VYSTAR CORPORATION OVERVIEW
This analysis of our results of operations should be read in conjunction with the accompanying financial statements. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Statements that are predictive in nature and that depend upon or refer to future events or conditions are forward-looking statements. Although we believe that these statements are based upon reasonable expectations, we can give no assurance that projections will be achieved. Please refer to the discussion of forward-looking statements included in Part I of this Report. About RxAir RxAir promotes a healthy lifestyle through the use of its innovative, patented ViraTech air purification technology, thereby improving the quality of life of each and every customer. Independently tested byEPA - 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 ofVystar Corp. For more information, visit http://www.RxAir.com. The Company's RxAir product line use 48 inches of high-intensity germicidal UV lamps that destroy bacteria, viruses and other germs instead of just trapping them, setting it apart from ordinary air filtration units. RxAir is one of the few UV air purifiers that have been proven in independentEPA - and FDA- certified testing laboratories to destroy on the first pass 99.6% of harmful airborne viruses and bacteria. In addition to inactivating airborne viruses that cause influenza (flu) and colds, RxAir's device disarms the airborne pathogens that cause MRSA (staph), strep (whooping cough), tuberculosis (TB), measles, pneumonia and a myriad of other antibiotic-resistant and viral infections.
The RxAir product line includes:
? RxAir® Residential Filterless Air Purifier ? RX400 ™ FDA cleared Class II Filterless Air Purifier ? RX3000™ Commercial FDA cleared Class II Air Purifier
Vystar produces the RxAir product line with a new world-class manufacturer and an expertU.S. engineer with a full understanding of the RxAir technology.Vystar sells RxAir residential and commercial units through multiple distributors and the Company's website. Once distribution channels are firmly established,Vystar expects the air purification products will produce margins of approximately 70%. Since the onset of the COVID-19 global pandemic the population ofthe United States has searched for answers to the aspect of the virus being transmissible both airborne and upon infected skin contacting body membranes. RxAir has proven to be a viable option for both individual purchasers as well as groups whose members and/or employees could be a safe return to "prior normalcy" whatever that definition is. Additionally,Vystar has contracted with numerous school districts and state education departments to supply units on a broad scale. Accompanying those opportunities are also various modes of distribution through established national distributors.
With the ongoing variants associated with COVID-19 and the potential for a
future outbreak of a different version of COVID,
Vystar's Board of Directors have approved preliminary plans to spin off the Air Purification product lines into a separate legal entity whichVystar intends to take public.Vystar anticipates retaining approximately 20% of the shares in the new entity and will distribute the remaining ownership percentage toVystar shareholders. This plan is expected to be executed in first quarter 2022. 32 About Rotmans Rotmans, one of the largest independent furniture retailers in theU.S. , encompassing over 170,000 square feet inWorcester, Mass. , and employing approximately 80 people, was founded and has been under the leadership of the Rotman family for the past 50 years. Rotmans is expected to add approximately$20 million annually toVystar's top line revenue and enableVystar to capitalize on the infrastructure already in place for accounting, retail sales facilities and staff, customer service, warehousing, and delivery. Significant marketing and advertising opportunities are available for all ofVystar's brands to Rotmans' thousands of existing customers. As CEO of both Rotmans andVystar ,Steven Rotman provides continuity of management and customer-focused values
for the Company. With the end of the high impact closing to remodel sale, management is focusing its efforts on creating a more efficient, streamlined store with an enhanced web presence. AboutVytex Vytex is a multi-patented latex raw material in which the allergy causing proteins are reduced to a level that falls at or below detection based on ASTM approved test methods.Vytex has been available as a raw material commercially for ten years and through that time has a dedicated group of manufacturers who use it in end products such as electrical gloves, condoms, adhesives, etc. Ironically, most useVytex as it's better for their manufacturing process as an easier to use raw material and not for protein properties. As of mid-2020Vystar and theIndian Rubber Manufacturers Research Association's (IRMRA) have been actively collaborating to develop viscoelastic deproteinized natural rubber (DPNR) variants having properties for expanding applications in specific new arenas such as green tires, biodegradable and other unique bioelastoplast product lines that desire a new approach. Additionally, this research, while slowed by the COVID-19 pandemic, has also shown attributes with extra low ammonia offerings that are desired. Towards the end of 2020,Vystar entered into a Market Development and Distribution Agreement withCorrie MacColl, Ltd. (CMC Global) to produce, develop and manage theVytex product and supply lines. This agreement will allowVystar to expand the market for its Natural Rubber Latex products and has garnered much attention across a broad range of industries including liquidVytex as well as the newly developed dry rubberVytex . As of the date of this report, CMC Global has provided numerous opportunities that are in a trial basis or moving towards manufacturing trials in industries that use a significant amount of natural rubber latex, henceVytex . Also asVystar uses its relationships in the foam arena that endeavor is now in the sampling mode as well. AdditionallyVystar now has a testing supply ofVytex dry rubber for larger trials. Vystar Board member Dr.Ranjit Matthan and CMC Global DirectorJohn Heath presented atThe International Latex Conference which was held virtuallyJuly 20 to 22, 2021 and offered a plenary session entitled "Innovations and Sustainability in Natural Rubber Latex - The New Paradigm." The presentation discussed the dramatic effect the COVID-19 pandemic has had on the natural rubber supply chain, and how the industry is reacting the new economic circumstances; including strategy and policy shifts in supply chain management and restoring greater geographic diversification of latex processing and product manufacturing. The R&D association with IRMRA promises quicker laboratory and field-based testing and evaluations downstream. AtVystar , the recalibrated sustainability programme (FSC, nitrosamines & ammonia free, ultralow proteins, no SVHC and green carbon neutrality) emphasize certifications with Corrie MacColl market reach facilitating faster rollouts. Nontraditional/non Hevea brasiliensis based production efforts are likely to continue to face new penetration and high cost-benefit acceptance challenges in this decade. A PDF of the full presentation will be available on vytex.com.
Additionally, in
In Halcyon Agri (owner of CMC Global), 2020 Corporate Report: "Our group-wide innovation capabilities have enabled us to engage in innovative commercial partnerships. Corrie MacColl is collaborating withVystar Corporation to transform ourCameroon plantation output into ultra-pure latex with stronger molecular bond that offers enhanced strength, durability and flexibility in the end products. This is achieved by removing non-rubber components and 99.85%
of the proteins." 33 AboutFEC Vystar is looking to Fluid Energy as it moves forward in its quest for a cleaner and safer environment. The Company is planning to improve its air purifying by using the ultrasonic technology of Fluid Energy and combining it with its leading UV-C technology. The designs and prototypes are in development. This ultrasonic technology is applied into water products with the same goal. We have working prototypes for our water product targets that have tested beyond expectation for bacterial killing and flow metering. We will begin soon evaluating our ability to eradicate hard water pollution that fouls pools, fountains, and pumps. These products will move us toward living more safely
and cleanly in our environment. Additional Notes
In anticipation of the success of the RxAir spin-off, we may entertain this concept in our other divisions.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted in significant economic disruption and adversely impacted our business. We closed the Rotmans showroom onMarch 24, 2020 . At that time, most of our team members were furloughed. During this period, we paid the cost of enrolled health benefits of those furloughed. We successfully reopened the showroom onJune 10, 2020 . We continue to work closely with local authorities and follow the guidance of theCenters for Disease Control and Prevention ("CDC"), implementing enhanced cleaning measures, social distancing and the utilization of face masks for the safety of team members, customers and communities. It has caused, among other things, interruptions in our supply chains and suppliers, including potential problems with inventory availability and the potential result of the volatility or higher cost of product and international freight due to the high demand of products and low supply for an unpredictable period of time. The COVID-19 pandemic is complex and continues to evolve with sporadic resurgences, new virus variants and the vaccine rollout. At this time, we cannot reasonably estimate the duration of the pandemic and its influence on consumers and our business. 34 RESULTS OF OPERATIONS Comparison of the Three Months EndedJune 30, 2021 with the Three Months EndedJune 30, 2020 Three Months Ended June 30, 2021 2020 $ Change % Change CONSOLIDATED Revenue$ 6,216,004 $ 2,388,906 $ 3,827,098 160.2 % Cost of revenue 2,567,075 990,404 1,576,671 159.2 % Gross profit 3,648,929 1,398,502 2,250,427 160.9 % Operating expenses: Salaries, wages and benefits 1,575,649 721,808 853,841 118.3 % Share-based compensation 211,423 154,259 57,164 37.1 % Agent fees 1,077,567 - 1,077,567 100.0 % Professional fees 198,778 251,187
(52,409 ) -20.9 % Advertising 543,475 234,462 309,013 131.8 % Rent 319,616 300,139 19,477 6.5 %
Service charges 84,499 44,346 40,153 90.5 % Depreciation and amortization 192,372 243,925
(51,553 ) -21.1 % Other operating 881,072 487,940 393,132 80.6 % Total operating expenses 5,084,451 2,438,066 2,646,385 108.5 % Loss from operations (1,435,522 ) (1,039,564 ) (395,958 ) 38.1 % Other income (expense): Interest expense (177,483 ) (610,679 ) 433,196 -70.9 % Change in fair value of derivative liabilities 215,800 (479,900 ) 695,700 -145.0 % Gain on settlement of debt, net 1,428,291 - 1,428,291 100.0 % Other income (expense), net 42,177 43,730
(1,553 ) -3.6 %
Total other income (expense), net 1,508,785 (1,046,849 ) 2,555,634 -244.1 % Net income (loss) 73,263 (2,086,413 ) 2,159,676 -103.5 % Net (income) loss attributable to noncontrolling interest (209,810 ) 220,141
(429,951 ) -195.3 %
Net loss attributable to
-92.7 %
Revenues
Revenues for the three months endedJune 30, 2021 and 2020 were$6,216,004 and$2,388,906 , respectively, for an increase of$3,827,098 or 160%. The increase in revenues was due to the high impact closing to remodel sale at Rotmans and an increase in sales of the RxAir units. The Rotmans showroom was closed the first two weeks inJune 2021 to remodel. Last year's revenues were impacted by the COVID-19 pandemic and the showroom closing onMarch 24, 2020 . The store processed limited customer deliveries for prior orders and internet sales during the closing through re-opening onJune 10, 2020 . The Company reported a significant increase in gross profit to$3,648,929 for the three-month period endedJune 30, 2021 compared to gross profit of$1,398,502 for the three-month period endedJune 30, 2020 , an increase of$2,250,427 or 161%. The increase in gross profit was primarily due to a change in purchasing which started when the store reopened inJune 2020 and the reduction of special offers. Merchandise is being purchased in large quantities from fewer vendors. This quarter results also include the margins of RxAir units.
The cost of revenue for the three months ended
35 Operating Expenses The Company's operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as advertising, rent and other operating expenses. The Company's operating expenses were$5,084,451 and$2,438,066 for the three months endedJune 30, 2021 and 2020, respectively, an increase of$2,646,385 or 109%. The increase was due in part to fees incurred under an agreement with a third-party agent to assist the Company with the high-impact sale at Rotmans and the recurring expenses for the showroom as it was closed due to COVID-19 for most of the comparative three months in 2020. Other Income (Expense)
Other income for the three months endedJune 30, 2021 was$1,508,785 , which consisted of interest expense of$(177,483) , gain on settlement of debt, net of$1,428,291 , change in fair value of derivative liabilities of$215,800 and other income of$42,177 . Included in gain on settlement of debt, net is PPP loan forgiveness of$1,402,900 . This compares to other expense of$1,046,849 for the three months endedJune 30, 2020 , which consisted of interest expense of$610,679 , change in fair value of derivative liabilities of$479,900 and other income of$43,730 . Net Loss Net loss was$136,547 and$1,866,272 for the three months endedJune 30, 2021 and 2020, respectively, a decrease of$1,729,725 or 93%. The decrease was primarily attributable to PPP loan forgiveness of$1,402,900 and the success of the Company's high impact closing to remodel sale. 36 Comparison of the Six Months EndedJune 30, 2021 with the Six Months EndedJune 30, 2020 Six Months Ended June 30, 2021 2020 $ Change % Change CONSOLIDATED Revenue$ 19,084,123 $ 8,321,144 $ 10,762,979 129.3 % Cost of revenue 8,643,915 3,923,018 4,720,897 120.3 % Gross profit 10,440,208 4,398,126 6,042,082 137.4 % Operating expenses: Salaries, wages and benefits 3,524,788 2,175,882 1,348,906 62.0 % Share-based compensation 416,119 308,627 107,492 34.8 % Agent fees 2,329,440 - 2,329,440 100.0 % Professional fees 218,961 543,883 (324,922 ) -59.7 % Advertising 1,408,653 681,157 727,496 106.8 % Rent 636,231 593,310 42,921 7.2 % Service charges 309,015 227,923 81,092 35.6 % Depreciation and amortization 384,381 487,848 (103,467 ) -21.2 % Other operating 1,677,485 1,269,613 407,872 32.1 % Total operating expenses 10,905,073 6,288,243 4,616,830 73.4 % Loss from operations (464,865 ) (1,890,117 ) 1,425,252 -75.4 % Other income (expense): Interest expense (353,330 ) (1,215,393 ) 862,063 -70.9 % Change in fair value of derivative liabilities 86,800 (479,900 ) 566,700 -118.1 % Gain on settlement of debt, net 2,675,926 - 2,675,926 100.0 % Other income, net 99,924 20,674 79,250 383.3 % Total other income (expense), net 2,509,320 (1,674,619 ) 4,183,939 -249.8 % Net income (loss) 2,044,455 (3,564,736 ) 5,609,191 -157.4 % Net (income) loss attributable to noncontrolling interest (1,262,875 ) 331,087
(1,593,962 ) -481.4 %
Net income (loss) attributable to Vystar$ 781,580 $ (3,233,649 ) $ 4,015,229 -124.2 % Revenues Revenues for the six months endedJune 30, 2021 and 2020 were$19,084,123 and$8,321,144 , respectively, for an increase of$10,762,979 or 129%. The increase in revenues was due to the high impact closing to remodel sale at Rotmans and an increase in sales of the RxAir units. The Rotmans showroom was closed fromMarch 24 through June 10, 2020 due to the COVID-19 pandemic. During this period, the Company processed limited customer deliveries for prior orders and internet sales. The Company reported a significant increase in gross profit to$10,440,208 for the six-month period endedJune 30, 2021 compared to gross profit of$4,398,126 for the six-month period endedJune 30, 2020 , an increase of$6,042,082 or 137%. The increase in gross profit was primarily due to a change in purchasing which started when the store reopened inJune 2020 and the reduction of special offers. Merchandise is being purchased in large quantities from fewer vendors. This quarter results also include the margins of RxAir units.
The cost of revenue for the six months ended
37 Operating Expenses The Company's operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as advertising, rent and other operating expenses. The Company's operating expenses were$10,905,073 and$6,288,243 for the six months endedJune 30, 2021 and 2020, respectively, an increase of$4,616,830 or 73%. The increase was due in part to fees incurred under an agreement with a third-party agent to assist the Company with the high-impact sale at Rotmans and the recurring costs of operating the Rotmans showroom which was closed much of the second quarter in 2020. Other Income (Expense) Other income for the six months endedJune 30, 2021 was$2,509,320 , which consisted of interest expense of$(353,330) , gain on settlement of debt, net of$2,675,926 , change in fair value of derivative liabilities of$86,800 and other income of$99,924 . Included in gain on settlement of debt, net is PPP loan forgiveness of$2,805,800 . This compares to other expense of$1,674,619 for the six months endedJune 30, 2020 , which consisted of interest expense of$1,215,393 , change in fair value of derivative liabilities of$479,900 and
other income of$20,674 . Net Income (Loss)
Net income (loss) was$781,580 and ($3,233,649 ) for the three months endedJune 30, 2021 and 2020, respectively, an increase of$4,015,229 . Net income in the six months endedJune 30, 2021 versus net loss in the same period in 2020 was due to PPP loan forgiveness of$2,805,800 and increased sales and margins from the operations of Rotmans.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements are prepared using the accrual method of accounting in accordance withU.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, we have incurred significant losses and experienced negative cash flow since inception. AtJune 30, 2021 , the Company had cash of$128,585 and a deficit in working capital of approximately$5.5 million . Further, atJune 30, 2021 , the accumulated deficit amounted to approximately$47.9 million . We use working capital to finance our ongoing operations, and since those operations do not currently cover all of our operating costs, managing working capital is essential to our Company's future success. Because of this history of losses and financial condition, there is substantial doubt about the Company's ability to continue as a going concern.
A successful transition to profitable operations is dependent upon obtaining sufficient financing to fund the Company's planned expenses and achieving a level of revenue adequate to support the Company's cost structure.
Management plans to finance future operations using cash on hand, as well as increased revenue from RxAir air purifier sales andVytex license fees. The Company will also raise capital with common stock subscription issuances. The current agreement with a national sales event company has allowed Rotmans to meet its financial obligations and provided the Company flexibility and time needed to develop a new retail furniture sale model. There can be no assurances that we will be able to achieve projected levels of revenue in 2021 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 2021, which could have a material adverse effect on our ability to achieve our business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions. Our future expenditures will depend on numerous factors, including: the rate at which we can introduce RxAir products and license Vytex NRL raw material and the foam cores made fromVytex 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. 38 Sources and Uses of Cash Net cash used in operating activities was$2,281,421 for the six months endedJune 30, 2021 as compared to net cash used in operating activities of$1,014,662 for the six months endedJune 30, 2020 . During the six months endedJune 30, 2021 , cash used in operations was primarily due to net income and the reduction of accounts payable and unearned revenue and non-cash related add-back of share-based compensation expense, depreciation, amortization and gain on settlement of debt, net.
The Company had cash used in investing activities of
Net cash provided by financing activities was$1,844,507 during the six months endedJune 30, 2021 , as compared to cash provided of$1,778,622 during the six months endedJune 30, 2020 . During the six months endedJune 30, 2021 , cash was provided by PPP loan proceeds of$1,402,900 , related party term debt in the amount of$528,039 offset by finance lease obligations repayment of$86,432 .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that may be reasonably likely to have a current or future material effect on our financial condition, liquidity, or results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; product development, introduction and acceptance; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with theSecurities and Exchange Commission . Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
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