VYSTAR CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

VYSTAR CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)




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 the U.S. Environmental
Protection Agency
(« EPA« ) and U.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 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



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%.

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 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 50 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. Steven Rotman and a group of
dedicated employees provide continuity of management and customer-focused values
for the Company.



33







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.

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. Additionally Vystar now has a
testing supply of Vytex dry rubber for larger trials. The success of early
trials and the shipping crisis has led to broader spectrum of manufacturers
combining the potential of Cameroon production with strategically placed
contract manufactures based on geographical needs. Also Vystar research has
shown great strides in specializing liquid Vytex to meet the immediate needs of
customers such as low or no nitrosamine and others (discussed below) and
additional patents have been proposed.

Vytex researcher 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.

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 the emergence and
spread of variants. At this time, we cannot reasonably estimate the duration of
the pandemic and its influence on consumers and our business.



34







RESULTS OF OPERATIONS



Comparison of the Three Months Ended March 31, 2022 with the Three Months Ended
March 31, 2021



                                                Three Months Ended March 31,
                                  2022             2021           $ Change         % Change

                                                        CONSOLIDATED

Revenue                        $ 3,839,258     $ 12,868,119     $ (9,028,861 )          -70.2 %

Cost of revenue                  1,660,274        6,076,840       (4,416,566 )          -72.7 %

Gross profit                     2,178,984        6,791,279       (4,612,295 )          -67.9 %

Operating expenses:
Salaries, wages and benefits       908,482        1,949,139       (1,040,657 )          -53.4 %
Share-based compensation           137,948          204,696          (66,748 )          -32.6 %
Agent fees                         418,179        1,251,873         (833,694 )          -66.6 %
Professional fees                  189,403           20,183          169,220            838.4 %
Advertising                        293,488          865,178         (571,690 )          -66.1 %
Rent                               183,727          316,615         (132,888 )          -42.0 %
Service charges                    107,172          224,516         (117,344 )          -52.3 %
Depreciation and
amortization                       150,580          192,009          (41,429 )          -21.6 %
Other operating                    655,614          796,413         (140,799 )          -17.7 %

Total operating expenses         3,044,593        5,820,622       (2,776,029 )          -47.7 %

Loss from operations              (865,609 )        970,657       (1,836,266 )         -189.2 %

Other income (expense):
Interest expense                  (179,309 )       (175,847 )         (3,462 )            2.0 %
Change in fair value of
derivative liabilities              57,000         (129,000 )        186,000           -144.2 %
Gain on settlement of debt,
net                                      -        1,247,635       (1,247,635 )         -100.0 %
Other income, net                   33,952           57,747          (23,795 )          -41.2 %

Total other income
(expense), net                     (88,357 )      1,000,535       (1,088,892 )         -108.8 %

Net income (loss)                 (953,966 )      1,971,192       (2,925,158 )         -148.4 %

Net (income) loss
attributable to
noncontrolling interest            179,612       (1,053,065 )      1,232,677           -117.1 %

Net loss attributable to
Vystar                         $  (774,354 )   $    918,127     $ (1,692,481 )         -184.3 %




Revenues


Revenues for the three months ended March 31, 2022 and 2021 were $3,839,258 and
$12,868,119, respectively, for an decrease of $9,028,861 or 70.2%. The decrease
in revenues was due to the success of the high impact closing to remodel sale at
Rotmans in 2021.

The Company reported a significant decrease in gross profit to $2,178,984 for
the three-month period ended March 31, 2022 compared to gross profit of
$6,791,279 for the three-month period ended March 31, 2021, a decrease of
$4,612,295 or 67.9%. The decrease in gross profit is consistent with the
decrease in revenues.

The cost of revenue for the three months ended March 31, 2022 and 2021 was
$1,660,274 and $6,076,840, respectively, a decrease of $4,416,566 or 72.7%.



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 $3,044,593 and $5,820,622 for
the three months ended March 31, 2022 and 2021, respectively, a decrease of
$2,776,029 or 47.7%. The decrease was due in part to reduced revenues and the
closing of a second warehouse occupied by Rotmans until October 2021.



Other Income (Expense)


Other income (expense) for the three months ended March 31, 2022 was ($88,357)
which consisted of interest expense of ($179,309), change in fair value of
derivative liabilities of $57,000 and other income, net of $33,952. This
compares to other income (expense) of $1,000,535 for the three months ended
March 31, 2021, which consisted of interest expense of $175,847, change in fair
value of derivative liabilities of ($129,000), gain on settlement of debt, net
of $1,247,635 and other income, net of $57,747. Included in gain on settlement
of debt, net is PPP loan forgiveness of $1,402,900.



Net Income (Loss)


Net income (loss) was ($953,966) and $1,971,192 for the three months ended March
31, 2022
and 2021, respectively, a decrease of $2,925,158 or 148.4%. Net loss in
the quarter ended March 31, 2022 versus net income in the same period in 2021
was due to PPP loan forgiveness of $1,402,900 and increased sales and margins
from the operations of a high impact closing to remodel sale at Rotmans in 2021.

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 March
31, 2022
, the Company had cash of $172,340 and a deficit in working capital of
approximately $9.3 million. Further, at March 31, 2022, the accumulated deficit
amounted to approximately $52.2 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.

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 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.



36







Sources and Uses of Cash



Net cash provided by operating activities was $23,514 for the three months ended
March 31, 2022 as compared to net cash used in operating activities of
$1,162,325 for the three months ended March 31, 2021. During the three months
ended March 31, 2022, cash provided by operations was primarily due to the
decrease of inventories and the increase of accounts payable and accrued
expenses, and non-cash related add-back of share-based compensation expense,
depreciation, amortization and change in fair value of derivative liabilities.

The Company had no cash used in investing activities during the three months
ended March 31, 2022 as compared to $17,317 for the three months ended March 31,
2021
.

Net cash used in financing activities was $2,349 during the three months ended
March 31, 2022, as compared to cash provided of $1,754,962 during the three
months ended March 31, 2021. During the three months ended March 31, 2022, cash
was provided by related party advances of $40,000 which was offset by the
repayment of finance lease obligations of $42,349. During the three months ended
March 31, 2021, cash was provided by PPP loan proceeds of $1,402,900, related
party term debt in the amount of $395,000 offset by the repayment of finance
lease obligations of $42,938.

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



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