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.
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The Company's RxAir 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 product line includes:
? RxAir® Residential Filterless Air Purifier
? RX400 ™ FDA cleared Class II Filterless Air Purifier
? RX3000™ Commercial FDA cleared Class II Air Purifier
Vystar produces the RxAir product line with a new world-class manufacturer and
an expert U.S. engineer with a full understanding of the RxAir technology.
Vystar sells RxAir residential and commercial units through multiple
distributors and the Company's website. Once distribution channels are firmly
established, Vystar expects the air purification products will produce margins
of approximately 70%.
Since the onset of the COVID-19 global pandemic the population of the United
States has searched for answers to the aspect of the virus being transmissible
both airborne and upon infected skin contacting body membranes. RxAir has proven
to be a viable option for both individual purchasers as well as groups whose
members and/or employees could be a safe return to "prior normalcy" whatever
that definition is. Additionally, Vystar has contracted with numerous school
districts and state education departments to supply units on a broad scale.
Accompanying those opportunities are also various modes of distribution through
established national distributors.
With the ongoing variants associated with COVID-19 and the potential for a
future outbreak of a different version of COVID, Vystar remains poised to
produce additional units to combat airborne illnesses as deemed appropriate
based on need and efficacy.
Vystar's Board of Directors have approved preliminary plans to spin off the Air
Purification product lines into a separate legal entity which Vystar intends to
take public. Vystar anticipates retaining approximately 20% of the shares in the
new entity and will distribute the remaining ownership percentage to Vystar
shareholders. This plan is expected to be executed in first quarter 2022.
About Rotmans
Rotmans, one of the largest independent furniture retailers in the U.S.,
encompassing over 170,000 square feet in Worcester, Mass., and employing
approximately 80 people, was founded and has been under the leadership of the
Rotman family for the past 50 years. Rotmans is expected to add approximately
$20 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.
With the end of the high impact closing to remodel sale, management is focusing
its efforts on creating a more efficient, streamlined store with an enhanced web
presence.
About Vytex
Vytex is a multi-patented latex raw material in which the allergy causing
proteins are reduced to a level that falls at or below detection based on ASTM
approved test methods. Vytex has been available as a raw material commercially
for ten years and through that time has a dedicated group of manufacturers who
use it in end products such as electrical gloves, condoms, adhesives, etc.
Ironically, most use Vytex as it's better for their manufacturing process as an
easier to use raw material and not for protein properties. As of mid-2020 Vystar
and the Indian Rubber Manufacturers Research Association's (IRMRA) have been
actively collaborating to develop viscoelastic deproteinized natural rubber
(DPNR) variants having properties for expanding applications in specific new
arenas such as green tires, biodegradable and other unique bioelastoplast
product lines that desire a new approach. Additionally, this research, while
slowed by the COVID-19 pandemic, has also shown attributes with extra low
ammonia offerings that are desired and now sampled.
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Towards the end of 2020, Vystar entered into a Market Development and
Distribution Agreement with Corrie MacColl, Ltd. (CMC Global) to produce,
develop and manage the Vytex product and supply lines. This agreement will allow
Vystar to expand the market for its Natural Rubber Latex products and has
garnered much attention across a broad range of industries including liquid
Vytex as well as the newly developed dry rubber Vytex. As of the date of this
report, CMC Global has provided numerous opportunities that are in a trial basis
or moving towards manufacturing trials in industries that use a significant
amount of natural rubber latex, hence Vytex. Also as Vystar uses its
relationships in the foam arena that endeavor is now in the sampling mode as
well. Additionally Vystar now has a testing supply of Vytex dry rubber for
larger trials. Both the foam and dry rubber projects in addition to other
sustainability projects proposed by manufacturers wanting a more natural end
product are proceeding and on track for a solid 2022. The success of early
trials and the shipping crisis has led to broader spectrum of manufacturers
combining Cameroon with strategically placed contract processors based on
geographical needs.
Vystar Board member Dr. Ranjit Matthan and CMC Global Director John Heath
presented at The International Latex Conference which was held virtually July 20
to 22, 2021 and offered a plenary session entitled "Innovations and
Sustainability in Natural Rubber Latex - The New Paradigm." The presentation
discussed the dramatic effect the COVID-19 pandemic has had on the natural
rubber supply chain, and how the industry is reacting the new economic
circumstances; including strategy and policy shifts in supply chain management
and restoring greater geographic diversification of latex processing and product
manufacturing. The R&D association with IRMRA promises quicker laboratory and
field-based testing and evaluations downstream. At Vystar, the recalibrated
sustainability programme (FSC, nitrosamines & ammonia free, ultralow proteins,
no SVHC and green carbon neutrality) emphasize certifications with Corrie
MacColl market reach facilitating faster rollouts. Nontraditional/non Hevea
brasiliensis based production efforts are likely to continue to face new
penetration and high cost-benefit acceptance challenges in this decade. A PDF of
the full presentation is available on vytex.com.
Additionally, in August 2021, Dr Matthan presented new data to the Automotive
Tyre Manufacturers' Association including Vytex dry rubber.
In Halcyon Agri (owner of CMC Global), 2020 Corporate Report: "Our group-wide
innovation capabilities have enabled us to engage in innovative commercial
partnerships. Corrie MacColl is collaborating with Vystar Corporation to
transform our Cameroon plantation output into ultra-pure latex with stronger
molecular bond that offers enhanced strength, durability and flexibility in the
end products. This is achieved by removing non-rubber components and 99.85% of
the proteins."
About FEC
Vystar is looking to Fluid Energy as it moves forward in its quest for a cleaner
and safer environment. The Company is planning to improve its air purifying by
using the ultrasonic technology of Fluid Energy and combining it with its
leading UV-C technology. The designs and prototypes are in development. This
ultrasonic technology is applied into water products with the same goal. We have
working prototypes for our water product targets that have tested beyond
expectation for bacterial killing and flow metering. We will begin soon
evaluating our ability to eradicate hard water pollution that fouls pools,
fountains, and pumps. These products will move us toward living more safely and
cleanly in our environment.
Additional Notes
In anticipation of the success of the RxAir spin-off, we may entertain this
concept in our other divisions.
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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,
2020. 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, 2020. We continue to 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.
It 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.
The COVID-19 pandemic is complex and continues to evolve with sporadic
resurgences, new virus variants and the vaccine rollout. At this time, we cannot
reasonably estimate the duration of the pandemic and its influence on consumers
and our business.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2021 with the Three Months
Ended September 30, 2020
Three Months Ended September 30,
2021 2020 $ Change % Change
CONSOLIDATED
Revenue $ 4,066,597 $ 5,544,563 $ (1,477,966 ) -26.7 %
Cost of revenue 1,932,290 2,527,403 (595,113 ) -23.5 %
Gross profit 2,134,307 3,017,160 (882,853 ) -29.3 %
Operating expenses:
Salaries, wages and benefits 1,188,835 1,535,449 (346,614 ) -22.6 %
Share-based compensation 207,382 716,161 (508,779 ) -71.0 %
Agent fees 312,214 579,750 (267,536 ) 100.0 %
Professional fees 124,285 311,514 (187,229 ) -60.1 %
Advertising 365,369 469,383 (104,014 ) -22.2 %
Rent 331,056 300,965 30,091 10.0 %
Service charges 147,466 132,542 14,924 11.3 %
Depreciation and
amortization 193,158 249,834 (56,676 ) -22.7 %
Other operating 812,817 892,239 (79,422 ) -8.9 %
Total operating expenses 3,682,582 5,187,837 (1,505,255 ) -29.0 %
Loss from operations (1,548,275 ) (2,170,677 ) 622,402 -28.7 %
Other income (expense):
Interest expense (186,732 ) (430,711 ) 243,979 -56.6 %
Change in fair value of
derivative liabilities (88,200 ) 143,000 (231,200 ) -161.7 %
Loss on settlement of debt,
net - (1,419,461 ) 1,419,461 -100.0 %
Loss on legal settlement - (101,000 ) 101,000 -100.0 %
Other income (expense), net (135,612 ) 15,316 (150,928 ) -985.4 %
Total other income
(expense), net (410,544 ) (1,792,856 ) 1,382,312 -77.1 %
Net loss (1,958,819 ) (3,963,533 ) 2,004,714 -50.6 %
Net loss attributable to
noncontrolling interest 439,512 372,759 66,753 17.9 %
Net loss attributable to
Vystar $ (1,519,307 ) $ (3,590,774 ) $ 2,071,467 -57.7 %
Revenues
Revenues for the three months ended September 30, 2021 and 2020 were $4,066,597
and $5,544,563, respectively, for a decrease of $1,477,966 or 26.7%. The
decrease in revenues was due to the success of the high impact closing to
remodel sale at Rotmans which took away market share in this quarter and a
decrease in sales of the RxAir units. Last year's revenues were impacted by the
COVID-19 pandemic and the showroom closing on March 24, 2020. The store
processed limited customer deliveries for prior orders and internet sales during
the closing through re-opening on June 10, 2020.
The Company reported a decrease in gross profit to $2,134,307 for the
three-month period ended September 30, 2021 compared to gross profit of
$3,017,160 for the three-month period ended September 30, 2020, a decrease of
$882,853 or 29.3%. The decrease in gross profit was primarily due to the
reduction in revenues.
The cost of revenue for the three months ended September 30, 2021 and 2020 was
$1,932,290 and $2,527,403, respectively, a decrease of 23.5%.
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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 $3,682,582 and $5,187,837 for
the three months ended September 30, 2021 and 2020, respectively, a decrease of
$1,505,255 or 29%. The decrease was due in part to reduced payroll and other
variable costs with the reduction in revenues.
Other Income (Expense)
Other expense for the three months ended September 30, 2021 was $410,544, which
consisted of interest expense of $186,732, change in fair value of derivative
liabilities of $88,200 and other income of $135,612. This compares to other
expense of $1,792,856 for the three months ended September 30, 2020, which
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.
Net Loss
Net loss was $1,958,819 and $3,963,533 for the three months ended September 30,
2021 and 2020, respectively, a decrease of $2,004,714 or 50.6%. The decrease was
primarily attributable to a nonrecurring loss on settlement of debt, net of
$1,419,461 in 2020.
Comparison of the Nine Months Ended September 30, 2021 with the Nine Months
Ended September 30, 2020
Nine Months Ended September 30,
2021 2020 $ Change % Change
CONSOLIDATED
Revenue $ 23,150,720 $ 13,865,707 $ 9,285,013 67.0 %
Cost of revenue 10,576,205 6,450,421 4,125,784 64.0 %
Gross profit 12,574,515 7,415,286 5,159,229 69.6 %
Operating expenses:
Salaries, wages and benefits 4,713,623 3,655,162 1,058,461 29.0 %
Share-based compensation 623,501 1,024,788 (401,287 ) -39.2 %
Agent fees 2,641,654 635,919 2,005,735 100.0 %
Professional fees 343,246 855,397 (512,151 ) -59.9 %
Advertising 1,774,022 1,150,540 623,482 54.2 %
Rent 967,287 894,275 73,012 8.2 %
Service charges 456,481 360,465 96,016 26.6 %
Depreciation and
amortization 577,539 737,682 (160,143 ) -21.7 %
Other operating 2,490,302 2,161,852 328,450 15.2 %
Total operating expenses 14,587,655 11,476,080 3,111,575 27.1 %
Loss from operations (2,013,140 ) (4,060,794 ) 2,047,654 -50.4 %
Other income (expense):
Interest expense (540,062 ) (1,646,104 ) 1,106,042 -67.2 %
Change in fair value of
derivative liabilities (1,400 ) (336,900 ) 335,500 -99.6 %
Gain (loss) on settlement of
debt, net 2,675,926 (1,419,461 ) 4,095,387 -288.5 %
Loss on legal settlement - (101,000 ) 101,000 -100.0 %
Other income (expense), net (35,688 ) 35,990 (71,678 ) -199.2 %
Total other income
(expense), net 2,098,776 (3,467,475 ) 5,566,251 -160.5 %
Net income (loss) 85,636 (7,528,269 ) 7,613,905 -101.1 %
Net (income) loss
attributable to
noncontrolling interest (823,363 ) 703,846 (1,527,209 ) -217.0 %
Net loss attributable to
Vystar $ (737,727 ) $ (6,824,423 ) $ 6,086,696 -89.2 %
Revenues
Revenues for the nine months ended September 30, 2021 and 2020 were $23,150,720
and $13,865,707, respectively, for an increase of $9,285,013 or 67%. The
increase in revenues was due to the high impact closing to remodel sale at
Rotmans and an increase in sales of the RxAir units. In 2020, the Rotmans
showroom was closed from March 24 through June 10, 2020 due to the COVID-19
pandemic. During this period, the Company processed limited customer deliveries
for prior orders and internet sales.
The Company reported a significant increase in gross profit to $12,574,515 for
the nine-month period ended September 30, 2021 compared to gross profit of
$7,415,286 for the nine-month period ended September 30, 2020, an increase of
$5,159,229 or 69.6%. The increase in gross profit was due to increased revenues
and a change in purchasing which started when the store reopened in June 2020
and the reduction of special offers. Merchandise is being purchased in large
quantities from fewer vendors. 2021 results also include the margins of RxAir
units.
The cost of revenue for the nine months ended September 30, 2021 and 2020 was
$10,576,205 and $6,450,421, respectively, an increase of 64%.
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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 $14,587,655 and $11,476,080 for
the nine months ended September 30, 2021 and 2020, respectively, an increase of
$3,111,575 or 27.1%. The increase was due in part to fees incurred under an
agreement with a third-party agent to assist the Company with the high-impact
sale at Rotmans and the recurring costs of operating the Rotmans showroom which
was closed much of the second quarter in 2020.
Other Income (Expense)
Other income for the nine months ended September 30, 2021 was $2,098,776 which
consisted of interest expense of $540,062, gain on settlement of debt, net of
$2,675,926, change in fair value of derivative liabilities of $1,400 and other
expense of $35,688. Included in gain on settlement of debt, net is PPP loan
forgiveness of $2,805,800. This compares to other expense of $3,467,475 for the
nine months ended September 30, 2020, which 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.
Net Income (Loss)
Net income was $85,636 for the nine months ended September 30, 2021 compared to
a net loss of $7,528,269 for the nine months ended September 30, 2020, an
increase of $7,613,905. The increase in net income was due to PPP loan
forgiveness of $2,805,800, increased sales and margins from the operations of
Rotmans and the sale and margins on RxAir units.
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, 2021, the Company had cash of $346,631 and a deficit in working
capital of approximately $5.6 million. Further, at September 30, 2021, the
accumulated deficit amounted to approximately $49.5 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. The
current agreement with a national sales event company has allowed Rotmans to
meet its financial obligations and provided the Company flexibility and time
needed to develop a new retail furniture sale model. During the quarter ended
September 30, 2021, the Company closed its outside warehouse in an effort to
reduce costs and consolidate its operations in one location to create additional
efficiencies.
There can be no assurances that we will be able to achieve projected levels of
revenue in 2021 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 2021, 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.
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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.
Sources and Uses of Cash
Net cash used in operating activities was $2,768,529 for the nine months ended
September 30, 2021 as compared to net cash used in operating activities of
$2,353,944 for the nine months ended September 30, 2020. During the nine months
ended September 30, 2021, cash used in operations was primarily due to the
reduction of accrued expenses and unearned revenue and non-cash related add-back
of share-based compensation expense, depreciation, amortization and gain on
settlement of debt, net.
The Company had cash provided by investing activities of $399,170 during the
nine months ended September 30, 2021 as compared to $133,878 of cash used in
investing activities for the nine months ended September 30, 2020.
Net cash provided by financing activities was $2,095,451 during the nine months
ended September 30, 2021, as compared to cash provided of $2,487,380 during the
nine months ended September 30, 2020. During the nine months ended September 30,
2021, cash was provided by PPP loan proceeds of $1,402,900, shareholder debt of
$290,000, related party term debt in the amount of $533,039 offset by finance
lease obligations repayment of $130,488.
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.
© Edgar Online, source Glimpses
VYSTAR CORPORATION 
