VYSTAR CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

OVERVIEW



This analysis of our results of operations should be read in conjunction with
the accompanying financial statements. This Report contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. Statements that are predictive in
nature and that depend upon or refer to future events or conditions are
forward-looking statements. Although we believe that these statements are based
upon reasonable expectations, we can give no assurance that projections will be
achieved. Please refer to the discussion of forward-looking statements included
in Part I of this Report.



About RxAir



RxAir promotes a healthy lifestyle through the use of its innovative, patented
ViraTech air purification technology, thereby improving the quality of life of
each and every customer. Independently tested by the U.S. Environmental
Protection Agency ("EPA") and U.S. Food and Drug Administration ("FDA")
certified laboratories, the RxAir has been proven to destroy greater than 99% of
bacteria and viruses and reduce concentrations of odors and volatile organic
compounds ("VOCs"). The RxAir uses high-intensity germicidal UV lamps that
destroy bacteria and viruses instead of just trapping them, setting it apart
from ordinary air filtration units. RxAir® and ViraTech® are registered
trademarks of Vystar Corp. For more information, visit http://www.RxAir.com.



The Company's RxAir product line use 48 inches of high-intensity germicidal UV
lamps that destroy bacteria, viruses and other germs instead of just trapping
them, setting it apart from ordinary air filtration units. RxAir is one of the
few UV air purifiers that have been proven in independent EPA- and FDA-
certified testing laboratories to destroy on the first pass 99.6% of harmful
airborne viruses and bacteria. In addition to inactivating airborne viruses that
cause influenza (flu) and colds, RxAir's device disarms the airborne pathogens
that cause MRSA (staph), strep (whooping cough), tuberculosis (TB), measles,
pneumonia and a myriad of other antibiotic-resistant and viral infections.

The RxAir product line includes:


  ? RxAir™ Residential Filterless Air Purifier
  ? RX400 ™ FDA cleared Class II Filterless Air Purifier
  ? RX3000™ Commercial FDA cleared Class II Air Purifier



Vystar produces the RxAir product line with a new world-class manufacturer and
an expert U.S. engineer with a full understanding of the RxAir technology.
Vystar sells RxAir residential and commercial units through multiple
distributors and the Company's website. Once distribution channels are firmly
established, Vystar expects the air purification products will produce margins
of approximately 70%.


Vystar's Board of Directors have approved preliminary plans to spin off the
RxAir, Vytex and FEC product lines into a separate legal entity which Vystar
intends to take public. Vystar anticipates retaining approximately 10% of the
shares in the new entity and will distribute the remaining ownership percentage
to Vystar shareholders. This plan is expected to be executed in late 2022.



About Rotmans



Rotmans, one of the largest independent furniture retailers in the U.S.,
encompassing over 170,000 square feet in Worcester, Mass., and employing
approximately 50 people, was founded and has been under the leadership of the
Rotman family for the past 50 years. Rotmans is expected to add approximately
$15 million annually to Vystar's top line revenue and enable Vystar to
capitalize on the infrastructure already in place for accounting, retail sales
facilities and staff, customer service, warehousing, and delivery. Significant
marketing and advertising opportunities are available for all of Vystar's brands
to Rotmans' thousands of existing customers. Steven Rotman and a group of
dedicated employees provide continuity of management and customer-focused values
for the Company.



33







About Vytex



Vytex is a multi-patented latex raw material in which the allergy causing
proteins are reduced to a level that falls at or below detection based on ASTM
approved test methods. Vytex has been available as a raw material commercially
for ten years and through that time has a dedicated group of manufacturers who
use it in end products such as electrical gloves, condoms, adhesives, etc.
Ironically, most use Vytex as it's better for their manufacturing process as an
easier to use raw material and not for protein properties. As of mid-2020 Vystar
and the Indian Rubber Manufacturers Research Association's ("IRMRA") have been
actively collaborating to develop viscoelastic deproteinized natural rubber
(DPNR) variants having properties for expanding applications in specific new
arenas such as green tires, biodegradable and other unique bioelastoplast
product lines that desire a new approach. Additionally, this research, while
slowed by the COVID-19 pandemic, has also shown attributes with extra low
ammonia offerings that are desired and now sampled.



Towards the end of 2020, Vystar entered into a Market Development and
Distribution Agreement with Corrie MacColl, Ltd. ("CMC Global") to produce,
develop and manage the Vytex product and supply lines. This agreement will allow
Vystar to expand the market for its Natural Rubber Latex products and has
garnered much attention across a broad range of industries including liquid
Vytex as well as the newly developed dry rubber Vytex. As of the date of this
report, CMC Global has provided numerous opportunities that are in a trial basis
or moving towards manufacturing trials in industries that use a significant
amount of natural rubber latex, hence Vytex. Additionally Vystar now has a
testing supply of Vytex dry rubber for larger trials. The success of early
trials and the shipping crisis has led to broader spectrum of manufacturers
combining the potential of Cameroon production with strategically placed
contract manufactures based on geographical needs. Also Vystar research has
shown great strides in specializing liquid Vytex (ultra low protein latex, ULPL)
to meet the immediate needs of customers such as low or no nitrosamine and
others (discussed in the presentation below available in the pdf) and additional
patents have been proposed to cover these findings. Research into dry rubber
continues at a moderate pace as tire companies seek out alternatives to
synthetics.



Vytex researcher Dr. Ranjit Matthan and CMC Global Director John Heath presented
at The International Latex Conference which was held virtually July 20 to 22,
2021 and offered a plenary session entitled "Innovations and Sustainability in
Natural Rubber Latex - The New Paradigm." The presentation discussed the
dramatic effect the COVID-19 pandemic has had on the natural rubber supply
chain, and how the industry is reacting the new economic circumstances;
including strategy and policy shifts in supply chain management and restoring
greater geographic diversification of latex processing and product
manufacturing. The R&D association with IRMRA promises quicker laboratory and
field-based testing and evaluations downstream. At Vystar, the recalibrated
sustainability programme (FSC, nitrosamines & ammonia free, ultralow proteins,
no SVHC and green carbon neutrality) emphasize certifications with Corrie
MacColl market reach facilitating faster rollouts. Nontraditional/non Hevea
brasiliensis based production efforts are likely to continue to face new
penetration and high cost-benefit acceptance challenges in this decade. A PDF of
the full presentation is available on vytex.com.



Additionally, in August 2021, Dr. Matthan presented new data to the Automotive
Tyre Manufacturers' Association including Vytex dry rubber. A follow up paper
has been completed by Dr Matthan, John Heath and William Doyle and will run
in
Rubber World in early 2023.



In Halcyon Agri (owner of CMC Global), 2020 Corporate Report: "Our group-wide
innovation capabilities have enabled us to engage in innovative commercial
partnerships. Corrie MacColl is collaborating with Vystar Corporation to
transform our Cameroon plantation output into ultra-pure latex with stronger
molecular bond that offers enhanced strength, durability and flexibility in the
end products. This is achieved by removing non-rubber components and 99.85% of
the proteins." CMC Global continues to work with the facility at Cameroon to
produce Vytex at their owned processing plant.



About FEC



Vystar is looking to Fluid Energy as it moves forward in its quest for a cleaner
and safer environment. The Company is planning to improve its air purifying by
using the ultrasonic technology of Fluid Energy and combining it with its
leading UV-C technology. The designs and prototypes are in development. This
ultrasonic technology is applied into water products with the same goal. We have
working prototypes for our water product targets that have tested beyond
expectation for bacterial killing and flow metering. We will begin soon
evaluating our ability to eradicate hard water pollution that fouls pools,
fountains, and pumps. These products will move us toward living more safely
and
cleanly in our environment.



34






Impact of COVID-19 on our business



The COVID-19 pandemic has resulted in significant economic disruption and
adversely impacted our business. It has caused, among other things,
interruptions in our supply chains and suppliers, including potential problems
with inventory availability and the potential result of the volatility or higher
cost of product and international freight due to the high demand of products and
low supply for an unpredictable period of time. In addition, discretionary
consumer spending has been negatively affected by rising inflation, including
fuel costs and interest rates. At this time, we cannot reasonably estimate the
duration of the pandemic and its influence on consumers and our business.



RESULTS OF OPERATIONS



Comparison of the Three Months Ended June 30, 2022 with the Three Months Ended
June 30, 2021



                                                       Three Months Ended June 30,
                                          2022             2021           $ Change        % Change

                                                               CONSOLIDATED

Revenue                               $  3,196,033     $  6,216,004     $ (3,019,971 )         -48.6 %

Cost of revenue                          1,467,964        2,567,075       (1,099,111 )         -42.8 %

Gross profit                             1,728,069        3,648,929       (1,920,860 )         -52.6 %

Operating expenses:
Salaries, wages and benefits               785,931        1,575,649        
(789,718 )         -50.1 %
Share-based compensation                   338,857          211,423          127,434            60.3 %
Agent fees                                 327,007        1,077,567         (750,560 )         -69.7 %
Professional fees                          133,472          198,778          (65,306 )         -32.9 %
Advertising                                314,084          543,475         (229,391 )         -42.2 %
Rent                                       177,184          319,616         (142,432 )         -44.6 %
Service charges                             85,072           84,499              573             0.7 %
Depreciation and amortization              150,580          192,372          (41,792 )         -21.7 %
Other operating                            507,682          881,072        

(373,390) -42.4%

Total operating expenses                 2,819,869        5,084,451       

(2,264,582) -44.5%

Loss from operations                    (1,091,800 )     (1,435,522 )        343,722           -23.9 %

Other income (expense):
Interest expense                          (207,177 )       (177,483 )        (29,694 )          16.7 %
Change in fair value of derivative
liabilities                              1,463,000          215,800        1,247,200           577.9 %
Gain on settlement of debt, net            230,820        1,428,291       (1,197,471 )         -83.8 %
Other income, net                           33,752           42,177           (8,425 )         -20.0 %

Total other income, net                  1,520,395        1,508,785           11,610             0.8 %

Net income                                 428,595           73,263          355,332           485.0 %

Net (income) loss attributable to
noncontrolling interest                    238,084         (209,810 )      

447,894 -213.5%

Net income (loss) attributable to
Vystar                                $    666,679     $   (136,547 )   $    803,226          -588.2 %




35







Revenues


Revenues for the three months ended June 30, 2022 and 2021 were $3,196,033 and
$6,216,004, respectively, for an decrease of $3,019,971 or 48.6%. The decrease
in revenues was due to the success of the high impact closing to remodel sale at
Rotmans in 2021 and the reduction in discretionary consumer spending due to
rising inflation in 2022.



The company reported a significant decline in gross profit $1,728,069 for the past three month period June 30, 2022 compared to the gross profit of
$3,648,929 for the past three month period June 30, 2021a drop from
$1,920,860 or 52.6%. The decrease in gross profit is consistent with the decrease in revenue.

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The cost of sales for the past three months June 30, 2022 and 2021 was
$1,467,964 and $2,567,075or a decrease of $1,099,111 or 42.8%.


Operating Expenses



The Company's operating expenses consist primarily of compensation and support
costs for management and administrative staff, and for other general and
administrative costs, including professional fees related to accounting,
finance, and legal services as well as advertising, rent and other operating
expenses. The Company's operating expenses were $2,819,869 and $5,084,451 for
the three months ended June 30, 2022 and 2022 and 2021, respectively, a decrease
of $2,264,582 or 44.5%. The decrease was due in part to reduced revenues and the
closing of a second warehouse occupied by Rotmans until October 2021.



Other Income (Expense)



Other income (expense) for the three months ended June 30, 2022 was $1,520,395
which consisted of interest expense of ($207,177), change in fair value of
derivative liabilities of $1,463,000, gain on settlement of debt, net of
$230,820 and other income of $33,752. This compares to other income (expense) of
$1,508,785 for the three months ended June 30, 2021, which consisted of interest
expense of $177,483, change in fair value of derivative liabilities of
($215,800), gain on settlement of debt, net of $1,428,291 and other income of
$42,177. Included in gain on settlement of debt, net is PPP loan forgiveness of
$1,402,900.



Net Income



Net income was $428,595 and $73,263 for the three months ended June 30, 2022 and
2021, respectively, an increase of $355,332 or 485%. Net income in the quarter
ended June 30, 2022 versus net income in the same period in 2021 was due to the
change in fair value of derivative liabilities in 2022, while the comparative
period was due to PPP loan forgiveness of $1,402,900 and increased sales and
margins from the operations of a high impact closing to remodel sale at Rotmans.



36







RESULTS OF OPERATIONS



Comparison of the Six Months Ended June 30, 2022 with the Six Months Ended June
30, 2021



                                                         Six Months Ended June 30,
                                          2022             2021           $ Change         % Change

                                                               CONSOLIDATED

Revenue                               $  7,035,291     $ 19,084,123     $ (12,048,832 )         -63.1 %

Cost of revenue                          3,128,238        8,643,915        (5,515,677 )         -63.8 %

Gross profit                             3,907,053       10,440,208        (6,533,155 )         -62.6 %

Operating expenses:
Salaries, wages and benefits             1,694,413        3,524,788        (1,830,375 )         -51.9 %
Share-based compensation                   476,805          416,119            60,686            14.6 %
Agent fees                                 745,186        2,329,440        (1,584,254 )         -68.0 %
Professional fees                          322,875          218,961           103,914            47.5 %
Advertising                                607,572        1,408,653          (801,081 )         -56.9 %
Rent                                       360,911          636,231          (275,320 )         -43.3 %
Service charges                            192,244          309,015          (116,771 )         -37.8 %
Depreciation and amortization              301,160          384,381           (83,221 )         -21.7 %
Other operating                          1,163,296        1,677,485          (514,189 )         -30.7 %

Total operating expenses                 5,864,462       10,905,073        (5,040,611 )         -46.2 %

Loss from operations                    (1,957,409 )       (464,865 )      (1,492,544 )         321.1 %

Other income (expense):
Interest expense                          (386,486 )       (353,330 )         (33,156 )           9.4 %
Change in fair value of derivative
liabilities                              1,520,000           86,800         1,433,200          1651.2 %
Gain on settlement of debt, net            230,820        2,675,926       
(2,445,106 )         -91.4 %
Other income, net                           67,704           99,924           (32,220 )         -32.2 %

Total other income, net                  1,432,038        2,509,320        (1,077,282 )         -42.9 %

Net income (loss)                         (525,371 )      2,044,455        (2,569,826 )        -125.7 %

Net (income) loss attributable to
noncontrolling interest                    417,696       (1,262,875 )      

1,680,571 -133.1%

Net income (loss) attributable to
Vystar                                $   (107,675 )   $    781,580     $    (889,255 )        -113.8 %




Revenues



Revenues for the six months ended June 30, 2022 and 2021 were $7,035,291 and
$19,084,123, respectively, for a decrease of $12,048,832 or 63.1%. The decrease
in revenues was due to the success of the high impact closing to remodel sale at
Rotmans in 2021 and the reduction in discretionary consumer spending due to
rising inflation in 2022.



The Company reported a significant decrease in gross profit to $3,907,053 for
the six-month period ended June 30, 2022 compared to gross profit of $10,440,208
for the six-month period ended June 30, 2021, a decrease of $6,533,155 or 62.6%.
The decrease in gross profit is consistent with the decrease in revenues.



The cost of sales for the past six months June 30, 2022 and 2021 was
$3,128,238 and $8,643,915or a decrease of $5,515,677 or 63.8%.


37







Operating Expenses



The Company's operating expenses consist primarily of compensation and support
costs for management and administrative staff, and for other general and
administrative costs, including professional fees related to accounting,
finance, and legal services as well as advertising, rent and other operating
expenses. The Company's operating expenses were $5,864,462 and $10,905,073 for
the six months ended June 30, 2022 and 2021, respectively, a decrease of
$5,040,611 or 46.2%. The decrease was due in part to reduced revenues and the
closing of a second warehouse occupied by Rotmans until October 2021.



Other Income (Expense)



Other income (expense) for the six months ended June 30, 2022 was $1,432,038
which consisted of interest expense of ($386,486), change in fair value of
derivative liabilities of $1,520,000, gain on settlement of debt, net of
$230,820 and other income of $67,704. This compares to other income (expense) of
$2,509,320 for the six months ended June 30, 2021, which consisted of interest
expense of ($353,330), change in fair value of derivative liabilities of
$86,800, gain on settlement of debt, net of $2,675,926 and other income of
$99,924. Included in gain on settlement of debt, net is PPP loan forgiveness of
$2,805,800.



Net Income (Loss)



Net income (loss) was ($525,371) and $2,044,455 for the six months ended June
30, 2022 and 2021, respectively, a decrease of $2,569,826 or 125.7%. Net loss in
the six months ended June 30, 2022 versus net income in the same period in 2021
was due to PPP loan forgiveness of $2,805,800 and increased sales and margins
from the operations of a high impact closing to remodel sale at Rotmans in 2021.
The net loss in 2022 was significantly reduced by the change in fair value of
derivative liabilities of $1,520,000.



LIQUIDITY AND CAPITAL RESOURCES

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, we have incurred
significant losses and experienced negative cash flow since inception. At June
30, 2022, the Company had cash of $70,023 and a deficit in working capital of
approximately $8.8 million. Further, at June 30, 2022, the accumulated deficit
amounted to approximately $51.5 million. We use working capital to finance our
ongoing operations, and since those operations do not currently cover all of our
operating costs, managing working capital is essential to our Company's future
success. Because of this history of losses and financial condition, there is
substantial doubt about the Company's ability to continue as a going concern.



A successful transition to profitable operations is dependent on obtaining sufficient financing to fund the Company’s planned expenses and a reasonable level of revenue to support the Company’s cost structure.



Management plans to finance future operations using cash on hand, as well as
increased revenue from RxAir air purifier sales and Vytex license fees. The
Company will also raise capital with common stock subscription issuances. The
current agreement with a national sales event company has allowed Rotmans to
meet its financial obligations and provided the Company flexibility and time
needed to develop a new retail furniture sale model.



There can be no assurances that we will be able to achieve projected levels of
revenue in 2022 and beyond. If we are not able to achieve projected revenue and
obtain alternate additional financing of equity or debt, we would need to
significantly curtail or reorient operations during 2022, which could have a
material adverse effect on our ability to achieve our business objectives, and
as a result, may require the Company to file bankruptcy or cease operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts
classified as liabilities that might be necessary should the Company be forced
to take any such actions.



Our future expenditures will depend on numerous factors, including: the rate at
which we can introduce RxAir products and license Vytex NRL raw material and the
foam cores made from Vytex to manufacturers and subsequently retailers; the
costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights, along with market acceptance of our
products, and services and competing technological developments. As we expand
our activities and operations, our cash requirements are expected to increase at
a rate consistent with revenue growth after we achieve sustained revenue
generation.



38







Sources and Uses of Cash


Net cash used in operating activities was $507,409 for the six months ended June
30, 2022 as compared to net cash used in operating activities of $2,281,421 for
the six months ended June 30, 2021. During the six months ended June 30, 2022,
cash used in operations was primarily due to the net loss offset by the decrease
of inventories and other receivables, and non-cash related add-back of
share-based compensation expense, depreciation, amortization and change in fair
value of derivative liabilities.



The company had not used any cash in investing activities in the past six months
June 30, 2022 compared to $55,040 for the past six months June 30, 2021.



Net cash provided by financing activities was $426,257 during the six months
ended June 30, 2022, as compared to cash provided of $1,844,507 during the six
months ended June 30, 2021. During the six months ended June 30, 2022, cash was
provided by related party term debt and advances of $569,820 which was offset by
the repayment of finance lease obligations of $81,063 and repayment of related
party debt of $62,500. During the six months ended June 30, 2021, cash was
provided by PPP loan proceeds of $1,402,900, related party term debt in the
amount of $528,039 offset by the repayment of finance lease obligations of
$86,432.



Off-Balance Sheet Arrangements

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We have no off-balance sheet arrangements that are reasonably likely to have a present or future material effect on our financial condition, liquidity or results of operations.

DISCLOSURE OF FORWARD LOOKING STATEMENTS

Our Management's Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; product
development, introduction and acceptance; existing government regulations and
changes in, or the failure to comply with, government regulations; adverse
publicity; competition; fluctuations and difficulty in forecasting operating
results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; the ability
to protect technology; and other risks that might be detailed from time to time
in our filings with the Securities and Exchange Commission.



Although the forward-looking statements in this Quarterly Report reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by them. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties,
the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. You are urged to carefully
review and consider the various disclosures made by us in this report and in our
other reports as we attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, and results of
operations and prospects.

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