AMERITYRE CORP - Quarter Report: 2021 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, 2021

☐ 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)

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

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 9, 2022: 74,667,868

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 Financial Statements

December 31, 2021

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 Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (the “2021 Annual Report”). Operating results for the fiscal quarter ended December 31, 2021 are not necessarily indicative of the results that may be expected for the current fiscal year ending June 30, 2022.

COVID-19 Update

Despite our revenue gains the past 2 quarters, the COVID-19 pandemic affected the Company’s overall financial results for the three and six months ended December 31, 2021. We continue to experience supply chain delays and increased costs from our raw material suppliers, many which are being attributed to COVID-19 effects in the marketplace. This has resulted in downward pressure on our Gross Profit margins. We continue to see strong demand for our products from our customers, and we continue to be diligent in minimizing COVID-19 exposure risk in our facility. We have implemented price increases on our tire products where possible to reduce the negative impact of increasing costs.

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, 2021 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 shipment of product themselves, and once the product has left our dock, Amerityre Corporation (the “Company” or “Amerityre”), recognizes revenue for the product. In effect by arranging their own freight, the customer is “taking control” of the product when it leaves our warehouse; or (ii) when a customer does not arrange shipment of product themselves, 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 $20,124, inclusive of $2,294 of shipping and handling revenue (see below), as of December 31, 2021. Deferred revenue was $841, inclusive of $122 of shipping and handling revenue (see below), as of December 31, 2020.

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 $2,294 as of December 31, 2021 and $122 as of December 31, 2020.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2021

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 have been excluded from the basic and fully diluted net loss per share calculation. We excluded 0 and 1,030,000 common stock equivalents for the periods ended December 31, 2021 and 2020, respectively, because they are anti-dilutive. All options expired as of December 31, 2021.

Recent Accounting Pronouncements

Other recent accounting pronouncements issued by the Financial Accounting Standards Board (“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 immediate sale. Finished good inventory levels were higher on December 31, 2021 due to the timing of the shipment of a large customer order. This order was expected to ship in mid-December but was delayed until early January 2022. We continue to maintain higher than normal raw material inventories as we execute our strategy of strategic raw material purchases when they are available.

NOTE 4 – RIGHT TO USE LEASE ASSETS

Based on our lease accounting policy, we have identified the following operating leases. As of December 31, 2021, we have no financing leases:

In March 2019 we negotiated a five-year extension of the lease for 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 $374,400, payable at amounts ranging from $12,450 to $12,600 a month until June 30, 2024.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2021

NOTE 5 – 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, 2021, $2,000 and $60,878 (June 30, 2021, $2,000 and $61,326) were recorded for the current and long-term portion, respectively, of the related liability.

In April 2020, the Company secured a loan from the Small Business Administration Paycheck Protection Program. The loan amount was $149,570 and had a term of 2 years at 1% interest. In November 2020, the Company received full forgiveness by the Small Business Administration.

NOTE 6 – STOCK OPTIONS AND WARRANTS

On July 22, 2020, the Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”) which contains provisions for up to 5,000,000 stock-based instruments to be granted to employees, consultants and directors.

On October 26, 2021, the Board of Directors adopted the 2022 Equity Incentive Plan (the “2022 Plan”) which contains provisions for up to 10,000,000 stock-based instruments to be granted to employees, consultants and directors.

Effective September 24, 2020, the Company filed a Certificate of Withdrawal of the Certificate of Designation related to the Company’s 2013 Series Convertible Preferred Stock. In doing so, the 2,000,000 shares of preferred stock previously designated as 2013 Series Convertible Preferred Stock returned to the status of authorized and unissued shares of “blank check” preferred stock, and as a result we now have a total of 5,000,000 shares of preferred stock under our Articles of Incorporation which may be designated in one or more series with such relative rights, preferences and limitations as the Board of Directors may determine. The Company may file one or more new designations authorizing the issuance of preferred shares should this be needed in the future as may be determined by the Board of Directors.

All previously granted stock options expired as of December 31, 2021; no stock options have been granted as of December 31, 2021 or thus far in fiscal year 2022.

A summary of the status of our outstanding stock options as of December 31, 2021 and June 30, 2021 and changes during the periods then ended is presented below:

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2021

NOTE 7 – SUBSEQUENT EVENTS

Effective January 1, 2022, the Company renewed the Chief Executive Officer’s Employment Agreement. The new Agreement extends his term of employment to December 31, 2022. Inclusive in this new Agreement is a stock award of 1.68 million shares of the Company’s common stock vesting ratably over 12 months (January 2022 – December 2022), valued at a fixed rate of $0.049 per share, the average price per share of the Company’s common stock for the period December 27, 2021 to December 31, 2021.

On January 1, 2022, 60,000 shares of common stock were granted to the Company’s Chief Financial Officer as part of her employment renewal. These shares of the Company’s common stock vest ratably over 12 months (January 2022 – December 2022), and are valued at a fixed rate of $0.049 per share, the average price per share of the Company’s common stock for the period December 27, 2021 to December 31, 2021.

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

This discussion and analysis section 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 “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, as well as those discussed elsewhere in this report. The historical results set forth in this discussion and analyses are not necessarily indicative of trends with respect to any actual or projected future financial performance. This discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report.

Overview

Amerityre engages in the research and development, manufacturing, and sale of solid polyurethane foam and polyurethane elastomer tires. We have developed unique polyurethane formulations that allow us to make products with superior performance characteristics, compared to conventional rubber tires, in the areas of abrasion resistance, energy efficiency and load-bearing capabilities. 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 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 focus our business on applications and markets where our advantages in product technology, tire performance, and customer service give us an opportunity to obtain premium pricing. Our product development and marketing efforts are focused on building customer relationships and expanding sales with original equipment manufacturers (“OEMs”) and tire distributors. Our competitive advantage is creating unique product solutions for customers who have challenging tire performance requirements that cannot be met by competitor offerings.

Closed cell Polyurethane Foam Tires – The sale of polyurethane foam tires to original equipment manufacturers, distributors, and dealers accounts for the majority of our sales revenue. We produce a broad range of tire sizes for the light duty tire market, including bicycle tires, hand truck tires, mobility tires, lawn/garden tires, golf car tires, and light industrial vehicle tires.

Despite the ongoing negative effects of COVID-19 on the overall US economy, we experienced higher than expected demand for our polyurethane foam tires in the recent quarter. Sales for the fiscal second quarter 2022 were 32.3% higher than the sales level in fiscal second quarter 2021. We continue to see the strong sales trends that we saw during fiscal year 2021 as our current customer base is experiencing strong sales and our domestically produced tires are attractive to those new customers looking for an alternative source for their tires

Our industrial tire product line, which includes our golf car tires, our 480 x 12 tires, and our 570 x 12 tires, continues to see outstanding demand in the marketplace. We expect this trend to continue in the coming quarters.

Polyurethane Elastomer Tires – Our elastomer formulations are used to manufacture tires requiring higher levels of abrasion resistance and greater load bearing capability. Forklift tires constitute a large part of this market opportunity, with other industrial and agricultural applications representing other opportunities. Overall sales volumes of our forklift tires remain small, less than 0.1% of our total sales revenue. Price sensitive consumers continue to favor imported solid rubber press-on forklift tires rather than our products, and consequently we have decided not to devote significant resources towards promoting this product line. We have been working with OEMs to utilize our elastomer formulations for large industrial equipment tires and agricultural applications, which may lead to new revenue sources in the future.

Light Density Elastomer Tires – Demand for our light density elastomer formulation (Elastothane^TM 500) is higher in applications requiring greater abrasion resistance and load bearing capability than our polyurethane foam tires. Lawn and garden tire applications continue to drive increased sales of this formulation, although we have seen some custom tire applications for this formulation as well. We expect Agricultural tires sales to continue to increase in the coming quarters as farmers continue to see higher levels of disposable income. However, economic challenges such as raw material supply shortages could limit anticipated benefits or our ability to capitalize on them. We continue to approach OEMs and large distributors about promoting and utilizing our tires for specific targeted applications, and several are evaluating sample tires.

We believe investment in new and improved products is important to the continued growth and success of our overall business, and we will selectively invest in promising opportunities that can be supported within our current financial model. We have several product evaluations programs ongoing which have the potential to develop into significant future business. We expect our current R&D investments to continue to prove to be a prudent investment of our capital resources.

A major component of our strategic operating plan is to establish a partnership or other type of business combination with a larger OEM or tire manufacturer who would have a larger distribution channel as well as financial resources to fully leverage our current tire portfolio as well as new products that can be developed using our formulations. We continue to pursue opportunities with larger entities that we believe may help us maximize the potential of our intellectual property and the overall value of the business.

We continue to manage supply chain issues and increases in raw material and operating costs, which continue to pressure our Gross Profit Margins. In January 2022 we implemented another price increase on our tire assemblies to mitigate the effects of these cost increases. However, as evidenced by our lower Gross Margins for the recent quarter, we are slightly “behind the cost curve” as our previous price increases were not successful in offsetting all cost increases during the Fiscal 2022 second quarter. We expect that our newest price increase will help to improve our Gross Margins and we will continue to closely manage the cost drivers of our business and take appropriate corrective actions, including further price increases if warranted. However, there can be no assurance that any corrective measures we are undertaking now or that we may attempt in the future will improve our Gross Margins or otherwise achieve their intended purpose, including due to economic conditions and other factors which are beyond our control.

Our sales growth over the past year has been very strong. However, it is unclear if the environment of rising costs and the corresponding higher sales prices will adversely affect demand for our products moving forward. We expect raw material availability to continue to be an issue in the upcoming quarters due to ongoing supply chain issues. While we continue to enjoy a strong backlog of business, we may be restricted as to how much product we can produce and sell if raw material is not available on a timely basis or at reasonable costs. We continue to work with our suppliers to ensure that negative supply impacts are minimized to the extent practicable, although in some cases this may result in Amerityre incurring higher raw material costs.

As described above, our product line covers diverse market segments which are unrelated in terms of customer base, product distribution, market demands and competition. Our sales team is comprised of independent manufacturer representatives with inside sales support. The Company’s continued emphasis on proper product pricing continues to drive more profitable sales. Our website educates the marketplace about our products as well as offers an outlet for online sales.

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.

At present we do not have any critical accounting policies that require critical management judgments and estimates about matters that may be uncertain.

Results of Operations

Our management reviews and analyzes several key performance indicators 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, 2021 and 2020 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

Quarter Ended December 31, 2021 Compared to December 31, 2020

Net Revenues. Net revenues of $1,453,499 for the quarter ended December 31, 2021, represents a 20.6% increase over net revenues of $1,204,990 for the same period in 2020. These results exceeded our expectations as we continued to successfully navigate the challenges presented by the COVID-19 pandemic, including limited raw material availability, higher material costs and other supply chain issues. We expect our polyurethane foam products to continue to constitute the majority of our sales going forward. The increase is due to increases in our prices to offset the raw material prices plus increase in demand.

Cost of Revenues. Cost of revenues for the quarter ended December 31, 2021 was $1,123,434 or 77.3% of sales compared to $903,543 or 75.0% of sales for the same period in 2020. We experienced higher raw material costs, particularly chemical feedstocks, during the recent quarter which pressured gross profit margins. Our raw material chemical suppliers have informed us that there will likely be continued price increases in the coming months due to tight raw material supplies as well as continued high market demand. The supply chain issues in procuring material from overseas has caused higher costs and long delays for our steel rims. We expect these headwinds to continue to pressure our Gross Margins throughout the remainder of fiscal year 2022. We have mitigated some of these issues by increasing the sales prices of our tires. However, continuing increases in raw material costs may result in reduced product sales if we are forced to turn away sales because they are at sales price levels that are unprofitable, or if customers refuse to purchase our products at the increased prices.

Gross Profit. Gross profit for the quarter ended December 31, 2021 was $330,065 compared to $301,447 for the same period in 2020. This increase of $28,618 or 9.6% over the same period in 2020, was primarily driven by greater sales volumes. The December 31, 2021 gross profit reflects a 22.7% gross margin for product sales compared to a gross margin on product sales of 25.0% in 2020. Higher raw material costs that were not completely offset by higher sales prices for our tire products reduced our Gross Margins in the recent quarter.

Research & Development Expenses (R&D). Research and development expenses for the quarter ended December 31, 2021 were $24,399 compared to $30,507 for the same period in 2020. 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 December 31, 2021 were $74,048 as compared to $51,102 for the same period in 2020. The difference between periods relates to higher sales commissions paid and trade show expenses as the Company attended its first trade show since 2019 in October 2021, when compared to the same three-month period in 2020.

General & Administrative Expenses. General and administrative expenses for the quarter ended December 31, 2021 were $213,392 compared to $186,014 for the same period in 2020, driven by higher compensation costs, bank fees, consulting expense partially offset by lower legal costs.

Other Income (Expense), net. Other income, net, for the quarter ended December 31, 2021 was $801 compared to $143,028 for the same period in 2020. The forgiveness of our loan from the Small Business Administration Paycheck Protection Program (“PPP loan”) was received in November 2020 and accounted for the majority of the gain in the quarter ended December 31, 2020.

Net Income. Net income for the quarter ended December 31, 2021 was $19,027, compared to net income of $176,852 for the same period in 2020. The forgiveness of our PPP loan in the quarter ended December 31, 2020 resulted in a gain of $149,570. Without this one-time gain, the difference in net income between the periods was $27,282, or a 31.3% decrease in net income. The decrease in net income for the period ended December 31, 2021 was also driven by lower Gross Margins due to higher material and operating costs incurred during the quarter

Six Months Ended December 31, 2021 Compared to December 31, 2020

Net Revenues. Net revenues of $2,849,113 for the six-month period ended December 31, 2021, represents a 26.3% increase over net sales of $2,256,276 for the same period in 2020. These results exceeded our expectations as we continued to navigate the challenges presented by the COVID-19 pandemic, including limited raw material availability, higher supply costs and other supply chain issues. We expect our polyurethane foam products to continue to constitute the majority of our sales going forward. The increase is due to increases in our prices to offset the raw material prices plus increase in demand.

Cost of Revenues. Cost of revenues for the six-month period ended December 31, 2021 was $2,134,276 or 74.9% of sales compared to $1,611,109 or 71.4% of sales for the same period in 2020. We experienced higher raw material costs, particularly chemical feedstocks, during the recent quarter which pressured gross profit margins. Our chemical suppliers have informed us that there will likely be continued price increases in the coming months due to a tight supply of available raw materials in the market, as well as increased market demand. The supply chain issues, particularly in procuring material from overseas, has caused higher costs and long delays for our steel rims. We expect these headwinds to continue to pressure our Gross Margins throughout fiscal year 2022. We have mitigated some of these issues by increasing the sales prices of our tires.

Gross Profit. Gross profit for the six-month period ended December 31, 2021 was $714,837 compared to $645,167 for the same period in 2020, an increase of $69,670 or 10.9% over the same period in 2020. The December 31, 2021 gross profit reflects a 25.1% gross margin for product sales compared to a gross margin on product sales of 28.6% in 2020. The current period results were adversely affected by higher raw material prices.

Research & Development Expenses (R&D). Research and development expenses for the six-month period ended December 31, 2021 were $45,966 compared to $50,978 for the same period in 2020. We continue to invest in product formulation and new product development where management deems appropriate to support our business plan.

Sales & Marketing Expenses. Sales and marketing expenses for the six-month period ended December 31, 2021 were $142,421 compared to $110,902 for the same period in 2020. The difference between periods relates to higher sales commissions paid and trade show expenses.

General & Administrative Expenses. General and administrative expenses for the six-month period ended December 31, 2021 were $446,200 compared to $396,500 for the same period in 2020, driven by higher compensation costs, bank fees, consulting expense partially offset by lower legal costs.

Other Income, net. Other income for the quarter ended December 31, 2021 was $3,917 compared to $143,848 for the same period in 2020. The primary driver of this variance is the forgiveness of our loan from the Small Business Administration Paycheck Protection Program, received in November 2020.

Net Income. Net income for the six-month period ended December 31, 2021 of $84,127 compared to a net income of $230,635 for the same period in 2020, a decrease in net income of $146,508, or 62.8%. Without the effect of the PPP loan forgiveness mentioned earlier, the net income for the six-month period ending December 31, 2020 would be $81,065, and the comparison with the period ending December 31, 2021 would show a net income increase of $3,062, or 3.63% compared to the period ending December 31, 2020.

Liquidity and Capital Resources

Cash Flows

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

The Company has evaluated its current cash position relative to its cash requirements in the future and has determined its cash levels are sufficient to cover its cash needs. The Company enjoys a strong level of cash on hand as well as an unused credit line facility. These cash resources have been critical during the past year as working capital needs have increased due to the increased costs and extended time required to receive imported materials (which are paid for when they are ready to ship from the manufacturer, not after they are received for use by the Company) as well as Management’s decision to increase chemical stock levels when extra material became available for purchase. The Company completed its upgrade of its Production pouring systems in September 2021, which was completely paid from cash reserves. The increase in cash provided by operating activities is due to lower levels of Account Receivables compared to the year earlier period.

The major driver in our cash provided by operating activities was the collection of accounts receivable offset by increased costs (and therefore value) of inventory on the balance sheet.

Our principal sources of liquidity consist of cash on hand and payments received from our customers. In February 2020, the Company secured a $50,000 line of credit with a local community bank. As of December 31, 2021, this credit line had not been used.

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

Cash Position, Outstanding Indebtedness and Future Capital Requirements

At February 9, 2022, our total cash balance was $359,764, none of which is restricted, accounts receivables was $660,321, inventory, net of reserves for slow moving or obsolete inventory, and other current assets was $713,581. Our total indebtedness, specifically which management reviews for cash management, was $1,102,085 and includes $652,662 in accounts payable and accrued expenses, $24,445 in deferred revenue, $2,000 in current portion of long-term debt, $60,878 in long-term debt and $362,100 in total operating lease liability.

We continue to take actions to improve our liquidity and access to capital resources. Management continues to maintain that an equity financing in the current market environment would be too dilutive and not in the best interests of our shareholders. We have been successful in securing a line of credit with our bank.

In assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments, cash requirements and other obligations. In connection with the preparation of our financial statements for the fiscal year ended June 30, 2021, we have analyzed our cash needs for the next 12 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. Although we have seen a significant increase in business activity in recent quarters, there can be no assurance that a resurgence of the COVID-19 virus will not cause a disruption in our markets that causes a significant decrease in demand from our customers. While many government restrictions have been relaxed and the economy has continued to open in more jurisdictions, the emergence of new variants of COVID-19 may lead to possible resurgences of the virus. This could result in new restrictions on our customers or suppliers located or servicing these affected jurisdictions. Among the adverse consequences caused by the pandemic have been continued supply chain disruptions, resulting in material shortages and delays, as well as increased material costs. The long-term financial impact on our business cannot be reasonably estimated at this time. As a result, the effects of COVID-19 may not be fully reflected in our financial results until future periods. Refer to “Item 1A — Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for a description of the material risks that the Company currently faces including in connection with COVID-19. If there is a new shutdown of the economy, reduction in demand for our products or other adverse effect on our business, we may lack sufficient working capital to meet our needs for the next 12 months.

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

As of February 9, 2022, the Company has approximately 16,937,000 shares authorized and available for issuance. Although we are reluctant to raise money through stock sales at what we believe are dilutive share prices, these authorized but unissued and unreserved shares of our common stock can be utilized, if necessary, to raise new funds.

Off-Balance Sheet Arrangements

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

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding economic conditions in general and in the agricultural market, in particular, positive sales trends and resulting profits, continued demand for our products and those produced by our customers, our intention to seek out and engage in a partnership or other arrangement with one or more OEMs, our ability to successfully manage and respond to supply chain issues and other uncertainties, our sales prospects in light of new products such as the potential development of tires for large industrial and agricultural equipment, price increases in response to increases in raw material costs and the results of such price increases on our gross margins, and the availability of capital 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 fiscal year ended June 30, 2021. In addition, there is a risk that the economic repercussions from COVID-19 and supply chain disruptions may be more severe or prolonged than we currently expect, particularly with the new strains emerging and the uncertainty if existing vaccinations will be effective against the new strains, and vaccine hesitancy. Additionally, there is a risk that our price increases or other challenges we face and actions we take in response may result in lower revenues or the loss of future business from our customers, or that any strategic partnerships or business arrangements do not yield the positive results intended or result in unanticipated adverse consequences, including due to potential friction between the parties. 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 2021 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

None.

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 11, 2022