FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for future operations; new products or developments; future economic conditions, performance or outlook; the outcome of contingencies; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as "believes," "expects," "may," "should," "would," "will," "intends," "plans," "estimates," "anticipates," "projects" and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management's opinions only as of the date of the filing of this Quarterly Report on Form 10-Q and are not guarantees of future performance or actual results. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The following are some factors we believe could cause our actual results to differ materially from expected or historical results:

• We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures.

• Our future success will depend on our ability to develop new products and technologies that achieve market acceptance in our current and future markets.

• We cannot predict the consequences of future geo-political events, but they may affect adversely the markets in which we operate, our ability to insure against risks, our operations or our profitability.

• The inability of our key suppliers to timely deliver our raw materials, components or parts, could cause our products to be produced in an untimely or unsatisfactory manner.

• Third parties may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.

• We are subject to customer credit risk.

• We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.

• In order to be successful, we must attract and retain key employees, and failure to do so could seriously harm us.

• The effects of the recession in the United States and general downturn in the global economy, including financial market disruptions, could have an adverse impact on our business, operating results or financial position.

Overview

Since our inception in 1995, we have been engaged in the research and development of technologies related to the formulation of polyurethane compounds and the manufacturing process for producing tires constructed of polyurethane.
We believe that we have developed unique polyurethane formulations that, when used in tire applications substantially simplify the production process and allow for the creation of products with superior performance characteristics, including abrasion resistance and load-bearing capabilities, than conventional rubber tires. We also believe that the manufacturing processes we have developed to produce polyurethane tires are more efficient than traditional tire manufacturing processes, in part because our polyurethane compounds do not require the multiple processing steps, extreme heat, and high pressure that are necessary to cure rubber. Using our polyurethane technologies, we believe tires can be produced that last longer, are less susceptible to failure and offer

improved fuel economy.

While the sale of polyurethane foam tires to original equipment manufacturers, distributors and retail stores continues to account for most of our revenue at this time, Elastothane® and Amerifill® and other proprietary polyurethane materials are significant to our potential future growth. We are concentrating on five principal product areas: tire fill, low duty cycle tires, solid tires, composite tires and pneumatic tires; as well as developing new products, such as polyurethane foam fire retardant material. Our most recent activities in these areas are set forth below:

Low duty tires - We recently announced that a leading distributor of superior commercial grade industrial and mining tires, has selected us to manufacture and supply a new line of long-wearing, flat-proof polyurethane tires. The tires will be manufactured in multiple sizes for a variety of commercial applications using the unique, proprietary polyurethane formulations developed by Amerityre.

Solid tires -We have demonstrated the capability of making cost competitive solid polyurethane elastomer forklift tires at the rate of one tire per minute using our advanced production technology. We have designed and engineered a forklift tire design for a potential customer and expect field testing can be completed during June 2009, so that we can begin commercial production during this current fiscal year.

Tire fill and Tire Fill Equipment - Through research and testing, we have found that our Amerifill® material is not compatible with most tire fill equipment in use today. Therefore, our customers must also acquire the necessary tire fill equipment to use our materials. In order to penetrate this market we are supplying our customers with tire fill equipment at a price slightly above our cost. We intend that profits from this initiative will be derived from the sale of Amerifill® to our customers.

Composite tires - There are multiple applications for use of our polyurethane elastomer material as treads for new or retread tire casings. The first commercial application for this technology was initiated by Desert Research Technology ("DRT) to manufacture paddle-type sand tires. DRT commenced commercial production of this product and we have supplied DRT with small amounts of the chemical system necessary to produce the tires. However, the general economic downturn in the U.S has slowed DRT's production and, as a result, our sales of chemical systems to DRT have also slowed. Further, our licensee, Qingdao Qizhou Rubber Company, LTD. ("Qingdao") has told us that due to the slow-down in the international economy, it cannot provide us with a target date for commencing the production of OTR tire retreads. However, if Qingdao's OTR tire retread facility becomes operational, Qingdao will purchase the polyurethane elastomer chemical systems necessary to produce the OTR tire retreads directly from us.

Pneumatic tires - We continue to manufacture prototype passenger car tires to evaluate the properties of the tires in the laboratory and on vehicles. We have also provided prototype tires to other tire or automotive manufacturers for performance evaluation, which may include uniform tire quality grading or other performance testing and/or testing to non-U.S. safety standards. In addition, we have been working to finalize the elements of the manufacturing process that is intended to achieve a production rate of one tire per minute. In connection with our objective, during the period we announced that we have entered into a Phase I development program with a multi-billion dollar defense industry contractor that is a leader in aerospace composite technology. The objective of the Phase I development program is to establish the base line performance characteristics of the polyurethane passenger car tire incorporating a "composite hoop" belt , as opposed to traditional tire belting material. The objective of the composite hoop belt is to improve tire performance while simplifying the tire manufacturing process.

Polyurethane Foam Fire Retardant Material - We have formulated and tested in small quantities a flame retardant polyurethane foam for use as packaging material. The flame retardant material has performed well in flammability testing and exceeded the requirements of the UL 94-HB (Horizontal Burn) test. We are currently evaluating commercial applications for this product and the related capital equipment costs and expenses associated with producing and marketing this product in commercial quantities.

Factors Affecting Results of Operations

Our operating expenses consisted primarily of the following:

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

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

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

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Consulting expenses, which consist primarily of amounts paid to third-parties for outside services;

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Depreciation and amortization expenses which result from the depreciation of our property and equipment, including amortization of our intangible assets; and

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

Critical Accounting Policies

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

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

Revenue Recognition

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

Valuation of Intangible Assets and Goodwill

At March 31, 2009, we had capitalized patent and trademark costs, net of accumulated amortization, totaling $667,200. The patents which have been granted are being amortized over a period of 20 years. Patents which are pending or are being developed are not amortized until a patent has been issued.
We evaluate the recoverability of intangibles and review the amortization period on a continual basis utilizing the guidance of Statement of Financial Accounting Standards "SFAS" No. 142, "Goodwill and Other Intangible Assets." We test our patents and trademarks for impairment at least annually and whenever events or changes in circumstances indicated that the carrying value may not be recoverable. We consider the following indicators, among others, when determining whether or not our patents are impaired:

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

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

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

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

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

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current expectations that, more likely than not, the patents will be sold or otherwise disposed of

significantly before the end of its previously estimated useful life.

Inventory

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

Stock-Based Compensation

Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of authorization. On July 1, 2005, we adopted SFAS No. 123 (revised 2004), "Share-Based Payment," ("SFAS
123(R)"). SFAS 123(R) 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. Under SFAS 123(R), stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The stock-based compensation expense recognized under SFAS 123(R) for the nine month periods ended March 31, 2009 and 2008 was $51,691 and $265,400, respectively, and assumes all awards will vest. Therefore, no reduction has been made for estimated forfeitures.

The valuation of options and warrants granted to unrelated parties for services are measured as of the earlier of the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or the date the counterparty's performance is complete. Pursuant to the requirements of Emerging Issues Task Force No. 96-18, the options and warrants will be revalued in situations where they are granted prior to the completion of the performance.

Results of Operations

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

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Net revenues, which consists of sales revenues and license fees;

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Sales revenue, net of returns and trade discounts, which is an indicator of our overall business growth and the success of our sales and marketing efforts;

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Gross profit, which is an indicator of both competitive pricing pressures and the cost of revenues of our products;

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

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Distribution of revenue across our products offered.

The following summary table presents a comparison of our results of operations for the three and nine month periods ended March 31, 2009 and 2008 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

                       Three Months Ended Mar. 31,                 Nine Months Ended Mar. 31,
                         2009             2008       Change(%)        2009            2008      Change(%)
Net revenues (1)  $       774,569 $          828,862    (7)    $     2,339,469 $     2,025,711     15
Cost of revenues  $       595,293 $          563,529     6     $     1,698,430 $     1,331,832     28
Gross profit      $       179,276 $          265,333   (32)    $       641,039 $       693,879     (8)
Selling, general, $       776,892 $        1,007,785   (23)    $     2,736,682 $     3,046,168    (10)
and
administrative
expenses (2)
Consulting        $        18,616 $          101,510   (82)    $       287,473 $       276,615      4
Research and      $         9,425 $          146,811   (94)    $       185,737 $       461,267    (60)
development
expenses

Depreciation and  $      60,025 $       69,482   (14)   $      194,680 $     220,753    (12)
amortization
expenses
Loss on sales and $           - $            -    -     $        2,305 $         462    399
impairment of
assets
Other Income      $       7,319 $       54,939   (87)   $       45,592 $     184,214    (75)
Net loss          $   (678,363) $  (1,005,316)   (33)   $  (2,720,245) $  (3,127,172)   (13)

(1) For the nine months ended March 31, 2009 the amounts include $33,333 of license revenue with no associated cost of revenues for the period.

(2) Includes a decrease on deferred compensation for employee stock options of $89,268 in the three month periods ended March 31, 2009 and an increase of $92,441 in the three month periods ended March 31, 2008. It also includes a deferred compensation for employee stock options of $51,691 and $265,400 in the nine month periods ended March 31, 2009 and 2008 respectively.

Three Month Period Ended March 31, 2009 Compared to March 31, 2008

Net revenues. We had net revenues of $ 774,569 for the three month period ended March 31, 2009, a 7% decrease over net revenues of $828,862 for the three month period ended March 31, 2008. The 7% decrease as compared with 2008 is due to a combination of a decrease in product sales offset by an increase in equipment sales. Sales of our closed-cell polyurethane foam products ($622,319) and equipment ($152,250) accounted for approximately 80% and 20%, respectively, of our net revenues for the three month period ended March 31, 2009. Sales of our closed-cell polyurethane foam products ($778,862) and license revenues ($50,000) accounted for approximately 94% and 6%, respectively, of our net revenues for the three month period ended March 31, 2008.

The $622,319 of foam product revenues represents a 20% decrease compared to $778,862 for the same period in 2008. During the reporting period, we decreased our number of product units sold to our original equipment manufacturer, retail chain and distributor customers by 6% over the three month period ended March 31, 2008, due to the continuing overall weakness in U.S. consumer markets since early 2008.

We had no revenues derived from licensing fees for the three months ended March 31, 2009, compared to $50,000 for the three month period ended March 31, 2008. The decrease in license fees is a result of reaching the end of the license fee arrangement with our Chinese OTR retread licensee. During the three month period ended December 31, 2008, our Chinese OTR retread licensee paid us $20,000 towards its outstanding licensee fee obligation and informed us that no further payments would be forthcoming until the licensee's financial condition improved. At March 31, 2009, our Chinese OTR retread licensee owed us $230,000. Other than the outstanding licensee fees, any additional revenue we may derive from our Chinese OTR retread licensee will come from the sale of equipment and/or chemical systems once international economic conditions improve enough for the licensee to commence production of OTR retreads.

For the three month period ended March 31, 2009, we had $152,250 of revenues derived from sales of tire fill equipment, or approximately 20% of total net revenues. We had no revenue derived from sales of equipment for the three month period ended March 31, 2008. Also during the three month period ended March 31, 2009 we had $29,091 and $1,657 of returns of our products and trade discounts, respectively, compared to $19,634 and $4,061, respectively, for the same period in 2008.

Cost of revenues. Our cost of revenues of $595,293 for the three month period ended March 31, 2009, representing approximately 77% of net revenues, compared to cost of revenues of $563,529, or 68% of net revenues for the three month period ended March 31, 2008. For the three month period ended March 31, 2008, we had $50,000 in license fees with no associated cost. The cost of revenues of $563,529 represents 72% of net revenues for the three month period ended March 31, 2008 without considering license fees.

For the three month period ended March 31, 2009 our cost of revenues related to foam products was $461,894, or 74% of foam product revenues, compared to $563,529, or 72% of foam product revenues for the same three month period in 2008. The small increase in our cost of revenues over the prior comparative period was a result of increased raw material costs. However, we do not expect our raw material costs to continue to increase during the balance of the fiscal year because our raw material costs have recently started to decline. As, a result, we believe that our cost of revenues related to foam products will decrease. In addition, we believe our increased sales efforts will generate additional product orders so that we can take advantage of manufacturing efficiencies associated with operating our factory at higher capacities. We believe we currently have sufficient foam product manufacturing equipment and employees to accomplish a substantial increase in production without incurring a proportionately

equivalent increase in labor costs.

During the three month period ended March 31, 2009 our cost of revenues related to equipment sales was $133,399, or approximately 88% of equipment sales. As indicated in the Overview section above, in order to penetrate the tire fill market, we are supplying our customers with tire fill equipment at a small margin. We anticipate that profits from this initiative will be derived from the sale of tire fill material to our customers.

Gross Profit. For the three month period ended March 31, 2009 we had $179,276 of gross profit compared to $265,333 for the same period in 2008. Gross profit for the three month period ended March 31, 2009 decreased by $86,057, or 32%, over same period in 2008 due primarily to a decrease in license fees and a decrease in foam product sales offset by increased equipment sales. Because our profit margin on licensee fees (with no associated cost of revenues) and foam products is substantially higher than our profit margin on equipment, our gross profit margin in future periods will be influenced by the percent of total revenues derived from foam product sales, equipment sales and licensee fees, respectively.

Selling, General, and Administrative Expenses. For the three month period ended March 31, 2009 we had $776,892 of SG&A expenses, including the amortization of deferred compensation, compared to $1,007,785 for the same period in 2008. We amortized $68,947 of deferred compensation for the three month period ended March 31, 2009 compared to $92,441 for same period in 2008. We expect our quarterly SG&A expenses to decrease during the balance of the 2009 fiscal year as a result of overall cost reduction measures currently being implemented in multiple areas, including annual board compensation, employee compensation, employee health insurance, corporate governance expenses, advertising and outside services.

Research and Development Expenses. For the three month period ended March 31, 2009 we had $9,425 of research and development expenses compared to $146,811 for the same period in 2008. Our research and development expenses for the three month period ended March 31, 2009, decreased by $137,386, or 94%, as compared with the same period in 2008 due primarily to a decrease in outside testing services and a reduction in research and development tooling expenses during the period. We intend to closely monitor our research and development costs so that our expenditures more specifically relate to products that can be commercialized in the relatively short term and as a result we expect research and development expenses to continue to decrease over the balance of the fiscal year ending June 30, 2009 as compared to the prior fiscal year.

Consulting Expenses. For the three month period ended March 31, 2009, we had $18,616 in consulting expenses compared to $101,510 in consulting expenses for the same period in 2008. Our consulting expenses for the three month period ended March 31, 2009, decreased by $82,894, or 82% as compared with the same period in 2008. The decrease in our consulting expenses for the current period is due to the April 2009 termination of two consulting agreements with our former CEO, Richard Steinke and our former Chief Chemical Systems Formulator, Manuel Chacon which resulted in the cancellation of unvested options. We expect consulting expenses for the balance of the fiscal year to decrease due to the termination of these agreements.

Depreciation and Amortization Expenses. For the three month period ended March 31, 2009 we had $60,025 of depreciation and amortization expenses compared to $69,482 for the same period in 2008. Our depreciation and amortization expenses for the three month period ended March 31, 2009 decreased by $9,457, or 14%, compared to the same period in 2008, due to reductions for fully depreciated assets.

Net Loss. For the three month period ended March 31, 2009 we had a net loss of $678,363 compared to a net loss of $1,005,316 for the same period in 2008. Our net loss for the three month period ended March 31, 2009 decreased by $326,953 as compared with the same period in 2008, due primarily to the cost reduction measures described above.

Nine Month Period Ended March 31, 2009 Compared to March 31, 2008

Net revenues. We had net revenues of $2,339,469 for the nine month period ended March 31, 2009, a 15% increase over net revenues of $2,025,711 for the nine month period ended March 31, 2008. The 15% increase as compared with 2008 is due to a combination of an increase in product and new equipment sales offset by a decrease in license fees. Sales of our closed-cell polyurethane foam products ($2,015,975), equipment ($290,161) and licensee fees ($33,333) accounted for approximately 86%, 12% and 2%, respectively, of our net revenues for the nine month period ended March 31, 2009.

The $2,015,975 of foam product revenues represents an 8% increase compared to $1,865,711 for the same period in 2008. During the reporting period, we increased our number of product units sold to our original equipment manufacturer, retail chain and distributor customers by 11% over the nine month period ended March 31, 2008, despite an overall weakness in U.S. consumer markets in 2008.

We had $33,333 of revenues derived from licensing fees compared to $160,000 for the nine month period ended March 31, 2008. The decrease in license fees is a result of reaching the end of the license fee arrangement with our Chinese OTR retread licensee. Any additional revenue we may derive from our Chinese OTR retread licensee will come from the sale of equipment and/or chemical systems, provide international economic conditions improve enough for the licensee to commence production of OTR retreads.

For the nine month period ended March 31, 2009, we had $290,161 of revenues derived from sales of tire fill equipment, or approximately 12% of total net revenues. We had no revenue derived from sales of equipment for the nine month period ended March 31, 2008.

Also during the nine month period ended March 31, 2009 we had $49,978 and $9,152 of returns of our products and trade discounts, respectively, compared to $31,791 and $10,514, respectively, for the same period in 2008.

Cost of revenues. Our cost of revenues of $1,698,430 for the nine month period . . .