OVERVIEW

This analysis of our results of operations should be read in conjunction with the accompanying financial statements. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Statements that are predictive in nature and that depend upon or refer to future events or conditions are forward-looking statements. Although we believe that these statements are based upon reasonable expectations, we can give no assurance that projections will be achieved. Please refer to the discussion of forward-looking statements included in Part I of this Report.





About RxAir

RxAir promotes a healthy lifestyle through the use of its innovative, patented ViraTech air purification technology, thereby improving the quality of life of each and every customer. Independently tested by EPA- and FDA-certified laboratories, the RxAir has been proven to destroy greater than 99% of bacteria and viruses and reduce concentrations of odors and VOCs. The RxAir uses high-intensity germicidal UV lamps that destroy bacteria and viruses instead of just trapping them, setting it apart from ordinary air filtration units. RxAir® and ViraTech® are registered trademarks of Vystar Corp. For more information, visit http://www.RxAir.com.

The Company's RxAir and UV Flu product line use 48 inches of high-intensity germicidal UV lamps that destroy bacteria, viruses and other germs instead of just trapping them, setting it apart from ordinary air filtration units. RxAir is one of the few UV air purifiers that have been proven in independent EPA- and FDA- certified testing laboratories to destroy on the first pass 99.6% of harmful airborne viruses and bacteria. In addition to inactivating airborne viruses that cause influenza (flu) and colds, RxAir's device disarms the airborne pathogens that cause MRSA (staph), strep (whooping cough), tuberculosis (TB), measles, pneumonia and a myriad of other antibiotic-resistant and viral infections.

The RxAir and UV Flu product line includes:





  ? RxAir™ Residential Filterless Air Purifier

  ? UV400 ™ FDA cleared Class II Filterless Air Purifier

  ? RX3000™ Commercial FDA cleared Class II Air Purifier

Vystar will continue production of the RxAir and UV Flu product line with a new world-class manufacturer and an expert U.S. engineer with a full understanding of the RxAir technology. Vystar plans to sell RxAir residential and commercial units via distributors, online and through retail channels. Vystar is assembling the distribution network to relaunch sales of UV400 and Rx3000 units to the healthcare and medical markets, which UV Flu had ceased due to a lack of sales force, distribution and cash flow constraints. Once production and sales are firmly re-established, Vystar expects that the air purification products will produce margins of approximately 70%.





About Rotmans

Rotmans, the largest furniture and flooring store in New England and one of the largest independent furniture retailers in the U.S., encompassing over 200,000 square feet in Worcester, Mass., and employing 70 people, was founded and has been under the leadership of the Rotman family for the past 50 years. Rotmans is expected to add approximately $25 million annually to Vystar's top line revenue and enable Vystar to capitalize on the infrastructure already in place for accounting, retail sales facilities and staff, customer service, warehousing, and delivery. Significant marketing and advertising opportunities are available for all of Vystar's brands to Rotmans' thousands of existing customers. As CEO of both Rotmans and Vystar, Steven Rotman provides continuity of management and customer-focused values for the Company.

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted in significant economic disruption and adversely impacted our business. We closed the Rotmans showroom on March 24. At that time, most of our team members were furloughed. During this period, we paid the cost of enrolled health benefits of those furloughed. We successfully reopened the showroom on June 10. As we restart many aspects of our operation, we will work closely with local authorities and follow the guidance of the Centers for Disease Control and Prevention ("CDC"), implementing enhanced cleaning measures, social distancing and the utilization of face masks for the safety of team members, customers and communities.





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In addition, the COVID-19 pandemic has caused, among other things, interruptions in our supply chains and suppliers, including potential problems with inventory availability and the potential result of the volatility or higher cost of product and international freight due to the high demand of products and low supply for an unpredictable period of time.

As the COVID-19 pandemic is complex and rapidly evolving, we cannot reasonably estimate the duration and severity of the pandemic and its impact on our business, results of operations, financial position and cash flows.





RESULTS OF OPERATIONS



Comparison of the Three Months Ended September 30, 2020 with the Three Months
Ended September 30, 2019



                                                  Three Months Ended September 30,
                                       2020             2019           $ Change        % Change

                                                            CONSOLIDATED

Revenue                            $  5,544,563     $  6,040,201     $   (495,638 )          -8.2 %

Cost of revenue                       2,527,403        3,378,220         (850,817 )         -25.2 %

Gross profit                          3,017,160        2,661,981          355,179            13.3 %

Operating expenses:
Salaries, wages and benefits          1,535,449        1,223,879          311,570            25.5 %
Share-based compensation                716,161          305,673          410,488           134.3 %
Agent fees                              579,750                -          579,750             0.0 %
Professional fees                       311,514          153,965          157,549           102.3 %
Advertising                             469,383          495,421          (26,038 )          -5.3 %
Rent                                    300,965          259,930           41,035            15.8 %
Service charges                         132,542          200,212          (67,670 )         -33.8 %
Depreciation and amortization           249,834          158,409           91,425            57.7 %
Other operating                         892,239        1,073,793         (181,554 )         -16.9 %

Total operating expenses              5,187,837        3,871,282        1,316,555            34.0 %

Loss from operations                 (2,170,677 )     (1,209,301 )       (961,376 )          79.5 %

Other income (expense):
Interest expense                       (430,711 )       (195,142 )       (235,569 )         120.7 %
Change in fair value of
derivative liabilities                  143,000                -          143,000           100.0 %
Loss on settlement of debt, net      (1,419,461 )       (339,875 )     (1,079,586 )         317.6 %
Loss on legal settlement               (101,000 )              -         (101,000 )           0.0 %
Other income, net                        15,316            7,956            7,360            92.5 %

Total other expense, net             (1,792,856 )       (527,061 )     (1,265,795 )         240.2 %

Net loss                             (3,963,533 )     (1,736,362 )     (2,227,171 )         128.3 %

Net loss attributable to
noncontrolling interest                 372,759           63,802          308,957           484.2 %

Net loss attributable to Vystar $ (3,590,774 ) $ (1,672,560 ) $ (1,918,214 ) 114.7 %






Revenues

Revenues for the three months ended September 30, 2020 and 2019 were $5,544,563 and $6,040,201, respectively, for a decrease of $495,638 or 8.2%. The decrease in revenues was due to the impact of COVID-19 during the quarter. The Company's showroom, although open for the entire quarter had significantly lower sales volume then the third quarter of 2019. We cannot estimate the full impact of COVID-19 on revenues at this time.





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The Company reported a significant increase in gross profit to $3,017,160 for the three-month period ended September 30, 2020 compared to gross profit of $2,661,981 for the three-month period ended September 30, 2019, an increase of $355,179. The cost of revenue for the three months ended September 30, 2020 and 2019 was $2,527,403 and $3,378,220, respectively, a decrease of 25.2%. The increase in gross profit is primarily due to a change in purchasing. Merchandise is being purchased in large quantities from fewer vendors.





Operating Expenses

The Company's operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as advertising, rent and other operating expenses. The Company's operating expenses were $5,187,837 and $3,871,282 for the three months ended September 30, 2020 and 2019, respectively, an increase of $1,316,555 or 34.0%. The increase was due in part to fees incurred under an agreement with a third-party agent to assist the Company with a high-impact sale at Rotmans.





Other Income (Expense)

Other expense for the three months ended September 30, 2020 was $1,792,856, which primarily consisted of interest expense of $430,711, loss on settlement of debt, net of $1,419,461, change in fair value of derivative liabilities of $143,000, loss on legal settlement of $101,000 and other income of $15,316. This compares to other expense of $527,061 for the three months ended September 30, 2019, which primarily consisted of interest expense of $195,142, loss on settlement of convertible notes payable of $339,875 and other income of $7,956.





Net Loss

Net loss was $3,963,533 and $1,736,362 for the three months ended September 30, 2020 and 2019, respectively, an increase of $2,227,171. The larger net loss the Company experienced in the quarter ended September 30, 2020 versus the same period in 2019 was due to increased expenses from the operations of Rotmans, an increase in share-based compensation and legal fees and a loss on settlement of debt.





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Comparison of the Nine Months Ended September 30, 2020 with the Nine Months
Ended September 30, 2019



                                                  Nine Months Ended September 30,
                                       2020             2019           $ Change        % Change

                                                            CONSOLIDATED

Revenue                            $ 13,865,707     $  6,417,431     $  7,448,276           116.1 %

Cost of revenue                       6,450,421        3,789,186        2,661,235            70.2 %

Gross profit                          7,415,286        2,628,245        4,787,041           182.1 %

Operating expenses:
Salaries, wages and benefits          3,655,162        1,223,879        2,431,283           198.7 %
Share-based compensation              1,024,788        2,406,409       (1,381,621 )         -57.4 %
Agent fees                              635,919                -          635,919             0.0 %
Professional fees                       855,397          525,950          329,447            62.6 %
Advertising                           1,150,540          539,000          611,540           113.5 %
Rent                                    894,275          259,930          634,345           244.0 %
Service charges                         360,465          202,116          158,349            78.3 %
Depreciation and amortization           737,682          258,513          479,169           185.4 %
Other operating                       2,161,852        1,407,598          754,254            53.6 %

Total operating expenses             11,476,080        6,823,395        4,652,685            68.2 %

Loss from operations                 (4,060,794 )     (4,195,150 )        134,356            -3.2 %

Other income (expense):
Interest expense                     (1,646,104 )       (335,208 )     (1,310,896 )         391.1 %
Change in fair value of
derivative liabilities                 (336,900 )     (1,044,250 )        707,350           -67.7 %
Loss on settlement of debt, net      (1,419,461 )       (327,433 )     (1,092,028 )         333.5 %
Loss on legal settlement               (101,000 )              -         (101,000 )           0.0 %
Other income, net                        35,990            7,802           28,188           361.3 %

Total other expense, net             (3,467,475 )     (1,699,089 )     (1,768,386 )         104.1 %

Net loss                             (7,528,269 )     (5,894,239 )     (1,634,030 )          27.7 %

Net loss attributable to
noncontrolling interest                 703,846           63,802          640,044          1003.2 %

Net loss attributable to Vystar $ (6,824,423 ) $ (5,830,437 ) $ (993,986 ) 17.0 %






Revenues

Revenues for the nine months ended September 30, and 2019 were $13,865,707 and $6,417,431, respectively, for an increase of $7,448,276 or 116.1%. The significant increase in revenues was due to the acquisition of Rotmans in July of 2019, which was partially offset by the impact of COVID-19 as the Rotmans showroom was closed from March 24 through June 10. During this period, the Company processed limited customer deliveries for prior orders and web sales and subsequent to this period, sales have not returned to pre-COVID-19 levels.

The Company reported a significant increase in gross profit to $7,415,286 for the nine-month period ended September 30, 2020 compared to gross profit of $2,628,245 for the nine-month period ended September 30, 2019, an increase of $4,787,041. The cost of revenue for the nine months ended September 30, 2020 and 2019 was $6,450,421 and $3,789,186, respectively, an increase of 70.2%. The increase is due to a change in merchandise buying in the third quarter of 2020. The Company is now buying items in large quantity rather than special order items.





Operating Expenses

The Company's operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as advertising, rent and other operating expenses. The Company's operating expenses were $11,476,080 and $6,823,395 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $4,652,685 or 68.2%. The increase was due to the acquisition of Rotmans in July of 2019.





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Other Income (Expense)

Other expense for the nine months ended September 30, 2020 was $3,467,475, which primarily consisted of interest expense of $1,646,104, loss on settlement of debt of 1,419,461, change in fair value of derivative liabilities of $336,900, loss on legal settlement of $101,000 and other income of $35,990. This compares to other expense of $1,699,089 for the nine months ended September 30, 2019, which consisted of change in fair value of derivative liabilities of $1,044,250, interest expense of $335,208, loss on settlement of convertible notes payable of $327,433 and other income of $7,802.





Net Loss

Net loss was $7,528,269 and $5,894,239 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $1,634,030. The larger net loss the Company experienced in the nine months ended September 30, 2020 versus the same period in 2019 was due to increased revenues and gross profit from the operations of Rotmans which was partially offset by the impact of COVID-19 as the showroom was closed from March 24 through June 10, and an increase in interest expense due to amortization of debt discount of $721,000. The Company cannot reasonably estimate the effect of COVID-19 on its net loss at this time.

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial statements are prepared using the accrual method of accounting in accordance with U.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, we have incurred significant losses and experienced negative cash flow since inception. At September 30, 2020, the Company had cash of $71,913 and a deficit in working capital of approximately $10.2 million. Further, at September 30, 2020, the accumulated deficit amounted to approximately $47.9 million. We use working capital to finance our ongoing operations, and since those operations do not currently cover all of our operating costs, managing working capital is essential to our Company's future success. Because of this history of losses and financial condition, there is substantial doubt about the Company's ability to continue as a going concern.

A successful transition to profitable operations is dependent upon obtaining sufficient financing to fund the Company's planned expenses and achieving a level of revenue adequate to support the Company's cost structure.

Management plans to finance future operations using cash on hand, as well as increased revenue from RxAir air purifier sales and Vytex license fees. The Company will also raise capital with common stock subscription issuances and has raised $714,500 through September 30, 2020. In May, the Company entered into a sale promotion consulting agreement with a national sales event company to assist its recovery with a high-impact sale and monetary advance. The agreement has allowed Rotmans to meet its financial obligations through the shutdown and is expected to give the Company flexibility and time needed to develop a new retail furniture sale model.

There can be no assurances that we will be able to achieve projected levels of revenue in 2020 and beyond. If we are not able to achieve projected revenue and obtain alternate additional financing of equity or debt, we would need to significantly curtail or reorient operations during 2020, which could have a material adverse effect on our ability to achieve our business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.

Our future expenditures will depend on numerous factors, including: the rate at which we can introduce RxAir products and license Vytex NRL raw material and the foam cores made from Vytex to manufacturers and subsequently retailers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, along with market acceptance of our products, and services and competing technological developments. As we expand our activities and operations, our cash requirements are expected to increase at a rate consistent with revenue growth after we achieve sustained revenue generation.





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Sources and Uses of Cash

Net cash used in operating activities was $2,353,944 for the nine months ended September 30, 2020 as compared to net cash used in operating activities of $1,090,903 for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, cash used in operations was primarily due to the net loss for the period of $7,528,269 net of non-cash related add-back of share-based compensation expense, depreciation, amortization, amortization of debt discount, loss on settlement of debt and change in fair value of derivative liabilities.

The Company had cash used in investing activities of $133,878 during the nine months ended September 30, 2020 as compared to $10,019 for the nine months ended September 30, 2019.

Net cash provided by financing activities was $2,487,380 during the nine months ended September 30, 2020, as compared to cash provided of $1,115,092 during the nine months ended September 30, 2019. During the nine months ended September 30, 2020, cash was used in the net repayment on line of credit of $210,200, term debt in the amount of $794,106, finance lease obligations of $128,464, offset by proceeds from issuance of term debt of $2,211,400, stock subscription receivable of $49,250, advances from stock subscription payable of $714,500 and related party loan of $645,000.

The Company plans to service its current debt from profitability on RxAir product sales and equity infusions.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that may be reasonably likely to have a current or future material effect on our financial condition, liquidity, or results of operations.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; product development, introduction and acceptance; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

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