UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
|
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended June 30, 2020
|
[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the transition period from _______________ to
________________
Commission
File Number 000-53754
VYSTAR
CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
|
Georgia |
|
20-2027731 |
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(IRS
Employer
Identification
No.)
|
725
Southbridge St
Worcester,
MA 01610
(Address
of Principal Executive Offices, Zip Code)
(508)
791-9114
(Registrant’s
telephone number including area code)
Securities
registered pursuant to Section 12(b) of the Exchange
Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
NONE |
|
NONE |
|
NONE |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES
[ ] NO [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 (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files). YES [X] NO
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer [ ] |
|
Accelerated
filer [ ] |
| Non-accelerated
filer [ ] |
|
Smaller
reporting company [X] |
| (Do
not check if a smaller reporting company) |
|
Emerging
growth company [ ] |
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.) YES [ ] NO
[X]
|
Class |
|
Outstanding
as of August 19, 2020 |
|
Preferred
Stock, $0.0001 par value per share |
|
13,698
shares |
| Common
Stock, $0.0001 par value per share |
|
1,118,718,315
shares |
INFORMATION
RELATING TO FORWARD-LOOKING STATEMENTS
In
addition to historical information, this Form 10-Q contains
statements relating to our future results (including certain
projections and business trends) that are “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and are subject to the
“safe harbor” created by those sections. The following discussion
of the financial condition and results of operations of the Company
should be read in conjunction with the financial statements and the
related notes thereto included in this Quarterly Report on Form
10-Q (this “Report”). This Report contains certain forward-looking
statements and the Company’s future operating results could differ
materially from those discussed herein. Our disclosure and analysis
included in this Report concerning our operations, cash flows and
financial position, including, in particular, the likelihood of our
success in expanding our business and raising debt and capital
securities include forward-looking statements. Statements that are
predictive in nature, that depend upon or refer to future events or
conditions, or that include words such as “expect”, “anticipate”,
“intend”, “plan”, “believe”, “estimate”, “may”, “project”, “will
likely result”, and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements are
subject to certain risks, uncertainties, and assumptions, including
prevailing market conditions and are more fully described under
“Part I, Item 1A - Risk Factors” of our Form 10-K for the year
ended December 31, 2019. New risks and uncertainties arise from
time to time, and it is impossible for us to predict these events
or how they may affect us. In any event, these and other crucial
factors, including those set forth in Item 1A - “Risk Factors” of
our Form 10-K for the year ended December 31, 2019 may cause actual
results to differ materially from those indicated by our
forward-looking statements.
Although
we believe that these statements are based upon reasonable
assumptions, we cannot guarantee future results and readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management’s opinions only as of the date
of this filing. There can be no assurance that (i) we have
correctly measured or identified all of the factors affecting our
business or the extent of these factors’ likely impact, (ii) the
available information with respect to these factors on which such
analysis is based is complete or accurate, (iii) such analysis is
correct or (iv) our strategy, which is based in part on this
analysis, will be successful. The Company undertakes no obligation
to update or revise forward-looking statements.
All
references to “we”, “us”, “our” or “Vystar” in this Quarterly
Report on Form 10-Q mean Vystar Corporation, and
affiliates.
VYSTAR
CORPORATION
FORM
10-Q FOR THE QUARTER ENDED JUNE 30, 2020
INDEX
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
VYSTAR
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
June
30, |
|
|
December
31, |
|
|
|
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
832,632 |
|
|
$ |
72,355 |
|
|
Accounts
receivable |
|
|
95,458 |
|
|
|
38,526 |
|
|
Stock
subscription receivable |
|
|
- |
|
|
|
49,250 |
|
|
Inventories |
|
|
3,534,511 |
|
|
|
4,114,977 |
|
|
Investments
- equity securities, at fair value |
|
|
110,855 |
|
|
|
149,517 |
|
|
Prepaid
expenses and other |
|
|
221,924 |
|
|
|
602,980 |
|
|
Deferred
commission costs |
|
|
122,614 |
|
|
|
129,123 |
|
| |
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
4,917,994 |
|
|
|
5,156,728 |
|
| |
|
|
|
|
|
|
|
|
| Property
and equipment, net |
|
|
1,695,493 |
|
|
|
1,879,739 |
|
| |
|
|
|
|
|
|
|
|
| Operating
lease right-of-use assets |
|
|
9,799,748 |
|
|
|
10,379,685 |
|
| |
|
|
|
|
|
|
|
|
| Finance
lease right-of-use assets, net |
|
|
823,685 |
|
|
|
849,209 |
|
| |
|
|
|
|
|
|
|
|
| Other
assets: |
|
|
|
|
|
|
|
|
|
Intangible
assets, net |
|
|
2,284,816 |
|
|
|
2,489,612 |
|
|
Goodwill |
|
|
460,301 |
|
|
|
460,301 |
|
|
Inventories,
long-term |
|
|
802,383 |
|
|
|
935,121 |
|
|
Deferred
commission costs, net of current portion |
|
|
182,711 |
|
|
|
217,024 |
|
|
Other |
|
|
34,377 |
|
|
|
34,377 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
other assets |
|
|
3,764,588 |
|
|
|
4,136,435 |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
21,001,508 |
|
|
$ |
22,401,796 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
|
Line
of credit |
|
$ |
- |
|
|
$ |
2,413,539 |
|
|
Term
notes - current maturities |
|
|
596,768 |
|
|
|
16,374 |
|
|
Accounts
payable |
|
|
4,139,102 |
|
|
|
2,846,306 |
|
|
Accrued
expenses |
|
|
587,850 |
|
|
|
681,758 |
|
|
Stock
subscription payable |
|
|
1,447,628 |
|
|
|
1,150,125 |
|
|
Operating
lease liabilities - current maturities |
|
|
1,127,500 |
|
|
|
1,055,000 |
|
|
Finance
lease liabilities - current maturities |
|
|
171,800 |
|
|
|
167,000 |
|
|
Shareholder,
convertible and contingently convertible notes payable and accrued
interest - current maturities |
|
|
806,911 |
|
|
|
366,326 |
|
|
Related
party debt - current maturities |
|
|
46,000 |
|
|
|
46,000 |
|
|
Unearned
revenue |
|
|
2,199,907 |
|
|
|
1,677,171 |
|
|
Derivative
liabilities |
|
|
1,979,700 |
|
|
|
1,499,800 |
|
| |
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
13,103,166 |
|
|
|
11,919,399 |
|
| |
|
|
|
|
|
|
|
|
| Long-term
liabilities: |
|
|
|
|
|
|
|
|
|
Term
notes, net of current maturities |
|
|
1,902,900 |
|
|
|
500,000 |
|
|
Operating
lease liabilities, net of current maturities |
|
|
6,912,497 |
|
|
|
7,490,431 |
|
|
Finance
lease liabilities, net of current maturities |
|
|
663,713 |
|
|
|
694,487 |
|
|
Unearned
revenue, net of current maturities |
|
|
704,021 |
|
|
|
823,401 |
|
|
Shareholder,
convertible and contingently convertible notes payable and accrued
interest, net of current maturities and debt discount |
|
|
145,592 |
|
|
|
494,363 |
|
|
Related
party debt, net of current maturities and debt discount |
|
|
2,355,775 |
|
|
|
1,712,259 |
|
| |
|
|
|
|
|
|
|
|
|
Total
long-term liabilities |
|
|
12,684,498 |
|
|
|
11,714,941 |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities |
|
|
25,787,664 |
|
|
|
23,634,340 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
deficit: |
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, $0.0001 par value 15,000,000 shares authorized;
13,828 issued and outstanding at June 30, 2020 and December 31,
2019 (liquidation preference of $98,283 and $91,275 at June 30,
2020 and December 31, 2019 , respectively) |
|
|
1 |
|
|
|
1 |
|
|
Common
stock, $0.0001 par value, 1,500,000,000 shares authorized;
1,105,762,080 shares issued and 1,105,732,080
outstanding |
|
|
110,573 |
|
|
|
110,573 |
|
|
Additional
paid-in capital |
|
|
38,447,731 |
|
|
|
38,436,607 |
|
|
Accumulated
deficit |
|
|
(44,338,616 |
) |
|
|
(41,104,967 |
) |
|
Common
stock in treasury, at cost; 30,000 shares |
|
|
(30 |
) |
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
Total
Vystar stockholders’ deficit |
|
|
(5,780,341 |
) |
|
|
(2,557,816 |
) |
| |
|
|
|
|
|
|
|
|
|
Noncontrolling
interest |
|
|
994,185 |
|
|
|
1,325,272 |
|
| |
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit |
|
|
(4,786,156 |
) |
|
|
(1,232,544 |
) |
| |
|
|
|
|
|
|
|
|
| Total
liabilities and stockholders’ deficit |
|
$ |
21,001,508 |
|
|
$ |
22,401,796 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
|
Three
Months Ended |
|
|
Six
Months Ended |
|
|
|
|
June
30, |
|
|
June
30, |
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
2,388,906 |
|
|
$ |
185,563 |
|
|
$ |
8,321,144 |
|
|
$ |
377,230 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue |
|
|
990,404 |
|
|
|
211,124 |
|
|
|
3,923,018 |
|
|
|
410,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss) |
|
|
1,398,502 |
|
|
|
(25,561 |
) |
|
|
4,398,126 |
|
|
|
(33,736 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits |
|
|
721,808 |
|
|
|
- |
|
|
|
2,175,882 |
|
|
|
- |
|
|
Share-based
compensation |
|
|
154,259 |
|
|
|
488,450 |
|
|
|
308,627 |
|
|
|
2,100,736 |
|
|
Professional
fees |
|
|
251,187 |
|
|
|
179,956 |
|
|
|
543,883 |
|
|
|
371,985 |
|
|
Advertising |
|
|
234,462 |
|
|
|
23,096 |
|
|
|
681,157 |
|
|
|
43,579 |
|
|
Rent |
|
|
300,139 |
|
|
|
- |
|
|
|
593,310 |
|
|
|
- |
|
|
Service
charges |
|
|
44,346 |
|
|
|
778 |
|
|
|
227,923 |
|
|
|
1,904 |
|
|
Depreciation
and amortization |
|
|
243,925 |
|
|
|
50,451 |
|
|
|
487,848 |
|
|
|
100,104 |
|
|
Other
operating |
|
|
487,940 |
|
|
|
213,502 |
|
|
|
1,269,613 |
|
|
|
333,805 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
2,438,066 |
|
|
|
956,233 |
|
|
|
6,288,243 |
|
|
|
2,952,113 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(1,039,564 |
) |
|
|
(981,794 |
) |
|
|
(1,890,117 |
) |
|
|
(2,985,849 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(610,679 |
) |
|
|
(40,403 |
) |
|
|
(1,215,393 |
) |
|
|
(140,066 |
) |
|
Change
in fair value of derivative liabilities |
|
|
(479,900 |
) |
|
|
- |
|
|
|
(479,900 |
) |
|
|
(1,044,250 |
) |
|
Gain
(loss) on settlement of debt, net |
|
|
- |
|
|
|
(2,503 |
) |
|
|
- |
|
|
|
12,442 |
|
|
Other
income (expense) |
|
|
43,730 |
|
|
|
(2 |
) |
|
|
20,674 |
|
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net |
|
|
(1,046,849 |
) |
|
|
(42,908 |
) |
|
|
(1,674,619 |
) |
|
|
(1,172,028 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
|
(2,086,413 |
) |
|
|
(1,024,702 |
) |
|
|
(3,564,736 |
) |
|
|
(4,157,877 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interest |
|
|
220,141 |
|
|
|
- |
|
|
|
331,087 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Vystar |
|
$ |
(1,866,272 |
) |
|
$ |
(1,024,702 |
) |
|
$ |
(3,233,649 |
) |
|
$ |
(4,157,877 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic
and diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average number of common shares
outstanding |
|
|
1,105,732,080 |
|
|
|
1,076,466,101 |
|
|
|
1,105,732,080 |
|
|
|
919,249,702 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ DEFICIT
FOR
THE SIX MONTHS ENDED JUNE 30, 2020
| |
|
Attributable
to Vystar |
|
|
|
|
|
|
|
|
|
|
Number
of
Preferred
Shares |
|
|
Preferred
Stock |
|
|
Number
of
Common
Shares |
|
|
Common
Stock |
|
|
Additional
Paid-in
Capital |
|
|
Accumulated
Deficit |
|
|
Number
of
Treasury Shares |
|
|
Treasury
Stock |
|
|
Total
Vystar
Stockholders’
Deficit |
|
|
Non
controlling Interest |
|
|
Total
Stockholders’
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share
based compensation - options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,562 |
|
|
|
|
|
|
|
5,562 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,367,377 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,367,377 |
) |
|
|
(110,946 |
) |
|
|
(1,478,323 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance March 31, 2020 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
1,105,762,080 |
|
|
$ |
110,573 |
|
|
$ |
38,442,169 |
|
|
$ |
(42,472,344 |
) |
|
|
(30,000 |
) |
|
$ |
(30 |
) |
|
$ |
(3,919,631 |
) |
|
$ |
1,214,326 |
|
|
$ |
(2,705,305 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share
based compensation - options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,562 |
|
|
|
|
|
|
|
5,562 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for treasury shares
purchased in prior year
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,866,272 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,866,272 |
) |
|
|
(220,141 |
) |
|
|
(2,086,413 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance June 30, 2020 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
1,105,732,080 |
|
|
$ |
110,573 |
|
|
$ |
38,447,731 |
|
|
$ |
(44,338,616 |
) |
|
|
(30,000 |
) |
|
$ |
(30 |
) |
|
$ |
(5,780,341 |
) |
|
$ |
994,185 |
|
|
$ |
(4,786,156 |
) |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE SIX MONTHS ENDED JUNE 30, 2019
|
|
|
Attributable
to Vystar |
|
|
|
|
|
|
|
|
|
|
Number
of
Preferred
Shares |
|
|
Preferred
Stock |
|
|
Number
of
Common
Shares |
|
|
Common
Stock |
|
|
Additional
Paid-in
Capital |
|
|
Accumulated
Deficit |
|
|
Number
of
Treasury
Shares |
|
|
Treasury
Stock |
|
|
Total
Vystar
Stockholders’
Deficit |
|
|
Non
controlling
Interest |
|
|
Total
Stockholders’
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
147,704,875 |
|
|
|
14,771 |
|
|
|
2,017,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,032,236 |
|
|
|
|
|
|
|
2,032,236 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share
based compensation - options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,783 |
|
|
|
|
|
|
|
17,783 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for settlement of warrants |
|
|
|
|
|
|
|
|
|
|
77,246,324 |
|
|
|
7,725 |
|
|
|
324,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332,442 |
|
|
|
|
|
|
|
332,442 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for cash received, net |
|
|
|
|
|
|
|
|
|
|
144,933,992 |
|
|
|
14,493 |
|
|
|
420,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434,800 |
|
|
|
|
|
|
|
434,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for conversion of related party line of
credit |
|
|
|
|
|
|
|
|
|
|
2,512,900 |
|
|
|
251 |
|
|
|
143,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,529 |
|
|
|
|
|
|
|
143,529 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued upon conversion of convertible notes and settlement of
derivatives |
|
|
|
|
|
|
|
|
|
|
227,336,218 |
|
|
|
22,732 |
|
|
|
1,320,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,343,663 |
|
|
|
|
|
|
|
1,343,663 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Treasury
stock repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000 |
) |
|
|
(30 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,133,174 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3,133,174 |
) |
|
|
- |
|
|
|
(3,133,174 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending
balance March 31, 2019 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
1,057,482,127 |
|
|
$ |
105,746 |
|
|
$ |
35,730,012 |
|
|
$ |
(36,533,520 |
) |
|
|
(30,000 |
) |
|
$ |
(30 |
) |
|
$ |
(697,791 |
) |
|
|
- |
|
|
$ |
(697,791 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for services |
|
|
|
|
|
|
|
|
|
|
4,246,576 |
|
|
|
425 |
|
|
|
350,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351,203 |
|
|
|
|
|
|
|
351,203 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share
based compensation - options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,047 |
|
|
|
|
|
|
|
17,047 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for cash received, net |
|
|
|
|
|
|
|
|
|
|
11,781,392 |
|
|
|
1,179 |
|
|
|
147,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,500 |
|
|
|
|
|
|
|
148,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for conversion of related party line of
credit |
|
|
|
|
|
|
|
|
|
|
12,487,100 |
|
|
|
1,250 |
|
|
|
885,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
886,406 |
|
|
|
|
|
|
|
886,406 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for asset purchase |
|
|
|
|
|
|
|
|
|
|
2,500,000 |
|
|
|
250 |
|
|
|
99,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
100,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,024,702 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,024,702 |
) |
|
|
- |
|
|
|
(1,024,702 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending
balance June 30, 2019 |
|
|
13,828 |
|
|
$ |
1 |
|
|
|
1,088,497,195 |
|
|
$ |
108,850 |
|
|
$ |
37,230,064 |
|
|
$ |
(37,558,222 |
) |
|
|
(30,000 |
) |
|
$ |
(30 |
) |
|
$ |
(219,337 |
) |
|
|
- |
|
|
$ |
(219,337 |
) |
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
|
|
Six
Months Ended |
|
|
|
|
June
30, |
|
|
|
|
2020 |
|
|
2019 |
|
| Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(3,564,736 |
) |
|
$ |
(4,157,877 |
) |
|
Adjustments
to reconcile net loss to cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Share-based
compensation |
|
|
308,627 |
|
|
|
2,100,736 |
|
|
Depreciation |
|
|
279,369 |
|
|
|
20,422 |
|
|
Bad
debts |
|
|
12,645 |
|
|
|
- |
|
|
Amortization
of intangible
assets |
|
|
208,479 |
|
|
|
79,682 |
|
|
Noncash
lease expense |
|
|
64,402 |
|
|
|
- |
|
|
Amortization
of debt discount |
|
|
601,041 |
|
|
|
73,519 |
|
|
Consulting |
|
|
- |
|
|
|
125,822 |
|
|
Change
in fair value of derivative liabilities |
|
|
479,900 |
|
|
|
1,044,250 |
|
|
Amortization
of debt issuance costs |
|
|
8,250 |
|
|
|
- |
|
|
Net
unrealized loss on available-for-sale investments |
|
|
38,662 |
|
|
|
- |
|
|
(Gain)
loss on settlement of debt, net |
|
|
- |
|
|
|
(12,442 |
) |
|
(Increase)
decrease in assets: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(69,577 |
) |
|
|
9,011 |
|
|
Inventories |
|
|
713,204 |
|
|
|
66,415 |
|
|
Prepaid
expenses and other |
|
|
381,056 |
|
|
|
(8,896 |
) |
|
Deferred
commission costs |
|
|
40,822 |
|
|
|
- |
|
|
Increase
(decrease) in liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
(910,543 |
) |
|
|
68,234 |
|
|
Accrued
expenses and interest payable |
|
|
(9,619 |
) |
|
|
(48,225 |
) |
|
Unearned
revenue |
|
|
403,356 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities |
|
|
(1,014,662 |
) |
|
|
(639,349 |
) |
| |
|
|
|
|
|
|
|
|
| Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
Patents
and trademark fees |
|
|
(3,683 |
) |
|
|
(9,519 |
) |
|
Website
development costs |
|
|
- |
|
|
|
(500 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities |
|
|
(3,683 |
) |
|
|
(10,019 |
) |
| |
|
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net
repayments on line of credit |
|
|
(210,200 |
) |
|
|
- |
|
|
Proceeds
from issuance of term debt |
|
|
2,211,400 |
|
|
|
- |
|
|
Repayment
of term debt |
|
|
(236,356 |
) |
|
|
- |
|
|
Repayment
of finance lease obligations |
|
|
(85,472 |
) |
|
|
- |
|
|
Proceeds
from the issuance of notes - related parties |
|
|
50,000 |
|
|
|
367,700 |
|
|
Proceeds
from stock subscription receivable |
|
|
49,250 |
|
|
|
- |
|
|
Repayment
of notes payable - related parties
|
|
|
- |
|
|
|
(146,206 |
) |
|
Issuance
of common stock, net of costs |
|
|
- |
|
|
|
883,300 |
|
|
Treasury
stock repurchases |
|
|
- |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities |
|
|
1,778,622 |
|
|
|
1,104,764 |
|
| |
|
|
|
|
|
|
|
|
| Net
increase in cash |
|
|
760,277 |
|
|
|
455,396 |
|
| |
|
|
|
|
|
|
|
|
|
Cash
- beginning of period |
|
|
72,355 |
|
|
|
50,053 |
|
| |
|
|
|
|
|
|
|
|
|
Cash
- end of period |
|
$ |
832,632 |
|
|
$ |
505,449 |
|
| |
|
|
|
|
|
|
|
|
| Cash
paid during the period for: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
499,275 |
|
|
$ |
53,796 |
|
| |
|
|
|
|
|
|
|
|
| Non-cash
transactions: |
|
|
|
|
|
|
|
|
|
Third-party
settlement of the Company’s line of credit |
|
$ |
2,203,339
|
|
|
$ |
- |
|
|
Purchase
of intangible assets with common stock
|
|
|
- |
|
|
|
100,000 |
|
|
Convertible
notes and accrued interest payable converted to common
stock |
|
|
- |
|
|
|
64,576 |
|
|
Common
stock issued for accrued compensation |
|
|
- |
|
|
|
771,203 |
|
|
Common
stock issued for settlement of related party line of
credit |
|
|
- |
|
|
|
1,029,935 |
|
|
Shareholder
advances to related party on behalf of the Company |
|
|
- |
|
|
|
180,000 |
|
|
Settlement
of derivative liabilities |
|
|
- |
|
|
|
1,279,335 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
VYSTAR
CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
NOTE
1 - |
DESCRIPTION
OF BUSINESS |
Nature
of Business
Vystar
Corporation (“Vystar”, the “Company”, “we,” “us,” or “our”) is
based in Worcester, Massachusetts and produces a line of innovative
air purifiers, which destroy viruses and bacteria through the use
of ultraviolet light. Vystar is the creator and exclusive owner of
the innovative technology to produce Vytex® Natural
Rubber Latex (“NRL”). Vystar manufactures and sells NRL used
primarily in various bedding products. In addition, Vystar has a
majority ownership in Murida Furniture Co., Inc. dba Rotmans
Furniture (“Rotmans”), the largest furniture and flooring stores in
New England and one of the largest independent furniture retailers
in the U.S.
|
NOTE
2 - |
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES |
Basis
of Presentation
The condensed consolidated financial statements of the Company and
the accompanying notes included in this Quarterly Report on Form
10-Q are unaudited. In the opinion of management, all adjustments
necessary for the fair presentation of the condensed consolidated
financial statements have been included. Such adjustments are of a
normal, recurring nature. The condensed consolidated financial
statements, and the accompanying notes, are prepared in accordance
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) and do not contain certain information
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2019. Therefore, the interim condensed
consolidated financial statements should be read in conjunction
with that Annual Report on Form 10-K.
The
Company has evaluated subsequent events through the date of the
filing of its Form 10-Q with the Securities and Exchange
Commission. Other than those events disclosed in Note 19, the
Company is not aware of any other significant events that occurred
subsequent to the balance sheet date but prior to the filing of
this report that would have a material impact on the Company’s
financial statements.
Basis
of Consolidation
The
condensed consolidated financial statements include the accounts of
the Company and its wholly-owned or controlled operating
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
COVID-19
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.
In
addition, the COVID-19 pandemic has caused, among other things,
interruptions in our supply chains and suppliers, including
potential problems with inventory availability and the potential
result of the volatility or higher cost of product and
international freight due to the high demand of products and low
supply for an unpredictable period of time.
The
results of operations for the three and six months ended June 30,
2020 are not necessarily indicative of results for the entire year.
The pandemic has resulted in significant economic disruption.
Although our showroom has reopened, we cannot reasonably estimate
the impact on Vystar should the pandemic persist or worsen.
Accordingly, the estimates and assumptions made as of June 30, 2020
could change in subsequent interim reports and upon final
determination at year-end, and it is reasonably possible that such
changes could be significant (although the potential effects cannot
be measured at this time).
Segment
Reporting
Operating
segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision-making group, in
making decisions on how to allocate resources and assess
performance. The Company’s chief operating decision maker is the
chief executive officer. The Company and the chief executive
officer view the Company’s operations and manage its business as
one reportable segment with different operating
segments.
Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
disclosures. Significant estimates made by management include,
among others, allowance for obsolete inventory, the allocation of
purchase price related to acquisitions, the recoverability of
long-lived assets, fair values of right of use assets and lease
liabilities, valuation of derivative liabilities, share-based
compensation and other equity issuances. Although these estimates
are based on management’s best knowledge of current events and
actions the Company may undertake in the future, actual results
could differ from these estimates.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist principally of cash,
accounts receivable, investments - equity securities, accounts
payable, accrued expenses and interest payable, lines of credit,
shareholder notes payable, long-term debt and unearned revenue. The
carrying values of all the Company’s financial instruments
approximate or equal fair value because of their short maturities
and market interest rates or, in the case of equity securities,
being stated at fair value.
In
specific circumstances, certain assets and liabilities are reported
or disclosed at fair value. Fair value is the exit price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date in the Company’s principal market for such transactions. If
there is not an established principal market, fair value is derived
from the most advantageous market.
Valuation
inputs are classified in the following hierarchy:
|
|
● |
Level
1 inputs are unadjusted quoted prices in active markets for
identical assets or liabilities. |
| |
|
|
| |
● |
Level
2 inputs are directly or indirectly observable valuation inputs for
the asset or liability, excluding Level 1 inputs. |
| |
|
|
| |
● |
Level
3 inputs are unobservable inputs for the asset or
liability. |
Highest
priority is given to Level 1 inputs and the lowest priority to
Level 3 inputs. Acceptable valuation techniques include the market
approach, income approach, and cost approach. In some cases, more
than one valuation technique is used. The derivative liabilities
were recognized at fair value on a recurring basis through the date
of the settlement and June 30, 2020 and are level 3 measurements.
There have been no transfers between levels during the six months
ended June 30, 2020.
Acquisitions
Amounts
paid for acquisitions are allocated to the assets acquired and
liabilities assumed based on their estimated fair value at the date
of acquisition. The fair value of identifiable intangible assets is
based on valuations that use information and assumptions provided
by management. Identifiable intangible assets with finite lives are
amortized over their useful lives. Acquisition-related costs,
including, legal, accounting, and other costs, are capitalized in
asset acquisitions and for business combinations are expensed in
the periods in which the costs are incurred. The results of
operations of acquired assets are included in the financial
statements from the acquisition date.
Cash
and Cash Equivalents
Cash
and cash equivalents include all liquid investments with a maturity
date of less than three months when purchased. Cash equivalents
also include amounts due from third-party financial institutions
for credit and debit card transactions which typically settle
within five days.
Accounts
Receivable
Accounts
receivable are stated at the amount management expects to collect
from outstanding balances. The Company routinely sells, without
recourse, trade receivables resulting from retail furniture sales
to various financial institutions at an average service charge of
5.1% in 2020. Amounts sold during the six months ending June 30,
2020 were approximately $2,150,000. There were no sales of trade
receivables during the six months ending June 30, 2019. Retail
furniture receivables retained by the Company are generally
collateralized by the merchandise sold, represent valid claims
against debtors for sales arising on or before the balance sheet
date and are reduced to their estimated net realizable value. In
addition, the Company grants credit to Vytex customers without
requiring collateral. The amount of accounting loss for which
Vystar is at risk in these unsecured accounts receivable is limited
to their carrying value. Management provides for uncollectible
amounts through a charge to earnings and a credit to an allowance
for doubtful accounts based upon its assessment of the current
status of individual accounts. Balances that are still outstanding
after management has performed reasonable collection efforts are
written off through a charge to the allowance and a credit to
accounts receivable. As of June 30, 2020 and December 31, 2019, the
Company considers accounts receivable to be fully collectible and
no allowance for doubtful accounts was recorded.
Inventories
Inventories
include those costs directly attributable to the product before
sale. Inventories consist primarily of finished goods of furniture,
mattresses, foam toppers and pillows and are carried at net
realizable value, which is defined as selling price less cost of
completion, disposal and transportation. The Company evaluates the
need to record write-downs for inventory on a regular basis.
Appropriate consideration is given to obsolescence, slow-moving and
other factors in evaluating net realizable values. Inventories not
expected to be sold within 12 months are classified as
long-term.
Prepaid
Expenses and Other
Prepaid
expenses and other include amounts related to prepaid insurance
policies, which are expensed on a straight-line basis over the life
of the underlying policy, and other expenses.
Investments
- Equity Securities
Marketable
equity securities have been categorized as available-for-sale and,
as a result, are stated at fair value. Unrealized gains and losses
are reflected in the statement of operations. The Company
periodically reviews the available-for-sale securities for other
than temporary declines in fair value below cost and more
frequently when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. As of June
30, 2020, the Company believes the cost of the available-for-sale
securities was recoverable in all material respects.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the
assets, generally 5 to 10 years, using straight-line and
accelerated methods.
Expenditures
for major renewals and betterments are capitalized, while routine
repairs and maintenance are expensed as incurred. When property
items are retired or otherwise disposed of, the asset and related
reserve accounts are relieved of the cost and accumulated
depreciation, respectively, and the resultant gain or loss is
reflected in earnings. As of June 30, 2020, the net balance of
property and equipment is $1,695,493 with accumulated depreciation
of $393,045. As of December 31, 2019, the net balance of property
and equipment is $1,879,739 with accumulated depreciation of
$208,799.
Intangible
Assets
Patents
represent legal and other fees associated with the registration of
patents. The Company has five issued patents with the United States
Patent and Trade Office (“USPTO”) as well as five issued
international Patent Cooperation Treaty (“PCT”) patents. Patents
are carried at cost and are being amortized on a straight-line
basis over their estimated useful lives, typically ranging from 9
to 20 years.
The
Company has trademark protection for “Vystar”, “Vytex”, and “RxAir”
among others. Trademarks are carried at cost and since their
estimated life is indeterminable, no amortization is recognized.
Instead, they are evaluated annually for impairment.
Customer
relationships, tradename and marketing related intangibles are
carried at cost and are being amortized on a straight-line basis
over their estimated useful lives, typically ranging from 5 to 10
years.
Long-Lived
Assets
We
review our long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets
may not be fully recoverable. We evaluate assets for potential
impairment by comparing estimated future undiscounted net cash
flows to the carrying amount of the assets. If the carrying amount
of the assets exceeds the estimated future undiscounted cash flows,
impairment is measured based on the difference between the carrying
amount of the assets and fair value. Assets to be disposed of would
be separately presented in the consolidated balance sheet and
reported at the lower of the carrying amount or fair value less
costs to sell and are no longer depreciated. The assets and
liabilities of a disposal group classified as held-for-sale would
be presented separately in the appropriate asset and liability
sections of the consolidated balance sheet, if material. During the
six months ended June 30, 2020 and 2019, we did not recognize any
impairment of our long-lived assets.
Goodwill
Goodwill
reflects the cost of an acquisition in excess of the fair values
assigned to identifiable net assets acquired. Goodwill is not
amortized, rather, it is subject to a periodic assessment for
impairment by applying a fair value-based test. We perform our
annual impairment test at the end of each calendar year, or more
frequently if events or changes in circumstances indicate the asset
might be impaired.
Accounting
for acquisitions requires us to recognize, separately from
goodwill, the assets acquired and the liabilities assumed at their
acquisition-date fair values. Goodwill as of the acquisition date
is measured as the excess of consideration transferred and the net
of the acquisition-date fair values of the assets acquired and the
liabilities assumed. While we use best estimates and assumptions to
accurately value assets acquired and liabilities assumed at the
acquisition date, the estimates are inherently uncertain and
subject to refinement.
The
impairment model permits, and we utilize, a simplified approach for
determining goodwill impairment. In the first step, we evaluate the
recoverability of goodwill by estimating the fair value of our
reporting unit using multiple techniques, including an income
approach using a discounted cash flow model and a market approach.
Based on an equal weighting of the results of these two approaches,
a conclusion of fair value is estimated. The fair value is then
compared to the carrying value of our reporting unit. If the fair
value of a reporting unit is less than its carrying value, the
Company recognizes this amount as an impairment loss. Impairment
losses, limited to the carrying value of goodwill, represent the
excess of the carrying amount of goodwill over its implied fair
value.
Convertible
Notes Payable
Borrowings
are recognized initially at the principal amount received.
Borrowings are subsequently carried at amortized cost; any
difference between the proceeds (net of transaction costs) and the
redemption value is recognized as interest expense in the
statements of operations over the period of the borrowings using
the effective interest method.
Derivatives
The
Company evaluates its debt instruments or other contracts to
determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for
under the relevant sections of Accounting Standards Codification
(“ASC”) Topic 815-40, Derivative Instruments and Hedging:
Contracts in Entity’s Own Equity. The result of this accounting
treatment could be that the fair value of a financial instrument is
classified as a derivative instrument and is marked-to-market at
each balance sheet date and recorded as a liability. In the event
the fair value is recorded as a liability, the change in fair value
is recorded in the statements of operations as other income or
other expense. Upon conversion or exercise of a derivative
instrument, the instrument is marked to fair value at the
conversion date and then that fair value is reclassified to equity.
Financial instruments that are initially classified as equity that
become subject to reclassification under ASC Topic 815-40 are
reclassified to a liability account at the fair value of the
instrument on the reclassification date.
The
Company applies the accounting standard that provides guidance for
determining whether an equity-linked financial instrument, or
embedded feature, is indexed to an entity’s own stock. The standard
applies to any freestanding financial instrument or embedded
features that have the characteristics of a derivative, and to any
freestanding financial instruments that are potentially settled in
an entity’s own common stock. From time to time, the Company has
issued notes with embedded conversion features. Certain of the
embedded conversion features contain price protection or
anti-dilution features that result in these instruments being
treated as derivatives for accounting purposes. Accordingly, as of
June 30, 2020, the Company has classified all conversion features
as derivative liabilities and has estimated the fair value of these
embedded conversion features using a Monte Carlo simulation
model.
Unearned
Revenue
Unearned
revenue consists of customer advance payments, deposits on sales of
undelivered merchandise and deferred warranty revenue on
self-insured stain protection warranty coverage. There was no
unearned revenue during the six months ended June 30,
2019.
Changes
to unearned revenue during the six months ended June 30, 2020 are
summarized as follows:
|
Balance,
December 31, 2019 |
|
$ |
2,500,572 |
|
| |
|
|
|
|
|
Customer
deposits received |
|
|
7,426,477 |
|
| |
|
|
|
|
|
Warranty
coverage purchased |
|
|
112,121 |
|
| |
|
|
|
|
|
Gift
cards purchased |
|
|
4,000 |
|
| |
|
|
|
|
|
Revenue
earned |
|
|
(7,139,242 |
) |
| |
|
|
|
|
|
Balance,
June 30, 2020 |
|
$ |
2,903,928 |
|
Loss
Per Share
The
Company presents basic and diluted loss per share. Because the
Company reported a net loss for the six months ended June 30, 2020
and 2019, common stock equivalents, including stock options and
warrants, were anti-dilutive; therefore, the amounts reported for
basic and dilutive loss per share were the same. Excluded from the
computation of diluted loss per share were options to purchase
27,883,271 and 27,898,271 shares of common stock for the six months
ended June 30, 2020 and 2019, respectively, as their effect would
be anti-dilutive. Warrants to purchase 14,218,051 and 14,373,493
shares of common stock for the six months ended June 30, 2020 and
2019, respectively, were also excluded from the computation of
diluted loss per share as their effect would be anti-dilutive. In
addition, preferred stock convertible to 4,731,260 and 4,451,880
shares of common stock for the six months ended June 30, 2020 and
2019, respectively, were excluded from the computation of diluted
loss per share as their effect would be anti-dilutive.
Revenue
Our
principal activities from which we generate our revenue are product
sales. Revenue is measured based on considerations specified in a
contract with a customer. A contract exists when it becomes a
legally enforceable agreement with a customer. The contract is
based on either the acceptance of standard terms and conditions at
the retail store, on the websites for e-commerce customers and via
telephone with our third-party call center for our print media and
direct mail customers, or the execution of terms and conditions
contracts with retailers and wholesalers. These contracts define
each party’s rights, payment terms and other contractual terms and
conditions of the sale.
Consideration
is typically paid prior to shipment via credit card or check when
our products are sold direct to consumers, which is typically
within 1 to 2 days or approximately 30 days from the time control
is transferred when sold to wholesalers, distributors and
retailers. We apply judgment in determining the customer’s ability
and intention to pay, which is based on a variety of factors
including the customer’s historical payment experience and, in some
circumstances, published credit and financial information
pertaining to the customer.
A
performance obligation is a promise in a contract to transfer a
distinct product to the customer, which for us is transfer of
finished goods to our customers. Performance obligations promised
in a contract are identified based on the goods that will be
transferred to the customer that are both capable of being distinct
and are distinct in the context of the contract, whereby the
transfer of the goods is separately identifiable from other
promises in the contract. We have concluded the sale of finished
goods and related shipping and handling are accounted for as the
single performance obligation.
The
transaction price of a contract is allocated to each distinct
performance obligation and recognized as revenue when or as the
customer receives the benefit of the performance obligation. The
transaction price is determined based on the consideration to which
we will be entitled to receive in exchange for transferring goods
to the customer. We issue refunds to retail, e-commerce and print
media customers, upon request, within 30 days of delivery. We
estimate the amount of potential refunds at each reporting period
using a portfolio approach of historical data, adjusted for changes
in expected customer experience, including seasonality and changes
in economic factors. For retailers, distributors and wholesalers,
we do not offer a right of return or refund and revenue is
recognized at the time products are shipped to customers. In all
cases, judgment is required in estimating these reserves. Actual
claims for returns could be materially different from the
estimates. As of June 30, 2020 and December 31, 2019, reserves for
estimated sales returns totaled $3,000, respectively, and are
included in the accompanying consolidated balance sheets as accrued
expenses.
We
recognize revenue when we satisfy a performance obligation in a
contract by transferring control over a product to a customer when
product is shipped based on fulfillment by the Company. The Company
considers fulfillment when it passes all liability at the point of
shipping through third party carriers or in-house delivery
services. Delivery fees are charged to customers and are included
in revenue in the accompanying consolidated statements of
operations and the costs associated with these deliveries are
included in operating expenses in the accompanying consolidated
statements of operations. Taxes assessed by a governmental
authority that are both imposed on and concurrent with a specific
revenue-producing transaction, that are collected by us from a
customer, are excluded from revenue. Shipping and handling costs
associated with outbound freight after control over a product has
transferred to a customer are accounted for as a fulfillment cost
and are included in cost of revenue in the accompanying
consolidated statements of operations.
The
Company also defers revenues for separately-priced stain protection
warranty coverage for which it is ultimately self-insured. Revenue
is recognized from the extended warranty sales on a straight-line
basis over the respective contract term. The extended warranty
terms primarily range from three to five years from the date of
delivery. At June 30, 2020 and December 31, 2019, deferred warranty
revenue was approximately $1,157,000 and $1,309,000, respectively,
and is included in unearned revenue in the accompanying
consolidated balance sheets. During the six months ended June 30,
2020, the Company recorded total proceeds of approximately $112,000
and recognized total revenues of approximately $264,000 related to
deferred warranty revenue arrangements. There were no proceeds or
deferred warranty revenues during the six months ended June 30,
2019. Commission costs in obtaining extended warranty contracts are
capitalized and recognized as expense on a straight-line basis over
the period of the warranty contract. At June 30, 2020 and December
31, 2019, deferred commission costs were approximately $305,000 and
$346,000, respectively, and are included in the accompanying
consolidated balance sheets. All other costs, such as costs of
services performed under the contract, general and administrative
expenses, and advertising costs are expensed as
incurred.
Cost
of Revenue
Cost
of revenue consists primarily of product and freight costs and fees
paid to online retailers.
Research
and Development
Research
and development costs are expensed when incurred. Research and
development costs include all costs incurred related to the
research, development and testing. For the six months ended June
30, 2020 and 2019, Vystar’s research and development costs were not
significant.
Advertising
Costs
Advertising
costs, which include television, radio, newspaper and other media
advertising, are expensed upon first showing. Advertising costs
included in general and administrative expenses in the accompanying
consolidated statements of operations were approximately $681,000
and $43,000 for the six months ended June 30, 2020 and 2019,
respectively.
Share-Based
Compensation
The
fair value of stock options is estimated on the grant date using
the Black-Scholes option pricing model, based on weighted average
assumptions. Expected volatility is based on historical volatility
of our common stock. The Company has elected to use the simplified
method described in the Securities and Exchange Commission Staff
Accounting Bulletin Topic 14C to estimate the expected term of
employee stock options. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant. The value of
restricted stock awards is determined using the fair value of the
Company’s common stock on the date of grant. The Company accounts
for forfeitures as they occur. Compensation expense is recognized
on a straight-line basis over the requisite service period of the
award.
Income
Taxes
Vystar
recognizes income taxes on an accrual basis based on a tax position
taken or expected to be taken in its tax returns. A tax position is
defined as a position in a previously filed tax return or a
position expected to be taken in a future tax filing that is
reflected in measuring current or deferred income tax assets or
liabilities. Tax positions are recognized only when it is more
likely than not (i.e., likelihood of greater than 50%), based on
technical merits, that the position would be sustained upon
examination by taxing authorities. Tax positions that meet the more
likely than not threshold will be measured using a
probability-weighted approach as the largest amount of tax benefit
that is greater than 50% likely of being realized upon settlement.
Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in our financial statements or tax returns. A
valuation allowance is established to reduce deferred tax assets if
all, or some portion, of such assets will more likely than not be
realized. Should they occur, interest and penalties related to tax
positions are recorded as interest expense. No such interest or
penalties have been incurred for the six months ended June 30, 2020
and 2019.
The
Company remains subject to income tax examinations from Federal and
state taxing jurisdictions for 2016 through 2019.
Concentration
of Credit Risk
Certain
financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist
primarily of cash and accounts receivable. Cash held in operating
accounts may exceed the Federal Deposit Insurance Corporation, or
FDIC, insurance limits. While the Company monitors cash balances in
our operating accounts on a regular basis and adjust the balances
as appropriate, these balances could be impacted if the underlying
financial institutions fail. To date, the Company has experienced
no loss or lack of access to our cash; however, the Company can
provide no assurances that access to our cash will not be impacted
by adverse conditions in the financial markets. Credit
concentration risk related to accounts receivable is mitigated as
customer credit is checked prior to the sales and accounts
receivable consists of a high number of relatively small
balances.
Other
Risks and Uncertainties
The
Company is exposed to risks pertinent to the operations of a
retailer, including, but not limited to, the ability to acquire new
customers and maintain a strong brand as well as broader economic
factors such as interest rates and changes in customer spending
patterns.
|
NOTE
3 - |
LIQUIDITY
AND GOING CONCERN |
The
Company’s financial statements are prepared using the accrual
method of accounting in accordance with U.S. GAAP and have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the
normal course of business. However, the Company has incurred
significant losses and experienced negative cash flow since
inception. At June 30, 2020, the Company had cash of $832,632 and a
deficit in working capital of approximately $8.2 million. Further,
at June 30, 2020 the accumulated deficit amounted to approximately
$44.3 million. We use working capital to finance our ongoing
operations, and since those operations do not currently cover all
our operating costs, managing working capital is essential to our
Company’s future success. Because of this history of losses and
financial condition, there is substantial doubt about the Company’s
ability to continue as a going concern.
A
successful transition to attaining profitable operations is
dependent upon obtaining sufficient financing to fund the Company’s
planned expenses and achieving a level of revenue adequate to
support the Company’s cost structure. Management plans to finance
future operations using cash on hand, increased revenue from RxAir
air purification units 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, and stock warrant
exercises from existing shareholders. The Company has also focused
the efforts of key internal employees on the goal of creating
efficiencies in each department in our retail furniture business,
including purchasing, marketing, inventory control, advertising,
accounting, warehousing and customer service.
There
can be no assurances that the Company will be able to achieve
projected levels of revenue in 2020 and beyond. If the Company is
not able to achieve projected revenue and obtain alternate
additional financing of equity or debt, the Company would need to
significantly curtail or reorient operations during 2020, which
could have a material adverse effect on the ability to achieve the
business objectives, and as a result, may require the Company to
file bankruptcy or cease operations. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts classified as
liabilities that might be necessary should the Company be forced to
take any such actions.
The
Company’s future expenditures will depend on numerous factors,
including: the rate at which the Company can introduce RxAir air
purification units and license Vytex NRL raw materials and 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; market
acceptance of the Company’s products, services and competing
technological developments; the Company’s ability to successfully
realize synergies through the integration of the merged companies,
acquire new customers and maintain a strong brand; the success of
our efforts to reduce expenses in our retail furniture business;
and broader economic factors such as interest rates and changes in
customer spending patterns. As the Company expands its activities
and operations, cash requirements are expected to increase at a
rate consistent with revenue growth after the Company has achieved
sustained revenue generation.
|
NOTE
4 - |
INVESTMENTS
– EQUITY SECURITIES |
Cost
and fair value of investments - equity securities are as follows as
of June 30, 2020:
|
|
|
|
Gross |
|
|
Fair |
|
|
Cost |
|
|
Unrealized
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
141,225 |
|
|
$ |
(30,370 |
) |
|
$ |
110,855 |
|
Net
unrealized holding losses on available-for-sale securities were
approximately $39,000 in the first six months of 2020 and have been
included in other income (expenses) in the accompanying statements
of operations. There were no investments – equity securities prior
to the Rotmans acquisition in July 2019. Investments represent
equity securities in a publicly traded company.
|
NOTE
5 - |
PROPERTY
AND EQUIPMENT |
Property
and equipment, net consists of the following:
| |
|
June
30, |
|
|
December
31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
Furniture,
fixtures and equipment |
|
$ |
1,354,665 |
|
|
$ |
1,354,665 |
|
|
Tooling
and testing equipment |
|
|
319,000 |
|
|
|
319,000 |
|
|
Parking
lots |
|
|
365,707 |
|
|
|
365,707 |
|
|
Motor
vehicles |
|
|
49,166 |
|
|
|
49,166 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
2,088,538 |
|
|
|
2,088,538 |
|
|
Accumulated
depreciation |
|
|
(393,045 |
) |
|
|
(208,799 |
) |
| |
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
$ |
1,695,493 |
|
|
$ |
1,879,739 |
|
Depreciation
expense for the six months ended June 30, 2020 and 2019 was
$279,369 and $20,422, respectively.
|
NOTE
6 - |
INTANGIBLE
ASSETS |
Intangible
assets consist of the following:
| |
|
|
|
|
|
|
|
Amortization |
|
| |
|
June
30, |
|
|
December
31, |
|
|
Period |
|
| |
|
2020 |
|
|
2019 |
|
|
(in
Years) |
|
|
Amortized
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships |
|
$ |
210,000 |
|
|
$ |
210,000 |
|
|
|
6 -
10 |
|
|
Proprietary
technology |
|
|
610,000 |
|
|
|
610,000 |
|
|
|
10 |
|
|
Tradename
and brand |
|
|
1,380,000 |
|
|
|
1,380,000 |
|
|
|
5 -
10 |
|
|
Marketing
related |
|
|
380,000 |
|
|
|
380,000 |
|
|
|
5 |
|
|
Patents |
|
|
359,101 |
|
|
|
355,418 |
|
|
|
6 -
20 |
|
|
Noncompete |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,989,101 |
|
|
|
2,985,418 |
|
|
|
|
|
|
Accumulated
amortization |
|
|
(713,357 |
) |
|
|
(504,878 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net |
|
|
2,275,744 |
|
|
|
2,480,540 |
|
|
|
|
|
|
Indefinite-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
9,072 |
|
|
|
9,072 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets |
|
$ |
2,284,816 |
|
|
$ |
2,489,612 |
|
|
|
|
|
Amortization
expense for the six months ended June 30, 2020 and 2019 was
$208,479 and $79,682, respectively. Estimated future amortization
expense for finite-lived intangible assets is as
follows:
| |
|
Amount |
|
| |
|
|
|
|
Remaining
in 2020 |
|
$ |
208,477 |
|
|
2021 |
|
|
416,956 |
|
|
2022 |
|
|
417,140 |
|
|
2023 |
|
|
410,529 |
|
|
2024 |
|
|
311,306 |
|
|
Thereafter |
|
|
511,336 |
|
| |
|
|
|
|
|
Total |
|
$ |
2,275,744 |
|
The
Company leases equipment, a showroom, offices and warehouse
facilities. These leases expire at various dates through 2024 with
options to extend to 2031.
The
table below presents the lease costs for the three and six months
ended June 30, 2020:
| |
|
Three
Months Ended |
|
|
Six
Months Ended |
|
| |
|
June
30, 2020 |
|
|
June
30, 2020 |
|
| |
|
|
|
|
|
|
|
Operating
lease cost |
|
$ |
394,766 |
|
|
$ |
789,114 |
|
| |
|
|
|
|
|
|
|
|
|
Finance
lease cost: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Amortization
of right-of-use assets |
|
|
47,561 |
|
|
|
95,122 |
|
|
Interest
on lease liabilities |
|
|
11,141 |
|
|
|
22,831 |
|
| |
|
|
|
|
|
|
|
|
|
Total
lease cost |
|
$ |
453,468 |
|
|
$ |
907,067 |
|
During
the six months ended June 30, 2020, the Company recognized sublease
income of approximately $58,000, which in included in other income
(expense), net in the accompanying condensed consolidated
statements of operations.
There
were no lease costs or sublease income for the three and six months
ended June 30, 2019.
Our
leases generally do not provide an implicit rate, and therefore we
use our incremental borrowing rate as the discount rate when
measuring operating lease liabilities. The incremental borrowing
rate represents an estimate of the interest rate we would incur at
lease commencement to borrow an amount equal to the lease payments
on a collateralized basis over the term of the lease. We used
incremental borrowing rates as of the implementation date for
operating leases that commenced prior to that date.
The
following table presents other information related to
leases:
| |
|
Three
Months Ended |
|
|
Six Months
Ended |
|
| |
|
June 30, 2020 |
|
|
June 30, 2020 |
|
| |
|
|
|
|
|
|
| Cash paid for amounts
included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Operating cash flows used for operating leases |
|
$ |
375,911 |
|
|
$ |
748,795 |
|
|
Financing cash flows used for financing leases |
|
|
54,152 |
|
|
|
108,304 |
|
| |
|
|
|
|
|
|
|
|
| Assets obtained in
exchange for finance lease liabilities |
|
|
- |
|
|
|
75,739 |
|
| |
|
|
|
|
|
|
|
|
| Weighted average remaining lease
term: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
9 years |
|
|
|
9 years |
|
|
Finance leases |
|
|
5 years |
|
|
|
5 years |
|
| |
|
|
|
|
|
|
|
|
| Weighted average discount rate: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
5.53 |
% |
|
|
5.53 |
% |
|
Finance leases |
|
|
5.16 |
% |
|
|
5.16 |
% |
The
future minimum lease payments required under operating and
financing lease obligations as of June 30, 2020 having initial or
remaining non-cancelable lease terms in excess of one year are
summarized as follows:
| |
|
Operating
Leases |
|
|
Finance
Leases |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
Remainder
of 2020 |
|
$ |
751,822 |
|
|
$ |
106,004 |
|
|
$ |
857,826 |
|
|
2021 |
|
|
1,503,643 |
|
|
|
205,545 |
|
|
|
1,709,188 |
|
|
2022 |
|
|
1,117,377 |
|
|
|
150,943 |
|
|
|
1,268,320 |
|
|
2023 |
|
|
878,807 |
|
|
|
150,142 |
|
|
|
1,028,949 |
|
|
2024 |
|
|
870,000 |
|
|
|
140,002 |
|
|
|
1,010,002 |
|
|
Thereafter |
|
|
5,220,000 |
|
|
|
207,475 |
|
|
|
5,427,475 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
undiscounted lease liabilities |
|
|
10,341,649 |
|
|
|
960,111 |
|
|
|
11,301,760 |
|
|
Less:
imputed interest |
|
|
(2,301,652 |
) |
|
|
(124,598 |
) |
|
|
(2,426,250 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
lease liabilities |
|
$ |
8,039,997 |
|
|
$ |
835,513 |
|
|
$ |
8,875,510 |
|
As of
June 30, 2020, the Company does not have additional operating and
finance leases that have not yet commenced.
|
NOTE
8 - |
NOTES
PAYABLE AND LOAN FACILITY |
Line of Credit
The
Company formerly had a $2,500,000 revolving line of credit with
Fidelity Co-operative Bank. Advances were limited to 50% of
eligible inventory and bore interest at the prime rate plus 0.50%
with a floor of 3.75%. The Company was not in compliance with
certain covenants and was in default at March 31, 2020. The line
was paid in full with proceeds from advances noted below and closed
in May 2020.
Advances
On
May 29, 2020, Rotmans entered into a sale promotion consulting
agreement with a national furniture sales event company. Under the
agreement, Rotmans appointed the third-party as its exclusive agent
to assist with a high-impact sale. Before the sale, the agent
advanced the Company funds of approximately $2,300,000 to pay off
the Fidelity line of credit and certain other vendors. The agent
will be reimbursed for the advance from the proceeds of the sale.
In addition, the agent has a senior first priority security
interest and lien in Rotmans inventories and other assets until all
obligations and liabilities are satisfied. Profits of the sale will
be distributed according to the specific terms of the agreement.
The agreement will expire 240 days from the commencement date of
May 29, 2020. The outstanding balance is approximately $1,229,000
as of June 30, 2020 and is included in accounts payable in the
accompanying consolidated balance sheet.
Term Notes
On
February 24, 2020, the Company entered into an agreement with
Libertas Funding LLC (“Libertas”) to sell future sale receipts
totaling $1,089,000 for a purchase price of $825,000. The sold
amount of future sales receipts are delivered weekly to Libertas at
predetermined amounts over a period of nine months. The agreement
contains an early delivery discount fee for delivering the future
revenues before the end of the contract term and an origination fee
of $16,500, which has been capitalized and is being amortized over
the term of the agreement. The implicit borrowing rate of the
agreement is approximately 75%. The agreement is personally
guaranteed by Steven Rotman. As of June 30, 2020, the outstanding
balance on this obligation of $597,575 is included in current
maturities of term notes. In June 2020, the Company and Libertas
agreed to defer repayment on the loan until August 2020.
Other
term debt totaling $7,443 and $16,374 at June 30, 2020 and December
31, 2019, respectively, represents three 0% loans on motor
vehicles, requiring cumulative monthly payments of $1,488 through
maturity in November 2020.
On
April 16, 2020, Rotmans received $1,402,900 in loan funding from
the Paycheck Protection Program (the “PPP”), established pursuant
to the recently enacted Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) and administered by the U.S. Small
Business Administration (“SBA”). The unsecured loan (the “PPP
Loan”) is evidenced by a promissory note of the Company dated April
16, 2020 (the “Note”) in the principal amount of $1,402,900 with
United Community Bank (the “Bank”), the lender. Under the terms of
the Note and the PPP Loan, interest accrues on the outstanding
principal at the rate of 1.0% per annum. The term of the Note is
two years, though it may be payable sooner in connection with an
event of default under the Note. To the extent the loan amount is
not forgiven under the PPP, Rotmans is obligated to make equal
monthly payments of principal and interest, beginning seven months
from the date of the Note, until the maturity date.
Certain
investors guaranteed $100,000 each with Ameris Bank (formerly
Fidelity Bank) to establish a $500,000 revolving line of credit. At
the present time, the Company is paying interest only at a rate of
4.5% per annum, with a balloon payment of $500,000 due in 2033. The
balance is $500,000 as of June 30, 2020 and December 31,
2019.
Shareholder, Convertible and Contingently Convertible Notes
Payable
The
following table summarizes shareholder, convertible and
contingently convertible notes payable:
| |
|
June
30, |
|
|
December
31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
Shareholder,
convertible and contingently convertible notes |
|
$ |
951,895 |
|
|
$ |
951,895 |
|
| Accrued
interest |
|
|
70,366 |
|
|
|
46,569 |
|
|
Debt
discount |
|
|
(69,758 |
) |
|
|
(137,775 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
952,503 |
|
|
|
860,689 |
|
| |
|
|
|
|
|
|
|
|
|
Less:
current maturities |
|
|
(806,911 |
) |
|
|
(366,326 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
$ |
145,592 |
|
|
$ |
494,363 |
|