1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2004
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File Number 33-94318-C
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AMERITYRE CORPORATION
--------------------------
(Exact name of registrant as specified in charter)
Nevada 87-0535207
------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
1501 Industrial Road, Boulder City, Nevada 89005
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (702) 294-2689
---------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
Common Stock
---------------
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 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. (1) Yes [X]
No [ ] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
2
State issuer's revenues for its most recent fiscal year: $1,419,124
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State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:
Based on the average of the high and low bid prices of our common stock at
September 24, 2004, of $8.93 per share, the market value of shares held by
nonaffiliates (15,472,054 shares) would be approximately $138,088,082.
As of September 27, 2004, we had 18,722,168 shares of common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
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We were incorporated as a Nevada corporation on January 30, 1995 under the
name American Tire Corporation, to take advantage of certain proprietary and
nonproprietary technology available for the manufacturing of Flatfree[TM]
tires from polyurethane foam. We changed our name to Amerityre Corporation in
December 1999. Since our inception, we have developed additional proprietary
technology relating to Flatfree[TM] polyurethane foam tires. We have completed
the fundamental technical development of the processes to manufacture non-
highway use Flatfree[TM] polyurethane foam tires for bicycles, wheelchairs,
lawn and garden products, commercial and riding lawnmowers, as well as golf
cars (the "Products").
Polyurethane Foam Tire Technology
---------------------------------
The Products produced from our Flatfree[TM] polyurethane foam tire technology
differ from pneumatic tires in several ways: pneumatic tires are made from
rubber; some pneumatic tires require an inner tube; and all pneumatic tires
require initial air inflation and thereafter air pressure monitoring and re-
inflation as may be required. Even though our Products provide equivalent
"pneumatic ride-quality", they are considered "non-pneumatic" because they do
not require inflation. Our Products are multi-density in nature and consist of
specially formulated polyurethanes creating a closed cell foam construction
which effectively reproduces the ride quality of a pneumatic tire. The closed
cell foam construction, which forms one of the key components of our
technology, contains millions of closed cells containing compressed air.
Therefore, our Products are best identified as "Flatfree" in that they have no
inner tube, do not require inflation and will not go flat even if they are
punctured. Moreover, the closed cell infrastructure allows the tire to
maintain its stability. Flatfree[TM] tires are mounted on the wheel rim in
much the same way a pneumatic tire is mounted (with the assistance of a tire
lever or tire mounting press). Apart from cleaning, our Products are virtually
maintenance free, they eliminate the need to make tedious puncture repairs,
offer superior wear and a superior ride to rubber based tires. Fundamentally,
our Products are safer than rubber based pneumatic tires as they can never be
under or over inflated. Our Products have been designed for use by "on/off"
road and "highway" bicycles, lawn and garden equipment such as wheelbarrows
and hand trucks, as well as wheel chairs, riding and commercial mowing
equipment and golf cars.
Polyurethane Elastomer Technology
---------------------------------
In addition to manufacturing the Flatfree [TM] polyurethane foam Products
referred to above, since August 2001, we have also been engaged in the
development of polyurethane elastomer tires for highway and agricultural use
based on our proprietary technology and various methods and processes relating
to the manufacturing of those tires from liquid elastomers. The polyurethane
elastomer material is identified by us as Elastothane[TM]. Elastothane [TM]
and the technology to produce tires using Elastothane[TM] are significant to
us because we believe that combined they will result in a tire that can be
produced quickly and less expensively than traditional rubber pneumatic tires,
while meeting or exceeding the performance of those tires.
4
During the reporting period we produced a limited number of prototype
polyurethane car tires based on our "air, no-air" run flat technology and
announced we had submitted prototypes to an independent lab for testing to
determine if the tires comply with Federal Motor Vehicle Safety Standard No.
109, applicable to new pneumatic tires. FMVSS No. 109 specifies tire
dimensions and laboratory test requirements for bead unseating resistance,
strength, endurance, and high speed performance; defines tire load ratings;
and specifies labeling requirements for passenger car tires. In April 2004, we
received independent laboratory tests results certifying the prototype tires
complied with the test requirements of FMVSS 109. We believe that passing the
test requirements is the first significant step required to advance the
performance of the Elastothane[TM] material and the tire manufacturing
technology. Compliance with FMVSS 109 is necessary to commercially market
tires within the United States.
The National Highway Traffic Safety Administration has established a new
standard for light vehicle tires, FMVSS 139, that will take effect June 1,
2007. Voluntary compliance with this standard is permitted before that date.
Under this standard, light vehicle tires are required to meet a high speed
test, an endurance test, a low inflation pressure performance test, a
resistance-to-bead unseating test, and a road hazard impact/strength test.
This standard applies to tires for passenger cars, multipurpose passenger
vehicles, trucks, buses and trailers with a gross vehicle weight rating of
10,000 lbs. or less, manufactured after 1975. Additional testing will be
required to demonstrate that tires produced utilizing our technology can
comply with standard. However, we believe that our tire technology will comply
with FMVSS 139 prior to its implementation.
Licensing of Manufacturing Technology
-------------------------------------
In May 2004, we granted an exclusive license to Liberty Circle, S.A. to
manufacture and market certain of our Flatfree[TM] polyurethane foam tire
products in Latin America. The Agreement also includes provisions for us to
produce and install manufacturing equipment and the proprietary polyurethane
chemical systems needed for Liberty Circle to produce the polyurethane foam
tires. The exclusivity of the license is dependent on Liberty Circle meeting
annual minimum purchase requirements for the purchase of chemical systems from
us once the installation of the manufacturing equipment is completed and
production commences. We anticipate that it will take approximately 9 to 12
months (July to September 2005) to have the manufacturing equipment installed
and ready to commence production. In connection with the agreement, we will
also provide Liberty Circle with equipment setup, training and manufacturing
support. In addition to the above, we have committed to design and develop
moped, motor scooters and motorcycle tires to be produced by Liberty Circle
for the Latin American marketplace. We recently granted Liberty Circle an
extension to October 24, 2004 to meet the funding requirements to purchase the
equipment. (See FINANCIAL STATEMENTS, Note 8 - SUBSEQUENT EVENTS.)
Licensing of Manufacturing Equipment and Sale Proprietary Chemical Systems
---------------------------------------------------------------------------
We propose to offer to interested parties manufacturing and marketing rights
to produce various Flatfree[TM] polyurethane foam tire products similar to the
agreement with Liberty Circle described above. Such agreements will involve
marketing and distribution rights in various geographic areas. In connection
with any such licensing we will also be providing the proprietary polyurethane
chemical systems needed to produce the products.
5
The sales of proprietary chemical systems will be based on annual minimum
purchase requirements once the manufacturing equipment has been completed and
production commences. We anticipate that it will take approximately 9 to 12
months from the time a manufacturing and marketing agreement has been reached
to have the manufacturing equipment installed and ready to commence
production.
Product Marketing Plan
----------------------
Historically, we have essentially been a technology company in the development
stage, manufacturing a limited number of Products for the purpose of
validating our Flatfree[TM] tire technology. We now have an extensive line of
Flatfree[TM] closed-cell polyurethane foam Products for various industrial
segments. We have commenced an aggressive plan for obtaining market share for
each independent segment through the development of close relationships with
strategic industry partners who are leaders in agricultural, outdoor power
equipment, lawn and garden equipment, mobility and other markets that will
enable us to utilize the various channels to market that these potential
partners currently enjoy. We also are actively engaging original equipment
manufacturers who utilize tires in significant volume. Our sales force has
commenced penetrating the various markets seeking sizable opportunities. We
have established representatives throughout the United States who are working
within the retail market. We are also aggressively engaging distribution
marketers for tires. We plan to have our segment based marketing strategy for
our Products fully implemented during the fiscal year ending June 30, 2005.
Competition
-----------
Currently, we know of a few companies that utilize a manufacturing process
similar to ours to produce tires from polyurethane foam (i.e., Green Tire, UK;
Alshin Tire, USA; KIK Technology International, Inc., USA; Woo Tire, China;
and Krypton-India, India). In addition to manufacturers of polyurethane foam
tires, as a potential OEM supplier, we compete directly with firms that
manufacture and market conventional low-duty pneumatic and semi-pneumatic
tires made from rubber. Our technology differs from existing polyurethane
foam tire technology in at least two ways, including: (1) the formulation of
the polyurethane; and (2) the manner in which the polyurethane is distributed
throughout the mold.
The underlying basis of our technology and processes make our Products the
only polyurethane based Flatfree[TM] tires that utilize a foam consisting of
millions of closed cells containing compressed air. Therefore, our Products
have an equivalent "pneumatic ride-quality" without going flat when punctured.
Tires have become an essential commodity. The tire industry has historically
been highly competitive and several of our competitors have financial
resources which substantially exceed ours. In addition, many competitors are
large companies (i.e., Kenda, Japan; Chengshin Rubber, China; and Carlisle
Tire, USA) that have established brand name recognition, have established
distribution networks for their products, and have developed consumer loyalty
to such products.
6
Manufacturing, Supplies, and Quality Control
--------------------------------------------
Substantially all of our Products are manufactured utilizing single and/or
multiple head, centrifugal molding machines. These machines produce Products
by pouring a proprietary based polyurethane formula into a mold, which then
spreads out in the mold through centrifugal force. The molding process occurs
when the liquid polyurethane formula (made up of isocyanide and polyol) is
combined with a catalyst. This combination causes a chemical reaction that
results in the cross linking of the chemicals, which thereafter become solid.
The mold then moves to the next station where the Product is removed and the
process is repeated.
Our chemicals are available from multiple suppliers. We believe that we can
obtain sufficient quantities of raw materials without significant problems or
delays.
All of our Products are inspected following the manufacturing process and
prior to shipment to ensure quality. Any Product considered by our quality
control personnel to be defective is disposed of through traditional refuse
collection services or can be ground into pellets, which can be melted and
reused to make other products and reduce waste of raw materials.
Patents
-------
Our technology is proprietary. Set forth in the schedule below are the patents
that have been issued or for which a patent application is pending with
respect to our technology.
Description of Patents U.S. Patent No. Issued Date
---------------------- --------------- -----------
Method for Making Polyurethane Tires
with an Outer Skin 4,855,096 8/08/1989
Apparatus for Making Foam Products 4,943,223 7/24/1990
Apparatus and Method for Manufacturing
an Item From Polyurethane Foam and the Like 5,906,836 5/25/1999
Improved Method for Making Tires and the Like 6,165,397 12/26/2000
Non-Pnuematic Tire and Rim Combination 6,431,235 8/13/2002
Run Flat Tire with Elastomeric Inner Support 6,679,306 1/20/2004
Description of Patents Pending Action Status
------------------------------ ------ ------
Method for Manufacturing a Tire with Belts, Plies and
Beads Utilizing a Precured Elastomer and Cold Rolling Filed Pending
Method for Manufacturing a Metal Core Wheel with
Elastomeric Coating Filed Pending
Air No-Air Elastomeric Tire Filed Pending
Tire with Arch Shaped Shoulders Filed Pending
Method and Apparatus for Suspending a Core of Plies,
Belts and Beads and for Positioning the Core in a
Mold for Forming and Elastomeric Tire Filed Pending
Improved Method and Apparatus for Suspending a Core of
Plies, Belts and Beads and for Positioning the Core in
a Mold for Forming and Elastomeric Tire Filed Pending
Method and Apparatus for Forming a Tire Filed Pending
7
Trademarks
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We have used various trademarks in association with the marketing our
Products, including the names Arcus [TM] Flatfree[TM], Amerityre[TM],
Amerithane[TM] and Elastothane[TM]
Regulation and Environmental Compliance
---------------------------------------
We know of no particular federal or state regulations applicable to our
manufacturing processes. We are subject to various local, state, and federal
laws and regulations including, without limitation, regulations promulgated by
federal and state environmental and health agencies, the federal Occupational
Safety and Health Administration, and laws pertaining to hiring, treatment,
safety, and discharge of employees. Our manufacturing operations must also
meet federal, state, and local regulatory standards in the areas of labor,
safety, and health. We believe that we will be able to operate in compliance
with such regulations, including laws related to the handling and use of
environmentally hazardous materials.
Employees
---------
As of June 30, 2004 we had 26 full-time employees, including 14 salaried and
12 hourly employees. We also hire temporary labor for manufacturing needs as
required. None of our employees are represented by a labor union. We believe
that we will be able to hire a sufficient quantity of qualified laborers in
the local area to meet our employment needs. Our manufacturing process does
not require special training, other than orientation to our production
techniques and specific equipment.
ITEM 2. DESCRIPTION OF PROPERTY
Offices
-------
In October 2002, we leased executive and manufacturing facilities located at
1501 Industrial Road, Boulder City, Nevada (the "Leased Property"). The
Leased 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 term of the lease is five years expiring October, 14, 2007,
subject to our right to purchase the Leased Property. The base rent for the
Leased Property is $16,000 per month for the first year, with annual increases
of $500 per month during the term of the lease. We believe the Leased Property
facility will be sufficient to handle our office and production needs for the
next few years. It is our opinion that we maintain adequate insurance coverage
for loss or damage to our leased facilities under our existing insurance
policy.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of the fiscal year ended June 30, 2004.
8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table below sets forth, for the respective periods indicated, the prices
for the Company's common stock in the over-the-counter market as reported by
the NASD's OTC Bulletin Board. The closing prices represent inter-dealer
quotations, without adjustments for retail mark-ups, mark-downs or commissions
and may not necessarily represent actual transactions.
Fiscal Year Ended June 30, 2004 High Close Low Close
------------------------------- ---------- ---------
Fourth Quarter $11.95 $8.20
Third Quarter $12.74 $6.69
Second Quarter $6.42 $3.90
First Quarter $5.38 $3.45
Fiscal Year Ended June 30, 2003 High Close Low Close
------------------------------- ---------- ---------
Fourth Quarter $4.85 $1.95
Third Quarter $2.25 $1.95
Second Quarter $2.55 $1.85
First Quarter $3.02 $2.10
Fiscal Year Ended June 30, 2002
-------------------------------
Fourth Quarter $3.70 $2.65
Third Quarter $3.90 $2.04
Second Quarter $3.15 $1.75
First Quarter $5.55 $2.50
At September 24, 2004, the Company's Common Stock was quoted on the OTC
Bulletin Board at a closing price of $8.45 per share.
Since our inception, we have not paid any dividends on our Common Stock, and
we do not anticipate that we will pay dividends in the foreseeable future. At
September 27, 2004, we had approximately 580 shareholders of record based on
information provided by our transfer agent, Interwest Transfer Company, 1981
E. Murray-Holladay Road, Holladay, Utah 84117.
9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
---------------------------------------------------------
This report may contain "forward-looking" statements within the meaning of
Section 17A of the Securities Exchange Act of 1933, as amended, and Section
21E of the Securities Exchange Act, as amended. Examples of forward-looking
statements include, but are not limited to: (a) projections of our revenues,
capital expenditures, growth, prospects, dividends, capital structure and
other financial matters; (b) statements of our plans and objectives; (c)
statements of our future economic performance; (d) statements of assumptions
underlying other statements and statements about us and our business relating
to the future; and (e) any statements using the words "believes," "budget,"
"target," "goal," "anticipate," "expect," "plan," "outlook," "objective,"
"may," "project," "intend," "estimate," or similar expressions.
Year ended June 30, 2004 compared to year ended June 30, 2003
-------------------------------------------------------------
For a substantial portion of our operating history we focused on the
development of our technology and have been a development stage company.
During this time we had limited revenues from the sale of or Products. In
October 2001, we began selling our Products to bicycle shops, hardware stores
and tire stores in the United States through the use of a few independent
regional sales representatives traveling throughout their respective regions.
In April 2003, we began to implement changes to our sales and marketing plan
based on a product sector approach. This change helped us to increase our
sales, so that our net sales for the year ended June 30, 2004 were $1,419,124,
a 36% increase over net sales for the year ended June 30, 2003 of $1,040,246.
Our cost of sales for the year ended June 30, 2004 was $1,114,230, or 78.5% of
sales as compared to $976,132, or 93.8% of sales for the year ended June 30,
2003, resulting in a gross margin of $304,894 or 21.5% as compared to a gross
margin of $64,114 or 6.2% for the respective periods. The increase in our
gross margin for the year ended June 30, 2004, is a direct result of
incorporating revisions to our methods, processes and costs in order to
achieve increase manufacturing efficiencies. We are continuing to effect
these revisions and we believe that, for the fiscal year ending June 30, 2005,
our direct costs as a percent of sales will continue to be reduced as our
volume of Product sales exceeds the fixed costs of minimum Product production
(i.e., labor and raw material costs, etc.). We believe we currently have
sufficient manufacturing equipment and employees to merit a substantial
increase in production without incurring a proportionately equivalent increase
in labor costs. In addition, we continue to seek reductions in raw material
and component costs from our principal suppliers.
During the year ended June 30, 2004, we experienced an increase in the cost of
wheel components for our tire/wheel assemblies due to the increasing cost of
steel. We did not pass the increases on to our customers and elected to seek
alternative suppliers for components that were priced more competitively.
However, if the cost of steel wheel components continues to rise during fiscal
year 2005, we may elect to amend our product pricing to reflect the increase
in component costs. During the reporting period, our chemical pricing remained
relatively constant. We know of no other predictable events or uncertainties
that may be reasonably expected to have a material negative impact on the net
sales revenues or income from our operations other than a the continuation of
the sluggish U.S. economy that has occurred over the past several months and
the reduced consumer spending resulting therefrom.
10
Corporate Expense. For fiscal year 2004, total operating expenses were
$5,045,895, consisting of consulting expenses of $370,666, payroll and payroll
taxes of $2,345,082, depreciation and amortization of $296,232, research and
development cost of $572,002, bad debt expense of $3,713 and selling, general
and administrative expenses of $1,458,200, resulting in a loss from operations
of $4,741,001. For fiscal year 2003, total operating expenses were $3,173,149,
consisting mainly of consulting expenses of $339,934, payroll and payroll
taxes of $1,083,910, depreciation and amortization of $298,625, research and
development costs of $28,607, bad debt expense of $51, loss on impairment of
assets of $67,982 and selling, general and administrative expenses of
$1,354,040, resulting in a loss from operations of $3,109,035.
Our corporate expenses increased from $3,173,149 in fiscal year 2003 to
$5,045,895 in fiscal year 2004, in large part to the following reasons: (1) An
increase in outside product and marketing consulting fees as a result of
issuing common stock for services valued at current market value in lieu of
cash payments; (2) An increase in executive and employee compensation as a
result of issuing common stock for services valued at current market value in
lieu of cash payments; and (3) An increase in research and development
expenses, in large part attributed to the specific endeavor to develop our
polyurethane elastomer car tire technology. In connection with the foregoing,
during fiscal year 2004, we issued equity instruments for services in lieu of
cash with an aggregate value of $2,176,692.
For fiscal year 2005 we are estimating that our selling, general and
administrative expenses will remain relatively constant with the approximately
$5,000,000 expended in fiscal year 2004.
Interest Expense. We had no interest expense during fiscal years 2004 and
2003.
Other Income. For fiscal year 2004, we had other income of $19,746,
consisting of interest income of $17,234 (earned on account receivables and
temporary investments of cash not immediately needed in ordinary daily
business) and miscellaneous income of $2,512. In fiscal year 2003, we had
other income of $17,063, consisting of interest income of $16,397 and $666 of
miscellaneous income.
We experienced a net loss of $4,721,255 for the year ended June 30, 2004,
compared with a net loss of $3,091,972 for the year ended June 30, 2003. The
basic loss per share for fiscal year 2004 was $0.26 as compared to $0.21 for
fiscal year 2003, based on the weighted average number of shares outstanding
of 17,846,910 and 14,796,744 for the respective periods.
Liquidity and Capital Resources
-------------------------------
During the fiscal year ended June 30, 2004, we financed our operations through
collecting accounts receivable and issuing common stock for: cash (paid in
connection with the exercise of outstanding stock options); prepayment of
certain salaries; and payment of professional services.
11
At June 30, 2004, we had current assets of $2,414,814 and current liabilities
of $58,683, for a working capital surplus of $2,356,131, a decrease in the
working capital surplus of $3,041,352 we had at June 30, 2003. We had cash and
cash equivalents of $1,591,289 and net accounts receivable of $167,002 at June
30, 2003 compared to cash and cash equivalents of $2,490,604 and net accounts
receivable of $128,481 at June 30, 2003. Our decrease in cash and equivalents
at June 30, 2004, is attributable to the purchase of assets of $436,517 and
the significant increase in overall operating expenses during the reporting
period.
Net cash used by our operating activities for the fiscal year 2004 was
$2,197,583, compared to $2,110,769 for the fiscal year 2003. Our operations
for fiscal year 2004 were funded primarily by cash and cash equivalents,
accounts receivables, and the issuance of common stock for services and
salary. Our operations for fiscal 2003 were funded primarily the same way.
At June 30, 2004, we had net property and equipment of $1,445,993, after
deduction of accumulated depreciation of $1,567,187. At June 30, 2003, we had
net property and equipment of $1,302,787, after deduction of $1,273,876 in
accumulated depreciation. The increase in net property and equipment for
fiscal year 2004 was a direct result of the purchase of software, additional
production equipment and improvements to our leased executive/manufacturing
facility. At June 30, 2004, our property and equipment consisted mainly of
leasehold improvements, $163,896; molds and models, $315,282; equipment,
$2,253,217; furniture and fixtures, $70,033; vehicles, $25,851; and software,
$184,901.
Because we had an retained deficit of $26,390,827 at June 30, 2004, our audit
report contains a going concern modification as to our ability to continue as
a going concern. We have taken certain steps to maintain our operating and
financial requirements in an effort to enable us to operate as a going concern
until such time as revenues from the sale of our Products are adequate to
cover our expenses, including: (1) evaluating (A) our cost of goods and
equipment utilization and requirements of our manufacturing operations, and
(B) our sales and marketing plan on a product sector basis; (2) incorporating
revisions to our methods, processes and costs in order to achieve necessary
manufacturing efficiencies (i.e., line automation, reduced material costs,
reduced product waste, etc.); (3) seeking reduced material and component costs
from suppliers; (4) licensing manufacturing and marketing rights to certain of
our polyurethane tire products to third-party manufacturers based on
geographical locations and boundaries; (5) selling manufacturing equipment to
third-parties to manufacturer certain of our polyurethane tire products; (6)
selling our proprietary polyurethane chemical systems to third-party
manufacturers that utilize our manufacturing equipment; (7) offering contract
design and engineering services to the tire and auto industries; (8) obtaining
supplemental funding through exercise of outstanding in the money options; (9)
issuing common stock in lieu of cash as compensation for employment,
development, and other professional services; and (10) sale of shares of
common stock for cash in either in private placement or registered offering.
We anticipate that during the upcoming fiscal year we will need approximately
$4,000,000 to implement our plan and to meet our working capital requirements.
12
Impact of Inflation
-------------------
We do not anticipate that inflation will have a material impact on our current
operations.
Seasonality
-----------
Because the significant portion of our current customers reside in the United
States, we anticipate that sales of certain of our lawn and garden Products to
those customers located in Northern portion of the United States could be
reduced as a result of fall and winter climate and weather conditions.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements appear beginning on page 28 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no disagreements with our certified public accountants with
respect to accounting practices or procedures or financial disclosure.
ITEM 8A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
-----------------------------------------------------
Our chief executive officer and our chief financial officer believe our
disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-
14(c) of the Securities Exchange Act of 1934, as amended) are effective, based
on our evaluation of such disclosure controls and procedures on June 30, 2004.
(b) Changes in internal controls.
---------------------------------
There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation.
13
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the name, age, and position of each executive
officer and director who have served during the fiscal year ended June 30,
2004 and the term of office of each director of the Company.
Name Age Position Director or Officer Since
---- --- -------- -------------------------
Richard A. Steinke 62 Chairman, Director, CEO January 1995 (1)
Elliott N. Taylor 46 Executive Vice President June 2002
James G. Moore, Jr. 56 COO and VP Operations August 1999
Anders A. Suarez 38 Chief Financial Officer July 2004 (2)
David P. Martin 62 VP Sales and Marketing November 1999 (3)
David K. Griffiths 66 Secretary/Treasurer February 1995
Louis M. Haynie 77 Director July 1997
Henry D. Moyle 74 Director March 1999
Wesley G. Sprunk 67 Director January 2003
Norman H. Tregenza 67 Director April 2003
---------------------
(1) Mr. Steinke became President and CEO in November 1999.
(2) Mr. Suarez was appointed CFO effective July 1, 2004.
(3) Mr. Martin was VP Sales and Marketing through March 31, 2004.
The term of office of each of our directors is one year and until his
successor is elected and qualified at our annual meeting, subject to removal
by the Shareholders. The term of office for each Officer is one year and
until a successor is elected at the annual meeting of our Board of Directors
and is qualified.
Biographical Information
------------------------
Set forth below is certain biographical information for each of the Company's
Officers and Directors and other key personnel.
Richard A. Steinke is our founder and currently serves as our President,
Chairman and Chief Executive Officer. From January 1992 to December 1994, he
served as Chairman and C.E.O. of Alanco Environmental Resources, Inc., a
manufacturer of environmental/pollution control equipment, Salt Lake City,
Utah. From June 1985 to December 1991, he was the Chairman and C.E.O. of UTI
Chemicals, Inc., a developer and manufacturer of urethane chemicals, El Toro,
California. He received a B.A. in Political Science and Economics from the
University of Arizona, Tucson, Arizona, in 1967.
Elliott N. Taylor joined us as our Executive Vice President in June 2002.
Prior to joining us, he was the principal attorney for Taylor and Associates,
Inc., a law firm in Salt Lake City, Utah, specializing in corporate and
securities law since May 1993. From August 1991 to March 1993, he was the
general counsel and chief financial officer for Carbon Fiber Products, Inc.,
Ogden, Utah, a manufacturer of composite products for the golf industry. From
November 1987 to July 1991, he was an associate attorney at Kruse, Landa &
Maycock, a law firm in Salt Lake City, Utah. He received a J.D. from the
University of Tulsa, Tulsa, Oklahoma in 1986 and a B.S. in Political Science
from Utah State University, Logan, Utah in 1982.
14
James G. Moore, Jr. joined us in August 1997 and has been our Chief Operating
Officer and Vice President of Operations since August 1999. Prior to his
employment by us, he worked at The Goodyear Tire & Rubber Company
("Goodyear"), in Akron, Ohio, where he had over 25 years of experience as a
master tire carver, which included five years at the Goodyear apprentice
school for tire tread pattern carving and mold carving.
Anders Suarez was appointed our chief financial officer in July 2004. Prior to
his appointment he worked as our Financial Systems Administrator since October
2003. Prior to joining us, from 1999 to 2003, Mr. Suarez worked as a project
manager/senior consultant for ePartners, Inc., Phoenix, Arizona, a leading
provider of Microsoft-based business solutions for middle market companies. He
received his B.S. in Finance from the University of Arizona, Tucson, Arizona
in 1995, and his M.B.A. from Thunderbird-The American Graduate School of
International Management, Glendale, Arizona in 1996.
David K. Griffiths has been our Secretary/Treasurer since December 2000 and
was our principal accounting officer from February 1995 to June 2004. From
1960 to 1995, he was self-employed as an accountant/consultant for various
small businesses. He offers the Company 45 years experience in accounting and
accounting related systems. He received a B.S. in Accounting from Arizona
State University, Tempe, Arizona in 1959.
Louis M. Haynie has been a member of our board of directors since July 1997.
Mr. Haynie's past board services include, Research Medical, Inc., Salt Lake
City, Utah, the University of Utah Regents Advisory Board, Redwood Land Co.,
Salt Lake City, Utah, and MIS Corporation, Franklin, Tennessee. Mr. Haynie
has a law degree from the University of Utah and has been in the private
practice of law since 1951.
Henry D. Moyle, Jr. has been a member of our board of directors since March
1999. Since 1992, he has been President and C.E.O. of Silver Lake Company,
and formerly President and C.E.O. of Brighton Properties, Inc. From 1970 to
1983, he was President and C.E.O. of Research Industries Corporation. He
received a B.A. from Stanford in 1957, and a J.D. degree from the University
of Utah in 1959. He is the owner of Sunset Canyon Ranch, raising cattle and
racehorses, and serves on the board of directors of Silver Lake Company and
Sunset Medical Corporation.
Wesley G. Sprunk, joined our board in January 2003. Mr. Sprunk owns and
operates Saf-Tee Siping & Grooving, a tire siping equipment manufacturing
company and Tire Service Equipment Mfg. Co., Inc., a manufacturer and marketer
of automotive wheel service equipment and recycling equipment, both located in
Phoenix, Arizona.
Norman H. Tregenza, joined our board in April 2003 and has over 40 years
experience in corporate finance, including 12 years as an investment officer
in the securities division of TIAA-CREF, New York City. Mr. Tregenza co-
founded Tempo Enterprises, Inc. in 1976 to act as a common carrier for Turner
Communication's Superstation's signal to the RCA satellite. Tempo obtained a
listing on the American Stock Exchange in 1986. Before being sold to
Telecommunications, Inc. (TCI) in 1988, Tempo owned several cable TV
companies, radio stations and its own satellite TV network while supplying the
Superstation's signal to approximately 50 million homes. TCI was acquired by
AT&T in 2000. Mr. Tregenza received a B.A. from St. Lawrence University,
Canton, NY, in 1959, and a MBA from NYU in 1963.
15
Involvement in Certain Legal Proceedings
----------------------------------------
On April 28, 2003, a petition for bankruptcy under Chapter 11 of the
Bankruptcy Code was filled in the United States Bankruptcy Court, District of
Nevada, Case No. 03-15079 (the "Petition"), concerning Lew Corporation, a
Nevada corporation, Corporation, in which Richard A. Steinke served as
Chairman of the Board of Directors. The Petition was withdrawn in January
2004. We are not a creditor in this action.
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Our common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in connection
therewith, it is the responsibility of our directors, officers, and beneficial
owners of more than 10% of our common stock to file on a timely basis certain
reports under Section 16 of the Exchange Act as to their beneficial ownership.
To the best of our knowledge, no such persons failed to file on a timely basis
any reports required pursuant to Section 16 of the Exchange Act, as of June
30, 2004.
Audit Committee
---------------
In September 2002, our Board of Directors appointed a three person Audit
Committee consisting of two directors, Louis M. Haynie and Henry D. Moyle,
Jr., and one member of our management, Elliott N. Taylor. Our board of
directors has determined that Mr. Haynie is an "audit committee financial
expert" as defined under new SEC regulations, who is independent of
management. See also "Committees of Our Board of Directors" under ITEM 10
below.
Code of Ethics
--------------
We have adopted a Code of Ethics that applies to our principal executive
officer, principal financial officer and other financial employees. The Code
of Ethics is posted on our website www.amerityre.com.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued during each of our last three completed fiscal
years to our chief executive officer and each of our other executive officers
who received compensation in excess of $100,000 during such period (as
determined at June 30, 2004, the end of our last completed fiscal year):
16
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
Richard A. Steinke 2004 $472,500 -0- $492,000
CEO, Pres. and 2003 $424,000 -0- $ -0- -0- -0- -0- -0-
Chairman 2002 $400,000 -0- $30,000 -0- -0- -0- -0-
Elliott N. Taylor, 2004 $120,000 -0- $81,999 -0- -0- -0- -0-
Executive V.P. 2003 120,000 -0- -0- -0- -0- -0- -0-
2002 5,000 -0- -0- -0- -0- -0- -0-
Compensation to our Named Executive Officers
--------------------------------------------
Pursuant to a resolution of our board of directors in December 2001, Richard
A. Steinke was issued 100,000 shares of restricted common stock in lieu of
cash compensation for services through December 31, 2001 and an additional
100,000 shares of restricted common stock as prepaid compensation through June
30, 2002. The aggregate value of the 200,000 shares was $400,000 based on the
closing price of our common stock on the date of the board resolution. In
November 2002, the board authorized the issuance of 200,000 shares of
restricted common stock to Mr. Steinke as employment compensation from July 1,
2002 through June 30, 2003. The aggregate value of the 200,000 shares was
$424,000, based on the closing price of our common stock on the date of the
board resolution.
In October 2003, our board authorized the issuance of 125,000 shares of
restricted common stock to Mr. Steinke as employment compensation from July 1,
2003 through June 30, 2004. The value of the shares was $472,500, based on the
closing price of the common stock on the date of the board resolution. In May
2004, the board approved the issuance of 60,000 shares of common stock to Mr.
Steinke as additional compensation for service provided during the fiscal
year. The value of the shares was $492,000, based on the closing price of our
common stock on the date of the board resolution.
During the year ended June 30, 2004, Elliott N. Taylor received a base salary
of $120,000. In addition, the board approved the issuance of 10,000 shares of
common stock to Mr. Taylor as additional compensation for services provided
during the fiscal year. The value of the shares was $81,999, based on the
closing price of our common stock on the date of the board resolution.
Employment Benefits
-------------------
We provided health and medical insurance to Messrs. Steinke and Taylor,
similar to that which is made available to all full time employees, and we
reimbursed Messrs. Steinke and Taylor for reasonable out-of-pocket expenses
incurred in connection with our business.
17
As a condition to employment, our management and key personnel are required to
sign a nondisclosure and noncompetition agreement. Under the terms of the
agreement, employees are not able to provide services or information deemed
confidential by us to any other company or person which directly or indirectly
competes with us in the tire industry or an industry which we intended to
enter. There is no time limitation on the nondisclosure aspect of the
agreement. The noncompetition clause is for a period of two years and
prevents a former employee or consultant from acting as an employee,
consultant or in any other capacity for a competitor.
Additionally, all employees are required, as a condition of their employment,
to enter into a nondisclosure agreement related to any information or process
deemed confidential by us.
Options/SAR Grants
------------------
The following tables contain information regarding the Plan Options granted to
the Company's named executive officers during the fiscal year ended June 30,
2004:
OPTION/SAR GRANTS DURING LAST FISCAL YEAR
Individual Grants
-----------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted in Fiscal Year ($/Share) Date
------------------- ------------ -------------- ----------- ----------
(a) (b) (c) (d) (e)
None N/A N/A N/A N/A
Aggregate Option/SAR Exercises in Last Fiscal Year
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexerciable
------------------- ------------- ------------- ------------ ------------
Elliott N. Taylor 105,000 686,450 200,000/0 1,190,000/0
Pension Table
-------------
Not Applicable.
Other Compensation
------------------
None.
18
Compensation of Directors
-------------------------
On November 21, 2003, at the Annual Meeting of Directors, our board of
directors approved the issuance of 10,000 shares of restricted common stock to
each of our four (4) independent directors as compensation for board services
and related travel expenses for the period from December 2003 to November
2004. The aggregate value of the shares was $244,000, based on a closing price
per share of $6.10 on the date of the approval.
As compensation for serving on the Executive Committee, each non-employee
director who serves as a member of the Executive Committee received a cash
payment of $22,000 for service through December 31, 2003. Members of the
Executive Committee have received no compensation for their service on the
Executive Committee for the period from January 1, 2004 to the date of this
report.
Committees of our Board of Directors
------------------------------------
In September 2002, our Board of Directors appointed a three person Audit
Committee consisting of two directors, Louis M. Haynie and Henry D. Moyle,
Jr., and one member of our management, Elliott N. Taylor. Our board of
directors has determined that Mr. Haynie is an "audit committee financial
expert" as defined under new SEC regulations, who is independent of
management. The tasks and responsibilities of the Audit Committee include (i)
the review and discussion of the audited financial statements with management,
(ii) discussing with the independent auditors the matters required to be
discussed by the Statement of Auditing Standards No. 61, as may be modified or
supplemented, and (iii) receiving from auditors disclosure regarding the
auditors' Independence Standards Board Standard No. 1, as may be modified or
supplemented. Members of the audit committee met (3) times during the fiscal
year ended June 30, 2004.
In December 2002, our board established an Executive Committee consisting of
Richard A. Steinke, Louis M. Haynie and Henry D. Moyle, Jr.
The Executive Committee was formed to: (1) review our existing policies and
procedures relating to executive compensation and board compensation, as well
as review management's recommendations regarding changes and/or modifications
thereto; (2) review potential nominees for board membership and make
recommendations to the full board regarding the nominees; (3) review and make
recommendations regarding our short-term and long-term operating plan; and (4)
review management's plans regarding product development, product pricing
structure, product market segments and product marketing strategy and make
recommendations regarding changes and/or modifications thereto.
The Executive Committee meets on an ad hoc basis from time to time as
determined by Mr. Steinke, who serves as chairman of the Executive Committee,
but at least once per month until such time as the Executive Committee is
disbanded or until their successors are duly elected and shall qualify.
Members of the executive committee met twelve (12) times during the fiscal
year ended June 30, 2004.
19
Meetings of our Board of Directors
----------------------------------
Our Board of Directors held ten (10) meetings during the last fiscal year
(including those meetings conducted by telephone conferencing).
Compensation Pursuant to Plans
------------------------------
Effective April 1, 2002, our Board of Directors approved the terms of our 2002
Stock Option and Award Plan. The Plan was ratified by our shareholders at the
Annual Meeting on November 1, 2002. Under the Plan, four non-officer members
of our Board of Directors were each granted options to acquire 200,000 shares
of common stock at an exercise price of $4.00 per share. In addition, our
Board of Directors approved the grant of additional options to acquire up to
386,000 shares of common stock to various employees at an exercise price of
$4.00 per shares. The exercise price per share was set at approximately 110%
of the closing price of the stock on the date the options were granted.
During the fiscal year ended June 30, 2003, our board approved the grant of
options to acquire up to 250,000 shares of common stock to various employees
at an exercise price of $2.00 per share. The closing price for our common
stock as quoted on the OTC Bulletin board on the date of grant was $1.99 per
share.
Award Plan Summary
------------------
Our Award Plan is intended to reward employees and other individuals who
contribute to our success and to provide them with a stake in the enterprise
as shareholders. Consistent with this belief, the award of stock options has
been and will continue to be an important element of our compensation program.
We intend to use the Award Plan to (a) attract competent directors, executive
personnel, and other employees, (b) aid in the retention of the services of
existing directors, executive personnel, and employees, and (c) provide
incentives to all of such personnel to devote the utmost effort and skill to
our company's advancement by permitting them to participate in ownership and
thereby permitting them to share in increases in the value which they help
produce.
The Award Plan is administered by our Compensation Committee (the "Committee")
appointed from time to time by our board of directors. Awards granted under
the Award Plan may be incentive stock options ("ISOs") as defined in the
Internal Revenue Code of 1986, as amended (the "Code"), appreciation rights,
options which do not qualify as ISOs, or stock bonus awards which are awarded
to our employees, including officers and directors, who, in the opinion of the
board or the Committee, have contributed, or are expected to contribute,
materially to our success. In addition, at the discretion of our Board of
Directors or the Committee, options or bonus stock may be granted to
individuals who are not employees but contribute to our success.
The exercise price of options granted under the Award Plan (as determined by
our Board of Directors), may be based on the fair market value of the
underlying Common Stock at the time of grant and, in the case of ISOs may not
be less than 100% of the fair market value of such capital stock on the date
the option is granted ( 110% of the fair market value in the case of 10%
stockholders).
20
Options granted under the Award Plan shall expire no later than ten years
after the date of grant (five years in the case of ISOs granted to 10%
stockholders). The option price may be paid by cash or, at the discretion of
our Board of Directors or Committee, by delivery of a promissory note or
shares of our Common Stock already owned by the optionee (valued at their fair
market value at the date of exercise), or a combination thereof.
All of our employees, officers, and directors are eligible to participate
under the Award Plan. A maximum of 2,000,000 shares are available for grant
under the Award Plan. The identification of individuals entitled to receive
awards, the terms of the awards, and the number of shares subject to
individual awards, are determined by our Board of Directors or the Committee,
in their sole discretion provided, however, that in no event may the aggregate
fair market value of shares for which an ISO is first exercisable in any
calendar year by any eligible employee exceed $100,000.
The aggregate number of shares with respect to which options or stock awards
may be granted under the Award Plan, the number of shares covered by each
outstanding option, and the purchase price per share shall be adjusted for any
increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares.
Our Board of Directors or the Committee may from time to time alter, amend,
suspend, or discontinue the Award Plan with respect to any shares as to which
options or stock awards have not been granted. However, no such alteration or
amendment (unless approved by our stockholders) shall (a) increase (except
adjustment for an event of dilution) the maximum number of shares for which
options or stock awards may be granted under the Award Plan either in the
aggregate or to any eligible employee: (b) reduce (except adjustment for an
event of dilution) the minimum option prices which may be established under
the Award Plan; (c) extend the period or periods during which options may be
granted or exercised; (d) materially modify the requirements as to eligibility
for participation in the Award Plan; (e) change the provisions relating to
events of dilution; or (f) materially increase the benefits accruing to the
eligible participants under the Award Plan.
If a participant to whom an option is granted exercises such option by payment
of the exercise price in whole or in part with previously owned shares, the
optionee will not realize income with respect to the number of shares received
on exercise which equals the number of shares delivered by the optionee. The
optionee's basis for the delivered shares will carry over to the option shares
received. With regard to the number of non-qualified option shares received
which exceeds the number of shares delivered, the optionee will realize
ordinary income at the time of exercise; and the optionee's tax basis in these
additional option shares will equal the amount of ordinary income realized
plus the amount of any cash paid.
Recipients of ISOs will not be required to recognize income at the time of the
grant of the options or at the time of exercise of the options as long as the
stock received on exercise is held for at least two years from the date of the
grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative
21
minimum tax purposes). If the stock received upon exercise of an ISO is
disposed of prior to the expiration of either of such time periods, the
optionee will be required to recognize as ordinary income the amount by which
the fair market value of the stock received at the time of exercise exceeds
the exercise price of the ISOs.
Under the Award Plan, stock appreciation rights ("SARs") can be granted at the
time an option is granted with respect to all or a portion of the shares
subject to the related option. SARs can only be exercised to the extent the
related option is exercisable and cannot be exercised for the six-month period
following the date of grant, except in the event of death or disability of the
optionee. The exercise of any portion of either the related option or the
tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs thus maintaining a balance
between outstanding options and SARs. SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
our Board of Directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on
the exercise date over the exercise price of the related options.
Under the terms of the Award Plan, our board of directors or the Committee may
also grant stock awards which may, at the discretion of our Board of Directors
or Committee, be subject to forfeiture under certain conditions. Recipients of
stock awards will realize ordinary income at the time of the lapse of any
forfeiture provisions equal to the fair market value of the shares less any
amount paid in connection with the issuance (our Board of Directors or the
Committee can require the payment of par value at the time of the grant). We
will realize a corresponding compensation deduction. The holder will have a
basis in the shares acquired equal to any amount paid on exercise plus the
amount of any ordinary income recognized by the holder. On sale of the shares,
the holder will have a capital gain or loss equal to the sale proceeds minus
his or her basis in the shares.
Termination of Employment and Change of Control Arrangement
-----------------------------------------------------------
Unless otherwise disclosed below, as of June 30, 2004, the end of our most
recent fiscal year, there are no compensatory plans or arrangements, including
payments to be received from us, with respect to any person named in Cash
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment or any change in our control, or a change in the
person's responsibilities following a change in our control.
22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth as of September 27, 2004 the name and address
and the number of shares of our Common Stock held of record or beneficially by
each person who held of record, or was known by us to own beneficially, more
than 5% of the 18,722,168 shares of our Common Stock issued and outstanding,
and the name and shareholdings of each director and of all officers and
directors as a group. The information on share numbers and percentage
ownership listed assumes: a) the exercise of options by the beneficial owner
(all included options are currently exercisable); and b) a corresponding
increase in the number of shares issued and outstanding.
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
Title
of Name and Address Amount and Nature of Percentage
Class Beneficial Owner Beneficial Ownership(1) of Class
----- ---------------- -------------------- ----------
Common Richard A. Steinke (2) 1,485,000 7.93
1501 Industrial Road
Boulder City, NV 89005
Common Centurion Holdings, LLC (3) 1,300,000 6.49
375 Park Avenue, Suite 2008
New York, NY 10152
Common Lee Iacocca (4) 1,000,000 5.07
1501 Industrial Road
Boulder City, NV 89005
Security Ownership of Management of the Company
-----------------------------------------------
Title
of Name and Position of Amount and Nature of Percentage
Class Officer and/or Director Beneficial Ownership(1) of Class
----- ----------------------- -------------------- ----------
Common Richard A. Steinke, CEO/Pres. (2) 1,485,000 7.93
Common Elliott N. Taylor, Exec. VP (5) 338,860 1.79
Common Anders A. Suarez, CFO (6) 40,900 0.22
Common James Moore, Vice President (7) 58,071 0.31
Common David K. Griffiths, Sec./Treas. (8) 115,383 0.61
Common Louis M. Haynie, Director (9) 560,500 2.98
Common Henry D. Moyle, Jr. Director (10) 775,000 4.12
Common Wesley G. Sprunk, Director 101,700 0.54
Common Norman H. Tregenza, Director (11) 312,700 1.67
Total Beneficial Ownership of
All Officers and Directors as
a Group (9 persons) 3,788,114 19.67
[Footnotes continue on next page]
23
(1) All shares owned directly are owned beneficially and of record and such
shareholder has sole voting, investment, and dispositive power, unless
otherwise noted.
(2) Includes 455,000 shares owned beneficially and of record by Gemini Funding
Services Profit Sharing Account, of which Richard A. Steinke is the principal
beneficiary and 800,000 shares owned beneficially and of record by S102
Irrevocable Trust, for which Richard A. Steinke is the trustee.
(3) Represents options to acquire 1,300,000 shares at an exercise price of
$7.00 per share that expire September 12, 2009.
(4) Represents options to acquire 1,000,000 shares at an exercise price of
$7.00 per share that expire September 12, 2009.
(5) Includes options to acquire up to 200,000 shares at an exercise price of
$4.00 per share that expire June 10, 2007. Also includes 25,000 shares per
power of attorney; 20,692 shares as custodian for Mr. Taylor's minor children;
and 80,918 shares as trustee for family trusts.
(6) Includes options to acquire up to 30,000 shares at an exercise price of
$3.80 per share that expire September 30, 2006.
(7) Includes options to acquire up to 50,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005.
(8) Includes options to acquire up to 25,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005 and 30,000 shares at an exercise
price of $2.00 per share that expire March 31, 2005.
(9) Includes options to acquire up to 103,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005. Also includes 2,000 shares owned
beneficially and of record by Gae B. Haynie, spouse of Louis M. Haynie, of
which Mr. Haynie may be deemed to have beneficial ownership.
(10) Includes options to acquire up to 100,000 shares at an exercise price of
$4.00 per share that expire April 1, 2005. Also includes 55,000 shares owned
beneficially and of record by Vickie L. Moyle, spouse of Henry D. Moyle, and
11,000 shares owned beneficially and of record by a minor child, all of which
Mr. Moyle may be deemed to have beneficial ownership.
(11) Includes 13,000 shares held in an IRA, of which Mr. Tregenza is a
beneficiary; 40,000 shares held of record by Norman H. Tregenza IV Trust,
dated 9/26/86, Richard R. Keller trustee; 56,650 per power of attorney for
Norman A. Tregenza; 20,000 shares held in an IRA, of which Alyce B. Tregenza,
the spouse of Mr. Tregenza is the beneficiary; 5,000 shares per power of
attorney for Alyce B. Tregenza; 45,650 shares per power of attorney for
Suzanne C. Tregenza.
24
Securities Authorized For Issuance Under Equity Compensation Plans
------------------------------------------------------------------
Equity Compensation Plan Information
As of June 30, 2004 (Fiscal Year End)
Number of Securities
Number of Weighted remaining available
Securities to be average exercise for future issuance
issued upon exercise price of under equity compen-
of outstanding outstanding plans (excluding
options, warrants options, warrants securities reflected
Plan and rights and rights in column (a))
Category (a) (b) (c)
------------ --------------------- ------------------ --------------------
Equity
Compensation
Plans
Approved by
Security
Holders 1,422,000 $3.90 148,239
Equity
Compensation
Plans
Not Approved
by Security
Holders (1) 500,000 $3.00
--------- -------
1,922,000 $3.66 148,239
========= =======
(1) Includes options to acquire up to 500,000 shares at an exercise price of
$3.00 per share that expire July 31, 2005, owned beneficially and of record by
Focus Sales and Marketing, L.L.C. and issued as compensation in association
with product marketing services.
On September 13, 2004, our Board of Directors authorized the issuance of an
aggregate of 3,000,000 Options to certain non-employees at an exercise price
of $7.00 per share. The closing price for our common stock on the date the
Option grants were authorized was $6.95 per share. The Options vest
immediately, but are exercisable only as follows: (a) one-third of the total
Options are exercisable on the earlier of September 13, 2006 or the first day
after the closing price of our common stock has equaled or exceeded a price
equal to 150% of the exercise price for 20 consecutive trading days; (b) one-
third of the total Options are exercisable on the earlier of September 13,
2006 or the first day after the closing price has equaled or exceeded a price
equal to 175% of the closing price for 20 consecutive trading days; and (c)
one-third of the total Options are exercisable on the earlier of September 13,
2006 or the first day after the closing price has equaled or exceeded a price
equal to 200% of the closing price for 20 consecutive trading days. (See
FINANCIAL STATEMENTS, Note 8 - SUBSEQUENT EVENTS.)
25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Technology License Agreement
----------------------------
On October 29, 1999, we entered into an exclusive license agreement with our
President, Richard A. Steinke, and two unrelated parties to license certain
intellectual property rights known as "Apparatus for Making Foam Products" and
"Method for Making Polyurethane Tires with an Outer Skin" embodied in United
States Patent No.'s 4,943,223 and 4,855,096, respectively. The agreement gave
us an exclusive license to use, sell, license, or otherwise exploit the
technology worldwide in exchange for a royalty of $0.25 of the net selling
price for all units produced utilizing the technology. The agreement required
us to meet certain minimum production/royalty requirements. However, in
October 2002, this agreement was amended to eliminate the provision requiring
us to maintain minimum sales or royalties and restricting the royalty
provision to those units produced and sold having a final production weight in
excess of two (2) pounds. Effective July 1, 2004, the Agreement was amended to
eliminate the royalty altogether in exchange for 15,000 shares of the
Company's restricted common stock as a one-time payment to the licensees for
their assignment and transfer of the technology to the Company. The closing
price of the Corporation's common stock as quoted on the OTC Bulletin Board on
July 1, 2004 was $9.75 per share, for a value of $146,250. The expense
associated with the acquisition of the technology will be amortized over the
remain life of the applicable patents. Due to our President's relationship
with us, the agreement and the related amendments cannot be considered to have
been negotiated at arm's length.
Other Agreements
----------------
In June 2002, we entered into an agreement with Taylor and Associates, Inc.,
our SEC counsel ("Taylor and Associates"), whereby, in consideration for our
employment of Elliott Taylor as our Executive Vice President, we agreed to
compensate Taylor and Associates for the potential financial detriment it
might incur as the result of Mr. Taylor's employment by us. Mr. Taylor had
been the principal attorney for Taylor and Associates since 1993. We have
agreed to pay Taylor and Associates $2,750 per month for a period of 24
months, commencing on June 30, 2002 and continuing through May 31, 2004. At
June 30, 2004, all amounts due under this arrangement were paid in full.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
----------------- ----
Independent Auditors' Report of HJ & Associates, LLC..................... 28
Balance Sheet as of June 30, 2004........................................ 29
Statements of Operations for the years ended June 30, 2004 and 2003...... 31
Statements of Stockholders' Equity....................................... 32
Statements of Cash Flows for the years ended June 30, 2004 and 2003...... 34
Notes to Financial Statements............................................ 36
26
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report:
None.
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
Exhibit No. Description
----------- -----------
31.01 Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.02 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.01 Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.02 Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed with the Commission during the quarter
ended June 30, 2004
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 9(c) of Schedule 14A
1) Audit Fees - The aggregate fees billed us for each of the last two fiscal
years for professional services rendered by our principal accountant for the
audit of our annual financial statements and review of our quarterly financial
statements is $35,326 and $47,595, respectively.
2) Audit-Related Fees - The aggregate fees billed in each of the last two
fiscal years for assurance and related services by our principal accountant
that are reasonably related to the performance of the audit or review of our
financial statements is $0 and $385, respectively. The services provided
related to the review of registration statements filed during applicable
period.
3) Tax Fees. $1,914 and $0.
4) All Other Fees. $2,519 and $0.
5) Not applicable.
6) Not Applicable.
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERITYRE CORPORATION
Date: September 27, 2004 By /S/Richard A. Steinke, Chairman of
the Board, President and CEO
[Principal Executive Officer]
Date: September 27, 2004 By /S/Anders A. Suarez, CFO
[Principal Accounting Officer]
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: September 27, 2004 /S/Louis M. Haynie, Director
Date: September 27, 2004 /S/Henry Moyle, Director
Date: September 27, 2004 /S/Wesley G. Sprunk, Director
Date: September 27, 2004 /S/ Norman H. Tregenza, Director
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Amerityre Corporation
Boulder City, Nevada
We have audited the accompanying balance sheet of Amerityre Corporation (the
"Company") as of June 30, 2004 and the related statements of operations,
stockholders' equity and cash flows for the years ended June 30, 2004 and
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amerityre Corporation as of
June 30, 2004, and the results of its operations and its cash flows for the
years ended June 30, 2004 and 2003, in conformity with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 7 to the financial
statements, the Company has incurred significant losses from operations, which
have resulted in an accumulated deficit, raising substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 7 to the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ HJ & Associates
HJ & Associates, LLC
Salt Lake City, Utah
September 24, 2004
29
AMERITYRE CORPORATION
Balance Sheet
ASSETS
------
June 30,
2004
------------
CURRENT ASSETS
Cash and cash equivalents $ 1,591,289
Accounts receivable - net of zero allowance 167,002
Inventory (Note 1) 557,516
Prepaid expenses 99,007
------------
Total Current Assets 2,414,814
------------
PROPERTY AND EQUIPMENT (Note 1)
Leasehold improvements 163,896
Molds and Models 315,282
Equipment 2,253,217
Furniture and fixtures 70,033
Vehicles 25,851
Software 184,901
Less - accumulated depreciation (1,567,187)
------------
Total Property and Equipment 1,445,993
------------
OTHER ASSETS
Patents and trademarks - net (Note 1) 156,792
Deposits 43,180
------------
Total Other Assets 199,972
------------
TOTAL ASSETS $ 4,060,779
============
The accompanying notes are an integral part of these financial statements.
30
AMERITYRE CORPORATION
Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30,
2004
------------
CURRENT LIABILITIES
Accounts payable $ 42,866
Accrued expenses 15,817
------------
Total Current Liabilities 58,683
------------
Total Liabilities 58,683
------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock: 5,000,000 shares authorized of
$0.001 par value, -0- shares issued and outstanding -
Common stock: 25,000,000 shares authorized of
$0.001 par value, 18,429,168 shares issued and
outstanding 18,429
Additional paid-in capital 30,594,482
Expenses prepaid with common stock (219,988)
Retained Deficit (26,390,827)
------------
Total Stockholders' Equity 4,002,096
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,060,779
============
The accompanying notes are an integral part of these financial statements.
31
AMERITYRE CORPORATION
Statements of Operations
For the Years Ended
June 30,
---------------------------
2004 2003
------------ ------------
NET SALES $ 1,419,124 $ 1,040,246
COST OF SALES 1,114,230 976,132
------------ ------------
GROSS PROFIT 304,894 64,114
------------ ------------
EXPENSES
Consulting 370,666 339,934
Payroll and payroll taxes 2,345,082 1,083,910
Depreciation and amortization 296,232 298,625
Research and development 572,002 28,607
Bad debt expense 3,713 51
Loss on impairment of assets - 67,982
Selling, general and administrative 1,458,200 1,354,040
------------ ------------
Total Expenses 5,045,895 3,173,149
------------ ------------
LOSS FROM OPERATIONS (4,741,001) (3,109,035)
------------ ------------
OTHER INCOME
Other income 2,512 666
Interest income 17,234 16,397
------------ ------------
Total Other Income 19,746 17,063
------------ ------------
NET LOSS $ (4,721,255) $ (3,091,972)
============ ============
BASIC LOSS PER SHARE $ (0.26) $ (0.21)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 17,846,910 14,796,744
============ ============
The accompanying notes are an integral part of these financial statements.
32 AMERITYRE CORPORATION
Statements of Stockholders' Equity
Expenses
Additional Stock Prepaid with
Common Stock Paid-in Subscription Common Deferred Accumulated
Shares Amount Capital Receivable Stock Consulting Deficit
----------- -------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2002 14,187,731 $ 14,188 $ 21,310,261 $ (562,721) $ (150,750)$ (103,433)$(18,577,600)
Common stock issued for
cash at $1.50 per share 2,170,000 2,170 3,252,830 - - - -
Common stock issued for
cash at $2.00 per share 604,675 605 1,208,745 - - - -
Cancellation of common
stock issued for stock
subscription receivable (45,000) (45) (87,705) 87,750 - - -
Common stock issued to
CEO for compensation 200,000 200 423,800 - (212,000) - -
Common stock issued for
exercise of options 20,000 20 39,980 - - - -
Common stock issued for
cash-less exercise of
option 10,462 10 23,562 - - - -
Common stock issued for
services and prepaid
services 182,500 183 360,493 - (336,300) - -
Common stock issued for
stock offering costs 50,000 50 99,950 - - - -
Stock offering costs - - (220,954) - - - -
Common stock issued for
stock subscription deposit 4,500 4 8,996 - - - -
Issuances of options
for services - - 2,906 - - - -
Amortization of expenses
prepaid with common stock - - - - 480,950 - -
Additional interest recorded
on subscription receivable
and subscription receivable
related party - - 15,547 (21,686) - - -
Receipt of cash for subscription
receivable and interest on
subscriptions receivable - - - 448,068 - - -
Receipt of services and debt
relief for subscriptions
receivable - - - 31,957 - - -
Valuation adjustment and
amortization of deferred
consulting - - 55,500 - - (15,188) -
Net loss for the year
ended June 30, 2003 - - - - - - (3,091,972)
----------- -------- ------------ ----------- ----------- ---------- ------------
Balance, June 30, 2003 17,384,868 $ 17,385 $ 26,493,911 $ (16,632) $ (218,100) $ (118,621) $(21,669,572)
=========== ======== =========== =========== =========== ========== ============
The accompanying notes are an integral part of these financial statements.
33 AMERITYRE CORPORATION
Statements of Stockholders' Equity (Continued)
Expenses
Additional Stock Prepaid with
Common Stock Paid-in Subscription Common Deferred Accumulated
Shares Amount Capital Receivable Stock Consulting Deficit
----------- -------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2003 17,384,868 $ 17,385 $ 26,493,911 $ (16,632) $ (218,100)$ (118,621)$(21,669,572)
Receipt of Subscriptions
Receivable - - - 16,632 - - -
Common stock issued for
services and prepaid
services at $3.78 per
share 240,000 240 906,960 - (732,375) - -
Common stock issued for
services at $6.10 per
share 40,000 40 243,960 - (244,000) - -
Common stock issued for
cash exercise of options
at $2.00 per share 130,000 130 259,870 - - - -
Common stock issued for
cash exercise of options
at $3.00 per share 500,000 500 1,499,500 - - - -
Common stock issued for
services rendered at
$5.48 per share 2,000 2 10,958 - - - -
Common stock issued for
cash exercise of options
at $4.00 per share 4,000 4 15,996 - - - -
Common stock issued to
employees per stock award
plan at $6.69 per share 3,900 4 26,087 - - - -
Common stock issued for
services at $6.69 per share 20,000 20 133,780 - (133,800) - -
Common stock issued to
employee per stock award
plan at $9.10 per share 500 - 4,550 - - - -
Common stock issued to
employees per stock award
plan at $8.20 per share 103,900 104 851,876 - - - -
Valuation adjustment and
amortization of deferred
consulting - - 147,034 - - 118,621 -
Amortization of expenses
prepaid with common stock - - - - 1,108,287 - -
Net loss for the year
ended June 30, 2004 - - - - - - (4,721,255)
----------- -------- ------------ ------------ ------------ ---------- ------------
Balance, June 30, 2004 18,429,168 $ 18,429 $ 30,594,482 $ - $ (219,988) $ - $(26,390,827)
=========== ======== ============ ============ =========== ========== ============
The accompanying notes are an integral part of these financial statements.
34
AMERITYRE CORPORATION
Statements of Cash Flows
For the Years Ended
June 30,
---------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,721,255) $ (3,091,972)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 296,232 298,625
Bad debt expense 3,713 51
Loss on impairment of assets - 67,982
Equity instruments issued for services 2,176,692 759,351
Stock subscription receivable paid through services - 9,880
Re-valuation of deferred consulting 265,656 40,312
Changes in assets and liabilities:
(Increase) in accounts receivable (42,234) (25,537)
(Increase) in inventory (92,532) (97,444)
(Increase) in prepaid expenses (46,340) (24,825)
(Increase) in other assets - (36,000)
(Decrease) in accounts payable and
accrued expenses (37,515) (11,192)
------------ ------------
Net Cash Used by Operating Activities $ (2,197,583) $ (2,110,769)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for patents and trademarks (57,847) (20,560)
Proceeds from sale of fixed assets - -
Cash paid for fixed assets (436,517) (984,267)
------------ ------------
Net Cash Used by Investing Activities $ (494,364) $ (1,004,827)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock subscription deposit $ - $ 25,000
Receipt of subscriptions receivable 16,632 448,459
Cash paid for stock offering costs - (120,954)
Common stock issued for cash 1,776,000 4,479,350
------------ ------------
Net Cash Provided by Financing Activities $ 1,792,632 $ 4,831,855
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (899,315) 1,716,259
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,490,604 774,345
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,591,289 $ 2,490,604
============ ============
The accompanying notes are an integral part of these financial statements.
35
AMERITYRE CORPORATION
Statements of Cash Flows (Continued)
For the Years Ended
June 30,
---------------------------
2004 2003
------------ ------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
CASH PAID FOR:
Interest $ - $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Equity investments issued for services
rendered $ 2,176,692 $ 759,351
Common stock issued for subscriptions
receivable $ - $ 99,500
Interest on related party subscription
receivable $ - $ 15,547
The accompanying notes are an integral part of these financial statements.
36
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Amerityre Corporation, (the "Company") was incorporated under the laws of the
State of Nevada on January 30, 1995, under the name American Tire Corporation.
The Company was organized to take advantage of existing proprietary and non-
proprietary technology available for the manufacturing of specialty tires.
The Company engages in the manufacturing, marketing, distribution and sales of
"flatfree" specialty tires and tire-wheel assemblies and currently is
manufacturing these tires at its manufacturing facility located in Boulder
City, Nevada. During the year ended June 30, 2001, the name of the Company
was changed to Amerityre Corporation.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a June 30 year-end.
c. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period.
For the Years Ended
June 30,
---------------------------
2004 2003
------------ ------------
Loss (numerator) $ (4,721,255) $ (3,091,972)
Shares (denominator) 17,846,910 14,796,744
Per share amount $ (0.26) $ (0.21)
The Company's outstanding stock options have been excluded from the basic net
loss per share calculation. The Company excluded 1,922,000 and 2,446,000
common stock equivalents for the years ended June 30, 2004 and 2003,
respectively.
d. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
37
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely that not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Net deferred tax assets consist of the following components as of June 30,
2004 and 2003:
2004 2003
------------ ------------
Deferred tax assets:
NOL Carryover $ 6,224,303 $ 5,585,000
Deferred tax liabilities:
Valuation allowance (6,224,303) (5,585,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended June 30, 2004 and 2003 due to
the follow:
2004 2003
------------ ------------
Book income $ (1,841,328) $ (1,205,900)
Meals & Entertainment 650 904
Officer issuance 9,750 -
Other (2,884) -
Stock for Services/Options Expense 848,909 363,730
Valuation Allowance 984,903 841,266
------------ ------------
$ - $ -
============ ============
38
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Income Taxes (Continued)
At June 30, 2004, the Company had net operating loss carryforwards of
approximately $15,000,000 that may be offset against future taxable income
from the year 2004 through 2024. No tax benefit has been reported in the June
30, 2004 financial statements since the potential tax benefit is offset by a
valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
f. 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 the Company's plant and products purchased for resale.
Raw Materials $ 109,820
Work in Progress -
Finished Goods 447,696
-----------
Total Inventory $ 557,516
===========
During the years ended June 30, 2004 and 2003, the Company recorded inventory
impairment expense of $0 and $39,596, respectively.
g. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Leasehold improvements 5 years, or over lease term
Equipment 5 to 7 years
Furniture and fixtures 7 years
Automobiles 5 years
Software 3 years
Depreciation expense for the years ended June 30, 2004 and 2003 was $294,923
and $297,037, respectively.
39
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Revenue Recognition
Revenue is recognized when the sales amount is determined, shipment of goods
to the customer has occurred and collection is reasonably assured.
Product is shipped FOB origination.
i. Patents and Trademarks
Patent and trademark costs have been capitalized at June 30, 2004 totaling
$166,251. The patents which have been granted are being amortized over a
period of 17 years. Patents which are pending or are being developed are not
being amortized. Amortization will begin once the patents have been issued.
Amortization expense for the years ended June 30, 2004 and June 30, 2003 was
$1,309 and $1,588, respectively.
The Company evaluates the recoverability of intangibles and reviews the
amortization period on a continual basis utilizing the guidance of SFAS 142,
"Goodwill and Other Intangible Assets." Several factors are used to evaluate
intangibles, including, but not limited to, management's plans for future
operations, recent operating results and projected, undiscounted cash flows.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense for the years ended June 30, 2004 and 2003
was $45,055 and $36,320, respectively.
k. Newly Adopted Accounting Pronouncements
During the year ended June 30, 2004, the Company adopted the following
accounting pronouncements:
SFAS No. 149 -- In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" which is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. This statement amends
and clarifies financial accounting for derivative instruments embedded in
other contracts (collectively referred to as derivatives) and hedging
activities under SFAS 133. The adoption of SFAS No. 149 did not have a
material effect on the financial statements of the Company.
SFAS No. 150 -- In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" which is effective for financial instruments entered into or modified
after May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement establishes
standards for how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
40
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Newly Adopted Accounting Pronouncements (Continued)
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. The adoption of SFAS No. 150 did not have a material effect on the
financial statements of the Company.
FASB Interpretation No. 46 -- In January 2003, the FASB issued FASB
Interpretation No. 46 "Consolidation of Variable Interest Entities." FIN 46
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights, variable interest
entities, and how to determine when and which business enterprises should
consolidate variable interest entities. This interpretation applies
immediately to variable interest entities created after January 31, 2003. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 did
not have a material impact on the Company's financial statements.
During the year ended June 30, 2004, the Company adopted the following
Emerging Issues Task Force Consensuses: EITF Issue No. 00-21 "Revenue
Arrangements with Multiple Deliverables", EITF Issue No. 01 8 "Determining
Whether an Arrangement Contains a Lease", EITF Issue No. 02-3 "Issues Related
to Accounting for Contracts Involved in Energy Trading and Risk Management
Activities", EITF Issue No. 02-9 "Accounting by a Reseller for Certain
Consideration Received from a Vendor", EITF Issue No. 02-17, "Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination",
EITF Issue No. 02-18 "Accounting for Subsequent Investments in an Investee
after Suspension of Equity Method Loss Recognition", EITF Issue No. 03-1, "The
Meaning of Other Than Temporary and its Application to Certain Instruments",
EITF Issue No. 03-5, "Applicability of AICPA Statement of Position 9702,
'Software Revenue Recognition' to Non-Software Deliverables in an Arrangement
Containing More Than Incidental Software", EITF Issue No. 03-7, "Accounting
for the Settlement of the Equity Settled Portion of a Convertible Debt
Instrument That Permits or Requires the Conversion Spread to be Settled in
Stock", EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by
Resellers to Sales Incentives Offered to Consumers by Manufacturers.
l. Equity Securities
Equity securities issued for services rendered have been accounted for at the
fair market value of the securities on the date of issuance.
m. Concentrations of Risk
The Company maintains several accounts with financial institutions. The
accounts are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company's balances regularly exceed that amount.
Credit losses, if any, have been provided for in the financial statements and
are based on management's expectations. The Company's accounts receivable are
subject to potential concentrations of credit risk. The Company does not
believe that it is subject to any unusual risks, or significant risks in the
normal course of its business.
41
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Concentrations of Risk (Continued)
The Company has one customer who accounts for 11% of the accounts receivable
balance at June 30, 2004.
n. Stock Options
As permitted by FASB Statement 148 "Accounting for Stock Based Compensation -
Transition and Disclosure" (SFAS No. 148), the Company elected to measure and
record compensation cost relative to employee stock option costs in accordance
with Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock
Issued to Employees," and related interpretations and make proforma
disclosures of net income and earnings per share as if the fair value method
of valuing stock options had been applied. Under APB opinion 25, compensation
cost is recognized for stock options granted to employees when the option
price is less that the market price of the underlying common stock on the date
of grant.
o. Valuation of Options and Warrants
The valuation of options and warrants granted to unrelated parties for
services are measured as of the earlier of (1) the date at which a commitment
for performance by the counterparty to earn the equity instrument is reached,
or (2) the date the counterparty's performance is complete. Pursuant to the
requirements of EITF 96-18, the options and warrants will continue to be
revalued in situations where they are granted prior to the completion of the
performance.
p. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
NOTE 2 -STOCK SUBSCRIPTIONS RECEIVABLE
During the year ended June 30, 2004, $16,632 of the outstanding receivable and
accrued interest was collected in cash so that the balance at June 30, 2004
was $0.
NOTE 3 - RELATED PARTY TRANSACTIONS
On October 29, 1999, the Company entered into an exclusive license agreement
with the Company's President and two unrelated parties to license certain
intellectual property rights known as "Apparatus for Making Foam Products" and
"Method for Making Polyurethane Tires with an Outer Skin" embodied in United
States Patent No.'s 4,943,223 and 4,855,096, respectively. The Agreement
granted the Company an exclusive license to use, sell, license, or otherwise
exploit the technology worldwide in exchange for a royalty of $0.25 per unit
sold for all wholesale or retail sales of units produced utilizing the
technology. The Agreement also provided for certain minimum
production/royalty requirements following the first year in order to maintain
the exclusive license. The licensors have the option to terminate the
agreement should the Company fail to pay any required royalty when due or fail
to meet the minimum production/royalty requirements.
42
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 3 -RELATED PARTY TRANSACTIONS (Continued)
At October 2001, the Company had failed to produce and sell enough units
utilizing the technology to meet the minimum production/royalty requirements
outlined in the agreement. Therefore, the parties agreed to amend the original
agreement such that the Company issued the licensors 22,500 shares of its
restricted common stock in lieu of all royalty payments accrued through
December 31, 2001. According to the amended agreement, the Company agreed to
pay a royalty of $0.25 per unit sold utilizing the technology subsequent to
December 31, 2001, except for those sold for promotional purposes. The
Agreement was further amended such that in order to maintain the exclusive
license, the Company was required to sell units utilizing the technology in
the following minimum quantities:
Period Number of Units
------------------------------------ ---------------
January 1, 2002 to December 31, 2002 200,000
January 1, 2003 to December 31, 2003 300,000
January 1, 2004 to December 31, 2004 400,000
January 1, 2005 to December 31, 2005
and each calendar year thereafter 500,000
At October 2002, the Company failed to produce and sell enough units utilizing
the technology to meet the minimum production/royalty requirements outlined in
the amended Agreement for the third year. Therefore, the parties agreed to
again amend the Agreement to delete all provisions to maintain minimum sales
or royalties and to exclude any units that have a final production weight of
two (2) lbs. or less.
For the years ended June 30, 2004 and 2003, the Company incurred expenses of
$19,089 and $13,182, respectively, for royalties relating to this agreement.
Effective July 1, 2004, the Agreement was amended to eliminate the royalty
altogether in exchange for an aggregate of 15,000 shares of the Company's
restricted common stock as a one-time payment to the licensees for their
assignment and transfer of the technology to the Company. The closing price of
the Corporation's common stock as quoted on the OTC Bulletin Board on July 1,
2004 was $9.75 per share, for a value of $146,250. The expense associated with
the acquisition of the technology will be amortized over the remain life of
the applicable patents.
During June 2002, the Company entered into an agreement with Taylor and
Associates, Inc. (Taylor and Associates), whereby, in consideration for the
Company's employ of Elliott Taylor as its Executive Vice-President and to
compensate Taylor and Associates for the potential financial detriment that
might occur to it as the result of his employment by the Company, the Company
agreed to pay Taylor and Associates $2,750 per month for a period of 24
months, commencing on June 30, 2002 and continuing through May 31, 2004.
Elliott Taylor was the principal attorney for Taylor and Associates prior to
his employment by the Company.
During fiscal year 2003, the Company had outstanding stock subscription
receivables from related parties which were accruing interest at 8% per annum.
The Company recorded $15,547 in accrued interest as additional paid-in capital
for that year.
43
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
During October 2003, the Company issued 125,000 shares of common stock to its
Chief Executive Officer as compensation for the fiscal year ending June 30,
2004. The shares were valued at the market price on the date of issue, or
$3.78 per share.
During November 2003, the Company issued 40,000 shares of common stock (10,000
shares each) to four non-employee directors as prepayment for services from
December 1, 2004 through November 30, 2004. The shares were valued at the
market price on the date of issue, or $6.10 per share.
NOTE 4 -COMMITMENTS AND CONTINGENCIES
On February 18, 2000, the Company entered into a five-year lease agreement
related to a manufacturing facility in Las Vegas, Nevada beginning on March 1,
2000. The current monthly rental payment is $7,744 with annual increases
based on the Consumer Price Index. This facility is now subleased to an
unrelated party on a month to month basis at $3,872 per month. The Company
intends to vacate the premises at the end of February 2005, the expiration of
the original lease term.
In October 2002, the Company entered into a five-year lease for a 49,200
square foot executive/manufacturing facility in Boulder City, Nevada. The
Agreement required a security deposit of $18,000 and monthly rent payments of
$16,000 for the first twelve months with annual increases. At June 30, 2004,
the monthly rent was $16,500.
Future minimum lease payments under these two non-cancelable operating leases
are as follows:
2005 $ 264,452
2006 208,500
2007 214,500
2008 54,000
-------------
$ 741,452
=============
NOTE 5 -STOCK TRANSACTIONS
During the year ended June 30, 2003, the Company issued 2,762,175 shares of
its common stock for $4,459,350 in cash; 12,500 shares of its common stock for
$25,000 in stock subscription deposits; 200,000 shares for compensation of its
CEO valued at $424,000; 30,462 shares for the exercise of options for cash at
$40,000 and services valued at $23,572; 182,500 shares to consultants for
services and prepaid services valued at $360,675; 50,000 shares for a finders
fee in conjunction with the sale of common stock for cash, valued at $99,500;
and 4,500 shares for a $9,000 stock subscription deposit. The Company
cancelled 45,000 shares as a result of a net share settlement of a stock
subscription receivable.
44
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 5 -STOCK TRANSACTIONS (Continued)
During the year ended June 30, 2004, the Company issued 100,000 shares to a
consultant for prepaid services valued at $378,000; 125,000 shares for
compensation of its CEO valued at $472,500; 15,000 shares to employees for
services valued at $56,700; 40,000 shares for compensation of its non-employee
directors valued at $244,000; 634,000 shares for the exercise of options for
cash at $1,776,000; 22,000 shares to consultants for services rendered valued
at $144,760; and 108,300 shares to employees per our stock award plan valued
at $882,621.
NOTE 6 -STOCK OPTIONS
During August 2002, the Company's board of directors approved the "Amerityre
2002 Stock option and Award Plan," (Plan) to be effective April 1, 2002.
During November 2002, the Plan was ratified by the Company's shareholders at
the annual meeting. Under the terms of this Plan, the Company registered
2,000,000 shares of its $0.001 par value common stock at a proposed offering
price per share of $2.80. The proposed maximum aggregate offering price
totaled $5,600,000.
In October 2003, we issued options to acquire 30,000 shares of our common
stock to an employee. The options are exercisable at $3.80 per share (the
closing market price on the date of grant was $3.78 per share) and vested
7,500 shares on the date of grant; 7,500 shares on December 31, 2003; 7,500
shares on March 31, 2004; and 7,500 shares on June 30, 2004.
In January 2004, we issued options to acquire an aggregate of 60,000 shares of
our common stock to various employees. The options are exercisable at $6.70
per share (the closing market price on the date of grant was $6.69 per share),
vested immediately and expire on December 31, 2005.
During the year ended June 30, 2004 we issued 634,000 shares of our common
stock for cash of $1,776,000, in connection with the exercise of 130,000
outstanding stock options at $2.00 per share, 500,000 outstanding stock
options at $3.00 per share and 4,000 outstanding stock options at $4.00 per
share.
Through June 30, 2004, 1,536,461 options had been granted and 315,300 shares
had been awarded under the Plan. Exercise prices for the options range from
$2.00 to $6.80 per share and exercise terms range from two to five years. At
June 30, 2004, there are 148,239 shares available for the grant of additional
options or stock awards under the Plan.
45
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 6 - STOCK OPTIONS, Continued
A summary of the status of the Company's outstanding stock options as of June
30, 2004 and 2003 and changes during the years then ended is presented below:
2004 2003
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Outstanding, beginning of
year 2,466,000 $ 3.42 2,616,000 $ 3.42
Granted 90,000 5.73 260,461 2.01
Expired/Cancelled - - (380,000) 2.92
Exercised (634,000) 2.80 (30,461) 2.09
---------- ---------- ---------- ----------
Outstanding end of year 1,922,000 $ 3.66 2,466,000 $ 3.42
========== ========== ========== ==========
Exercisable 1,922,000 $ 3.66 2,466,000 $ 3.42
========== ========== ========== ==========
Outstanding Exercisable
----------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at June 30, Contractual Exercise at June 30, Exercise
Exercise Prices 2004 Life Price 2004 Price
---------- ---------- ---------- ---------- ---------- ----------
$ 2.00 150,000 0.75 $ 2.00 150,000 $ 2.00
3.00 500,000 1.08 3.00 500,000 3.00
3.80 30,000 2.25 3.80 30,000 3.80
4.00 1,182,000 1.12 4.00 1,182,000 4.00
6.70 60,000 1.50 6.70 60,000 6.70
---------- ---------- ---------- ---------- ----------
$ 2.00-6.70 1,922,000 1.11 $ 3.66 1,922,000 $ 3.66
========== ========== ========== ========== ==========
The Company estimates the fair value of each stock option at the grant date by
using the Black-Scholes option pricing model based on the following
assumptions:
For the Year Ended
June 30, 2004
------------------
Risk free interest rate 1.88% - 2.15%
Expected life 2 to 3 years
Expected volatility 72.05% - 79.53%
Dividend yield 0.00%
46
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 6 - STOCK OPTIONS, Continued
Of the 90,000 options issued during the fiscal year, all were issued to
employees and were accounted for under APB 25, "Accounting for Stock Issued to
Employees." All of these shares were issued either at or above the market
price of the Company's common stock on the date of issue and no compensation
expense was recognized. Had compensation cost for the issuance of the options
been determined based on the fair value at the grant dates consistent with the
method of FASB Statement 148, "Accounting for Stock Based Compensation -
Transition and Disclosure," the Company's net loss and loss per share would
have been increased to the pro forma amounts indicated below:
For the Years Ended
June 30,
2004 2003
----------- -----------
Net (loss) as reported $ (4,721,255) $ (3,091,972)
Pro forma (4,941,080) (3,293,264)
Basic (loss) per share as reported $ (0.26) $ (0.21)
Pro forma (0.28) (0.22)
NOTE 7 -GOING CONCERN
The Company's 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. The Company has historically incurred significant losses, which
have resulted in a retained deficit of $26,390,827 at June 30, 2004, which
raises substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result from the
outcome of this uncertainty. The Company's management has taken certain steps
to maintain its operating and financial requirements in an effort to enable
the Company to continue as a going concern until such time that revenues are
sufficient to cover expenses, including: (1) evaluating (A) our cost of goods
and equipment utilization and requirements of our manufacturing operations,
and (B) our sales and marketing plan on a product sector basis; (2)
incorporating revisions to our methods, processes and costs in order to
achieve necessary manufacturing efficiencies (i.e., line automation, reduced
material costs, reduced product waste, etc.); (3) seeking reduced material and
component costs from suppliers; (4) licensing manufacturing and marketing
rights to certain of our polyurethane tire products to third-party
manufacturers based on geographical locations and boundaries; (5) selling
manufacturing equipment to third-parties to manufacturer certain of our
polyurethane tire products; (6) selling our proprietary polyurethane chemical
systems to third-party manufacturers that utilize our manufacturing equipment;
(7) offering contract design and engineering services to the tire and auto
industries; (8) obtaining supplemental funding through exercise of outstanding
in the money options; (9) issuing common stock in lieu of cash as compensation
for employment, development, and other professional services; and (10) sale of
shares of common stock for cash in either in private placement or registered
offering.
47
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 7 -GOING CONCERN, Continued
We anticipate that during the upcoming fiscal year the Company will need
approximately $4,000,000 to implement our plan and to meet our working capital
requirements.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plan described above, and
eventually attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 8 - SUBSEQUENT EVENTS
Effective September 22, 2004, the Company entered into an agreement with
Centurion Holdings, LLC ("Centurion") that provides for Amerityre to form an
Advisory Group and for Centurion to provide the following services:
1. For a period of two years, commencing on September 22, 2004, Centurion
will consult with and assist the Company in connection with: (a) the
development of a 5-year operating strategy and a 3-year operating plan for the
Company that focuses on increasing the Company's market value based on
strategic partnering and technology licensing; (b) structuring the Company's
equity with a view toward placing equity securities for minimum offering
proceeds of $10,000,000; (c) obtaining a NASDAQ listing for its common stock,
and as such other matters as the Company's Board of Directors may determine
during the two year term and any extension thereof.
2. Lee Iacocca and Joseph Grano, Jr., will serve as Chairman and Vice-
Chairman, respectively, of the Company's Advisory Group for a minimum of two
years commencing as of the date hereof, to be extended for one additional year
on the mutual consent of the Company and the individuals.
3. The purpose of the Advisory Group is to provide advice to the Company's
Board of Directors with respect to the matters identified in paragraph 1 above
and such other matters as the Board of Directors shall determine from time to
time. The Advisory Group will consist of such other persons as may be
designated by the Board of Directors from time to time. The Advisory Group
shall have no policy-making power, no voting rights, and no management
authority with respect to the Company. The Advisory Group will meet at least
once per fiscal quarter and will provide a report to the Board of Directors
regarding the activities of the Advisory Group. Advisory Group members will
also be available for consultation with the Board of Directors from time to
time, as the Board of Directors requests.
4. The Company will pay to Centurion the following compensation: (a)
commencing on the last day of the month during which occurs the closing of the
sale by the Company of its equity securities or of securities convertible into
its equity securities in an amount (aggregating all such sales from and after
the date hereof) of $10,000,000, and on the last day of each month thereafter
until September 30, 2006, the Company will pay Centurion $41,667 per month;
(b) reimburse Centurion for all reasonable out-of-pocket expenses associated
with the performance by it of the services described herein, in an amount up
to a maximum of $250,000 per year; and (c) issue options to acquire an
aggregate of 3,000,000 shares of the Company's common stock.
48
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 8 - SUBSEQUENT EVENTS, Continued
5. The Name of the Option holders and the number of Option shares issuable
on exercise of the Options are set forth below:
Name of Option Holder Number of Option Shares
--------------------- -----------------------
Centurion Holdings, L.L.C. 1,300,000
Lee Iacocca 1,000,000
Nasser J. Kaseminy 650,000
Robert Guinta 50,000
6. The closing price per share of the Company's common stock on September
13, 2004, the date the Board of Directors authorized the grant of the Options
was $6.95. The exercise price for the Options is $7.00 per share (the
"Exercise Price"), subject to the terms, conditions and restrictions set forth
in the Options.
7. The Options are exercisable as follows: (a) one-third of the total
Options are exercisable on the earlier of September 13, 2006 or the first day
after the Closing Price of the Company's common stock has equaled or exceeded
a price equal to 150% of the Exercise Price for 20 consecutive trading days;
(b) one-third of the total Options are exercisable on the earlier of September
13, 2006 or the first day after the Closing Price has equaled or exceeded a
price equal to 175% of the Closing Price for 20 consecutive trading days; and
(c) one-third of the total Options are exercisable on the earlier of September
13, 2006 or the first day after the Closing Price has equaled or exceeded a
price equal to 200% of the Closing Price for 20 consecutive trading days.
8. All Options that are not exercised on or before September 12, 2009,
expire and will no longer be exercisable. "Closing Price" means (a) the
closing price of the common stock if the common stock is then traded on a
national securities exchange, (ii) the last sale price if the common stock is
then quoted on the NASDAQ National Market System or (iii) the average of the
closing representative bid and asked prices of the common stock as reported on
NASDAQ on the date as of which fair market value is being determined.
9. The options may be exercise by delivery to the Company of the option
price by check (bank check, certified check or personal check) in the amount
of the shares being purchased.
10. At any time or times after September 22, 2005, holders holding at least
two thirds of the options may make written request to the Company to register
all or a part of the option shares having a reasonably anticipated aggregate
offering price, net of underwriting discounts and commissions, that exceeds
$5,000,000. Also, if the Company determines to register any of its securities
either for its own account or the account of a security holder or holders,
other than a registration relating solely to employee benefit plans, or a
registration relating solely to a Rule 145 transaction, or a registration on
any registration form which does not permit secondary sales, the Company may
include the option shares in such registration.
49
AMERITYRE CORPORATION
Notes to the Financial Statements
June 30, 2004 and 2003
NOTE 8 - SUBSEQUENT EVENTS, Continued
Effective September 24, 2004, the Company agreed to extend until October 24,
2004, the Closing Date, for the Manufacturing and Distribution License
Agreement and related agreements (collectively, the "Agreement") between the
Company and Liberty Circle S.A., a Panamanian corporation ("Liberty Circle").
Under the terms of the Agreement, Liberty Circle was to have made an initial
payment of $3,125,000 of the approximately $6.5 million transaction by
September 3, 2004.
The Company had granted Liberty Circle an extension to September 24, 2004,
because of delays Liberty Circle had experienced related to the closing of its
acquisition of the real property in Panama, where Liberty Circle intends to
construct its manufacturing facility. Liberty has now requested that the
closing date be extended to October 24, 2004. Liberty Circle has represented
to the Company that it cleared title and closed the acquisition of the real
property in Panama, however, it has encountered delays associated with the
transfer of funds internationally and complying with the requirements of the
Patriot Act.
The Company agreed to extend the date for closing in exchange for payment of
an additional $500,000 under the terms of the Agreement, bringing the total
payments Amerityre is to received under the Agreement to $7.0 million.
In July 2004, we issued 213,000 shares of our common stock for cash of
$812,000, in connection with the exercise of 193,000 outstanding stock options
at $4.00 per share and 20,000 outstanding stock options at $2.00 per share.
Effective July 1, 2004, the Board of Directors authorized the issuance of
65,000 shares of restricted common stock to Richard A. Steinke, the Company's
President and Chief Executive Office as employment compensation from July 1,
2004 through June 30, 2005. The value of the shares was $598,000, based on the
closing price of $9.20 per share on the date of the board resolution.