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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
|
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended
September 30, 2022
|
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the transition period from _______________ to
________________
Commission
File Number
000-53754
VYSTAR CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
|
Georgia |
|
20-2027731 |
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(IRS
Employer
Identification
No.)
|
725 Southbridge St
Worcester,
MA
01610
(Address
of Principal Executive Offices, Zip Code)
(508)
791-9114
(Registrant’s
telephone number including area code)
Securities
registered pursuant to Section 12(b) of the Exchange
Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
NONE |
|
NONE |
|
NONE |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES ☒ NO
☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
YES ☒ NO
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer ☐ |
|
Accelerated
filer ☐ |
|
Non-accelerated filer ☒ |
|
Smaller
reporting company
☒ |
| |
|
Emerging
growth company
☐ |
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.) YES ☐
NO ☒
|
Class |
|
Outstanding
as of December 6, 2022 |
|
Common
Stock, $0.0001 par value per share
|
|
12,941,260
shares
|
INFORMATION
RELATING TO FORWARD-LOOKING STATEMENTS
In
addition to historical information, this Form 10-Q contains
statements relating to our future results (including certain
projections and business trends) that are “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and are subject to the
“safe harbor” created by those sections. The following discussion
of the financial condition and results of operations of the Company
should be read in conjunction with the financial statements and the
related notes thereto included in this Quarterly Report on Form
10-Q (this “Report”). This Report contains certain forward-looking
statements and the Company’s future operating results could differ
materially from those discussed herein. Our disclosure and analysis
included in this Report concerning our operations, cash flows and
financial position, including, in particular, the likelihood of our
success in expanding our business and raising debt and capital
securities include forward-looking statements. Statements that are
predictive in nature, that depend upon or refer to future events or
conditions, or that include words such as “expect”, “anticipate”,
“intend”, “plan”, “believe”, “estimate”, “may”, “project”, “will
likely result”, and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements are
subject to certain risks, uncertainties, and assumptions, including
prevailing market conditions and are more fully described under
“Part I, Item 1A - Risk Factors” of our Form 10-K for the year
ended December 31, 2021. New risks and uncertainties arise from
time to time, and it is impossible for us to predict these events
or how they may affect us. In any event, these and other crucial
factors, including those set forth in Item 1A - “Risk Factors” of
our Form 10-K for the year ended December 31, 2021 may cause actual
results to differ materially from those indicated by our
forward-looking statements.
Although
we believe that these statements are based upon reasonable
assumptions, we cannot guarantee future results and readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management’s opinions only as of the date
of this filing. There can be no assurance that (i) we have
correctly measured or identified all of the factors affecting our
business or the extent of these factors’ likely impact, (ii) the
available information with respect to these factors on which such
analysis is based is complete or accurate, (iii) such analysis is
correct or (iv) our strategy, which is based in part on this
analysis, will be successful. The Company undertakes no obligation
to update or revise forward-looking statements.
All
references to “we”, “us”, “our” or “Vystar” in this Quarterly
Report on Form 10-Q mean Vystar Corporation, and
affiliates.
VYSTAR
CORPORATION
FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, |
|
|
December
31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
160,686 |
|
|
$ |
151,175 |
|
|
Accounts
receivable, net |
|
|
43,667 |
|
|
|
68,541 |
|
|
Other
receivables |
|
|
684,775 |
|
|
|
875,362 |
|
|
Inventories |
|
|
3,107,226 |
|
|
|
3,784,420 |
|
|
Prepaid
expenses and other |
|
|
673,717 |
|
|
|
337,013 |
|
|
Deferred
commission costs |
|
|
49,402 |
|
|
|
73,625 |
|
| |
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
4,719,473 |
|
|
|
5,290,136 |
|
| |
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
670,638 |
|
|
|
832,099 |
|
| |
|
|
|
|
|
|
|
|
|
Operating
lease right-of-use assets |
|
|
7,462,785 |
|
|
|
7,776,978 |
|
| |
|
|
|
|
|
|
|
|
|
Finance
lease right-of-use assets, net |
|
|
441,326 |
|
|
|
551,037 |
|
| |
|
|
|
|
|
|
|
|
|
Other
assets: |
|
|
|
|
|
|
|
|
|
Intangible
assets, net |
|
|
949,934 |
|
|
|
1,208,870 |
|
|
Goodwill |
|
|
460,301 |
|
|
|
460,301 |
|
|
Inventories,
long-term |
|
|
458,217 |
|
|
|
657,177 |
|
|
Deferred
commission costs, net of current portion |
|
|
26,209 |
|
|
|
60,586 |
|
|
Other |
|
|
5,274 |
|
|
|
20,274 |
|
| |
|
|
|
|
|
|
|
|
|
Total
other assets |
|
|
1,899,935 |
|
|
|
2,407,208 |
|
| |
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
15,194,157 |
|
|
$ |
16,857,458 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
4,439,100 |
|
|
$ |
5,149,570 |
|
|
Accrued
expenses |
|
|
893,553 |
|
|
|
897,420 |
|
|
Stock
subscription payable |
|
|
1,539,600 |
|
|
|
1,247,549 |
|
|
Operating
lease liabilities - current maturities |
|
|
731,000 |
|
|
|
634,000 |
|
|
Finance
lease liabilities - current maturities |
|
|
117,000 |
|
|
|
134,000 |
|
|
Shareholder,
convertible and contingently convertible notes payable and accrued
interest - current maturities |
|
|
332,248 |
|
|
|
1,388,904 |
|
|
Related
party debt - current maturities |
|
|
616,025 |
|
|
|
1,487,000 |
|
|
Unearned
revenue |
|
|
603,373 |
|
|
|
880,204 |
|
|
Derivative
liabilities |
|
|
17,800 |
|
|
|
1,778,100 |
|
|
Related
party advances |
|
|
92,731 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
9,382,430 |
|
|
|
13,596,747 |
|
| |
|
|
|
|
|
|
|
|
|
Long-term
liabilities: |
|
|
|
|
|
|
|
|
|
Operating
lease liabilities, net of current maturities |
|
|
5,376,050 |
|
|
|
5,683,736 |
|
|
Finance
lease liabilities, net of current maturities |
|
|
355,328 |
|
|
|
443,882 |
|
|
Unearned
revenue, net of current maturities |
|
|
104,835 |
|
|
|
241,991 |
|
|
Related
party debt, net of current maturities and debt discount |
|
|
- |
|
|
|
2,791,401 |
|
| |
|
|
|
|
|
|
|
|
|
Total
long-term liabilities |
|
|
5,836,213 |
|
|
|
9,161,010 |
|
| |
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
15,218,643 |
|
|
|
22,757,757 |
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’
deficit: |
|
|
|
|
|
|
|
|
|
Convertible
preferred stock series A, $0.0001
par value 15,000,000
shares authorized; 8,698
shares issued and outstanding at September 30, 2022 and December
31, 2021, respectively (liquidation preference of $81,055
and $74,531
at September 30, 2022 and December 31, 2021,
respectively) |
|
|
1 |
|
|
|
1 |
|
|
Convertible
preferred stock series B, $0.0001
par value 2,500,000
shares authorized; 370,969
and 0
shares issued and outstanding at September 30, 2022 and December
31, 2021, respectively (liquidation preference of $43,280
at September 30, 2022) |
|
|
37 |
|
|
|
- |
|
|
Convertible
preferred stock series C, $0.0001
par value 2,500,000
shares authorized; 1,917,973
and 0
shares issued and outstanding at September 30, 2022 and December
31, 2021, respectively (liquidation preference of $74,863
at September 30, 2022) |
|
|
192 |
|
|
|
- |
|
|
Convertible
preferred stock value |
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value,
500,000,000
shares authorized; 12,941,760 shares
issued at September 30, 2022 and December 31, 2021, and 12,941,260 and
12,941,460 shares
outstanding at September 30, 2022 and December 31, 2021,
respectively |
|
|
1,294 |
|
|
|
1,294 |
|
|
Additional
paid-in capital |
|
|
53,361,926 |
|
|
|
43,851,510 |
|
|
Accumulated
deficit |
|
|
(54,492,803 |
) |
|
|
(51,410,516 |
) |
|
Common
stock in treasury, at cost; 300 shares at
September 30, 2022 and December 31, 2021, respectively |
|
|
(30 |
) |
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
Total
Vystar stockholders’ deficit |
|
|
(1,129,383 |
) |
|
|
(7,557,741 |
) |
| |
|
|
|
|
|
|
|
|
|
Noncontrolling
interest |
|
|
1,104,897 |
|
|
|
1,657,442 |
|
| |
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit |
|
|
(24,486 |
) |
|
|
(5,900,299 |
) |
| |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit |
|
$ |
15,194,157 |
|
|
$ |
16,857,458 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2022
(Unaudited)
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Attributable
to Vystar |
|
|
|
|
|
|
|
| |
|
Number |
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
| |
|
of |
|
|
|
|
|
of |
|
|
|
|
|
Additional |
|
|
|
|
|
of |
|
|
|
|
|
Vystar |
|
|
|
|
|
Total |
|
| |
|
Preferred |
|
|
Preferred |
|
|
Common |
|
|
Common |
|
|
Paid-in |
|
|
Accumulated |
|
|
Treasury |
|
|
Treasury |
|
|
Stockholders’ |
|
|
Noncontrolling |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Stock |
|
|
Shares |
|
|
Stock |
|
|
Capital |
|
|
Deficit |
|
|
Shares |
|
|
Stock |
|
|
Deficit |
|
|
Interest |
|
|
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending balance December 31, 2020 |
|
|
13,698 |
|
|
$ |
1 |
|
|
|
11,999,318 |
|
|
$ |
1,200 |
|
|
$ |
41,352,261 |
|
|
$ |
(48,713,184 |
) |
|
|
(300 |
) |
|
$ |
(30 |
) |
|
$ |
(7,359,752 |
) |
|
$ |
600,795 |
|
|
$ |
(6,758,957 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for services |
|
|
|
|
|
|
|
|
|
|
493,718 |
|
|
|
49 |
|
|
|
1,404,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,404,092 |
|
|
|
|
|
|
|
1,404,092 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share-based compensation -
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,916 |
|
|
|
|
|
|
|
4,916 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for settlement of
related party payable |
|
|
|
|
|
|
|
|
|
|
113,650 |
|
|
|
11 |
|
|
|
335,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335,265 |
|
|
|
|
|
|
|
335,265 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for cash received
in prior period |
|
|
|
|
|
|
|
|
|
|
16,667 |
|
|
|
2 |
|
|
|
24,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
25,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock conversion |
|
|
(5,000 |
) |
|
|
|
|
|
|
17,680 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
918,127 |
|
|
|
- |
|
|
|
- |
|
|
|
918,127 |
|
|
|
1,053,065 |
|
|
|
1,971,192 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending balance March 31, 2021 |
|
|
8,698 |
|
|
|
1 |
|
|
|
12,641,033 |
|
|
|
1,264 |
|
|
|
43,121,470 |
|
|
|
(47,795,057 |
) |
|
|
(300 |
) |
|
|
(30 |
) |
|
|
(4,672,352 |
) |
|
|
1,653,860 |
|
|
|
(3,018,492 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share-based compensation -
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,691 |
|
|
|
|
|
|
|
3,691 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income
(loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(136,547 |
) |
|
|
- |
|
|
|
- |
|
|
|
(136,547 |
) |
|
|
209,810 |
|
|
|
73,263 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending balance June 30, 2021 |
|
|
8,698 |
|
|
|
1 |
|
|
|
12,641,033 |
|
|
|
1,264 |
|
|
|
43,125,161 |
|
|
|
(47,931,604 |
) |
|
|
(300 |
) |
|
|
(30 |
) |
|
|
(4,805,208 |
) |
|
|
1,863,670 |
|
|
|
(2,941,538 |
) |
| Beginning balance |
|
|
8,698 |
|
|
|
1 |
|
|
|
12,641,033 |
|
|
|
1,264 |
|
|
|
43,125,161 |
|
|
|
(47,931,604 |
) |
|
|
(300 |
) |
|
|
(30 |
) |
|
|
(4,805,208 |
) |
|
|
1,863,670 |
|
|
|
(2,941,538 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for services |
|
|
|
|
|
|
|
|
|
|
292,060 |
|
|
|
29 |
|
|
|
705,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
705,997 |
|
|
|
|
|
|
|
705,997 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share-based compensation -
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,691 |
|
|
|
|
|
|
|
3,691 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for settlement of
related party payable |
|
|
|
|
|
|
|
|
|
|
8,667 |
|
|
|
1 |
|
|
|
12,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,000 |
|
|
|
|
|
|
|
13,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,519,307 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,519,307 |
) |
|
|
(439,512 |
) |
|
|
(1,958,819 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending balance September 30,
2021 |
|
|
8,698 |
|
|
|
1 |
|
|
|
12,941,760 |
|
|
$ |
1,294 |
|
|
$ |
43,847,819 |
|
|
$ |
(49,450,911 |
) |
|
|
(300 |
) |
|
$ |
(30 |
) |
|
$ |
(5,601,827 |
) |
|
$ |
1,424,158 |
|
|
$ |
(4,177,669 |
) |
| Ending balance |
|
|
8,698 |
|
|
|
1 |
|
|
|
12,941,760 |
|
|
$ |
1,294 |
|
|
$ |
43,847,819 |
|
|
$ |
(49,450,911 |
) |
|
|
(300 |
) |
|
$ |
(30 |
) |
|
$ |
(5,601,827 |
) |
|
$ |
1,424,158 |
|
|
$ |
(4,177,669 |
) |
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Nine
Months Ended |
|
| |
|
September 30, |
|
| |
|
2022 |
|
|
2021 |
|
| Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
| Net
income (loss) |
|
$ |
(3,634,831 |
) |
|
$ |
85,636 |
|
| Adjustments to
reconcile net income (loss) to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
| (Gain) loss on
settlement of debt, net |
|
|
2,250,411 |
|
|
|
(2,675,926 |
) |
| Share-based
compensation |
|
|
658,004 |
|
|
|
623,501 |
|
| Depreciation |
|
|
161,461 |
|
|
|
289,569 |
|
| Bad debts
(recovery) |
|
|
(3,754 |
) |
|
|
132,702 |
|
| Amortization of
intangible assets |
|
|
258,936 |
|
|
|
287,970 |
|
| Noncash lease
expense |
|
|
217,958 |
|
|
|
229,093 |
|
| Amortization of
debt discount |
|
|
27,083 |
|
|
|
26,335 |
|
| Change in fair
value of derivative liabilities |
|
|
(1,760,300 |
) |
|
|
1,400 |
|
| Loss on sale of
property and equipment |
|
|
- |
|
|
|
170,801 |
|
| Gain on sale of
investments |
|
|
- |
|
|
|
(16,300 |
) |
| (Increase)
decrease in assets: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
28,629 |
|
|
|
(338,848 |
) |
| Other
receivables |
|
|
190,587 |
|
|
|
- |
|
| Inventories |
|
|
876,154 |
|
|
|
1,275,713 |
|
| Prepaid expenses
and other |
|
|
184,376 |
|
|
|
163,492 |
|
| Deferred
commission costs |
|
|
58,600 |
|
|
|
83,205 |
|
| Increase
(decrease) in liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
|
332,551 |
|
|
|
(149,465 |
) |
| Accrued expenses
and interest payable |
|
|
172,696 |
|
|
|
(2,077,141 |
) |
|
Unearned revenue |
|
|
(413,988 |
) |
|
|
(880,266 |
) |
| |
|
|
|
|
|
|
|
|
| Net
cash used in operating activities |
|
|
(395,427 |
) |
|
|
(2,768,529 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
| Acquisition of
property and equipment |
|
|
- |
|
|
|
(54,157 |
) |
| Proceeds from the
sale of property and equipment |
|
|
- |
|
|
|
311,300 |
|
| Proceeds from the
sales of investments |
|
|
- |
|
|
|
144,210 |
|
|
Patents and trademark fees |
|
|
- |
|
|
|
(2,183 |
) |
| |
|
|
|
|
|
|
|
|
| Net
cash provided by investing activities |
|
|
- |
|
|
|
399,170 |
|
| |
|
|
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
| Proceeds from
issuance of term debt |
|
|
- |
|
|
|
1,402,900 |
|
| Proceeds from the
issuance of notes - related parties |
|
|
500,000 |
|
|
|
533,039 |
|
| Proceeds from the
issuance of convertible notes payable |
|
|
- |
|
|
|
290,000 |
|
| Proceeds from
related party advances |
|
|
92,731 |
|
|
|
- |
|
| Repayment of
related party debt |
|
|
(162,500 |
) |
|
|
- |
|
| Repayment of
finance lease obligations |
|
|
(110,293 |
) |
|
|
(130,488 |
) |
|
Proceeds from issuance of preferred stock |
|
|
85,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net
cash provided by financing activities |
|
|
404,938 |
|
|
|
2,095,451 |
|
| |
|
|
|
|
|
|
|
|
| Net increase (decrease) in cash |
|
|
9,511 |
|
|
|
(273,908 |
) |
| |
|
|
|
|
|
|
|
|
| Cash - beginning of period |
|
|
151,175 |
|
|
|
620,539 |
|
| |
|
|
|
|
|
|
|
|
| Cash - end of period |
|
$ |
160,686 |
|
|
$ |
346,631 |
|
| |
|
|
|
|
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
287,521 |
|
|
$ |
331,849 |
|
| |
|
|
|
|
|
|
|
|
| Non-cash transactions: |
|
|
|
|
|
|
|
|
| Common stock
issued for accrued compensation |
|
$ |
- |
|
|
$ |
2,110,089 |
|
| Common stock
issued for settlement of related party payable |
|
|
- |
|
|
|
335,265 |
|
| Common stock
issued for cash received in prior period |
|
|
- |
|
|
|
38,000 |
|
| Common stock
issued for preferred stock |
|
|
- |
|
|
|
177 |
|
| Prepaid expenses
with common stock |
|
|
- |
|
|
|
291,000 |
|
| Prepaid expenses
with preferred stock |
|
|
506,080 |
|
|
|
- |
|
| Notes payable paid
with preferred stock |
|
|
1,124,436 |
|
|
|
- |
|
| Related party
notes payable paid with preferred stock |
|
|
4,254,992 |
|
|
|
|
|
| Warrants and
consulting paid by preferred stock |
|
|
58,500 |
|
|
|
- |
|
| Preferred stock
issued for stock subscription payable |
|
|
103,750 |
|
|
|
- |
|
| Vendor payables
paid with preferred stock |
|
|
943,021 |
|
|
|
- |
|
| Vendor payables
paid directly by related party |
|
|
100,000 |
|
|
|
- |
|
| Reduction of
third-party vendor payable with transfer of inventories |
|
|
- |
|
|
|
2,886,497 |
|
| Acquisition of
inventories with third-party vendor payable at commencement of
second sale agreement |
|
|
- |
|
|
|
2,886,497 |
|
| Derivatives issued
as a debt discount |
|
|
- |
|
|
|
65,000 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
DESCRIPTION OF BUSINESS
Nature
of Business
Vystar
Corporation (“Vystar”, the “Company”, “we,” “us,” or “our”) is
based in Worcester, Massachusetts. The Company uses patented
technology to produces a line of innovative air purifiers, which
destroy viruses and bacteria through the use of ultraviolet light.
Vystar is also the creator and exclusive owner to produce
Vytex® Natural Rubber Latex (“NRL”) currently being used
primarily in various bedding products. In addition, Vystar has a
majority ownership in Murida Furniture Co., Inc. dba Rotmans
Furniture (“Rotmans”), one of the largest independent furniture
retailers in the U.S.
On
September 1, 2022, our amendment effecting a 1-for-100 reverse stock split of
our common stock was effective, which was previously approved by
our Board of Directors on July 26, 2022. The total number of shares
which the Company is authorized to issue is 520,000,000, of
which 500,000,000 is
common and 20,000,000 is
preferred. All share and per share amounts have been adjusted in
these condensed consolidated financial statements to reflect the
effects of the reverse stock split. The Company is awaiting
FINRA approval to effectuate the reverse stock split.
NOTE
2 - BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The
condensed consolidated financial statements of the Company and the
accompanying notes included in this Quarterly Report on Form 10-Q
are unaudited. In the opinion of management, all adjustments
necessary for the fair presentation of the condensed consolidated
financial statements have been included. Such adjustments are of a
normal, recurring nature. The condensed consolidated financial
statements, and the accompanying notes, are prepared in accordance
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) and do not contain certain information
included in the Company’s Annual Report and Form 10-K for the year
ended December 31, 2021. Therefore, the interim condensed
consolidated financial statements should be read in conjunction
with that Annual Report on Form 10-K.
The
Company has evaluated subsequent events through the date of the
filing of its Form 10-Q with the Securities and Exchange
Commission. Other than those events disclosed in Note 18, the
Company is not aware of any other significant events that occurred
subsequent to the balance sheet date but prior to the filing of
this report that would have a material impact on the Company’s
financial statements.
Basis of Consolidation
The
condensed consolidated financial statements include the accounts of
the Company and its wholly-owned or controlled operating
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
COVID-19 and Economic Conditions
The
novel coronavirus (“COVID-19”) pandemic, its contributory efforts
on the economy and general economic conditions, continues to impact
our business and results of operations. During the nine months
ended September 30, 2022, we experienced rising product prices,
volatile transportation costs and supply chain disruptions. In
addition, discretionary consumer spending has been adversely
impacted by rising inflation, including fuel costs and interest
rates. We cannot reasonably estimate the extent and duration of any
future impact from the COVID-19 pandemic or general economic
conditions on our business. Accordingly, the estimates and
assumptions made as of September 30, 2022 could change in
subsequent interim reports, and it is reasonably possible that such
changes could be significant (although the potential effects cannot
be measured at this time).
Segment Reporting
Operating
segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision-making group, in
making decisions on how to allocate resources and assess
performance. The Company’s chief operating decision maker is the
chief executive officer. The Company and the chief executive
officer view the Company’s operations and manage its business as
one reportable segment with different operating
segments.
Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
disclosures. Significant estimates made by management include,
among others, allowance for obsolete inventory, the recoverability
of long-lived assets, valuation and impairment of intangible
assets, fair values of right of use assets and lease liabilities,
valuation of derivative liabilities, share-based compensation and
other equity issuances. Although these estimates are based on
management’s best knowledge of current events and actions the
Company may undertake in the future, actual results could differ
from these estimates.
Fair Value of Financial Instruments
The
Company’s financial instruments consist principally of cash,
accounts receivable, accounts payable, accrued expenses and
interest payable, shareholder notes payable, long-term debt and
unearned revenue. The carrying values of all the Company’s
financial instruments approximate or equal fair value because of
their short maturities and market interest rates or, in the case of
equity securities, being stated at fair value.
In
specific circumstances, certain assets and liabilities are reported
or disclosed at fair value. Fair value is the exit price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date in the Company’s principal market for such transactions. If
there is not an established principal market, fair value is derived
from the most advantageous market.
Valuation
inputs are classified in the following hierarchy:
|
|
● |
Level
1 inputs are unadjusted quoted prices in active markets for
identical assets or liabilities. |
| |
● |
Level
2 inputs are directly or indirectly observable valuation inputs for
the asset or liability, excluding Level 1 inputs. |
| |
● |
Level
3 inputs are unobservable inputs for the asset or
liability. |
Highest
priority is given to Level 1 inputs and the lowest priority to
Level 3 inputs. Acceptable valuation techniques include the market
approach, income approach, and cost approach. In some cases, more
than one valuation technique is used. The derivative liabilities
were recognized at fair value on a recurring basis through the date
of the settlement and September 30, 2022 and are level 3
measurements. There have been no transfers between levels during
the nine months ended September 30, 2022.
Acquisitions
Amounts
paid for acquisitions are allocated to the assets acquired and
liabilities assumed based on their estimated fair value at the date
of acquisition. The fair value of identifiable intangible assets is
based on valuations that use information and assumptions provided
by management. Identifiable intangible assets with finite lives are
amortized over their useful lives. Acquisition-related costs,
including, legal, accounting, and other costs, are capitalized in
asset acquisitions and for business combinations are expensed in
the periods in which the costs are incurred. The results of
operations of acquired assets are included in the financial
statements from the acquisition date.
Cash, Cash Equivalents and Restricted Cash
Cash
and cash equivalents include all liquid investments with a maturity
date of less than three months when purchased. Cash equivalents
also include amounts due from third-party financial institutions
for credit and debit card transactions which typically settle
within five days. Restricted cash represents cash balances
restricted as to withdrawal or use and are included in prepaid
expenses and other on the condensed consolidated balance
sheets.
Accounts Receivable, Net
Accounts
receivable, net are stated at the amount management expects to
collect from outstanding balances. The Company routinely sells,
without recourse, trade receivables resulting from retail furniture
sales to two financial institutions at an average service charge of
3% in 2022. Amounts sold during the
nine months ending September 30, 2022 were approximately $3,067,000. Retail furniture
receivables retained by the Company are generally collateralized by
the merchandise sold, represent valid claims against debtors for
sales arising on or before the balance sheet date and are reduced
to their estimated net realizable value. In addition, the Company
grants credit to Vystar customers without requiring collateral. The
amount of accounting loss for which Vystar is at risk in these
unsecured accounts receivable is limited to their carrying value.
Management provides for uncollectible amounts through a charge to
earnings and a credit to an allowance for doubtful accounts based
upon its assessment of the current status of individual accounts.
Balances that are still outstanding after management has performed
reasonable collection efforts are written off through a charge to
the allowance and a credit to accounts receivable. As of September
30, 2022 and December 31, 2021, the Company has recorded an
allowance for doubtful accounts of $267,000 and $273,000, respectively.
Other Receivables
Under
the provisions of the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) signed into law on March 27, 2020
and the subsequent extension of the CARES Act, the Company was
eligible for a refundable employee retention credit subject to
certain criteria. The Company recognized employee retention credits
of $771,287 during the year ended
December 31, 2021 which has been included in other income, net in
the consolidated statements of operations. The Company has filed
for refunds of the employee retention credits and as of the date of
this Quarterly Report on Form 10-Q has subsequently received
$154,468 and
estimates receiving the remaining refunds by the end of
2022.
Rotmans
terminated its agreement with a supplier in 2021 and will receive
$100,000 in
consideration. As of December 31, 2021, the remaining account
balance of $104,075
represents funds due from this termination. The Company has
received $37,408 during
the nine months ended September 30, 2022.
Inventories
Inventories
include those costs directly attributable to the product before
sale. Inventories consist primarily of finished goods of furniture,
mattresses, RxAir purifier units, 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 inventory on a regular
basis. Appropriate 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.
Prepaid Expenses and Other
Prepaid
expenses and other include restricted cash, amounts related to
prepaid insurance policies, which are expensed on a straight-line
basis over the life of the underlying policy, and other
expenses.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the
assets, generally 5 to 10 years, using
straight-line and accelerated methods.
Expenditures
for major renewals and betterments are capitalized, while routine
repairs and maintenance are expensed as incurred. When property
items are retired or otherwise disposed of, the asset and related
reserve accounts are relieved of the cost and accumulated
depreciation, respectively, and the resultant gain or loss is
reflected in earnings. As of September 30, 2022, the net balance of
property and equipment is $670,638 with accumulated
depreciation of $805,445.
As of December 31, 2021, the net balance of property and equipment
is $832,099 with accumulated
depreciation of $643,984.
Intangible Assets
Patents
represent legal and other fees associated with the registration of
patents. The Company has five issued patents with the United States
Patent and Trade Office (“USPTO”) as well as five issued
international Patent Cooperation Treaty (“PCT”) patents. Patents
are carried at cost and are being amortized on a straight-line
basis over their estimated useful lives, typically ranging from
9 to 20 years.
The
Company has trademark protection for “Vystar”, “Vytex”, and “RxAir”
among others. Trademarks are carried at cost and since their
estimated life is indeterminable, no amortization is recognized.
Instead, they are evaluated annually for impairment.
Customer
relationships, tradename and marketing related intangibles are
carried at cost and are being amortized on a straight-line basis
over their estimated useful lives, typically ranging from 5 to 10 years.
Our
intangible assets are reviewed for impairment annually or more
frequently as warranted by events of changes in circumstances. As
disclosed in Note 18, Rotmans will be closing its showroom at the
end of 2022. At that time, the carrying amounts of our intangible
assets may not be fully recoverable and an impairment charge will
be recorded.
Long-Lived Assets
We
review our long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets
may not be fully recoverable. We evaluate assets for potential
impairment by comparing estimated future undiscounted net cash
flows to the carrying amount of the assets. If the carrying amount
of the assets exceeds the estimated future undiscounted cash flows,
impairment is measured based on the difference between the carrying
amount of the assets and fair value. Assets to be disposed of would
be separately presented in the condensed consolidated balance sheet
and reported at the lower of the carrying amount or fair value less
costs to sell and are no longer depreciated. The assets and
liabilities of a disposal group classified as held-for-sale would
be presented separately in the appropriate asset and liability
sections of the condensed consolidated balance sheet, if material.
During the nine months ended September 30, 2022 and 2021, we did
not recognize any impairment of our long-lived assets. As disclosed
in Note 18, Rotmans will be closing its showroom at the end of
2022. At that time, the carrying amounts of the assets may not be
fully recoverable and an impairment charge will be
recorded.
Goodwill
Goodwill
reflects the cost of an acquisition in excess of the fair values
assigned to identifiable net assets acquired. Goodwill is not
amortized, rather, it is subject to a periodic assessment for
impairment by applying a fair value-based test. We perform our
annual impairment test at the end of each calendar year, or more
frequently if events or changes in circumstances indicate the asset
might be impaired.
Accounting
for acquisitions requires us to recognize, separately from
goodwill, the assets acquired and the liabilities assumed at their
acquisition-date fair values. Goodwill as of the acquisition date
is measured as the excess of consideration transferred and the net
of the acquisition-date fair values of the assets acquired and the
liabilities assumed. While we use best estimates and assumptions to
accurately value assets acquired and liabilities assumed at the
acquisition date, the estimates are inherently uncertain and
subject to refinement.
The
impairment model permits, and we utilize, a simplified approach for
determining goodwill impairment. In the first step, we evaluate the
recoverability of goodwill by estimating the fair value of our
reporting unit using multiple techniques, including an income
approach using a discounted cash flow model and a market approach.
Based on an equal weighting of the results of these two approaches,
a conclusion of fair value is estimated. The fair value is then
compared to the carrying value of our reporting unit. If the fair
value of a reporting unit is less than its carrying value, the
Company recognizes this amount as an impairment loss. Impairment
losses, limited to the carrying value of goodwill, represent the
excess of the carrying amount of goodwill over its implied fair
value.
As disclosed in Note 18, Rotmans will be closing its showroom at
the end of 2022. At that time, goodwill will be reviewed and, if
impaired, a loss will be recorded.
Convertible Notes Payable
Borrowings
are recognized initially at the principal amount received.
Borrowings are subsequently carried at amortized cost; any
difference between the proceeds (net of transaction costs) and the
redemption value is recognized as interest expense in the
statements of operations over the period of the borrowings using
the effective interest method.
Derivatives
The
Company evaluates its debt instruments 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 Accounting Standards Codification
(“ASC”) Topic 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
the fair value is recorded as a liability, the change in fair value
is recorded in the statements 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 Topic 815-40 are
reclassified to a liability account at the fair value of the
instrument on the reclassification date.
The
Company applies the accounting standard that provides guidance for
determining whether an equity-linked financial instrument, or
embedded feature, is indexed to an entity’s own stock. The standard
applies to any freestanding financial instrument or embedded
features that have the characteristics of a derivative, and to any
freestanding financial instruments that are potentially settled in
an entity’s own common stock. From time to time, the Company has
issued notes with embedded conversion features. Certain of the
embedded conversion features contain price protection or
anti-dilution features that result in these instruments being
treated as derivatives for accounting purposes. Accordingly, as of
September 30, 2022, the Company has classified all conversion
features as derivative liabilities and has estimated the fair value
of these embedded conversion features using a Monte Carlo
simulation model.
Unearned Revenue
Unearned
revenue consists of customer advance payments, deposits on sales of
undelivered merchandise and deferred warranty revenue on
self-insured stain protection warranty coverage.
Changes
to unearned revenue during the nine months ended September 30, 2022
and 2021 are summarized as follows:
SCHEDULE OF UNEARNED REVENUE
| |
|
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
| Balance, beginning of the period |
|
$ |
1,122,195 |
|
|
$ |
2,427,771 |
|
| |
|
|
|
|
|
|
|
|
| Customer deposits received |
|
|
9,368,761 |
|
|
|
20,250,952 |
|
| |
|
|
|
|
|
|
|
|
| Gift cards purchased |
|
|
1,200 |
|
|
|
9,610 |
|
| |
|
|
|
|
|
|
|
|
| Revenue
earned |
|
|
(9,783,948 |
) |
|
|
(21,140,827 |
) |
| |
|
|
|
|
|
|
|
|
| Balance, end of the period |
|
$ |
708,208 |
|
|
$ |
1,547,506 |
|
Loss Per Share
The Company presents basic and diluted loss per share. As the
Company reported a net loss in the nine months ended September 30,
2022 and 2021, common stock equivalents, including stock options
and warrants, were anti-dilutive; therefore, the amounts reported
for basic and dilutive loss per share were the same. Excluded from
the computation of diluted loss per share were options to purchase
266,000 and
267,500 shares of common stock for the nine months ended
September 30, 2022 and 2021, respectively, as their effect would be
anti-dilutive. Warrants to purchase
38,483 and
104,928 shares of common stock for the nine months ended
September 30, 2022 and 2021, respectively, were also excluded from
the computation of diluted loss per share as their effect would be
anti-dilutive. In addition, preferred stock series A convertible to
33,607 and
31,868 shares of common stock for the nine months ended
September 30, 2022 and 2021, respectively, were excluded from the
computation of diluted loss per share as their effect would be
anti-dilutive. Preferred stock series B and C convertible to
3,771,152 and
19,466,562 shares of common stock for the nine months ended
September 30, 2022 were excluded from the computation of diluted
loss per share as their effect would be anti-dilutive. Both
shareholder and Rotman Family contingently convertible notes of
2,249,987 and
3,862,190 shares of
common stock for the nine months ended September 30, 2022 and 2021,
respectively, were also excluded from the computation of diluted
loss per share as their effect would be anti-dilutive.
Revenue
Our
principal activities from which we generate our revenue are product
sales. Revenue is measured based on considerations specified in a
contract with a customer. A contract exists when it becomes a
legally enforceable agreement with a customer. The contract is
based on either the acceptance of standard terms and conditions at
the retail store and on the websites for e-commerce customers, or
the execution of terms and conditions contracts with retailers and
wholesalers. These contracts define each party’s rights, payment
terms and other contractual terms and conditions of the
sale.
Consideration
is typically paid prior to shipment via credit card or check when
our products are sold direct to consumers, which is typically
within 1 to 2 days or approximately 30 days from the time control
is transferred when sold to wholesalers, distributors and
retailers. We apply judgment in determining the customer’s ability
and intention to pay, which is based on a variety of factors
including the customer’s historical payment experience and, in some
circumstances, published credit and financial information
pertaining to the customer.
A
performance obligation is a promise in a contract to transfer a
distinct product to the customer, which for us is transfer of
finished goods to our customers. Performance obligations promised
in a contract are identified based on the goods that will be
transferred to the customer that are both capable of being distinct
and are distinct in the context of the contract, whereby the
transfer of the goods is separately identifiable from other
promises in the contract. We have concluded the sale of finished
goods and related shipping and handling are accounted for as the
single performance obligation.
The
transaction price of a contract is allocated to each distinct
performance obligation and recognized as revenue when or as the
customer receives the benefit of the performance obligation. The
transaction price is determined based on the consideration to which
we will be entitled to receive in exchange for transferring goods
to the customer. We issue refunds to retail, e-commerce and print
media customers, upon request, within 30 days of delivery. We
estimate the amount of potential refunds at each reporting period
using a portfolio approach of historical data, adjusted for changes
in expected customer experience, including seasonality and changes
in economic factors. For retailers, distributors and wholesalers,
we do not offer a right of return or refund and revenue is
recognized at the time products are shipped to customers. In all
cases, judgment is required in estimating these reserves. Actual
claims for returns could be materially different from the
estimates. As of September 30, 2022 and December 31, 2021, reserves
for estimated sales returns totaled $281,000 and
$337,000,
respectively, and are included in the accompanying condensed
consolidated balance sheets as accrued expenses.
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 or in-house delivery
services. Delivery fees are charged to customers and are included
in revenue in the accompanying condensed consolidated statements of
operations and the costs associated with these deliveries are
included in revenues as a third-party delivery service is engaged.
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 in
the accompanying condensed consolidated statements of
operations.
The
Company also defers revenues for separately-priced stain protection
warranty coverage for which it is ultimately self-insured. Revenue
is recognized from the extended warranty sales on a straight-line
basis over the respective contract term. The extended warranty
terms primarily range from three to five years from the date of
delivery. The Company ended
this warranty program during 2020 but continues to amortize the
previously contracted warranties over their original terms. The
Company currently offers a separately-priced stain protection
warranty serviced by a third-party. At September 30, 2022
and December 31, 2021, deferred warranty revenue was approximately
$301,000 and $524,000, respectively, and is
included in unearned revenue in the accompanying consolidated
balance sheets. During the nine months ended September 30, 2022 and
2021, the Company recognized total revenues of approximately
$217,000
and $308,000,
respectively, related to deferred warranty revenue arrangements.
Commission costs in obtaining extended warranty contracts are
capitalized and recognized as expense on a straight-line basis over
the period of the warranty contract. At September 30, 2022 and
December 31, 2021, deferred commission costs were approximately
$76,000 and $134,000, respectively, and
are included in the accompanying condensed consolidated balance
sheets. All other costs, such as costs of services performed under
the contract, general and administrative expenses, and advertising
costs are expensed as incurred.
Cost of Revenue
Cost
of revenue consists primarily of product and freight costs and fees
paid to online retailers.
Research and Development
Research
and development costs are expensed when incurred. Research and
development costs include all costs incurred related to the
research, development and testing. For the nine months ended
September 30, 2022 and 2021, Vystar’s research and development
costs were not significant.
Advertising Costs
Advertising
costs, which include television, radio, newspaper, digital and
other media advertising, are expensed upon first showing.
Advertising costs were approximately $850,000 and $1,774,000 for the nine months
ended September 30, 2022 and 2021, respectively.
Share-Based Compensation
The
fair value of stock options is estimated on the grant date using
the Black-Scholes option pricing model, based on weighted average
assumptions. Expected volatility is based on historical volatility
of our common stock. The Company has elected to use the simplified
method described in the Securities and Exchange Commission Staff
Accounting Bulletin Topic 14C to estimate the expected term of
employee stock options. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant. The value of
restricted stock awards is determined using the fair value of the
Company’s common stock on the date of grant. The Company accounts
for forfeitures as they occur. Compensation expense is recognized
on a straight-line basis over the requisite service period of the
award.
Income Taxes
Vystar
recognizes income taxes on an accrual basis based on a tax position
taken or expected to be taken in its tax returns. A tax position is
defined as a position in a previously filed tax return or a
position expected to be taken in a future tax filing that is
reflected in measuring current or deferred income tax assets or
liabilities. Tax positions are recognized only when it is more
likely than not (i.e., likelihood of greater than
50%), based on technical merits, that the position would be
sustained upon examination by taxing authorities. Tax positions
that meet the more likely than not threshold will be measured using
a probability-weighted approach as the largest amount of tax
benefit that is greater than 50% likely of being realized upon
settlement. Income taxes are accounted for using an asset and
liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in our financial statements or tax
returns. A valuation allowance is established to reduce deferred
tax assets if all, or some portion, of such assets will more likely
than not be realized. Should they occur, interest and penalties
related to tax positions are recorded as interest expense.
No
such interest or penalties have been incurred for the nine months
ended September 30, 2022 and 2021.
The
Company remains subject to income tax examinations from Federal and
state taxing jurisdictions for 2019 through 2021.
Concentration of Credit Risk
Certain
financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist
primarily of cash and accounts receivable. Cash held in operating
accounts may exceed the Federal Deposit Insurance Corporation, or
FDIC, insurance limits. While the Company monitors cash balances in
our operating accounts on a regular basis and adjust the balances
as appropriate, these balances could be impacted if the underlying
financial institutions fail. To date, the Company has experienced
no loss or lack of access to our cash; however, the Company can
provide no assurances that access to our cash will not be impacted
by adverse conditions in the financial markets. Credit
concentration risk related to accounts receivable is mitigated as
customer credit is checked prior to the sales.
Other Risks and Uncertainties
The
Company is exposed to risks pertinent to the operations of a
retailer, including, but not limited to, the ability to acquire new
customers and maintain a strong brand as well as broader economic
factors such as interest rates and changes in customer spending
patterns.
Recent Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt – Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).
The new ASU eliminates the beneficial conversion and cash
conversion accounting models for convertible instruments. It also
amends the accounting for certain contracts in an entity’s own
equity that are currently accounted for as derivatives because of
specific settlement provisions. In addition, the new guidance
modifies how particular convertible instruments and certain
contracts that may be settled in cash or shares impact the diluted
EPS computation. The amendments in the ASU are effective for public
business entities that meet the definition of an SEC filer,
excluding entities eligible to be smaller reporting companies as
defined by the SEC, for fiscal years beginning after December 15,
2021, including interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years
beginning after December 15, 2023, including interim periods within
those fiscal years. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Board also specified
that an entity should adopt the guidance as of the beginning of its
annual fiscal year and is not permitted to adopt the guidance in an
interim period. The Company is still evaluating the effect the
adoption will have on its financial statements.
NOTE
3 -
LIQUIDITY AND GOING CONCERN
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, the Company has incurred
significant losses and experienced negative cash flow since
inception. At September 30, 2022, the Company had cash of
$160,686 and a deficit in working capital of
approximately $4.6 million. Further, at
September 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 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 attaining 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, increased revenue from RxAir
air purification units, Vytex license fees and stock issuances to
new and existing shareholders.
There
can be no assurances the Company will be able to achieve projected
levels of revenue in 2022 and beyond. If the Company is not able to
achieve projected revenue and obtain alternate additional financing
of equity or debt, the Company would need to significantly curtail
or reorient operations during 2022, which could have a material
adverse effect on the ability to achieve the 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.
The
Company’s future expenditures will depend on numerous factors,
including: the rate at which the Company can introduce RxAir air
purification units and license Vytex NRL raw materials to
manufacturers, and subsequently retailers; the costs of filing,
prosecuting, defending and enforcing any patent claims and other
intellectual property rights; market acceptance of the Company’s
products, services and competing technological developments; the
Company’s ability to successfully acquire new customers and
maintain a strong brand; and broader economic factors such as
interest rates and changes in customer spending patterns. As the
Company expands its activities and operations, cash requirements
are expected to increase at a rate consistent with revenue growth
after the Company has achieved sustained revenue
generation.
NOTE
4 -
INVESTMENTS – EQUITY SECURITIES
Investments,
which represented equity securities in a publicly traded company,
were sold during the nine months ended September 30, 2021 at a gain
of approximately $16,000 which is included in
other income (expense).
NOTE
5 - PROPERTY AND
EQUIPMENT
Property
and equipment, net consists of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT,
NET
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
| Furniture, fixtures and
equipment |
|
$ |
588,624 |
|
|
$ |
588,624 |
|
| Tooling and testing equipment |
|
|
338,572 |
|
|
|
338,572 |
|
| Parking lots |
|
|
365,707 |
|
|
|
365,707 |
|
| Leasehold improvements |
|
|
134,014 |
|
|
|
134,014 |
|
| Motor
vehicles |
|
|
49,166 |
|
|
|
49,166 |
|
| |
|
|
|
|
|
|
|
|
|
Property and equipment, gross |
|
|
1,476,083 |
|
|
|
1,476,083 |
|
| Accumulated
depreciation |
|
|
(805,445 |
) |
|
|
(643,984 |
) |
| |
|
|
|
|
|
|
|
|
| Property and
equipment, net |
|
$ |
670,638 |
|
|
$ |
832,099 |
|
Depreciation
expense for the nine months ended September 30, 2022 and 2021 was
$161,461 and $289,569,
respectively.
NOTE
6 -
INTANGIBLE ASSETS
Intangible
assets consist of the following:
SCHEDULE OF INTANGIBLE ASSETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
September
30, |
|
|
December
31, |
|
|
Amortization
Period |
| |
|
2022 |
|
|
2021 |
|
|
(in
Years) |
|
Amortized
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
6 - 10 |
|
Proprietary
technology |
|
|
280,000 |
|
|
|
280,000 |
|
|
10 |
|
Tradename
and brand |
|
|
1,050,000 |
|
|
|
1,050,000 |
|
|
5 - 10 |
|
Marketing
related |
|
|
380,000 |
|
|
|
380,000 |
|
|
5 |
|
Patents |
|
|
361,284 |
|
|
|
361,284 |
|
|
6 - 20 |
|
Noncompete |
|
|
50,000 |
|
|
|
50,000 |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,271,284 |
|
|
|
2,271,284 |
|
|
|
|
Accumulated
amortization |
|
|
(1,330,422 |
) |
|
|
(1,071,486 |
) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net |
|
|
940,862 |
|
|
|
1,199,798 |
|
|
|
| Indefinite-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
9,072 |
|
|
|
9,072 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets |
|
$ |
949,934 |
|
|
$ |
1,208,870 |
|
|
|
Amortization
expense for the nine months ended September 30, 2022 and 2021 was
$258,936 and
$287,970,
respectively.
Estimated
future amortization expense for finite-lived intangible assets is
as follows:
SCHEDULE OF ESTIMATED FUTURE AMORTIZATION
EXPENSE
| |
|
|
|
|
| |
|
Amount |
|
| |
|
|
|
| Remaining in 2022 |
|
$ |
86,313 |
|
| 2023 |
|
|
338,638 |
|
| 2024 |
|
|
239,411 |
|
| 2025 |
|
|
90,550 |
|
| 2026 |
|
|
71,232 |
|
|
Thereafter |
|
|
114,718 |
|
| |
|
|
|
|
| Total |
|
$ |
940,862 |
|
NOTE
7 -
LEASES
The
Company leases equipment, a showroom, offices and warehouse
facilities. These leases expire at various
dates through 2024 with options to extend to
2031.
The
table below presents the lease costs for the three and nine months
ended September 30, 2022 and 2021:
SCHEDULE OF LEASE COST
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
September 30. |
|
|
September 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating lease cost |
|
$ |
289,824 |
|
|
$ |
396,937 |
|
|
$ |
865,628 |
|
|
$ |
1,189,481 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of
right-of-use assets |
|
|
30,276 |
|
|
|
45,912 |
|
|
|
114,450 |
|
|
|
137,736 |
|
|
Interest on lease liabilities |
|
|
8,342 |
|
|
|
8,371 |
|
|
|
22,439 |
|
|
|
26,792 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total lease
cost |
|
$ |
328,442 |
|
|
$ |
451,220 |
|
|
$ |
1,002,517 |
|
|
$ |
1,354,009 |
|
During
the nine months ended September 30, 2022 and 2021, the Company
recognized sublease income of approximately $102,000 and $81,000, respectively, which is
included in other income (expense), net in the accompanying
condensed consolidated statements of operations.
Our
leases generally do not provide an implicit rate, and therefore we
use our incremental borrowing rate as the discount rate when
measuring operating lease liabilities. The incremental borrowing
rate represents an estimate of the interest rate we would incur at
lease commencement to borrow an amount equal to the lease payments
on a collateralized basis over the term of the lease. We used
incremental borrowing rates as of the implementation date for
operating leases that commenced prior to that date.
The
following table presents other information related to
leases:
SCHEDULE OF OTHER INFORMATION RELATED TO
LEASES
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash paid for amounts included in the
measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows used for operating leases |
|
$ |
264,539 |
|
|
$ |
375,911 |
|
|
$ |
790,159 |
|
|
$ |
1,127,733 |
|
| Financing cash
flows used for financing leases |
|
|
35,572 |
|
|
|
52,427 |
|
|
|
130,732 |
|
|
|
157,281 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets obtained in exchange for
operating lease liabilities |
|
|
320,732 |
|
|
|
- |
|
|
|
320,732 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets obtained in exchange for
finance lease liabilities |
|
|
- |
|
|
|
- |
|
|
|
4,739 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average remaining lease term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
leases |
|
|
8.0
years |
|
|
|
9
years |
|
|
|
8.0
years |
|
|
|
9
years |
|
| Finance
leases |
|
|
3.7
years |
|
|
|
4.4
years |
|
|
|
3.7
years |
|
|
|
4.4
years |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average discount rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
leases |
|
|
5.61 |
% |
|
|
5.59 |
% |
|
|
5.61 |
% |
|
|
5.59 |
% |
| Finance
leases |
|
|
5.16 |
% |
|
|
5.16 |
% |
|
|
5.16 |
% |
|
|
5.16 |
% |
The
future minimum lease payments required under operating and
financing lease obligations as of September 30, 2022 having initial
or remaining non-cancelable lease terms in excess of one year are
summarized as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS REQUIRED
UNDER OPERATING AND FINANCING LEASE OBLIGATIONS
| |
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
Remainder of 2022 |
|
$ |
264,540 |
|
|
$ |
34,770 |
|
|
$ |
299,310 |
|
|
2023 |
|
|
1,049,351 |
|
|
|
139,080 |
|
|
|
1,188,431 |
|
|
2024 |
|
|
955,272 |
|
|
|
139,080 |
|
|
|
1,094,352 |
|
|
2025 |
|
|
870,000 |
|
|
|
139,080 |
|
|
|
1,009,080 |
|
|
2026 |
|
|
870,000 |
|
|
|
68,395 |
|
|
|
938,395 |
|
|
Thereafter |
|
|
3,552,500 |
|
|
|
- |
|
|
|
3,552,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total
undiscounted lease liabilities |
|
|
7,561,663 |
|
|
|
520,405 |
|
|
|
8,082,068 |
|
| Less:
imputed interest |
|
|
(1,454,613 |
) |
|
|
(48,077 |
) |
|
|
(1,502,690 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
lease liabilities |
|
$ |
6,107,050 |
|
|
$ |
472,328 |
|
|
$ |
6,579,378 |
|
As of
September 30, 2022, the Company does not have additional operating
and finance leases that have not yet commenced.
NOTE
8 -
NOTES PAYABLE AND LOAN FACILITY
Letter of Credit
The
Company entered into a $125,000 letter of credit agreement
with Fidelity Co-operative Bank in November 2020. The pledged
collateral of a $125,000 cash deposit account is
included in prepaid expenses and other. The letter of credit was
required pursuant to an agreement with a third-party financial
institution for customer financing.
Advances
On
May 29, 2020, Rotmans entered into a sale promotion consulting
agreement with a national furniture sales event company. Under the
agreement, Rotmans appointed the third-party as its exclusive agent
to assist with a high-impact sale. Before the sale, the agent
advanced the Company funds of approximately $2,300,000 to pay
off a bank line of credit and certain other vendors. The agent will
be reimbursed for the advance from the proceeds of the sale. The
initial sales agreement with the agent ended in May 2021. A new
agreement was entered into with the agent in June 2021. The
remaining inventories on hand were used to pay off the liability of
the first sale and then simultaneously purchased back for the next
sale. The agreement has been amended numerous times and will end in
October 2022 as disclosed in Note 18. The agent has a senior first
priority security interest and lien in Rotmans inventories and
other assets until all obligations and liabilities are satisfied.
The outstanding balance of the advance is approximately $1,947,000 and
$2,082,000 as of
September 30, 2022 and December 31, 2021, respectively, and is
included in accounts payable in the accompanying condensed
consolidated balance sheet.
Term Notes
On
April 16, 2020, Rotmans received $1,402,900 in loan funding from the
Paycheck Protection Program (the “PPP”), established pursuant to
the recently enacted Coronavirus Aid, Relief, and Economic Security
Act (the “CARES Act”) and administered by the U.S. Small Business
Administration (“SBA”). The unsecured loan (the “PPP Loan”) was
evidenced by a promissory note of the Company dated April 16, 2020
(the “Note”) in the principal amount of $1,402,900 with United Community
Bank (the “Bank”), the lender. Under the terms of the Note and the
PPP Loan, interest accrues on the outstanding principal at the rate
of 1.0% per annum. The
term of the Note was two years, though it may be payable sooner in
connection with an event of default under the Note. On January 24, 2021, the PPP loan was
fully forgiven by the SBA.
On
February 2, 2021, Rotmans received an additional $1,402,900 in PPP loan funding from the
SBA. The terms of the Note were the same as the original PPP Loan.
On June 25, 2021, the PPP loan was fully forgiven by the
SBA.
Shareholder, Convertible and Contingently Convertible Notes
Payable
The
following table summarizes shareholder, convertible and
contingently convertible notes payable:
SCHEDULE OF LONG-TERM DEBT
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
Shareholder, convertible and contingently convertible notes |
|
$ |
309,500 |
|
|
$ |
1,241,895 |
|
|
Accrued interest |
|
|
22,748 |
|
|
|
147,009 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholder notes and accrued interest |
|
|
332,248 |
|
|
|
1,388,904 |
|
| Less:
current maturities |
|
|
(332,248 |
) |
|
|
(1,388,904 |
) |
| |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
- |
|
|
$ |
- |
|
Shareholder Convertible Notes Payable
During
the year ended December 31, 2018, the Company issued shareholder
contingently convertible notes payable, some of which were for
contract work performed by other entities in lieu of compensation
and expense reimbursement, totaling approximately $335,000. The notes are (i)
unsecured, (ii) bear interest at an annual rate of five percent
(5%) from date of issuance, and (iii)
are convertible at the Company’s option post April 19, 2018.
The notes mature one
year from issuance but may be extended one (1) additional year by
the Company. If converted, the notes plus accrued interest
are convertible into shares of the Company’s common stock at the
prior twenty (20) day average closing price with a 50% discount.
The outstanding balance of all of these notes as of September 30,
2022 and December 31, 2021 is $19,500 and $338,195, respectively. The
notes matured in January 2020 and continue to accrue interest until
settlement. The unpaid balance on the notes bears interest at an
annual rate of eight percent (8%) in arrears. All of these notes
except one were settled in April 2022 at a gain of approximately
$98,000. The Company
issued 53,822 shares of its preferred stock
series B in July to complete the settlement.
During
the year ended December 31, 2019, the Company issued certain
contingently convertible promissory notes in varying amounts to
existing shareholders which totaled $613,700. The face amount of the
note represents the amount due at maturity along with the accrued
interest at an annual rate of five percent (5%). The amount can be converted into
shares of the Company’s stock, at the option of the Company, based
on the average closing price for the trailing 20 days prior to
conversion and carrying a 35% to 50% discount. These notes
can be converted only after an acceleration event which involves a
symbol change, uplisting, or reverse stock split and such
conversion is in the control of the Company. All of these notes
were settled in April 2022 at a gain of approximately $142,000. The Company
issued 98,933 shares of its preferred stock
series B in July to complete the settlement.
During
the year ended December 31, 2021, the Company issued certain
contingently convertible promissory notes in varying amounts to
existing shareholders which totaled $290,000. The notes are unsecured
and bear interest at an annual rate of five percent (5%) from date of issuance. The face
amount of the notes represents the amount due at maturity along
with the accrued interest. In the event that the spin-off of RxAir
does not occur within 2023, the Company will convert these notes
into common stock at a conversion price of $1.60. If the spin-off does occur,
these notes will convert into RxAir common stock with two conversion prices of $0.15 and $2,
which equates to a blended conversion price of $0.18. All of
these notes are outstanding as of September 30, 2022. At the
issuance date of these notes, it was determined they contain a
beneficial conversion feature amounting to approximately $90,000. As these
notes are contingently convertible, the beneficial conversion
feature will not be recorded on the consolidated financial
statements until the actual conversion occurs.
Based
on the variable conversion price of these notes issued prior to
2021, the Company recorded the embedded conversion features as
derivative liabilities, which amounted to $647,100 at December 31, 2021.
With the debt settlements beginning in April 2022, the value of the
embedded conversion features on the one remaining note was
$17,800 at September 30,
2022.
Related Party Debt
The
following table summarizes related party debt:
SCHEDULE OF RELATED PARTY
DEBT
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
Rotman Family convertible notes |
|
$ |
5,000 |
|
|
$ |
1,967,737 |
|
| Rotman
Family nonconvertible notes |
|
|
577,500 |
|
|
|
1,953,509 |
|
|
Accrued interest |
|
|
33,525 |
|
|
|
384,238 |
|
| Debt
discount |
|
|
- |
|
|
|
(27,083 |
) |
| |
|
|
|
|
|
|
|
|
|
Long term debt, current |
|
|
616,025 |
|
|
|
4,278,401 |
|
| Less:
current maturities |
|
|
(616,025 |
) |
|
|
(1,487,000 |
) |
| |
|
|
|
|
|
|
|
|
|
Long term debt |
|
$ |
- |
|
|
$ |
2,791,401 |
|
Rotman Family Convertible Notes
On
September 30, 2019, the Company issued contingently convertible
promissory notes totaling $180,000 to Steven Rotman
($105,000) and Greg Rotman
($75,000). These notes are (i)
unsecured, (ii) bear interest at an annual rate of eight percent
(8%) from date of
issuance, (iii) are convertible at the Company’s option after
December 31, 2019, and (iv) mature five years from issuance. If
converted, the notes plus accrued interest are convertible into
shares of the Company’s common stock at the average of the five
lowest closing prices in the 90-day period prior to conversion with
a 50% discount. These
notes were settled by the Company in July 2022 with the issuance of
48,276
and 25,812
shares of preferred stock series C to Steven and Greg Rotman,
respectively. The balance of the notes payable including accrued
interest to Steven and Greg Rotman is approximately $126,000 and
$66,000,
respectively, at December 31, 2021.
On
July 18, 2019, the Company issued contingently convertible notes
totaling $1,522,500 to Steven Rotman
($1,102,500) and Bernard Rotman
($420,000) as partial consideration
for the acquisition of 58% of Rotmans. These notes
are (i) unsecured, and (ii) bear interest at an annual rate of five
percent (5%) from date of
issuance. These notes can be converted only after an acceleration
event which involves a symbol change, or reverse stock split and
such conversion is in the control of the Company. Steven Rotman’s note
matures eight years from issuance and Bernard Rotman’s note matures
four years from issuance. If converted, the notes plus
accrued interest are convertible into shares of the Company’s
common stock at a 20-day average closing price at a 50% discount. These
notes were settled by the Company in July 2022 with the issuance of
474,336
and 180,699
shares of preferred stock series C to Steven and Bernard Rotman,
respectively. The balance of the notes payable including accrued
interest to Steven and Bernard Rotman were approximately $1,238,000 and
$472,000,
respectively, at December 31, 2021.
On
December 19, 2019, the Company issued a contingently convertible
promissory note totaling $100,000 to Steven Rotman. The face
amount of the note represents the amount due at maturity along with
the accrued interest at 5%. The amount can be converted into
shares of the Company’s stock, at the option of the Company, based
on the average closing price for the trailing 20 days prior to
conversion and carrying 50% discount. The note
can be converted only after an acceleration event which involves a
symbol change, uplisting, or reverse stock split and such
conversion is in the control of the Company. The note was extended
to mature two years from issuance. This note was
settled by the Company in July 2022 with the issuance of 42,225
shares of preferred stock series C. The balance of the note payable
including accrued interest to Steven Rotman is approximately
$110,000 at
December 31, 2021, respectively.
On
February 20, 2020, the Company issued a contingently convertible
promissory note totaling $50,000 to Steven Rotman. The face amount
of the note represents the amount due at maturity along with the
accrued interest at 5%. The amount can be converted into
shares of the Company’s stock, at the option of the Company, based
on the average closing price for the trailing 20 days prior to
conversion and carrying 50% discount. The note
can be converted only after an acceleration event which involves a
symbol change, uplisting, or reverse stock split and such
conversion is in the control of the Company. The note matures
two years from issuance. This note was
settled by the Company in July 2022 with the issuance of 20,913
shares of preferred stock series C. The balance of the note payable
including accrued interest to Steven Rotman is approximately
$55,000 at
December 31, 2021.
On
June 3, 2021, the Company issued a contingently convertible
promissory note totaling $130,030 to Gregory Rotman. The face
amount of the note represents the amount due at maturity along with
the accrued interest at 5%. The amount can be
converted into shares of the Company’s stock, at the holder’s
option, based on the average closing price for the trailing 20 days
prior to conversion and carrying 50% discount or
$1.65 per share whichever is lower.
The holder may elect to accelerate conversion in the event of a
spin-out or reverse split. The note matures two years from issuance. This note was
settled by the Company in July 2022 with the issuance of 51,896
shares of preferred stock series C. The balance of the note payable
including accrued interest to Gregory Rotman is approximately
$134,000
December 31, 2021.
On
August 17, 2021, the Company issued a contingently convertible
promissory note totaling $5,000 to Jamie Rotman. The note is
unsecured and bears interest at an annual rate of five percent
(5%) from date of
issuance. The face amount of the note represents the amount due at
maturity along with the accrued interest. In the event that the
spin-off of RxAir does not occur within 2023, the Company will
convert the note into common stock at a conversion price of
$1.60. If the spin-off does occur,
the note will convert into RxAir common stock with two conversion prices of $0.15 and $2,
which equates to a blended conversion price of $0.18. At the
issuance date of this note, it was determined to contain a
beneficial conversion feature amounting to approximately $2,000. As this
note is contingently convertible, the beneficial conversion feature
will not be recorded on the consolidated financial statements until
the actual conversion occurs. The balance of the note payable
including accrued interest to Jamie Rotman is approximately
$5,000
at September 30, 2022 and December 31, 2021.
The
following table summarizes the Rotman Family Convertible
Notes:
SCHEDULE OF NOTES PAYABLE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Carrying
Amount |
|
| |
|
|
|
Principal |
|
|
September
30, |
|
|
December
31, |
|
| |
|
Issue
Date |
|
Amount |
|
|
2022 |
|
|
2021 |
|
|
Steven
Rotman 8.00% note due July 2024 |
|
07/18/19 |
|
$ |
105,000 |
|
|
$ |
- |
|
|
$ |
126,000 |
|
|
Gregory
Rotman 8.00% note due July 2024 |
|
07/18/19 |
|
|
55,207 |
|
|
|
- |
|
|
|
66,264 |
|
|
Steven
Rotman 5.00% note due July 2027 |
|
07/18/19 |
|
|
1,102,500 |
|
|
|
- |
|
|
|
1,238,016 |
|
|
Bernard
Rotman 5.00% note due July 2023 |
|
07/18/19 |
|
|
420,000 |
|
|
|
- |
|
|
|
471,625 |
|
|
Steven
Rotman 5.00% note due December 2021 |
|
12/19/19 |
|
|
100,000 |
|
|
|
- |
|
|
|
110,208 |
|
|
Steven
Rotman 5.00% note due February 2022 |
|
02/02/20 |
|
|
50,000 |
|
|
|
- |
|
|
|
54,583 |
|
|
Gregory
Rotman 5.00% note due June 2023 |
|
06/03/21 |
|
|
130,030 |
|
|
|
- |
|
|
|
133,822 |
|
|
Jamie
Rotman
5.00% note due
August 2022 |
|
08/17/21 |
|
|
5,000 |
|
|
|
5,250 |
|
|
|
5,094 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instrument, carrying amount |
|
|
|
$ |
1,967,737 |
|
|
|
5,250 |
|
|
|
2,205,612 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Discount |
|
|
|
|
|
|
|
|
- |
|
|
|
(27,083 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
|
|
|
|
|
$ |
5,250 |
|
|
$ |
2,178,529 |
|
Based
on the variable conversion price for these convertible notes
excluding the one issued in August 2021, the Company recorded the
embedded conversion features as derivative liabilities, which
amounted to $1,131,000 at December 31,
2021. With the subsequent conversions in July 2022, there was
no value of the embedded
conversion features at September 30, 2022.
Rotman Family Nonconvertible Notes
In
connection with the acquisition of 58% of Rotmans, Steven and
Bernard Rotman were issued related party notes payable in the
amounts of $367,500 and
$140,000,
respectively. The notes bear interest at an annual rate of five
percent (5%). Steven Rotman’s
note matures eight years from issuance and Bernard
Rotman’s note matures four years from issuance. Payments of
$3,828 and $2,917 to Steven and
Bernard Rotman, respectively, per month were scheduled to begin six
months from issuance until maturity in December
2027 and 2023, respectively. Steven Rotman’s note was
settled by the Company in July with the issuance of 158,112
shares of preferred stock series C. The balance of Bernard Rotman’s
note including accrued interest is approximately $162,000
at September 30, 2022. The balance of these notes payable including
accrued interest to Steven and Bernard Rotman is approximately
$413,000
and $157,000,
respectively, at December 31, 2021.
During
the six months ended December 31, 2020, Steven Rotman advanced the
Company funds totaling $1,048,000. In December
2020, the Company formalized the advances and issued a promissory
note to Steven Rotman. The note bears interest at an annual rate of
five percent (5%) and was due one year from
issuance. The maturity date has been extended to December 2022. The
face amount of the note represents the amount due at maturity along
with accrued interest. This note was settled by the Company in July
2022 with the issuance of 427,296
shares of preferred stock series C. The balance of the note payable
including accrued interest to Steven Rotman is approximately
$1,115,000,
at December 31, 2021.
During
2021, Steven Rotman advanced the Company funds totaling $398,009. The Company
formalized the advances and issued promissory notes to Steven
Rotman. The notes bear interest at an annual rate of five percent
(5%) and are due no later than
two years from the issuance date. The face amount of the notes
represents the amount due at maturity along with accrued interest.
These notes were settled by the Company in July 2022 with the
issuance of 158,908
shares of preferred stock series C. The balance of the notes
payable including accrued interest to Steven Rotman is
approximately $415,000
at December 31, 2021.
In
April 2022, Blue Oar Consulting, Inc. (“Blue Oar”), an entity
wholly owned by Gregory Rotman, advanced the Company $500,000 and paid bills
totaling $100,000 on the Company’s
behalf. The Company formalized the advances and issued a promissory
note to Blue Oar. The note bears interest at an annual rate of six
percent (6%) and requires weekly payments
of $12,500 until the note and
interest is paid in full. The Company also granted Blue Oar a
security interest in Murida’s inventory.
The
following table summarizes the Rotman Family Nonconvertible
Notes:
SCHEDULE OF NOTES PAYABLE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Carrying
Amount |
|
| |
|
|
|
Principal |
|
|
September
30, |
|
|
December
31, |
|
| |
|
Issue
Date |
|
Amount |
|
|
2022 |
|
|
2021 |
|
|
Steven
Rotman 5.00% note due July 2027 |
|
07/18/19 |
|
$ |
367,500 |
|
|
$ |
- |
|
|
$ |
412,672 |
|
|
Bernard
Rotman 5.00% note due July 2023 |
|
07/18/19 |
|
|
140,000 |
|
|
|
162,458 |
|
|
|
157,208 |
|
|
Steven
Rotman 5.00% note due December 2022 |
|
12/22/20 |
|
|
1,048,000 |
|
|
|
- |
|
|
|
1,115,243 |
|
|
Steven
Rotman 5.00% note due March 2023 |
|
03/31/21 |
|
|
395,000 |
|
|
|
- |
|
|
|
411,652 |
|
|
Steven
Rotman 5.00% note due June 2023 |
|
06/02/21 |
|
|
3,009 |
|
|
|
- |
|
|
|
3,097 |
|
|
Blue
Oar 6.00% note due May 2023 |
|
04/28/22 |
|
|
600,000 |
|
|
|
448,317 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,553,509 |
|
|
$ |
610,775 |
|
|
$ |
2,099,872 |
|
Approximate
maturities for the succeeding years are as follows:
SCHEDULE OF MATURITIES OF NOTES
PAYABLE
|
|
|
|
|
|
|
Remainder
of 2022 |
|
$ |
345,000 |
|
|
2023 |
|
|
271,025 |
|
|
|
|
|
|
|
|
Long term debt |
|
$ |
616,025 |
|
NOTE
9 -
DERIVATIVE LIABILITIES
As of
September 30, 2022 and December 31, 2021, the Company had a
$17,800 and $1,778,100, respectively,
derivative liability balance on the condensed consolidated balance
sheet and recorded a gain from change in fair value of derivative
liabilities of $240,300 and
$1,760,300 for
the three months and nine months ended September 30, 2022,
respectively. The derivative liability activity comes from the
convertible notes payable. The Company analyzed the conversion
features and warrants of the various note agreements for derivative
accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be
classified as a derivative because the exercise price of these
Convertible notes are subject to a variable conversion rate. The
Company has determined that the conversion feature is not
considered to be solely indexed to the Company’s own stock and is
therefore not afforded equity treatment. In accordance with ASC
815, the Company has bifurcated the conversion feature of the notes
and recorded a derivative liability.
The
embedded derivatives for the notes are carried on the Company’s
condensed consolidated balance sheet at fair value. The derivative
liability is marked-to-market each measurement period and any
unrealized change in fair value is recorded as a component of the
condensed consolidated statement of operations and the associated
fair value carrying amount on the consolidated balance sheet is
adjusted by the change. The Company fair values the embedded
derivative using a lattice-based valuation model or Monte Carlo
simulation. With the settlement of all except one of the
convertible notes payable, the balance has been significantly
reduced as of September 30, 2022.
The
following table summarizes the derivative liabilities included in
the condensed consolidated balance sheet at September 30, 2022 and
December 31, 2021:
Fair
Value of Embedded Derivative Liabilities:
SCHEDULE OF DERIVATIVE
LIABILITIES
| |
|
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
Balance,
beginning of the period |
|
$ |
1,778,100 |
|
|
$ |
1,766,700 |
|
| |
|
|
|
|
|
|
|
|
|
Initial
measurement of liabilities |
|
|
- |
|
|
|
65,000 |
|
| |
|
|
|
|
|
|
|
|
|
Change
in fair value |
|
|
(1,760,300 |
) |
|
|
(53,600 |
) |
| |
|
|
|
|
|
|
|
|
| Balance,
end of the period |
|
$ |
17,800 |
|
|
$ |
1,778,100 |
|
NOTE
10 -
STOCKHOLDERS’ DEFICIT
Cumulative
Convertible Preferred Stock
Series A Preferred Stock
On
May 2, 2013, the Company began a private placement offering to sell
up to 200,000
shares of the Company’s 10% Series A
Cumulative Convertible Preferred Stock. Under the terms of the
offering, the Company offered to sell up to 200,000 shares of
preferred stock at $10 per share for a
value of $2,000,000. The
conversion price was lowered to $5.00 per common share for
those holders who invested an additional $25,000 or more in the
Company’s common stock in the aforementioned September 2014 Private
Placement. The preferred shares have full voting rights as if
converted and have a fully participating liquidation
preference.
As of
September 30, 2022, the 8,698 shares of
outstanding preferred stock had undeclared dividends of
approximately $81,000 and
could be converted into 33,607 shares of
common stock, at the option of the holder.
As of
December 31, 2021, the 8,698 shares of
outstanding preferred stock had undeclared dividends of
approximately $75,000 and
could be converted into 32,303 shares of
common stock, at the option of the holder.
Series B Preferred Stock
On
April 11, 2022, the Company amended its Articles of Incorporation
to add the terms of a 10% Series B
Cumulative Convertible Preferred Stock. Under the amendment, the
number of shares authorized are 2,500,000. The
preferred stock accumulates a 10% per annum
dividend and is convertible into 10 shares of
common stock at the option of the holder. The holders of Series B
preferred stock have full voting rights as if converted and have a
fully participating liquidation preference.
As of
September 30, 2022, the
370,969 shares
of outstanding preferred stock had undeclared dividends of
approximately $43,000
and
could be converted into
3,771,519 shares
of common stock, at the option of the holder.
Series C Preferred Stock
On
July 8, 2022, the Company amended its Articles of Incorporation to
add the terms of a 10% Series C
Cumulative Convertible Preferred Stock. Under the amendment, the
number of shares authorized are 2,500,000. The
preferred stock accumulates a 10% per annum
dividend and is convertible into 10 shares of
common stock at the option of the holder. The holders of Series C
preferred stock have full voting rights as if converted and have a
fully participating liquidation preference.
As of
September 30, 2022, the
1,917,973 shares
of outstanding preferred stock had undeclared dividends of
approximately $75,000
and
could be converted into
19,466,562 shares
of common stock, at the option of the holder.
Common
Stock and Warrants
During
the nine months ended September 30, 2022, the Company retired
200 shares of previously issued common
stock. Included in stock subscription payable at September 30,
2022, is $270,000 received
under common stock subscription agreements for
180,000 shares during the year ended December 31,
2020.
Stock
Subscription Payable
At
September 30, 2022 and December 31, 2021, the Company recorded
$1,539,600 and $1,247,549, respectively,
of stock subscription payable related to common stock to be issued.
The following summarizes the activity of stock subscription payable
during the period ended September 30, 2022 and December 31,
2021:
SCHEDULE OF ACTIVITY OF STOCK SUBSCRIPTION
PAYABLE
| |
|
Amount |
|
|
Shares |
|
| |
|
|
|
|
|
|
|
Balance,
January 1, 2021 |
|
$ |
2,589,556 |
|
|
|
994,314 |
|
|
Additions,
net |
|
|
806,082 |
|
|
|
421,854 |
|
|
Issuances,
net |
|
|
(2,148,089 |
) |
|
|
(811,110 |
) |
| |
|
|
|
|
|
|
|
|
| Balance,
December 31, 2021 |
|
|
1,247,549 |
|
|
|
605,058 |
|
|
Additions,
net |
|
|
544,039 |
|
|
|
828,281 |
|
|
Issuances,
net |
|
|
(251,988 |
) |
|
|
(25,568 |
) |
| |
|
|
|
|
|
|
|
|
| Balance,
September 30, 2022 |
|
$ |
1,539,600 |
|
|
|
1,407,771 |
|
NOTE
11 - REVENUES
The
following table presents our revenues disaggregated by each major
product category and service for the three and nine months ended
September 30, 2022 and 2021:
SCHEDULE OF
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three
Months Ended September 30, |
|
|
Nine
Months Ended September 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
%
of |
|
|
|
|
|
%
of |
|
|
|
|
|
%
of |
|
|
|
|
|
%
of |
|
| |
|
Net
Sales |
|
|
Net
Sales |
|
|
Net
Sales |
|
|
Net
Sales |
|
|
Net
Sales |
|
|
Net
Sales |
|
|
Net
Sales |
|
|
Net
Sales |
|
| Merchandise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case
Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedroom
Furniture |
|
$ |
481,765 |
|
|
|
13.5 |
|
|
$ |
398,807 |
|
|
|
9.8 |
|
|
$ |
1,167,928 |
|
|
|
11.0 |
|
|
$ |
1,725,588 |
|
|
|
7.5 |
|
|
Dining
Room Furniture |
|
|
260,123 |
|
|
|
7.3 |
|
|
|
235,945 |
|
|
|
5.8 |
|
|
|
641,042 |
|
|
|
6.0 |
|
|
|
1,337,503 |
|
|
|
5.8 |
|
|
Occasional |
|
|
327,709 |
|
|
|
9.2 |
|
|
|
422,044 |
|
|
|
10.4 |
|
|
|
1,285,605 |
|
|
|