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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

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.)

 

365 Shrewsbury St

Worcester, MA 01604

(Address of Principal Executive Offices, Zip Code)

 

(508) 791-9114

(Registrant’s telephone number including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
NONE   NONE   NONE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☐ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
(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

 

Class   Outstanding as of November 13, 2024
     
 Common Stock, $0.0001 par value per share   13,290,972 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, 2023. 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, 2023 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.

 

2
 

 

VYSTAR CORPORATION

 

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2024

 

INDEX

 

Part I. Financial Information    
       
Item 1. Financial Statements:    
       
  Condensed Consolidated Balance Sheets at September 30, 2024 (unaudited) and December 31, 2023   4
       
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 (unaudited) and 2023 (unaudited)   5
       
  Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2024 (unaudited) and 2023 (unaudited)   6-7
       
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 (unaudited) and 2023 (unaudited)   8
       
  Notes to Condensed Consolidated Financial Statements (unaudited)   9
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   33
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   39
       
Item 4. Controls and Procedures   40
       
Part II. Other Information    
     
Item 1. Legal Proceedings   41
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   41
       
Item 3. Defaults Upon Senior Securities   41
       
Item 4. Mine Safety Disclosures   41
       
Item 5. Other Information   41
       
Item 6. Exhibits   41
       
SIGNATURES   42

 

3
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

VYSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,   December 31, 
   2024   2023 
  (Unaudited)     
ASSETS        
Current assets:          
Cash  $27,772   $35,442 
Accounts receivable   11,373    4,251 
Inventories   78,312    43,821 
Prepaid expenses and other   301,105    348,275 
Assets of discontinued operations   6,402    60,213 
           
Total current assets   424,964    492,002 
           
Property and equipment, net   65,625    97,719 
           
Other assets:          
Intangible assets, net   98,868    122,655 
           
Total assets  $589,457   $712,376 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities:          
Accounts payable  $1,232,434   $1,071,604 
Accrued expenses   533,099    450,438 
Stock subscription payable   2,818,841    2,388,926 
Shareholder, convertible and contingently convertible notes payable and accrued interest - current maturities   375,042    356,472 
Related party debt - current maturities, net of debt discount   549,551    176,872 
Derivative liabilities   250,000    - 
Unearned revenue   44,337    44,379 
Related party advances   86,254    75,281 
Liabilities of discontinued operations   1,829,662    1,350,910 
           
Total current liabilities   7,719,220    5,914,882 
           
Long-term liabilities:          
Related party advances   -    343,694 
Liabilities of discontinued operations   2,918,005    3,494,005 
           
Total long-term liabilities   2,918,005    3,837,699 
           
Total liabilities   10,637,225    9,752,581 
           
Stockholders’ deficit:          
Convertible preferred stock series class A, $0.0001 par value 15,000,000 shares authorized; 8,698 shares issued and outstanding at September 30, 2024 and December 31, 2023 (liquidation preference of $185,000 and $179,000 at September 30, 2024 and December 31, 2023, respectively)   1    1 
Convertible preferred stock series B, $0.0001 par value 2,500,000 shares authorized; 336,131 and 370,969 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (liquidation preference of $2,867,000 and $2,970,000 at September 30, 2024 and December 31, 2023, respectively)   34    37 
Convertible preferred stock series C, $0.0001 par value 2,500,000 shares authorized; 1,917,973 shares issued and outstanding at September 30, 2024 and December 31, 2023 (liquidation preference of $6,109,000 and $5,733,000 at September 30, 2024 and December 31, 2023, respectively)   192    192 
Common stock, $0.0001 par value, 1,500,000,000 shares authorized; 13,291,272 and 12,942,892 shares issued at September 30, 2024 and December 31, 2023, respectively, and 13,290,972 and 12,942,592 shares outstanding at September 30, 2024 and December 31,2023, respectively   1,329    1,294 
Additional paid-in capital   53,361,893    53,361,925 
Accumulated deficit   (61,610,187)   (60,612,738)
Common stock in treasury, at cost; 300 shares   (30)   (30)
           
Total Vystar stockholders’ deficit   (8,246,768)   (7,249,319)
           
Noncontrolling interest   (1,801,000)   (1,790,886)
           
Total stockholders’ deficit   (10,047,768)   (9,040,205)
           
Total liabilities and stockholders’ deficit  $589,457   $712,376 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4
 

 

VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2024   2023   2024   2023 
   Three Months Ended   Nine Months Ended  
   September 30,   September 30,  
   2024   2023   2024   2023 
                 
Revenue  $53,094   $60,350   $128,770   $506,383 
                     
Cost of revenue   17,092    5,585    57,444    88,196 
                     
Gross profit   36,002    54,765    71,326    418,187 
                     
Operating expenses:                    
Salaries and commissions   1,142    70,916    8,633    200,127 
Share-based compensation   143,751    107,630    429,915    353,744 
Professional fees   65,433    35,622    216,232    97,333 
Advertising   -    3,745    962    13,971 
Rent   10,250    20,001    40,748    60,003 
Depreciation and amortization   18,627    18,819    55,881    56,457 
Other operating   54,563    116,731    163,966    294,905 
                     
Total operating expenses   293,766    373,464    916,337    1,076,540 
                     
Loss from operations   (257,764)   (318,699)   (845,011)   (658,353)
                     
Other expense:                    
Interest expense   (94,196)   (12,918)   (138,472)   (34,436)
                     
Net loss from continuing operations   (351,960)   (331,617)   (983,483)   (692,789)
                     
Discontinued operations:                    
Income (loss) from operations   7,256    (598,014)   (24,080)   (2,035,385)
                     
Net loss   (344,704)   (929,631)   (1,007,563)   (2,728,174)
                     
Net (income) loss attributable to noncontrolling interest   (3,047)   251,166    10,114    854,862 
                     
Net loss attributable to Vystar  $(347,751)  $(678,465)  $(997,449)  $(1,873,312)
                     
Basic and diluted loss per share:                    
Net loss from continuing operations  $(0.03)  $(0.03)  $(0.07)  $(0.05)
Net loss from discontinued operations  $0.00   $(0.05)  $(0.00)  $(0.16)
Net loss attributable to noncontrolling interest  $0.00   $(0.02)  $(0.00)  $(0.07)
Net loss attributable to common shareholders  $(0.03)  $(0.05)  $(0.08)  $(0.14)
                    
Basic and diluted weighted average number of common shares outstanding   13,290,972    12,942,592    13,283,315    12,942,592 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5
 

 

VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024

(Unaudited)

 

   Shares A\   Stock A   Shares B   Stock B   Shares C   Stock C   Shares   Stock   Capital   Deficit   Shares   Stock   Total Vystar Stockholders Deficit [Member]   Interest   Deficit 
   Attributable to Vystar         
  

Number

of

Preferred

   Preferred  

Number

of

Preferred

   Preferred  

Number

of

Preferred

   Preferred  

Number

of

Common

   Common  

Additional

Paid-in

   Accumulated  

Number

of

Treasury

   Treasury  

Total

Vystar

Stockholders’

   Noncontrolling  

Total

Stockholders’

 
   Shares A\   Stock A   Shares B   Stock B   Shares C   Stock C   Shares   Stock   Capital   Deficit   Shares   Stock   Deficit   Interest   Deficit 
                                                             
Ending balance December 31, 2023   8,698   $1    370,969   $37    1,917,973   $192    12,942,592   $1,294   $53,361,925   $(60,612,738)   (300)  $(30)  $(7,249,319)  $(1,790,886)  $(9,040,205)
                                                                            
Preferred stock conversion to common stock             (34,838)   (3)             348,380    35    (32)                  -         - 
                                                                            
Net loss   -    -    -    -    -    -    -    -    -    (362,374)   -    -    (362,374)   (12,344)   (374,718)
                                                                            
Ending balance March 31, 2024   8,698    1    336,131    34    1,917,973    192    13,290,972    1,329    53,361,893    (60,975,112)   (300)   (30)   (7,611,693)   (1,803,230)   (9,414,923)
                                                                            
Net loss   -    -    -    -    -    -    -    -    -    (287,324)   -    -    (287,324)   (817)   (288,141)
                                                                            
Ending balance June 30, 2024   8,698    1    336,131    34    1,917,973    192    13,290,972    1,329    53,361,893    (61,262,436)   (300)   (30)   (7,899,017)   (1,804,047)   (9,703,064)
                                                                            
Net income (loss)   -    -    -    -    -    -    -    -    -    (347,751)   -    -    (347,751)   3,047    (344,704)
                                                                            
Ending balance September 30, 2024   8,698   $1    336,131   $34    1,917,973   $192    13,290,972   $1,329   $53,361,893   $(61,610,187)   (300)  $(30)  $(8,246,768)  $(1,801,000)  $(10,047,768)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6
 

 

VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023

(Unaudited)

 

                                                             
   Attributable to Vystar         
  

Number

of

Preferred

   Preferred  

Number

of

Preferred

   Preferred  

Number

of

Preferred

   Preferred  

Number

of

Common

   Common  

Additional

Paid-in

   Accumulated  

Number

of

Treasury

   Treasury  

Total

Vystar

Stockholders’

   Noncontrolling  

Total

Stockholders’

 
   Shares A\   Stock A   Shares B   Stock B   Shares C   Stock C   Shares   Stock   Capital   Deficit   Shares   Stock   Deficit   Interest   Deficit 
                                                             
Ending balance December 31, 2022   8,698   $1    370,969   $37    1,917,973   $192    12,942,592   $1,294   $53,361,925   $(55,368,868)   (300)  $(30)  $(2,005,449)  $1,284,639   $(720,810)
                                                                            
Net loss   -    -    -    -    -    -    -    -    -    (766,347)   -    -    (766,347)   (510,729)   (1,277,076)
                                                                            
Ending balance March 31, 2023   8,698    1    370,969    37    1,917,973    192    12,942,592    1,294    53,361,925    (56,135,215)   (300)   (30)   (2,771,796)   773,910    (1,997,886)
                                                                            
Net loss   -    -    -    -    -    -    -    -    -    (428,500)   -    -    (428,500)   (92,967)   (521,467)
                                                                            
Ending balance June 30, 2023   8,698    1    370,969    37    1,917,973    192    12,942,592    1,294    53,361,925    (56,563,715)   (300)   (30)   (3,200,296)   680,943    (2,519,353)
                                                                            
Net loss   -    -    -    -    -    -    -    -    -    (678,465)   -    -    (678,465)   (251,166)   (929,631)
                                                                            
Ending balance September 30, 2023   8,698   $1    370,969   $37    1,917,973   $192    12,942,592   $1,294   $53,361,925   $(57,242,180)   (300)  $(30)  $(3,878,761)  $429,777   $(3,448,984)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7
 

 

VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2024   2023 
   Nine Months Ended  
   September 30,  
   2024   2023 
Cash flows from operating activities:          
Net loss  $(1,007,563)  $(2,728,174)
Adjustments to reconcile net loss to net cash used in operating activities:          
Share-based compensation   429,915    353,744 
Depreciation   32,094    47,083 
Bad debts   -    8,766 
Amortization of intangible assets   23,787    23,787 
Noncash lease expense   -    234,693 
Amortization of debt discount   92,308    - 
Expenses paid directly by related party debt   140,473    - 
Expenses paid directly by related party advances   29,974    - 
Gain on settlement of debt, net   (8,838)   (39,770)
Gain on sale of property and equipment   (1,000)   (213,776)
(Increase) decrease in assets:          
Accounts receivable   (7,122)   (13,271)
Inventories   (34,491)   90,458 
Prepaid expenses and other   47,170    (5,813)
Assets of discontinued operations   44,565    2,849,123 
Increase (decrease) in liabilities:          
Accounts payable   160,830    213,129 
Accrued expenses and interest payable   128,434    (352,420)
Unearned revenue   (42)   (100)
Liabilities of discontinued operations   (150,396)   (630,952)
           
Net cash used in operating activities   (79,902)   (163,493)
           
Cash flows from investing activities:          
Cash flows provided by discontinued operations   1,000    579,483 
           
Cash flows from financing activities:          
Proceeds from related party advances   -    101,716 
Cash flows provided by (used in) discontinued operations   61,986    (387,500)
           
Net cash provided by (used in) financing activities   61,986    (285,784)
           
Net increase (decrease) in cash   (16,916)   130,206 
           
Cash - beginning of period   50,354    135,599 
Less: cash of discontinued operations   (5,666)   (219,854)
           
Cash of continuing operations - end of period  $27,772   $45,951 
           
Cash paid during the period for:          
Interest  $391   $15,633 
           
Non-cash transactions:          
Related party advances converted to term debt  $362,695   $- 
Related party term debt issuance costs   50,000    - 
Derivatives issued as a debt discount   250,000    - 
Rotmans operating lease right-of-use asset and related liability adjusted for lease modification   -    849,534 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8
 

 

VYSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - DESCRIPTION OF BUSINESS

 

Nature of Business

 

Vystar Corporation (“Vystar”, the “Company”, “we,” “us,” or “our”) is based in Worcester, Massachusetts. The Company uses patented technology to produce a line of innovative air purifiers, which destroy viruses and bacteria through the use of ultraviolet light. Vystar is also the creator and exclusive owner of Vytex® Natural Rubber Latex (“NRL”) currently being used primarily in toppers and in various bedding products. In addition, Vystar has a majority ownership in Murida Furniture Co., Inc. dba Rotmans Furniture (“Rotmans”), formerly one of the largest independent furniture retailers in the U.S.

 

All activities of Rotmans have been included in discontinued operations. Additional disclosure can be found in Note 16.

 

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the condensed consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and do not contain certain information included in the Company’s Annual Report and Form 10-K for the year ended December 31, 2023. 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 17, 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.

 

Discontinued Operations

 

In accordance with ASC No. 205-20, Discontinued Operations, for all periods presented, the results of operations and related balance sheet items associated with Rotmans are reported in discontinued operations in the accompanying condensed consolidated financial statements. See Note 16 for further details.

 

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.

 

9
 

 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates made by management include, among others, allowance for obsolete inventory, the recoverability of long-lived assets, valuation and impairment of intangible assets, fair values of right of use assets and lease liabilities, valuation of derivative liabilities, share-based compensation and other equity issuances. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from these estimates.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued expenses and interest payable, shareholder notes payable, long-term debt and unearned revenue. The carrying values of all the Company’s financial instruments approximate or equal fair value because of their short maturities and market interest rates or, in the case of equity securities, being stated at fair value.

 

In specific circumstances, certain assets and liabilities are reported or disclosed at fair value. Fair value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the Company’s principal market for such transactions. If there is not an established principal market, fair value is derived from the most advantageous market.

 

Valuation inputs are classified in the following hierarchy:

 

  Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
  Level 2 inputs are directly or indirectly observable valuation inputs for the asset or liability, excluding Level 1 inputs.
  Level 3 inputs are unobservable inputs for the asset or liability.

 

Highest priority is given to Level 1 inputs and the lowest priority to Level 3 inputs. Acceptable valuation techniques include the market approach, income approach, and cost approach. In some cases, more than one valuation technique is used. The derivative liabilities were recognized at fair value on a recurring basis through the date of the settlement and September 30, 2024 and are level 3 measurements. There have been no transfers between levels during the three months ended September 30, 2024.

 

Acquisitions

 

Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable intangible assets is based on valuations that use information and assumptions provided by management. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including, legal, accounting, and other costs, are capitalized in asset acquisitions and for business combinations are expensed in the periods in which the costs are incurred. The results of operations of acquired assets are included in the financial statements from the acquisition date.

 

Cash, Cash Equivalents and Restricted Cash

 

Cash and cash equivalents include all liquid investments with a maturity date of less than three months when purchased. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions which typically settle within five days. Restricted cash represents cash balances restricted as to withdrawal or use and are included in prepaid expenses and other on the condensed consolidated balance sheets.

 

Accounts Receivable, Net

 

Accounts receivable, net are stated at the amount management expects to collect from outstanding balances. The Company grants credit to Vystar customers without requiring collateral. The amount of accounting loss for which Vystar is at risk in these unsecured accounts receivable is limited to their carrying value. Management provides for uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based upon its assessment of the current status of individual accounts. Balances that are still outstanding after management has performed reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of September 30, 2024 and December 31, 2023, the Company has recorded an allowance for doubtful accounts of $5,450.

 

10
 

 

Other Receivables

 

Rotmans terminated its agreement with a supplier in 2021 for consideration of $100,000. As of December 31, 2023, remaining funds due from this termination totaled $33,334 and were received in March 2024.

 

Inventories

 

Inventories include those costs directly attributable to the product before sale. Inventories consist primarily of finished goods of mattresses, RxAir purifier units, foam toppers and pillows and are carried at net realizable value, which is defined as selling price less cost of completion, disposal and transportation. The Company evaluates the need to record write-downs for inventory on a regular basis. Appropriate consideration is given to obsolescence, slow-moving and other factors in evaluating net realizable values.

 

Inventories consist of the following:

 

   September 30,   December 31, 
   2024   2023 
         
Finished goods  $442,312   $559,821 
           
Obsolescence reserve   (364,000)   (516,000)
           
Total inventories  $78,312   $43,821 

 

The Company reduced its obsolescence reserve by $131,000 and $152,000, for the three and nine months ended September 30, 2024, respectively. The significant reduction was attributable to the sale of Vytex inventory in bulk in August 2024.

 

The Company reduced its obsolescence reserve by approximately $11,000 for the three months ended September 30, 2023 and increased its reserve by approximately $14,000 for the nine months ended September 30, 2023.

 

Prepaid Expenses and Other

 

Prepaid expenses and other include restricted cash, amounts related to prepaid insurance policies, which are expensed on a straight-line basis over the life of the underlying policy, and other expenses.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets, generally 5 to 10 years, using straight-line and accelerated methods.

 

Expenditures for major renewals and betterments are capitalized, while routine repairs and maintenance are expensed as incurred. When property items are retired or otherwise disposed of, the asset and related reserve accounts are relieved of the cost and accumulated depreciation, respectively, and the resultant gain or loss is reflected in earnings. As of September 30, 2024, the net balance of property and equipment is $65,625 with accumulated depreciation of $276,778. As of December 31, 2023, the net balance of property and equipment is $97,719 with accumulated depreciation of $244,684.

 

11
 

 

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.

 

Proprietary technology and tradename intangibles are carried at net realizable value and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 5 to 10 years.

 

Our intangible assets are reviewed for impairment annually or more frequently as warranted by events of changes in circumstances.

 

Long-Lived Assets

 

We review our long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the condensed consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the condensed consolidated balance sheet, if material. During the nine months ended September 30, 2024 and 2023, we did not recognize any impairment of our long-lived assets.

 

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.

 

12
 

 

Unearned Revenue

 

Unearned revenue consists of customer advance payments. During the three months ended September 30, 2024, the Company recognized unearned revenue of $42. The Company did not recognize any unearned revenue for the three months ended September 30, 2023. Changes to unearned revenue during the nine months ended September 30, 2024 and 2023 are summarized as follows:

 

   2024   2023 
         
Balance, beginning of the period  $44,379   $44,479 
           
Revenue earned   (42)   (100)
           
Balance, end of the period  $44,337   $44,379 

 

Loss Per Share

 

The Company presents basic and diluted loss per share. As the Company reported a net loss in the three and nine months ended September 30, 2024 and 2023, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and dilutive income per share were the same. Excluded from the computation of diluted income per share were options to purchase 14,044 and 22,354 shares of common stock for the three and nine months ended September 30, 2024 and 2023, respectively, as their effect would be anti-dilutive. Warrants to purchase 27,000 and 42,000 shares of common stock for the three and nine months ended September 30, 2024 and 2023, respectively, were also excluded from the computation of diluted income per share as their effect would be anti-dilutive. In addition, preferred stock convertible to 27,538,250 and 25,665,878 shares of common stock for the three and nine months ended September 30, 2024 and 2023, respectively, were excluded from the computation of diluted income per share as their effect would be anti-dilutive. Both shareholder and Rotman Family contingently convertible notes for the three and nine months ended September 30, 2024 and 2023 were also excluded from the computation of diluted loss per share as no contingencies were met.

 

Revenue

 

Our principal activities from which we generate our revenue are product sales. Revenue is measured based on considerations specified in a contract with a customer. A contract exists when it becomes a legally enforceable agreement with a customer. The contract is based on either the acceptance of standard terms and conditions at the retail store and on the websites for e-commerce customers, or the execution of terms and conditions contracts with retailers and wholesalers. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale.

 

Consideration is typically paid prior to shipment via credit card or check when our products are sold direct to consumers, which is typically within 1 to 2 days or approximately 30 days from the time control is transferred when sold to wholesalers, distributors and retailers. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer.

 

A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for us is transfer of finished goods to our customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. We have concluded the sale of finished goods and related shipping and handling are accounted for as the single performance obligation.

 

13
 

 

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to retail, e-commerce and print media customers, upon request, within 30 days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do not offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. As of September 30, 2024 and December 31, 2023, reserves for estimated sales returns totaled $14,000 and are included in the accompanying condensed consolidated balance sheets as accrued expenses.

 

We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when the 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. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenue in the accompanying condensed consolidated statements of operations.

 

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 three and nine months ended September 30, 2024 and 2023, Vystar’s research and development costs were not significant.

 

Advertising Costs

 

Advertising costs, which include television, radio, newspaper, digital and other media advertising, are expensed upon first showing. Advertising costs were approximately $1,000 and $14,000 for the nine months ended September 30, 2024 and 2023, respectively. There were no advertising costs during the three months ended September 30, 2024 and approximately $4,000 in advertising costs for the three months ended September 30, 2023.

 

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 three and nine months ended September 30, 2024 and 2023.

 

14
 

 

The Company remains subject to income tax examinations from Federal and state taxing jurisdictions for 2021 through 2023.

 

Concentration of Credit Risk

 

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of accounts receivable. Credit concentration risk related to accounts receivable is mitigated as customer credit is checked prior to the sales.

 

Other Risks and Uncertainties

 

The Company is exposed to risks pertinent to the operations of a retailer, including, but not limited to, the ability to acquire new customers and maintain a strong brand as well as broader economic factors such as interest rates and changes in customer spending patterns.

 

Recent Accounting Pronouncements

 

On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new ASU requires public entities to disclose more information about their reportable segments. The new guidance does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments. It requires more frequent disclosures than in the past, including in interim financial statements in addition to annual ones. It also requires that prior comparative financial statements be recast to conform with the new information. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

 

NOTE 3 - LIQUIDITY AND GOING CONCERN

 

The Company’s financial statements are prepared using the accrual method of accounting in accordance with U.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, the Company has incurred significant losses and experienced negative cash flow since inception. At September 30, 2024, the Company had cash of $27,772 and a deficit in working capital of approximately $7.3 million. Further, at September 30, 2024, the accumulated deficit amounted to approximately $61.6 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, Vytex license fees and stock issuances to new and existing shareholders.

 

There can be no assurances the Company will be able to achieve projected levels of revenue in 2024 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 2024, which could have a material adverse effect on the ability to achieve the business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.

 

The Company’s future expenditures will depend on numerous factors, including: the rate at which the Company can introduce RxAir air purification units and license Vytex NRL raw materials to manufacturers, and subsequently retailers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; market acceptance of the Company’s products, services and competing technological developments; the Company’s ability to successfully acquire new customers and maintain a strong brand; and broader economic factors such as interest rates and changes in customer spending patterns. As the Company expands its activities and operations, cash requirements are expected to increase at a rate consistent with revenue growth after the Company has achieved sustained revenue generation.

 

15
 

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

Property and equipment, net consists of the following:

 

   September 30,   December 31, 
   2024   2023 
         
Tooling and testing equipment  $338,572   $338,572 
Furniture, fixtures and equipment   3,831    3,831 
          
Property and equipment, gross   342,403    342,403 
Accumulated depreciation   (276,778)   (244,684)
           
Property and equipment, net  $65,625   $97,719 

 

Depreciation expense for the three months ended September 30, 2024 and 2023 was $10,698 and $10,890, respectively. Depreciation expense for the nine months ended September 30, 2024 and 2023 was $32,094 and $32,670, respectively.

 

NOTE 5 - INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

            
           Amortization
   September 30,   December 31,   Period
   2024   2023   (in Years)
Amortized intangible assets:             
Patents  $361,284   $361,284   6 - 20
Proprietary technology   13,000    13,000   10
Tradename and brand   13,000    13,000   5 - 10
              
Total   387,284    387,284    
Accumulated amortization   (297,488)   (273,701)   
              
Intangible assets, net   89,796    113,583    
Indefinite-lived intangible assets:             
Trademarks   9,072    9,072    
              
Total intangible assets  $98,868   $122,655    

 

Amortization expense for the three and nine months ended September 30, 2024 and 2023 was $7,929 and $23,787, respectively.

 

16
 

 

Estimated future amortization expense for finite-lived intangible assets is as follows:

 

   Amount 
     
Remaining in 2024  $7,929 
2025   24,652 
2026   16,032 
2027   16,032 
2028   13,232 
Thereafter   11,919 
      
Total  $89,796 

 

NOTE 6 - LEASES (DISCONTINUED OPERATIONS)

 

Rotmans leased equipment, a showroom, offices and warehouse facility. These leases expired at various dates through 2031 and have monthly base rents which range from $800 to $84,000.

 

With the winding up of operations in 2023, Rotmans terminated its delivery leases and returned the right-of-use assets to the lessor. A settlement liability of $25,000 is owed to a third-party at September 30, 2024 and December 31, 2023. With the decision to forego future subleasing of the Rotmans facility in December 2023, and subsequent departure from the facility in late January 2024, an impairment loss of $5,240,946 was recognized in December 2023 for its right-of use asset. Rotmans was not formally relieved of its lease obligations totaling $4,436,005 as of September 30, 2024.

 

The table below presents the lease costs for the three and nine months ended September 30, 2024 and 2023:

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
                 
Operating lease cost  $-   $151,995   $-   $458,245 
                     
Finance lease cost:                    
                     
Amortization of right-of-use assets   -    -    -    - 
Interest on lease liabilities   -    -    -    - 
                     
Total lease cost  $-   $151,995   $-   $458,245 

 

Rotmans 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.

 

17
 

 

The following table presents other information related to leases:

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
                 
Cash paid for amounts included in the measurement of lease liabilities:                    
                     
Operating cash flows used for operating leases  $-   $228,415   $-   $691,839 
Financing cash flows used for financing leases   -    -    -    - 
                     
Assets obtained in exchange for operating lease liabilities   -    -    -    - 
                     
Assets obtained in exchange for finance lease liabilities   -    -    -    - 
                     
Weighted average remaining lease term:                    
Operating leases   4 years    5.3 years    4 years    5.3 years 
Finance leases   -    2.7 years    -    2.7 years 
                     
Weighted average discount rate:                    
Operating leases   7.15%   7.21%   7.15%   7.21%
Finance leases   -    5.16%   -    5.16%

 

The future minimum lease payments required under operating and financing lease obligations as of September 30, 2024 having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:

 

   Operating Leases 
     
Remainder of 2024  $1,228,372 
2025   1,000,980 
2026   1,000,980 
2027   1,000,980 
2028   1,000,980 
      
Total undiscounted lease liabilities   5,232,292 
Less: imputed interest   (796,287)
      
Net lease liabilities  $4,436,005 

 

As of September 30, 2024, the Company does not have additional operating and finance leases that have not yet commenced.

 

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NOTE 7 - NOTES PAYABLE AND LOAN FACILITY

 

Shareholder, Convertible and Contingently Convertible Notes Payable

 

The following table summarizes shareholder, convertible and contingently convertible notes payable:

 

   September 30,   December 31, 
   2024   2023 
         
Shareholder, convertible and contingently convertible notes  $309,500   $309,500 
Accrued interest   65,542    46,972 
           
Total shareholder notes and accrued interest   375,042    356,472 
           
Less: current maturities   (375,042)   (356,472)
           
Total long-term debt  $-   $- 

 

Shareholder Convertible Notes Payable

 

During the year ended December 31, 2018, the Vystar issued shareholder contingently convertible notes payable, some of which were for contract work performed by other entities in lieu of compensation and expense reimbursement, totaling approximately $338,000. The notes are (i) unsecured, (ii) bear interest at an annual rate of five percent (5%) from date of issuance, and (iii) are convertible at Vystar’s option post April 19, 2018. The notes mature one year from issuance but may be extended one (1) additional year by Vystar. If converted, the notes plus accrued interest are convertible into shares of Vystar’s common stock at the prior twenty (20) day average closing price with a 50% discount. The notes matured in January 2020 and continue to accrue interest at an annual rate of eight percent (8%) in arrears until settlement. All of these notes except one were settled in April 2022. The remaining note of $19,500 is in default at September 30, 2024 and December 31, 2023.

 

During the year ended December 31, 2021, the Company issued certain contingently convertible promissory notes in varying amounts to existing shareholders which totaled $290,000. The notes are unsecured and bear interest at an annual rate of five percent (5%) from date of issuance. The face amount of the notes represents the amount due at maturity along with the accrued interest. In the event that the spin-off of RxAir does not occur within 2024, the Company will convert these notes into common stock at a conversion price of $1.60. If the spin-off does occur, these notes will convert into RxAir common stock with two conversion prices of $0.15 and $2, which equates to a blended conversion price of $0.18. All of these notes were outstanding as of September 30, 2024. At the issuance date of these notes, it was determined they contain a beneficial conversion feature amounting to approximately $90,000. As these notes are contingently convertible, the beneficial conversion feature will not be recorded on the condensed consolidated financial statements until the actual conversion occurs.

 

The Company recorded accrued interest of $6,190 and $5,314 for the three months ended September 30, 2024 and 2023, respectively, on these notes. Accrued interest for the nine months ended September 30, 2024 and 2023 totaled $18,570 and $13,344, respectively, on these notes.

 

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Related Party Debt

 

The following table summarizes related party debt:

 

   September 30,   December 31, 
   2024   2023 
         
Rotman Family convertible notes  $558,167   $5,000 
Rotman Family nonconvertible note   140,000    140,000 
Accrued interest   59,075    31,872 
Debt discount   (207,691)   - 
           
Due to related party   549,551    176,872 
Less: current maturities   (549,551)   (176,872)
           
Due to related party, noncurrent  $-   $- 

 

Rotman Family Convertible Notes

 

On August 17, 2021, the Company issued a contingently convertible promissory note totaling $5,000 to Jamie Rotman. The note is unsecured and bears interest at an annual rate of five percent (5%) from date of issuance. The face amount of the note represents the amount due at maturity along with the accrued interest. In the event that the spin-off of RxAir does not occur within 2024, the Company will convert the note into common stock at a conversion price of $1.60. If the spin-off does occur, the note will convert into RxAir common stock with two conversion prices of $0.15 and $2, which equates to a blended conversion price of $0.18. At the issuance date of this note, it was determined to contain a beneficial conversion feature amounting to approximately $2,000. As this note is contingently convertible, the beneficial conversion feature will not be recorded on the condensed consolidated financial statements until the actual conversion occurs. The balance of the note payable including accrued interest to Jamie Rotman is approximately $6,000 at September 30, 2024 and December 31, 2023. The Company recorded accrued interest of $100 and $84 for the three months ended September 30, 2024 and 2023, respectively, on this note. Accrued interest for the nine months ended September 30, 2024 and 2023 totaled $300 and $209, respectively, on this note.

 

On June 1, 2024, the Company entered into a term convertible promissory note with Blue Oar Consulting, Inc. (“Blue Oar”). The Company may borrow amounts up to $1,000,000 at an interest rate of 12% per annum. Prior working capital advances of $362,695 through May 31, 2024 are rolled into this note agreement. Monthly installment payments of principal and interest of $7,500 are payable beginning on July 1, 2024 with a balloon payment due on July 1, 2025. No payments have been made through October 2024. The maturity date can be extended for six months to January 1, 2026 at Blue Oar’s discretion. Blue Oar may elect to receive payments in common stock at a discounted rate of 50% of the market rate based on any two days within the prior twenty day’s closing price, no less than $.01 (the “Floor”). The note carries a $50,000 closing fee plus a $75,000 fee if not paid in full with common shares. In the event of default, the interest rate will increase to 19% and owe a default fee of 6% of the outstanding balance plus $25,000. The balance of the note payable including accrued interest and debt discount to Blue Oar is approximately $367,000 at September 30, 2024. The Company recorded accrued interest of $16,859 and $21,653 for the three and nine months ended September 30, 2024, respectively, on this note. Based on the variable redemption feature, the Company recorded a derivative liability of $250,000 at September 30, 2024.

 

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The following table summarizes the Rotman Family Convertible Notes:

 

          September 30,   December 31, 
          Carrying Amount 
          September 30,   December 31, 
   Issue Date  Principal Amount   2024   2023 
Jamie Rotman 5% note due August 2024  8/17/2021  $5,000   $5,964   $5,664 
Blue Oar 12% note due July 2025  6/1/2024   553,167    574,820    - 
                   
Convertible notes gross      $558,167    580,784    5,664 
Less: debt discount           (207,691)   - 
                   
Convertible notes net            373,093    5,664 
Less: current maturities           (373,093)   (5,664)
                   
Convertible notes noncurrent           $-   $- 

 

Rotman Family Nonconvertible Note

 

In connection with the acquisition of 58% of Rotmans, Bernard Rotman was issued a related party note payable in the amount of $140,000. The note bears interest at an annual rate of five percent (5%) and matures four years from issuance. Payments of $2,917 per month were scheduled to begin six months from issuance until maturity in December 2023. The note is in default at September 30, 2024. The balance of the note payable including accrued interest to Bernard Rotman is approximately $176,000 and $171,000 at September 30, 2024 and December 31, 2023, respectively. Accrued interest for the three and nine months ended September 30, 2024 and 2023 totaled $1,750 and $5,250, respectively.

 

The following table summarizes the Rotman Family Nonconvertible Note:

  

   Issue Date  Principal Amount   2024   2023 
          Carrying Amount 
          September 30,   December 31, 
   Issue Date  Principal Amount   2024   2023 
Bernard Rotman 5% note due July 2023  7/18/2019  $140,000   $176,458   $171,208 

 

NOTE 8 - DERIVATIVE LIABILITIES

 

As of December 31, 2023, the Company did not have a derivative liability balance on the condensed consolidated balance sheet as the liability was considered de minimis. With the issuance of a related party convertible note on June 1, 2024, the Company recorded a derivative liability for the redemption feature in the loan agreement. The Company analyzed the conversion features of the various note agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion feature of the notes and recorded a derivative liability.

 

The embedded derivatives for the notes are carried on the Company’s condensed consolidated balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the condensed consolidated statement of operations and the associated fair value carrying amount on the consolidated balance sheet is adjusted by the change. The Company fair values the embedded derivative based on the discounted conversion rate of 50% of market rate.

 

21
 

 

The following table summarizes the derivative liabilities:

 

Fair Value of Embedded Derivative Liabilities:     
      
Balance, December 31, 2023  $- 
      
Initial measurement of liabilities   250,000 
      
Balance, September 30, 2024  $250,000 

 

NOTE 9 - STOCKHOLDERS’ DEFICIT

 

Cumulative Convertible Preferred Stock

 

Series A Preferred Stock

 

On May 2, 2013, the Company began a private placement offering to sell up to 200,000 shares of the Company’s 10% Series A Cumulative Convertible Preferred Stock. Under the terms of the offering, the Company offered to sell up to 200,000 shares of preferred stock at $10 per share for a value of $2,000,000. The preferred stock was convertible at a conversion price of $7.50 per common share at the option of the holder after a nine-month holding period. The conversion price was lowered to $5.00 per common share for those holders who invested an additional $25,000 or more in Vystar’s common stock in the aforementioned September 2014 Private Placement. The preferred shares have full voting rights as if converted and have a fully participating liquidation preference. In the event of a liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to receive an amount equal to the dividends accumulated and unpaid thereon to the date of final distribution to such holders, whether or not declared, without interest, plus a sum equal to $10 per share. As of September 30, 2024 and December 31, 2023, the liquidation preference totals approximately $185,000 and $179,000, respectively.

 

As of September 30, 2024, the 8,698 shares of outstanding preferred stock had undeclared dividends of approximately $98,000 and could be converted into 36,270 shares of common stock, at the option of the holder.

 

As of December 31, 2023, the 8,698 shares of outstanding preferred stock had undeclared dividends of approximately $92,000 and could be converted into 34,993 shares of common stock, at the option of the holder.

 

Series B Preferred Stock

 

On April 11, 2022, the Company amended its Articles of Incorporation to add the terms of a 10% Series B Cumulative Convertible Preferred Stock. Under the amendment, the number of shares authorized is 2,500,000. The preferred stock accumulates a 10% per annum dividend and is convertible into 1,000 shares of common stock at the option of the holder after a six-month holding period. The holders of Series B preferred stock have full voting rights as if converted and have a fully participating liquidation preference. In the event of a liquidation, dissolution or winding up of the Company, the holders of Series B Preferred Stock shall be entitled to receive an amount equal to the dividends accumulated and unpaid thereon to the date of final distribution to such holders, whether or not declared, without interest, plus a sum equal to $7 per share. As of September 30, 2024 and December 31, 2023, the liquidation preference totals approximately $2,867,000 and $2,970,000, respectively.

 

During the nine months ended September 30, 2024, 34,838 shares of outstanding preferred stock were converted into 348,380 shares of common stock.

 

As of September 30, 2024, the 336,131 shares of outstanding preferred stock had undeclared dividends of approximately $514,000 and could be converted into 4,096,194 shares of common stock, at the option of the holder.

 

22
 

 

As of December 31, 2023, the 370,969 shares of outstanding preferred stock had undeclared dividends of approximately $373,000 and could be converted into 4,242,259 shares of common stock, at the option of the holder.

 

Series C Preferred Stock

 

On July 8, 2022, the Company amended its Articles of Incorporation to add the terms of a 10% Series C Cumulative Convertible Preferred Stock. Under the amendment, the number of shares authorized is 2,500,000. The preferred stock accumulates a 10% per annum dividend and is convertible into 1,000 shares of common stock at the option of the holder after a six-month holding period. The holders of Series C preferred stock have full voting rights as if converted and have a fully participating liquidation preference. In the event of a liquidation, dissolution or winding up of the Company, the holders of Series C Preferred Stock shall be entitled to receive an amount equal to the dividends accumulated and unpaid thereon to the date of final distribution to such holders, whether or not declared, without interest, plus a sum equal to $2.61 per share. As of September 30, 2024 and December 31, 2023, the liquidation preference totals approximately $6,109,000 and $5,733,000, respectively.

 

As of September 30, 2024, the 1,917,973 shares of outstanding preferred stock had undeclared dividends of approximately $1,103,000 and could be converted into 22,922,353 shares of common stock, at the option of the holder.

 

As of December 31, 2023, the 1,917,973 shares of outstanding preferred stock had undeclared dividends of approximately $727,000 and could be converted into 23,405,787 shares of common stock, at the option of the holder.

 

Common Stock and Warrants

 

Included in stock subscription payable at September 30, 2024, is $270,000 received under common stock subscription agreements for 180,000 shares during the year ended December 31, 2020.

 

Stock Subscription Payable

 

At September 30, 2024 and December 31, 2023, the Company recorded $2,818,841 and $2,388,926, respectively, of stock subscription payable related to common stock to be issued. The following summarizes the activity of stock subscription payable during the period ended September 30, 2024 and December 31, 2023:

 

   Amount   Shares 
         
Balance, January 1, 2023  $1,655,208    2,131,876 
Additions   733,718    131,198,696 
Issuances   -    - 
           
Balance, December 31, 2023   2,388,926    133,330,572 
Additions   429,915    51,142,613 
Issuances   -    - 
           
Balance, September 30, 2024  $2,818,841    184,473,185 

 

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NOTE 10 - REVENUES

 

The following table presents our revenues disaggregated by each major product category and service for the three and nine months ended September 30, 2024 and 2023:

 

       % of       % of       % of       % of 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
       % of       % of       % of       % of 
   Net Sales   Net Sales   Net Sales   Net Sales   Net Sales   Net Sales   Net Sales   Net Sales 
Air Purification Units  $14,483    27.3   $35,972    59.6   $72,753    56.5   $459,837    90.8 
Mattresses and Toppers   37,311    70.3    16,405    27.2    52,228    40.6    36,311    7.2 
Royalties and other   1,300    2.4    7,973    13.2    3,789    2.9    10,235    2.0 
Net sales  $53,094    100.0   $60,350    100.0   $128,770    100.0   $506,383    100.0 

 

NOTE 11 - SHARE-BASED COMPENSATION

 

Generally accepted accounting principles require share-based payments to employees, including grants of employee stock options, warrants, and common stock to be recognized in the income statement based on their fair values at the date of grant, net of estimated forfeitures.

 

In total, the Company recorded $429,915 and $353,744 of stock-based compensation for the nine months ended September 30, 2024 and 2023, respectively, including shares to be issued related to consultants and board member stock options and common stock and warrants issued to non-employees. During the three months ended September 30, 2024 and 2023, the Company recorded stock-based compensation of $143,751 and $107,630, respectively. Included in stock subscription payable is accrued stock-based compensation of $2,548,841 and $2,118,926 at September 30, 2024 and December 31, 2023, respectively.

 

The Company used the Black-Scholes option pricing model to estimate the grant-date fair value of option and warrant awards:

 

  Expected Dividend Yield - because the Company does not currently pay dividends, the expected dividend yield is zero;
  Expected Volatility in Stock Price - volatility based on the Company’s trading activity was used to determine expected volatility;
  Risk-free Interest Rate - reflects the average rate on a United States Treasury Bond with a maturity equal to the expected term of the option; and
  Expected Life of Award - because we have minimal experience with the exercise of options or warrants for use in determining the expected life of each award, we used the option or warrant’s contractual term as the expected life.

 

For the three and nine months ended September 30, 2024 and 2023, there were no share-based compensation expense related to employee and Board Members’ stock options. There is no unrecognized compensation expense as of September 30, 2024 for non-vested share-based awards to be recognized over a period of less than one year.

 

Options

 

During 2004, the Board of Directors of Vystar adopted a stock option plan (the “Plan”) and authorized up to 40,000 shares to be issued under the Plan. In April 2009, Vystar’s Board of Directors authorized an increase in the number of shares to be issued under the Plan to 100,000 shares and to include the independent Board Members in the Plan in lieu of continuing the previous practice of granting warrants each quarter to independent Board Members for services. At September 30, 2024, there are 22,518 shares of common stock available for issuance under the Plan. In 2014, the Board of Directors adopted an additional stock option plan which provides for an additional 50,000 shares, which are all available as of September 30, 2024. In 2019, the Board of Directors adopted an additional stock option plan which provides for an additional 500,000 shares, which are all available as of September 30, 2024. The Plan is intended to permit stock options granted to employees to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the Plan that are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options. Stock options are granted at an exercise price equal to the fair market value of Vystar’s common stock on the date of grant, typically vest over periods up to 4 years and are typically exercisable up to 10 years.

 

24
 

 

There were no options granted during the three and nine months ended September 30, 2024 and 2023, respectively. Forfeitures are recognized as they occur.

 

The following table summarizes all stock option activity of the Company for the nine months ended September 30, 2024:

 

       Weighted   Weighted Average 
       Average   Remaining 
   Number   Exercise   Contractual 
   of Shares   Price   Life (Years) 
             
Outstanding, December 31, 2023   42,000   $7.17