This analysis of our results of operations should be read in conjunction with the accompanying financial statements, including notes thereto, contained in Item 8 of this Report. 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.
Overview 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 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 15
Vystarproduces the RxAir product line with a world-class manufacturer and an expert U.S.engineer with a full understanding of the RxAir technology. Vystarsells RxAir residential and commercial units via distributors, online and through retail channels. Vystaris assembling the distribution network to relaunch sales of RX400 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 sales are firmly re-established, Vystarexpects that the air purification products will produce margins of approximately 70%. About Rotmans
Rotmans, the largest furniture and flooring store in
New Englandand one of the largest independent furniture retailers in the U.S., encompassing over 170,000 square feet in Worcester, Mass., and employing approximately 50 people, was founded and has been under the leadership of the Rotman family for the past 50 years. Rotmans adds approximately $20 millionannually to Vystar'stop line revenue and enable Vystarto 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'sbrands to Rotmans' thousands of existing customers. Steven Rotmanand a group of dedicated employees provide 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, 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. In addition, the COVID-19 pandemic has caused, among other things, interruptions in our supply chains and suppliers, including problems with inventory availability, higher cost of products and international freight due to the high demand of products and low supply during this volatile period of time. The COVID-19 pandemic is complex and continues to evolve with the emergence and spread of variants. At this point, 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. Management Objectives
The COVID-19 pandemic has raised awareness of airborne disease transmission and consumers' desire to reduce their risk of infection through the use of air purifiers. The Company has pivoted its resources to meeting the demand for air purifiers by adding additional distributors to the RxAir sales network and contracting the development of the next generation RxAir Ultraviolet-C light air purifiers.
Vystarand the Indian Rubber Manufacturers Research Association's("IRMRA") are 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. Vystarentered into a Market Development and Distribution Agreement with Corrie MacCollto produce, develop and manage the Vytexproduct and supply lines. This agreement will allow Vystarto expand the market for its Natural Rubber Latex products. 16
Critical Accounting Policies and Estimates
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
U.S.generally accepted accounting principles. As such, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Our management reviews its estimates on an on-going basis. We base our estimates and assumptions on historical experience, knowledge of current conditions and our understanding of what we believe to be reasonable that might occur in the future considering available information. Actual results may differ from these estimates, and material effects on our operating results and financial position may result.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
Fair Value Inputs Related to Share-based and Other Equity Compensation
Generally accepted accounting principles require all share-based payments, including grants of employee stock options, stock grants and warrants, to be recognized in the financial statements based on their fair values. We compute the value of option awards granted by utilizing the Black-Scholes valuation model based upon their expected lives, expected volatility, expected dividend yield, and the risk-free interest rate. The value of the awards is then straight-line expensed over the service period of the awards. Issuance in shares of common stock is valued using the closing market price on the measurement
Inventories include those costs directly attributable to the product before sale. Inventories consist primarily of finished goods of furniture, mattresses, RxAir purifiers, foam toppers and pillows and are carried at net realizable value, which is defined as selling price less cost of completion, disposal and transportation. The Company evaluates the need to record write-downs for inventories on a regular basis. Approximate consideration is given to obsolescence, slow-moving and other factors in evaluating net realizable values. Inventories not expected to be sold within 12 months are classified as long-term. Revenue
We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped based on fulfillment by the Company. The Company considers fulfillment when it passes all liability at the point of shipping through third party carriers. Consideration is typically paid prior to shipment via credit card or check when our products are sold direct to consumers, which is typically within a 1 to 2 days or approximately 30 days from the time control is transferred when sold to wholesalers, distributors and retailers. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenue. We assess our estimates of expected returns at each financial reporting date.
Valuation and Impairment of Intangible and Long-Lived Assets
We perform an impairment assessment of intangible assets including goodwill annually or more frequently as warranted by events or changes in circumstances. We review long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the assets, an impairment loss is recognized for the excess of the carrying value over the fair value of the long-lived assets. The Company recorded a loss on impairment in 2021 and 2020 of
$245,050and $240,350, respectively, related to the discontinuation of NHS proprietary technology and customer relationships in 2021 and the NHS tradename in 2020.
Accounting for Derivative Financial Instruments
The Company evaluates stock options, stock warrants, notes payable or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity's Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC 815-40 are reclassified to a liability account at the fair value of the instrument
on the reclassification date. Leases
The Company has adopted and implemented ASC 842, Leases, where the Company recognized right-of use assets and lease liabilities. For leases in which the acquiree is a lessee, the Company measured the lease liability at the present value of the remaining lease payments, as if the acquired lease were a new lease at the acquisition date. The Company measured the right-of-use asset at the same amount as the lease liability as adjusted to reflect favorable and unfavorable terms of the lease when compared with market terms. 17 RESULTS OF OPERATIONS
Year Ended December 31, 2021 2020 $ Change % Change CONSOLIDATED Revenue
$ 27,647,879 $ 20,979,243 $ 6,668,63631.8 % Cost of revenue 13,505,600 10,005,075 3,500,525 35.0 % Gross profit 14,142,279 10,974,168 3,168,111 28.9 % Operating expenses: Salaries, wages and benefits 4,491,864 5,105,668 (613,804 ) -12.0 % Share-based compensation 822,070 1,031,850 (209,780 ) -20.3 % Agent fees 4,273,308 1,388,598 2,884,710 207.7 % Professional fees 588,137 983,764 (395,627 ) -40.2 % Advertising 2,174,005 1,808,115 365,890 20.2 % Rent 1,165,978 1,243,949 (77,971 ) -6.3 % Service charges 574,669 523,124 51,545 9.9 % Depreciation and amortization 738,083 795,241 (57,158 ) -7.2 % Loss on impairment 245,050 240,350 4,700 2.0 % Other operating 3,454,410 2,697,090 757,320 28.1 % Total operating expenses 18,527,574 15,817,749 2,709,825 17.1 % Loss from operations (4,385,295 ) (4,843,581 ) 458,286 -9.5 % Other income (expense): Interest expense (721,869 ) (1,845,916 ) 1,124,047 -60.9 % Change in fair value of derivative liabilities 53,600 (238,900 ) 292,500 -122.4 % Gain (loss) on settlement of debt, net 2,688,100 (1,497,061 ) 4,185,161 -279.6 % Other income, net 724,779 92,764 632,015 681.3 % Total other income (expense), net 2,744,610 (3,489,113 ) 6,233,723 -178.7 % Net loss (1,640,685 ) (8,332,694 ) 6,692,009 -80.3 % Net (income) loss attributable to noncontrolling interest (1,056,647 ) 724,477
(1,781,124 ) -245.8 %
Net loss attributable to
-64.5 % Revenues
Consolidated revenues for the year ended
31.8%. The increase in revenues from operations was principally due to the
success of the high impact closing to remodel sale at Rotmans which took place
in the first quarter of 2021.
Consolidated gross profit for the year ended
December 31, 2021and 2020 was $14,142,279and $10,974,168, respectively, for an increase of $3,168,111or 28.9%. Consolidated cost of revenue for year ended December 31, 2021and 2020 was $13,505,600and $10,005,075, respectively, an increase of $3,500,525or 35%. The increase in gross profit and cost of revenue was primarily due to increased revenues, continued change in purchasing and the reduction of special offers. Merchandise is being purchased in large quantities from fewer vendors. 18 Operating Expenses The Company's operating expenses consist primarily of compensation and support costs for management, sales and administrative staff, agent fees and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as other operating expenses such as advertising and occupancy costs. The Company's consolidated operating expenses was $18,527,574and $15,817,749for the year ended December 31, 2021and 2020, respectively, for an increase of $2,709,825or 17.1%. The increase in operating expenses was primarily due 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 income (expense) for the year ended
December 31, 2021and 2020 was $2,744,610and ( $3,489,113), respectively, for a net increase of $6,233,723or a reduction in expense of 178.7%. Increases in other income (expense) in 2021 included reduction of interest expense of $1,124,047, gain (loss) on settlement of debt of $4,185,161, an increase in change in value of derivative liabilities of $292,500and an increase in other income of $632,015. Net Loss Net loss for the year ended December 31, 2021and 2020 was $1,640,685and $8,332,694, respectively, for a decrease in net loss of $6,692,009or 80.3%. Net loss in 2021 and 2020 includes net (income) loss attributable to noncontrolling interest of ( $1,056,647) and $724,477, respectively. The smaller net loss the Company experienced in the year ended December 31, 2021versus the same period in 2020 was attributable to increased operating efficiencies and COVID-19 programs mainly the Paycheck Protection Program loans forgiven of $2,805,800and Employee Retention Credits of $771,287.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in
the United States of Americaand 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 December 31, 2021, the Company had cash of $151,175and a deficit in working capital of $8,306,611. For the year ended December 31, 2021, the Company had a net loss of $1,640,685and an accumulated deficit of $51,410,516. For the year ended December 31, 2020, the Company had a net loss of $8,332,694and the accumulated deficit amounted to $48,713,184. 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. Net cash used in operating activities was $2,864,142for the year ended December 31, 2021as compared to $2,262,940for the year ended December 31, 2020. During the year ended December 31, 2021, cash used in operations was primarily due to the net loss for the year of $1,640,685net of non-cash related add-back of share-based compensation, depreciation and amortization. The Company had $371,431cash provided by investing activities during the year ended December 31, 2021as compared to $133,878cash used in investing activities for the year ended December 31, 2020. During the year ended December 31, 2021, cash provided by investing activities was related to the sales of property and equipment and investments. Net cash provided by financing activities was $2,023,347during the year ended December 31, 2021, as compared to cash provided of $2,945,002during the year ended December 31, 2020. During 2021, cash was provided from the proceeds in notes payable in the amount of $2,225,939net of repayments of finance leases in the amount of $202,592. During 2020, cash was provided from the proceeds in notes payable in the amount of $3,309,400, repayments on notes payable and finance leases in the amount of $967,938, net repayments on line of credit of $210,200, $456,490in proceeds from common stock issuances, advances from stock subscription payable of $308,000and proceeds from stock subscription receivable of $49,250. 19 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 Vytexlicense fees, that now also include the Company's association with foam cores made from Vytexused in mattresses, mattress toppers and pillows. 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 for 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 Vytexto 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.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
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