Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
AMTY > SEC Filings for AMTY > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for AMERITYRE CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for AMERITYRE CORP


15-May-2013

Quarterly Report


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

Overview

Amerityre engages in the research and development, manufacturing and sale of polyurethane tires. We believe that we have developed unique polyurethane formulations that allow us to make products with superior performance characteristics, including abrasion resistance and load-bearing capabilities, than conventional rubber tires. We also believe that our manufacturing processes 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 which last longer, are less susceptible to failure and offer improved fuel economy. We are concentrating on three segments of the tire market: low duty cycle foam tires, solid forklift tires and agricultural tires.

As noted in our March 2013 press release, we had a slow start to fiscal 2013. A shift in seasonality within our industrial products line coupled with significant reduction in export sales negatively impacted the business. The late arrival of spring in the east and midwest regions delayed the seasonal ramp up of revenues in the lawn & garden segment. This trend has reversed during the current quarter. Going forward, Amerityre is implementing a strategy to diversify the customer base which will lower the risk of having any one customer or customer group threaten the company's viability. We are currently into the fourth quarter, and sales have been robust and should remain that way for the remainder of fiscal 2013. The following information will update our progress by product group.

Low duty cycle foam tires - Marketing efforts are focused on building distribution to expand our business and product sales. A new dealer/distributor development program was rolled out in October 2012. This program is designed to build sales volume and add value to the Amerityre brand. New distribution channels are now in place in the Midwest, East and Southwest regions of the U.S. market. This is timely for the spring selling season in lawn & garden products. In tandem, high volume original equipment manufacturers (OEM) are being pursued. A number of large OEM companies are testing Amerityre products for potential use on their equipment. The Company has already received a significant "test order" from the leading U.S. wheelbarrow manufacturer. That order was delivered in February 2013. Now that we have established ourselves with that customer, our goal is to receive approval as their supplier for the next business cycle starting in July 2013. In addition, several major medical mobility, and lawn and garden companies are expected to complete their testing of Amerityre products during the fourth quarter of fiscal 2013. In 2012, we lost a major customer to a Chinese tire manufacturer that utilizes the "open cell" polyurethane technology. However we were informed that within a few months, the "open cell" tires from China were experiencing catastrophic failures. As a result, the customer has returned to Amerityre as its supplier for the coming year. We estimate this will require Amerityre to transform an additional 250,000 pounds of material into finished product. From these developments, we remain firm in our belief that sales revenues during the 4th quarter will increase significantly over previous year. In addition, we have been approved by an OEM company to supply tires for the manufacture of electric utility vehicles. We have received our first order from this company for delivery in May 2013. Another growing segment within polyurethane foam is our bicycle tire product line. We have been selected to supply tires to an important west coast bicycle rental company. Their initial order is estimated to be for 1,000 units. However the rental company is expected to equip approximately 7,500 of their bicycle rental fleet.

Solid forklift tires - Manufacturing process improvements were implemented during the fourth quarter of fiscal 2012. As a result, all forklift tires are being consistently produced at a high quality level. Sales and marketing efforts are underway to rebuild customer confidence in the product. No warranty claims have been received since the implementation of the new manufacturing process improvements. Our marketing efforts are being expanded by promoting the tire for use in the traditional polyurethane tire applications where we have a competitive advantage. It is anticipated that sales of forklift tires will exceed fiscal 2012 levels as we have more than doubled the dealer network over the previous year. In retrospect the closing of the forklift production line during the third quarter of fiscal 2012 was warranted as all process issues have been addressed and the product performance is now up to management's standards. Currently, production is running well and inventory is available at the Boulder City, Nevada and Ravenna, Ohio warehouses. We expect sales volumes to begin increasing during the fourth quarter of fiscal 2013.


Table of Contents

Agricultural tires - We are currently pursuing two segments of the agricultural tire market (irrigation and planting). The Company completed a redesign of its agricultural products in the fourth quarter of fiscal 2012. The newly designed tires are now entering the market and sales are growing as expected. We have received initial "test orders" for over 100 pivot tires used on irrigation systems. Two irrigation OEM companies are testing the Amerityre pivot tire solution during the upcoming irrigation season. These developments set the stage for significant growth in this product segment. Product design for new seeder tire dimension has been completed and initial order from a significant customer is in hand.

Due to the Company's limited resources, tire projects which are contingent on additional development, such as composite and automotive tires, have been put on hold and will be revisited at a later date.

Factors Affecting Results of Operations

Our operating expenses consisted primarily of the following:

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

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

Research and development expenses, which consist primarily of equipment and materials used in new product development and product improvement using our technologies;

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

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

Stock based compensation expense related to stock and stock option awards issued to employees and consultants for services performed for the Company.

Critical Accounting Policies

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

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

Revenue Recognition

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.

Valuation of Intangible Assets and Goodwill

At March 31, 2013, we had capitalized patent and trademark costs, net of accumulated amortization, totaling $509,594. 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 Accounting Standards Codification 350, Intangibles - Goodwill and Other (ASC 350). 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:

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

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

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

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

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

current expectations that a patent will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.


Table of Contents

Inventory

Inventory is stated at the lower of cost (computed on a first-in, first-out basis) or market. The inventory consists primarily 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. The stock-based compensation expense recognized under ASC 718 for the nine months ended March 31, 2013 and 2012 was $58,177 and $65,113, respectively.

Seasonality

A substantial majority of our sales are to customers within the United States. We experience some seasonality in the sale of our closed-cell polyurethane foam tires for bicycles and, lawn and garden products because sales of these products generally decline during the winter months in the United States. Sales of our closed-cell polyurethane form tire products generally peak during the spring and summer months typically resulting in greater sales volumes during the 3rd and 4th quarters of the fiscal year.

Results of Operations

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

Net revenues, which consists of product sales revenues and equipment sales revenues, if any;

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

Gross profit, which is an indicator of both competitive pricing pressures and the cost of revenues of our products and the mix of product and equipment sales and license fees, if any;

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

Distribution of revenue across our products offered.

The following summary table presents a comparison of our results of operations for the three and nine month periods ended March 31, 2013 and 2012 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

                         For the Three Months Ended                      For the Nine Months Ended
                                  March 31,                                      March 31
                    2013            2012           Change          2013             2012           Change
Net revenues     $ 1,030,711     $ 1,013,305           (1.7% )   $ 2,671,115     $ 3,411,169          (21.7% )
Cost of
revenues             658,182         672,580           (2.1% )     1,712,658       2,207,066          (22.4% )
Gross profit         372,529         340,725            9.3%         958,457       1,204,103          (20.4% )
Consulting
expense               11,087          27,839          (60.2% )        54,996          65,379          (15.9% )
Depreciation &
amortization
expenses              59,912          34,101           75.7%         177,875         155,424           14.4%
Research &
development
expenses                 895           2,116          (57.7% )         1,195           9,732          (87.7% )
Bad debt
expense               (1,714 )         4,882         (135.1% )       (31,387 )          (869 )       3511.9%
Selling,
general &
administrative
expenses             538,650         493,700            9.1%       1,603,634       1,601,886            0.1%
Interest
income                    10           1,004          (99.0% )           563           7,624          (92.6% )
Interest
expense               (3,938 )        (6,750 )        (41.7% )       (15,467 )       (32,550 )        (52.5% )
Miscellaneous
income                     -           9,531         (100.0% )             -           9,531         (100.0% )
Net loss         $  (240,229 )   $  (218,128 )                   $  (862,760 )   $  (642,844 )         34.2%


Table of Contents

Three Months Ended March 31, 2013 Compared to March 31, 2012

Net Revenues. Net revenues of $1,030,711 for the three months ended March 31, 2013 represent a 1.7% increase over net revenues of $1,013,305 for the three months ended March 31, 2012. Net revenues for the first three quarters of fiscal 2013 were relatively flat compared to 2012 and continue to lag forecasts due to decreases in sales for agricultural and lawn & garden products; a decrease in chemical purchases from licensees; and lower than expected forklift tire sales. Sales of agricultural and lawn & garden products have been largely affected by the late arrival of Spring in the Midwest and East. Chemical purchases from licensees were curtailed due to increased chemical pricing and production equipment problems. Forklift tire sales are currently depressed largely due to the previous quality issues with the product line.

Cost of revenues. Cost of revenues for the three months ended March 31, 2013 were $658,182 or 63.9% of net revenues compared to $672,580 or 66.4% of net revenues for the same period in 2012. Cost of revenues as a percent of net revenues decreased for the three months ended March 31, 2013 largely due to favorable chemical purchase price variances, which offset previous standard cost adjustments, as well as the reclassification of certain manufacturing overhead items that were previously classified as SG&A expenses.

Gross profit. Gross profit for three months ended March 31, 2013 was $372,529 or 36.1% of net revenues compared to $340,725 or 33.6% of revenues for the same period in 2012. As a percent of net revenues, gross profit for the three months ended March 31, 2013 increased 2.5% due to the decreases in cost of revenues discussed above.

Consulting expenses. Consulting expenses for the three months ended March 31, 2013 were $11,087 as compared to $27,839 for the three months ended March 31, 2012. In order to achieve the Company's goals in manufacturing, IT systems and, accounting and finance, management engages consultants to assist the Company's full-time staff on various projects. Consulting expenses are expected to fluctuate depending upon future product development, manufacturing initiatives and other projects.

Depreciation and amortization expenses. Depreciation and amortization for the three months ended March 31, 2013 was $59,912 compared to $34,101 for the same period last year. Depreciation and amortization increased $25,811 or 75.7% between periods largely due to the redesign and production of molds related to the forklift product line.

Research and development expenses. Research and development expenses for the three months ended March 31, 2013 were $895 compared to $2,116 for the same period in the prior year. The research and development expenses for the three months ended March 31, 2013 decreased by $1,221 as compared with the same period in 2012 primarily due to a decrease in outside testing services and a reduction in tooling costs.

Selling, general and administrative expenses. Selling, general and administrative (SG&A) expenses for the three months ended March 31, 2013 were $538,650 compared to $493,700 for the same period in 2012. SG&A expenses for the three months ended March 31, 2013 increased $44,949 or 9.1% over the same period in 2012 due to a number of factors, including:

Director compensation, primarily stock based compensation, decreased approximately $5,373.

Sales related travel expenses increased approximately $8,489 due to increased sales and marketing activities.

Salaries and employee benefits increased approximately $57,125 due to the addition of a chemist and human resource and accounting staff.

Repairs and maintenance of manufacturing and office equipment decreased approximately $2,394.

Monthly building rent decreased approximately $12,000 due to a lease renegotiation.

Net loss. Net loss for the three month period ended March 31, 2013 was $240,229 compared to a net loss of $218,128 for the same period in 2012. The $22,101 increase in the net loss is due to the lower than expected revenues and a moderate overall increase in operating costs.

Nine Months Ended March 31, 2013 Compared to March 31, 2012

Net revenues. Net revenues of $2,671,115 for the nine months ended March 31, 2013 represent a 21.7% decrease over net revenues of $3,411,169 for the nine months ended March 31, 2012. The decrease in net revenues between periods was largely due to the loss of a major account, that has since been regained; reduced orders from chemical licensees, who were experiencing production problems and increased competition; customer induced delays in the redesign of certain agricultural products; and depressed sales of the forklift product line related to earlier product failures. Most of the other product lines experienced modest revenue gains.

Cost of revenues. Cost of revenues for the nine months ended March 31, 2013 were $1,712,658 compared to $2,207,066 for the same period in 2012, representing a 22.4% decrease. However cost of revenues as a percent of revenue remained relatively constant for the nine months ended March 31, 2013 and 2012 at 64.1% and 64.7%, respectively. Cost of revenues decreased primarily due to the decrease in net revenues.


Table of Contents

Gross profit. Gross profit for the nine months ended March 31, 2013 was $958,457 compared to $1,204,103 for the same period in 2012. Gross profit as a percent of revenue remained relatively constant for the nine months ended March 31, 2013 and 2012 at 35.9% and 35.3%, respectively. Gross profit for the nine months ended March 31, 2013 decreased by $245,646 or 20.4%, over the same period in 2012 due primarily to the decrease in sales volume.

Consulting expenses. Consulting expenses for the nine months ended March 31, 2013 were $54,996 compared to $65,379 for the nine months ended March 31, 2012. In order to achieve the Company's goals in manufacturing, IT systems and, accounting and finance, management engages consultants to assist the Company's full-time staff on various projects. Consulting expenses are expected to fluctuate depending upon future product development, manufacturing initiatives and other projects.

Depreciation and amortization expenses. Depreciation and amortization for the nine months ended March 31, 2013 was $177,875 compared to $155,424 for the same period last year. Depreciation and amortization increased by $22,451, or 14.4% compared to the same period in 2012, principally due to the redesign and production of molds related to the forklift product line.

Research and development expenses. Research and development expenses for the nine months ended March 31, 2013 were $1,195 compared to $9,732 for the same period in the prior year. Our research and development expenses for the nine months ended March 31, 2013, decreased by $8,537, or 87.7%, as compared with the same period in 2012 primarily due to a decrease in outside testing services and a reduction in tooling expenses during the period.

Selling, general and administrative expenses. Selling, general and administrative expenses (SG&A) for the nine months ended March 31, 2013 were $1,603,634 compared to $1,601,886 for the same period last year. SG&A expenses for the nine months ended March 31, 2013 remained relatively constant between periods increasing by only $1,747. SG&A expenses as a percentage of sales for the nine months ended March 31, 2013 increased to 60.0% of net revenues from 47.0% in the same period last year primarily due to the decrease in net revenues.

Net loss. Net loss for the nine months ended March 31, 2013 of $862,760 compared to the net loss of $642,844 for the same period in 2012, represents an increase of $219,916. The increase in the net loss is primarily due to the decrease in net revenues and the related impact on gross profit.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and payments received from our customers. We do not have any significant credit arrangements. Historically, our expenses have exceeded our revenues, resulting in operating losses. From time to time, we have obtained additional liquidity to fund our operations through the sale of shares of our common stock and the placement of short-term debt instruments. In assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments and other obligations.

Cash Flows

The following table sets forth our cash flows for the nine month periods ended
March 31, 2013 and 2012.

                                                       For the Nine Months Ended
                                                               March 31,
                                                         2013               2012
  Net cash provided/(used) by operating activities   $    (638,980 )     $   65,271
  Net cash used by investing activities                   (161,338 )       (106,743 )
  Net cash provided/(used) by financing activities         742,655          (22,040 )
  Net decrease in cash during period                 $     (57,663 )     $  (63,512 )

Net Cash Used By Operating Activities. Our primary sources of operating cash during the nine month period ended March 31, 2013 came from a decrease in accounts receivables and an increase in accounts payable and accrued expenses. Our primary use of operating cash was an increase in inventory. Net cash used by operating activities was $638,980 for the nine months ended March 31, 2013 compared to net cash provided by operating activities of $65,271 for the same period in 2012. The decrease in cash flow from operating activities compared to the prior year period is largely due an increase in the net loss and an increase in inventories to meet customer demand.


Table of Contents

Net Cash Used By Investing Activities. Net cash used by investing activities was $161,338 for the nine month period ended March 31, 2013 and $106,743 for the same period in 2012. Our primary use of cash for investing activities for the nine month period ended March 31, 2013 was $162,057 for the purchase of property and equipment to improve employee efficiency thereby reducing overall costs.

Net Cash Provided by Financing Activities. Net cash provided by financing activities was $742,655 for the nine months ended March 31, 2013 compared to net cash used by financing activities of $22,040 for the same period last year. The primary sources of cash from financing activities for the nine months ended March 31, 2013 were from proceeds related to the private placement of convertible preferred stock of $814,864 and unsecured notes of $285,000. The principal use of cash from financing activities for the nine months ended March 31, 2013 was $350,000 for the redemption of secured convertible promissory notes.

Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other
commercial commitments at March 31, 2013.

                                                           Payments due by period
                                          Less than 1
                             Total           year          1 to 3 years       3 to 5 years        After 5 years
Facility lease (1)         $  165,000     $   132,000     $       33,000     $             -     $              -
Total contractual cash
obligations                $  165,000     $   132,000     $       33,000     $             -     $              -

(1) In June 2012, we negotiated an extension to the lease for our executive and manufacturing facilities located at 1501 Industrial Road, Boulder City, Nevada. The property consists of a 49,200 square-foot building, which includes approximately 5,500 square-feet of office space, situated on approximately 4.15 acres. The two year lease extension commenced on July 1, 2012 and the base rent was reduced $4,000 per month to $11,000 per month. All other terms and conditions of the building lease remain in effect.

Cash Position, Outstanding Indebtedness and Future Capital Requirements

Our financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have historically incurred significant losses, which have resulted in a total retained deficit of $58,924,863 at March 31, 2013, which raises a doubt about our ability to continue as a going concern. The accompanying financial . . .

  Add AMTY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for AMTY - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.