UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:

December 31, 2008

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________.

Commission file number:  000-50053

AMERITYRE CORPORATION

(Exact name of small business issuer as specified in its charter)

NEVADA	87-0535207
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1501 INDUSTRIAL ROAD, BOULDER CITY, NEVADA	89005
(Address of principal executive offices)	(Zip Code)

(702) 294-2689

(Issuer’s telephone number)

  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.  Yes ý  No ¨

  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨        Accelerated filer          Non-accelerated filer    ý       Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  Noý

 The number of shares outstanding of Registrant’s Common Stock as of February 4, 2009: 23,439,595

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a complete presentation of our financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

Our unaudited balance sheet at December 31, 2008 and our audited balance sheet at June 30, 2008; the related unaudited statements of operations for the three and six month periods ended December 31, 2008 and 2007; and the related unaudited statements of cash flows for the six month periods ended December 31, 2008 and 2007, are attached hereto.

AMERITYRE CORPORATION
Balance Sheets
ASSETS		Dec. 31, 2008			June 30, 2008
		(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	361,211		$	1,701,191
Accounts receivable – net		530,899			494,690
Inventory		805,291			819,403
Deposit on equipment		93,623			147,047
Deferred stock offering costs		5,000			-
Prepaid and other current assets		128,946			140,241
Total Current Assets		1,924,970			3,302,572
PROPERTY AND EQUIPMENT
Construction in progress		7,564			7,564
Leasehold improvements		162,683			162,683
Molds and models		509,058			495,214
Equipment		2,901,620			2,901,620
Furniture and Fixtures		100,142			100,142
Software		286,046			286,046
Less – accumulated depreciation		(2,950,991)			(2,831,691)
Total Property and Equipment		1,016,122			1,121,578
OTHER ASSETS
Patents and trademarks – net		665,945			658,534
Deposits		71,568			71,568
Total Other Assets		737,513			730,102
TOTAL ASSETS	$	3,678,605		$	5,154,252
The accompanying notes are an integral part of these financial statements.

AMERITYRE CORPORATION
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY		Dec. 31, 2008			June 30, 2008
		(unaudited)
CURRENT LIABILITIES
Accounts payable	$	283,355		$	212,467
Accrued expenses		37,417			111,205
Deferred revenue – special projects		2,687			9,451
Total Current Liabilities		323,459			333,123
TOTAL LIABILITIES		323,459			333,123
STOCKHOLDERS’ EQUITY
Preferred stock: 5,000,000 shares authorized of $0.001 par value, -0-   shares issued and outstanding		-			-
Common stock: 40,000,000 shares authorized of $0.001 par value,     23,439,595 and 23,429,595 shares issued and outstanding, respectively		23,437			23,427
Additional paid-in capital		56,513,260			56,275,163
Accrued interest on subscription notes receivable		(1,409)			(25,480)
Subscription notes receivable		(439,502)			(399,329)
Stock subscription deposits		320,562			-
Deferred consulting and directors’ compensation		-			(33,331)
Retained deficit		(53,061,202)			(51,019,321)
Total Stockholders’ Equity		3,355,146			4,821,129
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,678,605		$	5,154,252
The accompanying notes are an integral part of these financial statements.

AMERITYRE CORPORATION
Statements of Operations
(unaudited)
			For the Three Months  Ended December 31,
		2008			2007
NET REVENUES
Products	$	663,983		$	474,019
Equipment		48,000			-
Licenses		-			60,001
Total Net Revenues		711,983			534,020
COST OF REVENUES
Products		484,985			303,340
Equipment		45,526			-
Total Cost of Revenues		530,511			303,340
GROSS PROFIT		181,472			230,680
EXPENSES
Consulting		132,359			144,185
Depreciation and amortization		64,791			70,636
Research and development		68,689			156,285
Loss on impairment of assets		2,305			551
Selling, general and administrative		929,096			951,000
Total Expenses		1,197,240			1,322,657
LOSS FROM OPERATIONS		(1,015,768)			(1,091,977)
OTHER INCOME
Interest income		9,784			59,703
Miscellaneous income		11,867			352
Total Other Income		21,651			60,055
NET LOSS	$	(994,117)		$	(1,031,922)
BASIC AND DILUTED LOSS PER SHARE	$	(0.04)		$	(0.04)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		23,453,725			23,393,272
The accompanying notes are an integral part of these unaudited financial statements.

AMERITYRE CORPORATION
Statements of Operations
(unaudited)
			For the Six Months  Ended December 31,
		2008			2007
NET REVENUES
Products	$	1,393,656		$	1,086,849
Equipment		137,911			-
Licenses		33,333			110,000
Total Net Revenues		1,564,900			1,196,849
COST OF REVENUES
Products		970,239			768,303
Equipment		132,898
Total Cost of Revenues		1,103,137			768,303
GROSS PROFIT		461,763			428,546
EXPENSES
Consulting		268,857			175,105
Depreciation and amortization		134,656			151,271
Research and development		176,312			314,456
Loss on impairment of assets		2,305			462
Selling, general and administrative		1,959,789			2,038,383
Total Expenses		2,541,919			2,679,677
LOSS FROM OPERATIONS		(2,080,156)			(2,251,131)
OTHER INCOME
Interest income		28,763			128,696
Miscellaneous income		9,510			579
Total Other Income		38,273			129,275
NET LOSS	$	(2,041,883)		$	(2,121,856)
BASIC AND DILUTED LOSS PER SHARE	$	(0.09)		$	(0.09)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		23,445,736			23,412,640
The accompanying notes are an integral part of these unaudited financial statements.

AMERITYRE CORPORATION
Statements of Cash Flows
(unaudited)
		For the Six Months Ended  December 31,
		2008		2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,041,883)	$	(2,121,856)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation & amortization expense		134,656		151,271
Loss on impairment of assets		2,305		462
Bad debt expense		5,345		-
Common stock issued/accrued  for services		25,765		62,368
Stock options for services		71,384		42,083
Stock-based compensation expense related to employee options		140,959		172,959
Interest income on subscription notes receivable		(16,102)		(21,410)
Amortization of expense prepaid w/ common stock		33,331		31,666
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable		(41,554)		1,328
Decrease  (Increase) in prepaid expenses		12,544		(64,135)
Decrease  (Increase) in other assets		47,175		(6,154)
Decrease  (Increase) in inventory		14,111		(67,414)
(Decrease) in accounts payable and accrued expenses		(9,663)		(190,428)
Net Cash Used by Operating Activities		(1,621,627)		(2,009,260)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for patents and trademarks		(21,077)		(28,188)
Proceeds from the sale of property and equipment		-		744
Purchase of property and equipment		(17,839)		(24,333)
Net Cash Used by Investing Activities		(38,916)		(51,777)
CASH FLOWS FROM FINANCING ACTIVITIES
Stock subscription deposits		320,562		-
Net Cash Provided by Financing Activities		320,562		-
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,339,981)		(2,061,037)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,701,191		5,788,602
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	361,211	$	3,727,565
The accompanying notes are an integral part of these unaudited financial statements.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2008 and June 30, 2008

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations.  The information furnished in the interim condensed financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  Although we believe the disclosures and information presented are adequate to make the information not misleading. These interim condensed financial statements should be read in conjunction with our most recent audited financial statements and notes thereto included in our June 30, 2008 Annual Report on Form 10-K.  Operating results for the three and six months ended December 31, 2008 are not necessarily indicative of the results that may be expected for the current fiscal year ending June 30, 2009.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Liquidity

Our financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have historically incurred significant losses which have resulted in a total retained deficit of $53,061,202 at December 31, 2008.  Although for the fiscal years ended June 30, 2006, 2007 and 2008, we have losses from operations and have used cash in our operating activities in excess of our revenues, we have had little, if any, debt and have consistently had a positive net tangible book value. In connection with the preparation of our financial statements for the year ended June 30, 2008, we analyzed our cash needs for fiscal 2009. Based on this analysis, we concluded that our available cash will not be sufficient to meet our current working capital, capital expenditure and other cash requirements for fiscal 2009.  In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations.

Although we have effected reductions in operation costs during the six-month period ended December 31, 2008, which have helped to reduce our cash requirements, for the remaining six-months of this fiscal year, we estimate we will need an additional $500,000 to $1,000,000 in working capital. At December 31, 2008, we had $320,562 in stock subscription deposits related to the sale of our equity securities and subsequent to December 31, 2008, we raised approximately $139,805 in additional stock subscriptions for combined offering subscriptions of $460,367. (See NOTE 6 – SUBSEQUENT EVENTS.) Our ability to obtain further financing through the offer and sale of our securities is subject to market conditions and other factors beyond our control. We cannot assure you that we will be able to obtain financing on favorable terms or at all.  If our cash is insufficient to fund our business operations, our business operations could be adversely affected in the event we do not obtain additional financing and are unable to obtain such funding when needed.   Insufficient funds may require us to delay, scale back or eliminate expenses and or employees. If we cannot generate adequate sales of our products, or increase our revenues through other means, then we may be forced to cease operations.

Stock Based-Compensation Expense

On July 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”). Our financial statements as of and for the six month periods ended December 31, 2008 and 2007 reflect the impact of SFAS 123(R).  Stock-based compensation expense recognized under SFAS 123(R) for the six month periods ended December 31, 2008 and 2007 was $140,959 and $172,959, respectively, related to employee stock options issued during the respective periods.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Statement of Operations. Stock-based compensation expense recognized in our Statements of Operations for the three and six month periods ended December 31, 2008 and 2007 assumes all awards will vest, therefore no reduction has been made for estimated forfeitures.

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2008 and June 30, 2008

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Basic and Fully Diluted Net Loss Per Share

Basic and Fully Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period.

	For the Six Months Ended December 31,
	2008		2007
Loss (numerator)	$	(2,041,883)	$	(2,121,856)
Shares (denominator)		23,445,736		23,412,640
Per share amount	$	(0.09)	$	(0.09)

Our outstanding stock options have been excluded from the basic and fully diluted net loss per share calculation. We excluded 5,102,370 and 3,985,000 common stock equivalents for the six month periods ended December 31, 2008 and 2007, respectively, because they are anti-dilutive.

Income Tax

We file federal income tax returns in the U.S. and state income tax returns in those state jurisdictions where we are required to file. With few exceptions, we are no longer subject to U.S. federal, state or and local income tax examinations by tax authorities for years before June 30, 2004. We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on July 1, 2007, the first day of our current fiscal year. As a result of the implementation of Interpretation 48, no adjustment should be made for unrecognized tax benefits.  There are no tax positions included in the balance at December 31, 2008 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.  Our policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.

NOTE 3 - STOCK OPTIONS AND WARRANTS

General Option Information

During the six month period ended December 31, 2008, we did not grant any options. During the six month period ended December 31, 2007, we granted options to acquire an aggregate of 250,000 shares of our common stock to certain employees and consultants in connection with their employment (the “Employment Options”). The Employment Options granted during the six month period ended December 31, 2007 vest annually over a period of one to two years based on the employee’s continued employment. The exercise price for the Employment Options granted during the period was $4.04 per share.  We use the Black-Scholes model to value stock options. The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions, including volatility of our stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because we do not pay dividends, the dividend rate variable in the Black-Scholes model is zero.

We estimated the fair value of the stock options at the grant date based on the following weighted average assumptions:

	For the six month period ended December 31, 2008		For the six month period ended December 31, 2007
Risk free interest rate	N/A		4.64%
Expected life	N/A		5 years
Expected volatility	N/A		55%
Dividend yield	N/A		0%

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2008 and June 30, 2008

NOTE 3 - STOCK OPTIONS AND WARRANTS (Continued)

A summary of the status of our outstanding stock options as of December 31, 2008 and June 30, 2008 and changes during the periods then ended is presented below:                                                       

	December 31, 2008			June 30, 2008
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Outstanding beginning of period	4,260,000	$6.34		3,915,000	$	6.81
Granted	-	-		525,000	$	2.89
Expired/Cancelled	-	-		(180,000)	$	6.51
Exercised	-	-		-		-
Outstanding end of period	4,260,000	$6.34		4,260,000	$	6.34
Exercisable	3,835,000	$6.75		3,835,000	$	6.75

The following table summarizes the range of outstanding and exercisable options as of December 31, 2008:

	Outstanding			Exercisable
Range of Exercise Prices	Number Outstanding at Dec. 31, 2008	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable at Dec. 31, 2008	Weighted Average Exercise Price
$1.79	200,000	4.37	$1.79	-	$    -
2.02	75,000	4.25	2.02	-	-
3.55	25,000	1.04	3.55	25,000	3.55
4.04	250,000	3.62	4.04	100,000	4.04
4.31	30,000	1.18	4.31	30,000	4.31
5.36	150,000	1.50	5.36	150,000	5.36
6.40	105,000	0.96	6.40	105,000	6.40
6.60	425,000	1.50	6.60	425,000	6.60
7.00	3,000,000	0.70	7.00	3,000,000	7.00
$1.79-$7.00	4,260,000	1.23	6.34	3,835,000	6.75

As of December 31, 2008, the unrecognized stock-based compensation related to stock options was approximately $356,761. This cost is expected to be expensed over a period of 2.50 years.

General Warrant Information

The following table summarizes outstanding warrants to purchase our common stock at December 31, 2008.

Number of Warrants Outstanding at December 31, 2008	Expiration Date	Exercise Price
102,825	2/1/2009	$5.00
103,825	2/1/2011	$5.50
510,720	March 2009	$4.50
550,000	5/1/2009	$4.50
1,267,370

AMERITYRE CORPORATION

Notes to the Unaudited Financial Statements

December 31, 2008 and June 30, 2008

NOTE 4 - STOCK ISSUANCES

In December 2008, we approved the issuance of an aggregate of 10,000 shares (5,000 shares each) of our restricted common stock to two of our former non-employee Directors as additional compensation for their board services for the period from December 31, 2007 to November 30, 2008. The value of the shares was $3,000, based on the closing price of $0.30 per share. The shares were issued in January 2009.

At December 31, 2008, we had received $320,562 in stock subscription deposits related to the February 2009 private placement of our securities.  (See Note 6 – SUBSEQUENT EVENT).

NOTE 5 - INVENTORY

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

	Dec. 31, 2008 (Unaudited)		June 30, 2008
Raw Materials	$	249,469	$	275,282
Finished Goods	$	555,822	$	544,120
Total Inventory	$	805,291	$	819,402

NOTE 6 – SUBSEQUENT EVENT

Effective February 5, 2009, the Company completed the private placement of its securities in the form of units (the “Units”) at a price of $1.00 per Unit for an aggregate purchase price of $460,367 (the “February 2009 Private Placement’). Each Unit consists of four (4) shares of common stock and one (1) warrant to purchase one share of common stock, exercisable for two years at an exercise price of $0.50 per share.  The Company sold an aggregate of 455,955 Units, or 1,823,820 shares and 455,955 warrants.  Certain of the Company’s Directors participated in the offering and purchased an aggregate of 25,155 Units for aggregate cash proceeds of $29,563.70, or an average of approximately $1.175 per Unit, which amount represents a price in excess of the per share market value of the our Common Stock at the time of purchase.

Reference is made to the Company’s current report on Form 8-K filed on May 3, 2007 relating to a private placement of units sold pursuant to a (i) Securities Purchase Agreement, dated as of April 30, 2007, among the Company, Enable Growth Partners LP (“Enable Growth”), Enable Opportunity Partners LP (“Enable Opportunity”), and Pierce Diversified Strategy Master Fund LLC (“Pierce” and, together with Enable Growth and Enable Opportunity, the “Buyers”); (ii) Registration Rights Agreement, dated as of April 30, 2007, among the Company and the Buyers; and (iii) Form of Warrant to Purchase Common Stock (collectively the “Enable Transaction Documents”).  

Pursuant to the Enable Transaction Documents, the Company issued to the Buyers warrants to purchase up to 550,000 shares of the Company’s common stock (the “Initial Warrants”).  For so long as any of the Initial Warrants remain outstanding and at such time as the Company sells shares of common stock at a purchase price less than the exercise price of the Initial Warrants (a “Dilutive Issuance”), the Company is required to issue to the Buyers additional warrants (“Anti-Dilution Warrants”) and to set the exercise price of the Initial Warrants and the Anti-Dilution Warrants at the same price per share as the shares of common stock the Company sold in the February 2009 Private Placement.  Accordingly, the Company is obligated to reduce the exercise price of the Initial Warrants to  $0.25 per share and also issue  Anti-Dilution Warrants to purchase up to an additional 994,577 shares of the Company’s common stock at an exercise price of $0.25 per share.  The Initial Warrants and the Anti-Dilution Warrants will expire on May 1, 2009.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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

 

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

  

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

    

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

  

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

  

  •   We are subject to customer credit risk.

  

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

 

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

  

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

Overview and Recent Developments

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

improved fuel economy.  

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

Low duty tires – We recently announced that Supergrip, a leading distributor of superior commercial grade industrial and mining tires, has selected us to manufacture and supply a new line of long-wearing, flat-proof polyurethane tires. The tires will be manufactured in multiple sizes for a variety of commercial applications using the unique, proprietary polyurethane formulations developed by Amerityre.  The tires will be orange in color and carry the Supergrip brand name. We anticipate that we will make our first delivery of Supergrip tires in February 2009.

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

Tire fill and Tire Fill Equipment – Through research and testing, we have found that our Amerifill® material is not compatible with most tire fill equipment in use today. Therefore, our customers must also acquire the necessary tire fill equipment to use our materials. In order to penetrate this market we are supplying our customers with tire fill equipment at a price slightly above our cost. We intend that profits from this initiative will be derived from the sale of Amerifill® to our customers. Since launching this program in the spring of 2008 we have completed shipment of six (6) light-weight fill machines.

  

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

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

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

Factors Affecting Results of Operations

Our operating expenses consisted primarily of the following:

·

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

·

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

·

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

·

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

·

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

·

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

Critical Accounting Policies

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

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

Revenue Recognition

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

Valuation of Intangible Assets and Goodwill

At December 31, 2008, we had capitalized patent and trademark costs totaling $665,945.  The patents which have been granted are being amortized over a period of 20 years.  Patents which are pending or are being developed are not amortized until a patent has been issued.  We evaluate the recoverability of intangibles and review the amortization period on a continual basis utilizing the guidance of Statement of Financial Accounting Standards “SFAS” No. 142, "Goodwill and Other Intangible Assets."  We test our patents and trademarks for impairment at least annually and whenever events or changes in circumstances indicated that the carrying value may not be recoverable.  We consider the following indicators, among others, when determining whether or not our patents are impaired:

·

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

·

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

·

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

·

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

·

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

·

current expectations that, more likely than not, the patents will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Inventory

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

Stock-Based Compensation

Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of authorization.  On July 1, 2005, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”).  SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model.  The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Statement of Operations. Under SFAS 123(R), stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The stock-based compensation expense recognized under SFAS 123(R) for the six month periods ended December 31, 2008 and 2007 was $140,959 and $172,959, respectively, and assumes all awards will vest.  Therefore, no reduction has been made for estimated forfeitures.

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

Results of Operations

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

·

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

·

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

·

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

·

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

·

Distribution of revenue across our products offered.

The following summary table presents a comparison of our results of operations for the three and six month periods ended December 31, 2008 and 2007 with respect to certain key financial measures.  The comparisons illustrated in the table are discussed in greater detail below.

		Three Months Ended Dec. 31,					Six Months Ended Dec. 31,
		2008		2007	Change		2008		2007	Change
Net revenues (1)	$	711,983	$	534,020	33.3%	$	1,564,900	$	1,196,849	30.7%
Cost of revenues	$	530,511	$	303,340	74.9%	$	1,103,137	$	768,303	43.6%
Gross profit	$	181,472	$	230,680	(21.3%)	$	461,763	$	428,546	7.7%
Selling, general, and administrative expenses (2)	$	929,096	$	951,000	(2.3%)	$	1,959,789	$	2,038,383	(3.8%)
Consulting (3)	$	132,359	$	144,185	(8.2%)	$	268,857	$	175,105	53.5%

Research and development expenses	$	68,689	$	156,285	(56.0%)	$	176,312	$	314,456	(43.9%)
Depreciation and amortization expenses	$	64,791	$	70,636	(8.3%)	$	134,656	$	151,271	(10.9%)
Loss on sales and impairment of assets	$	2,305	$	551	318.3%	$	2,305	$	462	398.9%
Other Income	$	21,651	$	60,055	(63.9%)	$	38,273	$	129,275	(70.4%)
Net loss	$	(994,117)	$	(1,031,922)	(3.6%)	$	(2,041,883)	$	(2,121,856)	(3.7%)

(1) For the three and six months ended December 31, 2008 the amounts include zero and $33,333, respectively, of license revenue with no associated cost of revenues for the period. Includes $60,001 and $110,001, respectively, of license revenue in the three and six months ended December 31, 2007 with no associated cost of revenues for the period.

(2) Includes deferred compensation for employee stock options of $70,480 and $92,764 in the three month periods ended December 31, 2008and 2007 respectively, and deferred compensation for employee stock options of $140,959 and $172,959 in the six month periods ended December 31, 2008and 2007 respectively.

(3) For the six months ended December 31, 2008 this amount includes $53,123 for the pro rata value of the stock option granted to Mr.

Steinke during the period for services pursuant to a consulting agreement dated September 1, 2007. It also includes $18,261, representing the pro rata value of the stock option granted to Mr. Chacon during the period for services pursuant to a consulting agreement dated May 1,

2008. For the six months ended December 30, 2007 this amount includes $42,082 for the pro rata value of the stock option granted to Mr. Steinke.

 

Three Month Period Ended December 31, 2008 Compared to December 31, 2007

Net revenues.   We had net revenues of $711,983 for the three month period ended December 31, 2008, a 33% increase over net revenues of $534,020 for the three month period ended December 31, 2007. The 33% increase as compared with 2007 is due to a combination of an increase in product and new equipment sales offset by a decrease in license fees.  Sales of our closed-cell polyurethane foam products ($663,983) and equipment ($48,000) accounted for approximately 93% and 7%, respectively, of our net revenues for the three month period ended December 31, 2008. Sales of our closed-cell polyurethane foam products ($474,019) and license revenues ($60,000) accounted for approximately 89% and 11%, respectively, of our net revenues for the three month period ended December 31, 2007.

The $663,983 of foam product revenues represents a 40% increase compared to $474,019 for the same period in 2007.  During the reporting period, we increased our number of product units sold to our original equipment manufacturer, retail chain and distributor customers by 30% over the three month period ended December 31, 2007, despite an overall weakness in U.S. consumer markets in 2008.

We had no revenues derived from licensing fees compared to $60,001 for the three month period ended December 31, 2007. The decrease in license fees is a result of reaching the end of the license fee arrangement with our Chinese OTR retread licensee. During the three month period ended December 31, 2008, our Chinese OTR retread licensee paid us $20,000 towards its outstanding licensee fee obligation and informed us that no further payments would be forthcoming until the licensee’s financial condition improved. At December 31, 2008, our Chinese OTR retread licensee owed us $230,000. Other than the outstanding licensee fees, any additional revenue we may derive from our Chinese OTR retread licensee will come from the sale of equipment and/or chemical systems once international economic conditions improve enough for the licensee to commence production of OTR retreads.

For the three month period ended December 31, 2008, we had $48,000 of revenues derived from sales of tire fill equipment, or approximately 7% of total net revenues. We had no revenue derived from sales of equipment for the three month period ended December 31, 2007.

Also during the three month period ended December 31, 2008 we had $4,104 and $4,886 of returns of our products and trade discounts, respectively, compared to $4,131 and $2,763, respectively, for the same period in 2007.

Cost of revenues.  Our cost of revenues of $530,511 for the three month period ended December 31, 2008, representing approximately 74.5% of net revenues, compared to cost of revenues of $303,340 or approximately 57% of net revenues for the three month period ended December 31, 2007.

For the three month period ended December 31, 2008 our cost of revenues related to foam products was $484,985, or 73% of foam product revenues, compared to $303,340, or 64% of foam product revenues for the same

three month period in 2007. The increase in our cost of revenues over the prior comparative period was a result of increased raw material costs. However, we do not expect our raw material costs to continue to increase during the balance of the fiscal year because our raw material costs have recently started to decline.  As, a result, we believe that our cost of revenues related to foam products will decease. In addition, we believe our increased sales efforts will generate additional product orders so that we can take advantage of manufacturing efficiencies associated with operating our factory at higher capacities.  We believe we currently have sufficient foam product manufacturing equipment and employees to accomplish a substantial increase in production without incurring a proportionately equivalent increase in labor costs.

During the three month period ended December 31, 2008 our cost of revenues related to equipment sales was $45,526, or approximately 95% of equipment sales. As indicated in the Overview and Recent Developments section above, in order to penetrate the tire fill market, we are supplying our customers with tire fill equipment effectively at our cost. We anticipate that profits from this initiative will be derived from the sale of tire fill material to our customers.

Gross Profit.  For the three month period ended December 31, 2008 we had $181,472 of gross profit compared to $230,680 for the same period in 2007.  Gross profit for the three month period ended December 31, 2008 decreased by $49,208, or 21%, over same period in 2007 due primarily to the increased raw material costs over the first part of this quarter.

Selling, General, and Administrative Expenses.  For the three month period ended December 31, 2008 we had $929,096 of SG&A expenses, including the amortization of deferred compensation, compared to $951,000 for the same period in 2007.  We amortized $70,480 of deferred compensation for the three month period ended December 31, 2008 compared to $92,764 for same period in 2007.  We expect our quarterly SG&A expenses to decrease during the balance of the 2009 fiscal year as a result of overall cost reduction measures currently being implemented in multiple areas, including annual board compensation, employee compensation, employee health insurance,  corporate governance  expenses, advertising and outside services.

Research and Development Expenses.  For the three month period ended December 31, 2008 we had $68,689 of research and development expenses compared to $156,285 for the same period in 2007.  Our research and development expenses for the three month period ended December 31, 2008, decreased by $87,596, or 56%, as compared with the same period in 2007 due primarily to a decrease in outside testing services and a reduction in research and development tooling expenses during the period.  We intend to closely monitor our research and development costs so that our expenditures more specifically relate to products that can be commercialized in the relatively short term and as a result we expect research and development expenses to continue to decrease over the balance of the fiscal year ending June 30, 2009 as compared to the prior fiscal year.

Consulting Expenses.  For the three month period ended December 31, 2008, we had $132,359 in consulting expenses compared to $144,185 in consulting expenses for the same period in 2007.  Our consulting expenses for the three month period ended December 31, 2008, decreased slightly by $11,826, or 8% as compared with the same period in 2007. We expect consulting expenses for the balance of the fiscal year to be consistent with the three month period ended December 31, 2008.

Depreciation and Amortization Expenses.  For the three month period ended December 31, 2008 we had $64,791 of depreciation and amortization expenses compared to $70,636 for the same period in 2007.  Our depreciation and amortization expenses for the three month period ended December 31, 2008 decreased by $5,845, or 8%, compared to the same period in 2007, due to reductions for fully depreciated assets.

Net Loss.  For the three month period ended December 31, 2008 we had a net loss of $994,117 compared to a net loss of $1,031,922 for the same period in 2007.  Our net loss for the three month period ended December 31, 2008 decreased by $37,805 as compared with the same period in 2007, due primarily to the increase in product sales and cost reduction measures described above.

Six Month Period Ended December 31, 2008 Compared to December 31, 2007

Net revenues.   We had net revenues of $1,564,900 for the six month period ended December 31, 2008, a 30% increase over net revenues of $1,196,849 for the six month period ended December 31, 2007. The 30% increase as compared with 2007 is due to a combination of an increase in product and new equipment sales offset by a decrease in license fees.  Sales of our closed-cell polyurethane foam products ($1,393,656), equipment ($137,911)

and licensee fees ($33,333) accounted for approximately 89%, 9% and 2%, respectively, of our net revenues for the six month period ended December 31, 2008.

The $1,393,656 of foam product revenues represents a 28% increase compared to $1,086,849 for the same period in 2007.  During the reporting period, we increased our number of product units sold to our original equipment manufacturer, retail chain and distributor customers by 20% over the six month period ended December 31, 2007, despite an overall weakness in U.S. consumer markets in 2008.

We had $33,333 of revenues derived from licensing fees compared to $110,000 for the six month period ended December 31, 2007. The decrease in license fees is a result of reaching the end of the license fee arrangement with our Chinese OTR retread licensee. Any additional revenue we may derive from our Chinese OTR retread licensee will come from the sale of equipment and/or chemical systems, provide international economic conditions improve enough for the licensee to commence production of OTR retreads.

For the six month period ended December 31, 2008, we had $137,911 of revenues derived from sales of tire fill equipment, or approximately 10% of total net revenues. We had no revenue derived from sales of equipment for the six month period ended December 31, 2007.

Also during the six month period ended December 31, 2008 we had $20,887 and $7,494 of returns of our products and trade discounts, respectively, compared to $12,158 and $6,454 respectively, for the same period in 2007.

Cost of revenues.  Our cost of revenues of $1,103,137 for the six month period ended December 31, 2008, representing approximately 70% of net revenues, compared to cost of revenues of $768,303 or approximately 64% of net revenues for the six month period ended December 31, 2007.

For the six month period ended December 31, 2008 our cost of revenues related to foam products was $970,239, or 69% of foam product revenues, compared to $768,303, or 70% of foam product revenues for the same six month period in 2007. During the six month period ended December 31, 2008 our cost of revenues related to equipment sales was $132,898, or approximately 96% of equipment sales. As indicated in the Overview and Recent Developments section above, in order to penetrate the tire fill market we are supplying our customers with tire fill equipment effectively at our cost. We anticipate that profits from this initiative will be derived from the sale of tire fill material to our customers.

Gross Profit.  For the six month period ended December 31, 2008 we had $461,763 of gross profit compared to $428,546 for the same period in 2007.  Gross profit for the six month period ended December 31, 2008 increased slightly by $33,217, or 7.7%, over same period in 2007 due primarily to the increase in foam product and equipment sales offset by a decrease on license fees. Because our profit margin on licensee fees (with no associated cost of revenues) and foam products is substantially higher than our profit margin on equipment, our gross profit margin in future periods will be influenced by the percent of total revenues derived from foam product sales, equipment sales and licensee fees, respectively.

Selling, General, and Administrative Expenses.  For the six month period ended December 31, 2008 we had $1,959,789 of SG&A expenses, including the amortization of deferred compensation, compared to $2,038,383 for the same period in 2007.  We amortized $140,959 of deferred compensation for the six month period ended December 31, 2007 compared to $172,959 for same period in 2007.  We expect our quarterly SG&A expenses to decrease during the balance of the 2009 fiscal year as a result of overall cost reduction measures implemented during the three month period ended December 31, 2008.

Research and Development Expenses.  For the six month period ended December 31, 2008 we had $176,312 of research and development expenses compared to $314,456 for the same period in 2007.  Our research and development expenses for the six month period ended December 31, 2008, decreased by $138,144, or 44%, as compared with the same period in 2007 due primarily to a decrease in outside testing services and a reduction in research and development tooling expenses during the period.  We expect research and development expenses to slightly decrease over the balance of the fiscal year ending June 30, 2009.

Consulting Expenses.  For the six month period ended December 31, 2008, we had $268,857 in consulting expenses compared to $175,105 in consulting expenses for the same period in 2007.  Our consulting expenses for the six month period ended December 31, 2008, increase by $93,752, or 53% as compared with the same period in 2007 due primarily to our consulting agreement with our former CEO, Richard Steinke and our former Chief Chemical Systems Formulator, Manuel Chacon. We expect consulting expenses for the balance of the fiscal year to be

consistent with the six month period ended December 31, 2008.

Depreciation and Amortization Expenses.  For the six month period ended December 31, 2008 we had $134,656 of depreciation and amortization expenses compared to $151,271 for the same period in 2007.  Our depreciation and amortization expenses for the six month period ended December 31, 2008 decreased by $16,615, or 11%, compared to the same period in 2007, due to reductions for fully depreciated assets.

Net Loss.  For the six month period ended December 31, 2008 we had a net loss of $2,041,883 compared to a net loss of $2,121,856 for the same period in 2007.  Our net loss for the six month period ended December 31, 2008 decreased by $79,973 as compared with the same period in 2007, due primarily to the increase in product sales.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and cash equivalents and payments received from our customers.  We have no long-term liabilities, and we do not have any significant credit arrangements.  Historically, our expenses have exceeded our revenues, resulting in operating losses.  From time to time, we have obtained additional liquidity to fund our operations through the sale of shares of our common stock.  In assessing our liquidity, our management reviews and analyzes our current cash balances on-hand, short-term investments, accounts receivable, accounts payable, capital expenditure commitments and other obligations.

Cash Flows

The following table sets forth our cash flows for the six month periods ended December 31, 2008 and 2007.

		Six Months Ended December 31,
		2008							2007
Net cash used by operating activities		$	(1,621,628		)				$	(2,009,260	)
Net cash used in investing activities		(38,915			)				(51,777		)
Net cash provided by financing activities		320,562							-
Net (decrease) increase in cash and cash equivalents during period		$		(1,339,981	)				$	(2,061,037	)

Net Cash Used By Operating Activities.  Our primary sources of operating cash during the six month period ended December 31, 2008 was proceeds from finance activities and collected accounts receivable.  Our primary uses of operating cash are payments made to our vendors and employees. Net cash used by operating activities was $1,621,628 for the six months ended December 31, 2008 compared to $2,009,260 for the same period in 2007.  The decrease in cash used in operating activities is due to decreases in prepaid expenses, other assets and inventory for the six months ended December 31, 2008 compared to the same period in 2007.  Non-cash items include depreciation and amortization and stock based compensation. Our net loss was $2,041,883 for the six months ended December 31, 2008 compared to a net loss of $2,121,855 for the same period in 2007.  Net loss for the six month period ended December 31, 2008 included non-cash expenses of $140,959 for stock-based compensation related to employee stock options, $71,384 for the issuance of a stock option for consulting services, $25,765 for stock issued/accrued for services.  Net loss for the six month period ended December 31, 2007 included non-cash expenses of $172,959 for stock-based compensation related to employee stock options.

Net Cash Used In Investing Activities.  Net cash used by investing activities was $38,915 for the six month period ended December 31, 2008 and $51,777 for the same period in 2007.  Our primary uses of investing cash for the six month period ended December 31, 2008 were $21,077 deposits on patents and trademarks and $16,148 for property and equipment.  Our primary use of investing cash for the six month period ended December 31, 2007 was $28,188 for patents and trademarks and $23,589 related to property and equipment.

 

Net Cash Provided by Financing Activities.  During the six months ended December 31, 2008 financing activities provided net cash of $320,562 for the issuance of common stock for cash. During the six months ended December 31, 2007, we did not engage in any financing activities.

Cash Position, Outstanding Indebtedness, and Future Capital Requirements

Our total indebtedness at December 31, 2008 was $323,459 and our total cash and cash equivalents were $361,211, none of which is restricted. Our total indebtedness at December 31, 2008 includes $283,355 in accounts payable, and $40,104 in accrued expenses and deferred revenues. We have no long-term liabilities.

In an effort to increase revenues, we have recently expanded our product lines and begun the sale of polyurethane foam tire fill and solid polyurethane elastomer tires. In the past, we offered aggressive sales projections based on our assessment of our planned sales initiatives. Despite the overall downturn experienced in both the U.S. and international economies over the past several quarters, we believe the increased revenues reported for the three and six month periods ended December 31, 2008 are only beginning to reflect our progress toward our sales projections, which we anticipate will become more apparent during our fiscal year ending June 30, 2009. In view of these conditions, our ability to continue as a going concern is dependent upon our ability to obtain additional financing or capital sources, to meet our financing requirements, and ultimately to achieve profitable operations.

Although we believe that we will successfully implement our business plan to provide for additional revenues to offset operating costs, management cannot give any assurances that it will be able to do so or that we will ever operate profitably.  Our business plan assumes, among other things, that our revenues will increase from the sale of the new product lines, our raw materials expenses may increase, and our expenses from operations will decrease due to the cost reduction measures currently being implemented.   

 At December 31, 2008, we had approximately $361,211 available to finance our operations which includes $320,562 in stock subscription deposits related to the sale of our equity securities. Subsequent to December 31, 2008, we have raised an additional approximately $139,805 in additional stock subscriptions, for combined offering subscriptions of $460,367.  (See NOTE 6 – SUBSEQUENT EVENTS.)  Although we have effected reductions in operation costs during the six-month period ended December 31, 2008, which have helped to reduce our cash requirement, for the remaining six-months of this fiscal year, we estimate we will need an additional $500,000 to $1,000,000 in working capital. To help reduce our cash needs, we intend to offer, where appropriate, shares of our common stock in lieu of cash as compensation for employment, development and other professional services when possible and seek project funding for business and technology development outside our core operations. Our ability to obtain further financing through the offer and sale of our securities is subject to market conditions and other factors beyond our control. We cannot assure you that we will be able to obtain financing on favorable terms or at all.  If our cash is insufficient to fund our business operations, our business operations could be adversely affected in the event we do not obtain additional financing and are unable to obtain such funding when needed.   Insufficient funds may require us to delay, scale back or eliminate expenses and or employees. If we cannot generate adequate sales of our products, or increase our revenues through other means, then we may be forced to cease operations.

Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other commercial commitments at December 31, 2008.

		Payments due by period
		Total			Less than 1 year					1 to 3 years			3 to 5 years			After 5 years
		(in thousands)
Facility lease (1)		$	1,143,900			$	295,200			$	848,700		$	—			$	—
Total contractual cash obligations		$	1,143,900			$	295,200			$	848,700		$	—		$		—

(1)  In November 2007, we negotiated an extension of the lease for our executive and manufacturing facilities located at 1501 Industrial Road, Boulder City, Nevada.  The property consists of a 49,200 square foot building, which includes approximately 5,500 square feet of office space, situated on approximately 4.15 acres.  The extension term of the lease is 5 years expiring November 14, 2012.  The base rent is $24,600 per month subject to annual adjustments based on the consumer price index.

Off-Balance Sheet Arrangements

We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating 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.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS 141(R), Business Combinations, an amendment of SFAS 141, which provides additional guidance on business combinations including defining the acquirer, recognizing and measuring the identifiable assets acquired and the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS Nos. 141(R) is scheduled to become effective for us for financial statements issued for fiscal year 2009.  We are currently evaluating the effects, if any, that this statement will have on our future financial position, results of operations and operating cash flows.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, which amended ARB 51, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160 is scheduled to become effective for us for financial statements issued for fiscal year 2009.  We are currently evaluating the effects, if any, that this statement will have on our future financial position, results of operations and operating cash flows.

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how the instruments are accounted for under SFAS No. 133 and its related interpretations, and how the instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (fiscal year 2009 for the Company). The Company is currently evaluating the potential impact of the adoption of SFAS No. 161 on its disclosures in the Company's financial statements.

In May of 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This statement identifies literature established by the FASB as the source for accounting principles to be applied by entities which prepare financial statements presented in conformity with generally accepted accounting principles (GAAP) in the United States.  This statement is effective 60 days following approval by the SEC of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”  This statement will require no changes in the Company’s financial reporting practices.

In May of 2008 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 163, “Accounting for Financial Guarantee Insurance – an interpretation of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises”.  This statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation.  This statement also clarifies how Statement 60 applies to financial guarantee insurance contracts.  This statement is effective for fiscal years beginning after December 15, 2008.  This statement has no effect on the Company’s financial reporting at this time.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in prevailing market interest rates affecting the return on our investments but do not consider this interest rate market risk exposure to be material to our financial condition or results of operations.  We invest primarily in United States Treasury instruments with short-term (less than one year) maturities.  The carrying amount of these investments approximates fair value due to the short-term maturities.  Under our current policies, we do not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage our exposure to changes in interest rates or commodity prices.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and our principal financial officer, concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Investors should carefully review and consider the information regarding certain factors which could materially affect our business, operating results, cash flows and financial position set forth under Item 1A. “Risk Factors” in our Fiscal 2008 Form 10-K. Other than the new risk factor below relating to the effects of the recession in the U.S. and general downturn in the global economy, we do not believe that there have been any material changes to the risk factors previously disclosed in our Fiscal 2008 Form 10-K. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem not to be material may also impair our business operations.

     The effects of the recession in the U.S. and general downturn in the global economy, including financial market disruptions, could have an adverse impact on our business, operating results or financial position. The U.S. economy is in recession and there has been a general downturn in the global economy. A continuation or worsening of these conditions, including the ongoing credit and capital markets disruptions, could have an adverse impact on our business, operating results or financial position in a number of ways. For example:

  •   We may experience declines in revenues and cash flows as a result of reduced orders, payment delays or other factors caused by the economic problems of our customers and prospective customers.

  

  •   We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and customers.   

  •   We may incur increased costs or experience difficulty with about ability to borrow in the future or otherwise with financing our operating, investing (including any future acquisitions) or financing activities.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

.ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our Annual Meeting of Stockholders was held in the Sunset Room at the Sunset Station Hotel and Casino, 1301 West Sunset Road, Henderson, Nevada 89014, on December 5, 2008, at 10:00 am, Pacific Time, to:

1. Elect eight directors to serve until the 2008 Annual Meeting of Stockholders; and

2. Ratify the selection of HJ & Associates, LLC as the Company’s independent auditor for the Company’s fiscal year ending June 30, 2009.

The results of the voting were as follows:

1. Directors	For	Against	Withheld
Louis M. Haynie	15,921,779	2,011,031	492,050
Henry D. Moyle	16,138,746	1,856,577	429,537
Wesley G. Sprunk	16,152,241	1,845,582	427,037
Fred D. Olsen	15,955,383	2,042,410	418,981
Steve M. Hanni	17,849,981	155,898	418,981
David M. Brown	14,526,822	2,759,706	1,138,332
Frank E. Dosal	17,943,728	59,651	421,481
Gary N. Benninger	17,943,728	62,151	418,981
2. Ratify HJ & Associates, LLC	16,565,173	42,037	1,817,649

A total of 18,424,860 shares were represented at the meeting in person or by proxy, or approximately 78% of the total 23,454,595 shares eligible to vote.

ITEM 5.  OTHER INFORMATION

Subsequent to the Annual Meeting of Stockholders, we announced the voluntary resignation of two directors, Fred Olson and David Brown, effective December 15, 2008, because we determined to enact cost-cutting measures that included a reduction in board compensation and size.  In keeping with that decision, Mr. Olson and Mr. Brown each expressed willingness to resign from the board at that time.

ITEM 6.  EXHIBITS

Exhibit 31.01 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

Exhibit 31.02 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

Exhibit 32.01 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Exhibit 32.02 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 13, 2008

AMERITYRE CORPORATION

/S/GARY N. BENNINGER

Gary N. Benninger

Chief Executive Officer

/S/ANDERS A. SUAREZ

Anders A. Suarez

Chief Financial Officer and

Principal Accounting Officer