is defined as a customer having “rights/obligations of physical control over the product or has the rights and intention to control the product.” Based on the terms of our contracts, a customer’s “control” is based on analysis of the following; (i) when a customer arranges their own shipping, and once the product has left our dock, Amerityre recognizes revenue for the product.  In effect by arranging their own shipping the customer is “taking control” of the product when it leaves our warehouse; or (ii) when a customer does not arrange their own shipping, we cannot recognize revenue until it is delivered and the customer takes “control” of the product. Due to a very robust process to determine when control, as described above, occurs, there is limited judgement applied in the above process. In cases where we enter into sales arrangements with customers for non-standard products, such as custom formulation materials, revenue items are recognized as separate and distinct contracts with revenue recognition occurring upon acceptance by the customer. These types of transactions have been historically rare and non-routine in nature. We had no revenue from these types of transactions in either fiscal year 2020 or 2019.

 

This establishes a “deferred revenue” event until such time as delivery of the product has been completed and we have proof from the shipper of the delivery (and change in control).

 

We invoice the customer at shipping, starting the accounts receivable process.  Our Company collection policies on products does not change (this includes any prepayment and credit establishment processes). Nor do our refund and return policies change where credit is provided on account for the next purchase as no refunds are given.

 

Deferred revenue was $12,192, inclusive of $120 of shipping and handling revenue (see below), as of June 30, 2020.  Deferred revenue was $19,408, inclusive of $1,993 of shipping and handling revenue, as of June 30, 2019. 

 

Shipping and Handling

 

Shipping and Handling Fees require that freight costs charged to customers be classified as revenues. Freight expenses are included in costs of sales and are recognized as incurred.  However, due to our adoption of ASC 606 as discussed above, we defer the revenues of shipping and handling until the related product revenue is also recognized.

 

The result of this accounting is a deferral of $120 as of June 30, 2020 and $1,993 as of June 30, 2019.

 

Product Warranties

 

The Company’s standard sales terms include a limited warranty on workmanship and materials to the original purchaser if items sold are used in the service for which they are intended. Specifically the Company warrants wheels, bearings, and bushings for one year from the date of purchase. Due to historical warranty results, we recognize warranty expense based on actual warranty recognition as historical rates for accrual are inconsistent and infrequent.  

 

Advertising

 

The Company follows the policy of charging the costs of advertising to expense as incurred.  Advertising expense for the years ended June 30, 2020 and 2019 was $3,000 and $3,090, respectively.

 

Sales Tax

 

In accordance with FASB ASC 605-45, formerly EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Government Authorities Should Be Presented in the Income Statement, the Company accounts for sales taxes and value added taxes imposed on its good and services on a net basis in the Statement of Operations.

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

Recent Accounting Pronouncements

 

Financial Accounting Standards Board, Accounting Standards Updates which are not effective until after April 30, 2020, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

NOTE 2 – DEBT

 

A former board member, Silas O. Kines, who passed away on January 11, 2012, was also the principal owner of Forklift Tire of Florida and K-2 Industrial Tire, Inc.  In accordance with the Commission Agreement with Forklift Tire of Florida, dated February 2, 2011, between Amerityre Corporation and K-2 Industrial Tire, Inc., K-2 is due a five percent (5%) commission on all forklift tire sales.  In exchange for the forklift models transferred to Amerityre under that agreement, the first $96,000 in commission payments will be used to extinguish the long term liability recorded on the transaction.  As of June 30, 2020, $2,000 and $61,867 (2019, $2,000 and $62,089) were recorded for the current and long-term portion, respectively, of the related liability.

 

In February 2020, the Company secured a $50,000 line of credit from its bank for working capital coverage. As of June 30, 2020 the debt associated with this line was $0.

 

In April 2020, the Company secured a loan from the Small Business Administration Paycheck Protection Program. The loan amount is $149,570 and has a term of 2 years at 1% interest. Per the terms of the loan, the first payment is expected on or about November 15, 2020, unless the loan is fully forgiven. All or a portion of the loan can be forgiven to the extent that at least 60% of the loan proceeds are used for payroll costs and the Company does not reduce its total number of employees or reduce employee salaries or wages by 25% or more during the covered period of the loan.

 

In June 2016, the Company executed a term note with U.S. Bank to finance critical manufacturing equipment and operating enhancements.  Manufacturing equipment of approximately $29,000 was placed into service in July 2016.  The majority of the remaining operating enhancements were placed in service in fiscal year 2017.  Total amount financed was $55,068, at 5.59% interest, with payments of $1,059 due for 60 months starting July 2016. In the 3rd quarter of fiscal year 2020 we were able to pay off this term bank financing without any pre-payment penalty.

 

In July 2016, the Company executed a term note with U.S. Bank to finance critical plant facility equipment which was placed into service in July 2016.  The total amount financed was $37,666 at 5.59% interest, with payments of $720 due for 60 months starting October 2016. In the 4th quarter of fiscal year 2019 we were able to pay off this term bank financing without any pre-payment penalty.

 

   

Payments due by period

 
   

Total

   

Less than

1 year

   

1 to 3 years

   

3 to 5 years

   

After

5 years

 
                                         

Paycheck Protection Program

  $ 149,570     $ 58,190     $ 91,380     $ -     $ -  

 

NOTE 3 – RIGHT TO USE LEASE ASSETS

 

Based on our lease accounting policy, we have identified the following operating leases. As of June 30, 2020, we have no financing leases:

 

   

For the Years Ended June 30,

 
   

2020

   

2019

 

Facility lease

  $ 594,000     $ 735,000  

Leasehold improvements related to our facility

    280,376       280,376  

Accumulated amortization – leasehold improvements

    (182,369

)

    (170,120

)

Right to use leased assets, operating, net

  $ 692,007     $ 845,256  

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

In March 2019, we negotiated a five year extension of the lease on our executive office and manufacturing facility located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square foot building.  We currently occupy all 49,200 square feet, inclusive of approximately 5,500 square feet of office space, situated on approximately 4.15 acres.  Our remaining liability under this agreement is $629,250 payable at amounts ranging from $12,150 to $12,600 a month until June 30, 2024.

 

Total lease costs for the years ended June 30, 2020 and 2019 was $141,000 and $138,000, respectively.

 

NOTE 4 – STOCK TRANSACTIONS

 

During the years ended June 30, 2020 and 2019, the Company had the following stock transactions:

 

On December 13, 2013, the Board of Directors approved a resolution designating 2,000,000 shares of preferred stock, $0.001 par value, as 2013 Series Convertible Preferred Stock (the “2013 Series Shares”).  On December 18, 2013, the Company filed a Certificate of Designation with the Nevada Secretary of State for the 2013 Series Convertible Preferred Stock, which was approved by the Nevada Secretary of State on December 19, 2013.  The 2013 Series Shares have voting rights only on any matters directly affecting the rights and privileges of the 2013 Series Shares.  The 2013 Series Shares have a liquidation preference amounting to a return of the initial par value per share only, with no further participation in any distributions to other shareholders.  Any issued 2013 Series Shares will convert into 20 million shares of the Company’s common stock (1) at any time at the election of the holder; or (2) automatically on the date that is six years after the date of original issuance of the shares or April 2020.  Lastly, the 2013 Series Shares contain a quarterly cash dividend rate of 1.25% of the original issuance price of $1.00 per share or $83,300 for year ended June 30, 2020 and $100,000 for the year ended June 30, 2019, respectively.  In 2016, management notified our preferred shareholder that we are suspending future payments of their preferred cash dividend payments, so the Company can increase its working capital levels. Accrued preferred shareholder dividends were $408,300 as of June 30, 2020 and $325,000 as of June 30, 2019.

 

On April 28, 2020, the Company filed Certificate of Amendment with the Nevada Secretary of State amending the 2013 Series Shares to remove section 3.06 on limitation on conversions. On May 13, 2020 the holder of the 2013 Series Shares converted all 2,000,000 preferred shares into 20,000,000 shares of common stock.

 

On May 28, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State increasing its authorized shares of common stock from 75,000,000 to 100,000,000.

 

On January 21, 2018, 60,000 shares were granted to the Company’s Chief Financial Officer as part of her employment renewal.  The shares are valued at $0.02, the closing stock price as of January 21, 2018, and vested ratably through December 2018.  In addition to the stock, her base compensation was adjusted to $36,000 per annum. All of these shares have been issued in fiscal year 2019.

 

On May 24, 2018 the Board of Director’s approved a partial payment of Chief Executive Officer’s 2017 bonus in stock.  This partial payment of $10,000 resulted in the issuance of 500,000 shares of stock.

 

On July 20, 2018, in association with the Company’s year-end close and results, the Compensation Committee of the Board approved a discretionary bonus to the Company’s Chief Executive Officer of which half was paid in stock. This resulted in 375,000 shares of stock being issued in fiscal year 2019.

 

On September 26, 2018, the Company replaced and extended the Chief Executive Officer’s Employment Agreement.  The Agreement extended his term of employment to December 31, 2019.  Inclusive in this new Agreement is a stock award of 1.98 million shares of the Company’s common stock vesting ratably over 12 months (January 2019 – December 2019), valued at a fixed rate of $0.0163, the closing stock price on September 28, 2018.  As of June 30, 2020, all of these shares have vested and were issued.

 

As of November 28, 2018, 350,000 shares were granted to the Company’s Board of Director’s as Board compensation for the term ending November 2019.  Each non-executive Board member receives 75,000 shares, with the Audit Committee Chair receiving 125,000 shares.  The shares vest ratably December 2018 – November 2019, valued at $0.02 the closing stock price on November 28, 2018.  As of June 30, 2020, all of these shares have vested and were issued.

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

On January 2, 2019, 60,000 shares were granted to the Company’s Chief Financial Officer as part of her employment renewal.  The shares are valued at $0.02, the closing stock price as of January 2, 2019 and vest ratably through December 2019.  As of June 30, 2020, all of these shares have vested and were issued.

 

On December 18, 2019, the Company renewed the Chief Executive Officer’s Employment Agreement.  The new Agreement extends his term of employment to December 31, 2020.  Inclusive in this new Agreement is a stock award of 1.98 million shares of the Company’s common stock vesting ratably over 12 months (January 2020 – December 2020), valued at a fixed rate of $0.0192, the average price per share of the Company’s common stock for the period December 24, 2019 to December 31, 2019. As of June 30, 2020, 990,000 shares of stock vested and were issued.

 

On January 22, 2020, 60,000 shares of common stock were granted to the Company’s Chief Financial Officer as part of her employment renewal.  The shares are valued as of January 21, 2020 and vest ratably on a quarterly basis through December 2020.  No additional changes were made to her compensation on renewal of her employment. As of June 30, 2020, 30,000 shares of stock vested and were issued.

 

On January 24, 2020, 460,000 shares of common stock were granted to the Company’s Board members as compensation for the term ending November 2020.  Each non-executive Board member receives 93,750 shares, with the Audit Committee Chair receiving 156,250 shares and the Compensation Committee Chair receiving 116,250 shares.  The shares vest ratably on a monthly basis over the January 2020 – November 2020 period. The shares are valued at $0.02, the closing price per share of our common stock on January 24, 2020. As of June 30, 2020, 230,000 shares of stock vested and were issued.

 

NOTE 5 – STOCK OPTIONS

 

General Option Information

 

On April 25, 2017, the Board of Directors cancelled the “2015 Omnibus Stock Option and Award Plan” as all options and stock awards under this plan had been granted and adopted the “2017 Omnibus Stock Option and Award Plan” which contains provisions for up to 3,000,000 stock options and stock awards to be granted to employees, consultants and directors.

 

After an analysis of the Company’s stock option expirations and in association with the Company’s desire to retain its Chief Executive Officer, the Board of Directors approved the termination of the 2017 Omnibus Stock Option and Award Plan on December 4, 2019. Any stock instrument available but unencumbered under this plan was also released.

 

On December 4, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan which contains provisions for up to 2,500,000 stock-based instruments to be granted to employees, consultants and directors. 

 

A summary of the status of our outstanding stock options as of June 30, 2020 and June 30, 2019 and changes during the years then ended is presented below: 

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

 

 

 

 

 

Weight Average

 

 

Intrinsic

 

 

 

 

 

 

Weight Average

 

 

Intrinsic

 

 

 

Shares

 

 

Exercise Price

 

 

Value

 

 

Shares

 

 

Exercise Price

 

 

Value

 

Outstanding beginning of period

 

 

3,970,000

 

 

$

0.12

 

 

 

 

 

 

 

3,730,000

 

 

$

0.13

 

 

 

 

 

Granted

 

 

-

 

 

$

0.00

 

 

 

 

 

 

 

480,000

 

 

$

0.10

 

 

 

 

 

Expired/Cancelled

 

 

(1,100,000

)

 

$

0.14

 

 

 

 

 

 

 

(240,000

)

 

$

0.10

 

 

 

 

 

Exercised

 

 

-

 

 

$

0.00

 

 

 

 

 

 

 

-

 

 

$

0.00

 

 

 

 

 

Outstanding end of period

 

 

2,870,000

 

 

$

0.12

 

 

$

-

 

 

 

3,970,000

 

 

$

0.12

 

 

$

-

 

Exercisable

 

 

2,870,000

 

 

$

0.12

 

 

$

-

 

 

 

3,970,000

 

 

$

0.12

 

 

$

-

 

  

 

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2020 and 2019

 

The following table summarizes the range of outstanding and exercisable options as of June 30, 2020:

 

 

 

 

 

Outstanding

 

 

Exercisable

 

Range of

Exercise Prices

 

 

Number Outstanding

at

June 30, 2020

 

 

Weighted

Average

Remaining

Contractual Life

 

 

Weighted

Average

Exercise Price

 

 

Number

Exercisable at

June 30, 2020

 

 

Weighted

Average Remaining

Contractual Life

 

$

0.08

 

 

 

150,000

 

 

 

1.42

 

 

$

0.08

 

 

 

150,000

 

 

 

1.42

 

$

0.10

 

 

 

1,920,000

 

 

 

0.69

 

 

$

0.10

 

 

 

1,920,000

 

 

 

0.69

 

$

0.17

 

 

 

800,000

 

 

 

0.92

 

 

$

0.17

 

 

 

800,000

 

 

 

0.92

 

 

 

 

 

 

2,870,000

 

 

 

 

 

 

 

 

 

 

 

2,870,000

 

 

 

 

 

 

NOTE 6 – SUBSEQUENT EVENTS

 

The Company has evaluated all activity through September 11, 2020 (the date the Financial Statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.

 

 

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Amerityre (QB) (USOTC:AMTY)
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From Nov 2020 to Dec 2020 Click Here for more Amerityre (QB) Charts.
Amerityre (QB) (USOTC:AMTY)
Historical Stock Chart
From Dec 2019 to Dec 2020 Click Here for more Amerityre (QB) Charts.