UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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[X] |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the Fiscal Year Ended December 31, 2019
OR
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[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
Commission
File No. 000-53754
VYSTAR
CORPORATION
(Exact
name of registrant as specified in its charter)
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GEORGIA |
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20-2027731 |
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(State
or other jurisdiction of incorporation or organization) |
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(I.R.S.
Employer Identification No.) |
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725
Southbridge St |
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Worcester,
MA |
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01610 |
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(Address
of principal executive offices) |
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(Zip
Code) |
Registrants
telephone number, including area code: (508) 791-9114
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class |
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Trading
Symbol(s) |
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Name
of each exchange on which registered |
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NONE |
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NONE |
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NONE |
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.0001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
[ ] No [X]
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 [X]
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 during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files). Yes [ ] No [X]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
[ ]
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,” “non-accelerated
filer,” “smaller reporting company, “and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
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Large
Accelerated Filer [ ] |
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Accelerated
Filer [ ] |
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Non-Accelerated
Filer [ ] |
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Smaller
Reporting Company [X] |
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Emerging
growth Company [ ] |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
As of July
6, 2020, the aggregate market value of shares held by
non-affiliates of the registrant (based upon the closing sale price
of such shares on the OTC Market on July 2, 2020) was $18,982,435.
See Item 12.
As of
July 6, 2020, there were 1,105,776,437 shares of the registrant’s
common stock outstanding and 13,698 shares of the registrants
Series A preferred stock.
Vystar
Corporation
Annual
Report on Form 10-K
For
the Year Ended December 31, 2019
Table
of Contents
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain
oral and written statements made by Vystar Corporation about future
events and expectations, including statements in this Annual Report
on Form 10-K (the “Report”) contain forward-looking statements,
within the meaning of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and the Securities Act of 1933, as
amended (the “Securities Act”), that involve risks and
uncertainties. For those statements, we claim the protection of the
safe-harbor for forward-looking statements contained in the Private
Securities Litigation Act of 1995. In some cases, forward-looking
statements are identified by words such as “believe,” “anticipate,”
“expect,” “intend,” “plan,” “will,” “may” and similar expressions.
You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this Report or the
statement. All of these forward-looking statements are based on
information available to us at this time, and we assume no
obligation to update any of these statements. Actual results could
differ from those projected in these forward-looking statements as
a result of many factors, including those identified in “Risk
Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and elsewhere. We urge you to
review and consider the various disclosures made by us in this
Report, and those detailed from time to time in our filings with
the Securities and Exchange Commission (the “SEC”), that attempt to
advise you of the risks and factors that may affect our future
results. We qualify any forward-looking statements entirely by
these cautionary factors.
The
above-mentioned risk factors are not all-inclusive. Given these
uncertainties and that such statements, speak only as of the date
made; you should not place undue reliance on forward-looking
statements. We undertake no obligation to update publicly or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
PART I
Products
and Services
For more information, www.vystarcorp.com,
www.vytex.com.
Vystar
Corporation (“Vystar”, the “Company”, “we,” “us,” or “our”) is
based in Worcester, Massachusetts. The Company uses patented
technology to produce a line of innovative air purifiers, which
destroy viruses and bacteria through the use of ultraviolet light.
In addition, Vystar manufactures and sells reduced allergen natural
rubber latex used primarily in various bedding products.
Vystar has
a majority ownership in Murida Furniture Co., Inc. dba Rotmans
Furniture, the largest furniture and flooring store in New England
and one of the largest independent furniture stores in the
U.S.
Company
Background
RxAir promotes a healthy lifestyle through the use of its
innovative, patented ViraTech air purification technology, thereby
improving the quality of life of each and every customer.
Independently tested by EPA- and FDA-certified laboratories, the
RxAir has been proven to destroy greater than 99% of bacteria and
viruses and reduce concentrations of odors and 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 UV Flu Technologies,
Inc. For more information, visit
http://www.RxAir.com
In
May of 2018, Vystar acquired substantially all of the assets of UV
Flu Technologies, Inc., formerly traded on the OTC under the ticker
UVFT, whose patented ViraTech™ UV light air purification technology
destroys greater than 99% of airborne bacteria, viruses and other
microorganisms and virtually eliminates concentrations of odors and
volatile organic compounds (VOCs).
UV
Flu’s product line includes:
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RXair™
Residential Filterless Air Purifier |
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UV400
™ FDA cleared Class II Filterless Air Purifier |
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RX3000™
Commercial FDA cleared Class II Air Purifier (news video with
RX3000) |
Vystar
acquired all UV Flu intellectual property, multiple patents,
product lines, tooling, FDA clearances, research data, websites and
other assets related to the business.
Vystar is the exclusive creator of Vytex Natural Rubber Latex
(NRL), a multi-patented, all-natural, raw material that contains
significantly reduced levels of the proteins found in natural
rubber latex and can be used in over 40,000 products. Vytex NRL is
a 100% renewable resource, environmentally safe, “green” and fully
biodegradable. Vystar is working with manufacturers across a broad
range of consumer and medical products bringing Vytex NRL to market
in adhesives, gloves, balloons, condoms, other medical devices and
natural rubber latex foam mattresses, toppers, and
pillows.
Vytex is currently used in multiple mattress lines, including
Symbol™ and Gold Bond®;
Jeffco manufactured components for toppers and mattresses, which
are sold to multiple manufacturers; and private label toppers,
pillows and mattresses sold online via Amazon. Vytex
is also used in industrial adhesives, apparel padding and threads,
shoes, sports equipment and electrical gloves and Vytex 3D printed
fabrics available through partners like Tami Care. Liquid Vytex can
be ordered wholesale through Halcyon Agri’s RCMA and
CentroTrade.
The
Vytex business contains our global multi-patented technology that
reduces antigenic and total protein in natural rubber latex
products to virtually undetectable levels. Vytex NRL, our
“ultra-low protein” natural rubber latex has been introduced
throughout the worldwide marketplace that uses NRL or latex
substitutes as a raw material for end products. Natural rubber
latex or latex substitutes are used in an extensive range of
products including balloons, textiles, footwear and clothing
(threads), adhesives, foams (mattresses, pillows, mattress toppers,
etc.), furniture (foam and adhesives), carpet, paints, coatings,
protective equipment, sporting equipment, and, especially health
care products such as condoms, surgical and exam gloves, among
others. Our challenge has been that a manufacturer’s conversion
from the use of standard latex or synthetic raw material to Vytex
NRL involves a protracted sales cycle ranging from eighteen to
thirty-six months. We have seen that same cycle apply to the newest
version of Vytex NRL, a dry rubber sampling targeted for the tire
and tubing industries. Additionally, in the past, our primary
method of distribution was via toll manufacturing. We now have
several licensing agreements in place for global distribution that
have allowed us to focus on and transition to sales and marketing
with a technical oversight.
Natural
rubber latex is an agricultural product produced from the sap of
the rubber tree, Hevea brasiliensis. In presentations at the
5th World Elastomer Conference held in Dusseldorf,
Germany during early March 2018 it was noted that there was a
slowing growth rate in global NR consumption and it was predicted
demand would fall over the next two years. The numbers 1 and 2
producers (Thailand and Indonesia) had a modest fall in production
while Malaysia, China and India showed a large negative gap between
output and capacity mainly based on current low prices. Vietnam
continues at 85 to 95% capacity. There is a huge natural rubber
capacity surplus until the early 2030s and prices will remain flat
through 2025. With growing substitution of synthetics, that an
uptick in prices may not occur and based on the pricing of
synthetics the market share competition may weigh more to
synthetics.
Substantially
all the latex processors are in Southeast Asia, India, Africa and
Latin America and are owned by local groups or large multinational
corporations. This future demand is awakening interest in other
areas of the world where the climate is suitable, particularly in
Guatemala, where focus now shifts to certifications from the
Forestry Stewardship Council and Rainforest Alliance, as a
specialty latex. In addition to the resurgence of Central and South
America in natural rubber latex production, countries such as
Vietnam, Cambodia and Cameroon have launched major efforts to meet
the needs of the global liquid natural rubber latex market. Vietnam
is now a major processor of our Vytex NRL. Several trial runs of
the specialty offerings discussed below that are in place for
manufacturer trials. We now have two producers in Guatemala, one in
the trial phase.
Our
initial product portfolio included Vytex NRL in high ammonia (HA)
and low ammonia (LA) formulations. New specialized formulations are
projected to come to market over the next year with trials in
ultra-low ammonia, pre-vulcanized and low nitrosamine versions
currently taking place. Vystar has used its technology to work with
customers to solve production issues and provide them with a point
of difference and guidance as research using Vytex has headed into
directions previously thought to be off-limits to natural rubber
latex. It appears to be the removal of the vast majority of the
proteins, the carotenoids and the non-rubbers that affords Vytex
NRL this opportunity.
Board
of Directors Member and Research & Development Director Ranjit
K. Matthan, Ph.D., revealed ongoing developments in the formulation
of Vytex NRL with reduced or no ammonia and nitrosamines at the
International Latex Conference (ILC) session titled “Advances in
Environmentally Friendly Ultra Low Protein Natural Rubber Specialty
Latices” on August 12, 2015. The significant advances in aluminum
hydroxide-treated Vytex NRL properties and applications are
potential game-changers for the issues of volatile organic content
and nitrosamines for some critical latex products, such as
balloons, catheters, condoms, and other medical devices, as
well as enabling cleaner and more sustainable work environments.
The expanded Vystar product grades make it applicable in a wider
range of latex products with the advantage of improved
environmental impact through reduced leachables/extractables. The
advances deliver a simplified, sustainable, totally safe raw
material that Vystar can offer for several applications without
reservations about nitrosamines. Vystar has initiated a scale up to
lab production of all three newer versions of Vytex NRL and has
commenced a sample fulfillment mode with a significant manufacturer
of women’s intimate apparel who is in the final testing stages of
two of the grades (no ammonia and ultra-low ammonia) as possible
replacements of their current raw materials.
At
the Nuremberg Toy Show (Speilwarenmesse) Vytex NRL was a targeted
product for manufacturers of balloons, masks, etc. As there is a
new proposal for limits on protein content of balloons by virtue of
an EN listing, Vytex has now gone in to full prevulcanized testing
to start the sampling process in selected areas based on
manufacturing needs.
Over
the course of several years, our technical groups have presented
technical papers of varying topics that still hold relevance. Vytex
NRL is produced at the latex processor level and can be integrated
into the current processing environments without additional capital
equipment investment. The protein removal and modification process
that leads to Vytex NRL allows manufacturers to lower manufacturing
costs with the benefit of reduced protein levels. Reduced leaching
times and resulting reductions in energy, water and material
handling consumption can lead to realized cost savings.
Also,
the article “Eco-Friendly Manufacturing of High-Performance Latex
using Ultra Low Antigenic Protein Latex” reviewed some of the
learnings Vystar had made since commercializing Vytex NRL. Among
these discoveries were: improved air and helium retention in
balloons; reduced leaching needs for some dipped products; truer
colors for dyed dipped products (such as balloons); and low latex
odor in foams, which has now led to unique research into areas
previously considered off-limits to NRL. Vystar published and
presented a paper, “Further Development of Vytex® Natural Rubber
Latex Leads to Strong Niche Market Advances”, that added additional
learnings related to slow release (memory) foam formulations and
other technical improvements helping customers solve their new
product development challenges.
Vystar
has transitioned from toll manufacturing agreements to licensing
agreements that eliminate the need to maintain a costly
infrastructure along with the other investment and regulatory
compliance costs to develop and operate a processing or
manufacturing facility. All of these costs are or will be borne by
our manufacturing and distribution contractors and/or customers.
This means we must show the NRL producers and product manufacturers
the economic value proposition of including Vytex NRL in their
product lines, hence the technical paper presentations we have made
and continue to make. In addition, as an all-natural raw material,
Vytex NRL puts the main component in gloves and other products back
in the environmentally friendly arena.
Additionally,
in 2017, Vystar began trials to process various Vytex offerings,
including pre-vulcanized grades, at Forteleza’s new facility in
Guatemala with initial good results. This is an important strategic
maneuver to handle demand in the North, Central and South American
regions as well as certain areas of Southeast Asia. This will lead
to a new agreement between the two companies upon successful
completion of the trials.
In
addition, in January 2009, we entered into a Distribution Agreement
with Centrotrade Minerals & Metals, US and Centrotrade
Deutschland, GmbH, Germany, a leading global distributor of latex
raw materials, to create a worldwide distribution network that will
further enhance our ability to cost effectively reach and service
manufacturer customers in these key manufacturing areas. This
provides an expansive distribution network that facilitates both
the licensing and toll manufacturing models and can assist with
various processors in taking their products to market. On December
19, 2012, we amended our agreement with Centrotrade to expand Vytex
NRL distribution rights to the world’s largest NRL consuming
markets in Southeast Asia, specifically Malaysia and Thailand.
Under this new license agreement, Centrotrade controls production
scheduling of Vytex NRL, inventory in Thailand, sales, pricing and
customer financing, while Vystar will focus on marketing,
customized product development, as noted above, and support
activities. Vystar currently has no exclusive areas under contract
as RCMA, a Dutch based distributor was added in 2016.
In
December 2017 Halcyon Agri, the owners of Centrotrade, announced
that they had acquired RCMA’s polymer group and would operate it
under the Wurfbain label.
The
paper entitled, “The Non-Enzymatic Deproteinization of Natural
Rubber Latex (DPNRL) Enabling the Greater Versatility in End
Product Applications” discussed improvements that extend beyond the
ultra-low allergenicity of the DPNRL and include improved color,
absence of rubber odor, and improved physicochemical attributes.
Improved air and helium retentions results were reported. The
potential to extend applications into other non-conventional areas
other than latex end products was discussed and we are currently in
the final retail test market stages for the United States based
manufacturing of mattresses, pillows and toppers to key furniture
stores and buying groups, primarily in the Northeastern United
States and signed a 5 year renewable agreement in January 2015 with
Nature’s Home Solutions (NHS) to exclusively distribute these
products in the United States. In September 2016, the Vystar Board
of Directors voted to end the January 2015 NHS agreement and
replace it with a global exclusive for foam manufactured with Vytex
and sold into the home furnishings industry. This change reflects
the global nature of the mattress, topper and pillow businesses,
the need for local warehousing, and access to container loads of
foam cores and pillows for European and Asian
manufacturers.
In
April of 2018, Vystar acquired the assets of NHS Holdings, LLC
(NHS) executing on the first part of the Company’s vision to move
into direct product offerings made from Vytex® latex.
NHS was the exclusive U.S. distributor of Vystar’s Vytex® natural
rubber latex foam to manufacturers for use in over 200 home
furnishings products, including mattresses, toppers, pillows and
upholstery, sold through multiple channels. This acquisition
provides Vystar with roll packing and cutting equipment to support
our bedding manufacturing partners, while lowering the cost of
Vytex to the manufacturer by eliminating the middleman.
Now
unified under the Vytex brand, we anticipate developing additional
product offerings and solidifying partnerships with multiple major
manufacturing partners throughout the home furnishings industry. We
anticipate our new offerings will include cushions and padding for
use in seating and other products which we believe will achieve
higher margins.
NHS
was a related party transaction for Vystar, approved by NHS
members, who are also major Vystar shareholders, business partners
and insiders. Notable NHS members include:
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● |
Lam
Ngoc Minh, CEO of Lien ‘A, which is one of the world’s largest
latex foam manufacturers, and a major producer of Vytex foam. Lien
‘A has worked closely with NHS to develop traditional and
innovative new foam products; |
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● |
Keith
Osborn, MD; member of Vystar Board of Directors, orthopedic spine
surgeon and Vystar’s largest shareholder; |
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Bryan
Stone, MD, member of Vystar Board of Directors, nephrologist and
CEO of Fluid Energy Conversion; |
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● |
Joseph
Allegra, MD, Director at Oncology Molecular Imaging LLC, a Director
& Owner at Cyber Logistics, Inc., a Founder at Diamond
Investments II LLC and an Owner at Lincoln Lee Investments LLC;
and |
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● |
Steven
Rotman, now CEO of Vystar, and CEO of Rotmans Furniture and Carpet,
a large independent furniture retailer. |
On
April 18, 2018, Vystar acquired assets of NHS for 27,769,500 shares
of restricted common stock of Vystar valued at approximately $1.1
million. NHS assets included: current inventory, equipment and
intellectual property related to product development.
Vytex
is considered by many as one the best foam products in the world,
as it is sustainably sourced; biodegradable; purer and more
resilient and durable than competitors’ latex; virtually free of
odor, VOCs and allergenic proteins; and competitively priced for a
wide array of over 40,000 products. Vytex is available in many
offerings such as low/no ammonia and low/no nitrosamine
formulations, which are now being required in certain countries and
by certain manufacturers. Vystar anticipates fulfilling this
multi-billion-dollar market need with Vytex.
Vystar
has also expanded licensing arrangements into the consumer arena,
with the licensing of foam products produced with and labeled as
“Made with Vytex NRL”. Specifically working with partners, to
introduce foam made with Vytex into the mattress, mattress topper
and pillow arenas aligning with key foam manufacturers, mattress,
mattress toppers and pillow producers, and furniture stores in
specific areas of the Unites States. In May 2018, Vystar announced
acquisition with Worcester, MA based NHS who sources eco-friendly
materials and technologies for use in furnishings and other
markets. NHS has completed several trials with Vietnamese, European
and Indian makers of foam products to use its Vytex NRL raw
material in their current offerings in their own areas as well as
to supply added needs for foam cores in both the mattress and
topper arenas globally. The current requests from major mattress
manufactures for Vytex foam trials involves different densities
especially those used on the upper levels of mattresses. FA similar
trial occurred in October 2016 in Thailand focusing on specific
densities and pillows, and a meeting with a Belgian foam maker
using a unique drying concept occurred in May 2016 with discussions
ongoing. In addition, with the acquisition of NHS and working with
a large Vietnamese foam manufacturer, Lien A, the group attended
the International Sleep Products Association (ISPA) in Orlando in
March 2016 and has followed that joint effort with ISPA 2018 and
2019. The significance of ISPA is the focus on components for use
with major mattress and pillow manufacturers, which takes Vytex
foam to an additional audience.
In
May of 2019, Vystar acquired the assets of Fluid Energy Conversion
Inc. (“FEC”), primarily consisting of its patent on the Hughes
Reactor, which has the ability to control, enhance, and focus
energy in flowing liquids and gases. Included in stock subscription
payable is $103,750 representing the shares to be issued to FEC in
2020 for these assets. Vystar intends to use this technology to
enhance the effectiveness of Vystar’s RxAir purification system to
destroy airborne pathogens while decreasing the cost and size of
Vystar’s RxAir units.
In July of
2019, Vystar acquired 58% of the outstanding shares of common stock
of Murida Furniture Co., Inc. dba Rotmans Furniture (“Rotmans”),
the largest furniture and flooring store in New England and one of
the largest independent furniture retailers in the U.S. Rotmans
sells a broad line of residential furniture and decorative
accessories and serves customers throughout the New England region.
The acquisition is expected to add approximately $30 million in top
line revenue and enable Vystar to capitalize on the infrastructure
already in place at Rotmans for accounting, retail sales facilities
and staff, customer service, warehousing, and delivery. In
addition, Rotmans will offer significant marketing and advertising
opportunities for all of Vystar’s brands to Rotmans’ thousands of
existing customers. The Company and Rotmans are exploring a number
of initiatives relating to environmentally friendly product
development and distribution that will utilize the access to the
capital markets afforded by this combination.
Competition
Natural
Rubber Latex
Synthetic
raw materials such as ethylene, propylene, styrene and butadiene
compete with NRL. Currently, it is estimated that NRL processors
have lost one-half of the overall latex market to synthetic latex.
Despite the switch to non-latex alternatives, it is estimated that
almost 70% of exam gloves and nearly 80% of surgical gloves used in
U.S. hospitals are still made with NRL.
During
2017 and 2018 Vystar contracted with two consultants and
manufacturers to make exam and surgical gloves on an OEM basis. The
testing and results were encouraging and led to further efforts
prepare for a potential launch of these lines in 2020. The company
is going to proceed with testing and subsequent filing with the US
FDA to obtain 510(k) allowances. With this new OEM structure, the
Company will bring several versions (surgical, exam, household,
etc.) of the gloves to market under its own OEM brand
label.
Several
attempts, including new source crops, synthetic lattices and
various treatment methods, have been made by competitors to
eliminate problem proteins from Hevea NRL by biological, physical
and/or chemical methods that act on proteins. One approach has been
to introduce the latex articles to multiple leaching steps and
chlorination. While it does reduce the protein levels in the
finished product, it weakens the latex film thus compromising the
desirable physical properties of the product. Another attempt to
reduce proteins in NRL is the use of proteolytic enzymes to degrade
the proteins in the latex solution but this approach introduces
another protein (the enzyme) to the latex, which may itself be
allergenic. Attempts to commercialize two other non-Hevea NRL
materials have been made in the United States: guayule rubber latex
and Taraxacum kok-saghyz, also known as the Russian dandelion.
These materials are reported to be higher in cost compared to
natural rubber latex and presently are available only in limited
quantities.
These
facts, coupled with the uncomplicated transition to the utilization
of Vytex NRL, make it very attractive for processors to regain lost
business by switching to Vytex NRL. We believe our unique patented
technology offers a viable alternative to the marketplace. The
licensing model will allow the message to spread through more sales
channels than we could reach in the past.
Furniture
Store
The
retail sale of home furnishings is a highly competitive business.
There has been growth in the e-commerce channel both from internet
only retailers and those with a brick-and-mortar presence. We also
compete with numerous individual retail stores as well as chains in
our immediate geographic area.
Intellectual
Property
Vystar
has five issued patents by the United States Patent Trademark
Office (“USPTO”) that were issued in 2005 (Patent No. 6,906,126),
2006 (Patent No. 7,056,970), 2011 (Patent No. 8,048,951) and 2012
(Patent No. 8,324,312). International patents include one issued
patent from the Republic of South Africa in 2009
(2008/00886), a second foreign patent issued by China in
2011 (No. 200580051526.1), a third foreign patent issued by
Japan in 2012 (No. 4944885) and a fourth foreign patent issued by
Hong Kong in 2013 (HK1125959). In 2005, we sought international
patent protection of our application that would become our U.S.
Patent No. 6,906,126 pursuant to the Patent Cooperation Treaty
(“PCT”) (No. PCT/US2005/025018), and this application has been
nationalized in the following countries and regions: The European
Union (No.05775523.3), Canada (No. 2,614,945), India
(No.295/DELNP/2008), and Sri Lanka (No.14827). Additionally, this
PCT was nationalized back into the United States to expand our
protection to both method and composition claims (No.11/988,498).
We expect patents to be issued in these countries without
objection.
On
January 18, 2012, we converted the provisional patent filed January
18, 2011 (No. 61/433,853) to full utility applications based on new
discoveries and unexpected results (No. 13/374,851). We also sought
international protection for the new developments and unexpected
results reflected in this 2009 USPTO patent application through
another PCT application (No. PCT/US2009/031445). This PCT
application was nationalized in the following countries in 2010:
the European Union (No. 09702339.4), Brazil (No.
PI0906513-0), Guatemala (No. 2010-000208), India
(No.2487/KOLNP/2010), Indonesia (No. W-00201002436), and Malaysia
(No. PI2010003317). In addition, we filed the same patent
application that was the subject of our USPTO patent application
No. 12/356,355 and PCT/US2009/031445 directly into Thailand (No.
0901000201). Thailand has informed us our patent application
is now published for open comments and Vystar has responded to
various questions by Thailand’s patent office and is awaiting their
response.
On
January 18, 2017 Vystar was informed that the Indian Patent Office
approved our application (2487/KOLNP/2010) entitled, “Natural
Rubber Latex Having Reduced Allergenicity and Method of Making”
under Patent Number 279323.
On
February 8, 2017 Vystar received notice of grant from the
Guatemalan Patent Office for application number 2010-000208
entitled, “Natural Rubber Latex Having Reduced Allergenicity and
Method of Making” and is awaiting a grant number.
On
October 27, 2017 Vystar was granted its second Indian patent
(288824) from Application No.: 295/DELNP/2008 entitled: “Decreasing
Allergenicity of Natural Latex Rubber Prior to Vulcanization.” The
European Patent Office issued a Decision to Grant Vystar’s patent
application under European Patent Number 1 902 089 titled
“Decreasing Allergenicity of Natural Latex Rubber Prior to
Vulcanization” greatly expanding the territory covered by the
Company’s intellectual property portfolio. The mention of the grant
was published in the European Patent Bulletin 13/35 dated 28 August
2013. Vystar selected the United Kingdom (065143-011612/UK),
Germany (065143-011611/DE), and Austria
(065143-001610/AT) as validation points for this specific
patent.
In
March 2019 Vystar Corp. was granted European, EP Patent No. 2238183
(its second European patent) entitled “Natural Rubber Latex Having
Reduced Allergenicity and Method of Making Same.” Vystar now holds
13 foreign and 4 U.S. patents related to its latex deproteinization
process for the production of Vytex®, a natural rubber latex (NRL)
that is virtually free of allergen-causing latex proteins, for
products including balloons, examination and surgical gloves,
condoms, breather bags, latex tubing, probe covers, catheters,
threads, foams, cold seal and pressure sensitive adhesives. Vystar
has now broadened its protected areas in Europe to include
additional manufacturing areas in Germany, the United Kingdom,
France, Spain and Italy, which account for much of latex product
manufacturing in Europe for another ten years.
On
December 9, 2016 Vystar was notified by our Singaporean IP Counsel
that Malaysia Application No PI 2010003317 entitled “Natural
Rubber Latex Having Reduced Allergenicity and Method of Making” was
cleared for issuance and that a Notice of Grant will be
issued.
Vystar
filed and has received registered trademark protected status in the
United States for the marks “Vystar”, “Vytex” and “Created by
Nature. Recreated by Science.” In 2010 Vystar filed for
international trademark protection of “Vytex” in Malaysia
(No.2010013149) and India (No. 1992991), which was
granted in India. On November 18, 2014, the Company was informed
that the “VYTEX” trademark was registered in Malaysia effective May
30, 2014. The aforementioned trademarks have been renewed
successfully in each period as required.
While
we believe that the pending patent and trademark applications will
be granted without objection, there are no guarantees that all such
patents or trademarks will be granted by each relevant governing
body. No assurance can be given that such patent and trademark
protection will provide substantial protection from competition. We
realize that the market for Vytex NRL is an industrialized world
concern and we are committed to aggressively challenging any
infringements of our patents and/or trademarks. As of December 31,
2019, Vystar has expended, since inception, approximately $370,245
on such patent and trademark costs and has budgeted approximately
$30,000 more for the year ended December 31, 2020 to continue to
pursue and maintain its patents and trademarks around the
world
Government
Regulation
In
the United States, healthcare and many food and food-based
packaging products are subject to regulation by the Food and Drug
Administration (FDA). Vystar is not directly subject to regulation
by the FDA due to the fact that it does not manufacture a finished
medical device or other product, but only provides Vytex NRL as a
component or raw material to healthcare or other product
manufacturers. However, there will be FDA regulation of the
labeling of healthcare and food-based packaging products that are
produced with Vytex NRL and the FDA has promulgated standards for
good manufacturing practices for manufacturing the end products,
which makes the end product manufacturers responsible for seeing
that all of their components and component manufacturers, including
Vytex NRL, are produced using quality manufacturing processes.
Additionally, the FDA prohibits the use of the term
“hypoallergenic” or “low protein” on any natural rubber latex
product it regulates. In order to make any such claim, the latex
product manufacturer must seek a waiver from the FDA of such
regulatory prohibitions. Commentary by the FDA in its guidance
documents and other rulings indicate that the prohibition on the
use of the “hypoallergenic” or “low protein” label is based, at
least in part, on the fact that, although the use of such terms in
such labeling may be intended to indicate that the risk of allergic
reaction to residual levels of processing chemicals has been
reduced, consumers may interpret the labeling to mean that the risk
of allergic reactions to any component in the device would be
minimal. Thus, the hypoallergenic or low protein label is deemed
misleading. There can be no assurance, however, that we will
succeed in securing FDA approval for any claim regarding the
“hypoallergenic” “low protein” or reduced allergy potential of
latex produced with the Vytex NRL process. Failure to secure, if
required, such FDA approval, could delay or otherwise detrimentally
affect our introduction to natural rubber latex healthcare and/or
food packaging products regulated by the FDA. Notwithstanding, the
medical or food packaging manufacturer will be able to use the
Vytex NRL trademark on its label if size permits to indicate only
that the Vytex NRL component was used in the production of the
healthcare product, and what protein levels the end product does
contain, but no further claim is asserted. We have been able to
provide sufficient testing data to the FDA to support our protein
level claims with respect to the natural rubber latex antigenic and
total proteins present in end products made with Vytex NRL. On May
1, 2009, a condom manufactured from Vytex NRL received 510(k)
clearance from the U.S. Food and Drug Administration. This was the
first medical product available in the U.S. made from Vytex NRL,
which had less than 2 micrograms/dm2, virtually undetectable
levels, of the antigenic proteins that cause an allergic response,
while retaining and improving upon all of the desirable qualities
of latex. This condom is a predicate device for future products and
the 510(k) is still in existence. Vystar continues to seek other
U.S. and global manufacturers interested in pursuing similar claims
for products.
On
July 22, 2009, a non-powdered medical exam glove manufactured with
Vytex NRL received 510(k) clearance from the FDA, with an approved
claim of less than 50 micrograms/gram of total proteins. As with
the condom product, Vystar continues to pursue U.S. and global
manufacturers using this exam glove as a predicate device and to
help fill pending exam glove business. Late in 2016 the FDA banned
the use of powder in medical gloves which took effect early in 2017
advantaging the position of the Vytex non-powdered exam
glove.
Inflation
and Seasonality
We do
not believe that our operations are significantly impacted by
inflation. Our NRL business is not seasonal in nature but is
subject to commodity pricing. Our NRL product is a commodity-based
raw material and prices for such material fluctuate from
day-to-day, though this will have less impact as we transition to
sales via licensing fees. Our furniture business is affected by
traditional retail seasonality, advertising and promotion programs
and general economic trends.
Employees
As of
December 31, 2019, Vystar had three employees, including Steven
Rotman, CEO. Rotmans had 109 full-time and 28 part-time employees.
None of the employees are represented by a labor organization or a
party to any collective bargaining arrangement.
Corporate
Information
Vystar
Corporation is a Georgia corporation that was incorporated in 2003.
Our predecessor company, Vystar LLC, was formed by our founder,
Travis Honeycutt, in February 2000 as a Georgia limited liability
company.
Our
principal mailing address is 725 Southbridge St., Worcester, MA
01610. Our website address is www.vytex.com &
www.vystarcorp.com.
The
information contained on, or that can be accessed through, our
website is not a part of this Report. We have links on our website
to reports, information statements, and other information that we
file electronically with the Securities and Exchange Commission, or
SEC, at the Internet website maintained by the SEC, www.sec.gov. In
addition to visiting our website and the SEC’s website, you may
read and copy public reports we file with or furnish to the SEC at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
Our
business is subject to a number of risks and uncertainties — many
of which are beyond our control — that may cause our actual
operating results or financial performance to be materially
different from our expectations. If one or more of the events
discussed below were to occur, actual outcomes could differ
materially from those expressed in or implied by any
forward-looking statements we make in this report or our other
filings with the SEC, and our business, financial condition,
results of operations or liquidity could be materially adversely
affected; furthermore, the trading price of our common stock could
decline and our shareholders could lose all or part of their
investment.
Vystar presently does not generate the cash needed to finance its
current and anticipated operations.
The
Company has had very limited revenue in its history prior to 2011
and transitioned from the development stage to the operational
stage during the fourth quarter of 2009. The Company is still in
the early stage of establishing our business including attracting
new customers and increasing sales. Our financial success will be
dependent upon the soundness of our business concept, our
management’s ability to successfully and profitably execute our
plan, and our ability to raise additional capital.
Our
limited operating history makes it difficult to evaluate our
business. We expect to make significant future operating
expenditures to develop and expand our business into areas such as
OEM product lines and offerings in the mattress and furniture
arenas. We may incur significant losses in the future for a number
of reasons, including due to the other risks described in this
Report, and we may encounter unforeseen expenses, difficulties,
complications and delays and other unknown events. Accordingly, we
may not be able to achieve or maintain profitability, and we may
incur significant losses for the foreseeable future. See additional
discussion under Liquidity and Capital Resources.
At
December 31, 2019 our cash position was $72,355 and we had an
accumulated deficit of $41,104,967. We plan to finance our
operations for the next twelve (12) months through the use of cash
on hand, stock warrant exercises from existing shareholders,
raising capital through private placement and increased sales from
RxAir products by exploring sales partnerships with third-party
wholesalers and retailers. The Company is also evaluating adopting
a consignment-based sales model at Rotmans. You should consider,
among other factors, our prospects for success in light of the
risks and uncertainties encountered by companies that, like us,
have not generated net earnings on an annual basis. Various
factors, such as economic conditions, regulatory and legislative
considerations, and competition, may also impede our ability to
expand our market presence. We may not successfully address these
risks and uncertainties or successfully implement our operating
strategies. If we fail to do so, it could materially harm our
business and impair the value of our common stock. Even if we
accomplish these objectives, we may not generate positive cash
flows or profits we anticipate in the future.
The
following risk factors apply to our Vytex business:
Our Vytex operating results could fluctuate and differ considerably
from our financial forecasts.
Our
business model is based on assumptions derived from (i) the
experience of the principals of the Company, and (ii) third party
market information and analysis. There are no assurances that these
assumptions will prove to be valid for our future operations or
plans.
Our
operating results may fluctuate significantly as a result of a
variety of factors, including:
|
|
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Acceptance
by manufacturers of the Vytex Natural Rubber Latex
technology; |
| |
|
|
| |
● |
Our
ability to achieve and sustain profitability; |
| |
|
|
| |
● |
Consumer
confidence in products manufactured using our Vytex Natural Rubber
Latex technology; |
| |
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|
| |
● |
Our
ability to raise additional capital. |
Our Vytex NRL business is totally dependent on market demand for,
and acceptance of, the Vytex Natural Rubber Latex
process.
We
expect to derive most of our Vytex NRL business revenue from the
sales of our Vytex Natural Rubber Latex raw material to various
manufacturers of rubber and rubber end products using NRL through
our distribution agreement with Centrotrade Deutschland. We pay
natural rubber latex processors a fee for the service of
manufacturing and creating Vytex NRL for us under our toll
manufacturing agreements. Conversely, Vystar collects a fee under
the Centrotrade and Occidente (PICA) licensing models. The
agreement in the bedding and furniture industries with NHS also
provides income based on a license model. Our Vytex NRL product
operates within broad, diverse and rapidly changing markets. As a
result, widespread acceptance and use of product is critical to our
future growth and success. If the market for our product fails to
grow or grows more slowly than we currently anticipate, demand for
our product could be negatively affected.
Our ability to generate significant revenue in the Vytex business
is substantially dependent upon the willingness of consumers to
make discretionary purchases and the willingness of manufacturers
to utilize capital for research and development and the retooling
of their manufacturing process, both of which are impacted by the
state of the economy.
The
current state of the world economy has and likely will in the
future impact upon our ability to increase revenue. Certain
products that we anticipate will be manufactured with our Vystar
NRL process, such as mattresses and sponge products, are considered
discretionary consumer purchases which decline during economic
downturns. Additionally, certain manufacturers who might otherwise
utilize the Vytex NRL process in the manufacturing of products with
NRL have determined not to expend capital to complete the research
of the Vytex NRL process or to retool their manufacturing process
because of the general downturn in the economy. As part of a
strategy to increase awareness of the Vytex NRL brand, the Company
has been aggressively seeking to have end products produced and
labeled “made with Vytex NRL” such as mattresses, toppers and
pillows. As these products enter the market, the Company plans to
create consumer awareness of these end products and in so doing
begin to develop consumer demand pull through as part of the
Company’s efforts to complete the push-pull cycle using an
ingredient branding strategy.
Assertions by a third party that our Vytex process infringes its
intellectual property, whether or not correct, could subject us to
costly and time-consuming litigation or expensive
licenses.
There
is frequent litigation based on allegations of infringement or
other violations of intellectual property rights. As we face
increasing competition and become increasingly visible as an
operating company, the possibility of intellectual property rights
claims against us may grow.
Any
intellectual property rights claim against us or our customers,
with or without merit, could be time-consuming, expensive to
litigate or settle and could divert management attention and
financial resources. An adverse determination also could prevent us
from offering our process, require us to pay damages, require us to
obtain a license or require that we stop using technology found to
be in violation of a third party’s rights or procure or develop
substitute services that do not infringe, which could require
significant resources and expenses.
The latex market in which we will participate is competitive and if
we do not compete effectively, our operating results may be
harmed.
The
markets for our product are competitive and rapidly changing. With
the introduction of new technologies, increasing scrutiny of
alternative lattices such as Russian dandelion, and new market
entrants, we expect competition to intensify in the future. In
addition, pricing pressures and increased competition generally
could result in reduced sales, reduced margins or the failure of
our products to achieve or maintain widespread market
acceptance.
While
early interest was strong in a new innovative product in the
natural rubber latex industry, pricing and regulatory approvals
remain a key selling factor especially in the exam glove arena.
There is no exam glove manufacturer signed to date that has
accepted Vytex NRL into its product mix.
Our Vytex revenue will vary based on fluctuations in commodity
prices for NRL.
NRL
is a commodity and, as such, its price fluctuates on a daily basis.
Our raw material revenue including licensing fees and cost of goods
will also fluctuate upward or downward based upon changing market
prices for the raw material used to produce Vytex NRL. Prolonged
periods of lowered market prices can also cause manufacturers to
review synthetic price drops as they look for even lower cost
alternatives to NRL.
While Vytex NRL has received 510(k) clearance from the FDA for
condoms and exam gloves, there is no assurance that future
applications will be cleared.
In
order for Vytex to be used in medical device applications, the
manufacturer of the end product must submit an application to the
FDA. If the device is classified by the FDA as Class II (e.g.,
condoms, surgical gloves, and most non-cardiac and
non-renal/dialysis catheters) and in some cases Class I (e.g., exam
gloves), a 510(k) application must be filed with the FDA seeking
clearance to market the device based on the fact that there is at
least one other predicate or similar device already marketed. If
the product is classified as a Class III product (e.g., most
cardiac and renal/dialysis catheters, certain adhesives and other
in vivo devices), or is otherwise a new device with no predicate on
the market already, then the manufacturer of the end product must
submit a Pre-Market Approval (“PMA”) application seeking approval
by the FDA to market the device. The PMA approval process is much
more in depth and lengthy and requires a greater degree of clinical
data and FDA review than does a 510(k) clearance
process.
Since
Vytex is a raw material and not an end-product, Vystar is not the
entity that files with the FDA for any clearance or approval to
market a device. Instead, the end-product manufacturers who will be
selling and marketing the device(s) must submit applications and
seek FDA clearance or approval depending upon the device
classification. Vystar’s role in this process is only as background
support to the manufacturers to supply information and any
technical or test data regarding the Vytex raw material.
An
American manufacturer of condoms and exam gloves had been engaged
in production work and had completed required testing and received
FDA clearance for using Vytex NRL in their condom and exam glove
lines. However, this manufacturer is not currently producing
products made with Vytex NRL or any other type of raw material.
Notwithstanding such approvals, we have no assurance that future
products will provide acceptable test results and even if they do,
there is no certainty that the FDA will approve the
applications.
Each
of the above mentioned 510(k)s have been sold to other
manufacturers hence the need to pursue 510(k)s for the newer
manufacturing facilities.
Vytex may seek to have lower protein claims than what is currently
on the market today for exam gloves and may ultimately seek to have
latex warnings removed from or modified on all FDA-regulated
products, but it cannot guarantee that either of such actions will
be approved by the FDA.
The
FDA heavily scrutinizes any and all claims categorizing the protein
levels and other claims of an NRL product. Currently, the FDA has
allowed claims only stating the level of less than 50
micrograms/gram of total extractable proteins pursuant to only one
of two FDA-recognized standards on exam or surgical gloves. Vystar
intends to claim protein levels pursuant to both of the two
FDA-recognized standards, which will result in claiming the lowest
level of antigenic proteins for a Hevea NRL product currently on
the market. Although the FDA has cleared such claims on the condom
using Vytex NRL, the FDA rejected those claims for the exam glove.
There is no guarantee that the FDA will ultimately or ever allow
these claims on an exam glove.
Additionally,
for many years, the FDA has required warnings on products
containing latex due to the latex allergy issue that exists. Vystar
plans on petitioning the FDA to have that label removed from or
modified on products manufactured with Vytex NRL, by filing a
Citizen’s Petition. The Petition will be filed when we see that the
benefits of filing will far outweigh the costs since such Petition
is likely to require clinical test results indicating acceptable
allergic reactions associated with Vytex NRL. There are no
assurances that the FDA will grant that request.
Manufacturers are implementing trials of Vytex NRL in their
facilities but final data is not yet available from all these
manufacturers on its viability for their particular
environments.
Over
the past several years, samples of Vytex NRL have been made
available to over 50 natural rubber latex and latex substitute end
product manufacturers, 30 of which have been in place since early
2009. Since the completion of the Vytex NRL Standard Operation
Procedures (SOPs), Vytex has been produced at Revertex (Malaysia),
Occidente (Guatemala), KAPVL (India) and most recently Mardec-Yala
(Thailand) and MMG (Thailand). Manufacturers that have signed a
‘sampling’ agreement with us have been provided with samples of
Vytex NRL for validating its use in their manufacturing processes.
To date, a number of manufacturers have completed those runs and
feedback is often minimal. Although most feedback to date has been
positive, there is no assurance that such feedback will continue to
be satisfactory.
Another
risk is the validity of the customer as testing completes. Recently
Vystar has completed more than three years of a specialized version
of Vytex NRL only to have the end product manufacturer fail to
upgrade their production line and fulfill their own
contract.
As
part of the Company’s learnings, we have found that in listening
closely to customer challenges and needs, our technical team has
been able to develop solutions. The Company has come to realize
that what we offer is not just a raw material but often a
technology solution to a production or product development
challenge.
While
many of these new formulations look promising, there is no
guarantee that these technological innovations will be successfully
scaled up or successfully implemented by the customer.
The
following risk factors apply to our furniture
business:
We face a volatile retail environment and changing economic
conditions that may further adversely affect consumer demand and
spending.
Historically,
the home furnishings industry has been subject to cyclical
variations in the general economy and to uncertainty regarding
future economic prospects. Should the current economic recovery
falter or the current recovery in housing starts stall, consumer
confidence and demand for home furnishings could deteriorate which
could adversely affect our business.
Our retail store faces significant competition from national,
regional and local retailers of home furnishings, including
increasing on-line competition via the internet.
The
retail market for home furnishings is highly fragmented and
intensely competitive. We currently compete against a diverse group
of retailers, including national department stores, regional or
independent specialty stores, and dedicated franchises of furniture
manufacturers. National mass merchants such as Costco also have
limited product offerings. We also compete with retailers that
market products through store catalogs and the internet. In
addition, there are few barriers to entry into our current and
contemplated markets, and new competitors may enter our current or
future markets at any time. We have also seen increasing
competition from retailers offering consumers the ability to
purchase home furnishings via the internet for home delivery, and
this trend is expected to continue. Our existing competitors or new
entrants into our industry may use a number of different strategies
to compete against us, including aggressive advertising, pricing
and marketing, extension of credit to customers on terms more
favorable than we offer, and expansion into markets where we
currently operate.
Competition
from any of these sources could cause us to lose market share,
revenues and customers, increase expenditures or reduce prices, any
of which could have a material adverse effect on our results of
operations.
Failure to successfully anticipate or respond to changes in
consumer tastes and trends in a timely manner could adversely
impact our business, operating results and financial
condition.
Sales
of our furniture are dependent upon consumer acceptance of specific
designs, styles, quality and price. As with all retailers, our
business is susceptible to changes in consumer tastes and trends.
We attempt to monitor changes in consumer tastes and home design
trends through communication with our design consultants who
provide valuable input on consumer tendencies. However, such tastes
and trends can change rapidly and any delay or failure to
anticipate or respond to changing consumer tastes and trends in a
timely manner could adversely impact our business, operating
results and financial condition. In addition, certain suppliers may
require extensive advance notice of our requirements in order to
produce products in the quantities we desire. This long lead time
may require us to place orders far in advance of the time when
certain products will be offered for sale, thereby exposing us to
risks relating to shifts in consumer demand and trends, and any
downturn in the U.S. economy.
The
following risk factors apply to our company as a
whole:
In
December 2019, a novel coronavirus (“COVID-19”) emerged and has
subsequently spread worldwide. The World Health Organization has
declared COVID-19 a pandemic resulting in federal, state, and local
governments mandating various restrictions, including travel
restrictions, restrictions on public gatherings, stay at home
orders and advisories and quarantining of people who may have been
exposed to the virus. On March 24, 2020 Massachusetts, required all
non-essential businesses to close their physical workplaces. As a
result, the Rotmans showroom, offices and warehouse temporarily
closed. During that time, associates worked remotely where
possible. The Company re-opened on June 10, 2020 and continues to
monitor developments, including government requirements and
recommendations.
As
the COVID-19 pandemic is complex and rapidly changing, the full
extent and duration of the impact of COVID-19 on the Company’s
operation and financial performance is currently unknown and
depends on future developments that are uncertain and
unpredictable, including the duration and spread of the pandemic,
its impact on capital and financial markets.
Our use of foreign sources of production for a portion of our
products exposes us to certain additional risks associated with
international operations.
Our
use of foreign sources for the supply of certain of our products
exposes us to risks associated with overseas sourcing. These risks
are related to government regulation, volatile ocean freight costs,
delays in shipments, and extended lead time in ordering.
Governments in the foreign countries where we source our products
may change their laws, regulations and policies, including those
related to tariffs and trade barriers, investments, taxation and
exchange controls which could make it more difficult to service our
customers resulting in an adverse effect on our earnings. We could
also experience increases in the cost of ocean freight shipping
which could have an adverse effect on our earnings. Shipping delays
and extended order lead times may adversely affect our ability to
respond to sudden changes in demand, resulting in the purchase of
excess inventory in the face of declining demand, or lost sales due
to insufficient inventory in the face of increasing demand, either
of which would also have an adverse effect on our earnings or
liquidity.
Because our stock price may be volatile due to factors beyond our
control, you could lose all or part of your
investment.
Price
and volume of stock, including additional stock issuances may cause
price decline and dilution.
If we do not attract and retain highly qualified employees, we may
not be able to grow effectively.
Our
ability to compete and grow depends in large part on the efforts
and talents of our executive officers or employees. We require the
key employee(s) to enter into employment agreements, but in the
U.S., employees are free to leave an employer at any time without
penalties. The loss of key employees or the inability to hire
additional skilled employees as necessary could result in
significant disruptions of our business, and the integration of
replacement personnel could be time-consuming and expensive and
cause us additional disruptions.
We do not expect to declare any dividends in the foreseeable
future.
We do
not anticipate declaring any cash dividends to holders of our
common stock in the foreseeable future. Consequently, shareholders
must rely on sales of their common stock after price appreciation,
which may never occur, as the only way to realize any future gains
on their investment. Investors seeking cash dividends should not
purchase our common stock.
There is no assurance that any significant public market for our
shares of common stock will develop.
While
our shares of common stock trade on the OTC Bulletin Board under
the symbol “VYST”, there is currently no significant public market
for our common stock and there is no assurance that there will be
any such significant public market for our common stock in the
future.
The utilization of our tax losses could be substantially limited if
we experience an ownership change as defined in the Internal
Revenue Code.
Because
of net operating losses we have experienced for federal income tax
purposes at December 31, 2019, we had federal net operating loss
(“NOL”) carry-forwards of approximately $26.0 million ($20.0
million for 2018) available to offset future taxable income. Our
ability to utilize NOL carry-forwards to reduce future taxable
income may be limited under Section 382 of the Internal Revenue
Code if certain ownership changes in our Company occur during a
rolling three-year period. These ownership changes include
purchases of common stock under share repurchase programs, the
offering of stock by us, the purchase or sale of our stock by 5%
shareholders, as defined in the Treasury regulations, or the
issuance or exercise of rights to acquire our stock. If such
ownership changes by 5% shareholders result in aggregate increases
that exceed 50 percentage points during the three-year period, then
Section 382 imposes an annual limitation on the amount of our
taxable income that may be offset by our NOL carry-forwards or tax
credit carry-forwards at the time of ownership change. The
limitation may affect the amount of our deferred income tax asset
and, depending on the limitation, a significant portion of our NOL
carry-forwards or tax credit carry-forwards could expire before we
are able to use them. In such an event, our business, financial
condition, results of operations or cash flows could be adversely
affected. We believe we have not experienced an ownership change
under Section 382 of the Internal Revenue Code as of December 31,
2019; however, the amount by which our ownership may change in the
future could be affected by purchases and sales of stock by 5%
shareholders and new issuances of stock by us, should we choose to
do so.
|
ITEM 1B. |
UNRESOLVED
STAFF COMMENTS |
None.
Although
we believe that our current space is adequate for the foreseeable
future, if additional office space is required, we believe that
suitable space will be available at market rates.
|
ITEM 3. |
LEGAL
PROCEEDINGS |
EMA
Financial
On
February 19, 2019, EMA Financial, Inc. filed a lawsuit in the
Southern District of New York against the Company. The lawsuit
alleged various breaches of an underlying convertible promissory
note and stock purchase agreement, and sought four claims for
relief: (i) specific performance to enforce a stock conversion and
contractual obligations; (ii) breach of contract; (iii) permanent
injunction to enforce the stock conversion and contractual
obligations; and (iv) legal fees and costs of the litigation. The
complaint was filed with a motion seeking: (i) a preliminary
injunction seeking an immediate resolution of the case through the
stock conversion; (ii) a consolidation of the trial with the
preliminary injunctive hearing; and (iii) summary judgment on the
first and third claims for relief.
The
Company filed an opposition to the motion and at oral argument the
motion for injunctive relief was denied. On April 5, 2019, the
Company filed the opposition papers as well as a motion to dismiss
the first and third causes of action in the complaint.
On
March 13, 2020, the Court granted the Company’s motion and denied
the motion for summary judgment as moot.
The
Company subsequently filed an amended answer with counterclaims.
The affirmative defenses collectively preclude the relief sought.
The counterclaims asserted are: (a) violation of 10(b)(5) of the
Securities and Exchange Act; (b) violation of Section 15(a)(1) of
the Exchange Act (failure to register as a broker-dealer); (c)
pursuant to the Uniform Declaratory Judgment Act, 28 U.S.C. §§
2201, the Company requests the Court to declare: (i) pursuant to
Delaware law, the underlying agreements are unconscionable; (ii)
the underlying agreements are unenforceable and/or portions are
unenforceable, such as the liquidated damages sections; (iii) to
the extent the agreement is enforceable, Vystar in good faith
requests the Court to declare the legal fee provisions of the
agreements be mutual (d) unjust enrichment; (e) breach of contract
(in the alternative); and (f) attorneys’ fees.
Discovery
has recently commenced. No discovery responses have been served.
EMA recently requested leave to file a motion to dismiss the
counterclaims and for summary judgment on the remaining breach of
contract claim. The Court granted the right to file the
motions.
Robert
LaChapelle Class Action
On
March 13, 2020, Robert LaChapelle, a former employee of Rotmans
Furniture, the Company’s majority owned subsidiary, on behalf of
himself and all others similarly situated, filed a class action
complaint against Rotmans and two of its prior owners (including
Steve Rotman, President of the Company) in the Worcester Superior
Court alleging non-payment of overtime pay and Sunday premium pay
pursuant to the Massachusetts Blue Laws (Ch. 136), the
Massachusetts Overtime Law (Chapter 151, § 1A), and the
Massachusetts Payment of Wages Law (Chapter 149 §§148 and 150).
Specifically, LaChapelle has alleged that Rotmans failed to pay him
and other salespeople who were paid on a commission-only basis
overtime pay at a rate of least 1.5 times the basic minimum wage or
premium pay (also at 1.5 times the basic minimum wage) for hours
they worked on Sundays. Rotmans is in the process of investigating
these claims to determine whether it may be liable to the members
of the putative class for unpaid overtime and Sunday pay and, if
so, the approximate amount of such amounts.
Eric
Maas Lawsuit
The
Company and members of its Board of Directors, and certain
employees and consultants, have been added as defendants in the
case Maas v. Zymbe, LLC, et. al. The complaint was recently moved
from Superior Court of the State of California to Federal District
Court in California. The amended complaint alleges various
employment, contract, and tort claims, including defamation,
arising out of a dispute over the quality and utility of consulting
and other services provided by Mr. Eric Maas, including through his
dealings with Mr. Jason Leaf and Mr. Gregory Rotman. The original
litigation was filed in 2017.
|
ITEM 4. |
MINE
SAFETY DISCLOSURES |
Not
applicable.
PART II.
|
ITEM 5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
PURCHASES OF EQUITY SECURITIES |
Market
Price Information
Our
common stock is traded in the United States on the Over the Counter
Bulletin Board (OTCBB) under the symbol “VYST.” The following table
shows the range of high and low closing prices for our common
stock.
|
|
|
High |
|
|
Low |
|
|
December
31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter |
|
$ |
0.08 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
Second
Quarter |
|
$ |
0.08 |
|
|
$ |
0.04 |
|
| |
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
$ |
0.08 |
|
|
$ |
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
Fourth
Quarter |
|
$ |
0.03 |
|
|
$ |
0.006 |
|
| |
|
|
|
|
|
|
|
|
|
December
31, 2019 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
First
Quarter |
|
$ |
0.06 |
|
|
$ |
0.007 |
|
| |
|
|
|
|
|
|
|
|
|
Second
Quarter |
|
$ |
0.08 |
|
|
$ |
0.04 |
|
| |
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
| |
|
|
|
|
|
|
|
|
|
Fourth
Quarter |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
Holders
of Record
As of
December 31, 2019, there were 237 holders of record of our common
stock. Because some of our shares are held by brokers and other
institutions on behalf of shareholders, we are unable to estimate
the total number of stockholders represented by these record
holders.
Dividend
Policy
We
have never paid or declared any cash dividends on our common stock
and we do not intend to pay or declare dividends on our common
stock in the near future. We presently expect to retain any future
earnings to fund continuing development and growth of our business.
Our payment of dividends is subject to the discretion of our board
of directors and will depend on earnings, financial condition,
capital requirements and other relevant factors.
Issuer
Purchases of Equity Securities
We
repurchased 30,000 shares of our equity securities during the 2019
fiscal year for $30.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information
concerning our equity compensation plans is set forth in Item 12 of
Part III of this Annual Report on Form 10-K.
Recent
Sales of Unregistered Securities
Common Stock and Warrant Grants
From
January 1, 2019 through December 31, 2019, we issued 142,538,209
shares of our common stock valued at $2,642,936 for services
rendered to the Company in 2019, 155,226,844 shares were issued for
cash for $606,300, 77,912,991 shares were issued for settlement of
warrants at $394,250 and 45,000,000 shares were issued for
conversion of related party line of credit valued at $1,977,935.
During the period, 227,336,218 shares of common stock valued at
$1,343,664 were issued upon the conversion of convertible notes
including accrued interest and settlement of
derivatives.
Stock Option Grants
There
were no stock option grants issued from January 1, 2019 through
December 31, 2019.
Proceeds from loans and shareholder, convertible and contingently
convertible notes payable
From
January 1, 2019 through December 31, 2019, the Company issued
certain contingently convertible promissory notes in varying
amounts, in the aggregate of $713,700, to existing shareholders
including a $100,000 note to Steven Rotman. The face amount of the
notes represents the amount due at maturity in two years, along
with accrued interest at a rate of 5%, at which time that amount
may be converted into shares of the Company stock 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.
On
June 30, 2019, the Company issued contingently convertible
promissory notes totaling $180,000 to Steven Rotman ($105,000) and
Greg Rotman ($75,000). The notes bear interest at a rate of 8%, are
convertible at the Company’s option after December 31, 2019 and
mature in five years. If converted. The notes plus 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.
On
July 18, 2019, the Company issued contingently convertible
promissory notes totaling $1,522,500 to Steven Rotman ($1,102,500)
and Bernard Rotman ($420,000) as partial consideration for the
acquisition of Rotmans (see Note 18). These notes bear interest at
a rate of 8% and 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. The remaining
consideration for the Rotmans acquisition were nonconvertible notes
totaling $507,500 to Steven Rotman ($367,500) and Bernard Rotman
($140,000). These 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.
Application of Securities Laws and Other Matters
No
underwriters were involved in the foregoing sales of securities.
The securities described above were issued to investors in reliance
upon the exemption from the registration requirements of the
Securities Act, as set forth in Section 4 (2) under the Securities
Act and Regulation D promulgated thereunder, as applicable,
relative to sales by an issuer not involving any public offering,
to the extent an exemption from such registration was
required.
The
issuance of stock options as described above were issued pursuant
to written compensatory plans or arrangements with our employees,
directors and consultants, in reliance on the exemption provided by
Rule 701 promulgated under the Securities Act. All recipients
either received adequate information about us or had access,
through employment or other relationships, to such
information.
All
of the foregoing securities are deemed restricted securities for
purposes of the Securities Act. All certificates representing the
issued shares of common stock, warrants and options described above
included appropriate legends setting forth that the securities had
not been registered and the applicable restrictions on
transfer.
|
ITEM 6. |
SELECTED
FINANCIAL DATA |
As a
smaller reporting company, we are not required to provide the
information required by this Item pursuant to 301(c) of Regulation
S-K.
|
ITEM 7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
This
analysis of our results of operations should be read in conjunction
with the accompanying financial statements, including notes
thereto, contained in Item 8 of this Report. This Report contains
certain forward-looking statements within the meaning of Section
27A of the Securities Act, and Section 21E of the Exchange Act.
Statements that are predictive in nature and that depend upon or
refer to future events or conditions are forward-looking
statements. Although we believe that these statements are based
upon reasonable expectations, we can give no assurance that
projections will be achieved. Please refer to the discussion of
forward-looking statements included in Part I of this
Report.
Overview
Vystar
LLC, the predecessor to the Company, was formed February 2, 2000,
as a Georgia limited liability company by Travis W. Honeycutt.
Operations under the LLC entity were focused substantially on the
research, development and testing of the Vytex® Natural Rubber
Latex (“NRL”) process, as well as attaining intellectual property
rights. In 2003, the Company reorganized as Vystar Corporation, a
Georgia corporation, at which time all assets and liabilities of
the limited liability company became assets and liabilities of
Vystar Corporation, including all intellectual property rights,
patents and trademarks.
We
are the creator and exclusive owner of the innovative technology to
produce Vytex NRL. This technology reduces antigenic protein in
natural rubber latex products to virtually undetectable levels in
both liquid NRL and finished latex products. The process also
removes many of the naturally occurring non-rubber particles
superfluous to end product function, resulting in a cleaner latex
base material. We have introduced Vytex NRL, our “ultra-low
protein” natural rubber latex, throughout the worldwide marketplace
that uses NRL or latex substitutes as a component of manufactured
products. Natural rubber latex is used in an extensive range of
products including balloons, textiles, footwear and clothing
(threads), adhesives, foams, furniture, carpet, paints, coatings,
protective equipment, sporting equipment, and especially health
care products such as condoms, surgical and exam gloves. We produce
Vytex through licensing agreements and have introduced Vytex NRL
into the supply channels with aggressive, targeted marketing
campaigns directed to the end users.
We
transitioned from a development stage company to the operating
stage during the last quarter of 2009. During the period of 2010 to
2015, our financial condition and results of operations have
experienced substantial fluctuations as we provided introductory
pricing in 2010 and then began to switch to a licensing rather than
a toll model in 2011. Our licensing model will continue in 2019 for
the raw material business and we will continue our focus in 2019
onward on the licensing contracts associated with the foam and
furniture offerings. Accordingly, the financial condition and
results of operations reflected in our historical financial
statements are not expected to be indicative of our future
financial condition and results of operations.
We
believe that the key for increased Vytex NRL product acceptance is
to focus on companies seeking solutions to production challenges or
ways to differentiate their product offering. Vystar’s technical
team has been successful in developing customized formulations to
meet specific manufacturer needs. Some of these formulations will
become new line extensions. Vystar is becoming less of a raw
material provider and more of a technology innovator through its
technical consultation and formulation activities.
In
addition to this technology focus, we are determined to have the
“made with Vytex” claim added to products made using various forms
of Vytex NRL. To help drive this effort we’re focusing on products
that benefit from Vytex NRL low non-rubber features. As part of
this effort, we are working with a licensee to launch a line of
foam core products used in various bedding products including
pillows, mattresses and mattress toppers.
In
January 2015 Vystar announced that it had entered into an exclusive
agreement with NHS to distribute mattresses, mattress toppers and
pillows made with its multi-patented Vytex NRL raw material. NHS is
a distribution company led by Steven Rotman of Rotmans Furniture
and as of December 18, 2017 is the CEO of Vystar and focuses on
innovative, sustainably sourced, eco-friendly material and
technologies for use in furnishings and other markets. Our Vytex
NRL fits the needs of this unique new distributor which has already
attracted such firms as mattress manufacturer Gold Bond that was
formed in 1899 to manufacture and then distribute mattresses,
toppers and pillows along with a plan to reach specific segments of
the United States by targeting other manufacturers. Vystar has
focused on these segments since 2015 and will continue into 2019 as
we display at furniture and mattress conventions and attend and
sell at sleep products meetings such as ISPA 2016 (International
Sleep Products Association) held in Orlando, FL and ISPA 2017 in
Tampa, FL and attended ISPA 2018 in Charlotte, NC. Vystar will also
continue to develop specialty versions of Vytex NRL after
presenting to the International Latex Conference in Akron OH in
July 2016 and 2017 and sending out samples for lab trials. Vystar
is currently producing Vytex thread samples for an entry into the
thread marketplace. In September 2016, the Vystar Board of
Directors voted to end the January 2015 agreement with NHS and
replace it with a global exclusive for foam manufactured with Vytex
and sold into the home furnishings industry. This change reflects
the global nature of the mattress, topper and pillow
businesses.
In
April of 2018 Vystar acquired the assets of NHS Holdings, LLC (NHS)
executing on the first part of the company’s vision to move into
direct product offerings made from Vytex® latex. NHS
was the exclusive U.S. distributor of Vystar’s Vytex® natural
rubber latex foam to manufacturers for use in over 200 home
furnishings products, including mattresses, toppers, pillows and
upholstery, sold through multiple channels. This acquisition
provides Vystar with roll packing and cutting equipment to support
our bedding manufacturing partners, while lowering the cost of
Vytex to the manufacturer by eliminating the middleman.
Now
unified under the Vytex brand, we anticipate developing additional
product offerings and solidifying partnerships with multiple major
manufacturing partners throughout the home furnishings industry. We
anticipate our new offerings will include cushions and padding for
use in seating and other products which we believe will achieve
higher margins.
In
May of 2018 Vystar acquired substantially all of the assets of
UV Flu Technologies, Inc., formerly traded on the OTC
under the ticker UVFT, whose patented ViraTech™ UV light air
purification technology destroys greater than 99% of airborne
bacteria, viruses and other microorganisms and virtually eliminates
concentrations of odors and volatile organic compounds
(VOCs).
As
part of Vystar’s mission to offer eco-friendly, sustainable
materials and products that create a better environment for
consumers and workers throughout the product lifecycle, UV Flu
Technologies is an excellent counterpart to our Vytex materials and
Vytex bedding products. Vystar products will help create a perfect
natural sleep environment starting with Vytex bedding made from the
purest latex in the world and UV Flu’s RxAir™ air purifier
ensuring every breath is free of harmful pathogens, VOCs and
odors.”
UV
Flu products 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. (see
news video with RX3000 in use)
UV
Flu’s product line includes:
|
|
● |
RXair™
Residential Filterless Air Purifier |
|
|
● |
UV400 ™ FDA cleared Class II Filterless Air
Purifier |
|
|
● |
RX3000™ Commercial FDA cleared Class II Air Purifier (news
video with RX3000) |
Vystar
acquired all UV Flu intellectual property and multiple patents,
product lines, tooling, FDA clearances, research data, websites and
other assets related to the business for the purchase price of
$975,000 or 27,918,000 shares of Vystar restricted common stock
which may not be assigned or sold by UV Flu for 12
months.
In
May of 2019, Vystar acquired the assets of Fluid Energy Conversion
Inc. (“FEC”), primarily consisting of its patent on the Hughes
Reactor, which has the ability to control, enhance, and focus
energy in flowing liquids and gases. Included in stock subscription
payable is $103,750 representing the shares to be issued to FEC in
2020 for these assets. Vystar intends to use this technology to
enhance the effectiveness of Vystar’s RxAir purification system to
destroy airborne pathogens while decreasing the cost and size of
Vystar’s RxAir units.
In
July of 2019, Vystar acquired 58% of the outstanding shares of
common stock of Murida Furniture Co., Inc. dba Rotmans Furniture
(“Rotmans”), the largest furniture and flooring store in New
England and one of the largest independent furniture retailers in
the U.S. Rotmans sells a broad line of residential furniture and
decorative accessories and serves customers throughout the New
England region. The acquisition is expected to add approximately
$30 million in annual top line revenue and enable Vystar to
capitalize on the infrastructure already in place at Rotmans for
accounting, retail sales facilities and staff, customer service,
warehousing, and delivery. In addition, Rotmans will offer
significant marketing and advertising opportunities for all of
Vystar’s brands to Rotmans’ thousands of existing customers. The
Company and Rotmans are exploring a number of initiatives relating
to environmentally friendly product development and distribution
that will utilize the access to the capital markets afforded by
this combination.
Manufacturing,
Distribution and Sales
Vystar
will continue production of UV Flu product lines with BOI, a
world-class manufacturer. Vystar plans to sell RxAir residential
and commercial units via Distributors, online and through retail
channels.
Vystar
is assembling the distribution network to relaunch sales of UV400
and Rx3000 units to the healthcare and medical markets, which UV
Flu had ceased due to sales force, distribution and cash flow
constraints. Once production and sales are firmly re-established,
Vystar expects that the air purification products will produce
margins of approximately 75%.
UV
Flu’s products have world class engineering, are made to the
highest quality standards and are extremely effective in settings
ranging from homes to offices, healthcare facilities, salons,
restaurants and nursing homes.
About
RxAir
RxAir
promotes a healthy lifestyle through the use of its innovative,
patented ViraTech air purification technology, thereby improving
the quality of life of each and every customer. Independently
tested by EPA- and FDA-certified laboratories, the RxAir has been
proven to destroy greater than 99% of bacteria and viruses and
reduce concentrations of odors and VOCs. The RxAir uses
high-intensity germicidal UV lamps that destroy bacteria and
viruses instead of just trapping them, setting it apart from
ordinary air filtration units. RxAir® and ViraTech® are registered
trademarks of Vystar Corp. For more information, visit
http://www.RxAir.com
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been
prepared in accordance with U.S. generally accepted accounting
principles. As such, we are required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. By their nature,
these estimates and judgments are subject to an inherent degree of
uncertainty. Our management reviews its estimates on an on-going
basis. We base our estimates and assumptions on historical
experience, knowledge of current conditions and our understanding
of what we believe to be reasonable that might occur in the future
considering available information. Actual results may differ from
these estimates, and material effects on our operating results and
financial position may result.
We
believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
financial statements.
Fair
Value Inputs Related to Share-based and Other Equity
Compensation
Generally
accepted accounting principles require all share-based payments,
including grants of employee stock options, stock grants and
warrants, to be recognized in the financial statements based on
their fair values. We compute the value of option awards granted by
utilizing the Black-Scholes valuation model based upon their
expected lives, expected volatility, expected dividend yield, and
the risk-free interest rate. The value of the awards is then
straight-line expensed over the service period of the awards.
Issuance in shares of common stock is valued using the closing
market price on the measurement date.
Inventories
Inventories
include those costs directly attributable to the product before
sale. Inventories consist primarily of finished goods of foam
toppers, furniture, mattresses and pillows and is carried at net
realizable value, which is defined as selling price less cost of
completion, disposal and transportation. The Company evaluates the
need to record write-downs for inventories on a regular basis.
Approximate consideration is given to obsolescence, slow-moving and
other factors in evaluating net realizable values. Inventories not
expected to be sold within 12 months is classified as
long-term.
Revenue
We
recognize revenue when we satisfy a performance obligation in a
contract by transferring control over a product to a customer when
product is shipped based on fulfillment by the Company. The Company
considers fulfillment when it passes all liability at the point of
shipping through third party carriers. Consideration is typically
paid prior to shipment via credit card or check when our products
are sold direct to consumers, which is typically within a 1 to 2
days or approximately 30 days from the time control is transferred
when sold to wholesalers, distributors and retailers. Taxes
assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction, that are
collected by us from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after
control over a product has transferred to a customer are accounted
for as a fulfillment cost and are included in cost of product
sales.
Impairment
Analyses
We
review long-lived assets such as property and equipment for
impairment whenever events or changes in circumstances indicate the
carrying value may not be recoverable. If the total of the
estimated undiscounted future cash flows is less than the carrying
value of the assets, an impairment loss is recognized for the
excess of the carrying value over the fair value of the long-lived
assets.
Accounting
for Derivative Financial Instruments
The
Company evaluates stock options, stock warrants, notes payable or
other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be
separately accounted for under the relevant sections of ASC 815-40,
Derivative Instruments and Hedging: Contracts in Entity’s Own
Equity. The result of this accounting treatment could be that the
fair value of a financial instrument is classified as a derivative
instrument and is marked-to-market at each balance sheet date and
recorded as a liability. In the event that the fair value is
recorded as a liability, the change in fair value is recorded in
the statement of operations as other income or other expense. Upon
conversion or exercise of a derivative instrument, the instrument
is marked to fair value at the conversion date and then that fair
value is reclassified to equity. Financial instruments that are
initially classified as equity that become subject to
reclassification under ASC 815-40 are reclassified to a liability
account at the fair value of the instrument on the reclassification
date.
Purchase
Accounting for Acquisition
In
2019, the Company acquired Murida Furniture Co., Inc. Acquisition
of a business requires companies to record assets acquired and
liabilities assumed at their respective fair market value at the
date of acquisition. Any amount of the purchase price paid in
excess of the estimated fair value of the net assets acquired is
recorded as goodwill. The Company determined the fair value of
Murida Furniture Co., Inc. using widely accepted valuation
techniques. In addition, proper accounting for any acquisition
required the Company to record the transactions of the acquired
entity in the Company’s financial statements from the date of
acquisition and forward.
Leases
The
Company has adopted and implemented ASC 842, Leases, where the
Company recognized right-of use assets and lease liabilities. For
leases in which the acquiree is a lessee, the Company measured the
lease liability at the present value of the remaining lease
payments, as if the acquired lease were a new lease at the
acquisition date. The Company measured the right-of-use asset at
the same amount as the lease liability as adjusted to reflect
favorable and unfavorable terms of the lease when compared with
market terms.
RESULTS
OF OPERATIONS
Year
ended December 31, 2019 compared to year ended December 31,
2018
| |
|
Year
Ended December 31, |
|
|
|
|
2019 |
|
|
2018 |
|
|
$
Change |
|
|
%
Change |
|
|
|
|
CONSOLIDATED |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
13,685,872 |
|
|
$ |
342,049 |
|
|
$ |
13,343,823 |
|
|
|
3901.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue |
|
|
7,332,271 |
|
|
|
385,803 |
|
|
|
6,946,468 |
|
|
|
1800.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss) |
|
|
6,353,601 |
|
|
|
(43,754 |
) |
|
|
6,397,355 |
|
|
|
14621.2 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits |
|
|
3,355,593 |
|
|
|
- |
|
|
|
3,355,593 |
|
|
|
100.0 |
% |
|
Share-based
compensation |
|
|
2,968,898 |
|
|
|
1,285,938 |
|
|
|
1,682,960 |
|
|
|
130.9 |
% |
|
Professional
fees |
|
|
1,132,251 |
|
|
|
1,961,328 |
|
|
|
(829,077 |
) |
|
|
-42.3 |
% |
|
Advertising |
|
|
1,050,459 |
|
|
|
77,467 |
|
|
|
972,992 |
|
|
|
1256.0 |
% |
|
Rent |
|
|
570,779 |
|
|
|
- |
|
|
|
570,779 |
|
|
|
100.0 |
% |
|
Service
charges |
|
|
436,183 |
|
|
|
- |
|
|
|
436,183 |
|
|
|
100.0 |
% |
|
Depreciation and
amortization |
|
|
444,890 |
|
|
|
145,046 |
|
|
|
299,844 |
|
|
|
206.7 |
% |
|
Other
operating |
|
|
1,335,204 |
|
|
|
201,577 |
|
|
|
1,133,627 |
|
|
|
562.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
11,294,257 |
|
|
|
3,671,356 |
|
|
|
7,622,901 |
|
|
|
207.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(4,940,656 |
) |
|
|
(3,715,110 |
) |
|
|
(1,225,546 |
) |
|
|
33.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on settlement of debt |
|
|
(327,433 |
) |
|
|
108,854 |
|
|
|
(436,287 |
) |
|
|
-400.8 |
% |
|
Interest
expense |
|
|
(1,390,407 |
) |
|
|
(673,277 |
) |
|
|
(717,130 |
) |
|
|
106.5 |
% |
|
Change
in fair value of derivative liabilities |
|
|
(1,079,450 |
) |
|
|
(269,539 |
) |
|
|
(809,911 |
) |
|
|
300.5 |
% |
|
Loss
on impairment |
|
|
- |
|
|
|
(848,462 |
) |
|
|
848,462 |
|
|
|
-100.0 |
% |
|
Other
income (expense) |
|
|
12,395 |
|
|
|
(3,688 |
) |
|
|
16,083 |
|
|
|
436.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net |
|
|
(2,784,895 |
) |
|
|
(1,686,112 |
) |
|
|
(1,098,783 |
) |
|
|
65.2 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
|
(7,725,551 |
) |
|
|
(5,401,222 |
) |
|
|
(2,324,329 |
) |
|
|
43.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interest |
|
|
20,929 |
|
|
|
- |
|
|
|
20,929 |
|
|
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Vystar |
|
$ |
(7,704,622 |
) |
|
$ |
(5,401,222 |
) |
|
$ |
(2,303,400 |
) |
|
|
42.6 |
% |
Revenues
Consolidated
revenues for the year ended December 31, 2019 and 2018 were
$13,685,872 and $342,049, respectively, for an increase of
$13,343,823 or 3,901%. The increase in revenues from operations was
principally due to the acquisition of Rotmans.
Consolidated
gross profit (loss) for the year ended December 31, 2019 and 2018
were $6,353,601 and $(43,754), respectively, for an increase of
$6,397,355 or 14,621%. Consolidated cost of revenue for year ended
December 31, 2019 and 2018 was $7,332,271 and $385,803,
respectively, an increase of $6,946,468 or 1,801%. The increase in
gross profit and cost of revenue was mainly due to the acquisition
of Rotmans.
Operating
Expenses
The
Company’s operating expenses consist primarily of compensation and
support costs for management, sales and administrative staff, and
for other general and administrative costs, including professional
fees related to accounting, finance, and legal services as well as
other operating expenses such as advertising and occupancy costs.
The Company’s consolidated operating expenses were $11,294,257 and
$3,671,356 for the year ended December 31, 2019 and 2018,
respectively, for an increase of $7,622,901 or 208%. The increase
in operating expenses was primarily due to the acquisition of
Rotmans.
Other
Income (Expense)
Other
income (expense) for the year ended December 31, 2019 and 2018 were
$(2,784,895) and ($1,686,112), respectively, for a net increase of
$1,098,783 or 65%. Increases in other expenses in 2019 included
change in fair value of derivative liabilities of $809,911,
interest expense of $717,130 and loss on settlement of debt of
$436,287 which were offset with a decrease in impairment loss of
$848,462 and an increase in other income of $16,083.
Net
Loss
Net
loss for the year ended December 31, 2019 and 2018 were $7,725,551
and $5,401,222, respectively, for an increase in net loss of
$2,324,329 or 43%. Net loss in 2019 includes net loss attributable
to noncontrolling interest of $20,929. The larger net loss the
Company experienced in the year ended December 31, 2019 versus the
same period in 2018 was attributable to the large increase in
operating expenses for the year, primarily related to the increase
in stock-based compensation expenses and professional fees related
to the acquisition of Rotmans.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company’s financial statements are prepared using the accrual
method of accounting in accordance with accounting principles
generally accepted in the United States of America 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
December 31, 2019, the Company had cash of $72,355 and a deficit in
working capital of $6,762,671. For the year ended December 31,
2019, the Company had a net loss of $7,725,551 and an accumulated
deficit of $41,104,967 . For the year ended December 31, 2018, the
Company had a net loss of $5,401,222 and the accumulated deficit
amounted to $33,400,345. We use working capital to finance our
ongoing operations, and since those operations do not currently
cover all of our operating costs, managing working capital is
essential to our Company’s future success. Because of this history
of losses and financial condition, there is substantial doubt about
the Company’s ability to continue as a going concern.
Net
cash used in operating activities was $1,513,997 for the year ended
December 31, 2019 as compared to $1,508,036 for the year ended
December 31, 2018. During the year ended December 31, 2019, cash
used in operations was primarily due to the net loss for the year
of $7,725,551 net of non-cash related add-back of share-based
compensation expense of $2,968,898.
The
Company had $9,519 cash used in investing activities during the
year ended December 31, 2019 as compared to $3,598 for the year
ended December 31, 2018. During the year ended December 31, 2019,
cash used in investing activities was related to the purchase of
patents and trademark fees.
Net
cash provided by financing activities was $1,545,818 during the
year ended December 31, 2019, as compared to cash provided of
$1,548,185 during the year ended December 31, 2018. During 2019,
cash was provided from the proceeds in notes payable in the amount
of $713,700, repayments on notes payable in the amount of $28,724,
net borrowings on line of credit of $39,449, $1,000,550 in proceeds
from common stock issuances, repayments of convertibles notes of
$146,206 and treasury stock repurchases of $30. In 2018, cash
provided by financing activities was provided from the issuance of
common stock in the amount of $149,500, proceeds from a bank loan
of $500,000, proceeds from notes payable in the amount of $981,685
and repayments on notes payable in the amount of
$83,000.
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 that now also
include the Company’s association with foam cores made from Vytex
used in mattresses, mattress toppers and pillows.
There
can be no assurances that we will be able to achieve projected
levels of revenue in 2020 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 2020, which could have a material adverse effect
on our ability to achieve our business objectives and as a result,
may require the Company to file for bankruptcy or cease operations.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or
amounts classified as liabilities that might be necessary should
the Company be forced to take any such actions.
Our
future expenditures will depend on numerous factors, including: the
rate at which we can introduce RxAir products and license Vytex NRL
raw material and the foam cores made from 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.
Off-Balance
Sheet Arrangements
We do
not have any material off-balance sheet arrangements.
Certain
Relationships and Related Transactions
On
April 29, 2011, the Company executed with CMA Investments, LLC, a
Georgia limited liability company of which three of the directors
of the Company (“CMA directors”) are the members (“CMA”), an
unsecured line of credit (“CMA Note Payable”) bearing interest at
LIBOR plus 5.25% per annum on amounts drawn and fees. The weighted
average interest rate in effect on the borrowings for the years
ended December 31, 2018 was 7.99%.
During
the tenure of the CMA Note Payable, the Company has increased the
amount of the note and in exchange provided benefits to the CMA
directors as follows:
|
Date |
|
Amount
(increase) |
|
Benefit
to CMA |
|
Impact
to Company |
|
Inception |
|
$800,000 |
|
Warrants
to purchase 2,600,000 shares @ $0.45, vesting 20% immediately and
10% per $100,000 drawn |
|
Warrant
costs amortized over the term of the CMA Note Payable |
|
Sept
4, 2011 |
|
$200,000 |
|
Modified
warrant price on 2,600,000 shares from $0.45 to $0.27, and issued
additional 1,600,000 shares @ $0.27 |
|
Warrant
costs amortized over the remaining term of the CMA Note
Payable |
|
Nov
2, 2012 |
|
$500,000 |
|
Warrants
to purchase 2,100,000 shares @ $0.35 |
|
Warrant
costs amortized over the remaining term of the CMA Note
Payable |
|
Apr
29, 2013 |
|
$0
(maturity date extended 1 year) |
|
Modified
warrant price on 6,300,000 shares from $0.10, and agreed to forfeit
630,000 of the warrants |
|
Warrant
costs amortized over the remaining term of the CMA Note
Payable |
|
Apr
29, 2014 |
|
$0
(maturity date extended 1 year) |
|
None |
|
None |
|
Apr
29, 2015 |
|
$0
(maturity date extended 1 year) |
|
None |
|
None |
As of
December 31, 2018, the Company had borrowed up to $1,500,000 from
CMA Investments, LLC (the “Note”). Holders of the Note received the
proceeds for the Note to make the loan from a financial institution
(the “Holder Loan”). Pursuant to a Loan Payoff and Share Payment
Agreement, as final payment of the Note, CMA Investments agreed to
accept 15,000,000 shares of common stock of the Company. The shares
of common stock were issued in the name of CMA Investments and
delivered to an escrow agent for its benefit. The Company agreed to
pay interest under lender’s bank loan for a six-month period which
may be extended by 30 days under certain circumstances. After the
six-month period, the escrow agent may sell the shares at a price
no less than $.035 per share with expectation that sales would be
complete by July 1, 2022. In the event of a short from the proceeds
from the sale of the shares and the amount that was owed, the
Company must pay the shortfall in shares based on the fair market
value of the shares, provided that the Company may pay cash at any
time in Escrow at par value.
In
July 2019, the Company issued an additional 30 million shares to
CMA to settle the shortfall. The details are as follows:
|
|
● |
Upon
delivery of the 30 million shares for the second and third
tranches, the debt was fully satisfied. CMA can sell the shares at
least six months after issue at no less than $0.01399 per share
(subject to adjustment for stock split, reorganization,
recapitalization, reclassification, reverse stock split or stock
dividend). |
|
|
● |
The
agreement specifies CMA must purchase up to 19 million shares of
the Company if the average sale prices of the shares in the second
and third tranches are at or above certain thresholds. There have
been no additional purchases of Company shares by CMA. |
In
connection with the July settlement the Company recorded a loss on
debt extinguishment of approximately $340,000.
Per
Steven Rotman’s Employment agreement dated July 22, 2019, he is to
be paid $125,000 per year in cash, $10,417 per month to be paid in
shares based on a 20-day average price at a 50% discount to market,
$5,000 per month in cash for expenses as well as access to a
Company provided vehicle and health and life insurance. Under the
terms of his previous employment agreement, he was paid
approximately $1 per year in cash and $20,833 per month to be paid
in shares based on a 20-day average at a 0% discount to market.
During the year ended December 31, 2019, the Company issued Steven
Rotman 28,016,022 shares that were accrued and expensed as of
December 31, 2018. The Company expensed approximately $201,000
during the year ended December 31, 2019 related to 4,000,000 shares
issued for Steven Rotman’s services as a Board Member of the
Company. In addition, the Company accrued and expensed
approximately $442,000 in 2019 related to approximately 12,771,000
shares to be issued in the future.
During
the year ended December 31, 2019, the Company had sales of
approximately $49,000 to Murida, DBA Rotmans Furniture (“Rotmans”).
Steve Rotman, the Company’s CEO, is also Rotmans CEO and a former
shareholder. The Company acquired a 58% interest in Rotmans on July
18, 2019. During the year ended December 31, 2019, the Company
utilized certain warehouse staff, warehouse space/services and an
executive assistant of Rotmans for the Company’s purposes. The
Company was charged approximately $821,000 for these services in
2019. All significant intercompany transactions since the
acquisition date have been eliminated in the accompanying
consolidated financial statements.
Designcenters.com
(“Design”) is owned by Jamie Rotman, who is the daughter of the
Company’s CEO, Steven Rotman. Design provided bookkeeping and
management services to the Company through July 2019. In exchange
for such services, the Company had entered into a consulting
agreement with the related party entity. Per Design’s consulting
agreement, it is to be paid approximately $7,100 per month in cash
or shares based on a 20-day average at a 50% discount to market and
a $10,000 quarterly bonus to be paid in shares using the same
formula. During the year ended December 31, 2019, the Company
issued Design 20,030,407 shares in accordance with the consulting
agreement that were accrued and expensed in 2018. The Company
expensed approximately $83,000 related to the consulting agreement
during the year ended December 31, 2019. Of the expensed amount,
approximately $41,000 was paid in cash, with the remaining $42,000
included in stock subscription payable for approximately 850,000
shares to be issued in the future.
Blue Oar
Consulting, Inc. (“Blue Oar”) is owned by Gregory Rotman, who is
the son of the Company’s CEO, Steven Rotman. Blue Oar provides
business consulting services to the Company. In exchange for such
services, the Company has entered into a consulting agreement with
the related party entity. Per Blue Oar’s consulting agreement, it
is to be paid approximately $15,000 per month in cash for expenses
and $12,500 per month to be paid in shares based on a 20-day
average at a 50% discount to market. During the year ended December
31, 2019, the Company issued Blue Oar 33,618,226 shares in
accordance with the consulting agreement that were accrued and
expensed in 2018. During the year ended December 31, 2019, the
Company expensed approximately $510,000 related to the consulting
agreement . Of the expensed amount, approximately $180,000 was paid
in cash, with the remaining $330,000 included in stock subscription
payable for approximately 10,562,000 shares to be issued in the
future.
Polymer
Consultancy Services, Ltd. (“Polymer”) is partly owned by Dr. R.K.
Matthan, a director of the Company. Polymer provides research and
development consulting services related to the Company’s latex
products. The Company paid Polymer approximately $23,000 for these
services during the year ended December 31, 2019.
|
ITEM 7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a
smaller reporting company, we are not required to provide the
information required by this Item pursuant to 301(c) of Regulation
S-K.
|
ITEM 8. |
Index to Financial Statements |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and Stockholders of Vystar
Corporation
Opinion
on the Financial Statements
We have
audited the accompanying balance sheets of Vystar Corporation (the
“Company”) as of December 31, 2019 and 2018, and the related
statements of operations, stockholders’ deficit and cash flows for
the years then ended and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and the
results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted
in the United States of America.
Going
Concern
The
accompanying financial statements have been prepared assuming that
the entity will continue as a going concern. As discussed in Note 3
to the financial statements, the entity has suffered recurring
losses from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also described in
Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the entity’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB
and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits
included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
We have
served as the Company’s auditor since 2018.
Irvine,
CA
July 6,
2020
VYSTAR CORPORATION
CONSOLIDATED
BALANCE SHEETS
| |
|
December
31, |
|
|
December
31, |
|
|
|
|
2019 |
|
|
2018 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
72,355 |
|
|
$ |
50,053 |
|
|
Accounts
receivable |
|
|
38,526 |
|
|
|
19,732 |
|
|
Stock
subscription receivable |
|
|
49,250 |
|
|
|
- |
|
|
Inventories |
|
|
4,114,977 |
|
|
|
570,587 |
|
|
Investments - equity
securities , at fair value |
|
|
149,517 |
|
|
|
- |
|
|
Prepaid
expenses and other |
|
|
602,980 |
|
|
|
6,683 |
|
|
Deferred
commission costs |
|
|
129,123 |
|
|
|
- |
|
|
Total
current assets |
|
|
5,156,728 |
|
|
|
647,055 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
1,879,739 |
|
|
|
291,346 |
|
|
Operating
lease right-of-use assets |
|
|
10,379,685 |
|
|
|
- |
|
|
Finance
lease right-of-use assets, net |
|
|
849,209 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Other
assets: |
|
|
|
|
|
|
|
|
|
Intangible
assets, net |
|
|
2,489,612 |
|
|
|
1,383,919 |
|
|
Goodwill |
|
|
460,301 |
|
|
|
147,092 |
|
|
Inventories,
long-term |
|
|
935,121 |
|
|
|
- |
|
|
Deferred
commission costs, net of current portion
|
|
|
217,024 |
|
|
|
- |
|
|
Other |
|
|
34,377 |
|
|
|
- |
|
|
Total
other assets |
|
|
4,136,435 |
|
|
|
1,531,011 |
|
| |
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
22,401,796 |
|
|
$ |
2,469,412 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
Line of
credit |
|
$ |
2,413,539 |
|
|
$ |
- |
|
|
Term notes
- current maturities |
|
|
16,374 |
|
|
|
- |
|
|
Accounts
payable |
|
|
2,846,306 |
|
|
|
726,159 |
|
|
Accrued
expenses |
|
|
681,758 |
|
|
|
101,979 |
|
|
Stock
subscription payable |
|
|
1,150,125 |
|
|
|
771,203 |
|
|
Operating
lease liabilities - current maturities |
|
|
1,055,000 |
|
|
|
- |
|
|
Finance
lease liabilities - current maturities |
|
|
167,000 |
|
|
|
- |
|
|
Shareholder,
convertible and contingently convertible notes payable and accrued
interest - current maturities |
|
|
366,326 |
|
|
|
504,149 |
|
|
Related
party debt - current maturities |
|
|
46,000 |
|
|
|
- |
|
|
Unearned
revenue |
|
|
1,677,171 |
|
|
|
- |
|
|
Derivative
liabilities |
|
|
1,499,800 |
|
|
|
235,085 |
|
| |
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
11,919,399 |
|
|
|
2,338,575 |
|
| |
|
|
|
|
|
|
|
|
|
Long-term
liabilities: |
|
|
|
|
|
|
|
|
|
Related
party line of credit |
|
|
- |
|
|
|
1,499,875 |
|
|
Term
notes, net of current maturities |
|
|
500,000 |
|
|
|
500,000 |
|
|
Operating
lease liabilities, net of current maturities |
|
|
7,506,671 |
|
|
|
- |
|
|
Finance
lease liabilities, net of current maturities |
|
|
678,247 |
|
|
|
- |
|
|
Unearned
revenue, net of current maturities |
|
|
823,401 |
|
|
|
- |
|
|
Shareholder,
convertible and contingently convertible notes payable and accrued
interest, net of current maturities and debt discount
|
|
|
494,363 |
|
|
|
- |
|
|
Related
party debt, net of current maturities and debt discount
|
|
|
1,712,259 |
|
|
|
- |
|
|
Total
long-term liabilities |
|
|
11,714,941 |
|
|
|
1,999,875 |
|
|
Total
liabilities |
|
|
23,634,340 |
|
|
|
4,338,450 |
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’
deficit: |
|
|
|
|
|
|
|
|
|
Convertible preferred
stock, $0.0001 par value 15,000,000 shares authorized; 13,828
issued and outstanding at December 31, 2019 and 2018, (liquidation
preference of $91,275 and $77,447 at December 31, 2019 and 2018,
respectively) |
|
1 |
|
|
|
1 |
|
|
Common
stock, $0.0001 par value, 1,500,000,000 shares authorized;
1,105,762,080 and 457,747,818 shares issued and 1,105,732,080 and
457,747,818 shares outstanding at December 31, 2019 and 2018,
respectively |
|
|
110,573 |
|
|
|
45,774 |
|
|
Additional
paid-in capital |
|
|
38,436,607 |
|
|
|
31,485,532 |
|
|
Accumulated
deficit |
|
|
(41,104,967 |
) |
|
|
(33,400,345 |
) |
|
Common
stock in treasury, at cost; 30,000 and 0 shares at December 31,
2019 and 2018, respectively |
|
|
(30 |
) |
|
|
- |
|
|
Total
Vystar stockholders’ deficit |
|
|
(2,557,816 |
) |
|
|
(1,869,038 |
) |
|
Noncontrolling
interest |
|
|
1,325,272 |
|
|
|
- |
|
|
Total
stockholders’ deficit |
|
|
(1,232,544 |
) |
|
|
(1,869,038 |
) |
| |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit |
|
$ |
22,401,796 |
|
|
$ |
2,469,412 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
VYSTAR CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
Years
Ended |
|
|
|
|
December
31, |
|
|
|
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
|
Revenue |
|
$ |
13,685,872 |
|
|
$ |
342,049 |
|
| |
|
|
|
|
|
|
|
|
|
Cost
of revenue |
|
|
7,332,271 |
|
|
|
385,803 |
|
| |
|
|
|
|
|
|
|
|
|
Gross
profit (loss) |
|
|
6,353,601 |
|
|
|
(43,754 |
) |
| |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits |
|
|
3,355,593 |
|
|
|
- |
|
|
Share-based
compensation |
|
|
2,968,898 |
|
|
|
1,285,938 |
|
|
Professional
fees |
|
|
1,132,251 |
|
|
|
1,961,328 |
|
|
Advertising |
|
|
1,050,459 |
|
|
|
77,467 |
|
|
Rent |
|
|
570,779 |
|
|
|
- |
|
|
Service
charges |
|
|
436,183 |
|
|
|
- |
|
|
Depreciation
and amortization |
|
|
444,890 |
|
|
|
145,046 |
|
|
Other
operating |
|
|
1,335,204 |
|
|
|
201,577 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
11,294,257
|
|
|
|
3,671,356
|
|
| |
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,940,656 |
) |
|
|
(3,715,110 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
income (expense): |
|
|
|
|
|
|
|
|
|
Gain
(loss) on settlement of debt, net |
|
|
(327,433 |
) |
|
|
108,854 |
|
|
Interest
expense |
|
|
(1,390,407 |
) |
|
|
(673,277 |
) |
|
Change
in fair value of derivative liabilities |
|
|
(1,079,450 |
) |
|
|
(269,539 |
) |
|
Loss
on impairment |
|
|
- |
|
|
|
(848,462 |
) |
|
Other
income (expense) |
|
|
12,395 |
|
|
|
(3,688 |
) |
| |
|
|
|
|
|
|
|
|
|
Total
other expense, net |
|
|
(2,784,895 |
) |
|
|
(1,686,112 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
(7,725,551 |
) |
|
|
(5,401,222 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interest |
|
|
20,929 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Net
loss attributable to Vystar |
|
$ |
(7,704,622 |
) |
|
$ |
(5,401,222 |
) |
| |
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share: |
|
|
|
|
|
|
|
|
|
Net
loss per share |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
| |
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average number of common shares
outstanding |
|
|
1,009,072,209 |
|
|
|
257,499,751 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
VYSTAR CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| |
|
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, 2017 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
132,809,218 |
|
|
$ |
13,280 |
|
|
$ |
25,128,476 |
|
|
$ |
(27,999,123 |
) |
|
|
- |
|
|
$ |
- |
|
|
$ |
(2,857,366 |
) |
|
$ |
- |
|
|
$ |
(2,857,366 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in acquisitions |
|
|
|
|
|
|
|
|
|
|
55,687,500 |
|
|
|
5,569 |
|
|
|
2,925,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,931,019 |
|
|
|
|
|
|
|
2,931,019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for signing bonus |
|
|
|
|
|
|
|
|
|
|
721,408 |
|
|
|
72 |
|
|
|
34,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,806 |
|
|
|
|
|
|
|
34,806 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation - options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,161,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,161,132 |
|
|
|
|
|
|
|
1,161,132 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash received |
|
|
|
|
|
|
|
|
|
|
54,999,997 |
|
|
|
5,500 |
|
|
|
159,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,000 |
|
|
|
|
|
|
|
165,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of payables |
|
|
|
|
|
|
|
|
|
|
8,333,333 |
|
|
|
833 |
|
|
|
43,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,167 |
|
|
|
|
|
|
|
44,167 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of derivative upon conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,359 |
|
|
|
|
|
|
|
500,359 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative
fair value of warrants issued with convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,747 |
|
|
|
|
|
|
|
18,747 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued for services |
|
|
|
|
|
|
|
|
|
|
1,928,571 |
|
|
|
193 |
|
|
|
89,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000 |
|
|
|
|
|
|
|
90,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued upon conversion of convertible notes and settlement of
debt |
|
|
|
|
|
|
|
|
|
|
203,267,791 |
|
|
|
20,327 |
|
|
|
1,423,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444,320 |
|
|
|
|
|
|
|
1,444,320 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,401,222 |
) |
|
|
- |
|
|
|
- |
|
|
|
(5,401,222 |
) |
|
|
- |
|
|
|
(5,401,222 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance December 31, 2018 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
457,747,818 |
|
|
$ |
45,774 |
|
|
$ |
31,485,532 |
|
|
$ |
(33,400,345 |
) |
|
|
- |
|
|
$ |
- |
|
|
$ |
(1,869,038 |
) |
|
$ |
- |
|
|
$ |
(1,869,038 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services |
|
|
|
|
|
|
|
|
|
|
142,538,209 |
|
|
|
14,253 |
|
|
|
2,628,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,642,936 |
|
|
|
|
|
|
|
2,642,936 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation - options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,789 |
|
|
|
|
|
|
|
50,789 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for settlement of warrants |
|
|
|
|
|
|
|
|
|
|
77,912,991 |
|
|
|
7,791 |
|
|
|
386,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,250 |
|
|
|
|
|
|
|
394,250 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash received, net |
|
|
|
|
|
|
|
|
|
|
155,226,844 |
|
|
|
15,522 |
|
|
|
590,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606,300 |
|
|
|
|
|
|
|
606,300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of related party line of
credit |
|
|
|
|
|
|
|
|
|
|
45,000,000 |
|
|
|
4,500 |
|
|
|
1,973,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977,935 |
|
|
|
|
|
|
|
1,977,935 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued upon conversion of convertible notes and settlement of
derivatives |
|
|
|
|
|
|
|
|
|
|
227,336,218 |
|
|
|
22,733 |
|
|
|
1,320,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,343,664 |
|
|
|
|
|
|
|
1,343,664 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000 |
) |
|
|
(30 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
1,346,201 |
|
|
|
1,346,201 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,704,622 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7,704,622 |
) |
|
|
(20,929 |
) |
|
|
(7,725,551 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance December 31, 2019 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
1,105,762,080 |
|
|
$ |
110,573 |
|
|
$ |
38,436,607 |
|
|
$ |
(41,104,967 |
) |
|
|
(30,000 |
) |
|
$ |
(30 |
) |
|
$ |
(2,557,816 |
) |
|
$ |
1,325,272 |
|
|
$ |
(1,232,544 |
) |
The
accompanying notes are an integral part of these consolidated
financial statements.
VYSTAR CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
Years
Ended |
|
| |
|
December
31, |
|
| |
|
2019 |
|
|
2018 |
|
|
Cash flows
from operating activities: |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(7,725,551 |
) |
|
$ |
(5,401,222 |
) |
|
Adjustments to
reconcile net loss to cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
(Gain)
loss on settlement of debt |
|
|
327,433 |
|
|
|
(108,854 |
) |
|
Share-based
compensation |
|
|
2,968,898 |
|
|
|
1,285,938 |
|
|
Loss on
impairment |
|
|
- |
|
|
|
848,462 |
|
|
Depreciation |
|
|
177,314 |
|
|
|
31,485 |
|
|
Bad
debts |
|
|
2,183 |
|
|
|
- |
|
|
Amortization of
intangible assets |
|
|
267,576 |
|
|
|
113,561 |
|
|
Noncash
lease expense |
|
|
35,120 |
|
|
|
- |
|
|
Amortization of debt
discount |
|
|
73,519 |
|
|
|
463,084 |
|
|
Excess
fair value of derivatives upon grant |
|
|
- |
|
|
|
35,326 |
|
|
Change in
fair value of derivative liabilities |
|
|
1,079,450
|
|
|
|
269,539 |
|
|
Interest
on derivative liabilities
|
|
|
741,725
|
|
|
|
- |
|
|
Interest
charged on related party line of credit |
|
|
121,957 |
|
|
|
- |
|
|
Net
unrealized gain on available-for-sale investments |
|
|
(8,292 |
) |
|
|
- |
|
|
(Increase)
decrease in assets: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(5,131 |
) |
|
|
(15,769 |
) |
|
Stock
subscription receivable |
|
|
(49,250 |
) |
|
|
(49,250 |
) |
|
Inventories |
|
|
424,988 |
|
|
|
(330,730 |
) |
|
Prepaid
expenses and other assets |
|
|
(375,990 |
) |
|
|
159,408 |
|
|
Deferred
commission costs |
|
|
3,842 |
|
|
|
- |
|
|
Increase
(decrease) in liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
300,000 |
|
|
|
539,933 |
|
|
Accrued
expenses |
|
|
134,263 |
|
|
|
601,803 |
|
|
Unearned
revenue |
|
|
(8,051 |
) |
|
|
- |
|
|
Net cash
used in operating activities |
|
|
(1,513,997 |
) |
|
|
(1,508,036 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities: |
|
|
|
|
|
|
|
|
|
Patents
and trademark fees |
|
|
(9,519 |
) |
|
|
(3,598 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities: |
|
|
|
|
|
|
|
|
|
Net
borrowings on line of credit |
|
|
39,449 |
|
|
|
- |
|
|
Proceeds
of Fidelity Bank loan |
|