0001387131-16-007945.txt : 20161114 0001387131-16-007945.hdr.sgml : 20161111 20161114145506 ACCESSION NUMBER: 0001387131-16-007945 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 50 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161114 DATE AS OF CHANGE: 20161114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Vystar Corp CENTRAL INDEX KEY: 0001308027 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 202027731 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53754 FILM NUMBER: 161993939 BUSINESS ADDRESS: STREET 1: 2484 BRIARCLIFF RD NE, #22, SUITE 159 CITY: ATLANTA STATE: GA ZIP: 30329 BUSINESS PHONE: 866-674-5238 MAIL ADDRESS: STREET 1: 2484 BRIARCLIFF RD NE, #22, SUITE 159 CITY: ATLANTA STATE: GA ZIP: 30329 10-Q 1 vyst-10q_093016.htm QUARTERLY REPORT

 

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, 2016

 

 ☐ 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.)

 

 

2480 Briarcliff Rd, #6
Suite 159
Atlanta, GA 30329
(Address of Principal Executive Offices, Zip Code)
 
(866) 674-5238
(Registrant's telephone number including area code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES  ☒   NO ☐

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  YES ☐      NO ☒

 

As of November 14, 2016, there were 112,475,237 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.

 

 
 

 

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, 2015. 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 important factors, including those set forth in Item 1A – “Risk Factors” of our Form 10-K for the year ended December 31, 2015 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”, “Vystar”, or “Kiron” in this Quarterly Report on Form 10-Q mean Vystar Corporation, and affiliates.

 

 
 

 

Vystar Corporation

Form 10-Q for the Quarter Ended September 30, 2016

 

Index

 

Part I.  Financial Information    
       
Item 1. Financial Statements   2
  Balance Sheets at September 30, 2016 (unaudited) and December 31, 2015   2
  Statements of Operations for the Three Months and Nine Months Ended September 30, 2016 and 2015 (unaudited)   3
  Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)   4
  Notes to  Financial Statements (unaudited)   5
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   11
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   16
       
Item 4. Controls and Procedures   16
       
Part II.  Other Information    
      16
Item 1. Legal Proceedings    
      16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds    
      16
Item 3. Defaults Upon Senior Securities    
      17
Item 4. Mine Safety Disclosures    
      17
Item 5. Other Information    
      17
Item 6. Exhibits    
       
SIGNATURES   18

 

 
 

 

Part I.       FINANCIAL INFORMATION

 

ITEM 1.        FINANCIAL STATEMENTS

 

VYSTAR CORPORATION

BALANCE SHEETS

 

   September 30,  December 31,
   2016  2015
ASSETS   
CURRENT ASSETS          
Cash  $117,640   $29,059 
Accounts receivable, net of allowance for uncollectible amount of $0 and $60,266 at September 20, 2016
   and December 31, 2015, respectively
   28,500    —   
Prepaid expenses   81,803    233,816 
TOTAL CURRENT ASSETS   227,943    262,875 
PROPERTY AND EQUIPMENT, NET   —      2,979 
OTHER ASSETS          
Intangible assets, net   143,663    155,423 
TOTAL ASSETS  $371,606   $421,277 
 LIABILITIES AND STOCKHOLDERS' DEFICIT          
CURRENT LIABILITIES          
Related party line of credit  $1,499,875   $1,499,875 
Accounts payable   597,405    592,739 
Accrued compensation   17,087    40,137 
Accrued expenses   261,442    209,486 
TOTAL CURRENT LIABILITIES   2,375,809    2,342,237 
Shareholder notes payable   700,068    700,068 
TOTAL LIABILITIES  $3,075,877   $3,042,305 
STOCKHOLDERS' DEFICIT          
Preferred stock, $0.0001 par value, 15,000,000 shares authorized; 13,828 issued and outstanding at
   September 30, 2016 and December 31, 2015 respectively
   1    1 
Common stock, $0.0001 par value, 150,000,000 shares authorized; 111,954,708 and 96,443,907 shares
   issued and outstanding at September 30, 2016 and December 31, 2015, respectively
   11,195    9,644 
Additional paid-in capital   23,864,360    22,962,678 
Accumulated deficit   (26,579,827)   (25,593,351)
TOTAL STOCKHOLDERS' DEFICIT   (2,704,271)   (2,621,028)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $371,606   $421,277 

 

 

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

 

 2 
 

 

VYSTAR CORPORATION

STATEMENTS OF OPERATIONS

(unaudited)

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
   2016  2015  2016  2015
REVENUE  $29,642   $19,403   $37,264   $42,727 
                     
COST OF REVENUE   3,000    4,363    15,973    17,838 
Gross Margin   26,642    15,040    21,291    24,889 
OPERATING EXPENSES                    
General and administrative, including non-cash share-based compensation of $74,253 and $32,332 for the three months ended September 30, 2016 and 2015, respectively and $379,301 and $305,297 for the nine months ended September 30, 2016 and 2015, respectively   247,422    210,670    902,286    874,837 
     Total Operating Expenses   247,422    210,670    902,286    874,837 
LOSS FROM OPERATIONS   (220,780)   (195,630)   (880,995)   (849,948)
OTHER INCOME (EXPENSE)                    
Interest income   —      1    1    40 
Other income   (14,456)   —      (14,456)   (15,899)
Interest expense   (40,125)   (38,743)   (134,233)   (108,102)
Total Other Income (Expense)   (54,581)   (38,742)   (148,688)   (123,961)
                     
LOSS FROM CONTINUING OPERATIONS   (275,361)   (234,372)   (1,029,683)   (973,909)
DISCONTINUED OPERATIONS   (31,030)   (7,160)   43,207    (64,741)
NET LOSS  $(306,391)  $(241,532)  $(986,476)  $(1,038,650)
BASIC AND DILUTED LOSS PER SHARE:                    
Loss per share from continuing operations  $(0.00)  $(0.00)  $(0.01)  $(0.01)
Loss per share from discontinued operations  $(0.00)  $(0.00)  $0.00   $(0.00)
Net loss per share  $(0.00)  $(0.00)  $(0.01)  $(0.01)
Basic and Diluted Weighted Average Number of Common Shares Outstanding   111,954,708    86,254,834    104,995,141    80,647,751 

 

 

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

 

 3 
 

 

VYSTAR CORPORATION

STATEMENTS OF CASH FLOWS

(unaudited)

 

  Nine months ended
September 30,
   2016  2015
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(986,476)  $(1,038,650)
Adjustments to reconcile net loss to cash used in operating activities          
Share-based compensation   379,301    305,297 
Allowance for uncollectible accounts receivable   (60,266)   (712)
Depreciation   278    1,330 
Amortization of intangible assets   11,760    11,760 
Decrease in assets          
Accounts receivable   31,766    53,978 
Inventory   —      3,449 
Prepaid expenses   52,445    86,945 
Increase (decrease) in liabilities          
Accounts payable   4,666    (39,931)
Accrued compensation and expenses   28,906    106,015 
Net cash used in operating activities   (537,620)   (510,519)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Disposal of equipment, net   2,701    —   
Net cash provided by investing activities   2,701    —   
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Issuance of common stock, net of costs   570,000    385,500 
Exercise of warrants/options   53,500    113,454 
Net cash provided by financing activities   623,500    498,954 
           
NET INCREASE (DECREASE) IN CASH   88,581    (11,565)
           
CASH - BEGINNING OF YEAR   29,059    73,770 
CASH - END OF YEAR  $117,640   $62,205 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
CASH PAID DURING THE PERIOD FOR          
Interest  $96,176   $58,791 
Non-cash conversion of preferred stock   —      192,100 

 

 

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

 

 4 
 

 

VYSTAR CORPORATION

NOTES TO FINANCIAL STATEMENTS

 

NOTE 1        DESCRIPTION OF BUSINESS

 

Vystar Corporation (“Vystar”, the “Company”, “we”, “us”, or “our”) is the creator and exclusive owner of the innovative technology to produce Vytex® Natural Rubber Latex ("NRL”) and is focused on expanding the licensing and utilization of its proprietary source natural rubber latex technology.

 

Vystar has expanded into the consumer arena with an introduction into the mattress, mattress topper and pillow arenas aligning with key foam manufacturers, mattress, mattress toppers and pillow producers, and furniture stores in specific areas of the Unites States. On January 22, 2015, Vystar announced the signing of an exclusive domestic distribution agreement with Worcester, MA based Nature’s Home Solutions (NHS) who sources eco-friendly materials and technologies for use in furnishings and other markets. Vystar has also completed several trials with Vietnamese, European and Indian makers of foam products to use its Vytex NRL raw material in their current offerings in their own areas as well as to supply added needs for foam cores in both the mattress and topper arenas. The current requests from major mattress manufactures trialing Vytex foam products involves different densities especially those used on the upper levels of mattresses. The samples have been presented to the manufacturers and feedback has been very positive. A similar trial occurred in October 2016 in Thailand focusing on specific densities and pillows, and a meeting with a Belgian foam maker using a unique drying concept occurred in May 2016 with discussions ongoing. In addition, working with NHS and a large Vietnamese foam manufacturer, Lien A, the group attended the International Sleep Products Association (ISPA) in Orlando in March 2016. The significance of ISPA is the focus on components for use with major mattress and pillow manufacturers, which takes Vytex foam to an additional audience.

 

NOTE 2        BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial information.  Accordingly, certain information and footnotes required by GAAP for complete financial statements may be condensed or omitted.  These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission ("SEC").  In the opinion of Vystar management, these financial statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position and results of operations as of and for the three month and nine month periods ended September 30, 2016 and 2015.

 

Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  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. Examples include valuation allowances for deferred tax assets, provisions for bad debts, and fair values of share-based compensation.

 

Concentration of Credit Risk

 

Certain financial instruments potentially subject the Company to concentrations of credit risk.  These financial instruments consist primarily of cash and accounts receivable.  Cash held in banks in many cases exceeds the Federal Deposit Insurance Corporation, or FDIC, insurance limits.  While we monitor our cash balances on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail.  To date, we have experienced no loss or lack of access to our cash; however, we can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets.

 

Loss Per Share

 

Because the Company reported a net loss for the nine-month periods ended September 30, 2016 and 2015, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.  Excluded from the computation of diluted loss per share were options outstanding to purchase 9,718,271 shares and 8,444,906 shares of common stock for the nine months ended September 30, 2016 and 2015, respectively, as their effect would be anti-dilutive.  Warrants to purchase 18,084,609 shares and 19,688,370 shares of common stock for the nine months ended September 30, 2016 and 2015, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

 

Revenues

 

Vystar derives revenue from license fees of Vytex NRL raw material to manufacturers and distributors of rubber and rubber-end products such as the foam used in the pillows and mattresses. Revenue is recognized when the licensee confirms payment and pays Vystar.

 

 5 
 

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, line of credit and shareholder notes payable.  The carrying values of all the Company’s financial instruments approximate fair value because of their short maturities. In addition to the short maturities, the carrying amounts of our line of credit and shareholder notes payable approximate fair value because the interest rates at September 30, 2016 approximate market interest rates for the respective borrowings.

 

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.

 

NOTE 3        LIQUIDITY AND GOING CONCERN

 

The Company's financial statements are prepared using the accrual method of accounting in accordance with 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 its inception.  At September 30, 2016, the Company had cash of $117,640 and a deficit in working capital of $2,147,866.  Further, at September 30, 2016, the accumulated deficit amounted to $26,579,827.  As a result of the Company's history of losses and financial condition, there is substantial doubt about the ability of the Company 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 through the use of cash on hand, increased revenue from Vytex division license fees, our credit facility, stock warrant exercises from existing shareholders, raising capital through private placements of capital stock and debt.

 

The Company’s future expenditures will depend on numerous factors, including: the rate at which the Company can introduce and license Vytex NRL to manufacturers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; market acceptance of the Company’s products and services; and competing technological developments. 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.

 

There can be no assurances that the Company will be able to achieve its projected level of revenue in 2016 and beyond. If the Company is unable to achieve its projected revenue and is not able to obtain alternate additional financing of equity or debt, the Company would need to significantly reorient its operations during 2017, which could have a material adverse effect on the Company’s ability to achieve its business objectives and as a result may require the Company to file for 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.

 

NOTE 4        DISCONTINUED OPERATIONS

 

As part of the Company’s strategy to focus on realizing the potential of the Vytex foam business in the pillow and mattress markets as well as part of the Company’s cost reduction plan, the Company made the decision in May 2016 to discontinue the operations of the Kiron division acquired in June 2013.

 

The Kiron division revenue was $4,538 and $77,045 for the three-month period ended September 30, 2016 and 2015, respectively; and $80,988 and $276,306 for the nine-month period ended September 30, 2016 and 2015, respectively. Gains (Losses) from discontinued operations were ($31,030) and ($7,160) for the three month period ended September 30, 2016 and 2015, respectively and $43,207 and ($64,741) for the nine month period ended September 30, 2016 and 2015, respectively.

 

NOTE 5        PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following:

 

   September 30,
2016
  December 31,
2015
Furniture, fixtures and equipment  $8,522   $150,119 
Accumulated depreciation   (8,522)   (147,140)
   $—     $2,979 

 

 

 6 
 

 

Depreciation expense for the three months ended September 30, 2016 and 2015 was $0 and $368, respectively. Depreciation expense for the nine months ended September 30, 2016 and 2015 was $278 and $1,330, respectively.

 

The Company disposed of all of the Kiron Division’s equipment and leasehold improvements resulting in a net $2,701 of proceeds.

 

NOTE 6        INTANGIBLE ASSETS

 

Patents represent legal and other fees associated with the registration of patents.  The Company has four patents with the United States Patent and Trade Office (USPTO), as well as many international PCT (Patent Cooperation Treaty) patents.

 

Intangible assets are as follows:

 

   September 30,
2016
  December 31,
2015
Patents  $238,551   $238,551 
Trademarks & trade name   9,072    9,072 
Subtotal   247,623    247,623 
Accumulated amortization   (103,960)   (92,200)
 Intangible assets, net  $143,663   $155,423 

 

Amortization expense for the three months ended September 30, 2016 and 2015 was $3,920. Amortization expense for the nine months ended September 30, 2016 and 2015 was $11,760.

 

NOTE 7        INCOME TAXES

 

There is no income tax benefit recorded for the losses for the three and nine months ended September 30, 2016 and 2015 since management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of the net deferred tax asset.

 

NOTE 8        NOTES PAYABLE AND LOAN FACILITY

 

Related Party Line of Credit (CMA Note Payable)

 

On April 29, 2011, the Company executed with CMA Investments, LLC, a Georgia limited liability company (“CMA”), a line of credit with a principal amount of up to $800,000 (the “CMA Note”). CMA is a limited liability company of which three of the directors of the Company (“CMA directors”) were initially the members. Pursuant to the terms of the CMA Note, the Company may draw up to a maximum principal amount of $800,000. Interest, is computed at LIBOR plus 5.25% (5.8125% at September 30, 2016), on amounts drawn and fees. The weighted average interest rate in effect on the borrowings for the nine months ended September 30, 2016 was 5.72%.

 

Other terms of the CMA Note include:

 

  • The Note is unsecured;
  • No payments of principal are due until the second anniversary of the Note, at which time all outstanding principal is due and payable; and
  • As compensation to the directors for providing the Note, the Company issued warrants to purchase 2,600,000 shares of the Company’s common stock to the CMA Directors at $0.45 per share, which was the closing price of the Company’s stock on April 29, 2011, which vest 20% immediately and 10% upon each draw by the Company of $100,000 under the Note. Because the warrants were issued and valued prior to the receipt of funds under this loan, no discount could be recorded and, accordingly, the value of the warrants was capitalized as a financing cost. The costs are being amortized on a straight-line basis over the term of the Note.

On September 14, 2011, the Company’s Board of Directors approved increasing the line of credit with CMA by $200,000 to a maximum principal amount of $1,000,000 and the Company’s Chairman and Chief Executive Officer became a member of CMA. As compensation to the CMA Directors for increasing the amount available under the CMA Note, the Board of Directors approved modifying the exercise price for the 2,600,000 compensatory stock purchase warrants previously issued to the Directors from $0.45 to $0.27 per share, which was the closing price of the Company’s common stock on that date and the Company also issued warrants to purchase an additional 1,600,000 shares of the Company’s stock at $0.27 per share, which was the closing price of the Company’s common stock on September 14, 2011, which vest upon the original terms of the CMA Note. The costs incurred in the modification of the exercise price of the 2,600,000 compensatory stock purchase warrants issued on April 29, 2011 and the additional 1,600,000 warrants issued on September 14, 2011 are being amortized on a straight line basis over the remaining term of the CMA Note.

 

 7 
 

 

 

On November 2, 2012, the Board of Directors approved an increase in the CMA line of credit from $1,000,000 to $1,500,000. As compensation to the CMA Directors for increasing the amount available under the CMA Note, warrants to purchase an additional 2,100,000 shares of the Company’s stock at $0.35 per share were issued and recorded as deferred financing cost to be amortized through interest expense over the remaining term of the CMA Note. There was no amortization of the financing costs associated with the CMA Note for the three and nine months ended September 30, 2016 and September 30, 2015.

 

On April 29, 2013, the maturity date of the CMA Note was extended to April 29, 2014. As compensation to the CMA Directors for extending the maturity date of the CMA Note, the Board of Directors approved modifying the exercise price for the 6,300,000 compensatory stock purchase warrants previously issued to the Directors to $0.10 per share and the CMA Directors forfeited 630,000 of the warrants. Amortization of the financing costs associated with extending the CMA Note was amortized through interest expense.

 

On April 30, 2014 the maturity date of the CMA Note was extended to April 30, 2015. No consideration was awarded the CMA members based on this extension.

 

On April 29, 2015 the maturity date of the CMA Note was extended to April 29, 2016. No consideration was awarded the CMA members based on this extension.

 

On April 29, 2016, the maturity date for the CMA Note has been extended to April 29, 2017. No consideration was awarded to the CMA members based on this extension.

 

Shareholder Notes Payable

 

The following table summarizes the shareholder notes payable:

 

   September 30,
2016
  December 31,
2015
Shareholder notes payable  $700,068   $700,068 
Accrued interest   266,220    213,667 
Total Shareholder Notes Payable  $966,288   $913,735 

 

Such notes are (i) unsecured, (ii) bear interest at an annual rate of ten percent (10%) per annum, and (iii) are convertible into shares of common stock at a conversion rate ranging between $0.05 and $0.10 of principal and interest for each such share.

The current average conversion price for the above referenced Shareholder and Promissory Notes with an outstanding balance as of September 30, 2016 of $966,288 including accrued interest, is approximately $0.055 per share or 17,441,891 shares of the Company’s common stock. The face value of the Shareholder Notes at September 30, 2016 is $700,068.

On August 15, 2016, the Company received notice from the holder of a Shareholder Promissory Note (“Note”) with a face value of $100,000 that the Company was in default under the terms of the Note and was calling for the principal and accrued interest be paid. The outstanding balance due under the Note as of September 30, 2016 was $154,986. The Company has agreed to terms that pay off the Note over a period of time extending in to 2017.

NOTE 9        STOCKHOLDERS’ EQUITY

 

Common Stock and Warrants

 

As part of a September 2014 Private Placement Memorandum, updated in February 2015 and September 2015, the Company issued 12,480,000 shares of common stock to six (6) accredited investors during the nine months ended September 30, 2016. Total gross proceeds of the issuances were $570,000. No commissions were paid. The shares of common stock were offered and sold in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

 

During the nine months ended September 30, 2016, the Company had 1,783,335 common stock warrants exercised at $0.03 per share for $53,500.

 

On June 30, 2016, the Company issued 997,466 common shares as compensation under the Company’s Business Development Agreement with Blue Oar Consulting, Inc. executed in March 2013 as amended in August 2013 and amended February 2014 and 250,000 common shares as compensation under the Company’s Business Development Agreement with Byron Novosad executed in February 26, 2014.

 

 8 
 

 

Cumulative Convertible 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 $10.00 per share for a value of $2,000,000. The preferred stock accumulates a 10% per annum dividend and was convertible at a conversion price of $0.075 per common share at the option of the holder after a six-month holding period. The conversion price was lowered to $0.05 per common share for those holders who invested an additional $25,000 or more in the Company’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.

 

At September 30, 2016, the 13,828 shares of outstanding preferred stock had accumulated undeclared dividends of approximately $46,305, and could be converted into 3,691,709 shares of common stock, at the option of the holder.

 

NOTE 10        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 $74,253 and $32,332 of stock-based compensation expense for the three month period ended September 30, 2016 and 2015, respectively, and $379,301 and $305,297 of stock-based compensation expense for the nine month period ended September 30, 2016, and 2015, respectively related to employee and board member stock options and common stock and warrants issued to nonemployees.  As of September 30, 2016, $192,768 of unrecognized compensation expense related to non-vested share-based awards remains to be recognized over a period of approximately four years.

 

Options and Warrants

 

The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of option and warrant awards granted. The following assumptions were used for warrant awards during the nine months ended September 30, 2016:

  • Expected Dividend Yield – because we do not currently pay dividends, the expected dividend yield is zero;
  • Expected Volatility in Stock Price – volatility based on our own 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.

 

Options

 

During 2004, the Board of Directors of the Company adopted a stock option plan (the “Plan”) and authorized up to 4,000,000 shares to be issued under the Plan. In April 2009, the Company’s Board of Directors authorized an increase in the number of shares to be issued under the Plan to 10,000,000 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, 2016, there were 181,279shares of common stock reserved for issuance under the Plan. In 2014, the Board adopted an additional stock option plan which provides for an additional 5,000,000 shares which are all available as of December 31, 2015. 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 the Company’s common stock on the date of grant, typically vest over periods up to 4 years and are typically exercisable up to 10 years.

 

The fair value of each common stock option issued is estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes all stock option activity of the Company for the period.

 

The weighted-average assumptions used in the option pricing model for stock option grants were as follows:
    
    2016 
Expected Dividend Yield   0.00%
Expected Volatility in Stock Price   145.82%
Risk-Free Interest Rate   1.87%
Expected Life of Stock Awards – Years   10.0 
      
      

 

 

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The following table represents the Company’s option activity for the nine months ended September 30, 2016:

 

   Number of Shares  Weighted Average
Exercise Price
  Weighted Average Remaining Contractual Life 
(Years)
          
 Outstanding, December 31, 2015    9,381,573   $0.16    5.10 
                  
 Granted    500,000   $0.05    9.63 
                  
 Exercised    —             
                  
 Forfeited    (163,302)  $0.44      
                  
 Outstanding, September 30, 2016    9,718,271   $0.15    4.67 
                  
 Exercisable, September 30, 2016    7,148,271   $0.19    6.15 

 

Warrants

 

Warrants are issued to employees for expenses and for compensation in lieu of cash as well as to third parties as payment for services and in conjunction with the issuance of common stock.  The fair value of each common stock warrant issued for services is estimated on the date of grant using the Black-Scholes option-pricing model.

 

The weighted-average assumptions used in the option pricing model for stock warrant grants were as follows:
    
    2016 
Expected Dividend Yield   0.00%
Expected Volatility in Stock Price   120.75%
Risk-Free Interest Rate   2.18%
Expected Life of Stock Awards – Years   10.0 

 

The following table represents the Company’s warrant activity for the nine months ended September 30, 2016:

 

   Number
of
Shares
  Weighted
Average
Grant Date
Fair Value
  Weighted
Average Exercise Price
  Weighted 
Average 
Remaining
Contractual
 Life 
(Years)
             
 Outstanding, December 31, 2015    18,178,158        $0.13    5.54 
                       
 Granted    1,689,786   $0.06   $0.07    9.31 
                       
 Exercised    (1,783,335)       $0.03      
                       
 Forfeited    —                  
                       
 Expired    —                  
                       
 Outstanding, September 30, 2016    18,084,609        $0.11    5.72 
                       
 Exercisable, September 30, 2016    17,583,831        $0.11    5.78 

 

The Company issued 1,689,786 warrants for services during the nine months ended September 30, 2016 at exercise prices from $0.03 to $0.10 per share, exercisable over a period of ten years from the grant date.  All of the warrants with the exception of 745,664 vested immediately with the 745,664 warrants vesting one-twelfth per month over a one-year period. The fair value of the warrants was calculated as of the date of the grant utilizing the Black-Scholes option-pricing model and assumptions as detailed above.  The total amount of the fair value was $111,254 and is recorded as noncash share-based compensation expense as vesting occurs.

 

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ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

Vystar Corporation (“Vystar”, the “Company”, “we”, “us”, or “our”) is the creator and exclusive owner of the innovative technology to produce Vytex® Natural Rubber Latex ("NRL"). This technology reduces antigenic protein and non-rubbers in natural rubber latex to virtually undetectable levels. With non-latex products growing at a rapid rate, the costs for these alternative materials incurred by the manufacturers of these many different products have greatly decreased with nearly all substitute materials being more expensive than NRL. This fact has changed in the past year as NRL prices have decreased and continue to fluctuate in the low price zone with recent prices falling to a level below the original prices used to write the business plan for Vystar Corporation in 2004. Supply for nitrile and neoprene has grown dramatically in the past year as additional facilities have come on line mostly in Southeast Asia. We have introduced Vytex NRL, our “ultra-low protein” natural rubber latex, throughout the worldwide marketplace that uses NRL or latex substitutes as a component of manufactured products and we have recently approved an ultra-low ammonia version for limited exposure on the workers in the manufacturing world. Recent industry estimates have the total rubber market at 11 million dry metric tons of which just over 1.2 million tons are in liquid latex form. There are more than 40,000 products made from the liquid latex while the other eight million plus tons are used to produce tires and other hard rubber products. Natural rubber latex is used in an extensive range of products including balloons, textiles, footwear and clothing (threads), adhesives, foams, furniture, carpet, paints, coatings, protective equipment, sporting equipment, and specialty health care products such as condoms, surgical and exam gloves, catheters and other items.

 

We expanded our operations, particularly increasing market acceptance and sales of Vytex NRL through our operating agreement with CT Group (“CT”). The decision to convert to Vytex NRL is impacted by many functional areas including research and development, manufacturing, sales, marketing, purchasing and finance. Each of these areas has a significantly different decision-making role per company thus the large difference in the sales cycle. If the product is regulated and requires regulatory clearances or approvals prior to commercialization, the sales cycle could be extended by another nine to twelve months for testing, filing and agency review. Our focus on the consumer foam arena will greatly increase the global production and use of Vytex NRL and includes other licensees as well as the CT Group. The CT Group was recently purchased by Halcyon Agri, based out of Singapore who is majority owned by the Sinochem Group of Beijing, China.

 

As noted in a press release issued March 19, 2014 and two subsequent releases, Vystar announced a strategic directional shift that has taken it into the multi-billion dollar foam market using its patented Vytex NRL raw material. The raw material is then transformed by its Guatemalan partner, Islatex, and potentially other companies into foam that is whiter, lighter weight and free of the off-gassing common among competitors' memory foam products. Because Vytex NRL results in a more translucent and cleaner latex following the removal of proteins and non-rubbers, manufacturers' production costs are decreased by utilizing less chemicals, water, and processing to remove proteins, and less dyes and perfumes to cover up the yellow color and odor of non-Vytex natural rubber latex. In July 2015, we were notified by management at Islatex in Guatemala that they were ceasing operations during the quarter. Since that time, Vystar has focused its efforts on the foam core manufacturers in Asia and Europe with great success and added capacity for raw material and foam cores and pillows.

 

As noted in the opening paragraphs, Vystar's alliances have been formed to include mattress and pillow producers in the United States, business development strategists, and selected retailers that have received containers of foam pillow and mattress cores for showroom analysis, market research and select early sales efforts. Through these broad alliances, Vystar is offering a broad array of mattress and pillow cores to meet consumer needs across the board.

 

Vystar has moved into a targeted role in the North American foam industry with specific large retail outlets identified for Vytex foam but key markets and online retailers are ready to start offering mattresses and pillows for their customers. This is the first time that Vystar is participating directly in end product sales.

 

Recent Developments

 

As previously noted, Vystar remains in discussions with parties in the alternate rubber arena to license its technologies for removal of proteins from alternate latex sources that have been shown to contain similar proteins. These discussions have intensified as this alternate industry has added companies that show strong potential to fill a possible void in future demand.

 

Recently, after two presentations to technical audiences and much publicity surrounding the foam line launch, Vystar has been approached by companies with novel ideas that include the use of its Vytex NRL raw material. Also, Vystar has also completed trials with European and Indian makers of foam products to use its Vytex NRL raw material in their current offerings in their own areas as well as to supply added needs for foam cores in both the mattress and topper arenas. Vystar has also completed a trial to procure pillows made with Vytex NRL for global and domestic use with another trial planned for SE Asia. The sample runs performed in both the European and SE Asian trials have led to manufacturing for mattress cores and pillows for domestic mattress manufacturers and possibly finished goods. Vystar entered into discussions in July 2015 with a large international maker of natural rubber latex foam cores, who has an American subsidiary and distribution center to supply foam of varying thicknesses and firmness to handle global and domestic business for retail outlets and its online offerings. Vytex NRL passed the first trial phase at the American facility and will pursue doing a full manufacturing run which will determine the starting level of domestic production.

 

 

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Working through distribution with global manufacturers, Vystar has been able to secure a commitment from a major manufacturer of dielectric gloves that have qualified Vytex to run on a full production line with potential to move to others lines and more of their international locations. Vystar has also progressed well in pilot line trials with a major women’s apparel retailer. The next stage of this relationship starts in November 2016 with licensing discussions and pilot test results review.

 

We are expanding our usage of Vytex with a worldwide manufacturer of cold seal adhesives to complement the current business in sports shoes.

 

By introducing several new versions of Vytex at the ILC meeting mid-2015, we have secured several trials with manufacturers in the toy arena who desire the lowest levels of nitrosamine per European standards. Also, as an alternative raw material has ceased production, a catheter manufacturer is now trialing Vytex for their internal balloons with results now being evaluated.

 

A small trial is commencing with an American manufacturer of exam gloves, using Vytex, as requested by a major outpatient provider of services. The dipping process for the exam gloves is in process to be ready for shipment currently.

 

In the foam arena, Vystar’s partner Nature’s Home Solutions (NHS) believes Vytex, Natural Rubber Latex (NRL), is the future for pure natural latex in the home furnishings marketplace. Vytex is the only eco-friendly and pure latex that will allow the industry to accentuate consistent sales growth and superior market penetration. Our ability to innovate and integrate pure natural Vytex as the key component in the mattress and upholstery industry will allow us to capitalize on the consumer’s thirst for pure 100% natural products in living rooms and bedrooms. NHS’ unique product development, pricing strategy, unlimited supply chain capabilities, together with the benefit of a natural, eco-friendly product will revolutionize the home furnishing industry. NHS recently completed the first of several international bed lines that will be launching in the next two quarters. Vystar has expanded into the consumer arena with an introduction into the mattress, mattress toppers and pillow arenas aligning with key foam manufacturers, and furniture stores in specific areas of the Unites States. On September 30, 2016, Vystar signed an exclusive worldwide distribution agreement with Worcester, MA NHS who sources eco-friendly materials and technologies for use in furnishings and potentially other markets thus replacing the prior agreement of January 2015. NHS made its first license payment under the new contract in October 2016. NHS has produced multiple mattress lines with major manufacturers like Spring Air, King Koil and Gold Bond encompassing approximately 25 different mattresses in both 100% Vytex and Vytex-hybrid versions. These mattresses have already started shipping and are being sold in numerous retail locations across the US. In addition, NHS has ordered more than a quarter million dollars of containers in varying densities and sizes and has purchase orders prepared for another quarter million dollars of Vytex foam cores and pillows in the next 45 days. NHS sees steady increased exponential growth throughout the remainder of 2017 and the companies, combined with Lien A, have structured the needed supply chain.

 

Board of Directors Member and Research & Development Director Ranjit K. Matthan, Ph.D., revealed ongoing developments in the formulation of Vytex NRL with reduced or no ammonia and nitrosamines at the International Latex Conference (ILC) session titled “Advances in Environmentally Friendly Ultra Low Protein Natural Rubber Specialty Latices” on August 12, 2015. The significant advances in aluminum hydroxide-treated Vytex NRL properties and applications are potential game-changers for the issues of volatile organic content and nitrosamines for some critical latex products, such as balloons, catheters, condoms, and other medical devices, as well as enabling cleaner and more sustainable work environments. The expanded Vystar product grades make it applicable in a wider range of latex products with the advantage of improved environmental impact through reduced leachables/extractables. The advances deliver a simplified, sustainable, totally safe raw material that Vystar can offer for several applications without reservations about nitrosamines. Production scale up of all three newer versions of Vytex NRL is currently being targeted as well as sample fulfillment. During the third quarter 2016 the sample production runs were made available to companies globally focusing on low nitrosamine, no ammonia (employee safety in manufacturing end products) and pre-vulcanized.Vystar has entered into early discovery with two separate companies in packaging upgrades and in biodegradable processes. Each is in the early stage of feasibility.

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RESULTS OF OPERATIONS

 

Comparison of the Three Months Ended September 30, 2016 with the Three Months Ended September 30, 2015

 

Revenues

  Three Months Ended September 30,  Continuing  Total
  2016  2015  $ change  % change  $ change  % change
  Continuing  Discontinued  Total  Continuing  Discontinued  Total            
Revenue, net  $29,642   $4,538   $34,180   $19,403   $77,044   $96,447   $10,239    52.8%  $(62,267)   (64.6%)
Cost of  revenue   3,000    (18,716)   (15,716)   4,363    48,593    52,956    (1,363)   (31.2%)   68,672    129.7%
Gross margin  $26,642   $23,254   $49,896   $15,040   $28,451   $43,491   $11,602    77.1%  $6,405    14.7%

 

Revenues for the three months ended September 30, 2016 and 2015 from the Company were $34,180 and $96,447, respectively, for a decrease of $62,267 or 64.6%. The decrease in revenues from operations was principally due to the closing of the Kiron division. Revenues for the three months ended September 30, 2016 and 2015 from the Company’s continuing operations were $29,642 and $19,403, respectively, for an increase of $10,239 or 52.8%.  The increase in revenues from continuing operations was due to the new NHS contract and the resulting increase in Vytex licensing fees.  

 

For the Company, gross margin increased from $43,491 for the period ended September 30, 2015 to $49,896 for the period ended September 30, 2016, an increase of $6,405 or 14.7%.  Gross margin from continuing operations for the three months ended September 30, 2016 and 2015 was $26,642 and $15,040, respectively, for an increase of $11,602 or 77.1%.  Cost of revenue for the three months ended September 30, 2016 and 2015 was $3,000 and $4,363, respectively a decrease of $1,363 or 31.2%.

 

Operating Expenses

  Three Months Ended September 30,  Continuing  Total
   2016  2015  $ change  % change  $ change  % change
  Continuing  Discontinued  Total  Continuing  Discontinued  Total            
Operating Expenses                                                  
General and administrative  $247,422   $51,583   $299,005   $210,670   $35,549   $246,219   $36,752    17.4%  $52,786    21.4%
Total operating expenses  $247,422   $51,583   $299,005   $210,670   $35,549   $246,219   $36,752    17.4%  $52,786    21.4%

 

The Company’s operating expenses consist of general and administrative expenses. General and administrative 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 other operating expenses. The Company’s operating expenses were $299,005 and $246,219 for the three months ended September 30, 2016 and 2015, respectively, for an increase of $52,786 or 21.4%. This was primarily the result of increased legal expenses incurred during the period. The Company’s operating expenses from continuing operations were $247,422 and $210,670 for the three months ended September 30, 2016 and 2015, respectively, for an increase of $36,752 or 17.4%.

 

Other Income (Expense)

 

Other income (expense) for the three months ended September 30, 2016 consisted of interest expense of $40,125 and other expense of $14,456. This compares to interest expense of $38,743 and interest income of $1 for the three months ended September 30, 2015. The increase in interest expense for the quarter ended September 30, 2016 versus the same quarter in 2015 was attributable to an increase in the LIBOR index rate on the CMA Loan as well as additional Shareholder Notes. The $14,456 of other expense was due to the expense associated with the repricing of some previously issued common stock warrants.

 

Net Loss

 

Net loss was $306,391 and $241,532 for the three months ended September 30, 2016 and 2015, respectively, an increase of $64,859 or 26.9% in the net loss. The larger net loss the Company experienced in the quarter ended September 30, 2016 versus the same period in 2015 was primarily attributable to the increase in legal expense for the period.

 

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Comparison of the Nine Months Ended September 30, 2016 with the Nine Months Ended September 30, 2015

 

Revenues

  Nine Months Ended September 30,  Continuing  Total
   2016  2015  $ change  % change  $ change  % change
  Continuing  Discontinued  Total  Continuing  Discontinued  Total            
Revenue, net  $37,264   $80,988   $118,252   $42,727   $276,306   $319,033   $(5,463)   (12.8%)  $(200,781)   (62.9%)
Cost of  revenue   15,973    15,144    31,117    17,838    166,088    183,926    (1,865)   (10.5%)   (152,809)   (83.1%)
Gross margin  $21,291   $65,844   $87,135   $24,889   $110,218   $135,107   $(3,598)   (14.5%)  $(47,972)   (35.5%)

 

Revenues for the nine months ended September 30, 2016 and 2015 from the Company were $118,252 and $319,033, respectively, for a decrease of $200,781 or 62.9%. The decrease in revenues from operations was due to a decrease in fees from the Kiron Division and its ultimate closure. The decrease in fee revenue and cost of revenue from Kiron was due to a number of factors, principal of which was the elimination of the unprofitable DME business. Revenues for the nine months ended September 30, 2016 and 2015 from the Company’s continuing operations were $37,264 and $42,727, respectively, for a decrease of $5,463 or 12.8%.  The decrease in revenues from continuing operations was due to the drop in raw latex prices and the resultant drop in Vytex licensing fees.  

 

For the Company, gross margin fell from $135,107 for the period ended September 30, 2015 to $87,135 for the period ended September 30, 2016, a decrease of $47,972 or 35.5%.  Gross margin from continuing operations for the nine months ended September 30, 2016 and 2015 was $21,291 and $24,889, respectively, for a decrease of $3,598 or 14.5%.  Cost of revenue from continuing operations for the three months ended September 30, 2016 and 2015 was $15,973 and $17,838, respectively a decrease of $1,865 or 10.5%.

 

Operating Expenses

  Nine Months Ended September 30,   Continuing  Total
   2016  2015   $ change  % change  $ change  % change
  Continuing  Discontinued  Total  Continuing  Discontinued  Total            
Operating Expenses                                                  
General and administrative  $902,286   $22,531   $924,817   $874,837   $174,713   $1,049,550   $27,449    3.1%  $(124,733)   (11.9%)
Total operating expenses  $902,286   $22,531   $924,817   $874,837   $174,713   $1,049,550   $27,449    3.1%  $(124,733)   (11.9%)

 

The Company’s operating expenses consist of general and administrative expenses. General and administrative 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 other operating expenses. The Company’s operating expenses were $924,817 and $1,049,550 for the nine months ended September 30, 2016 and 2015, respectively, for a decrease of $124,733 or 11.9%. This was primarily the result of the closing of the Kiron division. The Company’s operating expenses from continuing operations were $902,286 and $874,837 for the nine months ended September 30, 2016 and 2015, respectively, for an increase of $27,449 or 3.1%. This was primarily a result of increased legal expenses for the period.

 

Other Income (Expense)

 

Other income (expense) for the nine months ended September 30, 2016 consisted of interest expense of $134,233, other expense of $14,456, and interest income of $1. This compares to interest expense of $108,102, other expense of $15,899, and interest income of $40 for the nine months ended September 30, 2015. The increase in interest expense for the period ended September 30, 2016 versus the same period in 2015 was attributable to an increase in the LIBOR index rate on the CMA Loan as well as additional Shareholder Notes.

 

Net Loss

 

Net loss was $986,476 and $1,038,650 for the nine months ended September 30, 2016 and 2015, respectively, a decrease of $52,174 or 5.0% in the net loss. The smaller net loss the Company experienced in the period ended September 30, 2016 versus the same period in 2015 was primarily attributable to the elimination of the Company’s former acting Chief Financial Officer as well as a reduction in third-party contract services.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

The Company's financial statements are prepared using the accrual method of accounting in accordance with 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 its inception.  At September 30, 2016, the Company had cash of $117,640 and a deficit in working capital of $2,147,866.  Further, at September 30, 2016, the accumulated deficit amounted to $26,579,827.  As a result of the Company's history of losses and financial condition, there is substantial doubt about the ability of the Company 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 through the use of cash on hand, increased revenue from Vytex division license fees, our credit facility, stock warrant exercises from existing shareholders, raising capital through private placements of capital stock and debt.

 

The Company’s future expenditures will depend on numerous factors, including: the rate at which the Company can introduce and license Vytex NRL to manufacturers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; market acceptance of the Company’s products and services; and competing technological developments. 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.

 

There can be no assurances that the Company will be able to achieve its projected level of revenue in 2016 and beyond. If the Company is unable to achieve its projected revenue and is not able to obtain alternate additional financing of equity or debt, the Company would need to significantly reorient its operations during 2016, which could have a material adverse effect on the Company’s ability to achieve its business objectives and as a result may require the Company to file for 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.

 

Sources and Uses of Cash

 

For the nine months ended September 30, 2016 and 2015, net cash used in operations was $537,620 and $510,519 respectively.  The negative cash flow for the nine months ended September 30, 2016 resulted primarily from the net loss of $986,476, a decrease in allowance for uncollectible accounts receivable of $60,266, offset by non-cash charges related to non-cash share-based compensation expense of $379,301, an increase in prepaid expenses of $52,445, and an increase in accrued compensation and expenses of $28,906. The negative cash flow for the nine months ended September 30, 2015 resulted primarily from the net loss of $1,038,650, and a decrease in accounts payable of $39,931 offset by non-cash charges related to non-cash share-based compensation expense of $305,297, a decrease in accounts receivable of $53,978, an increase in prepaid expenses of $86,945, and an increase in accrued compensation and expenses of $106,015.

 

For the nine months ended September 30, 2016, the company disposed of $2,701 in net equipment, furniture and fixtures. There was no activity for the same period in 2015.

 

Net cash provided by financing activities for the nine months ended September 30, 2016 was $570,000 in proceeds from the sale of common stock and $53,500 from the exercise of warrants. Net cash provided by financing activities for the nine months ended September 30, 2015 was $385,500 from the sale of common stock and $113,454 from the exercise of warrants.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that may be reasonably likely to have a current or future material effect on our financial condition, liquidity, or results of operations.

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

 15 
 

  

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None

  

ITEM 4.         CONTROLS AND PROCEDURES

 

 (A)     Evaluation of disclosure controls and procedures

 

Our management, including our principal executive and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2016.  Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this quarterly report on Form 10-Q has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure.  Based on that evaluation, our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures are effective to the reasonable assurance level.

 

(B)     Changes in internal control over financial reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment.  Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

There were no changes in our internal control over financial reporting that occurred during the first nine months of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1.         LEGAL PROCEEDINGS

 

None

 

ITEM 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Set forth below is information regarding shares of common stock, warrants and options to purchase common stock issued by the Company in for the nine months ended September 30, 2016, that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). Also included is the consideration, if any, received by the Company for such shares, warrants and options and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.

 

(a)       Common Stock Financings

 

From December 31, 2015 through September 30, 2016, the Company issued 11,400,000 shares of common stock at $0.05 per share for $570,000.

 

(b)       Stock Option Grants

 

From December 31, 2015 through September 30, 2016, the Company granted 500,000 common stock options.

 

(c)      Application of Securities Laws and Other Matters

 

No underwriters were involved in the foregoing sales of securities. The securities described in section (a) of this Item 2 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and Regulation D promulgated thereunder, as applicable, relative to sales by an issuer not involving any public offering, to the extent an exemption from such registration was required.

 

All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. All certificates representing the issued shares of common stock, warrants and options described in this Item 2 included appropriate legends setting forth that the securities had not been registered and the applicable restrictions on transfer.

 

ITEM 3.         DEFAULTS UPON SENIOR SECURITIES

 

None

 

 16 
 

 

 

ITEM 4.         MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5.         OTHER INFORMATION

 

None

 

ITEM 6.         EXHIBITS

 

Exhibit Index

 

Number   Description
     
31.1 *   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2 *   Certification of Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1 *   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith

 

 17 
 


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  VYSTAR CORPORATION
   
   
Date:  November 14, 2016 By: /s/ William R. Doyle
    William R. Doyle
    President, Chief Executive Officer, Chief Financial Officer and Director

 

 

 18 
 

 

EX-31.1 2 ex31-1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302

 

Vystar Corporation - 10-Q

Exhibit 31.1

 

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, William R. Doyle, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Vystar Corporation (the “Company”) for the quarter ended September 30, 2016

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

  4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and I have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision to ensure that material information relating to the Company is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

  5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date:  November 14, 2016 By: /s/ William R. Doyle
    President, Chief Executive Officer, Chief Financial Officer and Director

 

 

 
 

EX-32.1 3 ex32-1.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906

 

Vystar Corporation - 10-Q

Exhibit 32.1

 

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Vystar Corporation (the “Company”) on Form 10-Q for the Quarter Ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, William R. Doyle, President and Chief Executive Officer of the Company, and interim Chief Financial Officer of the Company, does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ William R. Doyle  
William R. Doyle
President, Chief Executive Officer, Chief Financial Officer and Director
 

 

A signed original of this written statement required by Section 906 has been provided to Vystar Corporation and will be retained by Vystar Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Vystar Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 
 

 

 

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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2016
Nov. 14, 2016
Document And Entity Information    
Entity Registrant Name Vystar Corp  
Entity Central Index Key 0001308027  
Document Type 10-Q  
Document Period End Date Sep. 30, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity a Well-known Seasoned Issuer No  
Entity a Voluntary Filer No  
Entity's Reporting Status Current Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   112,475,237
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2016  
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BALANCE SHEETS (unaudited) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
CURRENT ASSETS    
Cash $ 117,640 $ 29,059
Accounts receivable, net of allowance for uncollectible amount of $0 and $60,266 at September 30, 2016 and December 31, 2015, respectively 28,500  
Prepaid expenses 81,803 233,816
TOTAL CURRENT ASSETS 227,943 262,875
PROPERTY AND EQUIPMENT, NET   2,979
OTHER ASSETS    
Intangible assets, net 143,663 155,423
TOTAL ASSETS 371,606 421,277
CURRENT LIABILITIES    
Related party line of credit 1,499,875 1,499,875
Accounts payable 597,405 592,739
Accrued compensation 17,087 40,137
Accrued expenses 261,442 209,486
TOTAL CURRENT LIABILITIES 2,375,809 2,342,237
Shareholders notes payable 700,068 700,068
TOTAL LIABILITIES 3,075,877 3,042,305
STOCKHOLDERS' DEFICIT    
Preferred stock, $0.0001 par value, 15,000,000 shares authorized; 13,828 issued and outstanding at September 30, 2016 and December 31, 2015 respectively 1 1
Common stock, $0.0001 par value, 150,000,000 shares authorized; 111,954,708 and 96,443,907 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 11,195 9,644
Additional paid-in capital 23,864,360 22,962,678
Accumulated deficit (26,579,827) (25,593,351)
TOTAL STOCKHOLDERS' DEFICIT (2,704,271) (2,621,028)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 371,606 $ 421,277
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BALANCE SHEETS (unaudited) (Parenthetical) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Allowances, account receivable $ 0 $ 60,266
Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Preferred stock,, shares authorized 15,000,000 15,000,000
Preferred stock,, shares issued 13,828 13,828
Preferred stock,, shares outstanding 13,828 13,828
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 111,954,708 96,443,907
Common stock, shares outstanding 111,954,708 96,443,907
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STATEMENTS OF OPERATIONS (unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Statement [Abstract]        
REVENUE $ 29,642 $ 19,403 $ 37,264 $ 42,727
COST OF REVENUE 3,000 4,363 15,973 17,838
Gross margin 26,642 15,040 21,291 24,889
OPERATING EXPENSES        
General and administrative, including non-cash share-based compensation of $74,253 and $32,332 for the three months ended September 30, 2016 and 2015, respectively and $379,301 and $305,297 for the nine months ended September 30, 2016 and 2015, respectively 247,422 210,670 902,286 874,837
Total Operating Expenses 247,422 210,670 902,286 874,837
LOSS FROM OPERATIONS (220,780) (195,630) (880,995) (849,948)
OTHER INCOME (EXPENSE)        
Interest income   1 1 40
Other income (14,456)   (14,456) (15,899)
Interest expense (40,125) (38,743) (134,233) (108,102)
Total Other Income (Expense) (54,581) (38,742) (148,688) (123,961)
LOSS FROM CONTINUING OPERATIONS (275,361) (234,372) (1,029,683) (973,909)
DISCONTINUED OPERATIONS (31,030) (7,160) 43,207 (64,741)
NET LOSS $ (306,391) $ (241,532) $ (986,476) $ (1,038,650)
BASIC AND DILUTED LOSS PER SHARE:        
Loss per share from continuing operations $ (0.00) $ 0.00 $ (0.01) $ (0.01)
Loss per share from discontinued operations 0.00 0.00 0.00 0.00
Net loss per share $ 0.00 $ 0.00 $ (0.01) $ (0.01)
Basic and Diluted Weighted Average Number of Common Shares Outstanding (in shares) 111,954,708 86,254,834 104,995,141 80,647,751
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STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Statement [Abstract]        
Share-based compensation $ 74,253 $ 32,332 $ 379,301 $ 305,297
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STATEMENTS OF CASH FLOWS (unaudited) - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (986,476) $ (1,038,650)
Adjustments to reconcile net loss to cash used in operating activities:    
Share-based compensation 379,301 305,297
Allowance for uncollectible accounts receivable (60,266) (712)
Depreciation 278 1,330
Amortization of intangible assets 11,760 11,760
Decrease in assets    
Accounts receivable 31,766 53,978
Inventory   3,449
Prepaid expenses 52,445 86,945
Increase (decrease) in liabilities    
Accounts payable 4,666 (39,931)
Accrued compensation and expenses 28,906 106,015
Net cash used in operating activities (537,620) (510,519)
CASH FLOWS FROM INVESTING ACTIVITIES    
Disposal of equipment, net 2,701  
Net cash provided by investing activities 2,701  
CASH FLOWS FROM FINANCING ACTIVITIES    
Issuance of common stock, net of costs 570,000 385,500
Exercise of warrants/options 53,500 113,454
Net cash provided by financing activities 623,500 498,954
NET INCREASE (DECREASE) IN CASH 88,581 (11,565)
CASH - BEGINNING OF YEAR 29,059 73,770
CASH - END OF YEAR 117,640 62,205
CASH PAID DURING THE PERIOD FOR    
Interest $ 96,176 58,791
Non-cash conversion of preferred stock   $ 192,100
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DESCRIPTION OF BUSINESS
9 Months Ended
Sep. 30, 2016
Description Of Business  
DESCRIPTION OF BUSINESS

NOTE 1        DESCRIPTION OF BUSINESS

 

Vystar Corporation (“Vystar”, the “Company”, “we”, “us”, or “our”) is the creator and exclusive owner of the innovative technology to produce Vytex® Natural Rubber Latex ("NRL”) and is focused on expanding the licensing and utilization of its proprietary source natural rubber latex technology.

 

Vystar has expanded into the consumer arena with an introduction into the mattress, mattress topper and pillow arenas aligning with key foam manufacturers, mattress, mattress toppers and pillow producers, and furniture stores in specific areas of the Unites States. On January 22, 2015, Vystar announced the signing of an exclusive domestic distribution agreement with Worcester, MA based Nature’s Home Solutions (NHS) who sources eco-friendly materials and technologies for use in furnishings and other markets. Vystar has also completed several trials with Vietnamese, European and Indian makers of foam products to use its Vytex NRL raw material in their current offerings in their own areas as well as to supply added needs for foam cores in both the mattress and topper arenas. The current requests from major mattress manufactures trialing Vytex foam products involves different densities especially those used on the upper levels of mattresses. The samples have been presented to the manufacturers and feedback has been very positive. A similar trial occurred in October 2016 in Thailand focusing on specific densities and pillows, and a meeting with a Belgian foam maker using a unique drying concept occurred in May 2016 with discussions ongoing. In addition, working with NHS and a large Vietnamese foam manufacturer, Lien A, the group attended the International Sleep Products Association (ISPA) in Orlando in March 2016. The significance of ISPA is the focus on components for use with major mattress and pillow manufacturers, which takes Vytex foam to an additional audience.

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2016
Accounting Policies [Abstract]  
BASIS OF PRESENTATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2        BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial information.  Accordingly, certain information and footnotes required by GAAP for complete financial statements may be condensed or omitted.  These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission ("SEC").  In the opinion of Vystar management, these financial statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position and results of operations as of and for the three month and nine month periods ended September 30, 2016 and 2015.

 

Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  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. Examples include valuation allowances for deferred tax assets, provisions for bad debts, and fair values of share-based compensation.

 

Concentration of Credit Risk

 

Certain financial instruments potentially subject the Company to concentrations of credit risk.  These financial instruments consist primarily of cash and accounts receivable.  Cash held in banks in many cases exceeds the Federal Deposit Insurance Corporation, or FDIC, insurance limits.  While we monitor our cash balances on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail.  To date, we have experienced no loss or lack of access to our cash; however, we can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets.

 

Loss Per Share

 

Because the Company reported a net loss for the nine-month periods ended September 30, 2016 and 2015, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.  Excluded from the computation of diluted loss per share were options outstanding to purchase 9,718,271 shares and 8,444,906 shares of common stock for the nine months ended September 30, 2016 and 2015, respectively, as their effect would be anti-dilutive.  Warrants to purchase 18,084,609 shares and 19,688,370 shares of common stock for the nine months ended September 30, 2016 and 2015, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

 

Revenues

 

Vystar derives revenue from license fees of Vytex NRL raw material to manufacturers and distributors of rubber and rubber-end products such as the foam used in the pillows and mattresses. Revenue is recognized when the licensee confirms payment and pays Vystar.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, line of credit and shareholder notes payable.  The carrying values of all the Company’s financial instruments approximate fair value because of their short maturities. In addition to the short maturities, the carrying amounts of our line of credit and shareholder notes payable approximate fair value because the interest rates at September 30, 2016 approximate market interest rates for the respective borrowings.

 

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.

XML 18 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
LIQUIDITY AND GOING CONCERN
9 Months Ended
Sep. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
LIQUIDITY AND GOING CONCERN

NOTE 3        LIQUIDITY AND GOING CONCERN

 

The Company's financial statements are prepared using the accrual method of accounting in accordance with 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 its inception.  At September 30, 2016, the Company had cash of $117,640 and a deficit in working capital of $2,147,866.  Further, at September 30, 2016, the accumulated deficit amounted to $26,579,827.  As a result of the Company's history of losses and financial condition, there is substantial doubt about the ability of the Company 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 through the use of cash on hand, increased revenue from Vytex division license fees, our credit facility, stock warrant exercises from existing shareholders, raising capital through private placements of capital stock and debt.

 

The Company’s future expenditures will depend on numerous factors, including: the rate at which the Company can introduce and license Vytex NRL to manufacturers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; market acceptance of the Company’s products and services; and competing technological developments. 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.

 

There can be no assurances that the Company will be able to achieve its projected level of revenue in 2016 and beyond. If the Company is unable to achieve its projected revenue and is not able to obtain alternate additional financing of equity or debt, the Company would need to significantly reorient its operations during 2017, which could have a material adverse effect on the Company’s ability to achieve its business objectives and as a result may require the Company to file for 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.

XML 19 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
DISCONTINUED OPERATIONS
9 Months Ended
Sep. 30, 2016
Discontinued Operations and Disposal Groups [Abstract]  
DISCONTINUED OPERATIONS

NOTE 4        DISCONTINUED OPERATIONS

 

As part of the Company’s strategy to focus on realizing the potential of the Vytex foam business in the pillow and mattress markets as well as part of the Company’s cost reduction plan, the Company made the decision in May 2016 to discontinue the operations of the Kiron division acquired in June 2013.

 

The Kiron division revenue was $4,538 and $77,045 for the three-month period ended September 30, 2016 and 2015, respectively; and $80,988 and $276,306 for the nine-month period ended September 30, 2016 and 2015, respectively. Gains (Losses) from discontinued operations were ($31,030) and ($7,160) for the three month period ended September 30, 2016 and 2015, respectively and $43,207 and ($64,741) for the nine month period ended September 30, 2016 and 2015, respectively.

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT
9 Months Ended
Sep. 30, 2016
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT

NOTE 5        PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following:

 

   September 30,
2016
  December 31,
2015
Furniture, fixtures and equipment  $8,522   $150,119 
Accumulated depreciation   (8,522)   (147,140)
   $—     $2,979 

  

Depreciation expense for the three months ended September 30, 2016 and 2015 was $0 and $368, respectively. Depreciation expense for the nine months ended September 30, 2016 and 2015 was $278 and $1,330, respectively.

 

The Company disposed of all of the Kiron Division’s equipment and leasehold improvements resulting in a net $2,701 of proceeds.

XML 21 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
INTANGIBLE ASSETS
9 Months Ended
Sep. 30, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS

NOTE 6        INTANGIBLE ASSETS

 

Patents represent legal and other fees associated with the registration of patents.  The Company has four patents with the United States Patent and Trade Office (USPTO), as well as many international PCT (Patent Cooperation Treaty) patents.

 

Intangible assets are as follows:

 

   September 30,
2016
  December 31,
2015
Patents  $238,551   $238,551 
Trademarks & trade name   9,072    9,072 
Subtotal   247,623    247,623 
Accumulated amortization   (103,960)   (92,200)
 Intangible assets, net  $143,663   $155,423 

 

Amortization expense for the three months ended September 30, 2016 and 2015 was $3,920. Amortization expense for the nine months ended September 30, 2016 and 2015 was $11,760.

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
INCOME TAXES
9 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 7        INCOME TAXES

 

There is no income tax benefit recorded for the losses for the three and nine months ended September 30, 2016 and 2015 since management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of the net deferred tax asset.

XML 23 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
NOTES PAYABLE AND LOAN FACILITY
9 Months Ended
Sep. 30, 2016
Debt Disclosure [Abstract]  
NOTES PAYABLE AND LOAN FACILITY

NOTE 8        NOTES PAYABLE AND LOAN FACILITY

 

Related Party Line of Credit (CMA Note Payable)

 

On April 29, 2011, the Company executed with CMA Investments, LLC, a Georgia limited liability company (“CMA”), a line of credit with a principal amount of up to $800,000 (the “CMA Note”). CMA is a limited liability company of which three of the directors of the Company (“CMA directors”) were initially the members. Pursuant to the terms of the CMA Note, the Company may draw up to a maximum principal amount of $800,000. Interest, is computed at LIBOR plus 5.25% (5.8125% at September 30, 2016), on amounts drawn and fees. The weighted average interest rate in effect on the borrowings for the nine months ended September 30, 2016 was 5.72%.

 

Other terms of the CMA Note include:

 

  • The Note is unsecured;
  • No payments of principal are due until the second anniversary of the Note, at which time all outstanding principal is due and payable; and
  • As compensation to the directors for providing the Note, the Company issued warrants to purchase 2,600,000 shares of the Company’s common stock to the CMA Directors at $0.45 per share, which was the closing price of the Company’s stock on April 29, 2011, which vest 20% immediately and 10% upon each draw by the Company of $100,000 under the Note. Because the warrants were issued and valued prior to the receipt of funds under this loan, no discount could be recorded and, accordingly, the value of the warrants was capitalized as a financing cost. The costs are being amortized on a straight-line basis over the term of the Note.

 

On September 14, 2011, the Company’s Board of Directors approved increasing the line of credit with CMA by $200,000 to a maximum principal amount of $1,000,000 and the Company’s Chairman and Chief Executive Officer became a member of CMA. As compensation to the CMA Directors for increasing the amount available under the CMA Note, the Board of Directors approved modifying the exercise price for the 2,600,000 compensatory stock purchase warrants previously issued to the Directors from $0.45 to $0.27 per share, which was the closing price of the Company’s common stock on that date and the Company also issued warrants to purchase an additional 1,600,000 shares of the Company’s stock at $0.27 per share, which was the closing price of the Company’s common stock on September 14, 2011, which vest upon the original terms of the CMA Note. The costs incurred in the modification of the exercise price of the 2,600,000 compensatory stock purchase warrants issued on April 29, 2011 and the additional 1,600,000 warrants issued on September 14, 2011 are being amortized on a straight line basis over the remaining term of the CMA Note.

 

On November 2, 2012, the Board of Directors approved an increase in the CMA line of credit from $1,000,000 to $1,500,000. As compensation to the CMA Directors for increasing the amount available under the CMA Note, warrants to purchase an additional 2,100,000 shares of the Company’s stock at $0.35 per share were issued and recorded as deferred financing cost to be amortized through interest expense over the remaining term of the CMA Note. There was no amortization of the financing costs associated with the CMA Note for the three and nine months ended September 30, 2016 and September 30, 2015.

 

On April 29, 2013, the maturity date of the CMA Note was extended to April 29, 2014. As compensation to the CMA Directors for extending the maturity date of the CMA Note, the Board of Directors approved modifying the exercise price for the 6,300,000 compensatory stock purchase warrants previously issued to the Directors to $0.10 per share and the CMA Directors forfeited 630,000 of the warrants. Amortization of the financing costs associated with extending the CMA Note was amortized through interest expense.

 

On April 30, 2014 the maturity date of the CMA Note was extended to April 30, 2015. No consideration was awarded the CMA members based on this extension.

 

On April 29, 2015 the maturity date of the CMA Note was extended to April 29, 2016. No consideration was awarded the CMA members based on this extension.

 

On April 29, 2016, the maturity date for the CMA Note has been extended to April 29, 2017. No consideration was awarded to the CMA members based on this extension.

 

Shareholder Notes Payable

 

The following table summarizes the shareholder notes payable:

 

   September 30,
2016
  December 31,
2015
Shareholder notes payable  $700,068   $700,068 
Accrued interest   266,220    213,667 
Total Shareholder Notes Payable  $966,288   $913,735 

 

Such notes are (i) unsecured, (ii) bear interest at an annual rate of ten percent (10%) per annum, and (iii) are convertible into shares of common stock at a conversion rate ranging between $0.05 and $0.10 of principal and interest for each such share.

The current average conversion price for the above referenced Shareholder and Promissory Notes with an outstanding balance as of September 30, 2016 of $966,288 including accrued interest, is approximately $0.055 per share or 17,441,891 shares of the Company’s common stock. The face value of the Shareholder Notes at September 30, 2016 is $700,068.

On August 15, 2016, the Company received notice from the holder of a Shareholder Promissory Note (“Note”) with a face value of $100,000 that the Company was in default under the terms of the Note and was calling for the principal and accrued interest be paid. The outstanding balance due under the Note as of September 30, 2016 was $154,986. The Company has agreed to terms that pay off the Note over a period of time extending in to 2017.

XML 24 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCKHOLDERS' EQUITY
9 Months Ended
Sep. 30, 2016
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' EQUITY

NOTE 9        STOCKHOLDERS’ EQUITY

 

Common Stock and Warrants

 

As part of a September 2014 Private Placement Memorandum, updated in February 2015 and September 2015, the Company issued 12,480,000 shares of common stock to six (6) accredited investors during the nine months ended September 30, 2016. Total gross proceeds of the issuances were $570,000. No commissions were paid. The shares of common stock were offered and sold in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

 

During the nine months ended September 30, 2016, the Company had 1,783,335 common stock warrants exercised at $0.03 per share for $53,500.

 

On June 30, 2016, the Company issued 997,466 common shares as compensation under the Company’s Business Development Agreement with Blue Oar Consulting, Inc. executed in March 2013 as amended in August 2013 and amended February 2014 and 250,000 common shares as compensation under the Company’s Business Development Agreement with Byron Novosad executed in February 26, 2014.

 

Cumulative Convertible 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 $10.00 per share for a value of $2,000,000. The preferred stock accumulates a 10% per annum dividend and was convertible at a conversion price of $0.075 per common share at the option of the holder after a six-month holding period. The conversion price was lowered to $0.05 per common share for those holders who invested an additional $25,000 or more in the Company’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.

 

At September 30, 2016, the 13,828 shares of outstanding preferred stock had accumulated undeclared dividends of approximately $46,305, and could be converted into 3,691,709 shares of common stock, at the option of the holder.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION
9 Months Ended
Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
SHARE-BASED COMPENSATION

NOTE 10        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 $74,253 and $32,332 of stock-based compensation expense for the three month period ended September 30, 2016 and 2015, respectively, and $379,301 and $305,297 of stock-based compensation expense for the nine month period ended September 30, 2016, and 2015, respectively related to employee and board member stock options and common stock and warrants issued to nonemployees.  As of September 30, 2016, $192,768 of unrecognized compensation expense related to non-vested share-based awards remains to be recognized over a period of approximately four years.

 

Options and Warrants

 

The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of option and warrant awards granted. The following assumptions were used for warrant awards during the nine months ended September 30, 2016:

  • Expected Dividend Yield – because we do not currently pay dividends, the expected dividend yield is zero;
  • Expected Volatility in Stock Price – volatility based on our own 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.

 

Options

 

During 2004, the Board of Directors of the Company adopted a stock option plan (the “Plan”) and authorized up to 4,000,000 shares to be issued under the Plan. In April 2009, the Company’s Board of Directors authorized an increase in the number of shares to be issued under the Plan to 10,000,000 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, 2016, there were 181,279shares of common stock reserved for issuance under the Plan. In 2014, the Board adopted an additional stock option plan which provides for an additional 5,000,000 shares which are all available as of December 31, 2015. 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 the Company’s common stock on the date of grant, typically vest over periods up to 4 years and are typically exercisable up to 10 years.

 

The fair value of each common stock option issued is estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes all stock option activity of the Company for the period.

 

The weighted-average assumptions used in the option pricing model for stock option grants were as follows:
    
    2016 
Expected Dividend Yield   0.00%
Expected Volatility in Stock Price   145.82%
Risk-Free Interest Rate   1.87%
Expected Life of Stock Awards – Years   10.0 
      
      

 

The following table represents the Company’s option activity for the nine months ended September 30, 2016:

 

   Number of Shares  Weighted Average
Exercise Price
  Weighted Average Remaining Contractual Life 
(Years)
          
 Outstanding, December 31, 2015    9,381,573   $0.16    5.10 
                  
 Granted    500,000   $0.05    9.63 
                  
 Exercised    —             
                  
 Forfeited    (163,302)  $0.44      
                  
 Outstanding, September 30, 2016    9,718,271   $0.15    4.67 
                  
 Exercisable, September 30, 2016    7,148,271   $0.19    6.15 

 

Warrants

 

Warrants are issued to employees for expenses and for compensation in lieu of cash as well as to third parties as payment for services and in conjunction with the issuance of common stock.  The fair value of each common stock warrant issued for services is estimated on the date of grant using the Black-Scholes option-pricing model.

 

The weighted-average assumptions used in the option pricing model for stock warrant grants were as follows:
    
    2016 
Expected Dividend Yield   0.00%
Expected Volatility in Stock Price   120.75%
Risk-Free Interest Rate   2.18%
Expected Life of Stock Awards – Years   10.0 

 

The following table represents the Company’s warrant activity for the nine months ended September 30, 2016:

 

   Number
of
Shares
  Weighted
Average
Grant Date
Fair Value
  Weighted
Average Exercise Price
  Weighted 
Average 
Remaining
Contractual
 Life 
(Years)
             
 Outstanding, December 31, 2015    18,178,158        $0.13    5.54 
                       
 Granted    1,689,786   $0.06   $0.07    9.31 
                       
 Exercised    (1,783,335)       $0.03      
                       
 Forfeited    —                  
                       
 Expired    —                  
                       
 Outstanding, September 30, 2016    18,084,609        $0.11    5.72 
                       
 Exercisable, September 30, 2016    17,583,831        $0.11    5.78 

 

The Company issued 1,689,786 warrants for services during the nine months ended September 30, 2016 at exercise prices from $0.03 to $0.10 per share, exercisable over a period of ten years from the grant date.  All of the warrants with the exception of 745,664 vested immediately with the 745,664 warrants vesting one-twelfth per month over a one-year period. The fair value of the warrants was calculated as of the date of the grant utilizing the Black-Scholes option-pricing model and assumptions as detailed above.  The total amount of the fair value was $111,254 and is recorded as noncash share-based compensation expense as vesting occurs.

XML 26 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 30, 2016
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial information.  Accordingly, certain information and footnotes required by GAAP for complete financial statements may be condensed or omitted.  These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission ("SEC").  In the opinion of Vystar management, these financial statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position and results of operations as of and for the three month and nine month periods ended September 30, 2016 and 2015.

Estimates

Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  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. Examples include valuation allowances for deferred tax assets, provisions for bad debts, and fair values of share-based compensation.

Concentration of Credit Risk

Concentration of Credit Risk

 

Certain financial instruments potentially subject the Company to concentrations of credit risk.  These financial instruments consist primarily of cash and accounts receivable.  Cash held in banks in many cases exceeds the Federal Deposit Insurance Corporation, or FDIC, insurance limits.  While we monitor our cash balances on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail.  To date, we have experienced no loss or lack of access to our cash; however, we can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets.

Loss Per Share

Loss Per Share

 

Because the Company reported a net loss for the nine-month periods ended September 30, 2016 and 2015, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.  Excluded from the computation of diluted loss per share were options outstanding to purchase 9,718,271 shares and 8,444,906 shares of common stock for the nine months ended September 30, 2016 and 2015, respectively, as their effect would be anti-dilutive.  Warrants to purchase 18,084,609 shares and 19,688,370 shares of common stock for the nine months ended September 30, 2016 and 2015, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

Revenues

Revenues

 

Vystar derives revenue from license fees of Vytex NRL raw material to manufacturers and distributors of rubber and rubber-end products such as the foam used in the pillows and mattresses. Revenue is recognized when the licensee confirms payment and pays Vystar.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, line of credit and shareholder notes payable.  The carrying values of all the Company’s financial instruments approximate fair value because of their short maturities. In addition to the short maturities, the carrying amounts of our line of credit and shareholder notes payable approximate fair value because the interest rates at September 30, 2016 approximate market interest rates for the respective borrowings.

 

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.

XML 27 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT (Tables)
9 Months Ended
Sep. 30, 2016
Property, Plant and Equipment [Abstract]  
Schedule of property and equipment

Property and equipment consists of the following:

 

   September 30,
2016
  December 31,
2015
Furniture, fixtures and equipment  $8,522   $150,119 
Accumulated depreciation   (8,522)   (147,140)
   $—     $2,979 
XML 28 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
INTANGIBLE ASSETS (Tables)
9 Months Ended
Sep. 30, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of intangible assets

Intangible assets are as follows:

 

   September 30,
2016
  December 31,
2015
Patents  $238,551   $238,551 
Trademarks & trade name   9,072    9,072 
Subtotal   247,623    247,623 
Accumulated amortization   (103,960)   (92,200)
 Intangible assets, net  $143,663   $155,423 
XML 29 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
NOTES PAYABLE AND LOAN FACILITY (Tables)
9 Months Ended
Sep. 30, 2016
Debt Disclosure [Abstract]  
Schedule of Shareholder Notes Payable

The following table summarizes the shareholder notes payable:

 

   September 30,
2016
  December 31,
2015
Shareholder notes payable  $700,068   $700,068 
Accrued interest   266,220    213,667 
Total Shareholder Notes Payable  $966,288   $913,735 
XML 30 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION (Tables)
9 Months Ended
Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of weighted-average assumptions used in the option pricing model for stock options
The weighted-average assumptions used in the option pricing model for stock option grants were as follows:
    
    2016 
Expected Dividend Yield   0.00%
Expected Volatility in Stock Price   145.82%
Risk-Free Interest Rate   1.87%
Expected Life of Stock Awards – Years   10.0 
      
      
Schedule of stock option activity

The following table represents the Company’s option activity for the nine months ended September 30, 2016:

 

   Number of Shares  Weighted Average
Exercise Price
  Weighted Average Remaining Contractual Life 
(Years)
          
 Outstanding, December 31, 2015    9,381,573   $0.16    5.10 
                  
 Granted    500,000   $0.05    9.63 
                  
 Exercised    —             
                  
 Forfeited    (163,302)  $0.44      
                  
 Outstanding, September 30, 2016    9,718,271   $0.15    4.67 
                  
 Exercisable, September 30, 2016    7,148,271   $0.19    6.15 
Schedule of weighted-average assumptions used in the option pricing model for stock warrant grants
The weighted-average assumptions used in the option pricing model for stock warrant grants were as follows:
    
    2016 
Expected Dividend Yield   0.00%
Expected Volatility in Stock Price   120.75%
Risk-Free Interest Rate   2.18%
Expected Life of Stock Awards – Years   10.0 
Schedule of warrant activity

The following table represents the Company’s warrant activity for the six months ended June 30, 2016:

 

    Number
of Shares
  Weighted
Average
Grant Date
Fair Value
  Weighted
Average Exercise Price
  Weighted 
Average 
Remaining
Contractual
 Life (Years)
                 
Outstanding, December 31, 2015     18,178,158             $ 0.13       5.54  
                                 
Granted     1,619,760     $ 0.07     $ 0.07       9.53  
                                 
Exercised     (1,783,336 )           $ 0.03          
                                 
Forfeited                              
                                 
Expired                              
                               
Outstanding, June 30, 2016     18,014,582             $ 0.13       5.96  
                                 
Exercisable, June 30, 2016     17,606,016             $ 0.13       5.99  

 

XML 31 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - shares
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Stock Options [Member]    
Antidilutive securities excluded from computation of earnings per share, amount 9,718,271 8,444,906
Warrant [Member]    
Antidilutive securities excluded from computation of earnings per share, amount 18,084,609 19,688,370
XML 32 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
LIQUIDITY AND GOING CONCERN (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Sep. 30, 2015
Dec. 31, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]        
Cash $ 117,640 $ 29,059 $ 62,205 $ 73,770
Working capital deficit 2,147,866      
Accumulated deficit $ (26,579,827) $ (25,593,351)    
XML 33 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
DISCONTINUED OPERATIONS (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Discontinued Operations and Disposal Groups [Abstract]        
Revnue from discontinued operations $ 4,538 $ 77,045 $ 80,988 $ 276,306
Gains (losses) from discontinued operations $ (31,030) $ (7,160) $ 43,207 $ (64,741)
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Property, Plant and Equipment [Abstract]        
Depreciation expenses $ 0 $ 368 $ 278 $ 1,330
Disposal of equipment, net     $ 2,701  
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT (Details) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Property, Plant and Equipment [Abstract]    
Furniture, fixtures and equipment, gross $ 8,522 $ 150,119
Accumulated depreciation $ (8,522) (147,140)
Furniture, fixtures and equipment, net   $ 2,979
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
INTANGIBLE ASSETS (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]        
Amortization of intangible assets $ 3,920 $ 3,920 $ 11,760 $ 11,760
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
INTANGIBLE ASSETS (Details) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]    
Patents $ 238,551 $ 238,551
Trademarks & trade name 9,072 9,072
Subtotal 247,623 247,623
Accumulated amortization (103,960) (92,200)
Intangible assets, net $ 143,663 $ 155,423
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
NOTES PAYABLE AND LOAN FACILITY (Details Narrative) - USD ($)
9 Months Ended
Apr. 29, 2013
Nov. 02, 2012
Sep. 14, 2011
Apr. 29, 2011
Sep. 30, 2016
Aug. 15, 2016
Dec. 31, 2015
Grant of warrants         1,689,786    
Number of warrants outstanding         18,084,609   18,178,158
Warrant [Member]              
Number of warrants outstanding         745,664    
Warrant [Member] | Minimum [Member]              
Warrant exercise price (per share)         $ 0.03    
Warrant [Member] | Maximum [Member]              
Warrant exercise price (per share)         $ 0.10    
CMA Note [Member]              
Line of Credit Facility, Maximum Borrowing Capacity   $ 1,500,000 $ 1,000,000 $ 800,000      
Interest rate, variable rate description       LIBOR plus 5.25%      
Basis Spread on variable rate       5.25%      
Debt, Weighted Average Interest Rate         5.8125%    
Effective interest rate during period         5.72%    
Increase in line of credit     $ 200,000        
CMA Note [Member] | Warrant [Member]              
Grant of warrants   2,100,000 1,600,000 2,600,000      
Warrant exercise price (per share) $ 0.10 $ 0.35 $ 0.27        
Percentage of Common Stock Shares Vested Immediately on Directors by Conversion of Warrants       20.00%      
Percentage of Common Stock Shares Vesting on Directors Upon Each Draw by Conversion of Warrants       10.00%      
Minimum Amount of Line of Credit Drawn For Vesting of Portion of Common Stock Granted to Directors As Compensation       $ 100,000      
Number of warrants outstanding 6,300,000            
Number of warrants forfeited 630,000            
CMA Note [Member] | Warrant [Member] | Minimum [Member]              
Warrant exercise price (per share)       $ 0.45      
CMA Note [Member] | Warrant [Member] | Maximum [Member]              
Warrant exercise price (per share)       $ 0.27      
Shareholder Notes Payable [Member]              
Debt instrument interest rate         10.00%    
Conversion price of debt (per share)         $ 0.055    
Conversion of debt equivalent shares         17,441,891    
Face amount of debt           $ 100,000  
Debt outstanding in default           $ 154,986  
Shareholder Notes Payable [Member] | Minimum [Member]              
Conversion price of debt (per share)         $ 0.10    
Shareholder Notes Payable [Member] | Maximum [Member]              
Conversion price of debt (per share)         $ 0.05    
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
NOTES PAYABLE AND LOAN FACILITY (Details) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Debt Disclosure [Abstract]    
Shareholder notes payable $ 700,068 $ 700,068
Accrued Interest 266,220 213,667
Total Shareholder Notes Payable $ 966,288 $ 913,735
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCKHOLDERS' EQUITY (Details Narrative)
9 Months Ended
Feb. 26, 2016
shares
May 02, 2013
USD ($)
$ / shares
shares
Sep. 30, 2016
USD ($)
$ / shares
shares
Dec. 31, 2015
shares
Issuance of common stock | $     $ 570,000  
Shares of common stock issued     12,480,000  
Number of accredited investors     6  
Number of Warrants exercised     1,783,335  
Weighted Average Exercise Price of Warrant exercised | $ / shares     $ 0.03  
Exercise of warrants/options | $     $ 53,500  
Issuance of commn stock for services, shares 250,000   997,466  
Preferred stock,, shares outstanding     13,828 13,828
Undeclared dividends of preferred stock | $     $ 46,305  
Number of shares issuable upon conversion     3,691,709  
10% Series A Cumulative Convertible Preferred Stock [Member]        
Preferred stock, shares in private placement offering   200,000    
Price per share | $ / shares   $ 10    
Preferred stock value in private placement offering | $   $ 2,000,000    
Preferred stock, dividend rate   10.00%    
Pereferred stock, stated conversion rate | $ / shares   $ 0.075    
10% Series A Cumulative Convertible Preferred Stock [Member] | Additional Investment [Member]        
Pereferred stock, stated conversion rate | $ / shares   $ .05    
Additioanl investment lowering conversion price | $   $ 25,000    
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Apr. 30, 2009
Jan. 01, 2004
Share-based compensation $ 74,253 $ 32,332 $ 379,301 $ 305,297        
Unrecognized compensation cost for non-vested awards $ 192,768   $ 192,768          
Period for recognizition of non-vested awards compensation cost     4 years          
Non-vested warrants granted in 2016 18,084,609   18,084,609   18,178,158      
Fair value grant date of warrants     $ 111,254          
Warrant [Member]                
Unrecognized compensation cost for non-vested awards $ 104,981   $ 104,981          
Term of the award     10 years          
Non-vested warrants granted in 2016 745,664   745,664          
Warrant [Member] | Minimum [Member]                
Warrant exercise price $ 0.03   $ 0.03          
Warrant [Member] | Maximum [Member]                
Warrant exercise price $ 0.10   $ 0.10          
Stock Option Plan [Member]                
Number of shares authorized under stock option plan             10,000,000 4,000,000
Number of shares reserved for issuance 181,279   181,279          
Vesting period of stock options     4 years          
Term of the award     10 years          
Additional Stock Option Plan [Member]                
Number of shares authorized under stock option plan           5,000,000    
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION (Details) - Stock Option Plan [Member]
9 Months Ended
Sep. 30, 2016
Expected Dividend Rate 0.00%
Expected Volatility in Stock price 145.82%
Risk Free Interest Rate 1.87%
Expected Term 10 years
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION (Details 1) - $ / shares
9 Months Ended 12 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Number of options:    
Number of Options outstanding, beginning 9,381,573  
Number of Options granted 500,000  
Number of Options forfeited (163,302)  
Number of Options outstanding, ending 9,718,271 9,381,573
Number of Options exercisable 7,148,271  
Weighted Average Exercise Price:    
Weighted Average Exercise Price of Options outstanding, beginning $ .16  
Weighted Average Exercise Price of Options granted 0.05  
Weighted Average Exercise Price of Options forfeited 0.44  
Weighted Average Exercise Price of Options outstanding, ending .15 $ .16
Weighted Average Exercise Price of Options exercisable $ 0.19  
Weighted Average Remaining Contractual Term:    
Weighted Average Remaining Contractual Term of Options outstanding 4 years 8 months 1 day 5 years 1 month 6 days
Weighted Average Remaining Contractual Term of Options granted 9 years 7 months 17 days  
Weighted Average Remaining Contractual Term of Options exercisable 6 years 1 month 24 days  
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION (Details 2) - Warrant [Member]
9 Months Ended
Sep. 30, 2016
Expected Dividend Rate 0.00%
Expected Volatility in Stock price 120.75%
Risk Free Interest Rate 2.18%
Expected Term 10 years
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
SHARE-BASED COMPENSATION (Details 3) - $ / shares
9 Months Ended 12 Months Ended
Sep. 30, 2016
Dec. 31, 2013
Number of Warrant:    
Number of Warrant outstanding, beginning 18,178,158  
Number of Warrant granted 1,689,786  
Number of Warrant exercised (1,783,335)  
Number of Warrant outstanding, ending 18,084,609  
Number of Warrant exercisable 17,583,831  
Warrant Weighted Average Exercise Price:    
Weighted Average Exercise Price of Warrant outstanding, beginning $ .13  
Weighted Average Exercise Price of Warrant granted 0.07  
Weighted Average Exercise Price of Warrant exercised 0.03  
Weighted Average Exercise Price of Warrant outstanding, ending 0.11  
Weighted Average Exercise Price of Warrant exercisable $ 0.11  
Weighted Average Remaining Contractual Life    
Weighted Average Remaining Contractual Term of Warrant outstanding 5 years 8 months 19 days 5 years 6 months 14 days
Weighted Average Remaining Contractual Term of Warrant granted 9 years 3 months 22 days  
Weighted Average Remaining Contractual Term of Warrant exercisable 5 years 9 months 11 days  
Weighted average grant date fair value $ 0.06  
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