AMERITYRE CORP - Quarter Report: 2019 September (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:   September 30, 2019

☐ 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 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.

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 ☒

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

The number of shares outstanding of Registrant’s Common Stock as of November 8, 2019: 47,727,867 

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

AMERITYRE CORPORATION

Balance Sheets

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

AMERITYRE CORPORATION

Statements of Operations

(Unaudited)

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

AMERITYRE CORPORATION

Statements of Stockholders’ Equity

(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 Condensed Financial Statements

September 30, 2019

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 (“SEC”).  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, 2019 Annual Report on Form 10-K.  Operating results for the quarter ended September 30, 2019 are not necessarily indicative of the results that may be expected for the current fiscal year ending June 30, 2020.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies disclosed herein have not changed since our audited financial statements and notes thereto included in our June 30, 2019 Annual Report on Form 10-K, except as noted below.

Reclassifications

Certain reclassifications, which have no effect on net income in our current presentation, have been made in the first quarter to record leasehold improvements amortization costs to all departments instead of solely to General and Administration. This reclassification was made in order to better reflect the benefit of these expenses.

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 $18,404, inclusive of $45 of shipping and handling revenue (see below), as of September 30, 2019.  Deferred revenue was $6,462, inclusive of $1,114 of shipping and handling revenue (see below), as of September 30, 2018. 

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 $45 as of September 30, 2019 and $1,114 as of September 30, 2018.

AMERITYRE CORPORATION

Notes to the Unaudited Condensed Financial Statements

September 30, 2019

Right to Use Assets – Leases

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

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

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

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

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

Basic and Fully Diluted Net Income (Loss) Per Share

Basic and Fully Diluted net income (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 3,970,000 and 4,210,000 common stock equivalents for the quarters ended September 30, 2019 and 2018, respectively, because they are anti-dilutive.

Recent Accounting Pronouncements

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.

The Company critically reviews all slow moving inventory to determine if it is 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.  

AMERITYRE CORPORATION

Notes to the Unaudited Condensed Financial Statements

September 30, 2019

NOTE 4 – RIGHT TO USE LEASE ASSETS

Based on our lease accounting policy, we have identified the following operating leases. As of September 30, 2019 we have no financing leases:

In March 2019 we negotiated a five year extension of the lease on our executive office and manufacturing facility located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square foot building.  We currently occupy all 49,200 square feet, inclusive of approximately 5,500 square feet of office space, situated on approximately 4.15 acres.  Our remaining liability under this agreement is $699,750, payable at amounts ranging from $11,750 to $12,600 a month until June 30, 2024.

NOTE 5 - DEBT

A former board member, Silas O. Kines, who passed away on January 11, 2012, was also the principal owner of Forklift Tire of Florida and K-2 Industrial Tire, Inc.  In accordance with the Commission Agreement with Forklift Tire of Florida, dated February 2, 2011, between Amerityre Corporation and K-2 Industrial Tire, Inc., K-2 is due a five percent (5%) commission on all forklift tire sales.  In exchange for the forklift models transferred to Amerityre under that agreement, the first $96,000 in commission payments will be used to extinguish the long term liability recorded on the transaction.  As of September 30, 2019, $2,000 and $62,098 (June 30, 2019, $2,000 and $62,089) 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.  The total amount financed was $55,068, at 5.59% interest, with payments of $1,059 due for 60 months starting July 2016. This note was paid in full in October 2019. 

NOTE 6 - STOCK OPTIONS AND WARRANTS

Prior Issuances of options

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.

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

AMERITYRE CORPORATION

Notes to the Unaudited Condensed Financial Statements

September 30, 2019

A summary of the status of our outstanding stock options as of September 30, 2019 and June 30, 2019, and changes during these periods is presented below:

NOTE 7. – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed financial statements.

ITEM 2. 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 analyses are not necessarily indicative of trends with respect to any actual or projected future financial performance.  This discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report.

Overview

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

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

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

We experienced strong demand for our polyurethane foam tires in the 1^st quarter, in line with our expectations. Higher sales were driven by continued strength in the overall economy as well as seasonal factors that have traditionally boosted sales this time of year. While the tariff dispute with China continues to provide a headwind to our imported wheel rim costs and the overall US economy, for the majority of our products we continue to manage these costs without raising prices to our customers. We reluctantly implemented a small price increase on our large industrial wheels to partially offset cost increases for our 12 inch rims during the first quarter of fiscal year 2020.

Polyurethane Elastomer Industrial Tires – We had negligible sales of elastomer forklift and elastomer industrial tires during the first fiscal quarter. We produced samples for a new tire project for a new customer, and we anticipate additional samples will be produced this current quarter. It is too early to project whether this work will result in meaningful ongoing sales volumes going forward but the Company is optimistic this work will bear fruit in the form of new business opportunities in future quarters. 

The Company continued to see increasing sales of tires using its new elastomer formulation Elastothane^TM 500. Large scale adoption of this tire has been slow due to a lack of product exposure as well as its higher price tag relative to our polyurethane foam product. Field testing of this formulation with select customers continues to be successful. We continue to believe this new formulation represents a significant development for our product portfolio.

Agricultural Tires – Agricultural tires sales remain depressed due to low farm incomes and a lack of available funds from farmers. Chinese tariffs on US grown soybeans and other agricultural products remains a drag on commodity pricing domestically and demand overseas. The prospect for improved agricultural commodity pricing remains poor in our opinion. We continue to look for new opportunities with OEMs and distributors for our tires. The introduction of our Elastothane^TM 500 formulation has enabled us to improve our tire offerings in several agricultural applications, which we believe will present new business opportunities once the farmers have money to invest in new equipment.

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

As described above, our product line covers diverse market segments which are unrelated in terms of customer base, product distribution, market demands and competition. Our external sales team is comprised of independent manufacturer representatives with strong tire industry experience.  The Company’s continued emphasis on proper product pricing and targeted marketing campaigns continue to drive more profitable sales.   Our website continues to be an educational tool for the marketplace about our products, and it continues to generate some online sales. Higher sales of polyurethane (“PU”) foam tires in first quarter of fiscal year 2020 versus the same period last year was the result of a large customer beginning its seasonal tire purchases earlier in Fiscal year 2020 than last year.

Revenue for the first quarter of fiscal year 2020 was 18.4% higher than the year earlier period. Our strategy continues to be to focus on market segments where we have identified technological and product performance advantages. Other than the cost of our imported wheel rims, raw material pricing remained fairly stable during the recent quarter, but higher than the year ago period. Our imported wheel rims are still subject to price fluctuations due to larger tariffs as the trade dispute between the U.S. and China continues. Our gross margins consequently declined in the recent quarter compared to the same period the previous year, driven by higher raw material costs. Improving top line sales revenue growth remains our primary goal. Our ability to broaden our customer base has enabled us to overcome challenging business conditions in key segments such as the depressed agricultural sector to maintain our overall sales revenue levels over the past 3 years. We are optimistic that these new customers will develop into larger revenue opportunities as applications for our tires continues to grow. Continued strength in the US economy is also a key factor in our future revenue growth, and weakness in the overall economy remains a risk factor going forward in fiscal year 2020.

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 are in addition to revenue, inventory and stock valuation with accounting policies disclosed in our financial statements. The following 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.

Valuation of Intangible Assets and Goodwill

Patent and trademark costs have been capitalized at September 30, 2019, totaling $487,633 with accumulated amortization of $381,456 for a net book value of $106,177. Patent and trademark costs capitalized at September 30, 2018, the prior year, totaled $487,633 with accumulated amortization of $360,743 for a net book value of $126,890.

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 September 30, 2019 and 2018, 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 September 30, 2019 and 2018, respectively.

Amortization expense for the years ended September 30, 2019 and 2018 was $4,425 and $5,715 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:

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 September 30, 2019 and 2018 with respect to certain key financial measures.  The comparisons illustrated in the table are discussed in greater detail below.

Quarter Ended September 30, 2019 Compared to September 30, 2018

Net Revenues.  Net revenues of $979,297 for the quarter ended September 30, 2019, represents an 18.4% increase over net revenues of $827,244 for the same period in 2018. These results were in line with expectations. 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 quarter ended September 30, 2019 was $690,599 or 70.5% of sales compared to $561,012 or 67.8% of sales for the same period in 2018. This decrease in Gross Margin was due to increases in chemical raw material and steel wheel costs as well as increases in labor overtime costs. We anticipate that raw material costs will stabilize in the upcoming fiscal year, but the magnitude of the increased costs associated with trade tariffs is uncertain at this time. 

Gross Profit.  Gross profit for the quarter ended September 30, 2019 was $288,698 compared to $266,232 for the same period in 2018. Gross profit for the quarter ended September 30, 2019 increased by $22,466 or 8.6% over the same period in 2018 due to higher costs of revenue as outlined in the discussion above.  The September 30, 2019 gross profit reflects a 29.5% gross margin for product sales compared to a gross margin on product sales of 32.2% in 2018.

Research & Development Expenses (R&D).  Research and development expenses for the quarter ended September 30, 2019 were $26,016 compared to $23,073 for the same period in 2018. We continue to invest in product formulation and new product development where appropriate to support our business plan.

Sales & Marketing Expenses. Sales and marketing expenses for the quarter ended September 30, 2019 were $43,471 as compared to $50,924 for the same period in 2018. The difference between periods relates to lower commission expenses paid during the period, as a larger proportion of sales in the current period were generated by in-house sales personnel rather than external sales representatives.

General & Administrative Expenses.  General and administrative expenses for the quarter ended September 30, 2019 were $193,430 compared to $189,548 for the same period in 2018. We continue to control costs and find more efficient ways to conduct our business activities.

Other Income, net.  Other income for the quarter ended September 30, 2019 was $3,122 compared to other income of $1,630 for the same period in 2018. The primary driver in this variance is lower interest expense due to the payoff of debt.

Net Income.  Net income for the quarter ended September 30, 2019 of $28,903 compared to a net income of $4,317 for the same period in 2018, an increase in net income of $24,586.

Liquidity and Capital Resources

Cash Flows

The following table sets forth our cash flows for the quarters ended September 30, 2019 and 2018.

Net Cash (Used)/Provided by Operating Activities. Our primary sources of operating cash during the quarter ended September 30, 2019 came from collections from customers on balances from June 30, 2019 and sales for the quarter. Our primary use of operating cash was an increase in prepaid and other current assets, specifically related to renewal of insurance policies (a normal reoccurrence in our first quarter of fiscal year 2020), increase in inventory levels in preparation for shipment of a large order in early October and a larger accounts payable balance at September 30, 2019 versus June 30, 2019 (a variance due to when the quarter ended).  Net cash used by operating activities was $78,859 for the quarter ended September 30, 2019 compared to net cash provided by operating activities of $94,279 for the same period in 2018. 

Non-cash items include depreciation and amortization and stock based compensation.  Our net income was $28,903 for the quarter ended September 30, 2019 compared to a net income of $4,317 for the same period in 2018.  The net income for the quarter ended September 30, 2019 included non-cash expenses for depreciation and amortization of $25,194 and stock-based compensation of $10,119.  As of September 30, 2018, depreciation and amortization was $20,473 and stock-based compensation totaled $9,785.

Net Cash Used by Investing Activities. Net cased used by investing activities was $12,641 for the quarter ended September 30, 2019 as we purchased new computers and rebuilt production equipment.

Net Cash Used by Financing Activities.  Net cash used by financing activities was $2,842 for the quarter ended September 30, 2019 and $4,651 for the same period in 2018. The primary use of cash for the quarter ended September 30, 2019 was payment of notes payable.

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 and has been paid off in October 2019.  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 September 30, 2019, 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 Position, Outstanding Indebtedness and Future Capital Requirements

At November 6, 2019, our total cash balance was $365,862, none of which is restricted; accounts receivables was $266,205; and inventory, net of reserves for slow moving or obsolete inventory, and other current assets was $754,629. Our total indebtedness, specifically which management reviews for cash management, was $1,245,045 and includes $493,139 in accounts payable and accrued expenses, $2,000 in current portion of long-term debt, $61,906 in long-term debt and $688,000 in total operating lease liability.

We continue to take actions 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 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 but we were able to obtain term bank debt financing at the end of 2016 to finance critical manufacturing equipment and operating enhancements the majority of which was placed in service in 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 look for further financing facilities at affordable terms that will allow the Company to maintain sufficient raw material and finished goods inventory to capitalize on sales growth opportunities. We are limiting our capital expenditures to that required to maintain current manufacturing capability or support key business initiatives identified in our strategic sales plan.  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. As of September 30, 2019, we have not needed to activate this financing option as explained above.

Management continues to execute its strategic plan focusing on “Profitability as a Mindset”.  The Company’s emphasis on proper product pricing and new marketing campaigns has driven more profitable sales. Improvement in results has continued and the Company has been successful in reducing its required breakeven sales level. 

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 September 30, 2019, 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.  However, to expand manufacturing and sales operations beyond the current level, additional capital may be required.

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 November 8, 2019, the Company has approximately 1,626,000 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. Because of our low stock price, we are seeking shareholder approval to increase our authorized common stock at our annual shareholders meeting on December 4, 2019.

Off-Balance Sheet Arrangements

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

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding economic conditions in general and in the agricultural market, in particular, our sales prospects in light of new products, increased sales and resulting profits, and liquidity. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in our Annual Report on Form 10-K for the year ended June 30, 2019. New risk factors emerge from time-to-time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements described in this report, whether as a result of new information, future events, changed circumstances or any other reason after the date this report is filed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the 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.

As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive and Financial Officers, 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 Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this quarterly report to ensure the information required to be disclosed by us in reports is timely recorded, processed, summarized and reported in accordance with the SEC’s rules and forms and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

For information regarding risk factors, see “Part I. Item 1A. Risk Factors,” in our 2019 Annual Report.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

Our Annual Stockholder’s Meeting is scheduled for 10am, Wednesday, December 4, 2019 at 1501 Industrial Rd., Boulder City, NV 89005.

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:  November 8, 2019