AMERITYRE CORP - Annual Report: 2010 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

Commission file number   000-50053

AMERITYRE CORPORATION

(Exact name of registrant as specified in its charter)

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

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

 

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

 

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 o  NO x

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 x  NO o

  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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer  ¨      Accelerated filer ¨         Non-accelerated filer    ¨       Smaller reporting company ý

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

On September 28, 2010, 32,063,723 shares of common stock of the Registrant were outstanding, and the market value of common stock held by non-affiliates was $9,947,987 (based upon the closing price of $0.35 per share of common stock as quoted on the NASD: OTCBB).

Documents Incorporated by Reference

Portions of the Registrant's definitive proxy statement, which will be issued in connection with the 2010 Annual Meeting of Shareholders of Amerityre Corporation, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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AMERITYRE CORPORATION

2010 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

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AMERITYRE CORPORATION

2010 ANNUAL REPORT ON FORM 10-K

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

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

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

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

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

PART I

ITEM 1.  BUSINESS

Overview

We were incorporated as a Nevada corporation on January 30, 1995 under the name American Tire Corporation and changed our name to Amerityre Corporation in December 1999.  Since our inception in 1995, we have been engaged in the research and development of technologies related to the formulation of polyurethane compounds and the manufacturing process for producing tires from polyurethane.

We believe that we have developed unique polyurethane formulations that allow for the creation of tire products with superior performance characteristics, including abrasion resistance and load-bearing capabilities, compared to those of conventional rubber tires.  In addition, we believe that the manufacturing processes we have developed are more efficient than traditional tire manufacturing processes, in part because our polyurethane compounds do not require the processing steps, extreme heat, and high pressure that are necessary to cure rubber.  Using our polyurethane technologies, we believe tires can be produced that are cost-competitive, more durable and more fuel efficient than existing rubber tires. As a company focused on the advanced chemistry and potential

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innovative applications of polyurethane, we believe there is a significant opportunity to apply our materials to several industries.  The escalating price of rubber, combined with its inherent limitations, demonstrates the need for and potential benefits of alternative materials.  We believe that significant product performance improvements can be realized by substitution of our unique polyurethane compounds for both rubber and inferior polyurethane compounds.

We intend to expand our intellectual property portfolio through our own research and development as well as co-development efforts with industry leaders. We have had numerous patents granted and we have additional patent applications pending relating to our technology. By expanding our intellectual property, we believe that we will strengthen our competitive position and continue to be an innovator in the development of polyurethane technologies.

Products

Our polyurethane material technology is based on two key proprietary formulations; closed-cell polyurethane foam, which is a lightweight material with high load-bearing capabilities for light-use applications; and Elastothane®, a high performance polyurethane elastomer with high load-bearing capabilities suitable for heavy-use applications. The sale of closed-cell polyurethane foam tires accounts for approximately 93% of our total revenues at this time. However, we believe that the technology to formulate polyurethane for specialty applications and produce tires and tire-related products using our proprietary formulations is significant to our potential future growth.  Our business model provides for a diversified revenue stream, and we intend to generate additional revenue through license agreements relating to the use of our patented manufacturing methods and commercialization of the products produced with our technology.

Low Duty Closed-Cell Polyurethane Foam Tires

We currently manufacture several lines of closed-cell polyurethane foam tires for bicycles, wheelchairs, lawn and garden products, such as wheelbarrows and hand trucks, and outdoor power equipment products.  Our closed-cell polyurethane foam products are often referred to as flat-free because they have no inner tube, do not require inflation and will not go flat even if punctured. Our closed-cell polyurethane foam tires are mounted on the wheel rim in much the same way as a pneumatic tire.  Our closed-cell polyurethane foam products are virtually maintenance free, eliminating the need to make tedious puncture repairs and offering superior wear compared to rubber based tires.  

Although we currently have the capacity to produce up to 2,000,000 closed-cell foam tires per year at our Boulder City, Nevada facility, in the longer term, we intend to expand commercialization of our closed-cell foam tire products through strategic relationships with licensees who will manufacture the closed-cell foam tires for use on original equipment products.

Polyurethane Elastomer Forklift and Skid Steer Tires

We have completed the development phase and third party testing of our new lines of fork lift tires that we believe will compete with rubber tires that are currently used in the market. We’ve been successfully able to demonstrate the capability of manufacturing MDI polyurethane forklift tires. We believe that MDI polyurethane forklift tires can be manufactured and sold at prices competitive against current rubber tires.

At this filing date, a small number of tires have been sold to customers for testing purposes in the field. The field testing will take some additional time as we seek to prove that urethane tires perform better and last longer that rubber tires as well as to change market perception of urethane as a better solution. The tires placed for testing are in many different applications where forklifts operate. Many are placed in high cycle load applications to generate immediate reports of results. The initial reports show positive results in both acceptance and performance.

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Polyurethane Foam Fire Retardant Material

We have formulated and tested small quantities of a flame retardant polyurethane foam for use as packaging material. The flame retardant material has performed well in flammability testing and exceeded the requirements of the UL 94-HB (Horizontal Burn) test. We have produced and sold small quantities of the material and anticipate some increase in sales in the 2011 fiscal year.

Amerifill™ Tire Fill Material

In May 2008, we began the sale of high-quality polyurethane foam for use in the commercial tire fill market.  The tire fill material is marketed under the name Amerifill®. Amerifill® is based on Amerityre’s proven, premier “flat-free” closed-cell polyurethane foam technology. Tire fill materials are used in many tire applications, including construction, industrial and mining applications, to “flat-proof” and extend the life of rubber tires. Amerifill® is based on MDI polyurethane chemical formulations, which have been shown to be very stable and environmentally safe.  Most tire fill materials available today are petroleum-based compounds that have been shown to reduce the useful life of the tire and to pose environmental hazards. We have evaluated Amerifill® in the field and in side-by-side comparison testing conducted by independent test laboratories.  We have shown that Amerifill® performs better under load, runs cooler and is more durable than current comparable materials. However, at this time the capital costs for the necessary equipment and competitive pricing for alternative tire fill materials have limited our ability to successfully penetrate the tire fill market.

Products in Development

We are developing tires and treads for tires using Elastothane^® for a variety of applications as discussed below. In order to design and produce polyurethane tires suitable for these applications, we have invented the manufacturing equipment necessary to produce these tires in limited quantities and currently have multiple patents and pending patent applications with respect to various aspects of this technology.  This work is ongoing and we expect to make improvements to the processes and equipment as needed so that products can be produced in commercial quantities.  Elastothane^® and the technology to produce tires using this proprietary formulation are significant to us because we believe that they allow for the creation of tires that can be produced quickly and less expensively than traditional rubber pneumatic tires, while meeting or exceeding the performance characteristics of those tires.  

Polyurethane Elastomer Retread Material

We have been developing a manufacturing process for retreading off the road (“OTR”) and medium commercial truck tires with Elastothane^®.  We believe this retreading process will have broad application for the mining, construction, industrial and commercial truck tire markets.  Our tire retreading process involves applying the polyurethane tread compound to the rubber tire casing without high heat, pressure or curing.  

Polyurethane Elastomer Non-Pneumatic or “Solid” Tires

We have completed the developmental phase of a non-pneumatic zero-pressure temporary/spare tire using Elastothane^®.  This solid Elastothane® tire was developed for potential use as a temporary/spare tire for passenger vehicles.  These tires do not contain air and do not require inflation. However, in its current state of development, the non-pneumatic temporary spare tire costs and weighs more than a conventional pneumatic temporary tire.

Polyurethane Elastomer Passenger Car Tire and the Arcus® Run-Flat Tire

 In 2001, we developed polyurethane elastomer pneumatic passenger car tires that we were able to drive for over 500 miles without air pressure and with several holes in the sidewalls.  These tires did not contain traditional tire reinforcement materials, such as beads, belts and plies.  We then developed Arcus®, a patented system for integrating these reinforcement materials in our Elastothane® tires.  The Arcus® Run-Flat Tire is designed to operate at normal air pressure, yet continue to perform normally for up to 200 miles without air.

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We have produced a limited number of Arcus® passenger car tires and have conducted independent laboratory testing to demonstrate these tires comply with the Federal Motor Vehicle Safety Standards, or FMVSS.  In April 2004, our Arcus® Run-Flat tire was successfully tested by an accredited test laboratory approved by the National Highway Traffic Safety Administration, or NHTSA, to certify compliance with the laboratory test procedures required under FMVSS 109, the current safety standard for pneumatic passenger car tires.  We know of no other company that has produced a pneumatic polyurethane passenger car tire that has passed these standards.  Additionally, an independent laboratory test demonstrated that our Arcus® Run-Flat tire had 45% less rolling resistance than a comparable rubber run-flat car tire.  The independent laboratory test indicated that the lower rolling resistance would result in more than a 12% increase in fuel economy for a car equipped with Arcus® Run-Flat tires.

In November 2007, we successfully completed the final components of FMVSS 139 (the U.S. safety standard) testing on our Arcus® run-flat tire design.  Components of the testing include bead unseating, tire strength and the strenuous high speed component, as well as an endurance component. We continue to manufacture prototype passenger car tires to evaluate the properties of the tires in the laboratory and on vehicles. We have also provided prototype tires to other tire or automotive manufacturers for performance evaluation, which may include uniform tire quality grading or other performance testing and/or testing to non-U.S. safety standards.

Raw Materials and Supplies

The two principal chemical raw materials required to manufacture our products are known generically as polyols and isocyanates.  We purchase our chemical raw materials from multiple third-party suppliers.  In addition, we purchase various quantities of additional chemical additives that are mixed with the polyols and isocyanates.  These additional chemicals are also available from multiple suppliers.  Critical raw materials are generally sourced from at least two vendors to assure adequate supply and price competition.  

We believe that sufficient quantities of chemical raw materials can be obtained through normal sources to avoid interruption of production.  However, with respect to both polyols and isocyanates, worldwide demand is increasing and may exceed current capacity.  If we are successful in implementing our business strategy, the quantities of chemical raw materials required by us or by others that utilize our technology may increase significantly.  Shortages, if any, may result in price increases that we may or may not be able to pass on to our customers by means of corresponding changes in product pricing.  Therefore, raw material price increases or our inability to pass price increases through to customers could adversely affect our results of operations.

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 multiple third-party suppliers.  In fiscal 2009 and 2010 we experienced price increases for steel wheel components but no supply delays or shortages.  However, we anticipate that we may experience an increase in steel wheel components at such time as the Chinese government cancels any export rebates it may be currently providing Chinese wheel manufactures. We believe that we can continue to purchase wheel components from multiple sources without any difficulty.

Operations/Manufacturing

Our closed-cell polyurethane foam products are manufactured utilizing single or multiple stationed carousel centrifugal molding presses.  We produce closed-cell foam products using these presses by pouring a proprietary polyurethane formula into a mold, which then spreads out in the mold through centrifugal force.  The molding process occurs by reacting MDI with polyol and other chemicals.  The chemical reaction causes a cross linking of the chemicals, which thereafter become solid.  The manufacturing process for a closed-cell polyurethane foam product takes less than two minutes.  The closed-cell polyurethane foam product can then be removed from the mold and the process is repeated.

Our polyurethane car tire technology is best summarized as a combination of specially formulated chemicals coupled with unique manufacturing processes and tire building techniques. We have also invented manufacturing processes to make tires for vehicles from polyurethane elastomer. We believe this manufacturing process offers significant advantages over the process for producing rubber tires. We believe that manufacturing a passenger car tire using our manufacturing technology will significantly reduce the cost of a tire manufacturing plant.  Because of our simplified manufacturing process, much of the equipment typically required to produce

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rubber tires is not necessary, and an Elastothane™ tire manufacturing plant will require much less square footage and require less energy to run.

All of our closed-cell polyurethane foam products are inspected following the manufacturing process and prior to shipment to ensure quality. Any closed-cell foam products considered by our quality control personnel to be defective are disposed of through traditional refuse collection services or can be ground into pellets, which can be melted and reused to make other products and reduce waste of raw materials.  We expect to implement similar quality control procedures with respect to any Elastothane™ products that we produce.

Information Systems

We use commercial computer aided design, or CAD, software in connection with engineering and designing our products.  This software allows us to integrate our proprietary manufacturing and production data with our design technology, enabling our engineering department to leverage our previous manufacturing and test results to predict the performance characteristics of new product designs.  For general business purposes, we use commercially available software for financial, distribution, manufacturing, customer relationships and payroll management.  

Sales, Marketing and Distribution

Historically, we have been primarily a technology company in the development stage, manufacturing a limited number of products for the purpose of validating our polyurethane materials and manufacturing technology.  We are transitioning in to becoming a manufacturing company.  We now have three product lines available for the market, polyurethane foam tires, tire fill materials, and solid forklift and skid steer tires.  We continue to manufacture test tires for different applications for the solid tire business.  

We have an extensive line of closed-cell polyurethane foam tire products for various product and application segments and continue to increase new and different tire size offerings.  Our three full-time sales representatives are actively targeting customers that utilize tires in significant volume. Our sales representatives are also working to establish broader distribution for our products in the aftermarket by contacting major regional distributors, retail cooperatives and chains that distribute and otherwise sell our products.  

Solid tires are the newest product we have introduced.  In 2009, we announced an agreement with K2 Industrial Tires for the sales and marketing of solid press-on forklift tires. We have a complete line for the press-on tires both smooth and traction tread applications. We continue to experiment with other applications with the solid tire business as this covers broad range applications and different sizes in the tire business.

Tire fill is a product used in flat proofing tires.  We target tire fill pumpers whom are typically commercial tire dealers and OEM (original equipment manufacturer) users of tire fill in the construction, industrial and mining applications, however competition in this area has limited our market penetration.

We continue looking for international marketing partners for overseas sales of our products.

Customers

We have one customer which accounted for approximately 26%, and 20% of total sales during the fiscal years ended June 30, 2010 and 2009, respectively. We don't believe that the loss of this customer would have a material adverse effect on our business.  In general, our customers include OEMs of lawn and garden products, and outdoor power equipment, regional distributors, retail cooperatives and chains that sell lawn and garden products, bicycle tires and hand truck tires to the aftermarket.

Competition

There are several companies that produce not-for-highway-use or light-use tires from polyurethane foam such as Green Tire, manufactures in the UK, Carefree Tire manufactures in China, Marathon Tire manufactures in China, Custom Engineered Wheels (Spartech) and Krypton manufactures in India.  We believe our closed-cell

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polyurethane foam tires differ from the polyurethane foam tires offered by the above competitors because our products contain millions of closed-cell versus open-cell air bubbles.  By closing the cells, our products have higher load bearing characteristics than tire products with open-cell polyurethane foam, while effectively producing a ride quality comparable to a pneumatic tire.

In addition to manufacturers of polyurethane foam tires, we compete directly with companies that manufacture and market traditional not-for-highway-use, light-use pneumatic, semi-pneumatic, and solid tires made from rubber.  The not-for-highway use tire industry has historically been highly competitive and several of our 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 Carlisle Tire, USA, that have established brand name recognition, have established distribution networks for their products, and have developed consumer loyalty to such products.

There are several companies that produce pneumatic tire fill material, such as Carpenter, Pathway Polymers and Arnco. These companies are larger than us and have established distribution networks for their products. We believe that most tire fill materials available today are petroleum-based compounds that have been shown to reduce the useful life of the tire and to pose environmental hazards.  Governments in both Europe and the United States have either passed or are considering legislation that will eventually outlaw the use or disposal of these hazardous fill materials. Our Amerifill® tire fill material is based on MDI polyurethane chemical formulations, which have been shown to be very stable and environmentally safer than the petroleum-based compounds. We have shown that Amerifill® performs better under load, runs cooler and is more durable than current comparable materials.  

We have evaluated Amerifill® in the field and in side-by-side comparison testing conducted by independent test laboratories.  While our elastomer Amerifill® material is not price competitive with oil based fill products, it has significant environmental benefits compared with those products.

We know of no other companies that have the technology necessary to formulate and produce polyurethane elastomer compounds suitable for either highway or OTR tire use.  To our knowledge, no other company has produced polyurethane pneumatic and/or non-pneumatic passenger car tires that comply with FMVSS for those tires.  However, there are several domestic and international companies that produce rubber tires for highway or OTR use, most of which are larger and have greater financial resources than we do.  Significant competitors in the highway tire market include Goodyear, Bridgestone/Firestone and Michelin.  Significant competitors in the OTR tire market include Bridgestone/Firestone, Goodyear and Michelin.

 

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 seven issued U.S. patents and have several additional pending U.S. and foreign patent applications.  We use various trademarks in association with marketing our products, including the names Arcus®, Amerityre®, Atmospheric®, Elastothane®, Amerifill®, Kik™ and Tire Technology for the 21st Century®  

Trade Secrets

Our polyurethane material technology is based on two key proprietary formulations, a closed-cell polyurethane foam, which is a lightweight material with high load-bearing capabilities for light-use applications, and a polyurethane elastomer, which is a high performing material with high load-bearing capabilities for heavy-use applications.  

We restrict access to our key proprietary formulations to a limited number of our executive officers and managers.  Documentation of our proprietary formulations is secured in a safe deposit box.  We have not applied for patent protection of our proprietary formulations because such applications would require us to publicly disclose these formulations.  Instead, we have chosen to maintain these formulations as trade secrets.  

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Patents

Set forth in the schedule below are patents that have been issued or for which a patent application is pending with respect to our technology.

Trademarks

Set forth in the schedule below are the United States trademarks that have been registered or for which a trademark application has been filed.

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

Employees

As of August 31, 2010, we had 16 full-time employees, including 10 salaried and 6 hourly employees.  We may hire temporary labor for manufacturing needs as required.  We believe that we will be able to hire a sufficient quantity of qualified laborers in the local area to meet our employment needs.  Our manufacturing process does not require special training, other than orientation to our production techniques and specific equipment.  None of our employees is represented by a labor union or a collective bargaining agreement.  We consider our relations with our employees to be good.

Research and Development

Our research and development activities are focused primarily on the continued development of our passenger car tire technology and the use of our proprietary chemical systems (i.e. Amerifill™ and Elastothane®) for use in multiple applications as discussed above. We continue to fine tune tire products for various markets (i.e. solid-fork lift tires and cost-efficient manufacturing processes). We have also developed non-tire related applications (i.e., polyurethane foam fire retardant material) and, provided we have sufficient funding, we will continue to devote a portion of our research and development efforts outside of the tire industry.  Our research and development expenses have totaled $122,409 and $190,030 for fiscal 2010 and 2009, respectively.

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Regulatory Environment

Tire manufacturers must comply with a wide range of government- and industry- imposed standards and regulations.  In order to commercially market motor vehicle tires in the U.S., manufacturers must comply with the FMVSS, which are promulgated by the National Highway Traffic Safety Administration.  In addition to FMVSS, tire manufacturers are subject to a variety of national and local laws and regulations, many of which deal with the environment and health and safety issues, including specific requirements related to tire strength, performance and endurance.  Regulations may change in response to judicial proceedings, legislative and administrative proposals, government policies, competition, and technological developments.

ITEM 1A. RISK FACTORS

Due to our history of operating losses, our auditors are uncertain that we will be able to continue as a going concern.

Our financial statements have been prepared assuming that we will continue as a going concern.  For the years ended June 30, 2010 and June 30, 2009, we had net losses of approximately $1.40 million and $3.62 million, respectively.  The independent auditors’ report issued in conjunction with the financial statements for the year ended June 30, 2010 contains an explanatory paragraph indicating that the foregoing matters raise substantial doubt about our ability to continue as a going concern. We cannot guarantee that we can generate net income, increase revenues or successfully expand our operation in the future, and if we cannot do so, the company may not be able to survive and any investment in the company may be lost.

Because our auditors have expressed a going concern opinion, our ability to obtain additional financing could be adversely affected.

We have incurred significant losses since inception, which have resulted in an accumulated deficit of $56,045,951 at June 30, 2010. Because of these continued losses and our accumulated deficit, we have included a going concern paragraph in Note 5 to our financial statements included in this report, addressing substantial doubt about our ability to continue as a going concern. This going concern paragraph could adversely affect our ability to obtain favorable financing terms in the future or to obtain any additional financing if needed.

Historically, we have lost money from operations and we have made no provision for any contingency, unexpected expenses or increases in costs that may arise.

We are an early-stage company and our products have not obtained broad market acceptance.  Since inception, we have been able to cover our operating losses from the sale of our securities.  We do not know if these sources of funds will be available to cover future operating losses. If we are not able to obtain adequate sources of funds to operate our business we may not be able to continue as a going concern.

Our business operations and plans could be adversely affected in the event we need additional financing and are unable to obtain such funding when needed.  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, then we may be forced to cease operations.

In order to succeed as a company, we must continue to develop commercially viable products and sell adequate quantities of products at prices sufficient to generate profits.  We may not accomplish these objectives. Even if we are successful in increasing our revenue base, a number of factors may affect future sales of our products.  These factors include whether competitors produce alternative or superior products and whether the cost of implementing our products is competitive in the marketplace.

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In addition, we are attempting to increase revenues through licensing our technology and manufacturing rights, selling polyurethane chemical systems to customers that produce their own products, and offering contract design and engineering services.  If these proposals are not viable in the marketplace, we may not generate significant revenues from these efforts.

A continuing recession in the U.S. and general downturn in the global economy could have an adverse impact on our business, operating results or financial position.

The U.S. economy has been in recession and there has been a general downturn in the global economy. A continuation or worsening of these conditions, including credit and capital markets disruptions, could have an adverse impact on our business, operating results or financial position in a number of ways. We may experience declines in revenues and cash flows as a result of reduced orders, payment delays or other factors caused by the economic problems of our customers and prospective customers. We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and customers. We may incur increased costs or experience difficulty with about 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 operate.

We may experience delays in resolving unexpected technical issues experienced in completing development of new technology that will increase development costs and postpone anticipated sales and revenues.

As we develop and improve our products, we frequently must solve chemical, manufacturing and/or equipment-related issues.  Some of these issues are ones that we cannot anticipate because the products we are developing are new. If we must revise existing manufacturing processes or order specialized equipment to address a particular issue, we may not meet our projected timetable for bringing products to market.  Such delays may interfere with existing manufacturing schedules, negatively affect revenues and increase our cost of operations.

Because we have limited experience, we may be unable to successfully manage planned growth as we complete the transition from a technology development company to a licensing, manufacturing and marketing company.

We have limited experience in the commercial manufacturing and marketing arena, limited product sales and marketing experience, and limited staff and support systems, especially compared to competitors in the tire industry.  In order to become profitable through the commercialization of our technology and products, our products must be cost-effective and economical to produce and distribute on a commercial 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 our technologies and products effectively.  We have limited manufacturing, marketing and distribution capabilities.   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, engaging independent distributors, or recruiting, training and retaining a larger internal marketing staff and sales force.  If we are unable to meet the challenges posed by our planned licensing, manufacturing, distribution and sales growth, our business may fail.

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 and health and safety issues. We believe we are in material compliance with applicable environmental and worker health and safety requirements. However, material future expenditures may be necessary if compliance standards change or material unknown conditions that require remediation are discovered. 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, which could have a material adverse affect on our business.

The markets in which we sell our products are highly competitive.

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The markets for our products are highly competitive on a global basis, with a number of companies having significantly greater resources and market share than us.  Many of our competitors also maintain a significantly higher level of brand recognition than we do.  Because of greater resources and more widely accepted brand names, many of our competitors may be able to adapt more quickly to changes in the markets we have targeted or devote greater resources to the development and sale of new products.  Most of the products we have developed have not obtained broad market acceptance and rely on our emerging technology.  To improve our competitive position, we will need to make significant ongoing investments in manufacturing, customer service and support, marketing, sales, research and development and intellectual property protection.  We do not know if we will have sufficient resources to continue to make such investments or if we will maintain or improve our competitive position within the markets we serve.  

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 which 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 protect our key polyurethane formulations.  These formulations are critical elements of and central to our proprietary technology.  Our trade secrets could 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.  We may also be subject to claims by other parties with regard to the use of technology information and data that may be deemed proprietary to others.  The independent development of technologies that are similar or superior to our technology or the reverse engineering of our products by third parties would have a material adverse effect on our business and results of operations.  In addition, the loss of our ability to use any of our trade secrets or other proprietary technology would have a material adverse effect on our business and results of operations.  Because trade secrets do not ensure exclusivity and pose such issues with respect to enforcement, third parties may decline to partner with us or may pay lesser compensation for use of our technology which is protected only by trade secrets.

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

Our success and ability to compete are substantially dependent upon our intellectual property.  We rely on patent, trademark and copyright laws, trade secret protection and confidentiality or license agreements with our employees, customers, strategic partners and others to protect our intellectual property rights.  However, the steps we take to protect our intellectual property rights may be inadequate.  There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services.  For example, effective intellectual property protection may not be available in every country in which we license our technology or our products are distributed.  Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective.  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 several U.S. patents and have several U.S. patent applications pending relating to certain aspects of our manufacturing technology 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

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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;

·

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

·

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

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

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

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

Tires for highway use must meet applicable safety standards prior to marketing which could delay anticipated revenues and increase expenses, while off-the-road tires, although not subject to specific safety standards, are subject to discretionary industry performance evaluations based on product application.

Tires intended for highway use must meet applicable federal safety standards through various testing processes.  Our prototype polyurethane car tires, temporary spare tire, and medium commercial truck retread material are all subject to such standards.  The testing procedures involve submission of sample products to approved independent testing facilities, a process that may entail both significant time and expense.  OTR tires, including tire retread material, must meet the performance standards established by the manufacturers and end-users based on the criteria established by them after taking into account their specific needs, such as load capacity, terrain and proposed uses.  The applicable standards may be changed at any time and meeting current or future performance standards may require reevaluation and additional research and testing.  

We have received approval for only a limited number of our highway-use products.  In the future, we may be unable to obtain the requisite approval for the sale of some of our products.  Therefore, the timing of product placement in the market may be difficult to determine, may require additional research, development and testing expenses, and we may not receive revenues from such products as planned.  Such delays, our inability to obtain the requisite approval and potential additional expenses could have a negative impact on cash flows, results of operations and business planning.

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

Even if tests indicate that our tires meet performance standards and our new highway-use tire products are approved for use, these products may subject us to significant product liability claims because the technology is new and there is little history of on-road use.  Moreover, because our products are and will be used in applications where their failure could result in substantial injury or death, 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 chemical raw materials, steel and other raw materials used in our products could increase our production costs and decrease our profit margins or make our products less competitive in the marketplace due to price increases.

The materials used to produce our products are susceptible to price fluctuations due to supply and demand trends, the economic climate and other unforeseen trends.  We have recently experienced increases in the cost of wheel components for our tire/wheel assemblies due to the increased cost of steel and have also seen increases in our chemical raw materials pricing.  Our raw materials pricing could increase further in the future.  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.  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.

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

Our polyurethane technology has been developed by a small number of the members of our management team and only a limited number of the 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 other key personnel.  The loss of the services of one or more members of our management team could hinder our ability to effectively manage our business and implement our growth strategies.  Finding suitable replacements could be difficult, and competition for such personnel of similar experience is intense.  We do not carry key person insurance on any of our officers.  

Shareholders and potential investors may experience some difficulty trading our stock since it is only quoted on Nasdaq’s Over the Counter Bulletin Board.

 Our common stock is quoted on Nasdaq’s OTC Bulletin Board.  As a result, secondary trading of our shares may be subject to certain state imposed restrictions and the ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Further, our shares may be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny stock" rule. Broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally persons with assets in excess of $1,000,000, excluding the value of a principal residence, or annual income exceeding $200,000 by an individual, or $300,000 together with his or her spouse), are subject to additional sales practice requirements.

 

For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent to clients disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of stockholders to sell their shares.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

As of June 30, 2010, we did not have any unresolved comments with the staff of the Securities and Exchange Commission.

ITEM 2. PROPERTIES

In June 2010, we negotiated an extension to the lease for our executive and manufacturing facilities located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square-foot building, which includes approximately 5,500 square-feet of office space, situated on approximately 4.15 acres.  The term of the lease is 1 year expiring June 14, 2011.  The base rent is $15,000 per month.

ITEM 3. LEGAL PROCEEDINGS

As of June 30, 2010, we were not involved in any legal proceedings.

ITEM 4. RESERVED

PART II

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

Our common stock traded on the NASDAQ Capital Market under the symbol "AMTY" through February 3, 2010. Subsequent to that date, our common stock is quoted on the NASD’s OTC Bulletin Board. The following table sets forth for 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.

The closing price of our common stock on the NASD’s OTC Bulletin Board on September 17, 2010 was $0.35 per share. As of September 28, 2010, there were approximately 500 holders of record of our common stock and  32,063,723 shares of common stock outstanding based on information provided by our transfer agent, Interwest Transfer Company, 1981 E. Murray-Holladay Road, Holladay, Utah  84117.

On September 3, 2010, we closed a private placement of secured convertible promissory notes (the “Notes”).  We sold an aggregate of $755,800 in Notes.  The Notes are for a term of one year with simple interest of 6%. The principal and interest are due at maturity if the note holders decide not to convert the note  into common shares. The Notes are convertible at the holders’ option to our common stock at a conversion rate of $0.35 per share.  If the holder elects such conversion, for each two shares in the conversion, the holder shall also receive one warrant to purchase an additional share, exercisable at $0.60 per share for an exercise period of 2 years from the date of conversion.  No officers, directors or affiliates of the Company participated in the private placement.  The Notes were sold pursuant to subscription documents between the Company and each investor. We believe the offer and

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sale of the securities described above were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”), for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D thereunder because the securities were sold to accredited investors in a transaction not involving a public offering. 

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, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors deems relevant.

ITEM 6. SELECTED FINANCIAL DATA

We are “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 contains statements of a forward-looking nature relating to future events or our future financial performance or financial condition.  Such statements are only predictions and the actual events or results may differ materially from the results discussed in or implied by the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Part I. Item 1A. Risk Factors" as well as those discussed elsewhere in this report.  The historical results set forth in this discussion and analysis 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

Since our inception in 1995, we have been engaged in the research and development of technologies related to the formulation of polyurethane compounds and the manufacturing process for producing tires constructed of polyurethane.  We believe that we have developed unique polyurethane formulations that, when used in tire applications, substantially simplify the production process and allow for the creation of products with superior performance characteristics, including abrasion resistance and load-bearing capabilities, than conventional rubber tires.  We also believe that the manufacturing processes we have developed to produce polyurethane tires are more efficient than traditional 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, we believe tires can be produced that last longer, are less susceptible to failure and offer improved fuel economy.  

Our aggregate net revenues for the year ended June 30, 2010 and June 30, 2009 were approximately $3.70 million and $3.20 million, respectively, and our aggregate cost of revenues during those same periods was approximately $2.56 million and $2.33 million, respectively.  For the years ended June 30, 2010 and June 30, 2009, we had net losses of approximately $1.40 million and $3.62 million, respectively. During the last fiscal year, we have continued to implement cost reduction measures that have reduced our overall selling, general and administrative expenses. We expect the increase in revenues from our expanded commercialization activities coupled with our cost reductions should reduce net loss in the very near term and move us closer to profitability.

Polyurethane foam tire sales are our most significant products to date however we believe Elastothane^®  is significant to our potential future growth. We are concentrating on marketing three principal product areas: low duty cycle foam tires, solid forklift tires and agricultural tires. We continue to work on developing and testing composite tires and pneumatic tires. Our most recent activities in these areas are set forth below:

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Low duty foam tires – The sale of polyurethane foam tires to original equipment manufacturers, distributors and retail stores continues to account for most of our revenue at this time. We have the ability to produce a broad range of products for the low-duty cycle tire market. We are continuing our marketing efforts and expanding our product lines.

Solid tires – In July 2009, we shipped the first orders of our new line of long wearing, polyurethane forklift tires to K-2 Industrial Tire Inc. ("K-2"). K-2 has partnered with us for worldwide introduction and distribution of the Kryon(TM) brand tire line. K-2 intends to offer a complete line of press-on tires for the forklift industry with our unique, proprietary polyurethane formulations. The Kryon forklift tires are made of non-marking polyurethane, a significant advantage over non-marking rubber tires that are usually priced at a premium to regular rubber tires. Other potential commercial applications for the solid polyurethane elastomer tires include skid steer and aperture tires. At this filling date, we have sold a small number of tires for field testing purposes. The initial reports from customers show positive results in both acceptance and performance.

Tire fill – Through research and testing, we have found that our Amerifill® material is not compatible with most tire fill equipment in use today; therefore our customers must also acquire the necessary tire fill equipment to use our materials. In order to penetrate this market we have been supplying our customers with tire fill equipment at our cost. Profits from this initiative were expected to be derived from the sale of Amerifill® to our customers. Since launching this program in the spring of 2008, we have supplied a number of fill machines and some Amerifill® material. However, at this time the capital costs for equipment and competitive pricing for alternative tire fill materials have limited our ability to successfully penetrate the tire fill market.

Composite tires – We believe there are multiple applications for use of our polyurethane elastomer material as treads for new or retread tire casings. However, economic constraints have limited development and market penetration in this area.

Pneumatic tires – We continue to evaluate the properties of our tires in the laboratory and on vehicles. We have also provided prototype tires to other tire or automotive manufacturers for performance evaluations, which may include uniform tire quality grading or other performance testing and/or testing to non-U.S. safety standards. In addition, we are still working to finalize elements of the manufacturing process. We continue to explore possibilities for the construction and installation of a pilot manufacturing facility capable of demonstrating this production capability with potential strategic partners.

Factors Affecting Results of Operations

Historically, our operating expenses have exceeded our revenues resulting in net losses of approximately $1.40 million and $3.62 million in fiscal years ended June 30, 2010 and 2009, respectively. In each of these periods, our operating expenses consisted primarily of the following:

·

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

·

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

·

Research and development expenses, which consist primarily of equipment and materials used in the development of 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

·

Amortization of deferred compensation that results from the expense related to certain stock options to our employees.

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Critical Accounting Policies

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

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

Revenue Recognition

Revenue for products is recognized when the sales amount is determined, shipment of goods to the customer has occurred and collection is reasonably assured. Generally, we ship all of our products FOB origination. License fee revenue is recognized as earned, and no revenue is recognized until the inception of the license term.

Valuation of Intangible Assets and Goodwill

At June 30, 2010, we had capitalized patent and trademark costs, net of accumulated amortization, totaling $576,301.  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 until a patent has been issued.  Amortization expense for the fiscal years ended June 30, 2010 and 2009 was $33,183 and $30,041, respectively.  We evaluate the recoverability of intangibles and review the amortization period on a continual basis utilizing the guidance of Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350). In June 2009, our management team assessed several of our pending patents and trademarks and decided to abandon several of them due to they no longer apply to our current manufacturing processes. We test our patents and trademarks for impairment at least annually and whenever events or changes in circumstances indicated that the carrying value may not be recoverable. We didn’t abandon any patent or trademark during the fiscal year 2010. We consider the following indicators, among others, when determining whether or not our patents are impaired:

·

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

·

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

·

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

·

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

·

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

·

current expectations that, more likely than not, the patents will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Inventory

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

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Stock-Based Compensation

Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of authorization.  Per the provisions of Accounting Standards Codification 718, Compensation – Stock Compensation (ASC 718), stock-based compensation expense recognized for the fiscal year ending June 30, 2010 was $74,263, related to employee stock options granted.  Stock-based compensation expense recognized for the fiscal year ending June 30, 2009 was $64,077.

Seasonality

A substantial majority of our sales are to customers within the United States. We experience some seasonality in the sale of our closed-cell polyurethane foam tires for bicycles and lawn and garden products because sales of these products generally decline during the winter months in the United States.  Sales of our closed-cell polyurethane form tire products generally peak during the spring and summer months; typically resulting in greater sales volumes during the third and fourth quarters of the fiscal year.

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 revenues and cash flows. These key performance indicators include:

·

Sales revenue, net of returns and trade discounts, which 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 sales of our products;

·

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

·

Distribution of revenue across our products offered.

The following summary table presents a comparison of our results of operations for the fiscal years ended June 30, 2009 and 2010 with respect to certain key financial measures.  The comparisons illustrated in the table are discussed in greater detail below.

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(1)

Includes deferred compensation for employee stock options of $64,077 and $74,263 for the fiscal years ended June 30, 2009 and 2010, respectively.

Year Ended June 30, 2010 Compared to the Year Ended June 30, 2009

Net Revenues.   Sales of our closed-cell polyurethane foam products accounted for 94% of all of our sales revenue during the fiscal year ended June 30, 2010.  For the fiscal year ended June 30, 2010 we had $3,473,991 of net polyurethane foam product sales compared to $2,796,095 for 2009. Net polyurethane foam product sales for the fiscal year ended June 30, 2010 increased by $677,896, or 24%, as compared with 2009 due primarily to a higher demand in the consumer market. Our number of product units sold to our original equipment manufacturer, retail chain and distributor customers increased by 23% over the fiscal year ended June 30, 2009. During the fiscal year ended June 30, 2010, we had $32,485 and $18,506 of returns of our products and trade discounts, respectively, compared to $55,937 and $11,709, respectively, for the fiscal year ended June 30, 2009. During the fiscal year ended June 30, 2010, we had no revenues derived from licensing fees, compared to $33,333 of revenues derived from licensing fees, or 1% of total net revenues for the fiscal year ended June 30, 2009. Also, during the fiscal year ended June 30, 2010, we had $224,838 of revenues derived from sales of tool and equipment, or 6% of total net revenues, compared to $372,161 of revenues derived from sales of tool and equipment, or 12% of total net revenues for the fiscal year ended June 30, 2009.

  

Cost of Revenues.  For the fiscal year ended June 30, 2010, our cost of revenues related to our closed-cell polyurethane foam products increased 19%, compared to 2009 due to increase in product sales. For the fiscal year ended June 30, 2010 we had $2,373,777 of cost of revenues related to our closed-cell polyurethane foam products compared to $1,994,930 for 2009. We have revised the selling prices for our products at the beginning of the 2011 fiscal year to adjust for raw material increases to our customers. We believe that our product sales margin can continue to improve as our increased sales efforts generate additional product orders to take further advantage of manufacturing efficiencies. We believe we currently have sufficient foam product manufacturing equipment and employees to put into affect a substantial increase in production without incurring proportionately equivalent increases in labor costs or manufacturing equipment overheads.

Gross Profit.  For the fiscal year ended June 30, 2010, we had $1,137,465 of total gross profit compared to $874,147 for 2009.  The gross profit related to our closed-cell polyurethane foam products represents $1,100,214, or 97%, of the total gross profit. The additional gross profit of $37,251 resulted from equipment sales. Gross profit for the fiscal year ended June 30, 2010 increased by $263,317, or 30%, as compared with 2009 due primarily to an increase in products sales. Our gross profit margin increased to 31% in 2010 from 27% in 2009 due primarily to better purchase pricing with our foam products.  For the fiscal year ending June 30, 2011, we believe that increased product lines coupled with an improving consumer market should enable us to increase our product and equipment sales while maintaining the gross margin we experienced during the fiscal year ended June 30, 2011.  

Selling, General, and Administrative Expenses.  For the fiscal year ended June 30, 2010, we had $2,153,971 of SG&A expenses, including the amortization of deferred compensation, compared to $3,586,412 for 2009.  As we focused our commercialization efforts, our SG&A for the fiscal year ended June 30, 2010 decreased by $1,432,441 or 40%, as compared with 2009 due primarily to decreased expenses in the following areas:

-  Approximately $290,000 in payroll and payroll taxes;

-  Approximately $39,000 in sales and marketing expenses;

-  Approximately $222,000 in professional fees;

-  Approximately $260,000 in office related expenses;

-  Approximately $91,000 in facilities related expenses;

-  Approximately $157,000 in insurance expenses; and

-  Approximately $33,000 in director fees and expenses.

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-  Approximately $25,000 in non-sales travel expenses.

In addition to the SG&A expenses listed above, we had deferred compensation, which is primarily related to the grant of options to our employees for the purchase of restricted stock.  We amortized $74,263 of deferred compensation for the fiscal year ended June 30, 2010 compared to $64,077 for the fiscal year ended June 30, 2009.

Research and Development Expenses.  For the fiscal year ended June 30, 2010 we had $122,409 of research and development expenses compared to $190,030 for 2009. Our research and development expenses for the fiscal year ended June 30, 2009 decreased by $67,621, or 36%, as compared with 2009 due primarily to us not having to make significant cash investments in research and development tooling and equipment. Although we will continue to identify and pursue additional applications for our polyurethane technology outside the tire industry, we expect research and development expenses to decrease during the fiscal year ending June 30, 2011.

Consulting Expenses.  For the fiscal year ended June 30, 2010, we had no consulting expenses compared to $355,209 for 2009.  The decrease in our consulting expenses for the current period is due to end of the contract with our former Chief Executive Officer and our former Chief Chemical System Formulator.

Depreciation and Amortization Expenses.  For the fiscal year ended June 30, 2010, we had $264,793 of depreciation and amortization expenses compared to $258,311 for 2009.  Our depreciation and amortization expenses for the fiscal year ended June 30, 2010 increased by $6,482, or 2%, as compared with 2009 due primarily to no longer expensing fully depreciated assets, partially offset by the depreciation expense for newly acquired assets during the period.

Net Loss.  For the fiscal year ended June 30, 2010, we had a net loss of $1,402,731 compared to a net loss of $3,623,899 for 2009.  Our net loss for the fiscal year ended June 30, 2010 decreased by $2,221,168 as compared with 2009 due primarily to the reduction in payroll and payroll taxes, sales and marketing, research and development, and other general and administrative expenses.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and cash equivalents and payments received from our customers.  We have no long-term liabilities, and we do not have any significant credit arrangements.  Historically, our expenses have exceeded our revenues, resulting in operating losses.  From time to time, we have obtained additional liquidity to fund our operations through the sale of shares of our common stock.  In assessing our liquidity, our management reviews and analyzes our current cash balances on-hand, short-term investments, accounts receivable, accounts payable, capital expenditure commitments and other obligations.

Cash Flows

The following table sets forth our consolidated cash flows for the fiscal years ended June 30, 2009 and 2010.

		Years ended June 30,
		2009				2010
		(in thousands)
Net cash used by operating activities		$	(2,374		)	$	(808	)
Net cash used in investing activities		(90			)	(89		)
Net cash provided by financing activities		791				932
Net (decrease) increase in cash and cash equivalents during period		$		(1,673)		$	35

Net Cash Used By Operating Activities.  Our primary sources of operating cash in fiscal 2010 were receipts from our customers and cash provided by financing activities.  Our primary uses of operating cash are payments made to our vendors, employees and technical consultants. Net cash used by operating activities was $807,748 for

20

the fiscal year ended June 30, 2010 compared to $2,373,851 for the fiscal year ended June 30, 2009.  The decrease in cash used in operating activities is due primarily to a large decrease in inventory, accounts receivable, and other assets (deposits on equipment and project in process), offset by a large increase in accounts payable. Non-cash items include depreciation and amortization and the issuance of common stock and stock options for services and employee compensation.  Our net loss was $1,402,731 for the year ended June 30, 2010 compared to a net loss of $3,623,899 for the year ended June 30, 2009.  

Net Cash Used In Investing Activities.  Net cash used in investing activities was $89,288 for the fiscal year ended June 30, 2010 and $89,659 for the fiscal year ended June 30, 2009. Our primary use of investing cash for the fiscal year ended June 30, 2010 was $7,710 for patents and trademarks and $81,578 for property and equipment. Our primary use of investing cash for the fiscal year ended June 30, 2009 was $52,303 for patents and trademarks and $37,356 for property and equipment.     

Net Cash Provided by Financing Activities.  For the fiscal year ended June 30, 2010 our financing activities provided net cash of $932,224. Our primary source of cash for the fiscal year ended June 30, 2010 was $757,499 obtained from the sale of common stock, $150,000 obtained from the cash received from a convertible note, $24,725 obtained from payments on note receivable, and receipts from customers. For the fiscal year ended June 30, 2009 our financing activities provided net cash of $790,952. Our primary source of cash for the fiscal year ended June 30, 2009 was $494,567 obtained from the sale of common stock, $310,000 obtained from related party convertible notes payable against our receivables, and receipts from customers.

In September 2009, we completed the private placement of our securities at a price of $0.21 per share. We sold an aggregate of 2,416,664 shares of our common stock and received net proceeds of $507,500.   We also received an aggregate loan of $150,000 under a credit agreement with a partnership.  The members of the partnership elected to immediately convert the funds loaned into stock per the credit agreement and, accordingly, we issued an aggregate of 714,285 shares of our common stock in full satisfaction of the loan.  In addition, in March and April 2010, we received a total of $250,000 in proceeds from a private placement. We sold an aggregate of 666,666 shares of our common stock and received net proceeds of $250,000.

Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other commercial commitments at June 30, 2010.

		Payments due by period
		Total			Less than 1 year					1 to 3 years			3 to 5 years			After 5 years
Facility lease (1)		$	180,000			$	180,000			$	—		$	—			$	—
Total contractual cash obligations		$	180,000			$	180,000			$	—		$	—		$		—

(1)  In June 2010, we negotiated an extension of the lease for our executive and manufacturing facilities located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square-foot building, which includes approximately 5,500 square-feet of office space, situated on approximately 4.15 acres.  The monthly base rent is $15,000 and the lease agreement has a term of one year starting on June 15, 2010.

Cash Position, Outstanding Indebtedness, and Future Capital Requirements

Our total indebtedness at June 30, 2010 was $602,577 and our total cash and cash equivalents was $63,822, none of which is restricted. Our total indebtedness at June 30, 2010 includes $298,393 in accounts payable and $304,184 in accrued expenses. We have no long-term liabilities.

In an effort to increase revenues, we have recently expanded our product lines and begun the sale of solid polyurethane elastomer tires. In the past, we offered aggressive sales projections based on our assessment of our planned sales initiatives. Despite the overall downturn experienced in both the U.S. and international economies

21

over the past several quarters, we believe the revenues reported for the fiscal year ended June 30, 2010 are only beginning to reflect our progress toward our sales projections, which we anticipate will become more apparent during the next fiscal year. In view of these conditions, our ability to continue as a going concern is dependent upon our ability to obtain additional financing or capital sources, to meet our financing requirements, and ultimately to achieve profitable operations.

Although we believe that we will successfully implement our business plan to provide for additional revenues to offset operating costs, management cannot give any assurances that it will be able to do so or that we will ever operate profitably.  Our business plan assumes, among other items, that our revenues will increase from the sale of the new product lines, our raw materials expenses may increase, and our expenses from operations will decrease due to the cost reduction measures already implemented.

Our financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have historically incurred significant losses which have resulted in a total retained deficit of $56,045,951 at June 30, 2010 which raises substantial doubt about our ability to continue as a going concern (See Note 5 to the attached financial statements). The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

We have taken certain steps to reduce our operating and financial requirements while expanding our revenues in an effort to enable us to continue as a going concern until such time that revenues are sufficient to cover expenses, including: (1) we implemented numerous cost reduction measures, including reduced officer and board compensation, over the last seven months of the 2009 fiscal year that remained in effect through fiscal 2010. We intend to continue to reduce our overall selling, general and administrative expenses wherever possible throughout the 2010 fiscal year; (2) we continue to monitor and revise the selling prices for our products to adjust for raw material increases; (3) we have focused our primary sales and marketing efforts on two product areas with products already in production, low duty cycle foam tires and solid tires and expect to continue to increase sales in both product areas during the 2011 fiscal year.  We expect the increase in revenues from the expanded sales activity should reduce net loss in the near term and move us closer to profitability.

To supplement our cash needs during the 2011 fiscal year, on September 3, 2010, we closed a private placement of secured convertible promissory notes (the “Notes”).  We sold an aggregate of $755,800 in Notes.

In connection with the preparation of our financial statements for the year ended June 30, 2010, we have analyzed our cash needs for fiscal 2011. Based on this analysis, we concluded that our available cash, including the cash raised in the September 2010 private placement of convertible promissory notes, should be sufficient to meet our current minimum working capital, capital expenditure and other cash requirements for fiscal 2011. We may also issue common stock in lieu of cash as compensation for certain employment, development, and other professional services. However we believe we may need additional capital if our sales revenues do not meet our expectations. In any case, we will most likely need additional capital to fully implement our business plans.

Our ability to obtain further financing through the offer and sale of our securities is subject to market conditions and other factors beyond our control. We cannot assure you that we will be able to obtain financing on favorable terms or at all.  If our cash is insufficient to fund our business operations, our business operations could be adversely affected in the event we do not obtain additional financing and are unable to obtain such funding when needed.   Insufficient funds may require us to delay, scale back or eliminate expenses and or employees. If we cannot generate adequate sales of our products, or increase our revenues through other means, then we may be forced to cease operations.

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

22

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.

Recent Accounting Pronouncements

In the first quarter of 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09). ASU 2010-09 amends ASC 855, Subsequent Events, so that SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in financial statements. We adopted the provisions of ASU 2010-09 in the first quarter of 2010. This adoption did not affect our financial statements.

 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

There have been no changes in our independent accountants, HJ & Associates, LLC, or disagreements with them on matters of accounting or financial disclosure.

ITEM 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief 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.

As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and our principal financial officer, concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

23

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We are 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. We also prepared the other information included in the annual report and are responsible for its accuracy and consistency with the financial statements.

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

·

a documented organizational structure and division of responsibility;

·

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

·

regular reviews of our financial statements by qualified individuals; and

·

the careful selection, training and development of our people.

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

We have assessed our internal control system in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based upon these criteria, we believe that, as of June 30, 2010, our system of internal control over financial reporting was effective.

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 temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

Amerityre Corporation

September 28, 2010

By:

/s/ Michael Kapral

 

Michael Kapral

 

Chief Executive Officer

 

/s/ Anders A. Suarez

 

Anders A. Suarez

Chief Financial Officer

 

ITEM 9B. OTHER INFORMATION

24

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 2010 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than October 28, 2010 (120 days after the end of the fiscal year covered by this Annual Report on Form 10-K).

25

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

26

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 28, 2010

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 28th day of September 2010.

 

/s/ Michael Kapral Michael Kapral Chief Executive Officer (Principal Executive Officer)	/s/Anders A. Suarez Anders A. Suarez Chief Financial Officer (Principal Financial Officer)
/s/Louis M. Haynie Louis M. Haynie Chairman of the Board of Directors	/s/Henry D. Moyle Henry D. Moyle Director
/s/Frank Dosal Frank Dosal Director	/s/Silas O. Kines Silas O. Kines Director
/s/Steve M. Hanni Steve M. Hanni Director	/s/Gary Tucker Gary Tucker Director
/s/Timothy Ryan Timothy Ryan Director

0

AMERITYRE CORPORATION

INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements

      

Report of Independent Registered Public Accounting Firm

F-2

Balance Sheets as of June 30, 2010 and 2009

F-3

Statements of Operations for the years ended June 30, 2010 and 2009

F-5

Statements of Stockholders' Equity for the years ended June 30, 2010 and 2009

F-6

Statements of Cash Flows for the years ended June 30, 2010 and 2009

F-9

Notes to Financial Statements

F-11

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Amerityre Corporation

Boulder City, Nevada

We have audited the accompanying balance sheets of Amerityre Corporation as of June 30, 2010 and 2009, and the related statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amerityre Corporation as of June 30, 2010 and 2009 and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2010, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management’s assessment of the effectiveness of Amerityre Corporation’s internal controls over financial reporting as of June 30, 2010, including in the accompanying 10-K and, accordingly, we do not express an opinion thereon.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has suffered recurring losses from operations that have resulted in an accumulated deficit.  This raises substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/HJ & Associates, LLC

HJ & Associates, LLC

Salt Lake City, Utah

September 28, 2010

F-2

F-3

F-4

AMERITYRE CORPORATION
Statement of Operations
		For the Years Ended June 30,
		2010		2009
NET REVENUES
Products	$	3,473,991	$	2,796,095
Licenses		-		33,333
Equipment		224,838		372,161
Total Net Revenues		3,698,829		3,201,589
COST OF REVENUES
Products		2,373,777		1,994,930
Equipment		187,587		332,512
Total Cost of Revenues		2,561,364		2,327,442
GROSS PROFIT		1,137,465		874,147
EXPENSES
Consulting		-		355,209
Depreciation and amortization		264,793		258,311
Research and development		122,409		190,030
Loss on sale or impairment of assets		3,118		143,180
Selling, general and administrative		2,153,971		3,586,412
Total Expenses		2,544,291		4,533,142
LOSS FROM OPERATIONS		(1,406,826)		(3,658,995)
OTHER INCOME
Interest income		19,089		38,571
Miscellaneous income and expenses		(14,994)		(3,475)
Total Other Income		4,095		35,096
NET LOSS	$	(1,402,731)	$	(3,623,899)
BASIC AND DILUTED LOSS PER SHARE	$	(0.05)	$	(0.15)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		30,035,266		24,520,938

F-5

F-6

AMERITYRE CORPORATION
Statements of Cash Flows
		For the Years Ended June 30,
		2010		2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,402,731)	$	(3,623,899)
Adjustments to reconcile net loss to net cash  used by operating activities:
Depreciation & amortization expense		264,793		258,311
Allowance for doubtful accounts		(41,650)		284,714
Loss on sale or  impairment of assets		3,118		143,180
Common stock issued/accrued for services		118,000		147,300
Accrued stock based compensation		63,000		30,333
Reversal of previously recorded stock based compensation		-		(84,902)
Stock-based compensation expense related to employee options		74,263		64,077
Amortization of expense prepaid w/ common stock		-		33,331
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable		51,911		(270,457)
Decrease in prepaid and other current assets		1,825		57,326
Decrease in other assets		125,289		49,902
(Increase) in accrued interest		(1,461)		(25,909)
Decrease in inventory and change in inventory reserve		58,859		177,315
(Decrease) Increase in accounts payable and accrued expenses		(122,964)		385,527
Net Cash Used by Operating Activities		(807,748)		(2,373,851)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for patents and trademarks		(7,710)		(52,303)
Purchase of property and equipment		(81,578)		(37,356)
Net Cash Used by Investing Activities		(89,288)		(89,659)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock and warrants		757,499		494,567
Stock offering cost paid		-		(26,127)
Cash received on note receivable		24,725		12,512
Cash received on convertible notes payable		150,000		310,000
Net Cash Provided by Financing Activities		932,224		790,952
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		35,188		(1,672,557)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		28,634		1,701,191
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	63,822	$	28,634
The accompanying notes are an integral part of these financial statements.

F-8

F-9

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

Amerityre Corporation, (the “Company”) was incorporated under the laws of the State of Nevada on January 30, 1995, under the name American Tire Corporation. 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 “flatfree” specialty tires and tire-wheel assemblies and currently is manufacturing these tires at its manufacturing facility located in Boulder City, Nevada. During the year ended June 30, 2001, the name of the Company was changed to Amerityre Corporation.

b. Accounting Method

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

c. Reclassifications

Prior period amounts have been adjusted to conform to the current year presentation.

d. Basic and Fully Diluted Net Loss Per Share

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

		2010		2009
Loss (numerator)	$	(1,402,731)	$	(3,623,899)
Shares (denominator)		30,035,266		24,520,938
Per share amount	$	(0.05)	$	(0.15)

The Company’s outstanding stock options and warrants have been excluded from the basic net loss per share calculation. The Company excluded 844,780 and 4,679,780 common stock equivalents for the years ended June 30, 2010 and 2009, respectively because they are anti-dilutive.

e. 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. Actual results could differ from those estimates.

F-10

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

f. Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards 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, 2010 and 2009:

			2010		2009
Deferred tax assets:
	NOL Carryover	$	17,118,518	$	16,694,746
	Contribution Carryover		68		68
	Deferred Revenue		24,375		2,647
	Allowance for Doubtful Accounts		92,574		108,818
	Related Party Accruals		-		6,146
	Accrued Compensation		58,500		58,500
	Inventory Reserve		17,782		16,521
	R & D Carryover		195,374		195,374
Deferred tax liabilities
	Depreciation		(140,375)		(162,426)
Valuation allowance			(17,366,816)		(16,920,394)
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, 2010 and 2009 due to the following:

		2010		2009
Book Income	$	(547,065)	$	(1,413,321)
Depreciation		21,292		-
Meals & Entertainment		1,920		3,698
Stock for Services		99,553		107,266
Related party expenses		(6,146)		-
Deferred Revenue		21,728		-
Inventory Reserve		1,261		-
Receivable reserve		(16,244)		-
Loss on Asset Disposal		(71)		193
Valuation allowance		423,772		1,302,164
	$		$	-

At June 30, 2010, the Company had net operating loss carryforwards of approximately $43,893,600 that may be offset against future taxable income from the year 2010 through 2030. No tax benefit has been reported in the June 30, 2010 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

F-11

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 ASC 740, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC 740.

The Company files income tax returns in the U.S. federal jurisdiction, and in Utah.  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 2006.

We adopted the provisions of Accounting Standards Codification 740, Income Taxes (ASC 740), on January 1, 2007. 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, 2010 the Company had no accrued interest or penalties related to uncertain tax positions.

g. Inventory

Inventory is stated at the lower of cost (computed on a first-in, first-out basis) or market. The cost of finished goods includes the cost of raw material, direct and indirect labor, and other indirect manufacturing costs. The inventory consists of chemicals, finished goods produced in the Company’s plant and products purchased for resale.

		2010		2009
Raw Materials	$	119,568	$	191,384
Finished Goods		463,660		450,703
Total Inventory	$	583,228	$	642,087

We had an inventory reserve amount of $45,595 and $42,362 recorded as of June 30, 2010 and 2009, respectively, for items that have a slow turnover ratio.

h. Property and Equipment

Property and equipment are stated at cost. 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. Repairs and maintenance are charged to expense when incurred. Major replacements that substantially extend the useful life of an asset are capitalized and depreciated. Depreciation 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
Automobiles	5 years
Software	3 years

Depreciation expense for the years ended June 30, 2010 and 2009 was $231,610 and $228,270, respectively.

i. Revenue Recognition

Revenue for products is recognized when the sales amount is determined, shipment of goods to the customer has occurred and collection is reasonably assured. Generally, we ship all of our products FOB origination. License fee revenue is recognized as earned, and no revenue is recognized until the inception of the license term.

F-12

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

j. Patents and Trademarks

Patent and trademark costs have been capitalized at June 30, 2010, totaling $746,775 with accumulated amortization of $170,474 for a net book value of $576,301. Patent and trademark costs capitalized at June 30, 2009 totaled $739,065 with accumulated amortization of $137,291 for a net book value of $601,774. The patents which have been granted are being amortized over a period of 20 years. Patents which are pending or are being developed are not being amortized. Amortization will begin once the patents have been issued. Amortization expense for the years ended June 30, 2010 and 2009 was $33,183 and $30,041 respectively. The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis utilizing the guidance of Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350). Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected, undiscounted cash flows.

In June 2010, our management team continues to assess several of our pending patents and trademarks to decide if they still apply to our current manufacturing processes. Included in the total patent and trademark costs are $240,867 of patent and trademark costs pending that are not currently being amortized.

j. Patents and Trademarks (continued)

The estimated amortization expense, based on current intangible balances, for the next five fiscal years beginning July 1, 2010 is as follows:

2011	$	26,855
2012	$	29,278
2013	$	29,166
2014	$	28,099
2015	$	27,838

k. Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.  Advertising expense for the years ended June 30, 2010 and 2009 was $26,394 and $24,893, respectively.

l. Stock Based-Compensation Expense

Since July 2005, we account for stock-based compensation under the provisions of Accounting Standards Codification 718, Compensation – Stock Compensation (ASC 718), formerly SFAS 123(R). Our financial

statements as of and for the fiscal years ended June 30, 2010 and 2009 reflect the impact of ASC

718. Stock-based compensation expense recognized under ASC 718 for the fiscal years ended June 30,

2010 and 2009 was $74,263 and $68,840, respectively, related to employee stock options issued during the respective periods.

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, 2009 and 2010 assume all awards will vest, therefore no reduction has been made for estimated forfeitures.

F-13

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

m. Recent Accounting Pronouncements

On July 1, 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”). The

Codification became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB,

American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. The Codification eliminates the previous US GAAP hierarchy and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. However, rules and interpretive releases of the Securities

Exchange Commission (“SEC”) issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants. The Codification was effective for interim and annual periods ending after

September 15, 2009. The Company adopted the Codification for the quarter ending September 30, 2009. There was no impact to the financial results as this change is disclosure-only in nature.

In the first quarter of 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09). ASU 2010-09 amends ASC 855, Subsequent Events, so that SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in financial statements. We adopted the provisions of ASU 2010-09 in the first quarter of 2010. This adoption did not affect our financial statements.

n. 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.

o.

Trade Receivables

We generally charge-off trade receivables that are more than 120 days outstanding as bad-debt expense, unless management believes the amount to be collectable. The charge-off amounts are included in selling, general and administrative expenses.  During the fiscal year ended June 30, 2010, we recovered a portion of a bad debt expense previously accounted as uncollectable producing a bad debt recovery for the period. For the fiscal year ended June 30, 2010, our bad debt recovery was $17,103. For the fiscal year ended June 30 2009, our bad debt expense was $284,714.  

p. Equity Securities

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

q. Concentrations of Risk

The Company maintains several accounts with financial institutions.  Currently, the accounts are insured by the Federal Deposit Insurance Corporation up to $250,000.

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

We have one customer who accounted for 26% and 20% of our sales for the years ended June 30, 2010 and 2009, respectively.

F-14

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

r. Valuation of Options and Warrants

The valuation of options and warrants granted to unrelated parties for services are measured as of the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or (2) the date the counterparty’s performance is complete. The options and warrants will continue to be revalued in situations where they are granted prior to the completion of the performance.

s. 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 consolidated statement of operations.

t. Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

NOTE 2 – COMMITMENTS AND CONTINGENCIES

In June 2010, we negotiated an extension on our lease for our executive and manufacturing facilities located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square-foot building, which includes approximately 5,500 square-feet of office space, situated on approximately 4.15 acres.  The term of the lease is 1 year expiring June 14, 2011.  The base rent is $15,000 per month. Our overall obligation amounts to $180,000 for the fiscal year 2011.

Effective April 24, 2009, the Company’s board of directors terminated the employment agreement between the Company and its President and Chief Executive Officer, Gary N. Benninger. Mr. Benninger’s employment agreement had an expiration date of August 31, 2009. Mr. Benninger’s employment agreement provided for termination payments and related accrued benefits, which amount and time frame for payment are currently subject to negotiation between the Company and Mr. Benninger.

In addition, in April 2009, the Company terminated the consulting agreements between the Company and Richard A. Steinke and Manuel (Manny) Chacon, who had been providing the Company with technology development and chemical formulating services, respectively. Each consulting agreement had an expiration date of August 31, 2009. The consulting agreements did not have a provision for early termination.

F-15

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 3 – STOCK TRANSACTIONS

During the year ended June 30, 2010, the Company had the following stock transactions:

During July 2009, we issued an aggregate of 300,000 shares (100,000 shares each) of our restricted common stock to our management team as partial compensation for their services. The aggregate value of the shares was $63,000, based on the closing price of $0.21 per share.

During August 2009, we issued an aggregate of 37,500 shares (7,500 shares each) of our restricted common stock to our non-employee directors as partial compensation for their services as members of our board of directors for the period commencing March 1, 2009 through May 31, 2009. The aggregate value of the shares was $15,000, based on the closing price of $0.40 per share, on the date the shares were approved to be issued during December 2008. We also issued 6,250 shares of our restricted common stock to the Chairman of our audit committee as partial compensation for his services as Chairman for the period commencing March 1, 2009 through May 31, 2009. The value of the shares was $2,500, based on the closing price of $0.40 per share, on the date the shares were approved to be issued during December 2008.

During August 2009, we issued 28,000 shares of our restricted common stock to our outside legal counsel as partial compensation for prepaid legal services. The value of the shares was $7,000, based on the closing price of $0.25 per share. The $7,000 was amortized over a seven month period, at $1,000 per month, as services were provided.

During September 2009, we completed a private placement of our securities at a price of $0.21 per share. We sold an aggregate of 2,416,664 shares and received net proceeds of $507,500 in the private placement. 

During September 2009, we issued 1,151,094 shares of our restricted common stock to our board members, Henry Moyle and Frank Dosal, as payment of notes payable plus accrued interest. The value of shares was $310,796, based on a conversion price of $0.27 per share.

During October 2009, we issued an aggregate of 714,285 shares to the members of the Clean Green Partnership, a partnership that included board members Louis Haynie and Henry Moyle, in full satisfaction of a $150,000 loan.  

During October 2009, we issued 30,952 shares of an outside consultant as partial compensation for his assistance on research and development services. The value of the shares was $13,000, based on the closing price of $0.42 per share.

During October 2009, we issued an aggregate of 37,500 shares (7,500 shares each) of our restricted common stock to our non-employee directors as partial compensation for their services as members of our board of directors for the period commencing June 1, 2009 through August 31, 2009. The aggregate value of the shares was $15,000, based on the closing price of $0.40 per share, on the date the shares were approved to be issued during December 2008. We also issued 6,250 shares of our restricted common stock to the Chairman of our audit committee as partial compensation for his services as Chairman for the period commencing June 1, 2009 through August 31, 2009. The value of the shares was $2,500, based on the closing price of $0.40 per share, on the date the shares were approved to be issued during December 2008.

During January 2010 we issued an aggregate of 37,500 shares (7,500 shares each) of our restricted common stock to our directors as compensation for their services as members of our board of directors for the period commencing September 1, 2009 through November 30, 2009. The aggregate value of the shares was $15,000, based on the closing price of $0.40 per share, the date the shares were approved to be issued during December 2008. We also issued 6,250 shares of our restricted common stock to the Chairman of our audit committee as partial compensation for his services as Chairman for the period commencing September 1, 2009 through November 30, 2009. The value of the shares was $2,500, based on the closing price of $0.40 per share, on the date the shares were approved to be issued during December 2008.

During January 2010, we issued 25,806 shares of common stock to an outside consultant, valued at $0.31 per share or $8,000, in payment of research and development services.

F-16

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 3 – STOCK TRANSACTIONS (Continued)

During January 2010, we issued 40,000 shares of common stock to a director as compensation for extraordinary services performed on our behalf. The value of the shares was $14,000, based of the closing price of $0.35 per share.

During April 2010, we issued an aggregate of 51,720 shares (10,344 shares each) of our restricted common stock to our directors as compensation for their services as members of our board of directors for the period commencing December 1, 2009 through February 28, 2010. The aggregate value of the shares was $15,000, based on the closing price of $0.29 per share, the date the shares were approved to be issued during December 2009. We also issued 8,620 shares of our restricted common stock to the Chairman of our audit committee as partial compensation for his services as Chairman for the period commencing December 1, 2009 through February 28, 2010. The value of the shares was $2,500, based on the closing price of $0.29 per share, on the date the shares were approved to be issued during December 2009.

During April 2010, we completed a private placement of our securities at a price of $0.375 per share. We sold an aggregate of 666,666 shares and received net proceeds of $250,000 in the private placement. 

During June 2010, we issued an aggregate of 51,720 shares (10,344 shares each) of our restricted common stock to our directors as compensation for their services as members of our board of directors for the period commencing March 1, 2010 through May 31, 2010. The aggregate value of the shares was $15,000, based on the closing price of $0.29 per share, the date the shares were approved to be issued during December 2009. We also issued 8,620 shares of our restricted common stock to the Chairman of our audit committee as partial compensation for his services as Chairman for the period commencing March 1, 2010 through May 31, 2010c. The value of the shares was $2,500, based on the closing price of $0.29 per share, on the date the shares were approved to be issued during December 2009.

During the fiscal year ended June 30, 2010 we received 50,000 shares of our restricted common stock as part of the monthly installment payment related to our note receivable. The shares were returned to the company for cancellation and included in the company authorized and unissued shares.

F-17

AMERITYRE CORPORATION

Notes to the Financial Statements

June 30, 2010 and 2009

NOTE 4 – STOCK OPTIONS AND WARRANTS

General Option Information

During the fiscal years ended June 30, 2010 and June 30, 2009, we did not issue any options.

We use the Black-Scholes model to value stock options. The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions including volatility of our stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because we do not pay dividends, the dividend rate variable in the Black-Scholes model is zero. We estimated the fair value of the stock options at the grant date based on the following weighted average assumptions:

	2010		2009
Risk free interest rate	N/A		N/A
Expected life	N/A		N/A
Expected volatility	N/A		N/A
Dividend yield	N/A		N/A

A summary of the status of our outstanding stock options as of June 30, 2010 and June 30, 2009 and changes during the periods then ended is presented below: