VYSTAR CORPORATION 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 theU.S. Environmental Protection Agency ("EPA ") andU.S. Food and Drug Administration ("FDA") certified laboratories, the RxAir has been proven to destroy greater than 99% of bacteria and viruses and reduce concentrations of odors and volatile organic compounds ("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 ofVystar Corp. For more information, visit http://www.RxAir.com. 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 independentEPA - 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 expertU.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%.
Vystar's Board of Directors have approved preliminary plans to spin off the RxAir,Vytex andFEC product lines into a separate legal entity whichVystar intends to take public.Vystar anticipates retaining approximately 10% of the shares in the new entity and will distribute the remaining ownership percentage toVystar shareholders. This plan is expected to be executed in early 2023.
33 About Rotmans Rotmans, one of the largest independent furniture retailers in theU.S. , encompassing over 170,000 square feet inWorcester, Mass. , and employing approximately 50 people, was founded and has been under the leadership of the Rotman family for the past 50 years.Steven Rotman and a group of dedicated employees provide continuity of management and customer-focused values for the Company. As disclosed in subsequent events, Rotmans will be closing its retail showroom by the end of the year. AboutVytex 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 fourteen years and through that time has a group of manufacturers who use it in end products such as electrical gloves, condoms, adhesives, etc. Ironically, most useVytex as it's better for their manufacturing process as an easier to use raw material and not for protein properties. As of mid-2020Vystar and theIndian Rubber Manufacturers Research Association's ("IRMRA") had 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, showed attributes with extra low ammonia offerings that
are desired. Towards the end of 2020,Vystar entered into a Market Development and Distribution Agreement withCorrie MacColl, Ltd. ("CMC Global") to produce, develop and manage theVytex product and supply lines. This agreement allowsVystar to expand the market for its Natural Rubber Latex products and has garnered much attention across a broad range of industries including liquidVytex as well as the newly developed dry rubberVytex . 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, henceVytex that now includes production size trial runs in a large dipped product consumer line starting late 2022. AdditionallyVystar now has a testing supply ofVytex dry rubber for larger trials. The success of early trials and the shipping crisis has led to broader spectrum of manufacturers combining the potential ofCameroon production with strategically placed contract manufacturers based on geographical needs including the North American maket. AlsoVystar research has shown great strides in specializing liquidVytex (ultra low protein latex, ULPL) to meet the immediate needs of customers such as low or no nitrosamine and others (discussed in the presentation below available in the pdf) and additional patents have been proposed to cover these findings. Research into dry rubber continues at a moderate pace as tire companies seek out alternatives to synthetics.Vytex researcher Dr.Ranjit Matthan and CMC Global DirectorJohn Heath presented atThe International Latex Conference which was held virtuallyJuly 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. AtVystar , 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, inAugust 2021 ,Dr. Matthan presented new data to theAutomotive Tyre Manufacturers' Association includingVytex dry rubber. A follow up paper has been completed byDr Matthan ,John Heath andWilliam Doyle and will run
inRubber World in early 2023. 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 withVystar Corporation to transform ourCameroon 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." CMC Global continues to work with the facility atCameroon to produceVytex at their owned processing plant. AboutFEC 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.
Impact of COVID-19 and Economic Conditions on Our Business
The COVID-19 pandemic, its contributory effect on the economy and general economic conditions, has resulted in significant economic disruption and adversely impacted our business. 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. In addition, discretionary consumer spending has been negatively affected by rising inflation, including fuel costs and interest rates. At this time, we cannot reasonably estimate the duration of the pandemic or general economic conditions and its influence on consumers and our business. 34 RESULTS OF OPERATIONS Comparison of the Three Months EndedSeptember 30, 2022 with the Three Months EndedSeptember 30, 2021 Three Months Ended September 30, 2022 2021 $ Change % Change CONSOLIDATED Revenue$ 3,572,071 $ 4,066,597 $ (494,526 ) -12.2 % Cost of revenue 1,681,713 1,932,290 (250,577 ) -13.0 % Gross profit 1,890,358 2,134,307 (243,949 ) -11.4 % Operating expenses:
Salaries, wages and benefits 866,427 1,188,835
(322,408 ) -27.1 % Share-based compensation 181,199 207,382 (26,183 ) -12.6 % Agent fees 312,909 312,214 695 0.2 % Professional fees 91,624 124,285 (32,661 ) -26.3 % Advertising 242,902 365,369 (122,467 ) -33.5 % Rent 195,950 331,056 (135,106 ) -40.8 % Service charges 90,132 147,466 (57,334 ) -38.9 %
Depreciation and amortization 119,237 193,158
(73,921 ) -38.3 % Other operating 585,082 812,817 (227,735 ) -28.0 % Total operating expenses 2,685,462 3,682,582 (997,120 ) -27.1 % Loss from operations (795,104 ) (1,548,275 ) 753,171 -48.6 % Other income (expense): Interest expense (107,869 ) (186,732 ) 78,863 -42.2 % Change in fair value of derivative liabilities 240,300 (88,200 ) 328,500 -372.4 % Loss on settlement of debt, net (2,481,231 ) - (2,481,231 ) 100.0 % Other income (expense), net 34,443 (135,612 ) 170,055 -125.4 % Total other expense, net (2,314,357 ) (410,544 ) (1,903,813 ) 463.7 % Net loss (3,109,461 ) (1,958,819 ) (1,150,642 ) 58.7 % Net loss attributable to noncontrolling interest 134,849 439,512 (304,663 ) -69.3 %
Net loss attributable to
Revenues Revenues for the three months endedSeptember 30, 2022 and 2021 were$3,572,071 and$4,066,597 , respectively, for an decrease of$494,526 or 12.2%. The decrease in revenues was due to the reduction in discretionary consumer spending due
to rising inflation in 2022. The Company reported a decrease in gross profit to$1,890,358 for the three-month period endedSeptember 30, 2022 compared to gross profit of$2,134,307 for the three-month period endedSeptember 30, 2021 , a decrease of$243,949 or 11.4%. The decrease in gross profit is consistent with the decrease in revenues.
The cost of revenue for the three months ended
35 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$2,685,462 and$3,682,582 for the nine months endedSeptember 30, 2022 and 2021, respectively, a decrease of$997,120 or 27.1%. The decrease was due in part to reduced revenues and the closing of a second warehouse occupied by Rotmans untilOctober 2021 . Other Expense
Other expense for the three months endedSeptember 30, 2022 was$2,314,357 which consisted of interest expense of$107,869 , change in fair value of derivative liabilities of ($240,300 ), loss on settlement of debt, net of$2,481,231 and other income of$34,443 . This compares to other expense of$410,544 for the three months endedSeptember 30, 2021 , which consisted of interest expense of$186,732 , change in fair value of derivative liabilities of$88,200 and other expense of$135,612 . Loss on settlement of debt, net resulted from the settlement of notes and vendor payables with preferred stock series B and C
in July andSeptember 2022 . Net Loss
Net loss was$3,109,461 and$1,958,819 for the three months endedSeptember 30, 2022 and 2021, respectively, an increase of$1,150,642 or 58.7%. Net loss in the quarter endedSeptember 30, 2022 versus net loss in the same period in 2021 was due to a reduced operating loss which was offset by loss on settlement of debt, net. RESULTS OF OPERATIONS Comparison of the Nine Months EndedSeptember 30, 2022 with the Nine Months EndedSeptember 30, 2021 Nine Months Ended September 30, 2022 2021 $ Change % Change CONSOLIDATED Revenue$ 10,607,362 $ 23,150,720 $ (12,543,358 ) -54.2 % Cost of revenue 4,809,951 10,576,205 (5,766,254 ) -54.5 % Gross profit 5,797,411 12,574,515 (6,777,104 ) -53.9 % Operating expenses: Salaries, wages and benefits 2,560,840 4,713,623 (2,152,783 ) -45.7 % Share-based compensation 658,004 623,501
34,503 5.5 % Agent fees 1,058,095 2,641,654 (1,583,559 ) -59.9 % Professional fees 414,498 343,246 71,252 20.8 % Advertising 850,474 1,774,022 (923,548 ) -52.1 % Rent 556,861 967,287 (410,426 ) -42.4 % Service charges 282,376 456,481 (174,105 ) -38.1 %
Depreciation and amortization 420,397 577,539 (157,142 ) -27.2 % Other operating 1,748,378 2,490,302
(741,924 ) -29.8 %
Total operating expenses 8,549,923 14,587,655
(6,037,732 ) -41.4 %
Loss from operations (2,752,512 ) (2,013,140 )
(739,372 ) 36.7 %
Other income (expense): Interest expense (494,355 ) (540,062 ) 45,707 -8.5 % Change in fair value of derivative liabilities 1,760,300 (1,400 ) 1,761,700 -125835.7 % Gain (loss) on settlement of debt, net (2,250,411 ) 2,675,926 (4,926,337 ) -184.1 % Other income (expense), net 102,147 (35,688 )
137,835 -386.2 %
Total other income (expense), net (882,319 ) 2,098,776 (2,981,095 ) -142.0 %
Net income (loss) (3,634,831 ) 85,636
(3,720,467 ) -4344.5 %
Net (income) loss attributable to noncontrolling interest 552,545 (823,363 )
1,375,908 -167.1 %
Net income (loss) attributable to Vystar$ (3,082,286 ) $ (737,727 ) $ (2,344,559 ) 317.8 % Revenues
Revenues for the nine months ended
The Company reported a significant decrease in gross profit to$5,797,411 for the nine month period endedSeptember 30, 2022 compared to gross profit of$12,574,515 for the nine month period endedSeptember 30, 2021 , a decrease of$6,777,104 or 53.9%. The decrease in gross profit is consistent with the decrease in revenues.
The cost of revenue for the nine months ended
36 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$8,549,923 and$14,587,655 for the nine months endedSeptember 30, 2022 and 2021, respectively, a decrease of$6,037,732 or 41.4%. The decrease was due in part to reduced revenues and the closing of a second warehouse occupied by Rotmans untilOctober 2021 . Other Income (Expense) Other income (expense) for the nine months endedSeptember 30, 2022 was ($882,319 ) which consisted of interest expense of ($494,355 ), change in fair value of derivative liabilities of$1,760,300 , loss on settlement of debt, net of ($2,250,411 ) and other income of$102,147 . Loss on settlement of debt, net resulted from the settlement of notes and vendor payables with preferred stock series B and C in 2022. This compares to other income (expense) of$2,098,776 for the nine months endedSeptember 30, 2021 , which consisted of interest expense of ($540,062 ), change in fair value of derivative liabilities of ($1,400 ), gain on settlement of debt, net of$2,675,926 and other expense of ($35,688 ). Included in gain on settlement of debt, net is PPP loan forgiveness of$2,805,800 . Net Income (Loss) Net income (loss) was ($3,634,831 ) and$85,636 for the nine months endedSeptember 30, 2022 and 2021, respectively, a decrease of$3,720,467 or 4,344.5%. Net loss in the nine months endedSeptember 30, 2022 versus net income in the same period in 2021 was due to PPP loan forgiveness of$2,805,800 and increased sales and margins from the operations of a high impact closing to remodel sale at Rotmans in 2021. The net loss in 2022 was increased by the loss on settlement of debt, net partially offset by the change in fair value of derivative liabilities of$1,760,300 .
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements are prepared using the accrual method of accounting in accordance withU.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. AtSeptember 30, 2022 , the Company had cash of$160,686 and a deficit in working capital of approximately$4.6 million . Further, atSeptember 30, 2022 , the accumulated deficit amounted to approximately$54.5 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, as well as the Rotmans going out of business sale as discussed in Note 18, 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
There can be no assurances that we will be able to achieve projected levels of revenue in 2022 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 2022, 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 fromVytex 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. 37 Sources and Uses of Cash Net cash used in operating activities was$395,427 for the nine months endedSeptember 30, 2022 as compared to net cash used in operating activities of$2,768,529 for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , cash used in operations was primarily due to the net loss offset by the decrease of inventories and other receivables, and non-cash related add-back of share-based compensation expense, depreciation, amortization, loss on settlement of debt, net and change in fair value of derivative liabilities.
The Company had no cash provided by investing activities during the nine months
ended
Net cash provided by financing activities was$404,938 during the nine months endedSeptember 30, 2022 , as compared to cash provided of$2,095,451 during the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , cash was provided by related party term debt and advances of$592,731 and preferred stock issuances of$85,000 which was offset by the repayment of finance lease obligations of$110,293 and repayment of related party debt of$162,500 . During the nine months endedSeptember 30, 2021 , cash was provided by PPP loan proceeds of$1,402,900 , related party term debt in the amount of$533,039 and convertible notes payable of$290,000 offset by the repayment of finance lease obligations 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 theSecurities 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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