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, | |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto | |
Commission file number000-50053
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 Section12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
Securities registered pursuant to Section12(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 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 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES☒ ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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 13, 201719, 2022 there were 43,312,10775,787,868 shares of common stock of the Registrant outstanding.
As of December 31, 2016,2021, the Registrant's most recent second quarter, there were 41,492,787 shares of common stock of the Registrant held by non-affiliates outstanding with a market value $414,928$2,074,639 (based upon the closing price of $0.01$0.05 per share of common stock as quoted on the NASD: OTCQB Marketplace)OTCQB).
Documents Incorporated by Reference
Portions of the Registrant's definitive proxy statement, which will be issued in connection with the 20172021 Annual Meeting of Shareholders of Amerityre Corporation, are incorporated by reference into Part III of this Annual Report on Form 10-K.
AMERITYRE CORPORATION
2022 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page | ||
PART I | ||
ITEM 1. | 5 | |
ITEM 1A. | 10 | |
ITEM 1B. | 18 | |
ITEM 2. | 18 | |
ITEM 3. | 18 | |
ITEM 4. | 18 | |
PART II | ||
ITEM 5. | 19 | |
ITEM 6. | 19 | |
ITEM 7. | 19 | |
ITEM 7A. | 24 | |
ITEM 8. | 24 | |
ITEM 9. | 24 | |
ITEM 9A. | 24 | |
ITEM 9B. | 25 | |
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. | 27 | |
AMERITYRE CORPORATION
2022 ANNUAL REPORT ON FORM 10-K
This report contains "forward-looking statements"“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,"“believes,” “expects,” “may,” “will,” “should,” “anticipates,” or "intends"“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“Part I. Item 1A. Risk Factors"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 under the name American Tire Corporation and changed its name to Amerityre Corporation in December 1999.1995.
Amerityre engages in the research and development, manufacturing,manufacture, and sale of solid polyurethane tires. We believe that we have developed unique polyurethane formulations that allow us to make products with superior performance characteristics, in the areas ofsuch as high abrasion resistance, increased energy efficiency, and higher load-bearing capabilities, in comparisonwhen compared to conventional rubber tires and competitive 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 polyurethanepolyurethane-based technologies, we believeproduce tires can be produced whichthat last longer, are less susceptible to failure and are friendlyfriendlier to the environment. environment than conventional rubber tires.
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 performancehigh-performance polyurethane elastomer with high load-bearing capabilities for high dutyapplications. We are concentrating on three segments of the tire market: closed-cell polyurethaneClosed cell foam tires and components accounted for various light duty applications, polyurethane elastomer tires for industrial equipment, and polyurethane elastomer tires for agricultural applications.
● | Bicycle Tires |
● | Light duty Industrial Vehicles (Golf Carts, Stock Chasers) |
● | Lawn and Garden tires |
● | Handtruck and small cart tires |
● | Agricultural Carts |
● | Forklift Tires |
● | Mobility Tires |
● | Custom application tires |
Our business model focuses our resources 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 North American customers as international sales are adversely affected by high freight costs and more recently a strong dollar that creates an unfavorable exchange rate versus other currencies.
Closed-Cell Polyurethane Foam Tires
We currently manufacture closed-cell polyurethane foam tires for bicycles, golf and components accountedbaggage 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 market 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 98%customers with specific tire performance requirements. The demand for our larger tires, including golf cart, personnel carrier and baggage cart tires, reached record levels during the year ended June 30, 2022. Our results were achieved despite the headwinds of higher material costs, supply chain disruptions, and adverse fiscal policies introduced by the government to fight inflation Since the inception of the pandemic in March 2020, Amerityre has operated as an “essential business”. We have seen strong demand for our products that continue to increase, resulting in strong record level sales revenues in Q4 of fiscal 2017 revenues.year 2022 and for the entire fiscal year 2022.
Polyurethane Elastomer Industrial Tires
We have developed solid polyurethane industrial tires made of Elastothane®., our family of proprietary polyurethane elastomer formulations. We currently produceoffer over 20 sizes for Class 1, 4 and 5 forklifts, as well as elastomer tires for scissor lifts. We believeOur Elastothane® 500 material, a lighter density formulation than our standard polyurethane elastomer, continues to be well received by the agricultural applications market. Common applications for this formulation are baggage carts, personnel carriers, stock chasers, and lawn mowers, applications where enhanced abrasion resistance and increased weight bearing capacity is required. Our polyurethane elastomer 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. During fiscal year 2017 we introduced an updated product formulation. During fiscal year 2017 there were minimal revenues attributableOur initiatives to elastomer industrial tires.develop joint products with OEM partners is key to long-term success in this market segment.
Amerityre has developed threeoffers elastomer-based products for the agricultural tire market, such as flat-free pivot tires used in irrigation systems, seeder tires, and hay baler tires. Sales of agricultural tires were negatively impacted by low commodity prices inAs farm incomes have improved during fiscal year 2017. Agricultural tires accounted for 2%2022 due to higher agricultural commodity pricing, we have seen higher sales of fiscal 2017 revenues.these agricultural tires. However, we continue to believe that the market opportunity in this segment is substantial, and we continue to pursue partnerships to take advantage of joint product development and marketing opportunities in these market segments.
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. In addition, weWe also purchase various chemical additives that are mixedblended with the polyols and isocyanates. We purchase ourmaintain multiple sources for chemical raw materials, from multiple supplierswhere possible, to assure adequate supply and competitive pricing. The quality of our raw materials is critical to the superior performance of our proprietary formulations.
During Q4 of the year ended June 30, 2022, the availability of chemical raw materials improved, and material pricing stabilized. Since our chemical raw materials are mainly sourced domestically, we have been able to avoid many of the supply chain problems that currently plague other manufacturers. We have been able to reduce our quoted lead times for tire shipments to our standard of 2 weeks or less. While availability of materials has improved, we expect the costs for these materials to continue to increase, as general inflation in the US economy impacts all of our costs.
In addition to the chemical raw materials, we purchase steel and plastic wheel components for use in tire and wheel assemblies. We purchase these components from domestic and overseas suppliers.
Operations/Manufacturing
Our closed-cell polyurethane foam and elastomer products are primarily manufactured utilizing multiple–stationed, carousel molding presses.machines. We produce closed-cell foam products by pouring a proprietary polyurethane formula into a mold, which then spreads out in the 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.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 to be defective are disposed of through traditional refuse disposal services. All our tires are manufactured at our Boulder City, Nevada facility. Due to increased demand for our products we have been running overtime shifts. We expect this level of overtime to decrease in fiscal year 2023 if the US economy slows as forecasted. During fiscal year 2022 we upgraded the electronic control systems of our 3 polyurethane pouring machines. Our major capital investment for fiscal year 2023 will likely include the refurbishment of our two production carousel systems. This investment will increase the manufacturing reliability of these machines.
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 our engineering departmentus 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.
Internationally, we have several distribution partners establishedlocated 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 31%approximately 27% of our sales for thefiscal year ended June 30, 20172022, and three customers who accounted28% for 21% of our sales for the fiscal year ended June 30, 2016. In general, our2021. We expect sales with this customer to continue to remain strong as their business is forecast to continue to grow in fiscal year 2023. Our customers areinclude OEMs of lawn and garden, productsagricultural, and mobility, and outdoor power equipment, as well as regional tire distributors, retail cooperatives, agricultural tire distributors, and retailers of lawn and garden products,tires, bicycle tires and hand truck tires. With the introduction of internet sales functionality onOur brand awareness among consumers grows as we enlarge our website we expect to gain more end user customers going forward.customer base and engage new OEMs and distributors.
Competition
There are several companies that produce not-for-highway-use or light-uselight-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;China. 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 the aforementioned competitors because ourthese 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 properly inflated 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 severalmost of ourthese 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.Carlstar, USA. These competitors have established brand name recognition, distribution networks for their products, and have strongsome consumer loyalty to their products.products, although price is a major factor for their customers when making the buying decision.
Despite the presence of Contents
In the agricultural tire market, the market leader isleaders are Titan Tire USA, aInternational and Carlisle, global manufacturemanufacturers of agriculture pneumatic tire and wheel assemblies. In addition, Rhino Gator, BB Metal Works, and Mach II are North American competitors offering various types of flat free pivot tire solutions. OEM manufacturers of pivot irrigation systems, such as Valmont Industries and Lindsay, have developed their own flat free tires for their irrigation systems. There are various domestic and international competitorsThe economic landscape in the seederagricultural sector appears to be improving as commodity crop prices have significantly increased. We expect spending in the agricultural space to increase during fiscal year 2023, although this spend might be tempered if the US economy slows as expected, we continue to pursue partnerships with OEMs in the agricultural equipment market space to promote our products and increase our agricultural tire and hay baler tire markets.sales.
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 materialformulation 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.applications, like forklift tires and other industrial tires. Our technology has been maintained as Trade Secreta 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 theour technology and formulations as trade secrets as required 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 | 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 13, 2017,14, 2022, we had 1716 full-time employees and 2 part-time1 part time employee, including 64 salaried and 13 hourly employees. We hire temporary labor as required to meet peak manufacturing needs. We believe that we will continue to be able to hire a sufficient quantity of qualified laborers in the local area to meet our business needs. Our manufacturing process does not require special skills, other than training toin 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 Researchresearch and Developmentdevelopment (R&D) activities to be a criticalan important part in our growth strategy. Our current research and development activities are focused primarily on new product improvement (i.e., forklift tiresdevelopment for current customers and agriculture tires) and maintaining cost efficient manufacturing processes.development of new formulations to address an identified need, in our product portfolio. We continueutilize R&D resources on a contract basis when required to investigate new, potentially lower cost polyurethane foam formulations, to supplement our premium formulationsdesign 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 which are contingentlimited to those where an exceptional return on additional development, such as automotive tires, have beeninvestment is expected. Less profitable, or more risky projects are put on hold and will beare revisited at a later date when sufficient resources are available. Research and development expenses of an external testing nature were $44,093 and $58,319, for fiscal 2017 and 2016, respectively. All research and development expenses of the Company, including both internal and external expenses, were $227,092$101,817 and $222,094,$102,265, for fiscal 2017years 2022 and 2016,2021, 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.
Recent market condition changes in the chemical markets have forced us to increase the prices we charge customers for our products and could have a material adverse effect on demand for our products, results of operations, and our financial condition.
During the past 2 years we have evaluated and increased our product pricing, most recently in May 2022, to offset these raw material cost increases. We continue to work with our suppliers to secure adequate quantities of raw materials to meet the increased demand for our products. While management believes these responses to be necessary to address these issues, there can be no assurance they will be sufficient, nor that they will not cause us to lose customer orders or customers, which would have a material adverse effect on our financial condition and results of operations.
If the inflationary pressures in the United States and elsewhere continue, we could experience reduced margins and lose future business.
The current inflationary pressures may adversely affect our margins particularly since we have lacked the capital to accumulate material inventory. Although we have blanket order with some of our customers the duration on fixed pricing is limited, often to three months, due to increasing price risk on our materials. This customer pricing pressure may also result in the loss of contracts and/or future business. Finally, we are experiencing rising labor costs which may further tighten margins. Additionally, given our location next to California that recently enacted legislation requiring fast food locations to pay hourly employees at least $22 per hour and beginning in 2024 with mandatory inflationary increases even capped at 3.5% per year, we may see pressure on our wages to hourly employees as well as other labor cost increases.
The effects of Russia’s invasion of Ukraine on the capital markets and the economy is uncertain, we may have to deal with a recessionary economy and economic uncertainty including possible adverse effects upon the capital markets.
While the effects of Russia’s invasion of Ukraine and the resulting international sanctions are uncertain, they have already had an immediate effect on the global and United States economy by causing, among other things, increased inflation and substantial increases in the prices of oil, gas and other commodities. The conflict has created increased uncertainty in the capital markets with declines in leading market indexes. The duration of this conflict and its impacts are uncertain but may contribute to a likely recession.
If we incur material losses due to a weakening economy or other factors, we may encounter difficulty in raising capital to meet our capital expenditure or working capital needs.
While we incurred a small net income from operations in four of the past five fiscal years, Amerityre lost money from operations and we have made no provision for any contingency, unexpected expenses or increases in costs that may arise.
Since inception, we have been able to cover our operating losses from the sale of our securities. During fiscal year 2017,If we were able to achieve positive annualexperience losses or negative net income forcash flow from operations in the first time in Amerityre’s history. While we are optimistic that we will be able to continue this positive trend,future, there is no guarantee that this will be the case. If we were to experience negative net income in future years, there is no guarantee thatfunding sources of funds from the financial markets will be available to cover future operating losses.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 are subject to a variety of risks including the recent weakness that is adversely affecting smaller companies like us, such as 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 continuing losses. It is possible that our available short-term assets and anticipated revenues may not be sufficient to meet our operating expenses, business expansion plans, and capital expenditures for the next twelve months. 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.
Our results of factorsoperations have been and may affectin the future salesbe adversely impacted by anotherCOVID-19 pandemic.
The COVID-19 pandemic resulted in significant volatility in the U.S. and global economies and led to a dramatic reduction in economic activity worldwide. We continue to experience adverse supply chain issues which are attributable to COVID-19. During the pandemic Amerityre continued normal operations as an essential business. Due to COVID-19, we have sustained price increases from our suppliers which have reduced our gross profit margins, although we seemingly have avoided issues. To date we have successfully implemented our own price increases to offset some of these cost increases. 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 supply chain shortages.
We cannot predict whether new strains of the virus pose the risk of future shutdowns, which could hinder our ability to manufacture and sell our products even if we are successful in increasingand materially adversely affect our revenue base. These factors include whether competitors produce alternative or superior products and whether the costresults of implementing our products is competitiveoperations.
A reduction in the marketplace. In order to succeed as a company, we must continue to manufacture quality products and sell adequate quantitiesgrowth rate of products at prices sufficient to generate profits. We may not accomplish these objectives.
The national shutdown of the U.S. economy due to COVID-19 put the U.S. and global economies in a tailspin. While the US economy recovered, current financial market conditions and US government fiscal policy has experienced “slow growth” sincebegun to adversely affect the last U.S. recessioneconomy, and general downturn in globalit appears the economy growth rates. Particularly pooris heading for an extended slowdown as the US Federal Reserve raises market interest rates to fight inflation. Further, while market conditions in the Agricultural equipmentagricultural commodity markets has impaired our agricultural tire sales forhave improved over the past 3 years.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 orand financial position in a number of ways.position. We may experience declines in revenues and cash flows as a resultbecause 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. We may incur increased costs or experience difficulty with our ability to borrow in the future or otherwise with financing 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.
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.
Several 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 can 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. For example, by virtue of their larger scale of operations and wider market access, many of our larger competitors have been able to continue offering relatively lower prices for their products in the wake of increases in the costs of supplies and production, whereas we have been forced to increase our prices in response to market developments such as supply shortages caused by factors such as adverse weather conditions, geopolitical friction and COVID-19. 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.
We may experience delays in resolving unexpected technical issues experienced in completingthe development of new technology, that will increaseresulting in increased development costs and postponedelays of anticipated sales and revenues.
As we develop and improve our products, we frequently must solveaddress chemical, manufacturing and/or equipment-related issues. Some of these issues are ones that wechallenges cannot anticipatebe anticipated because the products we are developing are new. If we must reviseThe revision of existing manufacturing processes or orderprocurement of specialized equipment to address a particular issue,may result in delays, and we may not meet our projected timetable for bringing products to market. Such delays may interfere with existing manufacturing schedules,activities, negatively affect revenues and increaseand/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.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 commercialcommercially viable scale. Furthermore, if our technologies and products do not achieve or if they are unable to maintain market acceptance, or regulatory approval, we may not be profitable.
Our success depends in part, on our ability to license, market and distribute, and commercialize our technologies and products effectively. We have limited manufacturing, marketing and distribution capabilities.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.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 whichrelative to our competitors. This has forced us to makeprioritize choices regarding whichthe pursuit of new market opportunities we should pursue.opportunities. Our inability to raise significant additional working capital has resulted in the Company deferring pursuit of 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 the environment andenvironmental, health and safety, and employment issues. WeWhile we believe we are in material compliance with applicable environmental, and worker health and safety requirements.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 future 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 environmental and worker health and safety 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 processes whichintellectual property. Instead, we have developed or may develop in the future and instead rely on trade secret laws to protect certain elements of our proprietary technology and processes. For example, we rely on trade secrets to protectprocesses, such as our key polyurethane formulations. These formulations are critical elements of and central to our proprietary technology. OurWhile 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 that we attempt to protect as trade secrets 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.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.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.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.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.increases.
The materials used to produce our products are susceptible to price fluctuations due to supply and demand trends, the economic climatefactors, and other unforeseen trends. With respect to both polyols and isocyanates, worldwide demand is increasing and may exceed current capacity.factors. 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 resulthave recently resulted in chemical price increases. The COVID-19 pandemic has seen us experience increased chemical and supply costs and reduced our gross profit margins. We have experienced increases in the cost of wheel components due to the increased cost of steel but no supply delays or shortages. However, we anticipate that we may experience an increase in steel wheel components at such time asand the Chinese government cancels any export rebates it may be currently providing Chinese wheel manufacturers. Our raw materials pricing could increase further in the future.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. Chinese tariffs have resulted in an increase in our cost of our imported components. 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.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 factors such as COVID-19, we may encounter issues with our manufacturing facility or resources supply which may materially and adversely impact our business.
Our ability to execute our business plan would be harmed if we are unable to retain or attract key personnel.personnel.
Our technology has been developed by a small team and only a limited number of theteam members of our management team 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 these and otherour key personnel. The loss of the services of one or more members of our management teamChief 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 suchexperienced personnel of similar experience 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.
As of the date of this filing we have not experienced a breach of data security.
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 investorsprivacy concerns. As a United States company, we may experiencebe 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. Additionally, in November 2020, California enacted the California Privacy Rights Act of 2020 (the “CPRA”), which amends and expands the scope of the CCPA, while introducing new privacy protections that extend beyond those included in the CCPA and its implementing regulations. The CCPA, as amended and expanded by the CPRA, is one of the most prescriptive general privacy law in the United States and may lead to similar laws being enacted in other U.S. states or at the federal level. Most of the provisions of the CPRA become fully operative beginning on January 1, 2023.
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. As to Nevada, as of October 1, 2021, Nevada’s amended privacy law imposes additional obligations on qualifying “data brokers” and permits consumers to opt out of a broader range of sales of their personal information. The Nevada act applies to any person whose primary business is “purchasing covered information” about Nevada residents “with whom the person does not have a direct relationship” if the information is purchased “from operators or other data brokers and making sales of such covered information.” Qualifying data brokers must establish a designated request address through which a Nevada consumer can ask to opt out of the sale of their covered information. In summary, Nevada consumers now have a broad right to opt out whenever a qualifying “operator” or “data broker” makes covered information available in exchange for money. This aligns Nevada’s opt-out right more closely with similar consumer privacy rights in Colorado and Virginia. At least 35 states and the District of Columbia in 2022 introduced or considered almost 200 consumer privacy bills. More and more states may continue to enact similar laws. Proposed federal legislation, like the American Data Privacy and Protection Act, will likely continue to be debated and, at some difficulty tradingpoint, may be enacted in some form.
As to other states, on March 2, 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. In addition, on July 7, 2021, Colorado enacted the Colorado Privacy Act (“CoCPA”), joining the growing list of states adopting comprehensive consumer privacy laws. 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. Further, the data protection laws of various jurisdictions often differ greatly and the regulatory landscape in general is constantly changing, and we may be unable to effectively adapt and comply particularly with respect to our website and online sales Section 6(3) of a Connecticut statute signed May 10, 2022, states a data controller shall “establish, implement and maintain reasonable administrative, technical and physical data security practices to protect the confidentiality, integrity and accessibility of personal data appropriate to the volume and nature of the personal data at issue.” The effective date for that law is July 1, 2023. Utah’s Consumer Privacy Act provides consumers the right to know what personal data a business collects, how the business uses the personal data, and whether the business sells the personal data. The effective date is December 31, 2023. Additionally, Maine recently enacted the Data Collection Protection Act, creating the Maine Data Collection Protection Act, which prohibits data collectors from collecting and aggregating, selling, or using specific types of public documents or information.
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 since it is only quotedsubject 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 Marketplace.
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 maintainotherwise 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 increased interest rates;
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 mayvolume fluctuations in the future, which could adversely affect the abilitymarket price of stockholdersour 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 their shares.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 constituting approximately 27% of our outstanding common stock as of the date of this report. These shares are subject to the limitations of Rule 144(e )(1) 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 June 30, 2017,the date of this Report, we did not have any unresolved comments with the staff of the Securities and Exchange Commission.SEC.
ITEM 2. PROPERTIES
In May 2015,March 2019, we negotiated a five (5) yearfive-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, 2015 for the2019. We are currently paying $12,450 per month in base rent, as follows:which will increase to $12,600 per month on July 11, 2023.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 2017,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 Marketplace ("OTC"Venture Market (“OTCQB”). The following table sets forth for under the periods indicated the high and low sale prices of our common stock. Prices represent inter-dealer quotations without adjustment for retail markups, markdowns or commissions and may not represent actual transactions.
| Fiscal year ended June 30, | High | Low | ||||||
| 2017 | ||||||||
| Fourth Quarter | $ | 0.04 | $ | 0.02 | ||||
| Third Quarter | $ | 0.05 | $ | 0.01 | ||||
| Second Quarter | $ | 0.02 | $ | 0.01 | ||||
| First Quarter | $ | 0.04 | $ | 0.01 | ||||
| 2016 | ||||||||
| Fourth Quarter | $ | 0.04 | $ | 0.04 | ||||
| Third Quarter | $ | 0.07 | $ | 0.04 | ||||
| Second Quarter | $ | 0.05 | $ | 0.03 | ||||
| First Quarter | $ | 0.10 | $ | 0.07 | ||||
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.
Unregistered Sales of dividends on our Preferred Stock since March 2016. Equity Securities
We have accrued these dividends and will pay these dividends once management has determined thatpreviously disclosed all sales of securities without registration under the company cash position can support such payments.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 containscontain 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“Part I. Item 1A. Risk Factors"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 solid polyurethane foam tires. We believe that we have developed unique polyurethane formulations that allow us to make products with superior performance characteristics, includingcompared to conventional rubber tires, in the areas of abrasion resistance, energy efficiency and load-bearing capabilities, when compared to conventional rubber tires. We also believe that ourcapabilities. 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 technologies, weWe believe tires can be produced whichwith our proprietary polyurethane formulations last longer, are less susceptible to failure and are friendlyfriendlier to the environment. environment when compared to competitor offerings.
We concentratefocus our business 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, and tire performance, and customer service give us an opportunity to obtain premium pricing. Our most recent activities in these areasproduct development and marketing efforts are set forth below: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.
Closed cell Polyurethane Foam Tires
– The sale of polyurethane foam tires to original equipment manufacturers, distributors, and dealersDespite the ongoing negative effects of COVID-19, supply chain bottlenecks, and expand sales with original equipment manufacturers and tire distributors. We continue our focussevere inflation on creating unique product solutions for customers with specific tire performance requirements. Over fiscal year 2017the overall US economy, we have seen increasedexperienced higher than expected record demand for our golf cart and baggage cartpolyurethane foam tires and we expect this trend to continue in the future. Our international sales have been adversely affected byrecent quarter. Sales for the strong US dollar over the past year. However, recent weakening of the US dollar over the past 3 months indicates that this headwind may be subsiding, which may help to improve our international sales going forward.
Our industrial tire product line, with select customers. The acceptance ofwhich includes our golf car tires, our 480 x 12 tires, and our 570 x 12 tires, continues to see strong growth. We expect these tires in the marketplace during fiscal year 2017 has been much slower than expected and, as a result, sales for fiscal year 2017 have been less than anticipated. Our scissor lift tire has also experienced limited interest as we have been unable to gain approval from scissor lift OEMs. These products contributed negligible revenue during fiscal year 2017. We intend to continue to promotegrow in popularity as more people discover these productstires for industrial applications. In fiscal year 2022 we sold a record number of golf cart tire assemblies (18 x 8.50 tire assemblies).
Polyurethane Elastomer Tires –Our elastomer formulations are used to manufacture tires requiring higher levels of abrasion resistance and greater load bearing capability. Forklift tires constitute a large part of this market, with other industrial and agricultural applications representing other opportunities. Overall sales volumes of our forklift tires remain small, less than 0.1% of our total sales revenue. Price sensitive consumers continue to favor imported solid rubber press-on forklift tires rather than our products. We have not devoted significant resources towards promoting this product line.We have been working with OEMs to utilize our elastomer formulations for large industrial equipment tires and agricultural applications.
Light Density Elastomer Tires – The Company continues to see great interest in its light-density elastomer formulation for use in tire applications where customers need higher abrasion resistance and load bearing capability. Our Elastothane® 500 formulation provides better abrasion resistance and overall performance in these areas compared to our target marketsclosed cell foam formulation. Lawn and garden tire applications continue to improve market acceptance and establish market share.
We will manage our business accordingly, continuing our efforts to educate the agricultural market on the benefits of our products while investing in R&D to develop new products for this market segment.
A major component of the strategic operating plan we discussed during our annual meeting in December 2021 was the desire to increase our product distribution through partnerships with large OEMs and distributors. We continue to pursue discussions with various entities to establish these relationships, but unfortunately we have not been successful in completing an arrangement. However, we maintain that an agreement with a partner that can provide an established distribution network and/or financial resources is important to enable Amerityre to quickly scale its product portfolio in key market segments.
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 sales team is comprised of our in-house sales department supplemented by three independent manufacturer representatives whose experience is complementary to our product portfolio.with inside sales support. The Company’s continued emphasis on proper product pricing and new marketing campaigns continues to drive more profitable sales, as shown by our profitable fiscal year 2017 annual results. We invested in upgrading oursales. Our website during fiscal year 2017 and the revised website has helped to educateeducates the marketplace about our products as well as generate someoffers a growing outlet for online sales. We have a solid backlog for orders to be delivered over the next 12 months. However, we expect that the challenging economic environment, particularly in the agricultural market, will continue to provide strong headwinds and negatively impact our drive towards consistent and increasing profitability. We are optimistic that the current US administration’s emphasis on “Buy American Products” may provide new sales opportunities for us in fiscal year 2018.
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 costs 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 directors, 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.
At present we do not have any critical accounting policies because they are important to the portrayal of our financial condition and results of operations and theythat 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.
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, both in new customer accounts and sales of new products to existing customers, which is an indicator of the success of our sales efforts; and
Distribution of sales across our products offered.
The following summary table presents a comparison of our results of operations for the fiscal years ended June 30, 20172022 and June 30, 2016,2021 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.
| Percent | Percent | |||||||||||||||||||||||
| Fiscal Year Ended June 30, | Change | Fiscal Years Ended June 30, | Change | |||||||||||||||||||||
| (in 000’s) | (in 000’s) | |||||||||||||||||||||||
| 2017 | 2016 | 2017 vs. 2016 | 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||||||
| Net revenues | $ | 3,629 | $ | 3,781 | (4.0 | )% | $ | 6,496 | $ | 4,863 | 33.6 | % | ||||||||||||
| Cost of revenues | (2,444 | ) | (2,670 | ) | (8.5 | )% | (4,741 | ) | (3,579 | ) | 32.5 | % | ||||||||||||
| Gross profit | 1,185 | 1,111 | 6.7 | % | 1,755 | 1,284 | 36.7 | % | ||||||||||||||||
| Research and development expenses | (227 | ) | (222 | ) | 2.3 | % | (102 | ) | (102 | ) | 0.0 | % | ||||||||||||
| Sales and marketing expense | (248 | ) | (286 | ) | (13.3 | )% | (281 | ) | (225 | ) | 24.9 | % | ||||||||||||
| General and administrative expense (1) | (661 | ) | (843 | ) | (21.6 | % | (963 | ) | (860 | ) | 12.0 | % | ||||||||||||
Gain on debt extinguishment | - | 150 | (100.0 | )% | ||||||||||||||||||||
| Loss on assets, due to write down or disposal | (6 | ) | - | 100 | % | - | (26 | ) | (100.0 | )% | ||||||||||||||
| Other expense | (10 | ) | (3 | ) | 233.3 | % | ||||||||||||||||||
| Net income (loss) | 33 | (243 | ) | (114.0 | )% | |||||||||||||||||||
| Preferred stock dividend | (100 | ) | (100 | ) | - | % | ||||||||||||||||||
| Net loss attributable to common shareholders | $ | (67 | ) | $ | (343 | ) | (80.5 | )% | ||||||||||||||||
Other income | 24 | 38 | (36.8 | )% | ||||||||||||||||||||
Net income | $ | 433 | $ | 259 | 67.8 | % | ||||||||||||||||||
(1) Includes stock-based compensation expense of $27,807$116,123 and $68,805$88,806 for the fiscal years ended June 30, 20172022, and 2016,2021, respectively.
Year Ended June 30, 20172022 Compared to the Year Ended June 30, 20162021
Net revenues
. Net revenues ofCost of revenues
. Cost of revenues for the year ended June 30,Gross Profit
. Gross profit for the year ended June 30,Research and Development expenses
. Research andSales and Marketing expenses.
Sales andGeneral and Administrative expenses. General and administrative expenses of $963,890 for the year ended June 30, 20172022, represents a 13.3% decrease11.8% increase over the same expensesexpense of $285,831$860,693 for the year ended June 30, 2016. Sales and marketing expenses decreased $37,541 between periods primarily due to lower sales commissions, lower salary costs, and lower travel costs,2021. The increase was caused by higher executive compensation, higher merchant processing fees by customers paying with a credit card, offset by increased trade show expenses relatedlower legal fees and warranty expense. We continue to pursue more efficient ways to conduct our attendance at four trade shows during the year.business activities.
Other Income (Expense). Other income was $24,435 for the year ended June 30, 2017 represent a 21.5% decrease over2022, which is lower than the same expensefigure from fiscal year 2021. Other income of $842,859 for$161,795 in the fiscal year ended June 30, 2016. This decrease between periods2021, includes forgiveness of $181,614 is driven by lower costs related to wages, stock based compensation, warranty expenseour loan from the Small Business Administration Paycheck Protection Program plus various small grants available from Federal and professional fees. Our continued focus on cost control is reflected in these results.
Net Income (Loss).
Liquidity and Capital Resources
Cash Flows
The following table sets forth our cash flows for the fiscal years ended June 30, 20172022, and 2016.20201.
Years ended June 30, | ||||||||
(in 000’s) | ||||||||
2022 | 2021 | |||||||
Net cash provided by/(used in) operating activities | $ | 447 | $ | (136 | ) | |||
Net cash used in investing activities | (157 | ) | (14 | ) | ||||
Net cash (used in) financing activities | (1 | ) | (1 | ) | ||||
Net increase/(decrease) in cash during period | $ | 289 | $ | (151 | ) | |||
| Years ended June 30, | ||||||||
| (in 000’s) | ||||||||
| 2017 | 2016 | |||||||
| Net cash provided by operating activities | $ | 123 | $ | (74 | ) | |||
| Net cash used in investing activities | (29 | ) | (8 | ) | ||||
| Net cash used in financing activities | (21 | ) | (106 | ) | ||||
| Net increase (decrease) in cash during period | $ | 73 | $ | (188 | ) | |||
The Company has evaluated its current cash position relative to its cash requirements in the future and has determined its cash levels are sufficient to cover its cash needs. The Company enjoys a strong level of operating cash on hand as well as an unused credit line facility. These cash resources have been critical during the past year as working capital needs have increased due to the extended time required to receive imported materials (which are paid for when they are ready to ship from the manufacturer, not after they are received for use by the Company) as well as Management’s decision to increase chemical stock levels when extra material became available for purchase. The Company is also planning to upgrade production equipment during fiscal 2017 came fromyear 2023, and we are completing an analysis to determine if debt financing is required to complete the project.
The major driver in our net income, timely collection of accounts receivable and sales of inventory, and payments on vendor accounts at June 30, 2017. Net cash provided by operating activities was $122,500the collection of accounts receivable offset by increased costs (and therefore value) of inventory on the balance sheet.
Our principal sources of liquidity consist of cash on hand and payments received from our customers. In February 2020, the Company secured a $50,000 line of credit with a local community bank. The Company drew down from this line of credit for the year ended June 30, 2017 compared to cash used of $74,223 for the same periodfirst time in 2016.
Historically, the same period in 2016. The primary use of cash in investing activities forcurrent management team has been reluctant to pursue financing at terms that subject the year ended June 30, 2017 relates critical updates and an overhaul to our Company website; in 2016 $7,642 relates to the Nevada sales tax portionhigh costs of prior acquisitionsdebt or raise money through the sale of property and equipment.
| Payments due by period | ||||||||||||||||||||
| Total | Less than 1 year | 1 to 3 years | 3 to 5 years | After 5 years | ||||||||||||||||
| Facility lease (1) | $ | 414,000 | $ | 138,000 | $ | 276,000 | $ | - | $ | - | ||||||||||
| Capital lease (2) | 8,393 | 6,967 | 1,426 | - | - | |||||||||||||||
| Bank debt (3) | 88,614 | 21,349 | 67,265 | - | - | |||||||||||||||
| Total contractual cash obligations | $ | 511,007 | $ | 166,316 | $ | 344,691 | $ | - | $ | - | ||||||||||
Cash Position, Outstanding Indebtedness and Future Capital Requirements
On September 13, 2017,14, 2022, our total cash balance was $229,300,$1,099,392, none of which is restricted; accounts receivables was $274,831;were $408,463; and inventory, net of reserves for slow moving or obsolete inventory, and other current assets was $600,267.$1,021,508. Our total indebtedness, specifically which management reviews for cash management, was $394,638$1,022,792 and includes $150,632$696,829 in accounts payable $97,214 inand accrued expenses, $16,619$2,000 in current portion of long-term debt, $7,222 in capital lease liability and $122,951$60,713 in long-term debt.debt and $263,250 in total operating lease liability.
We have been working during the past yearcontinue to take actions to improve our liquidity and access to capital resources. In order to fully execute the strategic business plan discussed during our shareholder meeting in November 2016, we required more capital resources. However, management decidedManagement believes that an equity financing in the current market environment at the market conditions at the timecurrent share price would be too dilutive and not in the best interests of our shareholders. We will continue to pursue potential opportunities to secure short-term loans, long-term bank financing, revolving lines of credit with banking institutions and equity based transactions with interested financial firms and strategic industry partners in our effort to improveIn the Company’s financial position and enhance shareholder value.
In assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments, cash requirements and other obligations. In connection with the preparation of our financial statements for the periodyear ended June 30, 2017,2022, we have analyzed our cash needs for the next twelve months. We have concludedbelieve that our available cash, and accounts receivables, and existing bank credit lines are sufficient to meet our current minimum working capital, capital expenditure and other cash requirements for this period. However,Although we have seen a significant increase in business activity in recent quarters, there can be no assurance that a resurgence of the COVID-19 virus will not cause another significant decrease in demand from our customers. The emergence of new and transmittable variants of COVID-19 may result in possible resurgence of the virus and new restrictions in certain geographies and among certain businesses. The long-term financial impact on our business cannot be reasonably estimated at this time. As a result, the effects of COVID-19 may not be fully reflected in our financial results until future periods. Refer to expand manufacturing and sales operations beyond“Item 1A — Risk Factors” for a description of the current level, additionalmaterial risks that the Company currently faces in connection with COVID-19. If there is a new shutdown of the economy, reduction in demand for our products or other adverse effect on our business, we may lack sufficient working capital may be required.to meet our needs for the next 12 months.
The Company has, on occasion, instituted initiatives to incentivize sales of slower movingslower-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 13, 2017,14, 2022, the Company has approximately 3,881,13213,527,000 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 fund the expansion of our manufacturing operations or to obtain additional working capital.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 economic conditions in general and in the agricultural market, in particular, the impact of inflation and the effect of rising interest rates on the economy and our business, the possible recession, future tariffs particularly on Chinese imports, our level of overtime, 2023 capital improvements, the effect of COVID-19, expected increases in agricultural spending and any resultant positive effect on our business, prospective partnerships and business relationships with large OEMs including some with whom we are currently in discussions, the continued strength of our current polyurethane foam tire market segment, the prudence of our research and development investments, the sufficiency of our cash on hand and credit line facility, 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 “Risk Factors” in this report. 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 due to 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 Officer, 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.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 |
● | 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)(“COSO”) of the Treadway Commission. Based on its assessment, the Company’s management hasprincipal executive and principal financial officers have concluded that, as of June 30, 2017,2022, the Company’s system of internal controls over financial reporting was effective to providein 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 Securities and Exchange CommissionSEC that permit the companyCompany 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 (the “Exchange Act”), 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.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation, required by Rule 13a-15 or 15d-15 of the Exchange Act of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 20172022 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange CommissionSEC not later than October 28, 20172022 (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
* Management contract or compensatory plan or arrangement. ** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Amerityre Corporation, at the address on the cover page of this report, Attention: Corporate Secretary. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 18, 201719, 2022
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 18th19th day of September 2017.2022.
/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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
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, 20172022, and 2016,2021, and the related statements of operations, stockholders'operation, stockholders’ equity, and cash flows for each of the years then ended. in the two-year period ended June 30, 2022, 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, 2022, and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2022, 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'sCompany’s management. Our responsibility is to express an opinion on thesethe 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 Public Company Accounting Oversight Board (United States).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.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. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes
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 supportingregarding the amounts and disclosures in the financial statements, assessingstatements. 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 statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements referredthat were communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relate to accounts or disclosures that are material respects,to the financial position of Amerityre Corporation as of June 30, 2017statements and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.(2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Haynie & Company PC
Haynie & Company Salt Lake City, Utah September 19, 2022 | |
We have served as the Company’s auditor since 2016. | |
AMERITYRE CORPORATION
Balance Sheets
| June 30, 2017 | June 30, 2016 | June 30, 2022 | June 30, 2021 | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash | $ | 340,256 | $ | 267,302 | $ | 805,157 | $ | 516,192 | ||||||||
| Accounts receivable | 284,004 | 293,358 | 685,645 | 728,315 | ||||||||||||
| Current inventory - net | 576,191 | 614,895 | ||||||||||||||
Current inventory – net | 853,837 | 659,333 | ||||||||||||||
| Prepaid and other current assets | 112,368 | 103,803 | 83,217 | 94,483 | ||||||||||||
| Total Current Assets | 1,312,819 | 1,279,358 | 2,427,856 | 1,998,323 | ||||||||||||
RIGHT TO USE LEASE ASSETS, OPERATING, NET | 385,366 | 544,070 | ||||||||||||||
| PROPERTY AND EQUIPMENT | ||||||||||||||||
| Leasehold improvements | 196,223 | 153,543 | ||||||||||||||
| Molds and models | 577,549 | 577,549 | 583,611 | 583,611 | ||||||||||||
| Equipment | 2,982,218 | 2,960,246 | 3,093,034 | 2,910,018 | ||||||||||||
| Furniture and fixtures | 74,921 | 74,921 | 76,536 | 73,423 | ||||||||||||
| Construction in progress | 17,351 | 10,198 | ||||||||||||||
| Software | 339,009 | 305,924 | 233,528 | 233,528 | ||||||||||||
| Less – accumulated depreciation | (3,914,142 | ) | (3,849,937 | ) | (3,737,040 | ) | (3,690,515 | ) | ||||||||
| Total Property and Equipment - net | 273,129 | 232,444 | 249,669 | 110,065 | ||||||||||||
| OTHER ASSETS | ||||||||||||||||
| Patents and trademarks – net | 155,952 | 175,379 | 58,214 | 75,977 | ||||||||||||
| Non-current inventory | 228,403 | 180,050 | 186,650 | 163,289 | ||||||||||||
| Deposits | 11,000 | 11,000 | 11,000 | 11,000 | ||||||||||||
| Total Other Assets | 395,355 | 366,429 | 255,864 | 250,266 | ||||||||||||
| TOTAL ASSETS | $ | 1,981,303 | $ | 1,878,231 | $ | 3,318,755 | $ | 2,902,724 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable and accrued expenses | $ | 701,006 | $ | 767,193 | ||||||||||||
Current portion of long-term debt | 2,000 | 2,000 | ||||||||||||||
Current portion of lease liability | 149,400 | 147,600 | ||||||||||||||
Deferred revenue | 108,313 | 25,892 | ||||||||||||||
Total Current Liabilities | 960,719 | 942,685 | ||||||||||||||
Long-term debt, net of current portion | 60,713 | 61,326 | ||||||||||||||
Long-term lease liability, net of current portion | 151,200 | 300,600 | ||||||||||||||
TOTAL LIABILITIES | 1,172,632 | 1,304,611 | ||||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||
Preferred stock: 2,000,000 shares authorized, none outstanding, respectively | - | - | ||||||||||||||
Common stock: 100,000,000 shares authorized of $0.001 par value, 73,047,868 and 75,787,868 shares issued and outstanding, respectively | 75,788 | 73,048 | ||||||||||||||
Additional paid-in capital | 62,918,787 | 62,805,404 | ||||||||||||||
Accumulated deficit | (60,848,452 | ) | (61,280,339 | ) | ||||||||||||
Total Stockholders’ Equity | 2,146,123 | 1,598,113 | ||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,318,755 | $ | 2,902,724 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 468,489 | $ | 348,499 | ||||
| Current portion of long-term debt | 19,382 | 20,518 | ||||||
| Current portion of lease liability | 6,967 | 6,249 | ||||||
| Total Current Liabilities | 494,838 | 375,266 | ||||||
| Long-term debt | 124,482 | 100,142 | ||||||
| Long-term lease liability | 1,426 | 8,394 | ||||||
| TOTAL LIABILITIES | 620,746 | 483,802 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock: 5,000,000 shares authorized of $0.001 par value, 2,000,000 and 2,000,000 shares issued and outstanding, respectively | 2,000 | 2,000 | ||||||
| Common stock: 75,000,000 shares authorized of $0.001 par value, 43,312,107 and 42,175,287 shares issued and outstanding, respectively | 43,312 | 42,175 | ||||||
| Additional paid-in capital | 62,615,728 | 62,579,558 | ||||||
| Stock payable | - | 4,500 | ||||||
| Accumulated deficit | (61,300,483 | ) | (61,233,804 | ) | ||||
| Total Stockholders’ Equity | 1,360,557 | 1,394,429 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,981,303 | $ | 1,878,231 | ||||
The accompanying notes are an integral part of these financial statements.
AMERITYRE CORPORATION
Statements of Operations
| For the Years Ended June 30, | For the Years Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| NET SALES | $ | 3,628,566 | $ | 3,781,199 | $ | 6,495,530 | $ | 4,863,412 | ||||||||
| COST OF REVENUES | 2,444,102 | 2,670,442 | 4,740,931 | 3,579,227 | ||||||||||||
| GROSS PROFIT | 1,184,464 | 1,110,757 | 1,754,599 | 1,284,185 | ||||||||||||
| EXPENSES | ||||||||||||||||
| Research and development | 227,092 | 222,094 | 101,817 | 102,265 | ||||||||||||
| Sales and marketing | 248,290 | 285,831 | 281,440 | 224,686 | ||||||||||||
| General and administrative | 661,245 | 842,859 | 963,890 | 860,693 | ||||||||||||
| Total Expenses | 1,136,627 | 1,350,784 | 1,347,147 | 1,187,644 | ||||||||||||
| INCOME (LOSS) FROM OPERATIONS | 47,837 | (240,027 | ) | |||||||||||||
INCOME FROM OPERATIONS | 407,452 | 96,541 | ||||||||||||||
| OTHER INCOME/(EXPENSE) | ||||||||||||||||
OTHER (EXPENSE)/ INCOME | ||||||||||||||||
| Interest expense | (8,468 | ) | (3,206 | ) | (65 | ) | - | |||||||||
| Loss on assets, due to write down or disposal | (6,331 | ) | - | |||||||||||||
| Other income (expense) | 283 | 181 | ||||||||||||||
Interest income | 1,390 | 1,710 | ||||||||||||||
Gain on debt extinguishment | - | 149,570 | ||||||||||||||
Loss on asset disposal/impairment | (395 | ) | (26,183 | ) | ||||||||||||
Other income | 23,505 | 36,698 | ||||||||||||||
| Total Other Expense | (14,516 | ) | (3,025 | ) | ||||||||||||
Total Other Income (Expense) | 24,435 | 161,795 | ||||||||||||||
| NET INCOME (LOSS) | 33,321 | (243,052 | ) | |||||||||||||
NET INCOME BEFORE INCOME TAXES | 431,887 | 258,336 | ||||||||||||||
| Preferred Stock Dividend | (100,000 | ) | (100,000 | ) | ||||||||||||
Income tax benefit, net of allowance | - | - | ||||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (66,679 | ) | $ | (343,052 | ) | ||||||||||
NET INCOME | $ | 431,887 | $ | 258,336 | ||||||||||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||
BASIC AND DILUTED INCOME PER SHARE | $ | 0.01 | $ | 0.00 | ||||||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 42,417,601 | 41,868,634 | 74,042,279 | 70,918,758 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
AMERITYRE CORPORATION
Statements of Stockholders’Stockholders’ Equity
| Preferred Stock | Common Stock | Additional Paid in | Stock | Accumulated | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Deficit | ||||||||||||||||||||||
| Balance, June 30, 2015 | 2,000,000 | $ | 2,000 | 41,570,287 | $ | 41,570 | $ | 62,515,857 | $ | - | $ | (60,890,752 | ) | |||||||||||||||
| Preferred stock dividends | - | - | - | - | - | - | (100,000 | ) | ||||||||||||||||||||
| Stock option based compensation expense – options | - | - | - | - | 47,731 | - | ||||||||||||||||||||||
| Stock option based compensation expense for employee service | - | - | 605,000 | 605 | 15,970 | 4,500 | - | |||||||||||||||||||||
| Net loss for the year ended June 30, 2016 | - | - | - | - | - | - | (243,052 | ) | ||||||||||||||||||||
| Balance, June 30, 2016 | 2,000,000 | 2,000 | 42,175,287 | 42,175 | 62,579,558 | 4,500 | (61,233,804 | ) | ||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | - | - | (100,000 | ) | ||||||||||||||||||||
| Stock option based compensation expense – options | - | - | - | - | 16,097 | - | - | |||||||||||||||||||||
| Stock option based compensation expense for employee and Board of Director service | - | - | 1,136,820 | 1,137 | 20,072 | (4,500 | ) | - | ||||||||||||||||||||
| Net income for the year ended June 30, 2017 | - | - | - | - | - | - | 33,321 | |||||||||||||||||||||
| Balance, June 30, 2017 | 2,000,000 | $ | 2,000 | 43,312,107 | $ | 43,312 | $ | 62,615,728 | $ | - | $ | (61,300,483 | ) | |||||||||||||||
Preferred Stock | Common Stock | Additional Paid in | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance, June 30, 2020 | 70,172,868 | $ | 70,173 | $ | 62,719,473 | $ | (61,538,675 | ) | $ | 1,250,971 | ||||||||||||||||||
Stock based compensation expense for employee and Board of Director service | - | - | 2,875,000 | 2,875 | 85,931 | - | 88,806 | |||||||||||||||||||||
Net income for the year ended June 30, 2021 | - | - | - | - | - | 258,336 | 258,336 | |||||||||||||||||||||
Balance, June 30, 2021 | - | - | 73,047,868 | $ | 73,048 | $ | 62,805,404 | $ | (61,280,339 | ) | 1,598,113 | |||||||||||||||||
Stock based compensation expense for employee and Board of Director service | - | - | 2,740,000 | 2,740 | 113,383 | - | 116,123 | |||||||||||||||||||||
Net income for the year ended June 30, 2022 | - | - | - | - | - | 431,887 | 431,887 | |||||||||||||||||||||
Balance, June 30, 2022 | - | $ | - | 75,787,868 | $ | 75,788 | $ | 62,918,787 | $ | (60,848,452 | ) | $ | 2,146,123 | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
AMERITYRE CORPORATION
Statements of Cash Flows
| For the Years Ended June 30, | For the Years Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
| Net income (loss) | $ | 33,321 | $ | (243,052 | ) | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||||||||||
Net income | $ | 431,887 | $ | 258,336 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization expense | 102,495 | 141,524 | 230,162 | 210,696 | ||||||||||||
| Change in allowance for bad debt recovery | - | (289 | ) | |||||||||||||
| Stock based compensation, employee and Board of Directors | 27,807 | 68,805 | 116,123 | 88,806 | ||||||||||||
| Loss on assets, due to write down or disposal | 6,331 | - | ||||||||||||||
Gain on debt extinguishment | - | (149,570 | ) | |||||||||||||
Loss on assets, due to impairment or disposal | 395 | 26,183 | ||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | 9,354 | 27,297 | 42,670 | (435,674 | ) | |||||||||||
| Prepaid and other current assets | (66,756 | ) | (20,456 | ) | (25,061 | ) | (39,220 | ) | ||||||||
| Inventory and change in inventory reserve | (15,042 | ) | 41,929 | (217,865 | ) | (45,176 | ) | |||||||||
| Accounts payable and accrued expenses | 24,990 | (89,981 | ) | (66,187 | ) | 82,155 | ||||||||||
| Net Cash Provided (Used) by Operating Activities | 122,500 | (74,223 | ) | |||||||||||||
Deferred revenue | 82,421 | 13,700 | ||||||||||||||
Lease liability, operating lease | (147,600 | ) | (145,799 | ) | ||||||||||||
Net Cash Provided By/(Used In) Operating Activities | 446,945 | (135,563 | ) | |||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
| Purchase of property and equipment | (20,868 | ) | (7,642 | ) | (154,617 | ) | (3,675 | ) | ||||||||
| Cash paid for patents and trademarks | (8,000 | ) | - | |||||||||||||
| Net Cash Used by Investing Activities | (28,868 | ) | (7,642 | ) | ||||||||||||
Cash paid for leasehold improvements of an operating lease asset | (2,750 | ) | (10,786 | ) | ||||||||||||
Net Cash Used In Investing Activities | (157,367 | ) | (14,461 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
| Payment on lease liability | (6,250 | ) | (4,694 | ) | ||||||||||||
Proceeds from line of credit | 50,000 | - | ||||||||||||||
Payment for line of credit | (50,000 | ) | - | |||||||||||||
| Payments on notes payable | (14,428 | ) | (1,856 | ) | (613 | ) | (540 | ) | ||||||||
| Preferred stock dividends | - | (100,000 | ) | |||||||||||||
| Net Cash Used by Financing Activities | (20,678 | ) | (106,550 | ) | ||||||||||||
Net Cash Used In Financing Activities | (613 | ) | (540 | ) | ||||||||||||
| NET INCREASE (DECREASE) IN CASH | 72,954 | (188,415 | ) | 288,965 | (150,564 | ) | ||||||||||
| CASH AT BEGINNING OF YEAR | 267,302 | 455,717 | 516,192 | 666,756 | ||||||||||||
| CASH AT END OF YEAR | $ | 340,256 | $ | 267,302 | $ | 805,157 | $ | 516,192 | ||||||||
NON-CASH FINANCING ACTIVITIES | ||||||||||||||||
Interest paid | $ | 65 | $ | - | ||||||||||||
Income taxes paid | $ | - | $ | - | ||||||||||||
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES | ||||||||||||||||
Write off of fully depreciated and disposed fixed assets | $ | - | $ | 131,131 | ||||||||||||
Use of store inventory, capitalized as fixed asset | $ | 36,327 | $ | 31,203 | ||||||||||||
| NON-CASH FINANCING ACTIVITIES | ||||||||
| Interest paid | $ | 8,468 | $ | 3,206 | ||||
| Income taxes paid | $ | - | $ | - | ||||
| SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES | ||||||||
| Capitalized lease | $ | - | $ | 19,337 | ||||
| Reclassification of accounts receivable – related party to accounts receivable | $ | - | $ | 6,312 | ||||
| Write off of previously reserved forklift tires | $ | 81,224 | $ | - | ||||
| Purchase of fixed assets through debt | $ | 95,823 | $ | - | ||||
| Accrued preferred stock dividends | $ | 100,000 | $ | - | ||||
| Issuance of stock for stock payable | $ | 4,500 | $ | - | ||||
| Issuance of stock for accrued expense | $ | 5,000 | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 20172022, and 20162021
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Amerityre Corporation (the “Company”) incorporated as a Nevada corporation on January 30, 1995 under the name American Tire Corporation and changed its name to Amerityre Corporation in December 1999.1995. 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 manufacturing 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, 20172022, and 2016,2021, the Company had funds exceedinghas a series of accounts at one bank that collectively exceed this limit.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 receivablereceivables 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 two customersone customer who accounted for 31%27% of our sales for the year ended June 30, 2017 and three customers who2022. This same customer accounted for 21%28% of our sales for the year ended June 30, 20162021.
While the Company conducts most of its business in the United States, revenue related to foreign sales was $2,128,282 and $1,656,937 as of June 30, 2022, and 2021. Foreign sales for the year ended June 30, 2022 was 33% of total sales; for the year ended June 302, 2021 this was 34% of total net revenues.
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, 20172022, and 2016,2021, respectively, we had no cash equivalents.
Accounts 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, 20172022, and 2016,2021, the reserve for uncollectible accounts was $0, respectively.
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 20172022, and 20162021
Inventory
Inventory is stated at the lower of cost (computed on a first-in, first-out basis) or market.net realizable value. The inventory consists primarily of chemicals, finished goods produced in our plant and products purchased for resale. Inventory levels increased during fiscal year 2022 due to the higher prices paid for raw materials versus prices paid in fiscal year 2021, and the decision of the Company to strategically purchase of additional chemical raw materials when they became available. For some materials this required us to hold higher inventory levels than would be held in previous years.
June 30, | ||||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Raw materials | $ | 262,187 | $ | 257,260 | $ | 769,277 | $ | 416,709 | ||||||||
| Finished goods | 595,910 | 663,666 | 403,517 | 525,565 | ||||||||||||
| Inventory reserve | (53,503 | ) | (125,981 | ) | (132,307 | ) | (119,652 | ) | ||||||||
| Inventory – net (current and long term) | $ | 804,594 | $ | 794,945 | $ | 1,040,487 | $ | 822,622 | ||||||||
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 20172022 and 2016,2021, the Company critically reviewed all slow movingslow-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 lease arrangements as allowed by ASC 842 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 lease arrangements 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, 2022, and 2021
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, 20172022, and 20162021 was $75,068$46,525 and $114,193,$47,969, respectively.
Patents and Trademarks
Patent and trademark costs have been capitalized aton June 30, 2017,2022, totaling $487,633 with accumulated amortization of $331,681$429,419 for a net book value of $155,952.$58,214. Patent and trademark costs capitalized aton June 30, 2016,2021, totaled $479,633$487,633 with accumulated amortization of $304,254$411,656 for a net book value of $175,379.$75,977.
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, 20172022, and 2016,2021, 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, 20172022, and 2016,2021, respectively.
Amortization expense for the years ended June 30, 20172022, and 20162021 was $27,427$17,763 and $27,331$16,927 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, 20172022, is as follows:
| 2018 | $ | 31,086 | ||
| 2019 | $ | 33,033 | ||
| 2020 | $ | 26,427 | ||
| 2021 | $ | 16,928 | ||
| 2022 | $ | 17,763 | ||
| Thereafter | $ | 30,715 |
2023 | $ | 12,738 | ||
2024 | $ | 16,337 | ||
2025 | $ | 7,464 | ||
2026 | $ | 5,270 | ||
2027 | $ | 4,974 | ||
Thereafter | $ | 11,431 |
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2022, and 2021
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, 20172022, and 20162021 reflect the impact of FASB ASC 718. Stock-based compensation expense recognized under FASB ASC 718 for the fiscal years ended June 30, 20172022, and 20162021 was $27,807$116,123 and $68,805,$88,806, 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, 20172022, and 20162021 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 lossincome per share is computed using the weighted-average number of common shares outstanding during the period.
All options expired as of December 31, 2021. Our outstanding stock options warrants, and shares issuable upon conversion of outstanding convertible notes have been excluded from the basic and fully diluted net loss per share calculation. The Company excluded a total of 4,280,000 and 4,300,000calculation for the period ending June 30, 2021 were 1,030,000 common stock equivalents, for the years ended June 30, 2017 and 2016, 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, 2022, and 2021
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, 20172022, and 2016:2021:
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Deferred tax assets: | ||||||||||||||||
| NOL carryover | $ | 17,064,900 | $ | 17,050,100 | ||||||||||||
Net operating loss (“NOL”) carryover | $ | 7,804,200 | $ | 8,334,200 | ||||||||||||
| Section 1231 loss carryover | 59,900 | 24,300 | 3,900 | 4,000 | ||||||||||||
| Inventory reserve | 18,700 | 44,100 | 27,800 | 25,100 | ||||||||||||
| R & D carryover | 198,400 | 221,600 | 216,300 | 209,800 | ||||||||||||
| Accrued vacation | (12,700 | ) | (11,700 | ) | ||||||||||||
Related party accruals | 9,800 | 8,000 | ||||||||||||||
Deferred revenue | 22,700 | 5,400 | ||||||||||||||
| Deferred tax liabilities: | ||||||||||||||||
| Depreciation | (16,000 | ) | 15,500 | (56,500 | ) | (19,700 | ) | |||||||||
| Valuation allowance | (17,313,200 | ) | (17,343,900 | ) | (8,028,200 | ) | (8,566,800 | ) | ||||||||
| 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, 20172022, and 20162021 due to the following:
| 2017 | 2016 | |||||||
| Book income (loss) | $ | 11,700 | $ | (85,100 | ) | |||
| Depreciation | 18,000 | 9,100 | ||||||
| Meals & entertainment | - | 700 | ||||||
| Nondeductible expenses | 8,000 | 24,100 | ||||||
| Accrued vacation | 11,500 | 11,300 | ||||||
| Inventory reserve | (25,400 | ) | 5,300 | |||||
| Receivable reserve | - | (100 | ) | |||||
| Loss on asset disposal | (300 | ) | - | |||||
| Valuation allowance | (23,500 | ) | 34,700 | |||||
| $ | - | $ | - | |||||
2022 | 2021 | |||||||
Book income (loss) tax effected | $ | 90,700 | $ | 54,300 | ||||
Depreciation | (34,300 | ) | (5,900 | ) | ||||
Nondeductible expenses | 24,400 | 18,600 | ||||||
Inventory reserve | 2,700 | 6,900 | ||||||
Deferred revenue | 17,300 | 2,900 | ||||||
R&D Section 6765 Addback | 1,400 | 600 | ||||||
Related party accruals | 1,800 | 3,700 | ||||||
Loss on asset impairment | 100 | 300 | ||||||
Valuation allowance | (104,100 | ) | (81,400 | ) | ||||
| $ | - | $ | - | |||||
On June 30, 2017,2022, the Company had net operating loss carry-forwards of approximately $43,756,000$37,163,000 that may be offset against future taxable income. Effective with tax years beginning June 30, 2019, future net operating losses may be offset against future taxable income, from the year 2017 through 2036.subject to annual limitations. No tax benefit has been reported in the June 30, 20172022 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, 2022, and 2021
NOL’s arising in tax years beginning in 2017 or earlier are subject to a 20-year limit. Because Amerityre’s NOL’s were generated from fiscal year end June 30, 2002 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:
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 2022 or later will be subject to 80% of taxable income limitations. NOL carryforwards arising in year beginning in 2021 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, 20172022, 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 2014.2015.
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, 2022, and 2021
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 sales amount is determined, shipment of goods toproduct has left our dock, Amerityre recognizes revenue for the product. In effect by arranging their own shipping the customer has occurredis “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 collectionthe customer takes “control” of the product. Due to a very robust process to determine when control, as described above, occurs, there is reasonably assured. Generally,limited judgement applied in the above process. In cases where we ship all of ourenter into sales arrangements with customers for non-standard products, FOB origination. License feesuch as custom formulation materials, revenue isitems are recognized as earned,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 is recognizedfrom these types of transactions in either fiscal year 2022 or 2021.
This establishes a “deferred revenue” event until the inceptionsuch time as delivery of the license term.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 recognition standard which supersedes existingwas $108,313, inclusive of $9,376 of shipping and handling revenue recognition guidance, including industry-specific guidance under generally accepted accounting principles(see below), as of June 30, 2022. Deferred revenue was $25,892, inclusive of $3,252 of shipping and will be effective for us starting fiscal year 2018.handling revenue, as of June 30, 2021.
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.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 $9,376 as of June 30, 2022, and $3,252 as of June 30, 2021.
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. In the past the Company estimated itsDue to historical warranty reserveresults, we recognize warranty expense based on actual warranty recognition as historical experience with warranty claimsrates for accrual are inconsistent and returns for defective items. Because the Company has experienced limited items through the warranty process, in fiscal year 2016 the Company changed to actual, instead of estimated, warranty recognition. This change in accounting principle did not have a material impact on the Company’s financial statements and asinfrequent. As of June 30, 20172022 and 2016, the Company had no estimated2021 accrued warranty reserves accrued.expense was $0 and $7,800, respectively.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the years ended June 30, 20172022, and 20162021 was $3,776$2,116 and $5,329,$2,177, 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, 20172022, and 20162021
Recent Accounting Pronouncements
Financial Accounting Standards Board, (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. These ASUs are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information.
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 termlong-term liability recorded on the transaction. As of June 30, 2017,2022, $2,000 and $62,940 (2016, $11,752$60,713 (2021, $2,000 and $53,840)$61,326) were recorded for the current and long-term portion, respectively, of the related liability.
In June 2016,April 2020, the Company executedsecured a loan from the Small Business Administration Paycheck Protection Program. The loan amount was $149,570 and had 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 $55,068,2 years at 5.59% interest, with payments of $1,059 due for 60 months starting July 2016.
In February 2020, the Company secured a term note$50,000 line of credit with U.S. Banka local community bank. The Company drew down from this line of credit for the first time in February 2022 due to finance critical plant facility equipment whicha late customer payment. The amount borrowed was placed into servicepaid back in July 2016. The total amount financed was $37,666 at 5.59%full in March 2022. As of March 31, 2022, the Company also negotiated to increase the line from $50,000 to $100,000 and reduce the floor rate of variable interest with payments of $720 due for 60 months starting October 2016.from 5.75% to 4.50%. This variable interest is indexed to the Wall Street Journal West Coast Edition Prime Rate.
| Payments due by period | ||||||||||||||||||||
| Total | Less than 1 year | 1 to 3 years | 3 to 5 years | After 5 years | ||||||||||||||||
| Bank debt (both US Bank facilities above) | $ | 88,614 | $ | 21,349 | $ | 67,265 | $ | - | $ | - | ||||||||||
| Total cash obligations | $ | 88,614 | $ | 21,349 | $ | 67,265 | $ | - | $ | - | ||||||||||
NOTE 3 - CAPITAL– RIGHT TO USE LEASE ASSETS
Based on our lease accounting policy, we have identified the Company entered into a capital lease for research and development equipment for $19,337 (which has accumulated depreciation of $7,574).
| 2018 | $ | 8,697 | ||
| 2019 | 739 | |||
| 2020 | - | |||
| Total minimum lease payments | 9,436 | |||
| Less: executory costs | - | |||
| Net minimum lease payments | 9,436 | |||
| Less: amount representing interest | (1,042 | ) | ||
| Present value of net minimum payments | $ | 8,394 |
For the Years Ended June 30, | ||||||||
2022 | 2021 | |||||||
Facility lease | $ | 300,600 | $ | 448,200 | ||||
Leasehold improvements related to our facility | 289,604 | 286,854 | ||||||
Accumulated amortization – leasehold improvements | (204,838 | ) | (190,984 | ) | ||||
Right to use leased assets, operating, net | $ | 385,366 | $ | 544,070 | ||||
In May 2015,March 2019, we negotiated a five (5) yearfive-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. All other terms and conditions of the buildingOur remaining liability under this agreement is $448,200 payable at amounts ranging from $12,150 to $12,600 a month until June 30, 2024.
Total lease remain in effect.
| Payments due by period | ||||||||||||||||||||
| Total | Less than 1 year | 1 to 3 years | 3 to 5 years | After 5 years | ||||||||||||||||
| Facility lease | $ | 414,000 | $ | 138,000 | $ | 276,000 | $ | - | $ | - | ||||||||||
| Total contractual cash obligations | $ | 414,000 | $ | 138,000 | $ | 276,000 | $ | - | $ | - | ||||||||||
NOTE 5 4 – STOCK TRANSACTIONS
During the years ended June 30, 20172022 and 2016,2021, 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 and a Certificate of Designation was subsequently file with the Nevada Secretary of State forState. Effective September 24, 2020, the Company filed a withdrawal of designation related to the 2013 Series Convertible Preferred Stock which was approved bydesignation. In doing so, the State of Nevada Secretaryalso withdrew all preferred shares authorized. The Company will file a new designation authorizing preferred shares should this be needed in the future.
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2022, and 2021
On December 19, 2013.18, 2019, the Company renewed the Chief Executive Officer’s Employment Agreement. The 2013 Series Shares have voting rights only on any matters directly affecting the rights and privilegesnew Agreement extends his term of the 2013 Series Shares. The 2013 Series Shares haveemployment to December 31, 2020. Inclusive in this new Agreement is a liquidation preference amounting to a returnstock award 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 to1.98 million shares of the Company’s common stock vesting ratably over 12 months (January 2020 – December 2020), valued at a ratiofixed rate of ten$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, and as of June 30, 2021, the remaining 990,000 shares of stock vested and were issued.
On January 22, 2020, 60,000 shares of common stock for each share of the 2013 Series Shares (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. 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 $100,000 per year as of June 30, 2017 and 2016, 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.
On January 24, 2020, 460,000 shares of January 31, 2017, 225,000 sharescommon stock were granted to the Company’s Board of Director’smembers as Board compensation for the term ending November 2017.2020. Each non-executive Board member receives 50,00093,750 shares, with the Audit Committee Chair receiving 75,000156,250 shares and the Compensation Committee Chair receiving 116,250 shares. The shares vest ratably on a monthly basis over the January 2020 – December 2017,November 2020 period. The shares are valued at a fixed rate of $0.0155,$0.02, the closing price per share of our common stock price on January 31, 2017.24, 2020. As of June 30, 2017, 112,5002020, 230,000 shares of thesestock vested and were issued, and as of June 30, 2021, the remaining 230,000 shares have been earnedof stock vested and were issued.
Effective January 1, 2021, the Company’sCompany renewed the Chief Executive Officer, finalized the negotiation of the replacement and extension of his employment contract. While all material compensation terms were finalized February 23, 2017 other items within the agreement, filed via Form 8-k on March 27, 2017, were finalized as of March 23, 2017.Officer’s Employment Agreement. The new Agreement replaces the current employment agreement and extends his term of employment to December 31, 2018.2021. Inclusive in this new agreementAgreement is a stock award of 2.42.7 million shares of the Company’s common stock vesting ratably over twenty-three12 months (February 2017(January 2021 – December 2018)2021), valued at a fixed rate of $0.0168,$0.031, the closingaverage price per share of the Company’s common stock price on February 22, 2017.for the period December 24, 2020 to December 31, 2020. As of June 30, 2017, 521,739 of these shares have been earned and issued.
On January 19, 2016, the Board granted all non-executive Board members 100,000 options, with the audit committee chair receiving an additional 50,000 options, for Board services rendered for the Board term ending December 2016. The options have a strike price1, 2021, 60,000 shares of $0.10, vest at the end of the Board term in December 2016 and expire December 2019.
In the January 2021 Board Meeting, the Chairman of the Board proposed compensation to the independent members of the Board of Directors such that each such director’s compensation would be in company shares that are both granted and vested as of each Board meeting each independent Director attends, at the following share amounts: Audit Committee Chair 15,000 per meeting, Board Secretary 15,000 per meeting, all other independent Directors 10,000 per meeting. As the shares are both granted and vested per Board meeting attended, the value of the related shares is the closing stock price on each meeting date. The Board approved this plan. The value of these shares ranged between $0.02 and $0.10 per share during the six-month period ended June 30, 2021. As of June 30, 2021, 245,000 shares of stock vested and were issued.
Effective January 1, 2022, the Company renewed the Chief Executive Officer’s Employment Agreement. The new Agreement extends his term of employment to December 31, 2022. Inclusive in this new Agreement is a stock award of 1.68 million shares of the Company’s common stock vesting ratably over 12 months (January 2022 – December 2022), valued at a fixed rate of $0.049 per share, the average price per share of the Company’s common stock for the period December 27, 2021 to December 31, 2021.
On January 1, 2022, 60,000 shares of common stock were granted to the Company’s Chief Financial Officer as part of her employment agreement. The options have a strike pricerenewal. These shares of $0.10,the Company’s common stock vest ratably January 21, 2016over 12 months (January 2022 – December 2022) and are valued at a fixed rate of $0.049 per share, the average price per share of the Company’s common stock for the period December 27, 2021 to December 1, 201631, 2021.
Effective February 28, 2022, the Board approved director equity compensation awards totaling 500,000 shares for the term ending November 2022. Each non-executive Board member receives 100,000 shares, with the Audit Committee Chair receiving 150,000 shares and expirethe Board Secretary receiving 150,000 shares. The shares vest monthly (in equal installments) February 2022 – November 2022, valued at a fixed rate of $0.049, the average price per share of the Company’s common stock for the period December 1, 2019. In addition27, 2021 to the option renewal $550 a month in health insurance reimbursement was included in the renewal. All other terms remain the same. December 31, 2021.
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 20172022, and 20162021
NOTE 5 – STOCK OPTIONS
General Option Information
On July 22, 2020, the Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”) which contains provisions for up to 5,000,000 stock-based instruments to be granted to employees, consultants and vesting duringdirectors.
On October 26, 2021, the period ending June 30, 2017Board of Directors adopted the 2022 Equity Incentive Plan (the “2022 Plan”) which contains provisions for up to 10,000,000 stock-based instruments to be granted to employees, consultants and directors.
Effective September 24, 2020, the Company filed a Certificate of Withdrawal of the Certificate of Designation related to the Company’s 2013 Series Convertible Preferred Stock. In doing so, the 2,000,000 shares of preferred stock previously designated as 2013 Series Convertible Preferred Stock returned to the status of authorized and unissued shares of “blank check” preferred stock, and as a result we now have a total of 5,000,000 shares of preferred stock under our Articles of Incorporation which may be designated in one or more series with such relative rights, preferences and limitations as the Board of Directors may determine. The Company may file one or more new designations authorizing the issuance of preferred shares should this be needed in the future as may be determined by the Board of Directors.
All previously granted stock options expired as of December 1, 2016, 480,00031, 2021; no stock options were granted to the Company’s Chief Executive Officer as part of his employment offer. The options have a strike price of $0.10, vest December 1, 2017 and expire December 1, 2020. Year to date expense related to these options is $1,021 as of June 30, 2017. in fiscal year 2022.
A summary of the status of our outstanding stock options as of June 30, 20172022, and June 30, 20162021, and changes during the periodsyears then ended is presented below:
| June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
| Weight Average | Intrinsic | Weight Average | Intrinsic | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Exercise Price | Value | Shares | Exercise Price | Value | Shares | Weight Average Exercise Price | Intrinsic Value | Shares | Weight Average Exercise Price | Intrinsic Value | |||||||||||||||||||||||||||||||||||||
| Outstanding beginning of period | 3,800,000 | $ | 0.13 | 2,270,000 | $ | 0.14 | 1,030,000 | $ | 0.12 | 2,870,000 | $ | 0.12 | ||||||||||||||||||||||||||||||||||||
| Granted | 480,000 | $ | 0.10 | 1,530,000 | $ | 0.10 | - | $ | 0.00 | - | $ | 0.00 | ||||||||||||||||||||||||||||||||||||
| Expired/Cancelled | - | $ | 0.00 | - | $ | 0.00 | (1,030,000 | ) | $ | (0.12 | ) | (1,840,000 | ) | $ | (0.12 | ) | ||||||||||||||||||||||||||||||||
| Exercised | - | $ | 0.00 | - | $ | 0.00 | - | $ | 0.00 | - | $ | 0.00 | ||||||||||||||||||||||||||||||||||||
| Outstanding end of period | 4,280,000 | $ | 0.12 | $ | - | 3,800,000 | $ | 0.13 | $ | - | - | $ | 0. 00 | $ | - | 1,030,000 | $ | 0.12 | $ | - | ||||||||||||||||||||||||||||
| Exercisable | 4,080,000 | $ | 0.12 | $ | - | 3,070,000 | $ | 0.13 | $ | - | - | $ | 0. 00 | $ | - | 1,030,000 | $ | 0.12 | $ | - | ||||||||||||||||||||||||||||
NOTE 6 – SUBSEQUENT EVENTS
The following table summarizesCompany has evaluated all activity through September 19, 2022 (the date the range of outstandingFinancial Statements were available to be issued) and exercisable options as of June 30, 2017:
| Outstanding | Exercisable | |||||||||||||||||||||
Range of Exercise Prices | Number Outstanding at June 30, 2017 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at June 30, 2017 | Weighted Average Remaining Contractual Life | |||||||||||||||||
| $ | 0.08 | 150,000 | 4.42 | $ | 0.08 | 150,000 | 4.42 | |||||||||||||||
| $ | 0.10 | 2,680,000 | 2.10 | $ | 0.10 | 2,480,000 | 2.10 | |||||||||||||||
| $ | 0.17 | 1,450,000 | 3.42 | $ | 0.17 | 1,450,000 | 3.42 | |||||||||||||||
| 4,280,000 | 4,080,000 | |||||||||||||||||||||