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 7-May-2014All Recent SEC Filings

Show all filings for AMERITYRE CORP

Form 10-Q for AMERITYRE CORP


7-May-2014

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 incorporated as a Nevada corporation on January 30, 1995 under the name American Tire Corporation and changed its name to Amerityre Corporation in December 1999.

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, energy efficiency and load-bearing capabilities, than conventional rubber tires. We also believe that our manufacturing processes are more energy efficient than traditional rubber tire manufacturing processes, in part because our polyurethane compounds do not require the multiple processing steps, extreme heat, and high pressure that are necessary to cure rubber. Using our polyurethane technologies, we believe tires can be produced which last longer, are less susceptible to failure and offer improved fuel economy.

Our polyurethane material technology is based on two proprietary formulations; closed-cell polyurethane foam, which is a lightweight material with high load-bearing capabilities for low duty cycle applications; and Elastothane®, a high performance polyurethane elastomer with high load-bearing capabilities for high duty cycle applications. We are concentrating on three segments of the tire market: closed-cell polyurethane foam tires, polyurethane elastomer forklift tires and agricultural tires.

Closed-Cell Polyurethane Foam Tires

We currently manufacture several lines of closed-cell polyurethane foam tires for bicycles, hand trucks, lawn and garden, wheelbarrow, and medical mobility products. Our closed-cell polyurethane foam products are often referred to as flat-free because they have no inner tube, do not require inflation and will not go flat even if punctured. Our closed-cell polyurethane foam tires are mounted on the wheel rim in much the same way as a pneumatic tire. Our closed-cell polyurethane foam products are virtually maintenance free, eliminating the need to make tedious puncture repairs; provide extended tire life; and offer superior energy efficiency compared to rubber based tires. Foam tires and components accounted for 90.7% of fiscal 2013 sales. Our foam tire products continue to lead sales growth in dollars for fiscal 2014. For the nine months ended March 31, 2014, hand truck, wheelbarrow and lawn and garden products accounted for approximately 35.0%, 14.1% and 13.9% of total net sales, respectively.

Polyurethane Elastomer Forklift Tires

We have developed solid polyurethane forklift tires made of Elastothane®. We currently produce and sell over 20 sizes for Class 1, 4 and 5 forklifts. We believe our tires are superior to rubber tires as they are non-marking, more energy efficient, carry greater load weight than rubber, operate in lower temperature environments and have longer service lives. Forklift tires accounted for 6.3% of fiscal 2013 sales. Sales in this segment are below expectations during fiscal 2014, largely due to the tire failures that occurred in fiscal 2013. We believe that the production problems that contributed to the failures have been resolved. Full scale sales and marketing efforts are expected to resume in fiscal 2015. For the nine months ended March 31, 2014, forklift sales accounted for approximately 2.0% of total net sales.

Agricultural Tires

Amerityre has developed two products for the agricultural tire market, one used in irrigation and one used in planting. Both products have successfully field tested and we are developing sales and marketing strategies and manufacturing plans for these products. Agricultural tires accounted for 3.0% of fiscal 2013 sales. Our agricultural tire products were second in sales growth in dollars for fiscal 2014, but had the highest percentage growth overall. For the nine months ended March 31, 2014, agricultural products accounted for approximately 13.9% of total net sales.


Table of Contents

Factors Affecting Results of Operations

Our operating expenses consisted primarily of the following:

· Cost of goods sold, which consist primarily of raw materials, direct labor and manufacturing overhead, including allocations of building rent, depreciation, general liability insurance and other operating costs associated with the production of our products;

· Research and development expenses, which consist primarily of employee salaries and wages, allocated overhead costs and other engineering costs used in new product development and product improvement projects;

· Sales and marketing expenses, which consist primarily of employee salaries and wages, sales commissions, travel expenses, allocated overhead costs and other sales and marketing costs;

· General and administrative expenses, which consist primarily of employee salaries and wages, stock based compensation expense, legal and professional fees, allocated overhead costs and other general and administrative costs; and

· Other income and expense, which consist primarily of interest expense, gains or losses on the disposal of assets and miscellaneous other income and expenses.

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, sales 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 most of our products FOB origination.

Valuation of Intangible Assets and Goodwill

At March 31, 2014, we had capitalized patent and trademark costs, net of accumulated amortization, totaling $483,682. 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, 2014 and 2013 was $55,766 and $58,177, 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 third and fourth quarters of the fiscal year. With an expansion of our original equipment manufacturer relationships and agricultural product lines, the third quarter of fiscal 2014 has shown an increase in sales over previous years.

Results of Operations

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

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

· Sales, 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 goods sold 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 sales across our products offered.

The following summary table presents a comparison of our results of operations for the three and nine months ended March 31, 2014 and 2013 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
                        2014              2013            Change            2014              2013            Change
Net Sales          $    1,169,324      $ 1,030,711             13.4 %     $ 3,467,451      $ 2,671,115             29.8 %
Cost of Goods
Sold                      959,434          859,873             11.6 %       2,839,577        2,199,863             29.1 %
Gross Profit              209,890          170,838             22.9 %         627,874          471,252             33.2 %
Research &
Development
Expenses                   49,471           59,361            (16.7 %)        125,839          135,142             (6.9 %)
Sales &
Marketing
Expenses                  130,186          138,849             (6.2 %)        351,841          377,195             (6.7 %)
General &
Administrative
Expenses                  227,116          208,929              8.7 %         662,200          806,771            (17.9 %)
Other
Income/(Expense)          (73,419 )         (3,938 )         1769.1 %        (126,142 )        (14,904 )          746.4 %
Net loss           $     (270,302 )    $  (240,229 )           12.5 %     $  (638,148 )    $  (862,760 )          (26.0 %)


Table of Contents

Three Months Ended March 31, 2014 Compared to March 31, 2013

Net Sales. Net sales of $1,169,324 for the three months ended March 31, 2014, reflects a 13.4% increase over net sales of $1,030,711 for the three months ended March 31, 2013. Sales between periods increased largely due to increases in the agricultural, hand truck and medical mobility product lines. Agricultural, hand truck and medical mobility product sales for the three months ended March 31, 2014 increased approximately 1,657.7%, 75.0% and 63.9%, respectively, over the same period in the prior year. For the three months ended March 31, 2014, agricultural products accounted for approximately 29.3% of total net sales. The hand truck and medical mobility accounted for approximately 27.4% and 8.1% of total net sales, respectively. Increases in the agricultural, hand truck and medical mobility product lines were partially offset by decreases between the periods for the bicycle and fork lift product lines. For the three months ended March 31, 2014, net sales for the bicycle and fork lift product lines decreased 77.8% and 54.4%, respectively, over the same period in the prior year and accounted for 7.5% and 1.2% of total net sales, respectively.

Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2014 was $959,434 or 82.1% of sales compared to $859,873 or 83.4% of sales for the same period in 2013. As a percent of sales, the cost of goods sold decreased 1.37% between periods primarily due to a reallocation of manufacturing overhead costs previously charged to general and administrative expense and a decrease in depreciation expense resulting from fully depreciated assets.

Gross Profit. Gross profit for three months ended March 31, 2014 was $209,890 compared to $170,838 for the same period in 2013. Gross profit increased by $39,052 or 22.9% between periods primarily due to the increase in net sales. As a percent of sales, gross profit increased 1.37% primarily due to increased sales volume on higher margin products.

Research & Development Expenses. Research and development expenses for the three months ended March 31, 2014 were $49,471 compared to $59,361 for the same period in the prior year. Research and development expenses between periods decreased by $11,890 or 16.7% primarily due to a reduction in salaries, which was partially offset by the department allocation of costs previously charged to general and administrative expense.

Sales & Marketing Expenses. Sales and marketing expenses for the three months ended March 31, 2014 were $130,186 as compared to $138,849 for the same period in the prior year. Sales and marketing expenses decreased $8,663 between periods primarily due to a reduction in salaries and travel expenses, which was partially offset by the department allocation of costs previously charged to general and administrative expense. The decrease in sales and marketing expenses for the three months ended March 31, 2014 was partially offset by an increase in trade show costs resulting from an expansion in trade show marketing efforts.

General & Administrative Expenses. General and administrative expenses for the three months ended March 31, 2014 were $227,116 compared to $208,929 for the same period in 2013. General and administrative expenses increased $18,187 or 8.7% between periods primarily due to a/an:

· Increase of $35,627 in bad debt expense primarily due to a change in a distributor agreement and collection agency fees.

· Increase of $12,629 in depreciation expense resulting from an upgrade in software and computer equipment acquired to improve employee efficiency.

· Increase of $2,238 in finance charges related to merchant fees on credit card receipts.

· Decrease of $27,500 in director compensation associated with special project work.

Other Income/(Expense). Other income for the three months ended March 31, 2014 was $73,419 compared to $3,928 for the same period in 2013. Other income/(expense) increased $69,491 between periods primarily due to an increase in interest expense of $26,981 related to short-term borrowings and note payables; a non-recurring write-off of deferred financing costs of $40,000; and the settlement of the U.S. Environmental Protection Agency claim of $2,500.

Net Loss. Net loss for the three months ended March 31, 2014 was $270,302 compared to a net loss of $240,229 for the same period in 2013. The $30,073 increase in the net loss between periods was primarily due to non-recurring charges including the write-off of deferred financing costs of $40,000 and the bad debt charges of $35,627.

Nine Months Ended March 31, 2014 Compared to March 31, 2013

Net Sales. Net sales of $3,467,451 for the nine months ended March 31, 2014, reflects a 29.8% increase over net sales of $2,671,115 for the nine months ended March 31, 2013. Sales between periods increased largely due to increases in the agricultural, hand truck and medical mobility product lines. Agricultural, hand truck and lawn and garden product sales for the three months ended March 31, 2014 increased 1,465.7%, 79.6% and 14.9%, respectively, over the same period in the prior year. For the three months ended March 31, 2014, hand truck products accounted for approximately 35.0% of total net sales. While lawn and garden and agricultural products accounted for approximately 14.1% and 13.9% of total net sales, respectively. Increases in the agricultural, hand truck and lawn and garden product lines were partially offset by decreases between the periods for the fork lift and wheelbarrow product lines. For the three months ended March 31, 2014, net sales for the fork lift and wheelbarrow product lines decreased approximately 62.1% and 22.0%, respectively, over the same period in the prior year and accounted for 2.0% and 16.9% of total net sales, respectively.


Table of Contents

Cost of Goods Sold. Cost of goods sold for the nine months ended March 31, 2014 was $2,839,577 or 81.9% of sales compared to $2,199,863 or 82.3% of sales for the same period in 2013. As a percent of sales, the cost of goods sold decreased 0.4% between periods primarily due to a reallocation of manufacturing overhead costs previously charged to general and administrative expense; a decrease in depreciation expense resulting from fully depreciated assets; a decrease damaged returns primarily related to the forklift product line; an unfavorable purchase price variance; and an increase in plant operation salaries.

Gross Profit. Gross profit for nine months ended March 31, 2014 was $627,874 compared to $471,252 for the same period in 2013. Gross profit increased by $156,622 or 33.2% between periods primarily due to the increase in net sales. As a percent of sales, gross profit decreased 0.5% largely due to lower margins on sales to original equipment manufacturer customers.

Research & Development Expenses. Research and development expenses for the nine months ended March 31, 2014 were $125,839 compared to $135,142 for the same period in the prior year. The $9,303 decrease between periods primarily reflects a decrease in salaries, which was partially offset by an increase in the departmental allocation of costs previously charged to general and administrative expense.

Sales & Marketing Expenses. Sales and marketing expenses for the nine months ended March 31, 2014 were $351,841 as compared to $377,195 for the same period in the prior year. Sales and marketing expenses decreased $25,354 between periods primarily due to a decrease in salaries and travel expenses. The reductions in salaries and travel costs were partially offset by an increase in sales commissions from higher sales volumes; an increase in trade show costs; and an increase due to the departmental allocation of costs previously charged to general and administrative expense.

General & Administrative Expenses. General and administrative expenses for the nine months ended March 31, 2014 were $662,200 compared to $806,771 for the same period in 2013. General and administrative expenses decreased $144,572 or 17.9% between periods primarily due to a/an:

· Decrease of $116,799 from the departmental allocation of certain overhead costs, such as rent, utilities and general liability insurance, previously charged to general and administrative expense.

· Decrease of $23,494 in warranty expense related to tire failures and returns for the forklift product line.

· Reduction in the independent audit fees of $21,638 incurred between the periods.

· Increase of $73,742 in bad debt expense primarily due to a bad debt recovery in fiscal 2013.

· Decrease of $32,563 in consulting fees related to special projects.

Other Income/(Expense). Other income for the nine months ended March 31, 2014 was $126,142 compared to $14,904 for the same period in 2013. Other income/(expense) increased $111,238 between periods primarily due to an increase in interest expense of $70,244 resulting from an increase in the number of unsecured notes and short-term borrowings; and non-recurring charges including the $40,000 write-off of deferred financing costs and a $2,500 settlement related to the U.S. Environmental Protection Agency claim.

Net Loss. Net loss for the nine months ended March 31, 2014 was $638,148 compared to a net loss of $862,760 for the same period in 2013. The $224,612 decrease in the net loss between periods is largely due to the 29.8% increase in sales between the periods. The net loss between periods would have been less except for the non-recurring charges including the write-off of deferred financing costs of $40,000 and the bad debt charges of $35,627.

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 sales, resulting in operating losses. From time to time, we have obtained additional liquidity to fund our operations through the sale of shares of our common stock and the placement of short-term debt instruments. In assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments and other obligations.


Table of Contents

Cash Flows

The following table sets forth our cash flows for the nine months ended March
31, 2014 and 2013.

                                                     For the Nine Months Ended
                                                             March 31,
                                                       2014               2013
   Net Cash Used by Operating Activities           $    (262,259 )     $ (638,980 )
   Net Cash Used by Investing Activities                 (28,672 )       (161,338 )
   Net Cash Provided by Financing Activities             230,323          742,655
   Net Increase/(Decrease) in Cash During Period   $     (60,608 )     $  (57,663 )

Net Cash Used by Operating Activities. The primary sources of cash from operating activities during the nine months ended March 31, 2014 came from a decrease in prepaid expenses and other current assets of $23,462; an increase in accounts payable and accrued expenses of $106,383; and a decrease in inventories of $45,519. Our primary use of cash for operating activities was an increase in accounts receivable of $120,255, resulting from an increased sales volume. Net cash used by operating activities was $262,259 for the nine months ended March 31, 2014 compared to net cash used by operating activities of $638,980 for the same period in 2013. The decrease in net cash used by operating activities compared to the prior year period is largely due to the $224,612 decrease in the net loss.

Net Cash Used by Investing Activities. Net cash used by investing activities was $28,672 for the nine months ended March 31, 2014 and $161,338 for the same period in 2013. Our use of cash for the nine months ended March 31, 2014 was for the purchase of models and molds used in the manufacturing process. Our primary uses of cash for the nine months ended March 31, 2013 were the purchase of property and equipment, including an automated sandblaster to improve efficiency; a larger curing oven to improve production throughput; and an upgraded telephone system to improve customer service.

Net Cash Provided by Financing Activities. Net cash provided by financing activities was $230,323 for the nine months ended March 31, 2014 compared to net cash provided by financing activities of $742,655 for the same period last year. The primary source of cash for the nine months ended March 31, 2014 were proceeds of $507,222 from short-term loans secured by customer purchase orders and a short-term note payable. The primary use of cash for the nine months ended March 31, 2014 consisted of $273,470 for the repayment of short-term loans. The primary source of cash for the nine months ended March 31, 2013 were proceeds related to the private placement of preferred stock of $814,689. The primary use of cash for the nine months ended March 31, 2013 consisted of $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, 2014.

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

At March 31, 2014, our total cash was $48,139, none of which is restricted and our total indebtedness was $1,618,305. Our total indebtedness at March 31, 2014 includes $589,206 in accounts payable; $788,699 in principal and interest for secured convertible promissory notes, unsecured promissory notes and short-term borrowings; $170,201 in accrued expenses; $16,359 in current portion of long-term debt; and $53,840 in long-term debt.

. . .

  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
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.