AMERITYRE CORP - Quarter Report: 2018 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended:   December 31, 2018

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

For the transition period from ____________________ to ____________________.

Commission file number: 000-50053

AMERITYRE CORPORATION

(Exact name of small business issuer as specified in its charter)

(702) 293-1930

(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

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

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

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

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

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

The number of shares outstanding of Registrant’s Common Stock as of February 8, 2019: 46,532,867 

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

AMERITYRE CORPORATION

Statements of Operations

(Unaudited)

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

AMERITYRE CORPORATION

Statements of Cash Flows

(Unaudited)

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

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2018

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations.  The information furnished in the interim condensed financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  We believe the disclosures and information presented are adequate to make the information not misleading.  These interim condensed financial statements should be read in conjunction with our most recent audited financial statements and notes thereto included in our June 30, 2018 Annual Report on Form 10-K.  Operating results for the quarter ended December 31, 2018 are not necessarily indicative of the results that may be expected for the current fiscal year ending June 30, 2019.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies disclosed therein have not changed since our audited financial statements and notes thereto included in our June 30, 2018 Annual Report on Form 10-K, except as noted below.

Revenue Recognition

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

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

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

Deferred revenue was $13,917, inclusive of $739 of shipping and handling revenue (see below), as of December 31, 2018.  Deferred revenue was $0 as of December 31, 2017.

Shipping and Handling

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

The result of this accounting is a deferral of $739 as of December 31, 2018 and $0 as of December 31, 2017.

Basic and Fully Diluted Net Loss Per Share

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

Our outstanding stock options and warrants and shares issuable upon conversion of outstanding convertible notes have been excluded from the basic and fully diluted net loss per share calculation.  We excluded 6,300,000 and 3,730,000 common stock equivalents for the periods ended December 31, 2018 and 2017, respectively, because they are anti-dilutive.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2018

Recent Accounting Pronouncements

Recently Adopted and Recently Issued Accounting Guidance

Issued

In February 2016, the FASB issued ASU No. 2016-02, “Leases”, (“ASU 2016-02”) which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on the Company’s financial statements as this pronouncement will take effect in our next immediate quarter.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC, did not, or are not believed by management to, have a material impact on the Company’s present or future financial position, results of operations or cash flows.

NOTE 3 - INVENTORY

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

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

In fiscal years 2019 and 2018, the Company critically reviewed all slow moving inventory to determine if defective or obsolete.  If not defective or obsolete we presented these items as non-current inventory, although all inventory is ready and available for sale at any moment.  

NOTE 4 - DEBT

A former board member, Silas O. Kines, was the principal owner of Forklift Tire of Florida and K-2 Industrial Tire, Inc.  In accordance with the Commission Agreement with Forklift Tire of Florida, dated February 2, 2011, between Amerityre Corporation and K-2 Industrial Tire, Inc., K-2 is due a five percent (5%) commission on all forklift tire sales.  In exchange for the forklift models transferred to Amerityre under that agreement, the first $96,000 in commission payments will be used to extinguish the long term liability recorded on the transaction.  As of December 31, 2018, $2,000 and $62,193 (June 30, 2018, $2,000 and $62,468) were recorded for the current and long-term portion, respectively, of the related liability.

In June 2016, the Company executed a term note with U.S. Bank to finance critical manufacturing equipment and operating enhancements.  Manufacturing equipment of approximately $29,000 was placed in service in July 2016.  Various operating enhancements, inclusive of a website redesign, were implemented in fiscal 2017.  In the first quarter of fiscal 2018 the last operational enhancement related to a sales customer relation management (“CRM”) system was abandoned due to challenges with the selected implementation vendor.  The Company is pursuing other options to address its CRM system needs and the amount financed for the CRM system ($15,000) through this debt instrument remains the Company’s liability to pay.  Total amount financed for the CRM system, website upgrade, and manufacturing equipment was $55,068, at 5.59% interest, with payments of $1,059 due for 60 months starting July 2016.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2018

In July 2016, the Company executed a term note with U.S. Bank to finance critical plant facility equipment which was placed into service in July 2017.  The total amount financed was $37,666 at 5.59% interest, with payments of $720 due for 60 months starting October 2016.

NOTE 5 - STOCK OPTIONS AND WARRANTS

Prior Issuances of options

On December 1, 2016, 480,000 options were granted to the Company’s Chief Executive Officer as part of his employment offer.  The options have a strike price of $0.10, vest December 1, 2017 and expire December 1, 2020.  As of December 31, 2018 all options have vested.

On January 1, 2018, 480,000 options were granted to the Company’s Chief Executive Officer as part of his employment offer.  The options have a strike price of $0.10, vest ratably January 1, 2018 to December 31, 2018 and expire December 31, 2021.  Year to date expense related to these options is $3,868 as of December 31, 2018. These options were inadvertently excluded from the option table in the Company’s Form 10-K filed on September 14, 2018. The financial consequence of this was deemed both qualitatively and quantitatively immaterial by management and all of the related expense has been recognized in fiscal year 2019.

As of December 31, 2018, all stock-based compensation expense related to stock option was recognized.

We estimated the fair value of the stock options above at the grant date based on the following weighted average assumptions:

A summary of the status of our outstanding stock options as of December 31, 2018 and June 30, 2018 and changes during the periods then ended is presented below:

The following table summarizes the range of outstanding and exercisable options as of December 31, 2018:

NOTE 6 - SUBSEQUENT EVENTS

On January 2, 2019, 60,000 shares were granted to the Company’s Chief Financial Officer as part her employment renewal.  The shares are valued as of January 2, 2019 and vest ratably through December 2019.  No additional changes were made her to compensation on renewal of her employment.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As described above, our product line covers diverse market segments which are unrelated in terms of customer base, product distribution, market demands and competition. Our external sales team is comprised of independent manufacturer representatives, whose experience is complementary to our product portfolio.  The Company’s continued emphasis on proper product pricing and new marketing campaigns continue to drive more profitable sales.   Our website has helped to educate the marketplace about our products as well as generate some online sales. As we expected, the increasingly challenging economic environment, worsened by the Chinese trade war, has negatively impacted our results.  

Increases in the price of raw materials and wheel rims, as well as the additional tariffs on imported materials, has been the main factor in our decreasing profitability compared to year ago results. In response to these increased costs, we raised prices in September 2018. We plan to hold pricing level for the remainder of FY 2019 provided the current cost environment for raw materials does not worsen. Any positive impact of this price increase has been offset by a more frugal customer, with sales declining during this time period. We are hopeful that raw material costs will stabilize during the rest of FY 2019. The question as to whether sales volumes will recover is still unknown. Despite reports of a robust economy, we are seeing evidence of an economic slowdown adversely affecting demand for our products. We are therefore proceeding forward with a cautious view on demand, and managing our business activities accordingly.

Factors Affecting Results of Operations

Our operating expenses consisted primarily of the following:

Critical Accounting Policies

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

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

Revenue Recognition

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

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

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

Deferred revenue was $13,917, inclusive of $739 of shipping and handling revenue (see below), as of December 31, 2018.  Deferred revenue was $0 as of December 31, 2017.

Shipping and Handling

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

The result of this accounting is a deferral of $739 as of December 31, 2018 and $0 as of December 31, 2017.

Valuation of Intangible Assets and Goodwill

Patent and trademark costs have been capitalized at December 31, 2018, totaling $487,633 with accumulated amortization of $366,457 for a net book value of $121,176. Patent and trademark costs capitalized at December 31, 2017, totaled $487,633 with accumulated amortization of $434,598 for a net book value of $144,036.

The patents which have been granted are being amortized over a period of 20 years. Patents which are pending or are being developed are not amortized. Amortization begins once the patents have been issued. As of December 31, 2018 and 2017, respectively, there were no pending patents.  Annually, pending or expired patents are inventoried and analyzed, which resulted in the recognition of a loss on abandonment, expiration or retirement of patents and trademarks of $-0- for each of the periods ended December 31, 2018 and 2017, respectively.

Amortization expense for the years ended December 31, 2018 and 2017 was $11,429 and $11,916 respectively.  The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis utilizing the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other.  We consider the following indicators, among others, when determining whether or not our patents are impaired:

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.

Stock-Based Compensation

We account for stock-based compensation under the provisions of FASB ASC 718, Compensation – Stock Compensation.  Our financial statements as of and for the fiscal years ended December 31, 2018 and 2017 reflect the impact of FASB ASC 718. Stock-based compensation expense recognized under FASB ASC 718 for the six months ended December 31, 2018 and 2017 was $17,778 and $14,191, respectively, related to employee stock options and employee stock grants.

FASB ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Statement of Operations. Stock-based compensation expense recognized in our Statements of Operations for six months ended December 31, 2018 and 2017 assume all awards will vest; therefore no reduction has been made for estimated forfeitures.

Results of Operations

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

The following summary table presents a comparison of our results of operations for the fiscal quarters ended December 31, 2018 and 2017 with respect to certain key financial measures.  The comparisons illustrated in the table are discussed in greater detail below. 

Quarter Ended December 31, 2018 Compared to December 31, 2017

Net Sales.  Net sales of $785,105 for the quarter ended December 31, 2018, represents a 9.5% decrease over net sales of $866,944 for the same period in 2017. These results were in line with expectations as decreased demand for polyurethane foam tires from a significant customer adversely impacted results. Our forecast for the remainder of Fiscal 2019 anticipates continued low farm income and depressed agricultural tire sales. We expect our polyurethane foam products to continue to constitute the majority of our sales.

Cost of Revenues.  Cost of revenues for the quarter ended December 31, 2018 was $637,265 or 81.2% of sales compared to $592,336 or 68.3% of sales for the same period in 2017. Higher raw material costs were the main driver of the increased cost of revenues. The Company continues to maintain sufficient production capacity to meet anticipated customer demand without incurring a proportionate increase in overall production costs. 

Gross Profit.  Gross profit for the quarter ended December 31, 2018 was $147,840 compared to $274,609 for the same period in 2017. Gross profit for the quarter ended December 31, 2018 decreased by $126,769 or 46.2% over the same period in 2017 due to lower gross sales as well as increased raw material costs.  The December 31, 2018 gross profit reflects an 18.8% gross margin for product sales compared to a gross margin on product sales of 31.7% in 2017.

Research & Development Expenses (R&D).  Research and development expenses for the quarter ended December 31, 2018 were $24,717 compared to $53,002 for the same period in 2017. The difference between periods is due to lower personnel costs. We continue to focus on investment in product formulation research and new product development.  The Company plans to continue investing in R&D as attractive opportunities are discovered in our target markets.

Sales & Marketing Expenses. Sales and marketing expenses for the quarter ended December 31, 2018 were $53,325 compared to $49,583 for the same period in 2017. The difference between periods relates to higher sales commissions due to how our commissions plan was changed in the first quarter fiscal year 2019, and reduction in trade show expense during the quarter, when compared to the same quarter in 2017.

General & Administrative Expenses.  General and administrative expenses for the quarter ended December 31, 2018 were $163,895 compared to $173,328 for the same period in 2017. We continue to control costs and find more efficient ways to run our business activities.

Other Income (Expense).  Other expense, net, for the quarter ended December 31, 2018 was $647 compared to $1,265 for the same period in 2017. The transactions in this area are interest expense in association with our debt offset by period bank interest income.

Net Loss.  Net loss for the quarter ended December 31, 2018 of $94,744 compared to $2,569 for the same period in 2017, an increase of $92,175.

Six Months Ended December 31, 2018 Compared to December 31, 2017

Net Sales.  Net sales of $1,612,349 for the six month period ended December 31, 2018, represents a 10.1% decrease over net sales of $1,792,660 for the same period in 2017. These results were in line with expectations as decreased demand for polyurethane foam tires from a significant customer adversely impacted results. Our forecast for the remainder of Fiscal 2019 anticipates continued low farm income and depressed agricultural tire sales. We expect our polyurethane foam products to constitute the majority of our sales during the upcoming fiscal year.

Cost of Revenues.  Cost of revenues for the six month period ended December 31, 2018 was $1,198,277 or 74.3% of sales compared to $1,244,153 or 69.4% of sales for the same period in 2017. This decrease in Gross Margin was due to large increases in chemical raw material costs as well as increases in steel wheel costs due to tariffs. The prospect for relief in these areas is unclear at this time as the prognosis for a successful conclusion to the current trade negotiations with China are uncertain at best The Company continues to maintain sufficient production capacity to meet anticipated customer demand without incurring a proportionate increase in overall production costs. 

Gross Profit.  Gross profit for the six month period ended December 31, 2018 was $414,072 compared to $548,507 for the same period in 2017. Gross profit for the six month period ended December 31, 2018 decreased by $134,435 or 24.6% over the same period in 2017 due to lower gross sales as outlined in the discussion above, as well as the effect of our cost control programs.  The December 31, 2018 gross profit reflects a 25.7% gross margin for product sales compared to a gross margin on product sales of 30.6% in 2017.

Research & Development Expenses (R&D).  Research and development expenses for the six month period ended December 31, 2018 were $47,790 compared to $111,143 for the same period in 2017. The difference between periods is the result of lower personnel costs in this department in 2018 when compared to 2017. We continue to focus on investment in product formulation research and new product development.  The Company plans to continue investing in R&D as a key factor of our new product and business improvement initiatives.

Sales & Marketing Expenses. Sales and marketing expenses for the six month period ended December 31, 2018 were $104,249 compared to $115,318 for the same period in 2017. The difference between periods relates to lower sales commission expense due to lower sales levels and a reduction in trade show expense during the six month period, when compared to the same six month period in 2017.

General & Administrative Expenses.  General and administrative expenses for the six month period ended December 31, 2018 were $353,443 compared to $368,279 for the same period in 2017. We continue to control costs and find more efficient ways to run our business activities.

Other Income (Expense).  Other income for the quarter ended December 31, 2018 was $983 compared to other expense of $19,992 for the same period in 2017. Other expense in the prior year consists of a one-time loss on the abandonment of fixed assets in relation to a failed CRM implementation.

Net Loss.  Net loss for the six month period ended December 31, 2018 of $90,427 compared to $66,224 for the same period in 2017, an increase of $24,203.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and payments received from our customers.  We do not have any significant revolving credit arrangements.  Historically, our expenses have exceeded our sales, 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 and the placement of short-term debt instruments.  At the end of 2016, we were able to obtain term bank debt financing to finance critical manufacturing equipment and operating enhancements, the majority of which was placed in service in fiscal year 2017.  Management continues to evaluate financing options but is choosing to delay financing at terms that subject the Company to high costs of debt and we are reluctant to raise money through stock sales at what we believe are highly dilutive share prices.  Additionally, management has notified our preferred shareholder that we are suspending future payments of preferred cash dividend payments, so the Company can increase its working capital levels.

We have historically not succeeded in establishing favorable revolving short term financing such as lines of credit. In the quarter ended March 31, 2015, we entered into a short term receivable factoring agreement with a third party to sell our receivable invoices.  This agreement enables us to sell individual customer invoices for faster cash flow to the Company as we deem needed. As of December 31, 2018, we have not needed to activate this financing option due to increased focus on adherence to established collection policies and proactive communication with repeat customers, including adjusting credit limits to allow for increased sales volume where warranted.

Cash Flows

The following table sets forth our cash flows for the periods below. 

Net Cash Used by Operating Activities. Our primary sources of operating cash during the period ended December 31, 2018 came from collections from customers and an increase in our accounts payable due to continuing to accrue but not pay any dividends associated with our preferred stock. Our primary use of operating cash was an increase in prepaid and other current assets, specifically related to renewal of insurance policies.  Net cash provided by operating activities was $169,214 for the period ended December 31, 2018 compared to net cash used by operating activities of $191,242 for the same period in 2017. 

Non-cash items include depreciation and amortization and stock based compensation.  Our net loss was $90,427 for the period ended December 31, 2018 compared to a net loss of $66,224 for the same period in 2017.  The net loss for the period ended December 31, 2018 included non-cash expenses for depreciation and amortization of $41,221 and stock-based compensation of $17,778.  As of December 31, 2017, depreciation and amortization was $44,467 and stock-based compensation totaled $14,191.

Net Cash Used by Investing Activities.  Net cash used by investing activities was $78,302 for the period ended December 31, 2018 and $6,062 for the same period in 2017.  In the recent quarter we purchased new facility lighting with cash on hand, which will also be offset in part in fiscal year 2019 by a grant from the federal government.

Net Cash Used by Financing Activities.  Net cash used by financing activities was $9,335 for the period ended December 31, 2018 and $12,497 for the same period in 2017. The use of cash for the period ended December 31, 2018 was payment toward notes payable.

Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other commercial commitments at December 31, 2018.

Cash Position, Outstanding Indebtedness and Future Capital Requirements

At February 6, 2019, our total cash balance was $238,200, none of which is restricted; accounts receivables was $253,533; and inventory, net of reserves for slow moving or obsolete inventory, and other current assets was $916,407. Our total indebtedness was $574,600 and includes $461,002 in accounts payable and accrued expenses, $19,442 in current portion of long-term debt and $94,156 in long-term debt.

We have been working during the past year to improve our liquidity and access to capital resources. In order to fully execute the annual strategic business plan discussed during our shareholder meeting in November 2018, we required more capital resources. However, management continues to maintain that an equity financing at the current market conditions would be too dilutive and not in the best interests of our shareholders. We will continue to pursue potential opportunities to secure short-term loans, long-term bank financing, revolving lines of credit with banking institutions and equity based transactions with interested financial firms and strategic industry partners in our effort to improve the Company’s financial position and enhance shareholder value.

The Company currently does not have an existing revolving credit facility. At the end of 2016 we were able to obtain term bank debt financing to finance critical manufacturing equipment and operating enhancements.  The majority of these improvements were placed in service during fiscal year 2017. We continue to work with our vendors to obtain extended credit terms and increase credit lines where needed. Additionally, we continue to focus on adherence to established collection policies and proactive communication with repeat customers, including adjusting credit limits to allow for increased sales volume where warranted.

We are intent on focusing on the sale and distribution of profitable product lines. Management continues to search for additional financing facilities at affordable terms to provide the Company with the needed additional working capital to finance new sales growth opportunities. We are limiting our capital expenditures to that required to maintain current manufacturing capability or support key business initiatives identified in our strategic sales plan.  We continue to work to reduce our overall costs wherever possible.

To help address our cash resources, which at times may be limited, we have held discussions with banks and other lenders regarding establishing a line of credit for short term cash needs. However at this time we have not succeeded in establishing such a line of credit.  We have entered into a short term receivable factoring agreement with a third party to sell our receivable invoices.  This agreement enables us to sell individual customer invoices for faster cash flow to the Company as we deem needed. During fiscal year 2019 we have not had the need to utilize any factoring of our invoices.

Management continues to execute its strategic plan focusing on “Profitability as a Mindset”.   While we are experiencing adverse effects on our business due to an increase in raw material prices, we believe our continued emphasis on cost controls will enable the Company to be successful in this competitive market environment. Our strategic plan is based on identifying key partners who can provide better access and distribution in our target markets. These partnerships will help us achieve the potential of our current products as well as leverage our other intellectual property into adding value for Amerityre shareholders.

In assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments and other obligations.  In connection with the preparation of our financial statements for the period ended December 31, 2018, we have analyzed our cash needs for the next twelve months. We have concluded that our available cash and accounts receivables are sufficient to meet our current minimum working capital, capital expenditure and other cash requirements for this period.  This is based on the current business environment not becoming worse and our continued diligence in managing discretionary spending and expenses during the upcoming year. 
 

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

As of February 8, 2019, the Company has approximately 491,000 shares authorized and available for issuance. Although we are reluctant to raise money through stock sales at what we believe are dilutive share prices, these authorized but unissued and unreserved shares of our common stock can be utilized if necessary to fund the expansion of our manufacturing operations or to obtain additional working capital.

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

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

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

ITEM 4.  MINE SAFETY DISCLOSURES

ITEM 5.  OTHER INFORMATION

ITEM 6.  EXHIBITS

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:  February 8, 2019

 

AMERITYRE CORPORATION
By:
/s/ Michael F. Sullivan		/s/ Lynda R. Keeton-Cardno
Michael F. Sullivan Chief Executive Officer (Principal Executive Officer)		Lynda R. Keeton-Cardno Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

 

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