UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices, Zip Code)
(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 ☐ ☒
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). ☒ 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 ☐ | |
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, $ par value per share | 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
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 | $ | $ | ||||||
Accounts receivable | ||||||||
Inventories | ||||||||
Prepaid expenses and other | ||||||||
Assets of discontinued operations | ||||||||
Total current assets | ||||||||
Property and equipment, net | ||||||||
Other assets: | ||||||||
Intangible assets, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Stock subscription payable | ||||||||
Shareholder, convertible and contingently convertible notes payable and accrued interest - current maturities | ||||||||
Related party debt - current maturities, net of debt discount | ||||||||
Derivative liabilities | ||||||||
Unearned revenue | ||||||||
Related party advances | ||||||||
Liabilities of discontinued operations | ||||||||
Total current liabilities | ||||||||
Long-term liabilities: | ||||||||
Related party advances | ||||||||
Liabilities of discontinued operations | ||||||||
Total long-term liabilities | ||||||||
Total liabilities | ||||||||
Stockholders’ deficit: | ||||||||
Convertible preferred stock series class A, $ | par value shares authorized; shares issued and outstanding
at September 30, 2024 and December 31, 2023 (liquidation preference of $||||||||
Convertible preferred stock series B, $ | par value shares authorized; and shares issued and
outstanding at September 30, 2024 and December 31, 2023, respectively (liquidation preference of $||||||||
Convertible preferred stock series C, $ | par value shares authorized; shares issued and outstanding at
September 30, 2024 and December 31, 2023 (liquidation preference of $||||||||
Common stock, $ | par value, shares authorized; and shares issued at September 30, 2024 and December 31, 2023, respectively, and and shares outstanding at September 30, 2024 and December 31,2023, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Common stock in treasury, at cost; | shares( | ) | ( | ) | ||||
Total Vystar stockholders’ deficit | ( | ) | ( | ) | ||||
Noncontrolling interest | ( | ) | ( | ) | ||||
Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total liabilities and stockholders’ deficit | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
VYSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Revenue | $ | $ | $ | $ | ||||||||||||
Cost of revenue | ||||||||||||||||
Gross profit | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Salaries and commissions | ||||||||||||||||
Share-based compensation | ||||||||||||||||
Professional fees | ||||||||||||||||
Advertising | ||||||||||||||||
Rent | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
Other operating | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other expense: | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Discontinued operations: | ||||||||||||||||
Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net (income) loss attributable to noncontrolling interest | ( | ) | ||||||||||||||
Net loss attributable to Vystar | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Basic and diluted loss per share: | ||||||||||||||||
Net loss from continuing operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Net loss from discontinued operations | $ | $ | ) | $ | ) | $ | ) | |||||||||
Net loss attributable to noncontrolling interest | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Net loss attributable to common shareholders | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Basic and diluted weighted average number of common shares outstanding |
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)
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 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
Preferred stock conversion to common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Ending balance March 31, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Ending balance June 30, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance September 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Ending balance March 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Ending balance June 30, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Ending balance September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7 |
VYSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2024 | 2023 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Share-based compensation | ||||||||
Depreciation | ||||||||
Bad debts | ||||||||
Amortization of intangible assets | ||||||||
Noncash lease expense | ||||||||
Amortization of debt discount | ||||||||
Expenses paid directly by related party debt | ||||||||
Expenses paid directly by related party advances | ||||||||
Gain on settlement of debt, net | ( | ) | ( | ) | ||||
Gain on sale of property and equipment | ( | ) | ( | ) | ||||
(Increase) decrease in assets: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Inventories | ( | ) | ||||||
Prepaid expenses and other | ( | ) | ||||||
Assets of discontinued operations | ||||||||
Increase (decrease) in liabilities: | ||||||||
Accounts payable | ||||||||
Accrued expenses and interest payable | ( | ) | ||||||
Unearned revenue | ( | ) | ( | ) | ||||
Liabilities of discontinued operations | ( | ) | ( | ) | ||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities: | ||||||||
Cash flows provided by discontinued operations | ||||||||
Cash flows from financing activities: | ||||||||
Proceeds from related party advances | ||||||||
Cash flows provided by (used in) discontinued operations | ( | ) | ||||||
Net cash provided by (used in) financing activities | ( | ) | ||||||
Net increase (decrease) in cash | ( | ) | ||||||
Cash - beginning of period | ||||||||
Less: cash of discontinued operations | ( | ) | ( | ) | ||||
Cash of continuing operations - end of period | $ | $ | ||||||
Cash paid during the period for: | ||||||||
Interest | $ | $ | ||||||
Non-cash transactions: | ||||||||
Related party advances converted to term debt | $ | $ | ||||||
Related party term debt issuance costs | ||||||||
Derivatives issued as a debt discount | ||||||||
Rotmans operating lease right-of-use asset and related liability adjusted for lease modification |
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 $
10 |
Other Receivables
Rotmans
terminated its agreement with a supplier in 2021 for consideration of $
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 | $ | $ | ||||||
Obsolescence reserve | ( | ) | ( | ) | ||||
Total inventories | $ | $ |
The
Company reduced its obsolescence reserve by $
The
Company reduced its obsolescence reserve by approximately $
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
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 $
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
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 $
2024 | 2023 | |||||||
Balance, beginning of the period | $ | $ | ||||||
Revenue earned | ( | ) | ( | ) | ||||
Balance, end of the period | $ | $ |
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 and 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 and 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 and 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 $
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 $
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
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 $
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 | $ | $ | ||||||
Furniture, fixtures and equipment | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Property and equipment, net | $ | $ |
Depreciation
expense for the three months ended September 30, 2024 and 2023 was $
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following:
Amortization | ||||||||||
September 30, | December 31, | Period | ||||||||
2024 | 2023 | (in Years) | ||||||||
Amortized intangible assets: | ||||||||||
Patents | $ | $ | ||||||||
Proprietary technology | ||||||||||
Tradename and brand | ||||||||||
Total | ||||||||||
Accumulated amortization | ( | ) | ( | ) | ||||||
Intangible assets, net | ||||||||||
Indefinite-lived intangible assets: | ||||||||||
Trademarks | ||||||||||
Total intangible assets | $ | $ |
Amortization
expense for the three and nine months ended September 30, 2024 and 2023 was $
16 |
Estimated future amortization expense for finite-lived intangible assets is as follows:
Amount | ||||
Remaining in 2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | $ |
NOTE 6 - LEASES (DISCONTINUED OPERATIONS)
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 $
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 | $ | $ | $ | $ | ||||||||||||
Finance lease cost: | ||||||||||||||||
Amortization of right-of-use assets | ||||||||||||||||
Interest on lease liabilities | ||||||||||||||||
Total lease cost | $ | $ | $ | $ |
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 | $ | $ | $ | $ | ||||||||||||
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 | ||||||||||||||||
Finance leases | ||||||||||||||||
Weighted average discount rate: | ||||||||||||||||
Operating leases | % | % | % | % | ||||||||||||
Finance leases | % | % |
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 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Total undiscounted lease liabilities | ||||
Less: imputed interest | ( | ) | ||
Net lease liabilities | $ |
As
of September 30, 2024,
18 |
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 | $ | $ | ||||||
Accrued interest | ||||||||
Less: current maturities | ( | ) | ( | ) | ||||
$ | $ |
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 $ . The notes are (i) unsecured, (ii) bear interest at an annual rate of five percent ( %) from date of issuance, and (iii) are convertible at Vystar’s option post April 19, 2018. All of these notes except one were settled in April 2022. The remaining note of $ 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 $
The
Company recorded accrued interest of $
19 |
Related Party Debt
The following table summarizes related party debt:
September 30, | December 31, | |||||||
2024 | 2023 | |||||||
Rotman Family convertible notes | $ | $ | ||||||
Rotman Family nonconvertible note | ||||||||
Accrued interest | ||||||||
Debt discount | ( | ) | ||||||
Less: current maturities | ( | ) | ( | ) | ||||
$ | $ |
Rotman Family Convertible Notes
On
August 17, 2021, the Company issued a contingently convertible promissory note totaling $
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 $
20 |
The following table summarizes the Rotman Family Convertible Notes:
Carrying Amount | ||||||||||||||
September 30, | December 31, | |||||||||||||
Issue Date | Principal Amount | 2024 | 2023 | |||||||||||
Jamie Rotman | $ | $ | $ | |||||||||||
Blue Oar | ||||||||||||||
$ | ||||||||||||||
Less: debt discount | ( | ) | ||||||||||||
Less: current maturities | ( | ) | ( | ) | ||||||||||
$ | $ |
Rotman Family Nonconvertible Note
In
connection with the acquisition of
The following table summarizes the Rotman Family Nonconvertible Note:
Carrying Amount | ||||||||||||||
September 30, | December 31, | |||||||||||||
Issue Date | Principal Amount | 2024 | 2023 | |||||||||||
Bernard Rotman | $ | $ | $ |
NOTE 8 - DERIVATIVE LIABILITIES
As of December 31, 2023, the Company did t 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
21 |
The following table summarizes the derivative liabilities:
Fair Value of Embedded Derivative Liabilities: | ||||
Balance, December 31, 2023 | $ | |||
Initial measurement of liabilities | ||||
Balance, September 30, 2024 | $ |
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
As
of September 30, 2024, the
As
of December 31, 2023, the
Series B Preferred Stock
On
April 11, 2022, the Company amended its Articles of Incorporation to add the terms of a
During the nine months ended September 30, 2024, shares of outstanding preferred stock were converted into shares of common stock.
As
of September 30, 2024, the
22 |
As
of December 31, 2023, the
Series C Preferred Stock
On
July 8, 2022, the Company amended its Articles of Incorporation to add the terms of a
As
of September 30, 2024, the
As
of December 31, 2023, the
Common Stock and Warrants
Included in stock subscription payable at September 30, 2024, is $ received under common stock subscription agreements for shares during the year ended December 31, 2020.
Stock Subscription Payable
At
September 30, 2024 and December 31, 2023, the Company recorded $
Amount | Shares | |||||||
Balance, January 1, 2023 | $ | |||||||
Additions | ||||||||
Issuances | ||||||||
Balance, December 31, 2023 | ||||||||
Additions | ||||||||
Issuances | ||||||||
Balance, September 30, 2024 | $ |
23 |
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:
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 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Mattresses and Toppers | ||||||||||||||||||||||||||||||||
Royalties and other | ||||||||||||||||||||||||||||||||
$ | $ | $ | $ |
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 $ and $ 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 $ and $ , respectively. Included in stock subscription payable is accrued stock-based compensation of $ and $ 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 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 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 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 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 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 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 years and are typically exercisable up to years.
24 |
There were options granted during the three and nine months ended September 30, 2024 and 2023, respectively. Forfeitures are recognized as they occur.
Weighted | Weighted Average | |||||||||||
Average | Remaining | |||||||||||
Number | Exercise | Contractual | ||||||||||
of Shares | Price | Life (Years) | ||||||||||
Outstanding, December 31, 2023 | $ |