10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

[  ] 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.)

725 Southbridge St

Worcester, MA 01610

(Address of Principal Executive Offices, Zip Code)

(508) 791-9114

(Registrant’s telephone number including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [  ] NO [X]

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

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

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)	Emerging growth company [  ]

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

Class	Outstanding as of July 6, 2020
Preferred Stock, $0.0001 par value per share	13,698	shares
Common Stock, $0.0001 par value per share	1,105,776,437	shares

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

In addition to historical information, this Form 10-Q contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the “safe harbor” created by those sections. The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q (this “Report”). This Report contains certain forward-looking statements and the Company’s future operating results could differ materially from those discussed herein. Our disclosure and analysis included in this Report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in expanding our business and raising debt and capital securities include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, “may”, “project”, “will likely result”, and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to certain risks, uncertainties, and assumptions, including prevailing market conditions and are more fully described under “Part I, Item 1A - Risk Factors” of our Form 10-K for the year ended December 31, 2019. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. In any event, these and other crucial factors, including those set forth in Item 1A - “Risk Factors” of our Form 10-K for the year ended December 31, 2019 may cause actual results to differ materially from those indicated by our forward-looking statements.

Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results and readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this filing. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. The Company undertakes no obligation to update or revise forward-looking statements.

All references to “we”, “us”, “our” or “Vystar” in this Quarterly Report on Form 10-Q mean Vystar Corporation, and affiliates.

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VYSTAR CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020

INDEX

Part I. Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets at March 31, 2020 (unaudited) and December 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 (unaudited) and 2019 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2020 (unaudited) and 2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 (unaudited) and 2019 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
Part II. Other Information
Item 1.	Legal Proceedings	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
SIGNATURES		45

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VYSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2020			2019
	(Unaudited)
ASSETS
Current assets:
Cash	$	403,091		$	72,355
Accounts receivable		40,155			38,526
Stock subscription receivable		49,250			49,250
Inventories		3,916,997			4,114,977
Investments - equity securities, at fair value		99,095			149,517
Prepaid expenses and other		311,476			602,980
Deferred commission costs		124,725			129,123
Total current assets		4,944,789			5,156,728
Property and equipment, net		1,787,616			1,879,739
Operating lease right-of-use assets		10,094,497			10,379,685
Finance lease right-of-use assets, net		871,246			849,209
Other assets:
Intangible assets, net		2,389,056			2,489,612
Goodwill		460,301			460,301
Inventories, long-term		890,130			935,121
Deferred commission costs, net of current portion		211,335			217,024
Other		34,377			34,377
Total other assets		3,985,199			4,136,435
Total assets	$	21,683,347		$	22,401,796
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Line of credit	$	2,163,562		$	2,413,539
Term notes - current maturities		769,814			16,374
Accounts payable		3,124,371			2,846,306
Accrued expenses		350,117			681,758
Stock subscription payable		1,298,931			1,150,125
Operating lease liabilities - current maturities		1,071,000			1,055,000
Finance lease liabilities - current maturities		171,000			167,000
Shareholder, convertible and contingently convertible notes payable and accrued interest - current maturities		611,281			366,326
Related party debt - current maturities		46,000			46,000
Unearned revenue		1,662,716			1,677,171
Derivative liabilities		1,499,800			1,499,800
Total current liabilities		12,768,592			11,919,399
Long-term liabilities:
Term notes, net of current maturities		500,000			500,000
Operating lease liabilities, net of current maturities		7,231,508			7,490,431
Finance lease liabilities, net of current maturities		707,524			694,487
Unearned revenue, net of current maturities		811,550			823,401
Shareholder, convertible and contingently convertible notes payable and accrued interest, net of current maturities and debt discount		319,681			494,363
Related party debt, net of current maturities and debt discount		2,049,797			1,712,259
Total long-term liabilities		11,620,060			11,714,941
Total liabilities		24,388,652			23,634,340
Stockholders’ deficit:
Convertible preferred stock, $0.0001 par value 15,000,000 shares authorized; 13,828 issued and outstanding (liquidation preference of $94,779 and $91,275 at March 31, 2020 and December 31, 2019 , respectively)		1			1
Common stock, $0.0001 par value, 1,500,000,000 shares authorized; 1,105,762,080 shares issued and 1,105,732,080 shares outstanding		110,573			110,573
Additional paid-in capital		38,442,169			38,436,607
Accumulated deficit		(42,472,344	)		(41,104,967	)
Common stock in treasury, at cost; 30,000 shares		(30	)		(30	)
Total Vystar stockholders’ deficit		(3,919,631	)		(2,557,816	)
Noncontrolling interest		1,214,326			1,325,272
Total stockholders’ deficit		(2,705,305	)		(1,232,544	)
Total liabilities and stockholders’ deficit	$	21,683,347		$	22,401,796

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

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VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31,
	2020			2019
Revenue	$	5,932,238		$	191,667
Cost of revenue		2,932,614			199,842
Gross profit (loss)		2,999,624			(8,175	)
Operating expenses:
Salaries, wages and benefits		1,454,074			-
Share-based compensation		154,368			1,612,286
Professional fees		292,696			192,029
Advertising		446,695			20,483
Rent		293,171			-
Service charges		183,577			1,126
Depreciation and amortization		243,923			49,653
Other operating		781,673			120,303
Total operating expenses		3,850,177			1,995,880
Loss from operations		(850,553	)		(2,004,055	)
Other income (expense):
Gain on settlement of debt, net		-			14,945
Interest expense		(604,714	)		(99,663	)
Change in fair value of derivative liabilities		-			(1,044,250	)
Other income (expense), net		(23,056	)		(151	)
Total other expense, net		(627,770	)		(1,129,119	)
Net loss		(1,478,323	)		(3,133,174	)
Net loss attributable to noncontrolling interest		110,946			-
Net loss attributable to Vystar	$	(1,367,377	)	$	(3,133,174	)
Basic and diluted loss per share:
Net loss per share	$	(0.00	)	$	(0.00	)
Basic and diluted weighted average number of common shares outstanding		1,105,732,080			770,752,984

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

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VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2020

	Attributable to Vystar
	Number				Number									Number						Total
	of				of				Additional					of						Vystar						Total
	Preferred		Preferred		Common		Common		Paid-in		Accumulated			Treasury			Treasury			Stockholders’			Noncontrolling			Stockholders’
	Shares		Stock		Shares		Stock		Capital		Deficit			Shares			Stock			Deficit			Interest			Deficit
Ending balance December 31, 2019		13,828	$	1		1,105,762,080	$	110,573	$	38,436,607	$	(41,104,967	)		(30,000	)	$	(30	)	$	(2,557,816	)	$	1,325,272		$	(1,232,544	)
Common stock and warrants issued for services										5,562											5,562						5,562
Net loss		-		-		-		-		-		(1,367,377	)		-			-			(1,367,377	)		(110,946	)		(1,478,323	)
Ending balance March 31, 2020		13,828	$	1		1,105,762,080	$	110,573	$	38,442,169	$	(42,472,344	)		(30,000	)	$	(30	)	$	(3,919,631	)	$	1,214,326		$	(2,705,305	)

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

VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2019

	Attributable to Vystar
	Number				Number									Number						Total
	of				of				Additional					of						Vystar					Total
	Preferred		Preferred		Common		Common		Paid-in		Accumulated			Treasury			Treasury			Stockholders’			Noncontrolling		Stockholders’
	Shares		Stock		Shares		Stock		Capital		Deficit			Shares			Stock			Deficit			Interest		Deficit
Ending balance December 31, 2018		13,828	$	1		457,747,818	$	45,774	$	31,485,532	$	(33,400,345	)		-		$	-		$	(1,869,038	)	$	-	$	(1,869,038	)
Common stock issued for services						147,704,875		14,771		2,017,465											2,032,236					2,032,236
Share based compensation - options										17,783											17,783					17,783
Common stock issued for settlement of warrants						77,246,324		7,725		324,717											332,442					332,442
Common stock issued for cash received, net						144,933,992		14,493		420,307											434,800					434,800
Common stock issued for conversion of related party line of credit						2,512,900		251		143,278											143,529					143,529
Common stock issued upon conversion of convertible notes and settlement of derivatives						227,336,218		22,732		1,320,931											1,343,663					1,343,663
Treasury stock repurchases															(30,000	)		(30	)		(30	)				(30	)
Net loss		-		-		-		-		-		(3,133,174	)		-			-			(3,133,174	)		-		(3,133,174	)
Ending balance March 31, 2019		13,828		1		1,057,482,127	$	105,746	$	35,730,013	$	(36,533,519	)		(30,000	)	$	(30	)	$	(697,789	)		-	$	(697,789	)

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

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VYSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(1,478,323	)	$	(3,133,174	)
Adjustments to reconcile net loss to cash used in operating activities:
Gain on settlement of debt		-			(14,945	)
Share-based compensation		154,368			1,612,286
Depreciation		139,684			10,232
Bad debts		5,317			-
Amortization of intangible assets		104,239			39,421
Noncash lease expense		32,166			-
Unamortized term debt issuance costs		(14,208	)		-
Amortization of debt discount		315,875			73,519
Change in fair value of derivative liabilities		-			1,044,250
Net unrealized loss on available-for-sale investments		50,422			-
(Increase) decrease in assets:
Accounts receivable		(6,946	)		(513	)
Inventories		242,971			(25,093	)
Prepaid expenses and other assets		291,504			6,235
Deferred commission costs		10,087			-
Increase (decrease) in liabilities:
Accounts payable		278,065			(23,746	)
Accrued expenses and interest payable		( 289,705	)		1,164
Unearned revenue		(26,306	)		-
Net cash used in operating activities		(190,790	)		(410,364	)
Cash flows from investing activities:
Patents and trademark fees		(3,683	)		(2,839	)
Website development costs		-			(500	)
Net cash used in investing activities		(3,683	)		(3,339	)
Cash flows from financing activities:
Net repayments on line of credit		(249,977	)		-
Proceeds from the issuance of term debt		808,500			(146,176	)
Repayment of term debt		(40,852	)		-
Repayment of finance lease obligations		(42,462	)		-
Proceeds from the issuance of notes - related parties		50,000			217,000
Issuance of common stock, net of costs		-			731,020
Treasury stock repurchases		-			(30	)
Net cash provided by financing activities		525,209			801,814
Net increase in cash		330,736			388,111
Cash - beginning of period		72,355			50,053
Cash - end of period	$	403,091		$	438,164
Cash paid during the period for:
Interest	$	224,433		$	16,209
Non-cash transactions:
Shareholder and convertible notes and accrued interest payable converted to common stock	$	-		$	1,487,192
Common stock issued for accrued compensation		-			771,203
Common stock issued for settlement of warrant exercises		-			32,442
Settlement of derivative liabilities		-			1,279,335

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

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VYSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS

History and Nature of Business

Vystar Corporation (“Vystar”, the “Company”, “we,” “us,” or “our”) is based in Worcester, Massachusetts. The Company uses patented technology to produce a line of innovative air purifiers, which destroy viruses and bacteria through the use of ultraviolet light. Vystar also manufactures and sells reduced allergen natural rubber latex used primarily in various bedding products. In addition, Vystar has a majority ownership in Murida Furniture Co., Inc. dba Rotmans Furniture (“Rotmans”), the largest furniture and flooring store in New England and one of the largest independent furniture retailers in the U.S.

Vystar is the creator and exclusive owner of the innovative technology to produce Vytex^® Natural Rubber Latex (“NRL”). Vytex NRL uses a global multi-patented technology and proprietary formulation to reduce non-rubber particles including the antigenic proteins associated with latex allergies, resulting in a cleaner form of latex. The antigenic protein levels are reduced to virtually undetectable levels.

In May of 2018, Vystar acquired substantially all of the assets of UV Flu Technologies, Inc., formerly traded on the OTC under the ticker UVFT, whose patented ViraTech™ UV light air purification technology destroys greater than 99% of airborne bacteria, viruses and other microorganisms and virtually eliminates concentrations of odors and volatile organic compounds (“VOCs”).

As part of Vystar’s mission to offer eco-friendly, sustainable materials and products that create a better environment for consumers and workers throughout the product lifecycle, UV Flu Technologies is an excellent counterpart to our Vytex materials and Vytex bedding products. Vystar products will help create a perfect natural sleep environment starting with Vytex bedding made from the purest latex in the world and UV Flu Technologies’ RxAir™ air purifier ensuring every breath is free of harmful pathogens, VOCs and odors.

In May of 2019, Vystar acquired the assets of Fluid Energy Conversion Inc. (“FEC”), primarily consisting of its patent on the Hughes Reactor, which has the ability to control, enhance, and focus energy in flowing liquids and gases. Vystar intends to use this technology to enhance the effectiveness of Vystar’s RxAir purification system to destroy airborne pathogens while decreasing the cost and size of Vystar’s RxAir units.

In July of 2019, Vystar acquired 58% of the outstanding shares of common stock of Rotmans. Rotmans sells a broad line of residential furniture and decorative accessories and serves customers throughout the New England region. The acquisition is expected to add approximately $30 million in top line revenue and enable Vystar to capitalize on the infrastructure already in place at Rotmans for accounting, retail sales facilities and staff, customer service, warehousing, and delivery. In addition, Rotmans will offer significant marketing and advertising opportunities for all of Vystar’s brands to Rotmans’ thousands of existing customers. The Company and Rotmans are exploring a number of initiatives relating to environmentally friendly product development and distribution that will utilize the access to the capital markets afforded by this combination.

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

Basis of Presentation

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification.

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The Company has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission. Other than those events disclosed in Note 18, the Company is not aware of any other significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Company’s financial statements.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned or controlled operating subsidiaries. All significant intercompany accounts and transactions have been eliminated.

COVID-19

In December 2019, a novel coronavirus (“COVID-19”) emerged and has subsequently spread worldwide. The World Health Organization has declared COVID-19 a pandemic resulting in federal, state, and local governments mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. On March 24, 2020, Massachusetts required all non-essential businesses to close their physical workplaces. As a result, the Rotmans showroom, offices and warehouse temporarily closed. During that time, associates worked remotely where possible. The Company re-opened on June 10, 2020 and continues to monitor developments, including government requirements and recommendations.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results for the entire year. The pandemic has resulted in significant economic disruption. Although our showroom has reopened, we cannot reasonably estimate the impact on Vystar should the pandemic persist or worsen. Accordingly, the estimates and assumptions made as of March 31, 2020 could change in subsequent interim reports and upon final determination at year-end, and it is reasonably possible that such changes could be significant (although the potential effects cannot be measured at this time).

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment with different operating segments.

Estimates

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

Fair Value of Financial Instruments

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

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

Valuation inputs are classified in the following hierarchy:

● Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

● Level 2 inputs are directly or indirectly observable valuation inputs for the asset or liability, excluding Level 1 inputs.

● Level 3 inputs are unobservable inputs for the asset or liability.

Highest priority is given to Level 1 inputs and the lowest priority to Level 3 inputs. Acceptable valuation techniques include the market approach, income approach, and cost approach. In some cases, more than one valuation technique is used. The derivative liabilities were recognized at fair value on a recurring basis through the date of the settlement and March 31, 2020 and are level 3 measurements. There have been no transfers between levels during the three months ended March 31, 2020.

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Acquisitions

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

Cash and Cash Equivalents

Cash and cash equivalents include all liquid investments with a maturity date of less than three months when purchased. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions which typically settle within five days.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company routinely sells, without recourse, trade receivables resulting from retail furniture sales to various financial institutions at an average service charge of 5.9% in 2020. Amounts sold during the first quarter of 2020 were approximately $1,691,000. There were no sales of trade receivables in the first quarter of 2019. Retail furniture receivables retained by the Company are generally collateralized by the merchandise sold, represent valid claims against debtors for sales arising on or before the balance sheet date and are reduced to their estimated net realizable value. In addition, the Company grants credit to Vytex customers without requiring collateral. The amount of accounting loss for which Vystar is at risk in these unsecured accounts receivable is limited to their carrying value. Management provides for uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based upon its assessment of the current status of individual accounts. Balances that are still outstanding after management has performed reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of March 31, 2020 and December 31, 2019, the Company considers accounts receivable to be fully collectible and no allowance for doubtful accounts was recorded.

Inventories

Inventories include those costs directly attributable to the product before sale. Inventories consist primarily of finished goods of foam toppers, furniture, mattresses and pillows and are carried at net realizable value, which is defined as selling price less cost of completion, disposal and transportation. The Company evaluates the need to record write-downs for inventory on a regular basis. Appropriate consideration is given to obsolescence, slow-moving and other factors in evaluating net realizable values. Inventories not expected to be sold within 12 months are classified as long-term.

Prepaid Expenses and Other Assets

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

Investments - Equity Securities

Marketable equity securities have been categorized as available-for-sale and, as a result, are stated at fair value. Unrealized gains and losses are reflected in the statement of operations. The Company periodically reviews the available-for-sale securities for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of March 31, 2020, the Company believes that the carrying value of the available-for-sale securities was recoverable in all material respects.

10

Property and Equipment

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

Expenditures for major renewals and betterments are capitalized, while routine repairs and maintenance are expensed as incurred. When property items are retired or otherwise disposed of, the asset and related reserve accounts are relieved of the cost and accumulated depreciation, respectively, and the resultant gain or loss is reflected in earnings. As of March 31, 2020, the net balance of property and equipment is $1,787,616 with accumulated depreciation of $300,922. As of December 31, 2019, the net balance of property and equipment is $1,879,739 with accumulated depreciation of $208,799.

Intangible Assets

Patents represent legal and other fees associated with the registration of patents. The Company has five issued patents with the United States Patent and Trade Office (“USPTO”) as well as five issued international Patent Cooperation Treaty (“PCT”) patents. Patents are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 9 to 20 years.

The Company has trademark protection for “Vystar”, “Vytex”, and “RxAir” among others. Trademarks are carried at cost and since their estimated life is indeterminable, no amortization is recognized. Instead, they are evaluated annually for impairment.

Customer relationships, tradename and marketing related intangibles are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 5 to 10 years.

Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the three months ended March 31, 2020 and 2019, we did not recognize any impairment of our long-lived assets.

Goodwill

Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Goodwill is not amortized, rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. We perform our annual impairment test at the end of each calendar year, or more frequently if events or changes in circumstances indicate the asset might be impaired.

Accounting for acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.

The impairment model permits, and we utilize, a simplified approach for determining goodwill impairment. In the first step, we evaluate the recoverability of goodwill by estimating the fair value of our reporting unit using multiple techniques, including an income approach using a discounted cash flow model and a market approach. Based on an equal weighting of the results of these two approaches, a conclusion of fair value is estimated. The fair value is then compared to the carrying value of our reporting unit. If the fair value of a reporting unit is less than its carrying value, the Company recognizes this amount as an impairment loss. Impairment losses, limited to the carrying value of goodwill, represent the excess of the carrying amount of goodwill over its implied fair value.

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Convertible Notes Payable

Borrowings are recognized initially at the principal amount received. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as interest expense in the statements of operations over the period of the borrowings using the effective interest method.

Derivatives

The Company evaluates its debt instruments or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of Accounting Standards Codification (“ASC”) Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

The Company applies the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instrument or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. From time to time, the Company has issued notes with embedded conversion features. Certain of the embedded conversion features contain price protection or anti-dilution features that result in these instruments being treated as derivatives for accounting purposes. Accordingly, during the three months ended March 31, 2020 and 2019, the Company has classified all conversion features as derivative liabilities and has estimated the fair value of these embedded conversion features using a Monte Carlo simulation model.

Unearned Revenue

Unearned revenue consists of customer advance payments, deposits on sales of undelivered merchandise and deferred warranty revenue on self-insured stain protection warranty coverage. There was no unearned revenue during the three months ended March 31, 2019.

Changes to unearned revenue during the three months ended March 31, 2020 are summarized as follows:

Balance, December 31, 2019	$	2,500,572
Customer deposits received		4,930,536
Warranty coverage purchased		98,309
Gift cards purchased		2,500
Revenue earned		(5,057,651	)
Balance, March 31, 2020	$	2,474,266

Loss Per Share

The Company presents basic and diluted loss per share. Because the Company reported a net loss in the first quarter of 2020 and 2019, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same. Excluded from the computation of diluted loss per share were options to purchase 27,983,271 and 29,098,270 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, as their effect would be anti-dilutive. Warrants to purchase 14,237,315 and 14,382,380 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive. In addition, preferred stock convertible to 4,661,180 and 4,382,730 shares of common stock three months ended March 31, 2020 and 2019, respectively, were excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

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Revenue

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

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

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

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to retail, e-commerce and print media customers, upon request, within 30 days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do not offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. As of March 31, 2020 and December 31, 2019, reserves for estimated sales returns totaled $3,000, respectively, and are included in the accompanying consolidated balance sheets as accrued expenses.

We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped based on fulfillment by the Company. The Company considers fulfillment when it passes all liability at the point of shipping through third party carriers or in-house delivery services. Delivery fees are charged to customers and are included in revenue in the accompanying consolidated statements of operations and the costs associated with these deliveries are included in operating expenses in the accompanying consolidated statements of operations. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenue in the accompanying consolidated statements of operations.

The Company also defers revenues for separately-priced stain protection warranty coverage for which it is ultimately self-insured. Revenue is recognized from the extended warranty sales on a straight-line basis over the respective contract term. The extended warranty terms primarily range from three to five years from the date of delivery. At March 31, 2020, deferred warranty revenue was approximately $812,000 and is included in unearned revenue in the accompanying consolidated balance sheets. During the three months ended March 31, 2020, the Company recorded total proceeds of approximately $98,000 and recognized total revenues of approximately $134,000 related to deferred warranty revenue arrangements. Commission costs in obtaining extended warranty contracts are capitalized and recognized as expense on a straight-line basis over the period of the warranty contract. At March 31, 2020, deferred commission costs are approximately $336,000 and included in the accompanying consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising costs are expensed as incurred.

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Cost of Revenue

Cost of revenue consists primarily of product and freight costs and fees paid to online retailers.

Research and Development

Research and development costs are expensed when incurred. Research and development costs include all costs incurred related to the research, development and testing of the Company’s process to produce Vytex NRL.

Vytex NRL has produced protein test results on finished products that are both “below detection” and “not detectable” in terms of the amount of proteins remaining in these finished goods made with Vytex NRL. These results have been reproduced in many subsequent tests. For the three months ended March 31, 2020 and 2019, Vystar’s research and development costs were not significant.

Advertising Costs

Advertising costs, which include television, radio, newspaper and other media advertising, are expensed upon first showing. Advertising costs included in general and administrative expenses in the accompanying consolidated statements of operations were approximately $447,000 and $20,000 for the three months ended March 31, 2020 and 2019, respectively.

Share-Based Compensation

The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of restricted stock awards is determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they occur. Compensation expense is recognized on a straight-line basis over the requisite service period of the award.

Income Taxes

Vystar recognizes income taxes on an accrual basis based on a tax position taken or expected to be taken in its tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets or liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold will be measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more likely than not be realized. Should they occur, interest and penalties related to tax positions are recorded as interest expense. No such interest or penalties have been incurred for the three months ended March 31, 2020 and 2019.

The Company remains subject to income tax examinations from Federal and state taxing jurisdictions for 2016 through 2019.

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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 operating accounts may exceed the Federal Deposit Insurance Corporation, or FDIC, insurance limits. While the Company monitors cash balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, the Company has experienced no loss or lack of access to our cash; however, the Company can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets. Credit concentration risk related to accounts receivable is mitigated as customer credit is checked prior to the sales and accounts receivable consists of a high number of relatively small balances.

Other Risks and Uncertainties

The Company is exposed to commodity price risk, mainly associated with variations in the market price for NRL as well as wintering of the Hevea trees, which differs for each country. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions including the buying climate in China. The Company responds to changes in NRL prices by adjusting sales prices on a weekly basis and by turning rather than holding inventory in anticipation of higher prices. The Company actively manages its exposure to commodity price risk and monitors the actual and expected spread between forward selling prices and purchase costs and processing and shipping expense. The Company also currently spreads the processing of Vytex NRL among three continents. Sales contracts are based on forward market prices, and generally orders are placed 30 to 90 days ahead of shipment date due to these fluctuations. However, financial results may be negatively impacted where selling prices fall more quickly than purchase price adjustments can be made or when levels of inventory have an anticipated net realizable value that is below cost. The Company is also exposed to risks pertinent to the operations of a retailer, including, but not limited to, the ability to acquire new customers and maintain a strong brand as well as broader economic factors such as interest rates and changes in customer spending patterns.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company has evaluated the disclosure requirements of this standard and does not expect it to have a material impact on the Company’s financial statements.

NOTE 3 - LIQUIDITY AND GOING CONCERN

The Company’s financial statements are prepared using the accrual method of accounting in accordance with U.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, the Company has incurred significant losses and experienced negative cash flow since inception. At March 31, 2020, the Company had cash of $403,091 and a deficit in working capital of approximately $7.8 million. Further, at March 31, 2020 the accumulated deficit amounted to approximately $42.5 million. We use working capital to finance our ongoing operations, and since those operations do not currently cover all our operating costs, managing working capital is essential to our Company’s future success. Because of this history of losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern.

A successful transition to attaining profitable operations is dependent upon obtaining sufficient financing to fund the Company’s planned expenses and achieving a level of revenue adequate to support the Company’s cost structure. Management plans to finance future operations using cash on hand, increased revenue from RxAir air purification units and Vytex license fees that now also include the Company’s association with foam cores made from Vytex used in mattresses, mattress toppers and pillows, and stock warrant exercises from existing shareholders. The Company has also focused the efforts of key internal employees on the goal of creating efficiencies in each department in our retail furniture business, including purchasing, marketing, inventory control, advertising, accounting, warehousing and customer service. In addition, the Company has invested in new accounting and operations software, which will improve our ability to control inventory levels and monitor the financial performance of our operations.

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There can be no assurances that the Company will be able to achieve projected levels of revenue in 2020 and beyond. If the Company is not able to achieve projected revenue and obtain alternate additional financing of equity or debt, the Company would need to significantly curtail or reorient operations during 2020, which could have a material adverse effect on the ability to achieve the business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.

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

NOTE 4 - INVESTMENTS – EQUITY SECURITIES

Cost and fair value of investments - equity securities are as follows as of March 31, 2020:

		Gross			Fair
Cost		Unrealized Losses			Value
$	141,225	$	(42,130	)	$	99,095

Net unrealized holding losses on available-for-sale securities were approximately $50,000 in the first quarter of 2020 and have been included in other income (expenses) in the accompanying statements of operations. There were no investments – equity securities prior to the Rotmans acquisition in July 2019. Investments represent equity securities in a publicly traded company.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following:

	March 31,			December 31,
	2020			2019
Furniture, fixtures and equipment	$	1,354,665		$	1,354,665
Tooling and testing equipment		319,000			319,000
Parking lots		365,707			365,707
Motor vehicles		49,166			49,166
		2,088,538			2,088,538
Accumulated depreciation		(300,922	)		(208,799	)
Property and equipment, net	$	1,787,616		$	1,879,739

Depreciation expense for the three months ended March 31, 2020 and 2019 was $139,684 and $10,232, respectively.

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NOTE 6 - INTANGIBLE ASSETS

Intangible assets consist of the following:

							Amortization
	March 31,			December 31,			Period
	2020			2019			(in Years)
Amortized intangible assets:
Customer relationships	$	210,000		$	210,000			6 - 10
Proprietary technology		610,000			610,000			10
Tradename and brand		1,380,000			1,380,000			5 - 10
Marketing related		380,000			380,000			5
Patents		359,101			355,418			6 - 20
Noncompete		50,000			50,000			5
Total		2,989,101			2,985,418
Accumulated amortization		(609,117	)		(504,878	)
Intangible assets, net		2,379,984			2,480,540
Indefinite-lived intangible assets:
Trademarks		9,072			9,072
Total intangible assets	$	2,389,056		$	2,489,612

Amortization expense for the three months ended March 31, 2020 and 2019 was $104,239 and $39,421, respectively. Estimated future amortization expense for finite-lived intangible assets is as follows:

	Amount
Remaining in 2020	$	312,716
2021		416,956
2022		417,140
2023		410,529
2024		311,306
Thereafter		511,337
Total	$	2,379,984

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NOTE 7 - LEASES

The Company leases equipment, a showroom, offices and warehouse facilities. These leases expire at various dates through 2024 with options to extend to 2031.

The table below presents the lease costs for the three months ended March 31, 2020:

	March 31, 2020
Operating lease cost	$	394,348
Finance lease cost:
Amortization of right-of-use assets		47,561
Interest on lease liabilities		11,690
Total lease cost	$	453,599

During the three months ended March 31, 2020, the Company recognized sublease income of approximately $27,000 which is included in other income (expense), net in the accompanying condensed consolidated statements of operations.

There were no lease costs for the three months ended March 31, 2019.

Our leases generally do not provide an implicit rate, and therefore we use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. We used incremental borrowing rates as of the implementation date for operating leases that commenced prior to that date.

The following table presents other information related to leases:

	Three months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	372,884
Financing cash flows used for financing leases		54,152
Assets obtained in exchange for operating lease liabilities		-
Assets obtained in exchange for finance lease liabilities		75,739
Weighted average remaining lease term:
Operating leases		9 years
Finance leases		6 years
Weighted average discount rate:
Operating leases		5.53	%
Finance leases		5.16	%

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The future minimum lease payments required under operating and financing lease obligations as of March 31, 2020 having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:

	Operating Leases			Finance Leases			Total
Remainder of 2020	$	1,127,733		$	160,156		$	1,287,889
2021		1,503,643			205,545			1,709,188
2022		1,110,794			150,943			1,261,737
2023		880,275			150,142			1,030,417
2024		870,000			140,002			1,010,002
Thereafter		5,220,000			207,475			5,427,475
Total undiscounted lease liabilities		10,712,445			1,014,263			11,726,708
Less: imputed interest		( 2,409,937	)		(135,739	)		( 2,545,676	)
Net lease liabilities	$	8.302,508		$	878,524		$	9,181,032

As of March 31, 2020, the Company does not have additional operating and finance leases that have not yet commenced.

NOTE 8 - NOTES PAYABLE AND LOAN FACILITY

Line of Credit

At March 31, 2020, the Company had a $2,500,000 revolving line of credit with Fidelity Co-operative Bank. Advances were limited to 50% of eligible inventory and bore interest at the prime rate plus 0.50% with a floor of 3.75%. The interest rate was 3.75% at March 31, 2020. The line of credit was due upon demand and subject to renewal annually. It was secured by all assets of the Company and subject to certain financial and non-financial covenants. The Company was not in compliance with certain covenants and was in default at March 31, 2020. The credit line was subsequently paid-off on May 29, 2020. Indebtedness to existing and future Rotman Family notes were subordinated to the bank debt. The line was also secured with a mortgage on a property of a wholly-owned entity of Steven Rotman.

Borrowings under this agreement at March 31, 2020 were approximately $2,164,000.

Related Party Line of Credit (CMA Note Payable)

On November 2, 2012, the Company executed a $1,500,000 unsecured line of credit agreement with CMA Investments, LLC (“CMA”), a related party and a Georgia limited liability company (the “CMA Note”). Three of the directors the Company (“CMA directors”) were initially the members of CMA Investments, LLC. Pursuant to the term of the CMA Note, interest is computed at LIBOR plus 5.25% on amounts drawn and fees. The CMA Note was settled in July 2019.

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Term Notes

Certain investors guaranteed $100,000 each with Fidelity Bank to establish a $500,000 revolving line of credit. At the present time, the Company is paying interest only at a rate of 4.5% per annum, with a balloon payment of $500,000 due in 2033. The balance is $500,000 as of March 31, 2020 and December 31, 2019.

Other term debt totaling $13,397 and $16,374 at March 31, 2020 and December 31, 2019, respectively, represents three 0% loans on motor vehicles, requiring cumulative monthly payments of $1,488 through maturity in November 2020.

On February 24, 2020, the Company entered into an agreement with Libertas Funding LLC (“Libertas”) to sell future sale receipts totaling $1,089,000 for a purchase price of $825,000. The sold amount of future sales receipts are delivered weekly to Libertas at predetermined amounts over a period of nine months. The agreement contains an early delivery discount fee for delivering the future revenues before the end of the contract term and an origination fee of $16,500, which has been capitalized and is being amortized over the term of the agreement. The implicit borrowing rate of the agreement is approximately 75%. The agreement is personally guaranteed by Steven Rotman. As of March 31, 2020, current maturities of term notes include $756,417 related to this agreement.

Shareholder, Convertible and Contingently Convertible Notes Payable

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

	March 31,			December 31,
	2020			2019
Shareholder, convertible and contingently convertible notes	$	951,895		$	951,895
Accrued interest		58,467			46,569
Debt discount		(79,400	)		(137,775	)
		930,962			860,689
Less: current maturities		(611,281	)		(366,326	)
	$	319,681		$	494,363

Shareholder Convertible Notes Payable

During the year ended December 31, 2018, the Company issued shareholder contingently convertible notes payable (the “Notes”), some of which were for contract work performed by other entities in lieu of compensation and expense reimbursement, totaling approximately $335,000. The Notes are (i) unsecured, (ii) bear interest at an annual rate of five percent (5%) per annum from date of issuance, and (iii) are convertible at the Company’s option post April 19, 2018. The Notes mature one year from issuance but may be extended one (1) additional year by the Company. If converted, the Notes plus accrued interest are convertible into shares of the Company’s common stock at the prior twenty (20) day average closing price with a 50% discount. The outstanding balance of all of these Notes of as March 31, 2020 and December 31, 2019 is $338,195. The Notes matured in January 2020.

During the year ended December 31, 2019, the Company issued certain contingently convertible promissory notes in varying amounts to existing shareholders which totaled $613,700. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying a 35% to 50% discount. These notes can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. All of these notes are outstanding as of March 31, 2020.

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Based on the variable conversion price of these notes, the Company recorded the embedded conversion features as derivative liabilities, which amounted to $442,934 at December 31, 2019. There were no significant changes to this measurement at March 31, 2020.

Convertible and Contingently Convertible Notes Payable

From January 1, 2018 and through 2019, the Company had issued certain convertible and contingently convertible notes payable in varying amounts, in the aggregate of $710,000. The face amount of the notes represented the amount due at maturity along with the accrued interest, at which time that amount may be converted into shares of the Company stock based on the lowest 2 day closing price for the trailing 20 days prior to conversion and carrying a 35% discount. The convertible and contingently convertible notes provided for interest to accrue at an interest rate equal to 12% per annum or the maximum rate permitted under applicable law after the occurrence of any event of default as provided in the notes. At any time after 180 days from the issue date, the holder, at its option, may convert the outstanding principal balance and accrued interest into shares of common stock of the Company. The initial conversion price for the principal and interest in connection with voluntary conversions by a holder of the convertible and contingently convertible notes ranges from $0.05 to $0.10 per share, subject to adjustment as provided therein. The total outstanding balance of the convertible and contingently convertible notes was converted as of December 31, 2019 into approximately 303 million shares of the Company’s common stock. Based on the variable conversion price, the Company recorded initial derivative liabilities of $465,905. The remaining balance of $235,085, net of discount, as of December 31, 2018 was reduced to zero in 2019 after a change in fair value of $1,044,250 and a settlement of $1,279,335 to the balance of the derivative liabilities upon the date all notes were converted.

In connection with the issuance of the convertible and contingently convertible notes, the Company issued warrants to purchase 411,875 shares of the Company’s common stock. The exercise term of the warrants ranges from issuance to any time on or after the six (6) month anniversary or prior to the maturity of the related note. The exercise price of the warrants is $0.40 per share of the Company’s common stock, as may be adjusted from time to time pursuant to the antidilution provisions of the related warrant. Pursuant to ASU 2017-11, such antidilution features do not subject the Company to derivative accounting pursuant to ASC 815. All warrants were forfeited during the year ended December 31, 2019 upon negotiation and conversion of the remaining outstanding balances.

Related Party Debt

The following table summarizes related party debt:

	March 31,			December 31,
	2020			2019
Rotman Family convertible notes	$	1,832,707		$	1,782,707
Rotman Family nonconvertible notes		507,500			507,500
Accrued interest		83,190			53,153
Debt Discount		(327,600	)		(585,100	)
		2,095,797			1,758,260
Less: current maturities		(46,000	)		(46,000	)
	$	2,049,797		$	1,712,260

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Rotman Family Convertible Notes

On June 30, 2019, the Company issued contingently convertible promissory notes totaling $180,000, to Steven Rotman ($105,000) and Greg Rotman ($75,000). These notes are (i) unsecured, (ii) bear interest at an annual rate of eight percent (8%) per annum from date of issuance, (iii) are convertible at the Company’s option after December 31, 2019, and (iv) mature five years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at the average of the five lowest closing prices in the 90-day period prior to conversion with a 50% discount. The balance of the notes payable including accrued interest to Steven and Greg Rotman is approximately $111,000 and $59,000, respectively, at March 31, 2020 and approximately $109,000 and $57,000, respectively, at December 31, 2019.

On July 18, 2019, the Company issued contingently convertible notes totaling $1,522,500, to Steven Rotman ($1,102,500) and Bernard Rotman ($420,000) as partial consideration for the acquisition of 58% of Rotmans (see Note 18). These notes are (i) unsecured, and (ii) bear interest at an annual rate of eight percent (8%) per annum from date of issuance. These notes can be converted only after an acceleration event which involves a symbol change, or reverse stock split and such conversion is in the control of the Company. Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at a 20-day average closing price at a 50% discount. The balance of the notes payable including accrued interest to Steven and Bernard Rotman were approximately $1,142,000 and $435,000, respectively, at March 31, 2020 and approximately $1,128,000 and $430,000, respectively, at December 31, 2019.

On December 19, 2019, the Company issued a contingently convertible promissory note totaling $100,000, to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $101,000 and $100,000 at March 31, 2020 and December 31, 2019, respectively.

On February 20, 2020, the Company issued a contingently convertible promissory note totaling $50,000, to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $50,000, at March 31, 2020.

Based on the variable conversion price for all of these convertible notes, the Company recorded the embedded conversion features as derivative liabilities, which amounted to $1,056,866 at December 31, 2019. There were no significant changes to this measurement at March 31, 2020.

Rotman Family Nonconvertible Notes

In connection with the acquisition of 58% of Rotmans (see Note 18), Steven and Bernard Rotman were issued related party notes payable in the amounts of $367,500 and $140,000, respectively. The notes bear interest at an annual rate of five percent (5%). Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. Payments of $3,828 and $2,917 to Steven and Bernard Rotman, respectively, per month begin six months from issuance until maturity in December 2027 and 2023, respectively. The balance of these notes payable including accrued interest to Steven and Bernard Rotman is approximately $381,000 and $145,000, respectively, at March 31, 2020 and approximately $376,000 and $143,000, respectively, at December 31, 2019.

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Approximate maturities for the succeeding years are as follows:

Remainder of 2020	$	46,000
2021		59,000
2022		62,000
2023		85,000
2024		34,000
Thereafter		221,500
	$	507,500

NOTE 9 - DERIVATIVE LIABILITIES

As of March 31, 2020, the Company had a $1,499,800 derivative liability balance on the consolidated balance sheet and recorded a loss from change in fair value of derivative liabilities of $1,079,450 for the year ended December 31, 2019. The derivative liability activity comes from the Convertible notes payable (and any related warrants). The Company analyzed the conversion features and warrants of the various note agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these Convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion feature of the notes and recorded a derivative liability.

The embedded derivatives for the notes are carried on the Company’s consolidated balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the consolidated statement of operations and the associated fair value carrying amount on the consolidated balance sheet is adjusted by the change. The Company fair values the embedded derivative using a lattice-based valuation model or Monte Carlo simulation.

The following table summarizes the derivative liabilities included in the consolidated balance sheet at March 31, 2020:

Fair Value of Embedded Derivative and Warrant Liabilities:

Balance, December 31, 2018	$	235,085
Initial measurement of liabilities		1,464,600
Change in fair value		1,079,450
Settlement due to conversion		(1,279,335	)
Balance, December 31, 2019		1,499,800
Change in fair value		-
Settlement due to conversion		-
Balance, March 31, 2020	$	1,499,800

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NOTE 10 - STOCKHOLDERS’ DEFICIT

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 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 nine-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.

As of March 31, 2020, the 13,828 shares of outstanding preferred stock had undeclared dividends of approximately $95,000 and could be converted into 4,661,180 shares of common stock, at the option of the holder.

As of December 31, 2019, the 13,828 shares of outstanding preferred stock had undeclared dividends of approximately $91,000 and could be converted into 4,591,100 shares of common stock, at the option of the holder.

Common Stock and Warrants

During the three months ended March 31, 2020, no shares were issued under equity purchase agreements.

During the three months ended March 31, 2020, no shares were issued for the conversion of principal and interest.

NOTE 11 - REVENUES

The following table presents our revenues disaggregated by each major product category and service for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020				2019
			% of				% of
	Net Sales		Net Sales		Net Sales		Net Sales
Merchandise:
Case Goods
Bedroom Furniture	$	861,123		14.5	$	-		-
Dining Room Furniture		522,114		8.8		-		-
Occasional		960,379		16.2		-		-
		2,343,616		39.5		-		-
Upholstery		1,617,547		27.3		-		-
Mattresses and Toppers		1,071,327		18.1		179,017		93.4
Broadloom, Flooring and Rugs		406,879		6.9		-		-
Warranty		98,309		1.7		-		-
Accessories and Other		394,560		6.7		12,650		6.6
	$	5,932,238		100.0	$	191,667		100.0

NOTE 12 - 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 $154,368 and $1,612,286 of stock-based compensation for the three months ended March 31, 2020 and 2019, respectively, including shares to be issued related to consultants and board member stock options and common stock and warrants issued to non-employees. Included in stock subscription payable is accrued stock-based compensation of $993,981 and $845,175 at March 31, 2020 and December 31, 2019, respectively.

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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 three months ended March 31, 2020:

● Expected Dividend Yield - because the Company does not currently pay dividends, the expected dividend yield is zero;

● Expected Volatility in Stock Price - volatility based on the Company’s trading activity was used to determine expected volatility;

● Risk-free Interest Rate - reflects the average rate on a United States Treasury Bond with a maturity equal to the expected term of the option; and

● Expected Life of Award - because we have minimal experience with the exercise of options or warrants for use in determining the expected life of each award, we used the option or warrant’s contractual term as the expected life.

In total for the three months ended March 31, 2020 and 2019, the Company recorded $5,562 and $17,783, respectively, of share-based compensation expense related to employee and Board Members’ stock options. The unrecognized compensation expense as of March 31, 2020 was $43,371 for non-vested share-based awards to be recognized over a period of approximately three years.

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 March 31, 2020, there are 2,251,729 shares of common stock available for issuance under the Plan. In 2014, the Board of Directors adopted an additional stock option plan which provides for an additional 5,000,000 shares which are all available as of March 31, 2020. In 2019, the Board of Directors adopted an additional stock option plan with provides for 50,000,000 shares which are all available as of March 31, 2020. 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.

There were no options granted during the three months ended March 31, 2020.

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The following table summarizes all stock option activity of the Company for the three months ended March 31, 2020:

					Weighted
			Weighted		Average
			Average		Remaining
	Number		Exercise		Contractual
	of Shares		Price		Life (Years)
Outstanding, December 31, 2019		27,983,271	$	0.20		3.45
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding, March 31, 2020		27,983,271	$	0.20		3.20
Exercisable, March 31, 2020		26,783,271	$	0.21		3.42

As of March 31, 2020, and 2019, the aggregate intrinsic value of the Company’s outstanding options was approximately $1,000 and $52,000, respectively. The aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Warrants

Warrants are issued to third parties as payment for services, debt financing compensation and conversion 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.

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The following table represents the Company’s warrant activity for the three months ended March 31, 2020:

							Weighted
							Average
			Weighted		Weighted		Remaining
	Number		Average		Average		Contractual
	of Shares		Fair Value		Exercise Price		Life (Years)
Outstanding, December 31, 2019		14,237,646			$	0.07		3.58
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Expired		-		-		-		-
Outstanding, March 31, 2020		14,237,646				0.07		3.28
Exercisable, March 31, 2020		14,237,646			$	0.07		3.28

NOTE 13 - RELATED PARTY TRANSACTIONS

Officers and Directors

Per Steven Rotman’s Employment agreement dated July 22, 2019, he is to be paid $125,000 per year in cash, $10,417 per month in shares based on a 20-day average price at a 50% discount to market, $5,000 per month in cash for expenses as well as access to a Company provided vehicle and health and life insurance. Under the terms of his previous employment agreement, he was paid approximately $1 per year in cash and $20,833 per month to be paid in shares based on a 20-day average at a 0% discount to market. The Company expensed $201,200 during the year ended December 31, 2019 related to 4,000,000 shares issued for Steven Rotman’s services as a Board Member of the Company. As of March 31, 2020, the Company had a stock subscription payable balance of $510,000, or approximately 16,725,000 shares to be issued in the future.

Designcenters.com

This entity is owned by Jamie Rotman, who is the daughter of the Company’s CEO, Steven Rotman. Designcenters.com (“Design”) provided bookkeeping and management services to the Company through July 2019. In exchange for such services, the Company had entered into a consulting agreement with the related party entity.

Per the Design’s consulting agreement, Design was to receive approximately $7,100 per month to be paid in cash or shares based on a 20-day average at a 50% discount to market and a $10,000 quarterly bonus to be paid in shares using the same formula. During the year ended December 31, 2019, the Company issued Design 20,030,407 shares in accordance with the consulting agreement that were accrued and expensed as of December 31, 2018. During the year ended December 31, 2019, the Company expensed approximately $83,000 related to the consulting agreement. Of the expensed amount, approximately $41,000 was paid in cash. As of March 31, 2020, the Company had a stock subscription payable balance of $42,000, for approximately 850,000 shares related to this party.

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Blue Oar Consulting, Inc.

This entity is owned by Gregory Rotman, who is the son of the Company’s CEO, Steven Rotman. Blue Oar Consulting, Inc. (“Blue Oar”) provides business consulting services to the Company. In exchange for such services, the Company has entered into a consulting agreement with the related party entity.

Per Blue Oar’s consulting agreement, it is to be paid $15,000 per month in cash for expenses, and $12,500 per month to be paid in shares based on a 20-day average at a 50% discount to market. During the three months ended March 31, 2020, the Company issued Blue Oar 9,042,046 shares in accordance with the consulting agreement that were accrued and expensed as of March 31, 2020. During the three months ended March 31, 2020, the Company expensed approximately $83,000 related to the consulting agreement. Of the expensed amount, approximately $45,000 was paid in cash. As of March 31, 2020, the Company had a stock subscription payable balance of $411,000, or approximately 19,604,000 shares related to this party.

Polymer Consultancy Services, Ltd.

This entity is owned in part by Dr. R.K. Matthan, a director of the Company. Polymer Consultancy Services, Ltd. (“Polymer”) provides research and development consulting services related to the Company’s latex products. The Company did not incur any charges with Polymer for these services during the three months ended March 31, 2020.

NOTE 14 - COMMITMENTS

Employment and Consulting Agreements

The Company has entered into employment and consulting agreements with certain of our officers, employees, and affiliates. For employees, payment and benefits would become payable in the event of termination by us for any reason other than cause, or upon change in control of our Company, or by the employee for good reason.

There is currently one employment agreement in place with the CEO, Steven Rotman. See compensation terms in Note 13.

During the three months ended March 31, 2020, the Company entered into various services agreement with consultants for financial reporting, advisory, and compliance services. The Company also entered into an agreement with a third-party to provide delivery services for all delivered customer sales. Existing fleet operating leases are being subleased to the third-party according to the same terms and conditions as the original lease agreements.

Litigation

From time to time, the Company is party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

EMA Financial

On February 19, 2019, EMA Financial, Inc. filed a lawsuit in the Southern District of New York against the Company. The lawsuit alleged various breaches of an underlying convertible promissory note and stock purchase agreement and sought four claims for relief: (i) specific performance to enforce a stock conversion and contractual obligations; (ii) breach of contract; (iii) permanent injunction to enforce the stock conversion and contractual obligations; and (iv) legal fees and costs of the litigation. The complaint was filed with a motion seeking: (i) a preliminary injunction seeking an immediate resolution of the case through the stock conversion; (ii) a consolidation of the trial with the preliminary injunctive hearing; and (iii) summary judgment on the first and third claims for relief.

The Company filed an opposition to the motion and at oral argument the motion for injunctive relief was denied. The Court issued a decision permitting a motion for summary judgment to proceed and permitted the Company the opportunity to supplement its opposition papers together with the plaintiff who was also provided opportunity to submit reply papers. On April 5, 2019, the Company filed the opposition papers as well as a motion to dismiss the first and third causes of action in the complaint.

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On March 13, 2020, the Court granted the Company’s motion and denied the motion for summary judgment as moot.

The Company subsequently filed an amended answer with counterclaims. The affirmative defenses collectively preclude the relief sought. The counterclaims asserted are: (a) violation of 10(b)(5) of the Securities and Exchange Act; (b) violation of Section 15(a)(1) of the Exchange Act (failure to register as a broker-dealer); (c) pursuant to the Uniform Declaratory Judgment Act, 28 U.S.C. §§ 2201, the Company requests the Court to declare: (i) pursuant to Delaware law, the underlying agreements are unconscionable; (ii) the underlying agreements are unenforceable and/or portions are unenforceable, such as the liquidated damages sections; (iii) to the extent the agreement is enforceable, Vystar in good faith requests the Court to declare the legal fee provisions of the agreements be mutual (d) unjust enrichment; (e) breach of contract (in the alternative); and (f) attorneys’ fees.

Robert LaChapelle Class Action

On March 13, 2020, Robert LaChapelle, a former employee of Rotmans Furniture, the Company’s majority owned subsidiary, on behalf of himself and all others similarly situated, filed a class action complaint against Rotmans and two of its prior owners (including Steve Rotman, President of the Company) in the Worcester Superior Court alleging non-payment of overtime pay and Sunday premium pay pursuant to the Massachusetts Blue Laws (Ch. 136), the Massachusetts Overtime Law (Chapter 151, § 1A), and the Massachusetts Payment of Wages Law (Chapter 149 §§148 and 150). Specifically, LaChapelle has alleged that Rotmans failed to pay him and other sales people who were paid on a commission-only basis overtime pay at a rate of least 1.5 times the basic minimum wage or premium pay (also at 1.5 times the basic minimum wage) for hours they worked on Sundays. Rotmans is in the process of investigating these claims to determine whether it may be liable to the members of the putative class for unpaid overtime and Sunday pay and, if so, the approximate amount of such amounts.

Eric Maas Lawsuit

The Company and members of its Board of Directors, and certain employees and consultants, have been added as defendants in the case Maas v. Zymbe, LLC, et. al. The complaint was recently moved from Superior Court of the State of California to Federal District Court in California. The amended complaint alleges various employment, contract, and tort claims, including defamation, arising out of a dispute over the quality and utility of consulting and other services provided by Mr. Eric Maas, including through his dealings with Mr. Jason Leaf and Mr. Gregory Rotman. The original litigation was filed in 2017.

NOTE 15 - MAJOR CUSTOMERS AND VENDORS

Major customers and vendors are defined as a customer or vendor from which the Company derives at least 10% of its revenue and cost of revenue, respectively.

During the three months ended March 31, 2020, the Company made approximately 15% of its purchases from one major vendor. The Company owed its major vendor approximately $185,000 at March 31, 2020. There were no significant vendor concentrations during the three months ended March 31, 2019.

During the three months ended March 31, 2019, revenue came from six major customers. At March 31, 2019, receivables from major customers totaled approximately $16,000. There were no major customers during the three months ended March 31, 2020.

NOTE 16 - INCOME TAXES

The provision (benefit) for income taxes for the three months ended March 31, 2020 and 2019 assumes a 21% effective tax rate for federal income taxes. A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:

	Three Months Ended March 31,
	2020			2019
Federal statutory income tax rate		(21.0	)%		(21.0	)%
Change in valuation allowance on net operating loss carryforwards		21.0			21.0
Effective income tax rate		0.0	%		0.0	%

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Deferred tax assets as of March 31, 2020 and December 31, 2019 are as follows:

	2020			2019
NOL carryforwards	$	5,620,000		$	5,490,000
Less valuation allowance		(5,620,000	)		(5,490,000	)
Deferred tax assets	$	-		$	-

Deferred taxes are caused primarily by net operating loss carryforwards. For federal income tax purposes, the Company has a net operating loss carryforward of approximately $26,700,000 as of March 31, 2020, of which approximately $18,400,000 expires beginning in 2024 and $8,300,000 which can be carried forward indefinitely. For state income tax purposes, the Company has a net operating loss carryforward of approximately $18,300,000 and $8,300,000 as of March 31, 2020 in Georgia and Massachusetts, respectively, which expires beginning in 2023.

In addition, as of March 31, 2020 Rotmans has a net operating loss carryforward of approximately $2,700,000 for federal income tax purposes of which $1,810,000 expires beginning in 2029 and $890,000 can be carried forward indefinitely. Rotmans has a state operating loss carryforward of approximately $1,800,000 which expires beginning in 2022.

Pursuant to Internal Revenue Code Section 382, the future realization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future.

NOTE 17 - PROFIT SHARING PLAN

The Company sponsors a qualified 401(k) profit sharing plan covering all eligible employees. The plan permits participants to make tax-deferred contributions to the plan by salary reduction. Company contributions are discretionary and are determined annually by the Board of Directors.

There were no Company contributions in 2020. Participant and Company contributions are limited to amounts allowed under the Internal Revenue Code.

The Company offers no post-retirement benefits other than the plan discussed above and no significant post-employment benefits.

NOTE 18 – ACQUISITION OF ROTMANS

On July 18, 2019,the Company acquired 58% of the outstanding shares of common stock of Rotmans, the largest furniture and flooring store in New England for an aggregate purchase price of $2,030,000. The consideration is to be paid in 25% in term notes payable over 4 to 8 years and 75% in notes convertible to common stock (see Note 8). The Company and Rotmans are exploring a number of initiatives relating to environmentally friendly product development and distribution that will utilize the access to the capital markets afforded by this combination.

The following unaudited pro forma information presents a summary of the Company’s combined operating results for the three months ended March 31, 2020 and 2019, as if the acquisition and the related financing transactions had occurred on January 1, 2019. The following pro forma financial information is not necessarily indicative of the Company’s operating results as they would have been had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.

		Three Months Ended March 31,
		2020		2019
Total revenues	$	5,932,238	$	6,734,929
Loss from operations	$	850,553	$	2,505,367
Net loss	$	1,477,990	$	3,687,824
Net loss attributable to Vystar	$	1,367,044	$	3,456,916
Basic and dilated loss per share	$	0.00	$	0.00

NOTE 19 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission.

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On April 16, 2020, Rotmans received $1,402,900 in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company dated April 16, 2020 (the “Note”) in the principal amount of $1,402,900 with United Community Bank (the “Bank”), the lender.

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, Rotmans is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note, until the maturity date.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, Rotmans may apply for forgiveness for all or a part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by Rotmans during the twenty-four week period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered twenty-four week period will qualify for forgiveness.

The Note may be prepaid in part or in full, at any time, without penalty. The Note provides for certain customary events of default, including (i) failing to make a payment when due under the Note, (ii) failure to do anything required by the Note or any other loan document, (iii) defaults of any other loan with the Bank, (iv) failure to disclose any material fact or make a materially false or misleading representation to the Bank or SBA, (v) default on any loan or agreement with another creditor, if the Bank believes the default may materially affect Rotmans ability to pay the Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of the Rotmans business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that the Bank believes may materially affect Rotmans ability to pay the Note, (ix) if Rotmans reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the Bank’s prior written consent, or (x) becoming the subject of a civil or criminal action that the Bank believes may materially affect Rotmans ability to pay the Note. Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the Note, collect all amounts owing from Rotmans, and file suit and obtain judgment against Rotmans.

In May 2020, Rotmans entered into a sale promotion consulting agreement with a national furniture sales event company. Under the agreement, Rotmans appointed the third-party as its exclusive agent to assist with a high-impact sale to pay off the Fidelity Co-operative Bank (“Fidelity”) line of credit loan. Before the sale, the agent lent the Company funds to pay off the Fidelity loan on May 29, 2020. The agent will be reimbursed for the advance from the proceeds of the sale. In addition, the agent has a senior first priority security interest and lien in Rotmans inventories and other assets until all obligations and liabilities are satisfied. Profits of the sale will be distributed according to the specific terms of the agreement. The agreement will expire 240 days from the commencement date of May 29, 2020.

Our Rotmans showroom reopened on June 10, 2020 in connection with COVID-19 pandemic. See Note 2 for details.

On July 1, 2020, 130 preferred shares were converted into 44,357 shares of common stock.

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

OVERVIEW

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

Vystar LLC, the predecessor to the Company, was formed February 2, 2000, as a Georgia limited liability company by Travis W. Honeycutt. Operations under the LLC entity were focused substantially on the research, development and testing of the Vytex® Natural Rubber Latex (“NRL”) process, as well as attaining intellectual property rights. In 2003, the Company reorganized as Vystar Corporation, a Georgia corporation, at which time all assets and liabilities of the limited liability company became assets and liabilities of Vystar Corporation, including all intellectual property rights, patents and trademarks.

We are the creator and exclusive owner of the innovative technology to produce Vytex NRL. This technology reduces antigenic protein in natural rubber latex products to virtually undetectable levels in both liquid NRL and finished latex products. The process also removes many of the naturally occurring non-rubber particles superfluous to end product function, resulting in a cleaner latex base material. 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. 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 especially health care products such as condoms, surgical and exam gloves. We produce Vytex through licensing agreements and have introduced Vytex NRL into the supply channels with aggressive, targeted marketing campaigns directed to the end users.

We transitioned from a development stage company to the operating stage during the last quarter of 2009. During the period of 2010 to 2015, our financial condition and results of operations have experienced substantial fluctuations as we provided introductory pricing in 2010 and then began to switch to a licensing rather than a toll model in 2011. Our licensing model will continue in 2020 for the raw material business and we will continue our focus in 2020 onward on the licensing contracts associated with the foam and furniture offerings. Accordingly, the financial condition and results of operations reflected in our historical financial statements are not expected to be indicative of our future financial condition and results of operations.

We believe that the key for increased Vytex NRL product acceptance is to focus on companies seeking solutions to production challenges or ways to differentiate their product offering. Vystar’s technical team has been successful in developing customized formulations to meet specific manufacturer needs. Some of these formulations will become new line extensions. Vystar is becoming less of a raw material provider and more of a technology innovator through its technical consultation and formulation activities.

In addition to this technology focus, we are determined to have the “made with Vytex” claim added to products made using various forms of Vytex NRL. To help drive this effort, we’re focusing on products that benefit from Vytex NRL low non-rubber features. As part of this effort, we are working with a licensee to launch a line of foam core products used in various bedding products including pillows, mattresses and mattress toppers.

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

OVERVIEW (Continued)

In January 2015, Vystar announced that it had entered into an exclusive agreement with NHS Holdings, LLC (“NHS”) to distribute mattresses, mattress toppers and pillows made with its multi-patented Vytex NRL raw material. NHS is a distribution company led by Steven Rotman of Rotmans, who as of December 18, 2017 is the CEO of Vystar, that focuses on innovative, sustainably sourced, eco-friendly material and technologies for use in furnishings and other markets. Our Vytex NRL fits the needs of this unique new distributor, which has already attracted such firms as mattress manufacturer Gold Bond, that was formed in 1899 to manufacture and then distribute mattresses, toppers and pillows along with a plan to reach specific segments of the United States by targeting other manufacturers. Vystar has focused on these segments since 2015 and will continue into 2020 as we display at furniture and mattress conventions and attend and sell at sleep products meetings such as the ISPA 2016 (International Sleep Products Association) held in Orlando, FL, the ISPA 2017 in Tampa, FL and the ISPA 2018 in Charlotte, NC. Vystar will also continue to develop specialty versions of Vytex NRL after presenting to the International Latex Conference in Akron, OH in July 2016 and 2017 and sending out samples for lab trials. Vystar is currently producing Vytex thread samples for an entry into the thread marketplace. In September 2016, the Vystar Board of Directors voted to end the January 2015 agreement with NHS and replace it with a global exclusive for foam manufactured with Vytex and sold into the home furnishings industry. This change reflects the global nature of the mattress, topper and pillow businesses.

In April of 2018, Vystar acquired the assets of NHS executing on the first part of the Company’s vision to move into direct product offerings made from Vytex^® latex. NHS was the exclusive U.S. distributor of Vystar’s Vytex^® natural rubber latex foam to manufacturers for use in over 200 home furnishings products, including mattresses, toppers, pillows and upholstery, sold through multiple channels. This acquisition provides Vystar with roll packing and cutting equipment to support our bedding manufacturing partners, while lowering the cost of Vytex to the manufacturer by eliminating the middleman.

Now unified under the Vytex brand, we anticipate developing additional product offerings and solidifying partnerships with multiple major manufacturing partners throughout the home furnishings industry. We anticipate our new offerings will include cushions and padding for use in seating and other products which we believe will achieve higher margins.

In May of 2018, Vystar acquired substantially all of the assets of UV Flu Technologies, Inc. (“UV Flu”), formerly traded on the OTC under the ticker UVFT, whose patented ViraTech™ UV light air purification technology destroys greater than 99% of airborne bacteria, viruses and other microorganisms and virtually eliminates concentrations of odors and volatile organic compounds (“VOCs”).

As part of Vystar’s mission to offer eco-friendly, sustainable materials and products that create a better environment for consumers and workers throughout the product lifecycle, UV Flu is an excellent counterpart to our Vytex materials and Vytex bedding products. Vystar products will help create a perfect natural sleep environment starting with Vytex bedding made from the purest latex in the world and UV Flu’s RxAir™ air purifier ensuring every breath is free of harmful pathogens, VOCs and odors.

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

UV Flu’s product line includes:

● RxAir™ Residential Filterless Air Purifier

● UV400 ™ FDA cleared Class II Filterless Air Purifier

● RX3000™ Commercial FDA cleared Class II Air Purifier

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

OVERVIEW (Continued)

Vystar acquired all UV Flu intellectual property and multiple patents, product lines, tooling, FDA clearances, research data, websites and other assets related to the business for the purchase price of $975,000 or 27,918,000 shares of Vystar restricted common stock which may not be assigned or sold by UV Flu for 12 months.

Vystar will continue production of UV Flu product lines with BOI, a world-class manufacturer. Vystar plans to sell RxAir residential and commercial units via distributors, online and through retail channels. Vystar has been selling the RxAir units after receiving a substantial number of units by container in the first quarter. In addition, master distributors and manufacturers representatives have signed contracts with Vystar. The first large scale distributor order was placed and paid for in May 2019.

Vystar is assembling the distribution network to relaunch sales of UV400 and Rx3000 units to the healthcare and medical markets, which UV Flu had ceased due to a lack of sales force, distribution and cash flow constraints. Once production and sales are firmly re-established, Vystar expects that the air purification products will produce margins of approximately 75%.

UV Flu’s products have world class engineering, are made to the highest quality standards and are extremely effective in settings ranging from homes to offices, healthcare facilities, salons, restaurants, and nursing homes.

About RxAir

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

In the first quarter, Vystar also made huge strides in enhancing Vystar’s large patent portfolio, continuing the outstanding work from previous management. Today, Vystar has 28 patents encompassing many continents. Vystar will be adding significant resources in the near term to enforce and prosecute infringers of our patents ensuring Vystar has the ability to fully collect on its proprietary Vytex investment.

About FEC

In May of 2019, Vystar Corporation executed a patent assignment to purchase the assets of Fluid Energy Conversion Inc., (“FEC”), which consists primarily of U.S. and foreign rights to US Patent No. 7,897,121. The assets were purchased for 2,500,000 shares of common stock of Vystar Corporation for $103,750.

FEC is a global green energy company whose patented and proprietary technologies harness sound energy in unique ways to destroy bacteria and viruses, improve water processing and irrigation, and enhance chemical reactions. FEC has married the science of sound energy, called sono- chemistry, with molecular fluid mechanics for the development of applications to more effectively kill pathogens, improve combustion efficiency, overcome the issues of hardwater mineral build up, and enhance vaporization of liquids. FEC’s science and technology has been proven in multiple studies with major corporations. Currently, FEC technology R&D is underway on the following initiatives:

● Vystar plans to apply FEC technology to increase pathogen killing efficiency, reduce size and cost of Vystar’s RxAir air purifiers.

● FEC technology expected to be used to negate viruses and bacteria using sound energy in a highly proprietary manner.

● Vystar plans to apply FEC technology to vape pens to improve substance delivery and control dosage.

● FEC technology offers numerous eco-friendly product initiatives already in development in metering, energy, water purification, and medical uses.

● A water filtration enhancement device in prototype stage to improve dialysis efficiency for those affected by renal failure.

About Rotmans

On July 18, 2019, the Company acquired a controlling interest in Rotmans for $2,030,000, comprised of 25% in notes payable over 4-8 years and 75% in notes convertible into common shares. Rotmans and the Company are exploring a number of initiatives relating to environmentally friendly product development and distribution that will utilize the access to the capital markets afforded by this transaction.

Rotmans, the largest furniture and flooring store in New England and one of the largest independent furniture retailers in the U.S., encompassing over 200,000 square feet in Worcester, Mass., and employing 150 people, was founded and has been under the leadership of the Rotman family for the past 50 years. Rotmans is expected to add approximately $30 million annually to Vystar’s top line revenue and enable Vystar to capitalize on the infrastructure already in place for accounting, retail sales facilities and staff, customer service, warehousing, and delivery. Additionally, it will offer significant marketing and advertising opportunities for all of Vystar’s brands to Rotmans’ thousands of existing customers. The acquisition is expected to dramatically increase Vystar shareholder value and liquidity through improved access to capital markets as well as lay the groundwork for future eco-friendly initiatives. As CEO of both Rotmans and Vystar, Steven Rotman will provide continuity of management and customer- focused values for Rotmans and Vystar.

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted in significant economic disruption and adversely impacted our business. We closed the Rotmans showroom on March 24. At that time, most of our team members were furloughed. During this period, we paid the cost of enrolled health benefits of those furloughed. We reopened the showroom on June 10. As we restart many aspects of our operation, we will work closely with local authorities and follow the guidance of the Centers for Disease Control and Prevention (“CDC”), implementing enhanced cleaning measures, social distancing and the utilization of face masks for the safety of team members, customers and communities.

In addition, the COVID-19 pandemic has caused, among other things, interruptions in our supply chains and suppliers, including potential problems with inventory availability and the potential result of the volatility or higher cost of product and international freight due to the high demand of products and low supply for an unpredictable period of time.

As the COVID-19 pandemic is complex and rapidly evolving, we cannot reasonably estimate the duration and severity of the pandemic and its impact on our business, results of operations, financial position and cash flows.

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

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2020 with the Three Months Ended March 31, 2019

	Three Months Ended March 31,
	2020			2019			$ Change			% Change
	CONSOLIDATED
Revenue	$	5,932,238		$	191,667		$	5,740,571			2995.1	%
Cost of revenue		2,932,614			199,842			2,732,772			1367.5	%
Gross profit (loss)		2,999,624			(8,175	)		3,007,799			-36792.6	%
Operating expenses:
Salaries, wages and benefits		1,454,074			-			1,454,074			100.0	%
Share-based compensation		154,368			1,612,286			(1,457,918	)		-90.4	%
Professional fees		292,696			192,029			100,667			52.4	%
Advertising		446,695			20,483			426,212			2080.8	%
Rent		293,171			-			293,171			100.0	%
Service charges		183,577			1,126			182,451			16203.5	%
Depreciation and amortization		243,923			49,653			194,270			391.3	%
Other operating		781,673			120,303			661,370			549.8	%
Total operating expenses		3,850,177			1,995,880			1,854,297			92.9	%
Loss from operations		(850,553	)		(2,004,055	)		1,153,502			-57.6	%
Other income (expense):
Gain on settlement of debt		-			14,945			(14,945	)		100.0	%
Interest expense		(604,714	)		(99,663	)		(505,051	)		506.8	%
Change in fair value of derivative liabilities		-			(1,044,250	)		1,044,250			-100.0	%
Other income (expense)		(23,056	)		(151	)		(22,905	)		100.0	%
Total other expense, net		(627,770	)		(1,129,119	)		501,349			-44.4	%
Net loss		(1,478,323	)		(3,133,174	)		1,654,851			-52.8	%
Net loss attributable to noncontrolling interest		110,946			-			110,946			100.0	%
Net loss attributable to Vystar	$	(1,367,377	)	$	(3,133,174	)	$	1,765,797			-56.4	%

Revenues

Revenues for the three months ended March 31, 2020 and 2019 were $5,932,238 and $191,667, respectively, for an increase of $5,740,571 or 2,995.1%. The significant increase in revenues was due to the acquisition of Rotmans in July of 2019.

The Company reported a significant increase in gross income to $2,999,624 for the three-month period ended March 31, 2020 compared to a loss of $8,175 for the three-month period ended March 31, 2019, an increase of $3,007,799. The cost of revenue for the three months ended March 31, 2020 and 2019 was $2,932,614 and $199,842, respectively, an increase of 1,367.5%. The increase is due to the greater inventory needs primarily from the acquisitions of Rotmans, UV Flu and NHS.

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

RESULTS OF OPERATIONS (Continued)

Operating Expenses

The Company’s operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as other operating expenses. The Company’s operating expenses were $3,850,177 and $1,995,880 for the three months ended March 31, 2020 and 2019, respectively, an increase of $1,854,297 or 92.9%. The increase was due to the acquisition of Rotmans in July of 2019.

Other Income (Expense)

Other expense for the three months ended March 31, 2020 was $627,770, which primarily consisted of interest expense of $604,714 and other expenses of $23,056. This compares to other expense of $1,129,119 for the three months ended March 31, 2019, which consisted of interest expense of ($99,663), gain on settlement of convertible notes payable of $14,945, change in fair value of derivative liabilities of ($1,044,250) and other expense of ($151).

Net Loss

Net loss was $1,367,377 and $3,133,174 for the three months ended March 31, 2020 and 2019, respectively, a decrease of $1,765,797. The smaller net loss the Company experienced in the quarter ended March 31, 2020 versus the same period in 2019 was due to increased revenues and gross profit from the operations of Rotmans and a decrease in the fair value of derivative liabilities.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s financial statements are prepared using the accrual method of accounting in accordance with U.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, we have incurred significant losses and experienced negative cash flow since inception. At March 31, 2020, the Company had cash of $403,091 and a deficit in working capital of approximately $7.8 million. Further, at March 31, 2020, the accumulated deficit amounted to approximately $42.5 million. We use working capital to finance our ongoing operations, and since those operations do not currently cover all of our operating costs, managing working capital is essential to our Company’s future success. Because of this history of losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern.

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

Management plans to finance future operations using cash on hand, as well as increased revenue from RxAir air purifier sales and Vytex license fees that now also include the Company’s association with foam cores made from Vytex used in mattresses, mattress toppers and pillows.

There can be no assurances that we will be able to achieve projected levels of revenue in 2020 and beyond. If we are not able to achieve projected revenue and obtain alternate additional financing of equity or debt, we would need to significantly curtail or reorient operations during 2020, which could have a material adverse effect on our ability to achieve our business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.

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

LIQUIDITY AND CAPITAL RESOURCES (Continued)

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

Sources and Uses of Cash

Net cash used in operating activities was $190,790 for the three months ended March 31, 2020 as compared to $410,364 for the three months ended March 31, 2019. During the three months ended March 31, 2020, cash used in operations was primarily due to the net loss for the period of $1,478,323 net of non-cash related add-back of share-based compensation expense, depreciation and amortization.

Net cash used in investing activities was $3,683 during the three months ended March 31, 2020 as compared to $3,339 for the three months ended March 31, 2019.

Net cash provided by financing activities was $525,209 during the three months ended March 31, 2020, as compared to cash provided of $801,814 during the three months ended March 31, 2019. During the three months ended March 31, 2020, cash was provided from proceeds of notes payable in the amount of $808,500 and related party notes of $50,000, offset by net repayments of the line of credit of $249,977, repayments of term debt of $40,852 and repayments of finance lease obligations of $42,462.

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 (all of which risks may be amplified by the COVID-19 pandemic) that might be detailed from time to time in our filings with the Securities and Exchange Commission.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer (the “Certifying Officer”) is responsible for establishing and maintaining disclosure controls and procedures for the Company. Although the Certifying Officer has designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this report was prepared, certain material weaknesses occurred during the period March 31, 2020 and subsequent to period end. The Certifying Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) (the “Rules”) under the Securities Exchange Act of 1934 (or “Exchange Act”) as of the end of the period covered by this Quarterly Report and is working on improving controls with an outside CPA firm and dedicated internal resources.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d - 15(f) under the Securities Exchange Act of 1934). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that our receipts and expenditures are made in accordance with management authorization; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting, however well designed and operated, can provide only reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

Management, under the supervision and with the participation of our Chief Executive Officer and our acting Chief Financial Officer, conducted an evaluation of our internal control over financial reporting as of March 31, 2020, based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) 2013. Based on our evaluation under the COSO framework, management concluded that our internal control over financial reporting was not effective as of March 31, 2020. Such conclusion was reached based on the following material weaknesses noted by management:

a)	We have a lack of segregation of duties due to the small size of the Company.
b)	The Company did not maintain reasonable control over records underlying transactions necessary to permit preparation of the Company’s financial statements.
c)	Lack of controls that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposal of the Company’s assets that could have a material effect on the financial statements.
d)	Lack of a formal CFO position who can devote significant attention to financial reporting resulted in multiple audit adjustments.
e)	Lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. Management believes the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future period.

Management expects to strengthen internal control during 2020 by developing stronger business and financial processes for accounting for transactions such as warrant/stock issuances, which will enhance internal control for the Company.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

EMA Financial

On February 19, 2019, EMA Financial, Inc. filed a lawsuit in the Southern District of New York against the Company. The lawsuit alleged various breaches of an underlying convertible promissory note and stock purchase agreement, and sought four claims for relief: (i) specific performance to enforce a stock conversion and contractual obligations; (ii) breach of contract; (iii) permanent injunction to enforce the stock conversion and contractual obligations; and (iv) legal fees and costs of the litigation. The complaint was filed with a motion seeking: (i) a preliminary injunction seeking an immediate resolution of the case through the stock conversion; (ii) a consolidation of the trial with the preliminary injunctive hearing; and (iii) summary judgment on the first and third claims for relief.

The Company filed an opposition to the motion and at oral argument the motion for injunctive relief was denied. On April 5, 2019, the Company filed the opposition papers as well as a motion to dismiss the first and third causes of action in the complaint.

On March 13, 2020, the Court granted the Company’s motion and denied the motion for summary judgment as moot.

The Company subsequently filed an amended answer with counterclaims. The affirmative defenses collectively preclude the relief sought. The counterclaims asserted are: (a) violation of 10(b)(5) of the Securities and Exchange Act; (b) violation of Section 15(a)(1) of the Exchange Act (failure to register as a broker-dealer); (c) pursuant to the Uniform Declaratory Judgment Act, 28 U.S.C. §§ 2201, the Company requests the Court to declare: (i) pursuant to Delaware law, the underlying agreements are unconscionable; (ii) the underlying agreements are unenforceable and/or portions are unenforceable, such as the liquidated damages sections; (iii) to the extent the agreement is enforceable,

Vystar in good faith requests the Court to declare the legal fee provisions of the agreements be mutual (d) unjust enrichment; (e) breach of contract (in the alternative); and (f) attorneys’ fees.

Discovery has recently commenced. No discovery responses have been served. EMA recently requested leave to file a motion to dismiss the counterclaims and for summary judgment on the remaining breach of contract claim. The Court granted the right to file the motions.

Robert LaChapelle Class Action

On March 13, 2020, Robert LaChapelle, a former employee of Rotmans Furniture, the Company’s majority owned subsidiary, on behalf of himself and all others similarly situated, filed a class action complaint against Rotmans and two of its prior owners (including Steve Rotman, President of the Company) in the Worcester Superior Court alleging non-payment of overtime pay and Sunday premium pay pursuant to the Massachusetts Blue Laws (Ch. 136), the Massachusetts Overtime Law (Chapter 151, § 1A), and the Massachusetts Payment of Wages Law (Chapter 149 §§148 and 150). Specifically, LaChapelle has alleged that Rotmans failed to pay him and other salespeople who were paid on a commission-only basis overtime pay at a rate of least 1.5 times the basic minimum wage or premium pay (also at 1.5 times the basic minimum wage) for hours they worked on Sundays. Rotmans is in the process of investigating these claims to determine whether it may be liable to the members of the putative class for unpaid overtime and Sunday pay and, if so, the approximate amount of such amounts.

39

Eric Maas Lawsuit

The Company and members of its Board of Directors, and certain employees and consultants, have been added as defendants in the case Maas v. Zymbe, LLC, et. al. The complaint was recently moved from Superior Court of the State of California to Federal District Court in California. The amended complaint alleges various employment, contract, and tort claims, including defamation, arising out of a dispute over the quality and utility of consulting and other services provided by Mr. Eric Maas, including through his dealings with Mr. Jason Leaf and Mr. Gregory Rotman. The original litigation was filed in 2017.

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 for the three months ended March 31, 2020, 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

From January 1, 2020 through March 31, 2020, the Company did not issue any common stock.

40

PART II. OTHER INFORMATION (Continued)

(b) Stock Option Grants

From January 1, 2020 through March 31, 2020, the Company did not grant any stock options.

(c) Proceeds from loans and shareholder, convertible and contingently convertible notes payable

Related Party Line of Credit (CMA Note Payable)

On November 2, 2012, the Company executed a $1,500,000 unsecured line of credit agreement with CMA Investments, LLC (“CMA”), a related party and a Georgia limited liability company (the “CMA Note”). Three of the directors of the Company (“CMA directors”) were initially the members of CMA. Pursuant to the terms of the CMA Note, interest is computed at LIBOR plus 5.25% on amounts drawn and fees.

In July 2018, the Company issued 15 million shares in escrow, which CMA began to sell in March 2019 at the end of the six-month period. The shares were sold at their discretion to bring down the balance of the CMA Note. In accordance with the agreement, CMA had to sell all shares at no less than $0.035 per share. As of September 30, 2019, the Company reduced the amounts due by $0.9 million of the $1.5 million CMA Note through the issuance and sale of 15 million shares of its common stock that were previously held in escrow. The total value received upon the sale of the 15 million shares was less than the total obligation outstanding after all shares were sold through April 2019.

In July 2019, the Company issued an additional 30 million shares to CMA to settle the shortfall. The details are as follows:

● Upon delivery of the 30 million shares for the second and third tranches, the debt was fully satisfied. CMA can sell the shares at least six months after issue at no less than $0.01399 per share (subject to adjustment for stock split, reorganization, recapitalization, reclassification, reverse stock split or stock dividend).

● The agreement specifies CMA must purchase up to 19 million shares of the Company if the average sale prices of the shares in the second and third tranches are at or above certain thresholds. There have been no additional purchases of Company shares by CMA.

Term Notes

During the year ended December 31, 2018, certain investors have guaranteed $100,000 each with Fidelity Bank to establish a $500,000 revolving line of credit. At the present time, the Company is paying interest only at a rate of 4.5% per annum, with a balloon payment of $500,000 due in 2033. The balance is $500,000 as of March 31, 2020.

Other term debt totaling $13,397 at March 31, 2020 represents three 0% loans on motor vehicles, requiring cumulative monthly payments of $1,488 through maturity in November 2020.

On February 24, 2020, the Company entered into an agreement with Libertas Funding LLC (“Libertas”) to sell future sale receipts totaling $1,089,000 for a purchase price of $825,000. The sold amount of future sales receipts are delivered weekly to Libertas at predetermined amounts over a period of nine months. The agreement contains an early delivery discount fee for delivering the future receivables before the end of the contract term and an origination fee of $16,500, which has been capitalized and is being amortized over the term of the agreement. The agreement is personally guaranteed by Steven Rotman. As of March 31, 2020, current maturities of term notes include $756,417 related to this agreement.

41

PART II. OTHER INFORMATION (Continued)

Shareholder, Convertible and Contingently Convertible Notes Payable

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

	March 31,			December 31,
	2020			2019
Shareholder, convertible and contingently convertible notes	$	951,895		$	951,895
Accrued interest		58,467			46,569
Debt discount		(79,400	)		(137,775	)
		930,962			860,689
Less: current maturities		(611,281	)		(366,326	)
	$	319,681		$	494,363

Shareholder Convertible Notes Payable

During the year ended December 31, 2018, the Company issued contingently convertible notes payable (the “Notes”), some of which were for contract work performed by other entities in lieu of compensation and expense reimbursement, totaling approximately $335,000. The Notes are (i) unsecured, (ii) bear interest at an annual rate of five percent (5%) per annum from date of issuance, and (iii) are convertible at the Company’s option post April 19, 2018. The Notes mature one year from issuance but may be extended one (1) additional year by the Company. If converted, the Notes plus accrued interest are convertible into shares of the Company’s common stock at the prior twenty (20) day average closing price with a 50% discount. The Notes matured in January 2020.

During the year ended December 31, 2019, the Company has issued certain contingently convertible promissory notes in varying amounts to existing shareholders. The face amount of the notes represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying a 35% to 50% discount. These notes can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. All of these note are outstanding as of March 31, 2020.

Convertible and Contingently Convertible Notes Payable

From January 1, 2018 and through the date of these consolidated financial statements, the Company has issued certain Convertible and Contingently Convertible notes payable in varying amounts, in the aggregate of $710,000. The face amount of the notes represents the amount due at maturity along with the accrued interest, at which time that amount may be converted into shares of the Company stock based on the lowest 2 day closing price for the trailing 20 days prior to conversion and carrying a 35% discount. The Convertible and Contingently Convertible notes provide for interest to accrue at an interest rate equal to 12% per annum or the maximum rate permitted under applicable law after the occurrence of any event of default as provided in the notes. At any time after 180 days from the issue date, the holder, at its option, may convert the outstanding principal balance and accrued interest into shares of common stock of the Company. The initial conversion price for the principal and interest in connection with voluntary conversions by a holder of the Convertible and Contingently Convertible notes ranges from $0.05 to $0.10 per share, subject to adjustment as provided therein.

In connection with the issuance of the Convertible and Contingently Convertible notes, the Company issued warrants to purchase 411,875 shares of the Company’s common stock. The exercise term of the warrants ranges from issuance to any time on or after the six (6) month anniversary or prior to the maturity of the related note. The exercise price of the warrants is $0.40 per share of the Company’s common stock, as may be adjusted from time to time pursuant to the antidilution provisions of the related warrant. Pursuant to ASU 2017-11, such antidilution features do not subject the Company to derivative accounting pursuant to ASC 815.

42

PART II. OTHER INFORMATION (Continued)

Rotman Family Notes

On June 30, 2019, the Company issued contingently convertible promissory notes totaling $180,000, to Steven Rotman ($105,000) and Greg Rotman ($75,000). These notes are (i) unsecured, (ii) bear interest at an annual rate of eight percent (8%) per annum from date of issuance, (iii) are convertible at the Company’s option after December 31, 2019, and (iv) mature five years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at the average of the five lowest closing prices in any 90 day period with a 50% discount. The balance of the notes payable to Steven and Greg Rotman were approximately 111,000 and $59,000, respectively, at March 31, 2020.

On July 18, 2019, the Company issued contingently convertible notes totaling $1,522,500, to Steven Rotman ($1,102,500) and Bernard Rotman ($420,000) as partial consideration for the acquisition of 58% of Rotmans (see Note 18). These notes are (i) unsecured, and (ii) bear interest at an annual rate of eight percent (8%) per annum from date of issuance. These notes can be converted only after an acceleration event, which involves a symbol change or reverse stock split and such conversion is in the control of the Company. Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at a 20 day average closing price at a 50% discount. The balance of the notes payable including accrued interest to Steven and Bernard Rotman were approximately $1,142,000 and $43,000, respectively, at March 31, 2020. In addition, Steven and Bernard Rotman were also issued related party notes payable in the amounts of $367,500 and $140,000, respectively, for the acquisition of 58% of Rotmans. The notes bear interest at an annual rate of five percent (5%). Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance and payments begin six months from issuance until maturity. The balance of these notes payable including accrued interest to Steven and Bernard Rotman were approximately $381,000 and $145,000 at March 31, 2020.

On December 19, 2019, the Company issued a contingently convertible promissory note totaling $100,000, to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $101,000, at March 31, 2020.

On February 20, 2020, the Company issued a contingently convertible promissory note totaling $50,000, to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $50,000, at March 31, 2020.

(d) 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.

43

PART II. OTHER INFORMATION (Continued)

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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
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

44

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: July 6, 2020	By:	/s/ Steven Rotman
		Steven Rotman
		President, Chief Executive Officer, Chief Financial Officer and Director

45

EX-31

EXHIBIT 31

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Steven Rotman, certify that:

1.	I have reviewed this Annual Report on Form 10-Q of Vystar Corporation (the “Company”) for the year ended March 31, 2020;
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 the Company, 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: July 6, 2020	By:	/s/ Steven Rotman
		President, Chief Executive Officer, and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Vystar Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Steven Rotman, President, Chief Executive Officer, and Chief Financial Officer of the Company, hereby certifies, 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 our 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/ Steven Rotman

Steven Rotman

President, Chief Executive Officer, and Chief Financial Officer

July 6, 2020

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.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Jul. 06, 2020
Document And Entity Information
Entity Registrant Name	Vystar Corp
Entity Central Index Key	0001308027
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	No
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		1,105,776,437
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2020

XML

Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Current assets:
Cash	$ 403,091	$ 72,355
Accounts receivable	40,155	38,526
Stock subscription receivable	49,250	49,250
Inventories	3,916,997	4,114,977
Investments - equity securities, at fair value	99,095	149,517
Prepaid expenses and other	311,476	602,980
Deferred commission costs	124,725	129,123
Total current assets	4,944,789	5,156,728
Property and equipment, net	1,787,616	1,879,739
Operating lease right-of-use assets	10,094,497	10,379,685
Finance lease right-of-use assets, net	871,246	849,209
Other assets:
Intangible assets, net	2,389,056	2,489,612
Goodwill	460,301	460,301
Inventories, long-term	890,130	935,121
Deferred commission costs, net of current portion	211,335	217,024
Other	34,377	34,377
Total other assets	3,985,199	4,136,435
Total assets	21,683,347	22,401,796
Current liabilities:
Line of credit	2,163,562	2,413,539
Term notes - current maturities	769,814	16,374
Accounts payable	3,124,371	2,846,306
Accrued expenses	350,117	681,758
Stock subscription payable	1,298,931	1,150,125
Operating lease liabilities - current maturities	1,071,000	1,055,000
Finance lease liabilities - current maturities	171,000	167,000
Shareholder, convertible and contingently convertible notes payable and accrued interest - current maturities	611,281	366,326
Related party debt - current maturities	46,000	46,000
Unearned revenue	1,662,716	1,677,171
Derivative liabilities	1,499,800	1,499,800
Total current liabilities	12,768,592	11,919,399
Long-term liabilities:
Term notes, net of current maturities	500,000	500,000
Operating lease liabilities, net of current maturities	7,231,508	7,490,431
Finance lease liabilities, net of current maturities	707,524	694,487
Unearned revenue, net of current maturities	811,550	823,401
Shareholder, convertible and contingently convertible notes payable and accrued interest, net of current maturities and debt discount	319,681	494,363
Related party debt, net of current maturities and debt discount	2,049,797	1,712,259
Total long-term liabilities	11,620,060	11,714,941
Total liabilities	24,388,652	23,634,340
Stockholders' deficit:
Convertible preferred stock, $0.0001 par value 15,000,000 shares authorized; 13,828 issued and outstanding (liquidation preference of $94,779 and $91,275 at March 31, 2020 and December 31, 2019 , respectively)	1	1
Common stock, $0.0001 par value, 1,500,000,000 shares authorized; 1,105,762,080 shares issued and 1,105,732,080 shares outstanding	110,573	110,573
Additional paid-in capital	38,442,169	38,436,607
Accumulated deficit	(42,472,344)	(41,104,967)
Common stock in treasury, at cost; 30,000 shares	(30)	(30)
Total Vystar stockholders' deficit	(3,919,631)	(2,557,816)
Noncontrolling interest	1,214,326	1,325,272
Total stockholders' deficit	(2,705,305)	(1,232,544)
Total liabilities and stockholders' deficit	$ 21,683,347	$ 22,401,796

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Convertible preferred stock, par value	$ 0.0001	$ 0.0001
Convertible preferred stock, shares authorized	15,000,000	15,000,000
Convertible preferred stock, shares issued	13,828	13,828
Convertible preferred stock, shares outstanding	13,828	13,828
Convertible preferred stock, liquidation preference	$ 94,779	$ 91,275
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	1,500,000,000	1,500,000,000
Common stock, shares issued	1,105,762,080	1,105,762,080
Common stock, shares outstanding	1,105,732,080	1,105,732,080
Treasury stock, shares	30,000	30,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
Revenue	$ 5,932,238	$ 191,667
Cost of revenue	2,932,614	199,842
Gross profit (loss)	2,999,624	(8,175)
Operating expenses:
Salaries, wages and benefits	1,454,074
Share-based compensation	154,368	1,612,286
Professional fees	292,696	192,029
Advertising	446,695	20,483
Rent	293,171
Service charges	183,577	1,126
Depreciation and amortization	243,923	49,653
Other operating	781,673	120,303
Total operating expenses	3,850,177	1,995,880
Loss from operations	(850,553)	(2,004,055)
Other income (expense):
Gain on settlement of debt, net		14,945
Interest expense	(604,714)	(99,663)
Change in fair value of derivative liabilities		(1,044,250)
Other income (expense), net	(23,056)	(151)
Total other expense, net	(627,770)	(1,129,119)
Net loss	(1,478,323)	(3,133,174)
Net loss attributable to noncontrolling interest	110,946
Net loss attributable to Vystar	$ (1,367,377)	$ (3,133,174)
Basic and diluted loss per share:
Net loss per share	$ (0.00)	$ (0.00)
Basic and diluted weighted average number of common shares outstanding	1,105,732,080	770,752,984

XML

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Treasury Stock [Member]	Total Vystar Stockholders' Deficit [Member]	Noncontrolling Interest [Member]	Total
Beginning balance at Dec. 31, 2018	$ 1	$ 45,774	$ 31,485,532	$ (33,400,345)		$ (1,869,038)		$ (1,869,038)
Beginning balance, shares at Dec. 31, 2018	13,828	457,747,818
Common stock issued for services		$ 14,771	2,017,465			2,032,236		2,032,236
Common stock issued for services, shares		147,704,875
Share based compensation - options			17,783			17,783		17,783
Common stock issued for settlement of warrants		$ 7,725	324,717			332,442		332,442
Common stock issued for settlement of warrants, shares		77,246,324
Common stock issued for cash received, net		$ 14,493	420,307			434,800		434,800
Common stock issued for cash received, net, shares		144,933,992
Common stock issued for conversion of related party line of credit		$ 251	143,278			143,529		143,529
Common stock issued for conversion of related party line of credit, shares		2,512,900
Common stock issued upon conversion of convertible notes and settlement of derivatives		$ 22,732	1,320,931			1,343,663		1,343,663
Common stock issued upon conversion of convertible notes and settlement of derivatives, shares		227,336,218
Treasury stock repurchases					$ (30)	(30)		(30)
Treasury stock repurchases, shares					(30,000)
Net loss				(3,133,174)		(3,133,174)		(3,133,174)
Ending balance at Mar. 31, 2019	$ 1	$ 105,746	35,730,013	(36,533,519)	$ (30)	(697,789)		(697,789)
Ending balance, shares at Mar. 31, 2019	13,828	1,057,482,127			(30,000)
Beginning balance at Dec. 31, 2018	$ 1	$ 45,774	31,485,532	(33,400,345)		(1,869,038)		(1,869,038)
Beginning balance, shares at Dec. 31, 2018	13,828	457,747,818
Ending balance at Dec. 31, 2019	$ 1	$ 110,573	38,436,607	(41,104,967)	$ (30)	(2,557,816)	1,325,272	(1,232,544)
Ending balance, shares at Dec. 31, 2019	13,828	1,105,762,080			(30,000)
Common stock and warrants issued for services			5,562			5,562		5,562
Net loss				(1,367,377)		(1,367,377)	(110,946)	(1,478,323)
Ending balance at Mar. 31, 2020	$ 1	$ 110,573	$ 38,442,169	$ (42,472,344)	$ (30)	$ (3,919,631)	$ 1,214,326	$ (2,705,305)
Ending balance, shares at Mar. 31, 2020	13,828	1,105,762,080			(30,000)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Cash flows from operating activities:
Net loss	$ (1,478,323)	$ (3,133,174)
Adjustments to reconcile net loss to cash used in operating activities:
Gain on settlement of debt		(14,945)
Share-based compensation	154,368	1,612,286
Depreciation	139,684	10,232
Bad debts	5,317
Amortization of intangible assets	104,239	39,421
Noncash lease expense	32,166
Unamortized term debt issuance costs	(14,208)
Amortization of debt discount	315,875	73,519
Change in fair value of derivative liabilities		1,044,250	$ 1,079,450
Net unrealized loss on available-for-sale investments	50,422
(Increase) decrease in assets:
Accounts receivable	(6,946)	(513)
Inventories	242,971	(25,093)
Prepaid expenses and other assets	291,504	6,235
Deferred commission costs	10,087
Increase (decrease) in liabilities:
Accounts payable	278,065	(23,746)
Accrued expenses and interest payable	(289,705)	1,164
Unearned revenue	(26,306)
Net cash used in operating activities	(190,790)	(410,364)
Cash flows from investing activities:
Patents and trademark fees	(3,683)	(2,839)
Website development costs		(500)
Net cash used in investing activities	(3,683)	(3,339)
Cash flows from financing activities:
Net repayments on line of credit	(249,977)
Proceeds from the issuance of term debt	808,500	(146,176)
Repayment of term debt	(40,852)
Repayment of finance lease obligations	(42,462)
Proceeds from the issuance of notes - related parties	50,000	217,000
Issuance of common stock, net of costs		731,020
Treasury stock repurchases		(30)
Net cash provided by financing activities	525,209	801,814
Net increase in cash	330,736	388,111
Cash - beginning of period	72,355	50,053	50,053
Cash - end of period	403,091	438,164	$ 72,355
Cash paid during the period for:
Interest	224,433	16,209
Non-cash transactions:
Shareholder and convertible notes and accrued interest payable converted to common stock		1,487,192
Common stock issued for accrued compensation		771,203
Common stock issued for settlement of warrant exercises		32,442
Settlement of derivative liabilities		$ 1,279,335

XML

Description of Business

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Description of Business

NOTE 1 - DESCRIPTION OF BUSINESS

History and Nature of Business

Vystar Corporation (“Vystar”, the “Company”, “we,” “us,” or “our”) is based in Worcester, Massachusetts. The Company uses patented technology to produce a line of innovative air purifiers, which destroy viruses and bacteria through the use of ultraviolet light. Vystar also manufactures and sells reduced allergen natural rubber latex used primarily in various bedding products. In addition, Vystar has a majority ownership in Murida Furniture Co., Inc. dba Rotmans Furniture (“Rotmans”), the largest furniture and flooring store in New England and one of the largest independent furniture retailers in the U.S.

Vystar is the creator and exclusive owner of the innovative technology to produce Vytex^® Natural Rubber Latex (“NRL”). Vytex NRL uses a global multi-patented technology and proprietary formulation to reduce non-rubber particles including the antigenic proteins associated with latex allergies, resulting in a cleaner form of latex. The antigenic protein levels are reduced to virtually undetectable levels.

In May of 2018, Vystar acquired substantially all of the assets of UV Flu Technologies, Inc., formerly traded on the OTC under the ticker UVFT, whose patented ViraTech™ UV light air purification technology destroys greater than 99% of airborne bacteria, viruses and other microorganisms and virtually eliminates concentrations of odors and volatile organic compounds (“VOCs”).

As part of Vystar’s mission to offer eco-friendly, sustainable materials and products that create a better environment for consumers and workers throughout the product lifecycle, UV Flu Technologies is an excellent counterpart to our Vytex materials and Vytex bedding products. Vystar products will help create a perfect natural sleep environment starting with Vytex bedding made from the purest latex in the world and UV Flu Technologies’ RxAir™ air purifier ensuring every breath is free of harmful pathogens, VOCs and odors.

In May of 2019, Vystar acquired the assets of Fluid Energy Conversion Inc. (“FEC”), primarily consisting of its patent on the Hughes Reactor, which has the ability to control, enhance, and focus energy in flowing liquids and gases. Vystar intends to use this technology to enhance the effectiveness of Vystar’s RxAir purification system to destroy airborne pathogens while decreasing the cost and size of Vystar’s RxAir units.

In July of 2019, Vystar acquired 58% of the outstanding shares of common stock of Rotmans. Rotmans sells a broad line of residential furniture and decorative accessories and serves customers throughout the New England region. The acquisition is expected to add approximately $30 million in top line revenue and enable Vystar to capitalize on the infrastructure already in place at Rotmans for accounting, retail sales facilities and staff, customer service, warehousing, and delivery. In addition, Rotmans will offer significant marketing and advertising opportunities for all of Vystar’s brands to Rotmans’ thousands of existing customers. The Company and Rotmans are exploring a number of initiatives relating to environmentally friendly product development and distribution that will utilize the access to the capital markets afforded by this combination.

XML

Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

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

Basis of Presentation

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification.

The Company has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission. Other than those events disclosed in Note 18, the Company is not aware of any other significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Company’s financial statements.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned or controlled operating subsidiaries. All significant intercompany accounts and transactions have been eliminated.

COVID-19

In December 2019, a novel coronavirus (“COVID-19”) emerged and has subsequently spread worldwide. The World Health Organization has declared COVID-19 a pandemic resulting in federal, state, and local governments mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. On March 24, 2020, Massachusetts required all non-essential businesses to close their physical workplaces. As a result, the Rotmans showroom, offices and warehouse temporarily closed. During that time, associates worked remotely where possible. The Company re-opened on June 10, 2020 and continues to monitor developments, including government requirements and recommendations.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results for the entire year. The pandemic has resulted in significant economic disruption. Although our showroom has reopened, we cannot reasonably estimate the impact on Vystar should the pandemic persist or worsen. Accordingly, the estimates and assumptions made as of March 31, 2020 could change in subsequent interim reports and upon final determination at year-end, and it is reasonably possible that such changes could be significant (although the potential effects cannot be measured at this time).

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment with different operating segments.

Estimates

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

Fair Value of Financial Instruments

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

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

Valuation inputs are classified in the following hierarchy:

● Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

● Level 2 inputs are directly or indirectly observable valuation inputs for the asset or liability, excluding Level 1 inputs.

● Level 3 inputs are unobservable inputs for the asset or liability.

Highest priority is given to Level 1 inputs and the lowest priority to Level 3 inputs. Acceptable valuation techniques include the market approach, income approach, and cost approach. In some cases, more than one valuation technique is used. The derivative liabilities were recognized at fair value on a recurring basis through the date of the settlement and March 31, 2020 and are level 3 measurements. There have been no transfers between levels during the three months ended March 31, 2020.

Acquisitions

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

Cash and Cash Equivalents

Cash and cash equivalents include all liquid investments with a maturity date of less than three months when purchased. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions which typically settle within five days.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company routinely sells, without recourse, trade receivables resulting from retail furniture sales to various financial institutions at an average service charge of 5.9% in 2020. Amounts sold during the first quarter of 2020 were approximately $1,691,000. There were no sales of trade receivables in the first quarter of 2019. Retail furniture receivables retained by the Company are generally collateralized by the merchandise sold, represent valid claims against debtors for sales arising on or before the balance sheet date and are reduced to their estimated net realizable value. In addition, the Company grants credit to Vytex customers without requiring collateral. The amount of accounting loss for which Vystar is at risk in these unsecured accounts receivable is limited to their carrying value. Management provides for uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based upon its assessment of the current status of individual accounts. Balances that are still outstanding after management has performed reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of March 31, 2020 and December 31, 2019, the Company considers accounts receivable to be fully collectible and no allowance for doubtful accounts was recorded.

Inventories

Inventories include those costs directly attributable to the product before sale. Inventories consist primarily of finished goods of foam toppers, furniture, mattresses and pillows and are carried at net realizable value, which is defined as selling price less cost of completion, disposal and transportation. The Company evaluates the need to record write-downs for inventory on a regular basis. Appropriate consideration is given to obsolescence, slow-moving and other factors in evaluating net realizable values. Inventories not expected to be sold within 12 months are classified as long-term.

Prepaid Expenses and Other Assets

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

Investments - Equity Securities

Marketable equity securities have been categorized as available-for-sale and, as a result, are stated at fair value. Unrealized gains and losses are reflected in the statement of operations. The Company periodically reviews the available-for-sale securities for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of March 31, 2020, the Company believes that the carrying value of the available-for-sale securities was recoverable in all material respects.

Property and Equipment

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

Expenditures for major renewals and betterments are capitalized, while routine repairs and maintenance are expensed as incurred. When property items are retired or otherwise disposed of, the asset and related reserve accounts are relieved of the cost and accumulated depreciation, respectively, and the resultant gain or loss is reflected in earnings. As of March 31, 2020, the net balance of property and equipment is $1,787,616 with accumulated depreciation of $300,922. As of December 31, 2019, the net balance of property and equipment is $1,879,739 with accumulated depreciation of $208,799.

Intangible Assets

Patents represent legal and other fees associated with the registration of patents. The Company has five issued patents with the United States Patent and Trade Office (“USPTO”) as well as five issued international Patent Cooperation Treaty (“PCT”) patents. Patents are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 9 to 20 years.

The Company has trademark protection for “Vystar”, “Vytex”, and “RxAir” among others. Trademarks are carried at cost and since their estimated life is indeterminable, no amortization is recognized. Instead, they are evaluated annually for impairment.

Customer relationships, tradename and marketing related intangibles are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 5 to 10 years.

Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the three months ended March 31, 2020 and 2019, we did not recognize any impairment of our long-lived assets.

Goodwill

Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Goodwill is not amortized, rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. We perform our annual impairment test at the end of each calendar year, or more frequently if events or changes in circumstances indicate the asset might be impaired.

Accounting for acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.

The impairment model permits, and we utilize, a simplified approach for determining goodwill impairment. In the first step, we evaluate the recoverability of goodwill by estimating the fair value of our reporting unit using multiple techniques, including an income approach using a discounted cash flow model and a market approach. Based on an equal weighting of the results of these two approaches, a conclusion of fair value is estimated. The fair value is then compared to the carrying value of our reporting unit. If the fair value of a reporting unit is less than its carrying value, the Company recognizes this amount as an impairment loss. Impairment losses, limited to the carrying value of goodwill, represent the excess of the carrying amount of goodwill over its implied fair value.

Convertible Notes Payable

Borrowings are recognized initially at the principal amount received. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as interest expense in the statements of operations over the period of the borrowings using the effective interest method.

Derivatives

The Company evaluates its debt instruments or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of Accounting Standards Codification (“ASC”) Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

The Company applies the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instrument or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. From time to time, the Company has issued notes with embedded conversion features. Certain of the embedded conversion features contain price protection or anti-dilution features that result in these instruments being treated as derivatives for accounting purposes. Accordingly, during the three months ended March 31, 2020 and 2019, the Company has classified all conversion features as derivative liabilities and has estimated the fair value of these embedded conversion features using a Monte Carlo simulation model.

Unearned Revenue

Unearned revenue consists of customer advance payments, deposits on sales of undelivered merchandise and deferred warranty revenue on self-insured stain protection warranty coverage. There was no unearned revenue during the three months ended March 31, 2019.

Changes to unearned revenue during the three months ended March 31, 2020 are summarized as follows:

Balance, December 31, 2019	$	2,500,572
Customer deposits received		4,930,536
Warranty coverage purchased		98,309
Gift cards purchased		2,500
Revenue earned		(5,057,651	)
Balance, March 31, 2020	$	2,474,266

Loss Per Share

The Company presents basic and diluted loss per share. Because the Company reported a net loss in the first quarter of 2020 and 2019, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same. Excluded from the computation of diluted loss per share were options to purchase 27,983,271 and 29,098,270 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, as their effect would be anti-dilutive. Warrants to purchase 14,237,315 and 14,382,380 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive. In addition, preferred stock convertible to 4,661,180 and 4,382,730 shares of common stock three months ended March 31, 2020 and 2019, respectively, were excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

Revenue

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

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

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

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to retail, e-commerce and print media customers, upon request, within 30 days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do not offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. As of March 31, 2020 and December 31, 2019, reserves for estimated sales returns totaled $3,000, respectively, and are included in the accompanying consolidated balance sheets as accrued expenses.

We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped based on fulfillment by the Company. The Company considers fulfillment when it passes all liability at the point of shipping through third party carriers or in-house delivery services. Delivery fees are charged to customers and are included in revenue in the accompanying consolidated statements of operations and the costs associated with these deliveries are included in operating expenses in the accompanying consolidated statements of operations. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenue in the accompanying consolidated statements of operations.

The Company also defers revenues for separately-priced stain protection warranty coverage for which it is ultimately self-insured. Revenue is recognized from the extended warranty sales on a straight-line basis over the respective contract term. The extended warranty terms primarily range from three to five years from the date of delivery. At March 31, 2020, deferred warranty revenue was approximately $812,000 and is included in unearned revenue in the accompanying consolidated balance sheets. During the three months ended March 31, 2020, the Company recorded total proceeds of approximately $98,000 and recognized total revenues of approximately $134,000 related to deferred warranty revenue arrangements. Commission costs in obtaining extended warranty contracts are capitalized and recognized as expense on a straight-line basis over the period of the warranty contract. At March 31, 2020, deferred commission costs are approximately $336,000 and included in the accompanying consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising costs are expensed as incurred.

Cost of Revenue

Cost of revenue consists primarily of product and freight costs and fees paid to online retailers.

Research and Development

Research and development costs are expensed when incurred. Research and development costs include all costs incurred related to the research, development and testing of the Company’s process to produce Vytex NRL.

Vytex NRL has produced protein test results on finished products that are both “below detection” and “not detectable” in terms of the amount of proteins remaining in these finished goods made with Vytex NRL. These results have been reproduced in many subsequent tests. For the three months ended March 31, 2020 and 2019, Vystar’s research and development costs were not significant.

Advertising Costs

Advertising costs, which include television, radio, newspaper and other media advertising, are expensed upon first showing. Advertising costs included in general and administrative expenses in the accompanying consolidated statements of operations were approximately $447,000 and $20,000 for the three months ended March 31, 2020 and 2019, respectively.

Share-Based Compensation

The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of restricted stock awards is determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they occur. Compensation expense is recognized on a straight-line basis over the requisite service period of the award.

Income Taxes

Vystar recognizes income taxes on an accrual basis based on a tax position taken or expected to be taken in its tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets or liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold will be measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more likely than not be realized. Should they occur, interest and penalties related to tax positions are recorded as interest expense. No such interest or penalties have been incurred for the three months ended March 31, 2020 and 2019.

The Company remains subject to income tax examinations from Federal and state taxing jurisdictions for 2016 through 2019.

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 operating accounts may exceed the Federal Deposit Insurance Corporation, or FDIC, insurance limits. While the Company monitors cash balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, the Company has experienced no loss or lack of access to our cash; however, the Company can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets. Credit concentration risk related to accounts receivable is mitigated as customer credit is checked prior to the sales and accounts receivable consists of a high number of relatively small balances.

Other Risks and Uncertainties

The Company is exposed to commodity price risk, mainly associated with variations in the market price for NRL as well as wintering of the Hevea trees, which differs for each country. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions including the buying climate in China. The Company responds to changes in NRL prices by adjusting sales prices on a weekly basis and by turning rather than holding inventory in anticipation of higher prices. The Company actively manages its exposure to commodity price risk and monitors the actual and expected spread between forward selling prices and purchase costs and processing and shipping expense. The Company also currently spreads the processing of Vytex NRL among three continents. Sales contracts are based on forward market prices, and generally orders are placed 30 to 90 days ahead of shipment date due to these fluctuations. However, financial results may be negatively impacted where selling prices fall more quickly than purchase price adjustments can be made or when levels of inventory have an anticipated net realizable value that is below cost. The Company is also exposed to risks pertinent to the operations of a retailer, including, but not limited to, the ability to acquire new customers and maintain a strong brand as well as broader economic factors such as interest rates and changes in customer spending patterns.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company has evaluated the disclosure requirements of this standard and does not expect it to have a material impact on the Company’s financial statements.

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Liquidity and Going Concern

3 Months Ended

Mar. 31, 2020

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 U.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, the Company has incurred significant losses and experienced negative cash flow since inception. At March 31, 2020, the Company had cash of $403,091 and a deficit in working capital of approximately $7.8 million. Further, at March 31, 2020 the accumulated deficit amounted to approximately $42.5 million. We use working capital to finance our ongoing operations, and since those operations do not currently cover all our operating costs, managing working capital is essential to our Company’s future success. Because of this history of losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern.

A successful transition to attaining profitable operations is dependent upon obtaining sufficient financing to fund the Company’s planned expenses and achieving a level of revenue adequate to support the Company’s cost structure. Management plans to finance future operations using cash on hand, increased revenue from RxAir air purification units and Vytex license fees that now also include the Company’s association with foam cores made from Vytex used in mattresses, mattress toppers and pillows, and stock warrant exercises from existing shareholders. The Company has also focused the efforts of key internal employees on the goal of creating efficiencies in each department in our retail furniture business, including purchasing, marketing, inventory control, advertising, accounting, warehousing and customer service. In addition, the Company has invested in new accounting and operations software, which will improve our ability to control inventory levels and monitor the financial performance of our operations.

There can be no assurances that the Company will be able to achieve projected levels of revenue in 2020 and beyond. If the Company is not able to achieve projected revenue and obtain alternate additional financing of equity or debt, the Company would need to significantly curtail or reorient operations during 2020, which could have a material adverse effect on the ability to achieve the business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.

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

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Investments - Equity Securities

3 Months Ended

Mar. 31, 2020

Investments, All Other Investments [Abstract]

Investments - Equity Securities

NOTE 4 - INVESTMENTS – EQUITY SECURITIES

Cost and fair value of investments - equity securities are as follows as of March 31, 2020:

		Gross			Fair
Cost		Unrealized Losses			Value
$	141,225	$	(42,130	)	$	99,095

Net unrealized holding losses on available-for-sale securities were approximately $50,000 in the first quarter of 2020 and have been included in other income (expenses) in the accompanying statements of operations. There were no investments – equity securities prior to the Rotmans acquisition in July 2019. Investments represent equity securities in a publicly traded company.

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Property and Equipment

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following:

	March 31,			December 31,
	2020			2019
Furniture, fixtures and equipment	$	1,354,665		$	1,354,665
Tooling and testing equipment		319,000			319,000
Parking lots		365,707			365,707
Motor vehicles		49,166			49,166
		2,088,538			2,088,538
Accumulated depreciation		(300,922	)		(208,799	)
Property and equipment, net	$	1,787,616		$	1,879,739

Depreciation expense for the three months ended March 31, 2020 and 2019 was $139,684 and $10,232, respectively.

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Intangible Assets

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

NOTE 6 - INTANGIBLE ASSETS

Intangible assets consist of the following:

							Amortization
	March 31,			December 31,			Period
	2020			2019			(in Years)
Amortized intangible assets:
Customer relationships	$	210,000		$	210,000			6 - 10
Proprietary technology		610,000			610,000			10
Tradename and brand		1,380,000			1,380,000			5 - 10
Marketing related		380,000			380,000			5
Patents		359,101			355,418			6 - 20
Noncompete		50,000			50,000			5
Total		2,989,101			2,985,418
Accumulated amortization		(609,117	)		(504,878	)
Intangible assets, net		2,379,984			2,480,540
Indefinite-lived intangible assets:
Trademarks		9,072			9,072
Total intangible assets	$	2,389,056		$	2,489,612

Amortization expense for the three months ended March 31, 2020 and 2019 was $104,239 and $39,421, respectively. Estimated future amortization expense for finite-lived intangible assets is as follows:

	Amount
Remaining in 2020	$	312,716
2021		416,956
2022		417,140
2023		410,529
2024		311,306
Thereafter		511,337
Total	$	2,379,984

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Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

NOTE 7 - LEASES

The Company leases equipment, a showroom, offices and warehouse facilities. These leases expire at various dates through 2024 with options to extend to 2031.

The table below presents the lease costs for the three months ended March 31, 2020:

	March 31, 2020
Operating lease cost	$	394,348
Finance lease cost:
Amortization of right-of-use assets		47,561
Interest on lease liabilities		11,690
Total lease cost	$	453,599

During the three months ended March 31, 2020, the Company recognized sublease income of approximately $27,000 which is included in other income (expense), net in the accompanying condensed consolidated statements of operations.

There were no lease costs for the three months ended March 31, 2019.

Our leases generally do not provide an implicit rate, and therefore we use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. We used incremental borrowing rates as of the implementation date for operating leases that commenced prior to that date.

The following table presents other information related to leases:

	Three months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	372,884
Financing cash flows used for financing leases		54,152
Assets obtained in exchange for operating lease liabilities		-
Assets obtained in exchange for finance lease liabilities		75,739
Weighted average remaining lease term:
Operating leases		9 years
Finance leases		6 years
Weighted average discount rate:
Operating leases		5.53	%
Finance leases		5.16	%

The future minimum lease payments required under operating and financing lease obligations as of March 31, 2020 having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:

	Operating Leases			Finance Leases			Total
Remainder of 2020	$	1,127,733		$	160,156		$	1,287,889
2021		1,503,643			205,545			1,709,188
2022		1,110,794			150,943			1,261,737
2023		880,275			150,142			1,030,417
2024		870,000			140,002			1,010,002
Thereafter		5,220,000			207,475			5,427,475
Total undiscounted lease liabilities		10,712,445			1,014,263			11,726,708
Less: imputed interest		(2,409,937	)		(135,739	)		(2,545,676	)
Net lease liabilities	$	8.302,508		$	878,524		$	9,181,032

As of March 31, 2020, the Company does not have additional operating and finance leases that have not yet commenced.

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Notes Payable and Loan Facility

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Notes Payable and Loan Facility

NOTE 8 - NOTES PAYABLE AND LOAN FACILITY

Line of Credit

At March 31, 2020, the Company had a $2,500,000 revolving line of credit with Fidelity Co-operative Bank. Advances were limited to 50% of eligible inventory and bore interest at the prime rate plus 0.50% with a floor of 3.75%. The interest rate was 3.75% at March 31, 2020. The line of credit was due upon demand and subject to renewal annually. It was secured by all assets of the Company and subject to certain financial and non-financial covenants. The Company was not in compliance with certain covenants and was in default at March 31, 2020. The credit line was subsequently paid-off on May 29, 2020. Indebtedness to existing and future Rotman Family notes were subordinated to the bank debt. The line was also secured with a mortgage on a property of a wholly-owned entity of Steven Rotman.

Borrowings under this agreement at March 31, 2020 were approximately $2,164,000.

Related Party Line of Credit (CMA Note Payable)

On November 2, 2012, the Company executed a $1,500,000 unsecured line of credit agreement with CMA Investments, LLC (“CMA”), a related party and a Georgia limited liability company (the “CMA Note”). Three of the directors the Company (“CMA directors”) were initially the members of CMA Investments, LLC. Pursuant to the term of the CMA Note, interest is computed at LIBOR plus 5.25% on amounts drawn and fees. The CMA Note was settled in July 2019.

Term Notes

Certain investors guaranteed $100,000 each with Fidelity Bank to establish a $500,000 revolving line of credit. At the present time, the Company is paying interest only at a rate of 4.5% per annum, with a balloon payment of $500,000 due in 2033. The balance is $500,000 as of March 31, 2020 and December 31, 2019.

Other term debt totaling $13,397 and $16,374 at March 31, 2020 and December 31, 2019, respectively, represents three 0% loans on motor vehicles, requiring cumulative monthly payments of $1,488 through maturity in November 2020.

On February 24, 2020, the Company entered into an agreement with Libertas Funding LLC (“Libertas”) to sell future sale receipts totaling $1,089,000 for a purchase price of $825,000. The sold amount of future sales receipts are delivered weekly to Libertas at predetermined amounts over a period of nine months. The agreement contains an early delivery discount fee for delivering the future revenues before the end of the contract term and an origination fee of $16,500, which has been capitalized and is being amortized over the term of the agreement. The implicit borrowing rate of the agreement is approximately 75%. The agreement is personally guaranteed by Steven Rotman. As of March 31, 2020, current maturities of term notes include $756,417 related to this agreement.

Shareholder, Convertible and Contingently Convertible Notes Payable

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

	March 31,			December 31,
	2020			2019
Shareholder, convertible and contingently convertible notes	$	951,895		$	951,895
Accrued interest		58,467			46,569
Debt discount		(79,400	)		(137,775	)
		930,962			860,689
Less: current maturities		(611,281	)		(366,326	)
	$	319,681		$	494,363

Shareholder Convertible Notes Payable

During the year ended December 31, 2018, the Company issued shareholder contingently convertible notes payable (the “Notes”), some of which were for contract work performed by other entities in lieu of compensation and expense reimbursement, totaling approximately $335,000. The Notes are (i) unsecured, (ii) bear interest at an annual rate of five percent (5%) per annum from date of issuance, and (iii) are convertible at the Company’s option post April 19, 2018. The Notes mature one year from issuance but may be extended one (1) additional year by the Company. If converted, the Notes plus accrued interest are convertible into shares of the Company’s common stock at the prior twenty (20) day average closing price with a 50% discount. The outstanding balance of all of these Notes of as March 31, 2020 and December 31, 2019 is $338,195. The Notes matured in January 2020.

During the year ended December 31, 2019, the Company issued certain contingently convertible promissory notes in varying amounts to existing shareholders which totaled $613,700. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying a 35% to 50% discount. These notes can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. All of these notes are outstanding as of March 31, 2020.

Based on the variable conversion price of these notes, the Company recorded the embedded conversion features as derivative liabilities, which amounted to $442,934 at December 31, 2019. There were no significant changes to this measurement at March 31, 2020.

Convertible and Contingently Convertible Notes Payable

From January 1, 2018 and through 2019, the Company had issued certain convertible and contingently convertible notes payable in varying amounts, in the aggregate of $710,000. The face amount of the notes represented the amount due at maturity along with the accrued interest, at which time that amount may be converted into shares of the Company stock based on the lowest 2 day closing price for the trailing 20 days prior to conversion and carrying a 35% discount. The convertible and contingently convertible notes provided for interest to accrue at an interest rate equal to 12% per annum or the maximum rate permitted under applicable law after the occurrence of any event of default as provided in the notes. At any time after 180 days from the issue date, the holder, at its option, may convert the outstanding principal balance and accrued interest into shares of common stock of the Company. The initial conversion price for the principal and interest in connection with voluntary conversions by a holder of the convertible and contingently convertible notes ranges from $0.05 to $0.10 per share, subject to adjustment as provided therein. The total outstanding balance of the convertible and contingently convertible notes was converted as of December 31, 2019 into approximately 303 million shares of the Company’s common stock. Based on the variable conversion price, the Company recorded initial derivative liabilities of $465,905. The remaining balance of $235,085, net of discount, as of December 31, 2018 was reduced to zero in 2019 after a change in fair value of $1,044,250 and a settlement of $1,279,335 to the balance of the derivative liabilities upon the date all notes were converted.

In connection with the issuance of the convertible and contingently convertible notes, the Company issued warrants to purchase 411,875 shares of the Company’s common stock. The exercise term of the warrants ranges from issuance to any time on or after the six (6) month anniversary or prior to the maturity of the related note. The exercise price of the warrants is $0.40 per share of the Company’s common stock, as may be adjusted from time to time pursuant to the antidilution provisions of the related warrant. Pursuant to ASU 2017-11, such antidilution features do not subject the Company to derivative accounting pursuant to ASC 815. All warrants were forfeited during the year ended December 31, 2019 upon negotiation and conversion of the remaining outstanding balances.

Related Party Debt

The following table summarizes related party debt:

	March 31,			December 31,
	2020			2019
Rotman Family convertible notes	$	1,832,707		$	1,782,707
Rotman Family nonconvertible notes		507,500			507,500
Accrued interest		83,190			53,153
Debt Discount		(327,600	)		(585,100	)
		2,095,797			1,758,260
Less: current maturities		(46,000	)		(46,000	)
	$	2,049,797		$	1,712,260

Rotman Family Convertible Notes

On June 30, 2019, the Company issued contingently convertible promissory notes totaling $180,000, to Steven Rotman ($105,000) and Greg Rotman ($75,000). These notes are (i) unsecured, (ii) bear interest at an annual rate of eight percent (8%) per annum from date of issuance, (iii) are convertible at the Company’s option after December 31, 2019, and (iv) mature five years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at the average of the five lowest closing prices in the 90-day period prior to conversion with a 50% discount. The balance of the notes payable including accrued interest to Steven and Greg Rotman is approximately $111,000 and $59,000, respectively, at March 31, 2020 and approximately $109,000 and $57,000, respectively, at December 31, 2019.

On July 18, 2019, the Company issued contingently convertible notes totaling $1,522,500, to Steven Rotman ($1,102,500) and Bernard Rotman ($420,000) as partial consideration for the acquisition of 58% of Rotmans (see Note 18). These notes are (i) unsecured, and (ii) bear interest at an annual rate of eight percent (8%) per annum from date of issuance. These notes can be converted only after an acceleration event which involves a symbol change, or reverse stock split and such conversion is in the control of the Company. Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at a 20-day average closing price at a 50% discount. The balance of the notes payable including accrued interest to Steven and Bernard Rotman were approximately $1,142,000 and $435,000, respectively, at March 31, 2020 and approximately $1,128,000 and $430,000, respectively, at December 31, 2019.

On December 19, 2019, the Company issued a contingently convertible promissory note totaling $100,000, to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $101,000 and $100,000 at March 31, 2020 and December 31, 2019, respectively.

On February 20, 2020, the Company issued a contingently convertible promissory note totaling $50,000, to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $50,000, at March 31, 2020.

Based on the variable conversion price for all of these convertible notes, the Company recorded the embedded conversion features as derivative liabilities, which amounted to $1,056,866 at December 31, 2019. There were no significant changes to this measurement at March 31, 2020.

Rotman Family Nonconvertible Notes

In connection with the acquisition of 58% of Rotmans (see Note 18), Steven and Bernard Rotman were issued related party notes payable in the amounts of $367,500 and $140,000, respectively. The notes bear interest at an annual rate of five percent (5%). Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. Payments of $3,828 and $2,917 to Steven and Bernard Rotman, respectively, per month begin six months from issuance until maturity in December 2027 and 2023, respectively. The balance of these notes payable including accrued interest to Steven and Bernard Rotman is approximately $381,000 and $145,000, respectively, at March 31, 2020 and approximately $376,000 and $143,000, respectively, at December 31, 2019.

Approximate maturities for the succeeding years are as follows:

Remainder of 2020	$	46,000
2021		59,000
2022		62,000
2023		85,000
2024		34,000
Thereafter		221,500
	$	507,500

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Derivative Liabilities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liabilities

NOTE 9 - DERIVATIVE LIABILITIES

As of March 31, 2020, the Company had a $1,499,800 derivative liability balance on the consolidated balance sheet and recorded a loss from change in fair value of derivative liabilities of $1,079,450 for the year ended December 31, 2019. The derivative liability activity comes from the Convertible notes payable (and any related warrants). The Company analyzed the conversion features and warrants of the various note agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these Convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion feature of the notes and recorded a derivative liability.

The embedded derivatives for the notes are carried on the Company’s consolidated balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the consolidated statement of operations and the associated fair value carrying amount on the consolidated balance sheet is adjusted by the change. The Company fair values the embedded derivative using a lattice-based valuation model or Monte Carlo simulation.

The following table summarizes the derivative liabilities included in the consolidated balance sheet at March 31, 2020:

Fair Value of Embedded Derivative and Warrant Liabilities:

Balance, December 31, 2018	$	235,085
Initial measurement of liabilities		1,464,600
Change in fair value		1,079,450
Settlement due to conversion		(1,279,335	)
Balance, December 31, 2019		1,499,800
Change in fair value		-
Settlement due to conversion		-
Balance, March 31, 2020	$	1,499,800

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Stockholders' Deficit

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Stockholders' Deficit

NOTE 10 - STOCKHOLDERS’ DEFICIT

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 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 nine-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.

As of March 31, 2020, the 13,828 shares of outstanding preferred stock had undeclared dividends of approximately $95,000 and could be converted into 4,661,180 shares of common stock, at the option of the holder.

As of December 31, 2019, the 13,828 shares of outstanding preferred stock had undeclared dividends of approximately $91,000 and could be converted into 4,591,100 shares of common stock, at the option of the holder.

Common Stock and Warrants

During the three months ended March 31, 2020, no shares were issued under equity purchase agreements.

During the three months ended March 31, 2020, no shares were issued for the conversion of principal and interest.

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Revenues

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Revenues

NOTE 11 - REVENUES

The following table presents our revenues disaggregated by each major product category and service for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020				2019
			% of				% of
	Net Sales		Net Sales		Net Sales		Net Sales
Merchandise:
Case Goods
Bedroom Furniture	$	861,123		14.5	$	-		-
Dining Room Furniture		522,114		8.8		-		-
Occasional		960,379		16.2		-		-
		2,343,616		39.5		-		-
Upholstery		1,617,547		27.3		-		-
Mattresses and Toppers		1,071,327		18.1		179,017		93.4
Broadloom, Flooring and Rugs		406,879		6.9		-		-
Warranty		98,309		1.7		-		-
Accessories and Other		394,560		6.7		12,650		6.6
	$	5,932,238		100.0	$	191,667		100.0

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Share-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

NOTE 12 - 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 $154,368 and $1,612,286 of stock-based compensation for the three months ended March 31, 2020 and 2019, respectively, including shares to be issued related to consultants and board member stock options and common stock and warrants issued to non-employees. Included in stock subscription payable is accrued stock-based compensation of $993,981 and $845,175 at March 31, 2020 and December 31, 2019, respectively.

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 three months ended March 31, 2020:

● Expected Dividend Yield - because the Company does not currently pay dividends, the expected dividend yield is zero;

● Expected Volatility in Stock Price - volatility based on the Company’s trading activity was used to determine expected volatility;

● Risk-free Interest Rate - reflects the average rate on a United States Treasury Bond with a maturity equal to the expected term of the option; and

● Expected Life of Award - because we have minimal experience with the exercise of options or warrants for use in determining the expected life of each award, we used the option or warrant’s contractual term as the expected life.

In total for the three months ended March 31, 2020 and 2019, the Company recorded $5,562 and $17,783, respectively, of share-based compensation expense related to employee and Board Members’ stock options. The unrecognized compensation expense as of March 31, 2020 was $43,371 for non-vested share-based awards to be recognized over a period of approximately three years.

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 March 31, 2020, there are 2,251,729 shares of common stock available for issuance under the Plan. In 2014, the Board of Directors adopted an additional stock option plan which provides for an additional 5,000,000 shares which are all available as of March 31, 2020. In 2019, the Board of Directors adopted an additional stock option plan with provides for 50,000,000 shares which are all available as of March 31, 2020. 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.

There were no options granted during the three months ended March 31, 2020.

The following table summarizes all stock option activity of the Company for the three months ended March 31, 2020:

					Weighted
			Weighted		Average
			Average		Remaining
	Number		Exercise		Contractual
	of Shares		Price		Life (Years)
Outstanding, December 31, 2019		27,983,271	$	0.20		3.45
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding, March 31, 2020		27,983,271	$	0.20		3.20
Exercisable, March 31, 2020		26,783,271	$	0.21		3.42

As of March 31, 2020, and 2019, the aggregate intrinsic value of the Company’s outstanding options was approximately $1,000 and $52,000, respectively. The aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Warrants

Warrants are issued to third parties as payment for services, debt financing compensation and conversion 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 following table represents the Company’s warrant activity for the three months ended March 31, 2020:

							Weighted
							Average
			Weighted		Weighted		Remaining
	Number		Average		Average		Contractual
	of Shares		Fair Value		Exercise Price		Life (Years)
Outstanding, December 31, 2019		14,237,646			$	0.07		3.58
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Expired		-		-		-		-
Outstanding, March 31, 2020		14,237,646				0.07		3.28
Exercisable, March 31, 2020		14,237,646			$	0.07		3.28

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Related Party Transactions

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

Related Party Transactions

NOTE 13 - RELATED PARTY TRANSACTIONS

Officers and Directors

Per Steven Rotman’s Employment agreement dated July 22, 2019, he is to be paid $125,000 per year in cash, $10,417 per month in shares based on a 20-day average price at a 50% discount to market, $5,000 per month in cash for expenses as well as access to a Company provided vehicle and health and life insurance. Under the terms of his previous employment agreement, he was paid approximately $1 per year in cash and $20,833 per month to be paid in shares based on a 20-day average at a 0% discount to market. The Company expensed $201,200 during the year ended December 31, 2019 related to 4,000,000 shares issued for Steven Rotman’s services as a Board Member of the Company. As of March 31, 2020, the Company had a stock subscription payable balance of $510,000, or approximately 16,725,000 shares to be issued in the future.

Designcenters.com

This entity is owned by Jamie Rotman, who is the daughter of the Company’s CEO, Steven Rotman. Designcenters.com (“Design”) provided bookkeeping and management services to the Company through July 2019. In exchange for such services, the Company had entered into a consulting agreement with the related party entity.

Per the Design’s consulting agreement, Design was to receive approximately $7,100 per month to be paid in cash or shares based on a 20-day average at a 50% discount to market and a $10,000 quarterly bonus to be paid in shares using the same formula. During the year ended December 31, 2019, the Company issued Design 20,030,407 shares in accordance with the consulting agreement that were accrued and expensed as of December 31, 2018. During the year ended December 31, 2019, the Company expensed approximately $83,000 related to the consulting agreement. Of the expensed amount, approximately $41,000 was paid in cash. As of March 31, 2020, the Company had a stock subscription payable balance of $42,000, for approximately 850,000 shares related to this party.

Blue Oar Consulting, Inc.

This entity is owned by Gregory Rotman, who is the son of the Company’s CEO, Steven Rotman. Blue Oar Consulting, Inc. (“Blue Oar”) provides business consulting services to the Company. In exchange for such services, the Company has entered into a consulting agreement with the related party entity.

Per Blue Oar’s consulting agreement, it is to be paid $15,000 per month in cash for expenses, and $12,500 per month to be paid in shares based on a 20-day average at a 50% discount to market. During the three months ended March 31, 2020, the Company issued Blue Oar 9,042,046 shares in accordance with the consulting agreement that were accrued and expensed as of March 31, 2020. During the three months ended March 31, 2020, the Company expensed approximately $83,000 related to the consulting agreement. Of the expensed amount, approximately $45,000 was paid in cash. As of March 31, 2020, the Company had a stock subscription payable balance of $411,000, or approximately 19,604,000 shares related to this party.

Polymer Consultancy Services, Ltd.

This entity is owned in part by Dr. R.K. Matthan, a director of the Company. Polymer Consultancy Services, Ltd. (“Polymer”) provides research and development consulting services related to the Company’s latex products. The Company did not incur any charges with Polymer for these services during the three months ended March 31, 2020.

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Commitments

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments

NOTE 14 - COMMITMENTS

Employment and Consulting Agreements

The Company has entered into employment and consulting agreements with certain of our officers, employees, and affiliates. For employees, payment and benefits would become payable in the event of termination by us for any reason other than cause, or upon change in control of our Company, or by the employee for good reason.

There is currently one employment agreement in place with the CEO, Steven Rotman. See compensation terms in Note 13.

During the three months ended March 31, 2020, the Company entered into various services agreement with consultants for financial reporting, advisory, and compliance services. The Company also entered into an agreement with a third-party to provide delivery services for all delivered customer sales. Existing fleet operating leases are being subleased to the third-party according to the same terms and conditions as the original lease agreements.

Litigation

From time to time, the Company is party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

EMA Financial

On February 19, 2019, EMA Financial, Inc. filed a lawsuit in the Southern District of New York against the Company. The lawsuit alleged various breaches of an underlying convertible promissory note and stock purchase agreement and sought four claims for relief: (i) specific performance to enforce a stock conversion and contractual obligations; (ii) breach of contract; (iii) permanent injunction to enforce the stock conversion and contractual obligations; and (iv) legal fees and costs of the litigation. The complaint was filed with a motion seeking: (i) a preliminary injunction seeking an immediate resolution of the case through the stock conversion; (ii) a consolidation of the trial with the preliminary injunctive hearing; and (iii) summary judgment on the first and third claims for relief.

The Company filed an opposition to the motion and at oral argument the motion for injunctive relief was denied. The Court issued a decision permitting a motion for summary judgment to proceed and permitted the Company the opportunity to supplement its opposition papers together with the plaintiff who was also provided opportunity to submit reply papers. On April 5, 2019, the Company filed the opposition papers as well as a motion to dismiss the first and third causes of action in the complaint.

On March 13, 2020, the Court granted the Company’s motion and denied the motion for summary judgment as moot.

The Company subsequently filed an amended answer with counterclaims. The affirmative defenses collectively preclude the relief sought. The counterclaims asserted are: (a) violation of 10(b)(5) of the Securities and Exchange Act; (b) violation of Section 15(a)(1) of the Exchange Act (failure to register as a broker-dealer); (c) pursuant to the Uniform Declaratory Judgment Act, 28 U.S.C. §§ 2201, the Company requests the Court to declare: (i) pursuant to Delaware law, the underlying agreements are unconscionable; (ii) the underlying agreements are unenforceable and/or portions are unenforceable, such as the liquidated damages sections; (iii) to the extent the agreement is enforceable, Vystar in good faith requests the Court to declare the legal fee provisions of the agreements be mutual (d) unjust enrichment; (e) breach of contract (in the alternative); and (f) attorneys’ fees.

Robert LaChapelle Class Action

On March 13, 2020, Robert LaChapelle, a former employee of Rotmans Furniture, the Company’s majority owned subsidiary, on behalf of himself and all others similarly situated, filed a class action complaint against Rotmans and two of its prior owners (including Steve Rotman, President of the Company) in the Worcester Superior Court alleging non-payment of overtime pay and Sunday premium pay pursuant to the Massachusetts Blue Laws (Ch. 136), the Massachusetts Overtime Law (Chapter 151, § 1A), and the Massachusetts Payment of Wages Law (Chapter 149 §§148 and 150). Specifically, LaChapelle has alleged that Rotmans failed to pay him and other sales people who were paid on a commission-only basis overtime pay at a rate of least 1.5 times the basic minimum wage or premium pay (also at 1.5 times the basic minimum wage) for hours they worked on Sundays. Rotmans is in the process of investigating these claims to determine whether it may be liable to the members of the putative class for unpaid overtime and Sunday pay and, if so, the approximate amount of such amounts.

Eric Maas Lawsuit

The Company and members of its Board of Directors, and certain employees and consultants, have been added as defendants in the case Maas v. Zymbe, LLC, et. al. The complaint was recently moved from Superior Court of the State of California to Federal District Court in California. The amended complaint alleges various employment, contract, and tort claims, including defamation, arising out of a dispute over the quality and utility of consulting and other services provided by Mr. Eric Maas, including through his dealings with Mr. Jason Leaf and Mr. Gregory Rotman. The original litigation was filed in 2017.

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Major Customers and Vendors

3 Months Ended

Mar. 31, 2020

Major Customers And Vendors

Major Customers and Vendors

NOTE 15 - MAJOR CUSTOMERS AND VENDORS

Major customers and vendors are defined as a customer or vendor from which the Company derives at least 10% of its revenue and cost of revenue, respectively.

During the three months ended March 31, 2020, the Company made approximately 15% of its purchases from one major vendor. The Company owed its major vendor approximately $185,000 at March 31, 2020. There were no significant vendor concentrations during the three months ended March 31, 2019.

During the three months ended March 31, 2019, revenue came from six major customers. At March 31, 2019, receivables from major customers totaled approximately $16,000. There were no major customers during the three months ended March 31, 2020.

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Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 16 - INCOME TAXES

The provision (benefit) for income taxes for the three months ended March 31, 2020 and 2019 assumes a 21% effective tax rate for federal income taxes. A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:

	Three Months Ended March 31,
	2020			2019
Federal statutory income tax rate		(21.0	)%		(21.0	)%
Change in valuation allowance on net operating loss carryforwards		21.0			21.0
Effective income tax rate		0.0	%		0.0	%

Deferred tax assets as of March 31, 2020 and December 31, 2019 are as follows:

	2020			2019
NOL carryforwards	$	5,620,000		$	5,490,000
Less valuation allowance		(5,620,000	)		(5,490,000	)
Deferred tax assets	$	-		$	-

Deferred taxes are caused primarily by net operating loss carryforwards. For federal income tax purposes, the Company has a net operating loss carryforward of approximately $26,700,000 as of March 31, 2020, of which approximately $18,400,000 expires beginning in 2024 and $8,300,000 which can be carried forward indefinitely. For state income tax purposes, the Company has a net operating loss carryforward of approximately $18,300,000 and $8,300,000 as of March 31, 2020 in Georgia and Massachusetts, respectively, which expires beginning in 2023.

In addition, as of March 31, 2020 Rotmans has a net operating loss carryforward of approximately $2,700,000 for federal income tax purposes of which $1,810,000 expires beginning in 2029 and $890,000 can be carried forward indefinitely. Rotmans has a state operating loss carryforward of approximately $1,800,000 which expires beginning in 2022.

Pursuant to Internal Revenue Code Section 382, the future realization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future.

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Profit Sharing Plan

3 Months Ended

Mar. 31, 2020

Retirement Benefits [Abstract]

Profit Sharing Plan

NOTE 17 - PROFIT SHARING PLAN

The Company sponsors a qualified 401(k) profit sharing plan covering all eligible employees. The plan permits participants to make tax-deferred contributions to the plan by salary reduction. Company contributions are discretionary and are determined annually by the Board of Directors.

There were no Company contributions in 2020. Participant and Company contributions are limited to amounts allowed under the Internal Revenue Code.

The Company offers no post-retirement benefits other than the plan discussed above and no significant post-employment benefits.

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Acquisition of Rotmans

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Acquisition of Rotmans

NOTE 18 – ACQUISITION OF ROTMANS

On July 18, 2019,the Company acquired 58% of the outstanding shares of common stock of Rotmans, the largest furniture and flooring store in New England for an aggregate purchase price of $2,030,000. The consideration is to be paid in 25% in term notes payable over 4 to 8 years and 75% in notes convertible to common stock (see Note 8). The Company and Rotmans are exploring a number of initiatives relating to environmentally friendly product development and distribution that will utilize the access to the capital markets afforded by this combination.

The following unaudited pro forma information presents a summary of the Company’s combined operating results for the three months ended March 31, 2020 and 2019, as if the acquisition and the related financing transactions had occurred on January 1, 2019. The following pro forma financial information is not necessarily indicative of the Company’s operating results as they would have been had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.

		Three Months Ended March 31,
		2020		2019
Total revenues	$	5,932,238	$	6,734,929
Loss from operations	$	850,553	$	2,505,367
Net loss	$	1,477,990	$	3,687,824
Net loss attributable to Vystar	$	1,367,044	$	3,456,916
Basic and dilated loss per share	$	0.00	$	0.00

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Subsequent Events

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

NOTE 19 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission.

On April 16, 2020, Rotmans received $1,402,900 in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company dated April 16, 2020 (the “Note”) in the principal amount of $1,402,900 with United Community Bank (the “Bank”), the lender.

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, Rotmans is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note, until the maturity date.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, Rotmans may apply for forgiveness for all or a part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by Rotmans during the twenty-four week period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered twenty-four week period will qualify for forgiveness.

The Note may be prepaid in part or in full, at any time, without penalty. The Note provides for certain customary events of default, including (i) failing to make a payment when due under the Note, (ii) failure to do anything required by the Note or any other loan document, (iii) defaults of any other loan with the Bank, (iv) failure to disclose any material fact or make a materially false or misleading representation to the Bank or SBA, (v) default on any loan or agreement with another creditor, if the Bank believes the default may materially affect Rotmans ability to pay the Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of the Rotmans business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that the Bank believes may materially affect Rotmans ability to pay the Note, (ix) if Rotmans reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the Bank’s prior written consent, or (x) becoming the subject of a civil or criminal action that the Bank believes may materially affect Rotmans ability to pay the Note. Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the Note, collect all amounts owing from Rotmans, and file suit and obtain judgment against Rotmans.

In May 2020, Rotmans entered into a sale promotion consulting agreement with a national furniture sales event company. Under the agreement, Rotmans appointed the third-party as its exclusive agent to assist with a high-impact sale to pay off the Fidelity Co-operative Bank (“Fidelity”) line of credit loan. Before the sale, the agent lent the Company funds to pay off the Fidelity loan on May 29, 2020. The agent will be reimbursed for the advance from the proceeds of the sale. In addition, the agent has a senior first priority security interest and lien in Rotmans inventories and other assets until all obligations and liabilities are satisfied. Profits of the sale will be distributed according to the specific terms of the agreement. The agreement will expire 240 days from the commencement date of May 29, 2020.

Our Rotmans showroom reopened on June 10, 2020 in connection with COVID-19 pandemic. See Note 2 for details.

On July 1, 2020, 130 preferred shares were converted into 44,357 shares of common stock.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification.

The Company has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission. Other than those events disclosed in Note 18, the Company is not aware of any other significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Company’s financial statements.

Basis of Consolidation

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned or controlled operating subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Covid-19

COVID-19

In December 2019, a novel coronavirus (“COVID-19”) emerged and has subsequently spread worldwide. The World Health Organization has declared COVID-19 a pandemic resulting in federal, state, and local governments mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. On March 24, 2020, Massachusetts required all non-essential businesses to close their physical workplaces. As a result, the Rotmans showroom, offices and warehouse temporarily closed. During that time, associates worked remotely where possible. The Company re-opened on June 10, 2020 and continues to monitor developments, including government requirements and recommendations.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results for the entire year. The pandemic has resulted in significant economic disruption. Although our showroom has reopened, we cannot reasonably estimate the impact on Vystar should the pandemic persist or worsen. Accordingly, the estimates and assumptions made as of March 31, 2020 could change in subsequent interim reports and upon final determination at year-end, and it is reasonably possible that such changes could be significant (although the potential effects cannot be measured at this time).

Segment Reporting

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment with different operating segments.

Estimates

Estimates

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

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

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

Valuation inputs are classified in the following hierarchy:

● Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

● Level 2 inputs are directly or indirectly observable valuation inputs for the asset or liability, excluding Level 1 inputs.

● Level 3 inputs are unobservable inputs for the asset or liability.

Highest priority is given to Level 1 inputs and the lowest priority to Level 3 inputs. Acceptable valuation techniques include the market approach, income approach, and cost approach. In some cases, more than one valuation technique is used. The derivative liabilities were recognized at fair value on a recurring basis through the date of the settlement and March 31, 2020 and are level 3 measurements. There have been no transfers between levels during the three months ended March 31, 2020.

Acquisitions

Acquisitions

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

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include all liquid investments with a maturity date of less than three months when purchased. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions which typically settle within five days.

Accounts Receivable

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company routinely sells, without recourse, trade receivables resulting from retail furniture sales to various financial institutions at an average service charge of 5.9% in 2020. Amounts sold during the first quarter of 2020 were approximately $1,691,000. There were no sales of trade receivables in the first quarter of 2019. Retail furniture receivables retained by the Company are generally collateralized by the merchandise sold, represent valid claims against debtors for sales arising on or before the balance sheet date and are reduced to their estimated net realizable value. In addition, the Company grants credit to Vytex customers without requiring collateral. The amount of accounting loss for which Vystar is at risk in these unsecured accounts receivable is limited to their carrying value. Management provides for uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based upon its assessment of the current status of individual accounts. Balances that are still outstanding after management has performed reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of March 31, 2020 and December 31, 2019, the Company considers accounts receivable to be fully collectible and no allowance for doubtful accounts was recorded.

Inventories

Inventories

Inventories include those costs directly attributable to the product before sale. Inventories consist primarily of finished goods of foam toppers, furniture, mattresses and pillows and are carried at net realizable value, which is defined as selling price less cost of completion, disposal and transportation. The Company evaluates the need to record write-downs for inventory on a regular basis. Appropriate consideration is given to obsolescence, slow-moving and other factors in evaluating net realizable values. Inventories not expected to be sold within 12 months are classified as long-term.

Prepaid Expenses and Other Assets

Prepaid Expenses and Other Assets

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

Investments - Equity Securities

Investments - Equity Securities

Marketable equity securities have been categorized as available-for-sale and, as a result, are stated at fair value. Unrealized gains and losses are reflected in the statement of operations. The Company periodically reviews the available-for-sale securities for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of March 31, 2020, the Company believes that the carrying value of the available-for-sale securities was recoverable in all material respects.

Property and Equipment

Property and Equipment

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

Expenditures for major renewals and betterments are capitalized, while routine repairs and maintenance are expensed as incurred. When property items are retired or otherwise disposed of, the asset and related reserve accounts are relieved of the cost and accumulated depreciation, respectively, and the resultant gain or loss is reflected in earnings. As of March 31, 2020, the net balance of property and equipment is $1,787,616 with accumulated depreciation of $300,922. As of December 31, 2019, the net balance of property and equipment is $1,879,739 with accumulated depreciation of $208,799.

Intangible Assets

Intangible Assets

Patents represent legal and other fees associated with the registration of patents. The Company has five issued patents with the United States Patent and Trade Office (“USPTO”) as well as five issued international Patent Cooperation Treaty (“PCT”) patents. Patents are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 9 to 20 years.

The Company has trademark protection for “Vystar”, “Vytex”, and “RxAir” among others. Trademarks are carried at cost and since their estimated life is indeterminable, no amortization is recognized. Instead, they are evaluated annually for impairment.

Customer relationships, tradename and marketing related intangibles are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, typically ranging from 5 to 10 years.

Long-Lived Assets

Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the three months ended March 31, 2020 and 2019, we did not recognize any impairment of our long-lived assets.

Goodwill

Goodwill

Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Goodwill is not amortized, rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. We perform our annual impairment test at the end of each calendar year, or more frequently if events or changes in circumstances indicate the asset might be impaired.

Accounting for acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.

The impairment model permits, and we utilize, a simplified approach for determining goodwill impairment. In the first step, we evaluate the recoverability of goodwill by estimating the fair value of our reporting unit using multiple techniques, including an income approach using a discounted cash flow model and a market approach. Based on an equal weighting of the results of these two approaches, a conclusion of fair value is estimated. The fair value is then compared to the carrying value of our reporting unit. If the fair value of a reporting unit is less than its carrying value, the Company recognizes this amount as an impairment loss. Impairment losses, limited to the carrying value of goodwill, represent the excess of the carrying amount of goodwill over its implied fair value.

Convertible Notes Payable

Convertible Notes Payable

Borrowings are recognized initially at the principal amount received. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as interest expense in the statements of operations over the period of the borrowings using the effective interest method.

Derivatives

Derivatives

The Company evaluates its debt instruments or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of Accounting Standards Codification (“ASC”) Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

The Company applies the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instrument or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. From time to time, the Company has issued notes with embedded conversion features. Certain of the embedded conversion features contain price protection or anti-dilution features that result in these instruments being treated as derivatives for accounting purposes. Accordingly, during the three months ended March 31, 2020 and 2019, the Company has classified all conversion features as derivative liabilities and has estimated the fair value of these embedded conversion features using a Monte Carlo simulation model.

Unearned Revenue

Unearned Revenue

Unearned revenue consists of customer advance payments, deposits on sales of undelivered merchandise and deferred warranty revenue on self-insured stain protection warranty coverage. There was no unearned revenue during the three months ended March 31, 2019.

Changes to unearned revenue during the three months ended March 31, 2020 are summarized as follows:

Balance, December 31, 2019	$	2,500,572
Customer deposits received		4,930,536
Warranty coverage purchased		98,309
Gift cards purchased		2,500
Revenue earned		(5,057,651	)
Balance, March 31, 2020	$	2,474,266

Loss Per Share

Loss Per Share

The Company presents basic and diluted loss per share. Because the Company reported a net loss in the first quarter of 2020 and 2019, common stock equivalents, including stock options and warrants, were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same. Excluded from the computation of diluted loss per share were options to purchase 27,983,271 and 29,098,270 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, as their effect would be anti-dilutive. Warrants to purchase 14,237,315 and 14,382,380 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive. In addition, preferred stock convertible to 4,661,180 and 4,382,730 shares of common stock three months ended March 31, 2020 and 2019, respectively, were excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

Revenue

Revenue

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

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

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

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to retail, e-commerce and print media customers, upon request, within 30 days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do not offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. As of March 31, 2020 and December 31, 2019, reserves for estimated sales returns totaled $3,000, respectively, and are included in the accompanying consolidated balance sheets as accrued expenses.

We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped based on fulfillment by the Company. The Company considers fulfillment when it passes all liability at the point of shipping through third party carriers or in-house delivery services. Delivery fees are charged to customers and are included in revenue in the accompanying consolidated statements of operations and the costs associated with these deliveries are included in operating expenses in the accompanying consolidated statements of operations. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenue in the accompanying consolidated statements of operations.

The Company also defers revenues for separately-priced stain protection warranty coverage for which it is ultimately self-insured. Revenue is recognized from the extended warranty sales on a straight-line basis over the respective contract term. The extended warranty terms primarily range from three to five years from the date of delivery. At March 31, 2020, deferred warranty revenue was approximately $812,000 and is included in unearned revenue in the accompanying consolidated balance sheets. During the three months ended March 31, 2020, the Company recorded total proceeds of approximately $98,000 and recognized total revenues of approximately $134,000 related to deferred warranty revenue arrangements. Commission costs in obtaining extended warranty contracts are capitalized and recognized as expense on a straight-line basis over the period of the warranty contract. At March 31, 2020, deferred commission costs are approximately $336,000 and included in the accompanying consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising costs are expensed as incurred.

Cost of Revenue

Cost of Revenue

Cost of revenue consists primarily of product and freight costs and fees paid to online retailers.

Research and Development

Research and Development

Research and development costs are expensed when incurred. Research and development costs include all costs incurred related to the research, development and testing of the Company’s process to produce Vytex NRL.

Vytex NRL has produced protein test results on finished products that are both “below detection” and “not detectable” in terms of the amount of proteins remaining in these finished goods made with Vytex NRL. These results have been reproduced in many subsequent tests. For the three months ended March 31, 2020 and 2019, Vystar’s research and development costs were not significant.

Advertising Costs

Advertising Costs

Advertising costs, which include television, radio, newspaper and other media advertising, are expensed upon first showing. Advertising costs included in general and administrative expenses in the accompanying consolidated statements of operations were approximately $447,000 and $20,000 for the three months ended March 31, 2020 and 2019, respectively.

Share-Based Compensation

Share-Based Compensation

The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of restricted stock awards is determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they occur. Compensation expense is recognized on a straight-line basis over the requisite service period of the award.

Income Taxes

Income Taxes

Vystar recognizes income taxes on an accrual basis based on a tax position taken or expected to be taken in its tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets or liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold will be measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more likely than not be realized. Should they occur, interest and penalties related to tax positions are recorded as interest expense. No such interest or penalties have been incurred for the three months ended March 31, 2020 and 2019.

The Company remains subject to income tax examinations from Federal and state taxing jurisdictions for 2016 through 2019.

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 operating accounts may exceed the Federal Deposit Insurance Corporation, or FDIC, insurance limits. While the Company monitors cash balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, the Company has experienced no loss or lack of access to our cash; however, the Company can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets. Credit concentration risk related to accounts receivable is mitigated as customer credit is checked prior to the sales and accounts receivable consists of a high number of relatively small balances.

Other Risks and Uncertainties

Other Risks and Uncertainties

The Company is exposed to commodity price risk, mainly associated with variations in the market price for NRL as well as wintering of the Hevea trees, which differs for each country. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions including the buying climate in China. The Company responds to changes in NRL prices by adjusting sales prices on a weekly basis and by turning rather than holding inventory in anticipation of higher prices. The Company actively manages its exposure to commodity price risk and monitors the actual and expected spread between forward selling prices and purchase costs and processing and shipping expense. The Company also currently spreads the processing of Vytex NRL among three continents. Sales contracts are based on forward market prices, and generally orders are placed 30 to 90 days ahead of shipment date due to these fluctuations. However, financial results may be negatively impacted where selling prices fall more quickly than purchase price adjustments can be made or when levels of inventory have an anticipated net realizable value that is below cost. The Company is also exposed to risks pertinent to the operations of a retailer, including, but not limited to, the ability to acquire new customers and maintain a strong brand as well as broader economic factors such as interest rates and changes in customer spending patterns.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company has evaluated the disclosure requirements of this standard and does not expect it to have a material impact on the Company’s financial statements.

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Schedule of Unearned Revenue

Changes to unearned revenue during the three months ended March 31, 2020 are summarized as follows:

Balance, December 31, 2019	$	2,500,572
Customer deposits received		4,930,536
Warranty coverage purchased		98,309
Gift cards purchased		2,500
Revenue earned		(5,057,651	)
Balance, March 31, 2020	$	2,474,266

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Investments - Equity Securities (Tables)

3 Months Ended

Mar. 31, 2020

Investments, All Other Investments [Abstract]

Schedule of Cost and Fair Value of Investments

Cost and fair value of investments - equity securities are as follows as of March 31, 2020:

		Gross			Fair
Cost		Unrealized Losses			Value
$	141,225	$	(42,130	)	$	99,095

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment, Net

Property and equipment, net consists of the following:

	March 31,			December 31,
	2020			2019
Furniture, fixtures and equipment	$	1,354,665		$	1,354,665
Tooling and testing equipment		319,000			319,000
Parking lots		365,707			365,707
Motor vehicles		49,166			49,166
		2,088,538			2,088,538
Accumulated depreciation		(300,922	)		(208,799	)
Property and equipment, net	$	1,787,616		$	1,879,739

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Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

Intangible assets consist of the following:

							Amortization
	March 31,			December 31,			Period
	2020			2019			(in Years)
Amortized intangible assets:
Customer relationships	$	210,000		$	210,000			6 - 10
Proprietary technology		610,000			610,000			10
Tradename and brand		1,380,000			1,380,000			5 - 10
Marketing related		380,000			380,000			5
Patents		359,101			355,418			6 - 20
Noncompete		50,000			50,000			5
Total		2,989,101			2,985,418
Accumulated amortization		(609,117	)		(504,878	)
Intangible assets, net		2,379,984			2,480,540
Indefinite-lived intangible assets:
Trademarks		9,072			9,072
Total intangible assets	$	2,389,056		$	2,489,612

Schedule of Estimated Future Amortization Expense

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

	Amount
Remaining in 2020	$	312,716
2021		416,956
2022		417,140
2023		410,529
2024		311,306
Thereafter		511,337
Total	$	2,379,984

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Leases (Tables)

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Schedule of Lease Cost

The table below presents the lease costs for the three months ended March 31, 2020:

	March 31, 2020
Operating lease cost	$	394,348
Finance lease cost:
Amortization of right-of-use assets		47,561
Interest on lease liabilities		11,690
Total lease cost	$	453,599

Schedule of Other Information Related to Leases

The following table presents other information related to leases:

	Three months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	372,884
Financing cash flows used for financing leases		54,152
Assets obtained in exchange for operating lease liabilities		-
Assets obtained in exchange for finance lease liabilities		75,739
Weighted average remaining lease term:
Operating leases		9 years
Finance leases		6 years
Weighted average discount rate:
Operating leases		5.53	%
Finance leases		5.16	%

Schedule of Future Minimum Lease Payments Required Under Operating and Financing Lease Obligations

The future minimum lease payments required under operating and financing lease obligations as of March 31, 2020 having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:

	Operating Leases			Finance Leases			Total
Remainder of 2020	$	1,127,733		$	160,156		$	1,287,889
2021		1,503,643			205,545			1,709,188
2022		1,110,794			150,943			1,261,737
2023		880,275			150,142			1,030,417
2024		870,000			140,002			1,010,002
Thereafter		5,220,000			207,475			5,427,475
Total undiscounted lease liabilities		10,712,445			1,014,263			11,726,708
Less: imputed interest		(2,409,937	)		(135,739	)		(2,545,676	)
Net lease liabilities	$	8.302,508		$	878,524		$	9,181,032

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Notes Payable and Loan Facility (Tables)

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Schedule of Long-term Debt

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

	March 31,			December 31,
	2020			2019
Shareholder, convertible and contingently convertible notes	$	951,895		$	951,895
Accrued interest		58,467			46,569
Debt discount		(79,400	)		(137,775	)
		930,962			860,689
Less: current maturities		(611,281	)		(366,326	)
	$	319,681		$	494,363

Schedule of Related Party Debt

The following table summarizes related party debt:

	March 31,			December 31,
	2020			2019
Rotman Family convertible notes	$	1,832,707		$	1,782,707
Rotman Family nonconvertible notes		507,500			507,500
Accrued interest		83,190			53,153
Debt Discount		(327,600	)		(585,100	)
		2,095,797			1,758,260
Less: current maturities		(46,000	)		(46,000	)
	$	2,049,797		$	1,712,260

Schedule of Maturities of Notes Payable

Approximate maturities for the succeeding years are as follows:

Remainder of 2020	$	46,000
2021		59,000
2022		62,000
2023		85,000
2024		34,000
Thereafter		221,500
	$	507,500

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Derivative Liabilities (Tables)

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Liabilities

The following table summarizes the derivative liabilities included in the consolidated balance sheet at March 31, 2020:

Fair Value of Embedded Derivative and Warrant Liabilities:

Balance, December 31, 2018	$	235,085
Initial measurement of liabilities		1,464,600
Change in fair value		1,079,450
Settlement due to conversion		(1,279,335	)
Balance, December 31, 2019		1,499,800
Change in fair value		-
Settlement due to conversion		-
Balance, March 31, 2020	$	1,499,800

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Revenues (Tables)

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Schedule of Revenue

The following table presents our revenues disaggregated by each major product category and service for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020				2019
			% of				% of
	Net Sales		Net Sales		Net Sales		Net Sales
Merchandise:
Case Goods
Bedroom Furniture	$	861,123		14.5	$	-		-
Dining Room Furniture		522,114		8.8		-		-
Occasional		960,379		16.2		-		-
		2,343,616		39.5		-		-
Upholstery		1,617,547		27.3		-		-
Mattresses and Toppers		1,071,327		18.1		179,017		93.4
Broadloom, Flooring and Rugs		406,879		6.9		-		-
Warranty		98,309		1.7		-		-
Accessories and Other		394,560		6.7		12,650		6.6
	$	5,932,238		100.0	$	191,667		100.0

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Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Schedule of Stock Option Activity

The following table summarizes all stock option activity of the Company for the three months ended March 31, 2020:

					Weighted
			Weighted		Average
			Average		Remaining
	Number		Exercise		Contractual
	of Shares		Price		Life (Years)
Outstanding, December 31, 2019		27,983,271	$	0.20		3.45
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding, March 31, 2020		27,983,271	$	0.20		3.20
Exercisable, March 31, 2020		26,783,271	$	0.21		3.42

Schedule of Warrant Activity

The following table represents the Company’s warrant activity for the three months ended March 31, 2020:

							Weighted
							Average
			Weighted		Weighted		Remaining
	Number		Average		Average		Contractual
	of Shares		Fair Value		Exercise Price		Life (Years)
Outstanding, December 31, 2019		14,237,646			$	0.07		3.58
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Expired		-		-		-		-
Outstanding, March 31, 2020		14,237,646				0.07		3.28
Exercisable, March 31, 2020		14,237,646			$	0.07		3.28

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Schedule of Provision for Income Taxes

A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:

	Three Months Ended March 31,
	2020			2019
Federal statutory income tax rate		(21.0	)%		(21.0	)%
Change in valuation allowance on net operating loss carryforwards		21.0			21.0
Effective income tax rate		0.0	%		0.0	%

Schedule of Deferred Tax Assets

Deferred tax assets as of March 31, 2020 and December 31, 2019 are as follows:

	2020			2019
NOL carryforwards	$	5,620,000		$	5,490,000
Less valuation allowance		(5,620,000	)		(5,490,000	)
Deferred tax assets	$	-		$	-

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Acquisition of Rotmans (Tables)

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Schedule of Proforma Information

		Three Months Ended March 31,
		2020		2019
Total revenues	$	5,932,238	$	6,734,929
Loss from operations	$	850,553	$	2,505,367
Net loss	$	1,477,990	$	3,687,824
Net loss attributable to Vystar	$	1,367,044	$	3,456,916
Basic and dilated loss per share	$	0.00	$	0.00

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Description of Business (Details Narrative) - USD ($)	1 Months Ended		3 Months Ended
	Jul. 31, 2019	May 31, 2018	Mar. 31, 2020	Mar. 31, 2019
Revenues			$ 5,932,238	$ 191,667
Rotmans [Member]
Ownership percentage	58.00%
Revenues	$ 30,000,000
UV Flu Technologies, Inc., [Member]
Percentage destroys of airborne bacteria		99.00%

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Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Sales average service charge, percentage	5.90%
Sale of accounts receivable, value	$ 1,691,000
Property and equipment	1,787,616		$ 1,879,739
Accumulated depreciation of property and equipment	300,922		208,799
Impairment of long-lived assets
Reserves for estimated sales returns	3,000		3,000
Deferred revenue
Deferred commission costs	336,000
Advertising expense	$ 446,695	$ 20,483
Income tax, likely hood percentage	Greater than 50%
Income tax examination, penalties and interest accrued
Deferred Warranty Revenue [Member]
Proceeds from deferred revenue arrangements	98,000
Recognized from deferred revenue arrangements	134,000
Deferred revenue	$ 812,000
Options to Purchase Common Shares [Member]
Antidilutive securities excluded from computation of earnings per share, amount	27,983,271	29,098,270
Warrants to Purchase Common Shares [Member]
Antidilutive securities excluded from computation of earnings per share, amount	14,237,315	14,382,380
Preferred Stock Convertible to Common Stock [Member]
Antidilutive securities excluded from computation of earnings per share, amount	4,661,180	4,382,730
Minimum [Member]
Property and equipment, useful life	5 years
Intangible asset, useful life	9 years
Minimum [Member] | Customer Relationships Tradename and Marketing [Member]
Intangible asset, useful life	5 years
Maximum [Member]
Property and equipment, useful life	10 years
Intangible asset, useful life	20 years
Maximum [Member] | Customer Relationships Tradename and Marketing [Member]
Intangible asset, useful life	10 years

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Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Unearned Revenue (Details)	3 Months Ended
	Mar. 31, 2020 USD ($)
Accounting Policies [Abstract]
Beginning balance	$ 2,500,572
Customer deposits received	4,930,536
Warranty coverage purchased	98,309
Gift cards purchased	2,500
Revenue earned	(5,057,651)
Ending balance	$ 2,474,266

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Liquidity and Going Concern (Details Narrative) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash	$ 403,091	$ 72,355
Working capital deficit	7,800,000
Accumulated deficit	$ (42,472,344)	$ (41,104,967)

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Investments - Equity Securities (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Investments, All Other Investments [Abstract]
Net unrealized holding gains on available-for-sale securities	$ (50,422)

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Investments - Equity Securities - Schedule of Cost and Fair Value of Investments (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Investments, All Other Investments [Abstract]
Cost	$ 141,225
Gross Unrealized Losses	(42,130)
Fair Value	$ 99,095	$ 149,517

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 139,684	$ 10,232

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Property and Equipment - Schedule of Property and Equipment, Net (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Property and equipment, gross	$ 2,088,538	$ 2,088,538
Accumulated depreciation	(300,922)	(208,799)
Property and equipment, net	1,787,616	1,879,739
Furniture, Fixtures and Equipment [Member]
Property and equipment, gross	1,354,665	1,354,665
Tooling and Testing Equipment [Member]
Property and equipment, gross	319,000	319,000
Parking Lots [Member]
Property and equipment, gross	365,707	365,707
Motor Vehicles [Member]
Property and equipment, gross	$ 49,166	$ 49,166

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Intangible Assets (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 104,239	$ 39,421

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Intangible Assets - Schedule of Intangible Assets (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Intangible assets, Gross	$ 2,989,101	$ 2,985,418
Accumulated amortization	(609,117)	(504,878)
Net amortized intangibles	2,379,984	2,480,540
Trademarks	9,072	9,072
Total intangible assets	$ 2,389,056	2,489,612
Minimum [Member]
Estimated Life	9 years
Maximum [Member]
Estimated Life	20 years
Customer Relationships [Member]
Intangible assets, Gross	$ 210,000	210,000
Customer Relationships [Member] | Minimum [Member]
Estimated Life	6 years
Customer Relationships [Member] | Maximum [Member]
Estimated Life	10 years
Proprietary Technology [Member]
Estimated Life	10 years
Intangible assets, Gross	$ 610,000	610,000
Tradename and Brand [Member]
Intangible assets, Gross	$ 1,380,000	1,380,000
Tradename and Brand [Member] | Minimum [Member]
Estimated Life	5 years
Tradename and Brand [Member] | Maximum [Member]
Estimated Life	10 years
Marketing Related [Member]
Estimated Life	5 years
Intangible assets, Gross	$ 380,000	380,000
Patents [Member]
Intangible assets, Gross	$ 359,101	355,418
Patents [Member] | Minimum [Member]
Estimated Life	6 years
Patents [Member] | Maximum [Member]
Estimated Life	20 years
Noncompete [Member]
Estimated Life	5 years
Intangible assets, Gross	$ 50,000	$ 50,000

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Intangible Assets - Schedule of Estimated Future Amortization Expense (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Remaining in 2020	$ 312,716
2021	416,956
2022	417,140
2023	410,529
2024	311,306
Thereafter	511,337
Net amortized intangibles	$ 2,379,984	$ 2,480,540

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Leases (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Leases [Abstract]
Sublease income	$ 27,000
Lease costs	$ 453,599

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Leases - Schedule of Lease Cost (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Leases [Abstract]
Operating lease cost	$ 394,348
Amortization of right-of-use assets	47,561
Interest on lease liabilities	11,690
Total lease cost	$ 453,599

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Leases - Schedule of Other Information Related to Leases (Details)	3 Months Ended
	Mar. 31, 2020 USD ($)
Leases [Abstract]
Operating cash flows used for operating leases	$ 372,884
Financing cash flows used for financing leases	54,152
Assets obtained in exchange for operating lease liabilities
Assets obtained in exchange for finance lease liabilities	$ 75,739
Weighted average remaining lease term: operating leases	9 years
Weighted average remaining lease term: finance leases	6 years
Weighted average discount rate: operating leases	5.53%
Weighted average discount rate: finance leases	5.16%

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Leases - Schedule of Future Minimum Lease Payments Required Under Operating and Financing Lease Obligations (Details)	Mar. 31, 2020 USD ($)
Leases [Abstract]
Operating Leases Remainder of 2020	$ 1,127,733
Operating Leases 2021	1,503,643
Operating Leases 2022	1,110,794
Operating Leases 2023	880,275
Operating Leases 2024	870,000
Operating Leases Thereafter	5,220,000
Operating Leases Total undiscounted lease liabilities	10,712,445
Operating Leases Less: imputed interest	(2,409,937)
Operating Leases Net lease liabilities	8,302,508
Finance Leases Remainder of 2020	160,156
Finance Leases 2021	205,545
Finance Leases 2022	150,943
Finance Leases 2023	150,142
Finance Leases 2024	140,002
Finance Leases Thereafter	207,475
Finance Leases Total undiscounted lease liabilities	1,014,263
Finance Leases Less: imputed interest	(135,739)
Finance Leases Net lease liabilities	878,524
Remainder of 2020	1,287,889
2021	1,709,188
2022	1,261,737
2023	1,030,417
2024	1,010,002
Thereafter	5,427,475
Total undiscounted lease liabilities	11,726,708
Less: imputed interest	(2,545,676)
Net lease liabilities	$ 9,181,032

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Notes Payable and Loan Facility (Details Narrative) - USD ($)							3 Months Ended	12 Months Ended
	Feb. 24, 2020	Feb. 20, 2020	Dec. 19, 2019	Jul. 18, 2019	Jun. 30, 2019	Nov. 02, 2012	Mar. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Debt, outstanding amount							$ 2,095,797	$ 1,758,260
Derivative liabilities							$ 1,499,800	1,499,800	$ 235,085
Rotman Family Convertible Notes [Member]
Derivative liabilities								1,056,866
Rotman Family Non Convertible Notes [Member]
Debt instrument, description							The notes bear interest at an annual rate of five percent (5%). Steven Rotman's note matures eight years from issuance and Bernard Rotman's note matures four years from issuance. Payments of $3,828 and $2,917 to Steven and Bernard Rotman, respectively, per month begin six months from issuance until maturity in December 2027 and 2023, respectively.
Rotman Family Non Convertible Notes [Member] | Steven RotMan [Member]
Debt face amount							$ 367,500
Debt instrument, Interest rate							5.00%
Debt instrument, payments							$ 3,828
Debt instrument, maturity description							Note matures eight years from issuance
Debt face amount with accrued interest							$ 381,000	376,000
Rotman Family Non Convertible Notes [Member] | Bernard Rotman [Member]
Debt face amount							$ 140,000
Debt instrument, Interest rate							5.00%
Debt instrument, payments							$ 2,917
Debt instrument, maturity description							Note matures four years from issuance
Debt face amount with accrued interest							$ 145,000	143,000
Libertas Funding LLC [Member]
Sale of future sale receipt	$ 1,089,000
Sale of future sale receipt for purchase price	825,000
Origination fee amount	$ 16,500
Debt instrument, implicit borrowing rate	75.00%
Term notes current maturities							756,417
Other Term Debts [Member] | Three 0% Loans [Member]
Debt face amount							$ 13,397	16,374
Debt instrument, Interest rate							0.00%
Debt instrument, payments							$ 1,488
Debt instrument, maturity date							Nov. 30, 2020
Contingently Convertible Notes Payable [Member]
Debt face amount									$ 335,000
Debt instrument, Interest rate									5.00%
Debt instrument, maturity description									The Notes mature one year from issuance but may be extended one (1) additional year by the Company.
Debt closing discount rate, percentage									50.00%
Debt, outstanding amount							$ 338,195	338,195
Convertible Promissory Notes [Member]
Debt face amount								613,700
Debt, outstanding amount							613,700
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member]
Debt face amount				$ 1,522,500	$ 180,000
Debt instrument, Interest rate				8.00%	8.00%
Debt instrument, maturity description					Mature five years from issuance
Debt discount percentage				50.00%	50.00%
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member] | Steven RotMan [Member]
Debt face amount		$ 50,000	$ 100,000	$ 1,102,500	$ 105,000
Debt instrument, maturity description		The note matures two years from issuance.	The note matures two years from issuance.	Note matures eight years from issuance
Debt face amount with accrued interest							111,000	109,000
Debt discount percentage		50.00%	50.00%
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member] | Greg Rotman [Member]
Debt face amount					$ 75,000
Debt face amount with accrued interest							59,000	57,000
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member] | Bernard Rotman [Member]
Debt face amount				$ 420,000
Debt instrument, maturity description				Note matures four years from issuance.
Debt face amount with accrued interest							435,000	$ 430,000
Convertible Promissory Notes [Member] | Minimum [Member]
Debt conversion percentage								35.00%
Convertible Promissory Notes [Member] | Maximum [Member]
Debt conversion percentage								50.00%
Shareholders Contingently Convertible Notes Payable [Member]
Derivative liabilities								$ 442,934
Convertible and Contingently Convertible Notes Payable [Member]
Debt face amount							$ 710,000	0	$ 235,085
Debt instrument, Interest rate							12.00%
Debt closing discount rate, percentage							35.00%
Derivative liabilities								$ 465,905
Convertible conversion of shares								303,000,000
Change in fair value of derivative liabilities							$ 1,044,250
Number of warrants to purchase common stock							411,875
Exercise price of warrants							$ 0.40
Convertible and Contingently Convertible Notes Payable [Member] | Minimum [Member]
Debt, conversion price per share							0.05
Convertible and Contingently Convertible Notes Payable [Member] | Maximum [Member]
Debt, conversion price per share							$ 0.10
Convertible and Contingently Convertible Notes Payable [Member] | Derivative Liabilities Upon the Date All Notes were Converted [Member]
Change in fair value of derivative liabilities							$ 1,279,335
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member] | Steven RotMan [Member]
Debt face amount with accrued interest							1,142,000	$ 1,128,000
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member] | Steven RotMan [Member]
Debt face amount with accrued interest							101,000	100,000
Convertible Promissory Notes [Member] | Rotman Family Convertible Notes [Member] | Steven RotMan [Member]
Debt face amount with accrued interest							50,000
CMA Investments, LLC [Member]
Revolving line of credit						$ 1,500,000
CMA Investments, LLC [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of credit, floor rate percentage						5.25%
Debt instrument, maturity date						Jul. 31, 2019
Fidelity Co-Operative Bank [Member]
Revolving line of credit							$ 2,500,000
Line of credit, advances limited percentage							50.00%
Line of credit interest rate							3.75%
Line of credit, floor rate percentage							3.75%
Credit facility, borrowing capacity available							$ 2,164,000
Fidelity Co-Operative Bank [Member] | Prime Rate [Member]
Line of credit interest rate							0.50%
Fidelity Bank [Member] | Term Notes [Member]
Revolving line of credit							$ 500,000
Line of credit, outstanding							500,000	$ 500,000
Debt face amount							$ 100,000
Debt instrument, Interest rate							4.50%
Fidelity Bank [Member] | Term Notes [Member] | Due in 2033 [Member]
Balloon payment							$ 500,000

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Notes Payable and Loan Facility - Schedule of Long-term Debt (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Debt Disclosure [Abstract]
Shareholder, convertible and contingently convertible notes	$ 951,895	$ 951,895
Accrued interest	58,467	46,569
Debt discount	(79,400)	(137,775)
Total shareholder notes and accrued interest	930,962	860,689
Less: current maturities	(611,281)	(366,326)
Total long-term debt	$ 319,681	$ 494,363

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Notes Payable and Loan Facility - Schedule of Related Party Debt (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Long term debt, current	$ 2,095,797	$ 1,758,260
Accrued interest	83,190	53,153
Debt discount	(327,600)	(585,100)
Less: current maturities	(46,000)	(46,000)
Long term debt	2,049,797	1,712,260
Rotman Family Convertible Notes [Member]
Long term debt, current	1,832,707	1,782,707
Rotman Family Non Convertible Notes [Member]
Long term debt, current	507,500	$ 507,500
Long term debt	$ 507,500

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Notes Payable and Loan Facility - Schedule of Maturities of Notes Payable (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Long term debt	$ 2,049,797	$ 1,712,260
Rotman Family Non Convertible Notes [Member]
Remainder of 2020	46,000
2021	59,000
2022	62,000
2023	85,000
2024	34,000
Thereafter	221,500
Long term debt	$ 507,500

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Derivative Liabilities (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative liability	$ 1,499,800		$ 1,499,800
Change in fair value of derivative liabilities		$ 1,044,250	$ 1,079,450

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Derivative Liabilities - Schedule of Derivative Liabilities (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Beginning balance	$ 1,499,800	$ 235,085
Initial measurement of liabilities		1,464,600
Change in fair value		1,079,450
Settlement due to conversion		(1,279,335)
Ending balance	$ 1,499,800	$ 1,499,800

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Stockholders' Deficit (Details Narrative) - USD ($)		3 Months Ended	12 Months Ended
	May 02, 2013	Mar. 31, 2020	Dec. 31, 2019
Preferred stock, shares outstanding		13,828	13,828
Conversion of Principal and Interest [Member]
Number of shares of common stock
Equity Purchase Agreements [Member]
Number of shares of common stock
Holder [Member]
Preferred stock, shares outstanding		13,828	13,828
Preferred stock, undeclared dividends		$ 95,000	$ 91,000
Debt converted into common shares		4,661,180	4,591,100
10% Series A Cumulative Convertible Preferred Stock [Member]
Preferred stock, shares in private placement offering	200,000
Number of sale of shares	200,000
Sale of stock price per share	$ 10
Number of sale of shares, value	$ 2,000,000
Preferred stock, dividend rate	10.00%
Conversion price per share	$ 0.075
Conversion price lowered	$ 0.05
Number of shares of common stock	25,000

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Revenues - Schedule of Revenue (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net Sales	$ 5,932,238	$ 191,667
Net Sales, percentage	100.00%	100.00%
Case Goods [Member]
Net Sales	$ 2,343,616
Net Sales, percentage	39.50%	0.00%
Case Goods [Member] | Bedroom Furniture [Member]
Net Sales	$ 861,123
Net Sales, percentage	14.50%	0.00%
Case Goods [Member] | Dining Room Furniture [Member]
Net Sales	$ 522,114
Net Sales, percentage	8.80%	0.00%
Case Goods [Member] | Occasional [Member]
Net Sales	$ 960,379
Net Sales, percentage	16.20%	0.00%
Upholstery [Member]
Net Sales	$ 1,617,547
Net Sales, percentage	27.30%	0.00%
Mattresses and Toppers [Member]
Net Sales	$ 1,071,327	$ 179,017
Net Sales, percentage	18.10%	93.40%
Broadloom, Flooring and Rugs [Member]
Net Sales	$ 406,879
Net Sales, percentage	6.90%	0.00%
Warranty [Member]
Net Sales	$ 98,309
Net Sales, percentage	1.70%	0.00%
Accessories and Other [Member]
Net Sales	$ 394,560	$ 12,650
Net Sales, percentage	6.70%	6.60%

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Share-Based Compensation (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		12 Months Ended
	Apr. 30, 2009	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019	Dec. 31, 2014	Dec. 31, 2004
Share-based compensation		$ 154,368	$ 1,612,286
Accrued share-based compensation		993,981		$ 845,175
Unrecognized compensation expenses		$ 43,371
Unrecognized compensation years		3 years
Number of options granted
Aggregate intrinsic value, outstanding		$ 1,000	$ 52,000
Stock Option Plan [Member]
Share based arrangement authorized shares						4,000,000
Employee and Board Members [Member]
Share-based compensation		$ 5,562	$ 17,783
Board of Directors [Member] | Stock Option Plan [Member]
Share based arrangement additional authorized shares	10,000,000			50,000,000	5,000,000
Number of shares available for issuance		2,251,729
Share based arrangement vested period		4 years
Share based arrangement exercisable period		10 years

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Share-Based Compensation - Schedule of Stock Option Activity (Details) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Number of Shares, Granted
Stock Options [Member]
Number of Shares, Outstanding, Beginning balance	27,983,271
Number of Shares, Granted
Number of Shares, Exercised
Number of Shares, Forfeited
Number of Shares, Outstanding, Ending balance	27,983,271
Number of Shares, Exercisable, Ending balance	27,983,271
Weighted Average Exercise Price, Outstanding, Beginning balance	$ 0.20
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited
Weighted Average Exercise Price, Outstanding, Ending balance	0.20
Weighted Average Exercise Price, Exercisable, Ending balance	$ 0.21
Weighted Average Remaining Contractual Life (Years), Outstanding, Beginning balance	3 years 5 months 12 days
Weighted Average Remaining Contractual Life (Years), Granted	0 years
Weighted Average Remaining Contractual Life (Years), Outstanding, Ending balance	3 years 2 months 12 days
Weighted Average Remaining Contractual Life (Years), Exercisable, Ending balance	3 years 5 months 1 day

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Share-Based Compensation - Schedule of Warrant Activity (Details) - Stock Warrants [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Number of Shares, Outstanding, Beginning balance | shares	14,237,646
Number of Shares, Granted | shares
Number of Shares, Exercised | shares
Number of Shares, Forfeited | shares
Number of Shares, Expired | shares
Number of Shares, Outstanding, Ending balance | shares	14,237,646
Number of Shares, Exercisable, Ending balance | shares	14,237,646
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited
Weighted Average Exercise Price, Expired
Weighted Average Exercise Price, Outstanding, Beginning balance	0.07
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited
Weighted Average Exercise Price, Expired
Weighted Average Exercise Price, Outstanding, Ending balance	0.07
Weighted Average Exercise Price, Exercisable, Ending balance	$ 0.07
Weighted Average Remaining Contractual Life (Years), Outstanding, Beginning balance	3 years 6 months 29 days
Weighted Average Remaining Contractual Life (Years), Granted	0 years
Weighted Average Remaining Contractual Life (Years), Expired	0 years
Weighted Average Remaining Contractual Life (Years), Outstanding, Ending balance	3 years 3 months 11 days
Weighted Average Remaining Contractual Life (Years), Exercisable, Ending balance	3 years 3 months 11 days

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Related Party Transactions (Details Narrative) - USD ($)		3 Months Ended		12 Months Ended
	Jun. 22, 2019	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Number of shares issued for services, value			$ 2,032,236
Stock subscription payable		$ 510,000
Stock subscription payable, shares		16,725,000
Number of shares of common stock, value			$ 434,800
Steven RotMan [Member]
Number of shares issued for services, value				$ 201,200
Number of shares issued for services				4,000,000
Per Steven Rotman's Employment Agreement [Member]
Related party cash	$ 5,000
Discount rate	50.00%
Per Steven Rotman's Employment Agreement [Member] | Per Year [Member]
Related party cash	$ 125,000
Per Steven Rotman's Employment Agreement [Member] | Per Month [Member]
Related party cash paid in shares, value	$ 10,417
Previous Employment Agreement [Member]
Discount rate	0.00%
Previous Employment Agreement [Member] | Per Year [Member]
Related party cash	$ 1
Previous Employment Agreement [Member] | Per Month [Member]
Related party cash paid in shares, value	$ 20,833
Design's Consulting Agreement [Member] | Designcenters [Member]
Related party cash				$ 41,000
Discount rate		50.00%
Number of shares of common stock				20,030,407
Stock subscription payable		$ 42,000
Stock subscription payable, shares		850,000
Performance bonus		$ 10,000
Number of shares of common stock, value				$ 83,000
Design's Consulting Agreement [Member] | Per Month [Member] | Designcenters [Member]
Related party cash		7,100
Blue Oar's Consulting Agreement [Member] | Blue Oar Consulting, Inc. [Member]
Related party cash		$ 45,000
Discount rate		50.00%
Number of shares of common stock		9,042,046
Stock subscription payable		$ 411,000
Stock subscription payable, shares		19,604,000
Number of shares of common stock, value		$ 83,000
Blue Oar's Consulting Agreement [Member] | Per Month [Member] | Blue Oar Consulting, Inc. [Member]
Related party cash		15,000
Related party cash paid in shares, value		$ 12,500

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Major Customers and Vendors (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Concentration of risk, percentage	100.00%	100.00%
Revenues	$ 5,932,238	$ 191,667
Revenue [Member] | Customer or Vendor [Member]
Concentration of risk, percentage	10.00%
Revenue [Member] | One Major Vendor [Member]
Concentration of risk, percentage	15.00%
Revenues	$ 185,000
Revenue [Member] | Six Major Customers [Member]
Revenues		$ 16,000
Cost of Revenue [Member] | Customer or Vendor [Member]
Concentration of risk, percentage	10.00%

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Income Taxes (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Effective income tax rate	21.00%	21.00%
Net operating loss carryforward	$ 26,700,000
Rotmans Furniture [Member] | Federal [Member]
Net operating loss carryforward	2,700,000
Rotmans Furniture [Member] | State [Member]
Net operating loss carryforward	$ 1,800,000
Net operating loss, expiration year	Expires beginning in 2022
Georgia [Member]
Net operating loss carryforward	$ 18,300,000
Net operating loss, expiration year	Expires beginning in 2023
Massachusetts [Member]
Net operating loss carryforward	$ 8,300,000
Net operating loss, expiration year	Expires beginning in 2023
Expires Beginning in 2024 [Member]
Net operating loss carryforward	$ 18,400,000
Carried Forward Indefinitely [Member]
Net operating loss carryforward	8,300,000
Carried Forward Indefinitely [Member] | Rotmans Furniture [Member] | Federal [Member]
Net operating loss carryforward	890,000
Expires Beginning in 2029 [Member] | Rotmans Furniture [Member] | Federal [Member]
Net operating loss carryforward	$ 1,810,000

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Income Taxes - Schedule of Provision for Income Taxes (Details)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Tax Disclosure [Abstract]
Federal statutory income tax rate	(21.00%)	(21.00%)
Change in valuation allowance on net operating loss carryforwards	21.00%	21.00%
Effective income tax rate	0.00%	0.00%

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Income Taxes - Schedule of Deferred Tax Assets (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
NOL carryforwards	$ 5,620,000	$ 5,490,000
Less valuation allowance	(5,620,000)	(5,490,000)
Deferred tax assets

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Acquisition of Rotmans (Details Narrative) - Rotmans Furniture [Member]	Jul. 18, 2019 USD ($)
Acquired percent interest	58.00%
Aggregate purchase price	$ 2,030,000
Percent of consideration paid	25.00%
Percent of consideration paid in convertible notes	75.00%
Minimum [Member]
Notes payable term	4 years
Maximum [Member]
Notes payable term	8 years

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Acquisition of Rotmans - Schedule of Proforma Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Business Combinations [Abstract]
Total revenues	$ 5,932,238	$ 6,734,929
Loss from operations	850,553	2,505,367
Net loss	1,477,990	3,687,824
Net loss attributable to Vystar	$ 1,367,044	$ 3,456,916
Basic and dilated loss per share	$ (0.00)	$ (0.00)

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Subsequent Events (Details Narrative) - USD ($)			1 Months Ended	3 Months Ended
	Jul. 01, 2020	Apr. 16, 2020	May 31, 2020	Mar. 31, 2019
Preferred Stock [Member]
Number of shares issued
Common Stock [Member]
Number of shares issued				144,933,992
Subsequent Event [Member] | Preferred Stock [Member]
Number of shares issued	130
Subsequent Event [Member] | Common Stock [Member]
Number of convertible shares	44,357
Subsequent Event [Member] | Paycheck Protection Program [Member]
Loan received funding amount		$ 1,402,900
Promissory note principal amount		$ 1,402,900
Debt interest percentage		1.00%
Debt description		The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, Rotmans may apply for forgiveness for all or a part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by Rotmans during the twenty-four week period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered twenty-four week period will qualify for forgiveness.
Subsequent Event [Member] | Sale Promotion Consulting Agreement [Member]
Debt description			Under the agreement, Rotmans appointed the third-party as its exclusive agent to assist with a high-impact sale to payoff the Fidelity Co-operative Bank ("Fidelity") line of credit loan. Before the sale, the agent lent the Company funds to payoff the Fidelity loan on May 29, 2020. The agent will be reimbursed for the advance from the proceeds of the sale. In addition, the agent has a senior first priority security interest and lien in Rotmans inventories and other assets until all obligations and liabilities are satisfied. Profits of the sale will be distributed according to the specific terms of the agreement. The agreement will expire 240 days from the commencement date of May 29, 2020.