This discussion and analysis contains forward-looking statements related to future events or our future financial performance or financial condition. Such statements are only predictions, and actual events or results may differ materially from the results discussed or implied in the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, the factors discussed in "Part I, Item 1A Risk Factors" and factors discussed elsewhere in this report. The historical results presented in this discussion and analysis do not necessarily represent any actual or projected future trends in financial performance. This discussion and analysis should be read in conjunction with the financial statements and related notes elsewhere in this report. Overview Amerityre is engaged in the R&D, manufacturing and sales of solid polyurethane foam and polyurethane elastomer tires. We have developed a unique polyurethane formula that allows us to manufacture products with superior performance characteristics in terms of wear resistance, energy efficiency and load-carrying capacity compared to traditional rubber tires. Our manufacturing process is more energy efficient than traditional rubber tire manufacturing processes, partly because our polyurethane compounds do not require the multiple processing steps, extreme heat and high pressure required to cure rubber. We believe that, compared with competitors' products, tires produced with our proprietary polyurethane formula have a longer service life, are less prone to failure and are more environmentally friendly. We focus our business on applications and markets. Our advantages in product technology, tire performance and customer service give us the opportunity to obtain high prices. Our product development and marketing efforts focus on building customer relationships and expanding sales with original equipment manufacturers and tire dealers. Our competitive advantage is to create unique product solutions for customers with challenging tire performance requirements that cannot be met by competitors' products. Closed-cell polyurethane foam tires-Sales of polyurethane foam tires to original equipment manufacturers, distributors and dealers account for the majority of our sales revenue. We produce tires of various sizes for the light tire market, including bicycle tires, trolley tires, mobile tires, lawn/garden tires, golf cart tires and light industrial vehicle tires. Although COVID-19 continues to have a negative impact on the overall US economy, our demand for polyurethane foam tires in the most recent quarter was higher than expected. Sales in the first quarter of fiscal year 2022 are 32.3% higher than sales in the first quarter of fiscal year 2021. We continue to see the strong sales trends we saw in fiscal 2021 because our current customer base is experiencing strong sales, and our domestic tires are attractive to new customers looking for domestic tire sources. Our industrial tire products Line, including our golf cart tires, 480 x 12 tires and 570 x 12 tires, the market demand continues to be strong. We expect this trend to continue in the next few quarters. Polyurethane elastomer tires-Our elastomer formulations are used to make tires that require a higher level of wear resistance and greater load-bearing capacity. Forklift tires constitute a large part of this market, and other industrial and agricultural applications represent other opportunities. The overall sales of our forklift tires are still very small, less than 0.1% of our total sales revenue. Price-sensitive consumers continue to favor imported solid rubber press-in forklift tires instead of our products, and we have not invested a lot of resources to promote this product line. We have been working with original equipment manufacturers ("OEMs") to use our elastomer formulations for large industrial equipment tires and agricultural applications, which may bring new sources of revenue in the future. Light-density elastomer tires-In applications that require higher abrasion resistance and load-carrying capacity than our polyurethane foam tires, there is a need for our light-density elastomer formula (ElastothaneTM 500). Lawn and garden tire applications continue to drive sales growth of this formula, although we have also seen some custom tire applications of this formula. We expect the sales of agricultural tires to continue to grow in the next few quarters, because the level of disposable income of farmers is higher than in previous years. However, economic challenges such as supply shortages may limit the expected benefits or our ability to take advantage of these benefits. We continue to engage with original equipment manufacturers and large distributors to promote and utilize our tires in certain applications, some of which are evaluating sample tires. We believe that investment in new and improved products is important to the continued growth and success of our overall business, and we will selectively invest in promising opportunities that our current financial model can support. We have several ongoing product evaluation plans, which may develop into important future businesses. We expect that our current R&D investments will continue to prove to be a prudent investment in our capital resources. 10
A major component of our strategic operating plan is to establish partnerships or other types of business mergers with larger original equipment manufacturers or tire manufacturers who will have greater distribution channels and financial resources to make the most of Our current tire portfolio and new products can be developed using our formula. The wide availability of capital in the market has increased equity investment and M&A activities in the market. We are open to discussions and will continue to seek opportunities that we believe will maximize the potential of our intellectual property and the overall value of our business. We continue to face supply chain issues and increased raw material and operating costs, which we expect will continue to put pressure on our gross profit margin. We will raise the price of tire components again in August 2021 to mitigate the impact of these cost increases. However, as evidenced by our lower gross margins this quarter, price increases have not succeeded in offsetting all cost increases this quarter. We will continue to closely manage the cost drivers of our business and take appropriate corrective measures, including further price increases if necessary. Our sales growth in the past year has been very strong. However, it is not clear whether the rising cost environment and correspondingly higher selling prices will affect the future demand of our products. As the existing supply chain issues are being resolved, it is expected that the supply of raw materials will remain an issue in the next few quarters. Although we still have a large backlog of business, if we cannot obtain raw materials in time, we may limit how many products we can produce. We have been in contact with suppliers to ensure that the negative supply impact is minimized, although in some cases this may cause Amerityre to incur higher material costs. As mentioned above, our product line covers different market segments, which are not relevant in terms of customer base, product distribution, market demand and competition. Our sales team consists of independent manufacturer representatives with internal sales support. The company's continued emphasis on appropriate product pricing continues to drive more profitable sales. Our website promotes our products to the market and provides online sales channels.
Factors affecting business results
Our operating expenses mainly include the following:
• Cost of sales, which mainly includes raw materials, components and the production of our products, including application labor costs and welfare costs, maintenance, facilities and other operating costs related to the production of our products; • Sales, general and administrative expenses, mainly including payments to us Employees’ salaries, commissions and related benefits, as well as related sales and management expenses, including professional expenses; • R&D expenses, which mainly include direct labor for research and development, equipment and materials for new product development and product improvement using our technology; • Consulting Expenses, mainly including external service fees paid to third parties; • Depreciation and amortization expenses incurred due to the depreciation of our property and equipment, including the amortization of our intangible assets; and Stock-based compensation expenses related to the equity award of the service. Key Accounting Policies Our discussion and analysis of financial conditions and operating results are based on our financial statements, which are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments about the reported amounts that affect assets, liabilities, income and expenses. We will continue to evaluate our estimates, including estimates related to uncollectible accounts receivable, inventory valuation, deferred compensation and contingencies. Our estimates are based on historical performance and various other assumptions that we believe are reasonable in this situation. These estimates allow us to make judgments about the book value of assets and liabilities that are not easily seen from other sources.
At present, we do not have any key accounting policies that require key management judgments and estimates on matters that may be uncertain.
Catalog Operating Performance Our management reviews and analyzes a number of key performance indicators to manage our business and evaluate the quality and potential variability of our sales and cash flow. These key performance indicators include: • Revenue after deducting returns and trade discounts, including product sales and services, is an indicator of our overall business growth and the success of our sales and marketing efforts; • Gross profit, which is the pressure of competitive pricing and the impact of our products Indicators of the cost of sales and the combination of products and license fees (if any); • the growth of the customer base, which is an indicator of the success of our sales efforts; and • the sales distribution of the products we provide. In view of the impact of COVID-19 on our business, the company has implemented price increases for most of its products from April 1, 2021. We have seen a significant increase in raw material prices in the past 10 months, partly due to supply chain disruptions caused by the COVID-19 pandemic. The winter storm in Texas in January 2021 shut down all polyol production lines for several weeks because these facilities need to be repaired and brought back online. Coupled with the decline in propylene production capacity associated with COVID-19, the company is fortunate to have enough materials to maintain operations, despite the significant increase in prices and quantities that limit our ability to fulfill orders in a timely manner. In the coming months, the shortage of other raw materials in the chemical market may continue or intensify. Therefore, it is not clear whether raw material prices will return to the low level in 2020 or even stabilize at the current high level. The management continues to monitor the situation and is prepared to further adjust product prices if necessary. The following paragraphs describe these factors and their impact on our business during the fiscal quarter ending September 30, 2021. The table below sets out our comparative fiscal measures in some key aspects of our operating results as of September 30, 2021 and the fiscal quarter of 2020. The comparison shown in the table is discussed in more detail below. For the three-month period ending September 30, the percentage change between 2021 and 2020 between 2021 and 2020 (in units of 000) Net income of USD 1,396 USD 1,051 32.8% Revenue cost (1,011) (708) 42.8% 1 5 R&D Expenses and 49 32 32) (20) 10.0% Sales and marketing expenses (68) (60) 13.3% General and administrative expenses (233) (210) 10.4% Asset disposal losses-(3) (100.0 )% Other income 3 4 (25.0 )% Net profit (loss) attributable to ordinary shareholders $ 65 $ 54 20.4%
Quarter ended September 30, 2021 compared to September 30, 2020
Net income. Net income for the quarter ended September 30, 2021 was US$1,395,614, an increase of 32.8% from the net income of US$1,051,286 for the same period in 2020. As we continue to respond to the challenges posed by the COVID-19 pandemic, these results have exceeded our expectations, including limited supply of raw materials, higher supply costs and other supply chain issues. We expect that our polyurethane foam products will continue to account for most of our future sales. 12
Cost of revenue. The cost of revenue for the quarter ended September 30, 2021 was $1,010,842 or 72.4% of sales, compared to $707,566 or 67.3% of sales for the same period in 2020. We have experienced higher raw material costs in the most recent quarter, especially chemical raw materials, which has put pressure on our gross profit margin. Our chemical suppliers informed us that due to the slow recovery of our raw material manufacturing capacity and increased market demand, prices may continue to rise in the coming months. The supply chain issues of sourcing materials from China have caused the cost of our steel rims to rise and long-term delays. We expect these unfavorable factors will continue to put pressure on our gross margin throughout the 2022 fiscal year. We have alleviated some of these problems by increasing the sales price of tires. However, if we are forced to refuse to sell because we are at an unprofitable price level, the continuous increase in raw material costs may result in a decrease in product sales. gross profit. Gross profit for the quarter ended September 30, 2021 was US$384,772, compared to US$343,720 in the same period in 2020, an increase of US$41,052 or 11.9% over the same period in 2020. The gross profit margin on September 30, 2021 is 27%. Compared with the 32.7% gross profit margin of product sales in 2020, the lower gross profit margin is due to higher raw material costs and higher transportation costs of materials purchased from overseas. Research and development expenses (R&D). Research and development expenses for the quarter ended September 30, 2021 were US$21,567, compared to US$20,471 for the same period in 2020. We continue to invest in product formulations and new product development where appropriate to support our business plans. Sales and marketing expenses. Sales and marketing expenses for the quarter ended September 30, 2021 were US$68,373, compared to US$59,800 for the same period in 2020. The difference between the periods reflects the higher commissions paid recently due to increased sales. General and administrative expenses. Due to rising salary costs, general and administrative expenses for the quarter ended September 30, 2021 were US$232,848, compared to US$210,486 for the same period in 2020. We continue to control costs and find more effective ways to carry out our business activities.
Other income, net. Other income for the quarter ended September 30, 2021 was $3,116, while other income for the same period in 2020 was $820.
net income. Net income for the quarter ended September 30, 2021 was $65,100, compared to $53,783 for the same period in 2020. Compared with the $11,317 in the first quarter of fiscal 2021, net income increased by 20.4%.
Cash Flow The table below shows our cash flow for the quarter ended September 30, 2021 and 2020. For the period ending September 30, (in units of 000), 2021, 2020
Net cash provided (used) by operating activities $94 $
(48) Net cash used in investing activities (134)
Net cash used in financing activities-
Net increase (decrease) in cash during the period $ (40) $
(48) The company has assessed its current cash position with respect to its future cash requirements and determined that its cash level is sufficient to meet its cash requirements. The company has large amounts of cash on hand and unused credit lines. These cash resources have been very important in the past year because of the increase in working capital requirements due to the increased time required to receive imported materials (paid when the manufacturer is ready to ship, rather than when the material is received for use by the manufacturer) . The company) and management decided to increase chemical inventory levels when additional materials were available for purchase. The company completed the upgrade of the production gating system in September 2021, which was fully paid for by cash reserves. 13
Our main sources of liquidity include cash on hand and payments received from customers. In February 2020, the company obtained a credit line of US$50,000 from a local community bank. As of September 30, 2021, the credit line has not been used. Historically, the current management team has been reluctant to seek financing on terms that would allow the company to bear high debt costs, or raise funds by selling equity at a price that we believe does not reflect the true value of the company.
Cash position, outstanding debt and future capital requirements
On November 10, 2021, our total cash balance was US$400,035, without any restrictions; accounts receivable was US$474,123; and inventory, deducting slow-moving or obsolete inventory reserves and other current assets were US$779,907. Our total liabilities, especially management’s review of cash management, were US$774,243, including accounts payable and accrued expenses of US$324,217, current portion of long-term debt of US$2,000, long-term debt of US$61,326 and total operating lease liabilities of US$386,700 . We continue to take actions to improve our liquidity and access to capital resources. The management continues to insist that under the current market environment, equity financing will be too diluted and not in the best interests of shareholders. We have successfully obtained a credit line from the bank. When assessing our liquidity, management reviews and analyzes our current cash, accounts receivable, accounts payable, capital expenditure commitments, cash requirements and other obligations. When preparing the financial statements for the fiscal year ending June 30, 2021, we analyzed the cash requirements for the next twelve months. Our conclusion is that our available cash and accounts receivable are sufficient to meet our current minimum working capital, capital expenditure and other cash requirements during this period. Although our business activities have increased significantly in recent quarters, there is no guarantee that the return of the COVID-19 virus will not cause disruption to our market, leading to a significant drop in customer demand. Although many government restrictions have been relaxed and the economy continues to open in more jurisdictions, the emergence of new variants of COVID-19 may lead to a possible comeback of the virus. This may impose new restrictions on our customers who are located in or provide services to these affected jurisdictions. The unfavorable consequences of the pandemic include continued disruption of the supply chain, resulting in material shortages and delays, and increased material costs. It is currently impossible to reasonably estimate the long-term financial impact on our business. Therefore, until the future period, the impact of COVID-19 may not be fully reflected in our financial performance. Please refer to "Item 1A-Risk Factors" in our annual report on Form 10-K for the fiscal year ending June 30, 2021 for the company's current major risks, including those related to COVID-19. If there is a new shutdown in the economy, reduced demand for our products, or other adverse effects on our business, we may not have enough working capital to meet demand in the next 12 months.
Companies sometimes take measures to incentivize the sales of slow-moving inventory through promotional pricing. In the next few quarters, we will continue to use these programs selectively to monetize inventory, promote individual product lines, and improve our cash flow.
As of November 12, 2021, the company has approximately 23,427,000 shares authorized for issuance. Although we are unwilling to raise funds through the sale of stocks that we consider to be dilutive, if necessary, we can use these authorized but unissued and unreserved common stocks to raise new funds.
We currently have no relationship with unconsolidated entities or financial partners, such as entities commonly referred to as structured financing or special purpose entities, which were established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes In addition, we do not engage in trading activities involving non-exchange-traded contracts. 14
Note on forward-looking statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about general economic conditions and agricultural markets, especially positive sales trends and the resulting profits. We intend to seek and participate in In a partnership or other arrangement with one or more original equipment manufacturers, we are based on the sales prospects of new products, such as the potential development of large-scale industrial and agricultural equipment tires, and price increases to cope with the increase in raw material costs and the availability and flow of capital sex. All statements in this report except statements of historical facts, including statements about our future financial status, liquidity, business strategy, and future operation and management plans and goals, are forward-looking statements. Words such as "believe", "probably", "estimate", "continue", "anticipate", "intend", "should", "plan", "may", "target", "potential", "probably" etc. , "Will", "expect" and similar expressions because they are related to us are intended to identify forward-looking statements. Our forward-looking statements are mainly based on our current expectations and forecasts of future events and financial trends. We believe These events and financial trends may affect our financial condition, operating performance, business strategy and financial needs. These forward-looking statements are subject to many risks, uncertainties and assumptions, including our financial status as of June 30, 2021. The risks, uncertainties and assumptions described in the annual report on Form 10-K. In addition, there are risks of economic impact from COVID-19 and supply chain disruptions that may be more severe or longer than we currently expect, especially when The emergence of new strains and the uncertainty of whether existing vaccines are effective against new strains, as well as the indecision of vaccines. In addition, there are increases in our prices or other challenges we face and the countermeasures we take may result in income The risk of declining, or any strategic partnership or business arrangement that fails to produce the expected positive results or lead to unintended adverse consequences, including due to potential friction between the two parties. New risk factors appear from time to time, and we cannot predict all such risks Factors, we are also unable to assess the impact of all such risk factors on our business or the extent of any risk factors, or risk factors that may cause actual results to differ materially from those contained in any forward-looking statement. Unless otherwise required by applicable law Otherwise, we do not undertake the obligation to publicly update or revise any forward-looking statements described in this report, whether due to new information, future events, changes in circumstances, or any other reasons after the date of this report. 15
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