As filed with the Securities and Exchange Commission on February 11, 2009  
Registration No. 333-155341

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Pre-Effective Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 

VYSTAR CORPORATION
(Exact name of registrant as specified in its charter)
  
       
Georgia
 
8731
 
20-2027731
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)  
 
(I.R.S. Employer
Identification Number)  
 

  3235 Satellite Boulevard
Building 400, Suite 290
Duluth, GA 30096
(770) 965-0383
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
 

William Doyle
Chief Executive Officer
3235 Satellite Boulevard
Building 400, Suite 290
Duluth, GA 30096
(770) 965-0383
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
 

Copy to:
Gerald L. Baxter, Esq.
Greenberg Traurig, LLP
3290 Northside Parkway, Suite 400
Atlanta, GA 30327
(678) 553-2430
 

Approximate date of commencement of proposed sale to public:   As soon as practicable after this Registration Statement is declared effective.
 

 
 
 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.   o                  
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.   o               
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
£
Accelerated filer
£
Non-accelerated filer £
Smaller reporting company
x
   
(Do not check if a smaller reporting
company)
 

CALCULATION OF REGISTRATION FEE
 
Title of Each Class of
Securities to be Registered
 
Amount to be
Registered
   
Proposed Maximum Aggregate
Offering Price Per Unit
   
Proposed Maximum
Aggregate Offering Price (1)
   
Amount of Registration
Fee
 
Common Stock
    1,100,000     $ 2.00 (1)   $ 2,200,000 (1)   $ 86.46  
(1)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.  Previously paid.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.  

 
 

 
 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 

 
Subject to Completion, dated _________, 2009
 
PROSPECTUS
 
 
1,100,000 Shares
 
COMMON STOCK
 
This is the initial public offering of common stock by Vystar™ Corporation, a Georgia corporation ("Vystar" or the "Company"). 600,000 shares of our common stock held by Universal Capital Management, Inc., a publicly held business development corporation ("UCM"), will be distributed to the record stockholders of UCM (the “UCM Stockholders”) on ________, 2009, the record date, upon effectiveness of the registration statement of which this prospectus is a part  No consideration will be payable by the UCM Stockholders with respect to such distribution.  UCM and the UCM Stockholders may be deemed to be an “underwriters,” within the meaning of the Securities Act, in connection with such distribution.  In addition to the registration of such shares for resale as described at “Selling Shareholders,” we are also registering for resale up to 500,000 shares of our common stock held by selling shareholders of Vystar identified in this prospectus on a delayed or continuous basis.  All of such shares will be offered at an initial offering price of $2.00 per share.  Such price may be changed by the market after the initial offering at such time that such shares of common stock are quoted on the OTC Bulletin Board, with sales thereafter occurring at market prices.  Such price was determined solely on the basis of the last price at which the Company’s common stock was sold privately.  Vystar will not receive any proceeds from the distribution or resale of any of such shares. No public market currently exists for the shares. We intend to apply for approval for our shares of common stock to be traded on the OTC Bulletin Board under the symbol "__________".
 
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” ON PAGE ___.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 
 

 

TABLE OF CONTENTS
 
PROSPECTUS SUMMARY
- 1 -
   
THE OFFERINGS
- 3 -
   
SUMMARY FINANCIAL DATA
- 4 -
   
RISK FACTORS
- 4 -
   
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
- 8 -
   
MARKET AND INDUSTRY DATA
- 8 -
   
USE OF PROCEEDS
- 8 -
   
DIVIDEND POLICY
- 8 -
   
CAPITALIZATION
- 9 -
   
DILUTION
- 9 -
   
SELLING SHAREHOLDERS
- 9 -
   
PLAN OF DISTRIBUTION
- 10 -
   
UNITED STATES TAX CONSIDERATIONS
- 12 -
   
SELECTED FINANCIAL DATA
- 13 -
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- 15 -
   
BUSINESS
- 19 -
   
GOVERNMENT REGULATION
- 39 -
   
MANAGEMENT
- 40 -
   
LIMITATION OF LIABILITY AND INDEMNIFICATION
- 49 -
   
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- 50 -
   
PRINCIPAL SHAREHOLDERS
- 51 -
   
DESCRIPTION OF CAPITAL STOCK
- 52 -
   
SHARES ELIGIBLE FOR FUTURE SALE
- 53 -
   
LEGAL MATTERS
- 54 -
   
EXPERTS
- 54 -
   
WHERE YOU CAN FIND MORE INFORMATION
- 54 -
   
FINANCIAL STATEMENTS
F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only, regardless of the time of delivery of this prospectus or of any sale of the Shares. Our business, prospects, financial condition and results of operations may have changed since that date.

 
- i -

 

PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the “Risk Factors” section of this prospectus and our consolidated financial statements and related notes appearing at the end of this prospectus, before making an investment decision.
 
Overview
 
Vystar TM Corporation (“Vystar” or the “Company”), a development stage company with very limited revenues, is the creator and exclusive owner of the innovative technology to produce Vytex™ Natural Rubber Latex ("NRL"). This technology reduces antigenic protein in natural rubber latex products made with Vytex to virtually undetectable levels. The allergic reactions to untreated latex are a significant detriment affecting numerous individuals globally that use many different products made with NRL. With non-latex products growing at a rapid rate due to these allergy problems, the costs for alternative materials incurred by the manufacturers of these many different products have greatly increased. Nearly all substitute materials are far more expensive than NRL – by a factor of five in some cases. Vystar is introducing Vytex NRL, its new “low protein” natural rubber latex, throughout the worldwide marketplace that uses NRL or latex substitutes as a component of manufactured products. Vystar intends for Vytex NRL to become the standard source of latex and latex substitutes, not unlike a standard computer operating system on which many other applications can run. Over 9.7 million tonnes of NRL are produced globally of which just over one million tonnes are in liquid latex form. There are more than 40,000 products made from the liquid latex while the other eight million tonnes are used to produce tires and other hard rubber products. Natural rubber latex is used in an extensive range of products including balloons, textiles, footwear and clothing (threads), adhesives, foams, furniture, carpet, paints, coatings, protective equipment, sporting equipment, and, especially health care products such as condoms, surgical and exam gloves, catheters and other items. Vystar intends to introduce Vytex NRL into the supply channels with aggressive, targeted marketing campaigns directed to the end users to create the pull-through and a competitive advantage for the manufacturers utilizing Vytex NRL, as well as to manufacturers of the end products.
 
On April 11, 2008, Vystar signed a definitive agreement with Revertex (Malaysia), Sdn. Bhd., a division of Yule Catto Far East and the world's largest producer of pre-vulcanized natural rubber lattices for the production of Vytex NRL. Revertex will be a non-exclusive, toll manufacturer for Vystar and has started full production mode to manufacture Vytex NRL commercially. Vystar ran its first production February 2, 2008 and has successfully completed several subsequent production runs.  To date, the production runs have entered the market as samples only of varying sizes to interested manufacturers.  Further, to date, Vystar has had very limited revenues, although we anticipate additional revenues to be generated in the first quarter of 2009 and on-going.
 
History and Background
 
Travis W. Honeycutt, the retired CEO of the Company, is the inventor of the Vytex TM NRL process. He initially formed Vystar LLC, the predecessor to the Company in February 2000, as a Georgia limited liability company. The Company’s operations under the LLC entity were focused substantially on the research, development and testing of the Vytex NRL process, as well as attaining patent protection for this invention. Mr. Honeycutt provided the Company’s early financing from personal funds. 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. In October 2005, the Company moved to its current location in Duluth, Georgia, part of the metro Atlanta area, and established its corporate headquarters.   Mr. Honeycutt currently provides occasional prospect advisory services in the thread industry to Vystar, and has no on-going or regular involvement or responsibilities within or to Vystar.
 
Prior to retirement, Mr. Honeycutt had over thirty-five years of experience in new business and technical development in the industrial and healthcare markets. Mr. Honeycutt was a founder, former Director and former Executive Vice President of Isolyser Company, Inc., recently purchased by ECOLAB. He holds over one hundred patents and has received several awards for entrepreneurial growth and success, including Inc. Magazine’s Entrepreneur of the Year for Healthcare in the Southeast Region. Mr. Honeycutt received his Bachelor of Science degree in Fiber and Polymer Chemistry from North Carolina State University and a Masters of Science degree in Chemical Engineering from Georgia Institute of Technology. He was honored with a Doctorate degree in Physics from Solomon University in Kiev, Ukraine.

 
- 1 -

 

In June 2002, Vystar applied to the U.S. Patent & Trademark Office (USPTO) for domestic patent protection for its manufacturing process, which was issued on June 14, 2005 as U.S. Patent 6,906,126. In April 2005, the Company filed a continuation in part of its previously granted patent, which was approved by the USPTO a mere 6 months later in October 2005, and was ultimately filed on June 6, 2006 as U.S. Patent 7,056,970. All 13 originally filed claims were allowed in this patent that issued June 2006.
 
Vystar has also filed for international patent protection according to the Patent Co-Operation Treaty ("PCT"), and has been issued PCT patent No.: PCT/US2005/025018. This international patent has been filed and nationalized in the European Union (EU) as well as in China, Japan, Sri Lanka, India, Canada and South Africa. We expect patents in these countries to be issued without objection. In addition to the international country nationalizations, we are expanding our patent filings in the U.S. to go beyond pure method patents with only process method claims, and to include composition of matter claims through nationalizing the PCT patent back into the U.S. with slight modifications of the claims in the original PCT filing, thereby expanding our patent protection.
 
Additionally, we filed two provisional patent applications with USPTO on January 18, 2008, Serial No. 61/022,250 and July 18, 2008, Serial No. 61/081,927 to cover our R&D advancements which were the subject of our published papers and presentations at the Latex 2008 Conference in Madrid, Spain and at the International Latex Conference in Cleveland, Ohio. We are currently working to turn both provisional patent applications into a full utility patent covering both process method and composition of matter claims to cover our advancements, which will be filed by January 18, 2009.
 
The Company has applied for trademark protection for "Vystar", "Vytex" and our tagline "Created by Nature. Recreated by Science." in the U.S. and intends to file internationally for trademark protection. As of October 1, 2008, the time period for submitting objections expired with no objections having been filed with the USPTO. Therefore, we are awaiting the official statement of allowance from the USPTO on all three of these trademarks and are in the final stages of validating use for final approval and registration of these marks. While the Company expects trademark protection to be granted for its Company and product names, no assurance can be given that such protection will be granted in a timely manner or, if ever such protection is granted, whether it will provide substantial protection from competition. Vystar realizes that the market for Vytex NRL is an industrialized world concern; therefore, Vystar is committed to aggressively challenging any infringements of its patents and trademarks.
 
Mr. Honeycutt and William Doyle, President and CEO of the Company, have spoken on the Company's Vytex NRL product and its potential at a number of industry conferences, including: the International Latex Conference, in Charlotte, North Carolina (July 2005); Latex 2006, in Frankfurt, Germany (January 2006); Malaysian Rubber Glove Manufacturers Association's (MARGMA) 3 rd International Rubber Glove Conference in Kuala Lumpur, Malaysia (September 2006) and Latex 2008 in Madrid, Spain (January 2008), where their fourth technical paper was presented. In July, 2008, a fifth technical paper was presented by the Company’s Technical Advisor, Mark Swanson, at the International Latex Conference in Cleveland, Ohio.
 
The Company has also exhibited at the world's largest medical technology and equipment tradeshow at the MEDICA conference in Dusseldorf, Germany in November 2007 and 2008 as part of the State of Georgia Department of Economic Development group of companies. The Company has generated significant commercial interest in Vytex NRL in several arenas resulting from attendance at this important global conference.
 
Risks Factors
 
We are a development stage company and have generated only limited revenues to date. You should carefully consider the risks described under the “Risk Factors” section and elsewhere in this prospectus. These risks could materially and adversely impact our business, financial condition, operating results and cash flow, which could result in a partial or total loss of your investment.
 
Our Corporate Information

Our principal executive offices are located at 3235 Satellite Boulevard, Building 400, Suite 290, Duluth, Georgia 30096, and our telephone number is 770-965-0383. Our website address is www.vytex.com.
 
The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

 
- 2 -

 

Unless the context otherwise requires, we use the terms “Vystar,” “our company,” “we,” “us” and “our” in this prospectus to refer to Vystar Corporation, and its predecessor, Vystar LLC.

THE OFFERINGS
 
Common Stock to be Distributed
600,000 shares will be distributed pro rata to the public stockholders of Universal Capital Management, Inc. (“UCM”) (the “UCM Stockholders”) by UCM at a ratio of ____ shares of our common stock for each share of common stock of UCM held by the UCM Stockholders on the record date.  Following the completion of the distribution, we anticipate that we will have approximately 800 shareholders.
   
Record Date
                                                                          
   
Universal Capital Management, Inc.
UCM is a venture capital firm specializing in development stage, emerging growth and late stage companies.  Its common stock is traded on the OTC Bulletin Board under the symbol “UCMT.”  UCM and the agreements between UCM and Vystar are described at “BUSINESS-Agreements with Universal Capital Management, Inc.”
   
Reasons for the Distribution
Vystar sought a method to become a 1934  Exchange Act (the “1934 Act”) reporting company without issuing its shares to the public in a more conventional non-underwritten public offering.  While registration on Form 10 under the 1934 Act was available to Vystar, it did not provide the Company with a sufficient number of shareholders, at least initially, to obtain a market maker as required to have its common stock traded on the OTC Bulletin Board.  Therefore, the method chosen, together with the services provided by UCM, resulted in the Company’s Board of Directors approving the form of distribution to the UCM Stockholders.
   
Method of Distribution to the UCM
Stockholders
The record date for the distribution of the Vystar Common Stock to the UCM Stockholders will be determined by UCM and provided to UCM's transfer agent, together with a list of UCM's record Stockholders and a letter of instructions. Pursuant to such letter, the transfer agent will arrange for the transfer of the 600,000 shares of Vystar Common Stock prorata to the UCM Stockholders. Shares will be rounded up or down. No fractional shares will be issued. No action of the UCM Stockholders will be required. 
   
C Common Stock to be sold by the Selling Shareholders
Up to 1,100,000  shares (including the 600,000 shares distributed to the UCM Stockholders)
   
Proceeds to Vystar
None
   
C Common Stock to be Outstanding after this Distribution
12,551,774 shares
   
Risk Factors
You should read the “Risk Factors” section of this prospectus. beginning at page __.
 
500,000 of the shares being sold by the Selling Shareholders were issued as founders’ stock upon the initial organization of the Company.  There are no agreements or other terms with respect to these shares.  No proceeds from the sale of these shares will be received by the Company.  These shares are being registered as part of this offering, and have no other rights associated with them other than those attributed to the Company’s common stock generally.

The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of December 31, 2008, and excludes:
 
·
6,090,779 shares of common stock issuable upon exercise of stock options and warrants outstanding as of December 31, 2008 at a weighted average exercise price of $.96 per share; and

·
An additional 600,000 shares of common stock reserved for future issuance under our equity compensation plans as of December 31, 2008.
 
 
- 3 -

 

SUMMARY FINANCIAL DATA
 
The following tables summarize the financial data for our business as of and for the periods presented. You should read this information together with the “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus and our financial statements and related notes included elsewhere in this prospectus.

   
Year Ended December 31
   
Nine Months Ended September 30
 
Statement of Operations Data:
 
2005
   
2006
   
2007
   
2007
   
2008
 
   
(in thousands, except per share data)
 
                               
Net sales
  $ -     $ -     $ -     $ -     $ -  
                                         
General and administrative (1)
    657       759       703       547       2,209  
Research and development (1)
    604       305       428       333       353  
Depreciation and amortization
    5       8       9       7       1,522  
Total costs and expenses
    1,266       1,072       1,140       887       4,084  
                                         
Operating loss
    (1,266 )     (1,072 )     (1,140 )     (887 )     (4,084 )
                                         
Interest income (expense), net
    -       (1 )     20       15       13  
Provision for note receivable from related party
    -       -       (120 )     -       -  
Loss on disposal of assets
    -       (13 )     -       -       -  
Net loss
  $ (1,266 )   $ (1,086 )   $ (1,240 )   $ (872 )   $ (4,071 )
                                         
Basic and Diluted Loss per Share
  $ (0.10 )   $ (0.08 )   $ (0.09 )   $ (0.06 )   $ (0.36 )
                                         
Basic and Diluted Weighted Average Number of Common Shares Outstanding
    12,509       13,185       14,495       14,300       11,422  
 
(1) Includes stock-based compensation expense
 
RISK FACTORS
 
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. As a result, you may lose all or part of your investment. Before deciding whether to invest in our common stock you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes.
 
Risks Related to Our Business
 
We have had very limited revenues in our history.  
 
We have had very limited revenues in our history. While we anticipate that additional revenues will be generated by the first quarter of 2009, such revenues, if any, will not be sufficient for the Company to become profitable. We expect to make significant future expenditures to develop and expand our business. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability, and we may incur significant losses for the foreseeable future.

 
- 4 -

 

Vystar is a development stage company.
 
Vystar is a development stage company with limited operating experience. Vystar is in the early stages of implementing a business plan which is new to Vystar, its directors, officers and employees. The financial success of Vystar and the ultimate value, if any, of our common stock will be dependent upon the soundness of this business concept and the ability of management of the Company to successfully and profitably execute that concept.
 
The lack of an operations history eliminates your ability to use standard methods of company valuation, such as price/earnings ratio analysis or present value of cash flows analysis, to appropriately value the Company and an investment therein. The value of your investment in the common stock will significantly decline, or even become worthless, if our business is not successful.
 
Operating results could fluctuate and differ considerably from our financial forecasts.
 
Our business model is based on assumptions derived from (i) the experience of the principals of the Company, and (ii) third party market information and analysis. There are no assurances that these assumptions will prove to be valid for our future operations or plans.
 
Our operating results may fluctuate significantly as a result of a variety of factors, including:
 
·
Acceptance by manufacturers of the Vytex™ Natural Rubber Latex technology;
 
·
Our ability to achieve and sustain profitability;
 
·
Consumer confidence in products manufactured using our Vytex™ Natural Rubber Latex technology.
 
Our business is totally dependent on market demand for, and acceptance of, the Vytex TM Natural Rubber Latex process.  
 
We expect to derive most of our revenue from the sales of our Vytex TM Natural Rubber Latex raw material to various manufacturers of rubber and rubber end products using NRL and/or their distributors. We will pay natural rubber latex processors a fee for the service of manufacturing and creating Vytex NRL for us under our toll manufacturing agreement. Conversely, Vystar will collect a fee under the licensing model. Our Vytex NRL product is new and operates within broad, diverse and rapidly changing markets. As a result, widespread acceptance and use of product is critical to our future growth and success. If the market for our product fails to grow or grows more slowly than we currently anticipate, demand for our product could be negatively affected.
 
Assertions by a third party that our process infringes its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or expensive licenses.  
 
There is frequent litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition and become increasingly visible as an operating company, the possibility of intellectual property rights claims against us may grow.
 
Any intellectual property rights claim against us or our customers, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management attention and financial resources. An adverse determination also could prevent us from offering our process, require us to pay damages, require us to obtain a license or require that we stop using technology found to be in violation of a third party’s rights or procure or develop substitute services that do not infringe, which could require significant resources and expenses.
 
The market in which we will participate is competitive and if we do not compete effectively, our operating results may be harmed.  
 
The markets for our product are competitive and rapidly changing. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margins or the failure of our services to achieve or maintain widespread market acceptance.

 
- 5 -

 

While early interest was strong in a new innovative product in the natural rubber latex industry, pricing and regulatory approvals remain a key selling factor especially in the exam glove arena. There is no manufacturer signed to date that has accepted Vytex NRL into its product mix.
 
While Vytex NRL is currently in the early stages of 510(k) application with the FDA for condoms and exam gloves, there is no assurance that either or both will be awarded approval.
 
In order for Vytex to be used in medical device applications, the manufacturer of the end product must submit an application to the FDA.  If the device is classified by the FDA as Class II (i.e., condoms, surgical gloves, and most non-cardiac and non-renal/dialysis catheters) and in some cases Class I (i.e., exam gloves), a 510(k) application must be filed with the FDA seeking clearance to market the device based on the fact that there is at least one other predicate or similar device already marketed.  If the product is classified as a class III product (i.e., most cardiac and renal/dialysis catheters, certain adhesives and other in vivo devices), or is otherwise a new device with no predicate on the market already, then the manufacturer of the end product must submit a Pre-Market Approval (“PMA”) application seeking approval by the FDA to market the device.  The PMA approval process is much more in depth and lengthy and requires a greater degree of clinical data and FDA review than does a 510(k) clearance process.

Since Vytex is a raw material and not an end-product, Vystar is not the entity that files with the FDA for any clearance or approval to market a device.  Instead, the end-product manufacturers who will be selling and marketing the device(s) must submit applications and seek the FDA clearance or approval depending upon the device classification.  Vystar’s role in this process is only as a background support to the manufacturers to supply information and any technical or test data regarding the Vytex raw material if and to the extent needed.

An American manufacturer of condoms has been engaged in production work and has completed required testing for using Vytex NRL in their condom line and will be initiating the same with exam gloves by first quarter 2009. In the meantime, the same manufacturer will proceed with a production run of a straight dipped exam glove and proceed with the 510(k) application for the exam glove with the FDA. We have no assurance that the products will provide acceptable test results and even if they do, there is no certainty that the FDA will approve the applications.
 
Vystar will seek to have lower protein claims than what is currently on the market today and will ultimately seek to have latex warnings removed from all FDA-regulated products, but it cannot guarantee that either of such actions will be approved by the FDA.
 
The FDA scrutinizes heavily any and all claims categorizing the protein levels and other claims of a NRL product. Currently, the FDA has allowed claims only stating the level of less than 50 micrograms/gram of total extractable proteins pursuant to only one of two FDA-recognized standards. Vystar intends to claim protein levels pursuant to both of the two FDA-recognized standards, which will result in claiming the lowest level of antigenic proteins for a Hevea NRL product currently on the market. There is no guarantee that the FDA will allow these claims.
 
Additionally, for many years, the FDA has required warnings on products containing latex due to the latex allergy issue that exists. Vystar plans on petitioning the FDA to have that label removed from products manufactured with Vytex NRL, by filing a Citizen’s Petition. Such Petition is likely to require clinical test results indicating acceptable allergic reactions associated with Vytex NRL. There are no assurances that the FDA will grant that request.
 
Manufacturers are implementing trials of Vytex NRL in their facilities but final data are not yet available from all these manufacturers on its viability for their particular environments.
 
Samples of Vytex NRL have been made available to several natural rubber latex and latex substitute end product manufacturers. Since the completion of the Vytex NRL Standard Operating Procedures (SOPs), Vystar has toll manufactured several one-tonne production runs at Revertex Malaysia. Manufacturers that have signed a sampling agreement with us have been provided with samples of Vytex NRL for validating its use in their manufacturing processes. To date, only a small number of manufacturers have completed those runs so feedback is minimal at this point. Although most feedback received to date is positive, there is no assurance that such feedback will continue to be satisfactory.

 
- 6 -

 

Risks Related to this Distribution and Ownership of Our Common Stock.
 
The offering price of the common stock and warrants in our recently completed private placement was set arbitrarily.
 
In our recently completed private placement, we issued 1,189,000 shares of our common stock and 594,500 warrants to purchase our common stock, at an aggregate price of $2.00 per share and accompanying warrants. This price was set arbitrarily and there should be no implication from such pricing that the common stock now has or ever will have a market value of $2.00 per share or that such stock could ever be sold for $2.00 per share or at any price. Earlier offerings of our common stock were at prices from $1.00 to $1.50 per share of common stock, together with warrants to purchase shares of our common stock at an exercise price of $.50 per share.
 
Our failure to raise additional capital or generate the cash flows necessary to expand our operations and invest in our services could reduce our ability to compete successfully.
 
While we currently do not need to raise additional capital, it is likely we will need to raise additional funds in the latter part of 2009, and we may not be able to obtain such additional financing on favorable terms, if at all. If we raise additional equity financing, our shareholders may experience significant dilution of their ownership interests, and the per share value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
 
·
continue to expand our sales and marketing organizations;
 
·
expand our operations, in the United States or internationally;
 
·
hire, train and retain employees; or
 
·
respond to competitive pressures or unanticipated working capital requirements.
 
The distribution of our common stock to the UCM Stockholders will be a taxable event resulting in taxable income to such Stockholders.
 
The distribution will constitute a dividend to the UCM Stockholders, taxable as ordinary income, to the extent the distribution is treated as paid out of UCM’s current or accumulated earnings and profits (as computed for federal income tax purposes).
 
After the completion of this distribution and resale offering, we do not expect to declare any dividends in the foreseeable future.
 
After the completion of this distribution and resale offering, we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.
 
There is no assurance that any significant public market for our shares of Common Stock will develop after the completion of this distribution of common stock to the UCM stockholders.
 
While we   intend to apply for approval for our shares of common stock to be traded on the OTC Bulletin Board, there is no assurance that such approval will be granted or that there will be any significant public market for our common stock even if such approval is granted. Much of our common stock that has been previously issued privately and will not be eligible for public resale under SEC Rule 144 for three months after Vystar becomes a fully-reporting company under the 1934 Act.

 
- 7 -

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this prospectus, including statements about our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this prospectus include, among other things, statements about:
 
·
our plans to commercialize and market our services;
 
·
our financial performance;
 
·
the potential benefits of collaboration agreements and our ability to enter into selective collaboration arrangements;
 
·
our ability to quickly and efficiently identify and develop new products and markets for our Vytex NRL;
 
·
our ability to establish and maintain intellectual property rights; and
 
·
our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.
 
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section of this prospectus, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
 
You should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
MARKET AND INDUSTRY DATA
 
In this prospectus, we rely on and refer to information and statistics regarding the industries and the markets in which we intend to compete. We obtained this information and these statistics from various third-party sources and where appropriate have indicated such sources. We believe that these sources and the estimates contained therein are reliable. Such information involves risks and uncertainties and is subject to change based on various factors, including those discussed in the “Risk Factors” section of this prospectus.
 
USE OF PROCEEDS
 
Vystar will not receive any proceeds from the distribution of common stock to the UCM Stockholders or the sale of common stock by the selling shareholders.

DIVIDEND POLICY

We have never declared or paid dividends on our common stock. We currently intend to retain any future earnings to finance our research and development efforts, the development of our proprietary technologies and the expansion of our business. We do not intend to declare or pay cash dividends on our capital stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

 
- 8 -

 

CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2008 on an actual basis. You should read this table together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

   
Actual
 
   
September 30, 2008
 
   
(unaudited)
 
       
Cash
 
$
830,961
 
         
Total long-term debt, including current portion
 
$
-
 
         
Stockholders' equity
       
Common stock, $0.0001 par value, 25,000,000 shares authorized
   
1,153
 
Additional paid-in capital
   
9,530,098
 
Stock subscription receivable
   
(40,000
)
Deferred compensation
   
(32,171
)
Deficit accumulated during development stage
   
(8,197,515
)
Total stockholders' equity
   
1,261,565
 
Total capitalization
 
$
1,261,565
 

The table above does not include:
 
 
·
6,090,779 shares of common stock issuable upon exercise of stock options and warrants outstanding as of December 31, 2008 at a weighted average exercise price of $.96 per share; and
 
 
·
an additional 600,000 shares of common stock reserved for future issuance under our equity compensation plans as of December 31, 2008.
 
We have 10,000,000 authorized shares of preferred stock, none of which have been issued.
 
DILUTION
 
Since neither the distribution of shares to the UCM Stockholders nor the resale of shares by the selling shareholders will result in proceeds being paid to Vystar, our net tangible book value per share will not be affected by the distribution or the offering.
 
SELLING SHAREHOLDERS
 
This prospectus covers shares that were acquired from Vystar in private transactions exempt from registration under the Securities Act by Travis Honeycutt, the founder of the Company. Mr. Honeycutt acquired the shares in 2003 and is reasonably believed to be an "accredited investor" as defined by Regulation D under the Securities Act. Mr. Honeycutt has retired from active involvement with Vystar as a result of personal health issues. At his request, the Company has agreed to register a portion of the shares of common stock that he has owned since Vystar’s inception for resale. In connection with such registration, Mr. Honeycutt has transferred approximately fifty (50%) percent of his shares of Vystar common stock to his wife, Margaret Honeycutt.
 
 
- 9 -

 
 
In addition, this prospectus covers shares that will acquired by the UCM Stockholders pursuant to the distribution from Vystar to UCM and the subsequent distribution of such shares to the UCM Stockholders otherwise described in this prospectus.  At such time that any UCM Stockholders owning Vystar common stock indicate their desire to resell all or a portion of such shares, the registration statement of which this prospectus is a part will be amended to list any such selling shareholders together with the information required by applicable SEC rules.  The obligation of Vystar to make such amendments at the request of such UCM Stockholders will terminate at such time that such Vystar common stock has been held for not less than six (6) months by such UCM Stockholders, assuming that Vystar is then current with respect to its reporting obligations as a 1934 Act reporting company, or such time that all such shares have been sold, whichever occurs first.  See “PLAN OF DISTRIBUTION.”
 
The following table presents information regarding Mr. Honeycutt and Mrs. Honeycutt and the UCM Stockholders. The table includes:
 
·
Name.
 
 
·
The nature of any material relationship within the last three years between Mr. Honeycutt or Mrs. Honeycutt, and Vystar.
 
 
·
The number of shares of our common stock beneficially owned by Mr. Honeycutt and Mrs. Honeycutt prior to this offering.
 
 
·
The number of shares of our common stock offered hereunder by Mr. Honeycutt and Mrs. Honeycutt.
 
 
·
The number and percent of shares of our common stock beneficially owned by Mr. Honeycutt and Mrs. Honeycutt and the UCM Stockholders after the offering is complete. This calculation assumes that all shares are sold pursuant to this offering and that no other shares of common stock are acquired or disposed of by Mr. Honeycutt or Mrs. Honeycutt or the UMC Stockholders prior to the termination of this offering.
 
Mr. Honeycutt and Mrs. Honeycutt and the UCM Stockholders are offering for sale with this prospectus up to the number of shares listed below subject to the limitations described in the section of this prospectus entitled "Plan of Distribution."
 
Name
 
Shares of
common stock
Beneficially Owned
before the Offering
   
Shares of
common stock
Registered in this
Offering
   
Shares of common
stock Owned After
Offering
   
Percentage of
Outstanding
common stock
Beneficially Owned
After the Offering
 
Travis Honeycutt*
    2,497,000       250,000       2,247,000       17.90 %
Margaret Honeycutt**
    2,497,000       250,000       2,247,000       17.90 %
UCM Stockholders      600,000       600,000       -0-       -0-  
 
*
Mr. Honeycutt is the founder of the Company. Mr. Honeycutt was a director, Chairman of the Board and Chief Executive Officer of the Company from organization to March, 2008.
** 
Mrs. Honeycutt is the wife of Mr. Honeycutt. She has never had any relationship with the Company.
 
PLAN OF DISTRIBUTION
 
This prospectus will be used by Vystar to issue 600,000 shares of our common stock to UCM which will distribute such shares to the UCM Stockholders on a pro rata basis based on ownership of UCM’s common stock as of the Record Date.  The resale of such shares by the UCM Stockholders is also being registered.  We will keep this prospectus effective until the earlier of (i) six (6) months from the effective date of the distribution of Vystar common stock to the UCM Stockholders, or (ii) such time that all of the shares held by such UCM Stockholders have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any rule of similar effect.  UCM has provided certain services to Vystar in consideration of the issuance of such shares to it.  See “BUSINESS-Agreements with Universal Capital Management, Inc.”

No consideration will be paid by the UCM stockholders who receive the distribution of Vystar common stock.  UCM may be deemed to be an underwriter within the meaning of the Securities Act in connection with such distribution. The UCM Stockholders may also be considered underwriters in connection with the resale of such Vystar common stock.
 
 
- 10 -

 
 
We are also registering the resale of the shares on behalf of the selling shareholders described above. With respect to those shareholders, we will keep this prospectus effective until the earlier of (i) one year from the effective date of the registration statement of which this prospectus is a part, or (ii) such time that all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. As used in this prospectus, the term "selling shareholders" includes the pledgees, donees, transferees or other successors-in-interest selling shares received after the date of this prospectus from the selling shareholders as a gift, pledge, partnership distribution or other non-sale related transfer. The selling shareholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling shareholders may use any one or more of the following methods when selling shares:
 
 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
 
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
·
an exchange distribution in accordance with the rules of the applicable exchange;
 
·
privately negotiated transactions;
 
·
short sales;
 
 
·
broker-dealers may agree with the selling shareholder to sell a specified number of such shares at a stipulated price per share;
 
·
a combination of any such methods of sale; and
 
·
any other method permitted pursuant to applicable law.
 
The selling shareholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling shareholders. The selling shareholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.
 
The selling shareholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 supplementing or amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.
 
The selling shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 supplementing or amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus. The selling shareholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
 
 
- 11 -

 
 
Mr. and Mrs. Honeycutt have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by them. If we are notified by a selling shareholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling shareholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.
 
The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling shareholders.
 
UNITED STATES TAX CONSIDERATIONS
 
The following discussion summarizes material U.S. federal income tax consequences to a United States person who acquires our common stock in the distribution from UCM or in the sale by the selling shareholders. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury Regulations promulgated or proposed thereunder, administrative pronouncements of the Internal Revenue Service (the "IRS") and judicial decisions as of the date hereof, all of which are subject to change at any time, possibly retroactively. There can be no assurance that the IRS will not take a view contrary to that set forth herein that may be upheld by a court. No ruling from the IRS or opinion of counsel has been or will be sought as to any of the matters discussed below.
 
This summary applies only to an investor who holds our common stock as a capital asset within the meaning of section 1221 of the Code. It does not purport to address all tax consequences that may be relevant to any particular investor or to an investor subject to special tax rules, including certain types of persons subject to special treatment under the Code, including insurance companies, tax-exempt organizations, financial institutions, dealers in securities or foreign currencies, persons holding the Notes as part of a hedging or constructive sale transaction, straddle, conversion transaction or other integrated transaction, persons that have a functional currency other than the U.S. dollar, investors in pass-through entities or arrangements, and persons who are not citizens or residents of the United States or that are foreign corporations, foreign partnerships or foreign estates or trusts. In addition, the discussion does not address any aspect of state, local or foreign taxation or other federal taxes.
 
EACH PROSPECTIVE INVESTOR IN OUR COMMON STOCK IS URGED TO CONSULT HIS TAX ADVISER CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO HIM OF ACQUIRING, OWNING AND DISPOSING OF A COMMON SHARE, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME TAX LAWS AND OTHER TAX LAWS.
 
Distribution From UCM
 
Our common stock that a stockholder of UCM receives from UCM will be treated as a distribution on that UCM stock in an amount equal to the fair market value of our common stock on the date of the distribution. That distribution will constitute a dividend to the UCM stockholder, taxable as ordinary income, to the extent the distribution is treated as paid out of UCM’s current or accumulated earnings and profits (as computed for federal income tax purposes). To the extent the distribution is not treated as paid out of UCM’s current or accumulated earnings and profits, it will be treated as a non-taxable return (and reduction) of the UCM stockholder’s basis in his UCM stock, to the extent thereof, and if and to the extent the amount of the distribution exceeds earnings and profits and basis, it will be treated as gain from the sale of the UCM stock on which it is paid. Dividends received by a corporation are generally eligible for the dividends received deduction, subject to limitations, including the limitations under section 1059 of the Code relating to extraordinary dividends.
 
A UCM stockholder’s initial tax basis in our common stock will be equal to the fair market value of the common stock on the date UCM distributes that stock. The holder’s holding period for our common stock will begin on the day after the date of the distribution from UCM.
 
Purchase From Selling Shareholders
 
A prospective investor who purchases our common stock in the sale by the selling shareholders will have an initial tax basis in our common stock equal to the purchase price paid for that stock. The investor’s holding period for that common stock will begin on the day after the date of purchase.

 
- 12 -

 

Distribution on our Common Stock
 
If we were to pay a distribution on our common stock, that distribution would constitute a dividend, taxable as ordinary income, to the extent the distribution is treated as paid out of our current or accumulated earnings and profits (as computed for federal income tax purposes). To the extent the distribution is not treated as paid out of our current or accumulated earnings and profits, it will be treated as a non-taxable return (and reduction) of basis in our common stock, to the extent thereof, and if and to the extent the amount of the distribution exceeds earnings and profits and basis, it will be treated as gain from the sale of our common stock. Dividends received by a corporation are generally eligible for the dividends received deduction, subject to limitations, including the limitations under section 1059 of the Code relating to extraordinary dividends.
 
Subsequent Disposition of our Common Stock
 
Upon a subsequent sale or other taxable disposition of our common stock, you generally will recognize capital gain or loss equal to the difference between the amount realized and your tax basis in the common stock. That gain or loss generally will be long-term capital gain or loss if the common stock was held for more than one year. The deductibility of capital losses is subject to limitations.
 
Backup Withholding
 
You may be subject to backup withholding at the rate of 28% of the dividends you receive on our common stock or on the proceeds from a sale or other taxable disposition of our common stock unless (a) you are a corporation or other exempt recipient or (b) you provide, when required, your taxpayer identification number to the payer, certify that you are not subject to backup withholding and otherwise comply with the backup withholding rules. Backup withholding is not an additional tax; any amount so withheld is creditable against your federal income tax liability or is refundable, provided you furnish the required information to the IRS.
 
SELECTED FINANCIAL DATA
 
You should read the following selected financial data together with our financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. We have derived the statements of operations data for the years ended December 31, 2006 and 2007 and the balance sheet data as of December 31, 2006 and 2007 from our audited financial statements included elsewhere in this prospectus. We have derived the statement of operations data for the years ended December 31, 2003, 2004 and 2005 and the balance sheet data as of December 31, 2003, 2004 and 2005 from our unaudited financial statements not included in this prospectus. We have derived the statements of operation data for the nine months ended September 30, 2008 and the balance sheet data as of September 30, 2008 from our unaudited financial statements included elsewhere in this prospectus. Our unaudited financial statements for the nine months ended September 30, 2008 have been prepared on the same basis as the annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of this data in all material respects. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our results for any interim period are not necessarily indicative of results for a full fiscal year.

 
- 13 -

 


                                 
For the
 
                                 
Nine Months
 
   
Year Ended December 31
   
Ended
 
($ in thousands)
 
2003
   
2004
   
2005
   
2006
   
2007
   
September 30, 2008
 
                                     
Net sales
  $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
General and administrative
    -       155       657       759       703       2,209  
Research and development
    -       345       604       305       428       353  
Depreciation and amortization
    -       -       5       8       9       1,522  
Total costs and expenses
    -       500       1,266       1,072       1,140       4,084  
                                                 
Operating loss
    -       (500 )     (1,266 )     (1,072 )     (1,140 )     (4,084 )
                                                 
Interest income (expense), net
    -       -       -       (1 )     20       13  
Provision for note receivable from related party
    -       -       -       -       (120 )     -  
Loss on disposal of assets
    -       -       -       (13 )     -       -  
Net loss
  $ -     $ (500 )   $ (1,266 )   $ (1,086 )   $ (1,240 )   $ (4,071 )

   
December 31
   
September 30
 
   
2003
   
2004
   
2005
   
2006
   
2007
   
2008
   
2007
 
Balance Sheet Data:
                                         
Cash
  $ -     $ 353     $ 30     $ 420     $ 573     $ 831     $ 639  
Total current assets
    -       353       35       436       651       1,447       927  
Total liabilities
    -       236       232       279       220       319       229  
Total shareholders' equity
    -       117       130       457       575       1,262       755  
Working capital (deficiency)
    -       353       (180 )     175       447       1,126       754  
 
Condensed Statement of Operations Data:

             
February 2, 2000
 
             
(inception)
 
         
Nine Months
 
through
 
 
Year Ended December 31,
 
Ended September 30,
 
September 30,
 
 
2006
 
2007
 
2008
 
2008
 
Net sales
  $ -     $ -     $ -     $ -  
Total operating expenses
    1,072       1,140       4,084       8,097  
Loss from operations
    (1,072 )     (1,140 )     (4,084 )     (8,097 )
Interest income
    -       20       14       34  
Provision for note receivable from related party
    -       (120 )     -       (120 )
Loss on disposal of assets
    (13 )     -       (1 )     (13 )
Interest expense
    (1 )     -       -       (2 )
Net loss
  $ (1,086 )   $ (1,240 )   $ (4,071 )   $ (8,198 )
Net loss per share, basic and diluted
  $ (0.08 )   $ (0.09 )   $ (0.36 )        

   
December 31
   
December 31
   
September 30
 
   
2006
   
2007
   
2008
 
Condensed Balance Sheet Data:
                 
Total current assets
  $ 436     $ 651     $ 1,447  
Total assets
  $ 736     $ 794     $ 1,581  
Total current liabilities
  $ 261     $ 204     $ 306  
Total stockholders' equity
  $ 457     $ 575     $ 1,262  

 
- 14 -

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this prospectus.  The following discussion contains forward-looking statements.  Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that may cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in “Risk Factors” and elsewhere in this prospectus.
 
Overview

Vystar LLC, the predecessor to the Company, was formed February 2, 2000, as a Georgia limited liability company by Travis W. Honeycutt. The Company’s 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 a developmental stage company whose primary activities since inception have been devoted to the development of NRL and raising capital, but our focus is changing to developing the market for NRL and beginning operations.  As we move from a development stage company to a product vendor, we expect that our financial condition and results of operations will undergo substantial change. In particular, we expect to record both revenue and expense from product sales and to incur increased costs for sales and marketing expenses. 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.
 
Significant Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based on the accompanying consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. As such, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Our management reviews its estimates on an on-going basis. We base our estimates and assumptions on historical experience, knowledge of current conditions and our understanding of what we believe to be reasonable that might occur in the future considering available information. Actual results may differ from these estimates, and material effects on our operating results and financial position may result.

Non Cash Compensation Expense - On January 1, 2006, Vystar adopted SFAS No. 123(R), Share Based Payment. SFAS No. 123(R) requires all share-based payments, including grants of employee stock options and warrants to third parties, to be recognized in the financial statements based on their fair values.
 
On a quarterly basis, Vystar computes the value of newly granted awards by utilizing the Black-Scholes valuation model based upon their expected lives, volatility for publicly held companies that are similar to us since we are not yet publicly held with an active market for our stock, and the risk-free rate on US Government securities with matching maturities. The value of the awards are then straight-line expensed over the lives of the purchase options and expensed when vested (or over the service life, if applicable) for the warrants.

Discussion of Financial Results
 
Comparison of Year Ended December 31, 2007 to Year Ended December 31, 2006
 
Revenues

We had no revenues in either period since we are a development stage company that had yet to commence revenue generating operations.

 
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Operating Expenses

Our operating expenses were $1,139,845 and 1,072,086 for the years ended December 31, 2007 and 2006, respectively, for an increase of $67,759. This increase in operating expenses was due primarily to increased research and development activities.

Included in our operating expenses for the year ended December 31, 2007 was $427,530 for research and development expenses compared to $304,680 for 2006, a 40% increase primarily resulting from increased employee compensation and benefits.  General and administrative expense had a 7% decrease to $712,315 from 2006’s expenses of $767,406.

Research and development expenses currently consist primarily of compensation for employees and contractors engaged in internal research and product development activities; laboratory operations, and related operating expenses.  These expenditures are expensed as incurred.

General and administrative expense consists primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including executive, accounting and finance, legal, consulting and other operating expenses.

We expect general and administrative expense to increase in future periods as we increase the level of corporate and administrative activity, including significantly increased expenditures related to the future production and sales of our products.

Other Expense

Other Expense was $99,789 for the year ended December 31, 2007, consisting of $20,416 of interest income on cash deposits, reduced by $120,205 charged against operations as a provision for a note receivable from a related party.  This compares with the $13,400 loss on disposal of assets and $811 of interest expense, or a net Other Expense in 2006 of $14,211.

Net Loss

Net loss was $1,239,634 and $1,086,297 for the years ended December 31, 2007 and 2006, respectively, for an increase of $153,337, primarily resulting from increased research and development and general and administrative expenses as described above.
 
Comparison of Nine Months Ended September 30, 2008 to Nine Months Ended September 30, 2007
 
Revenues

We had no revenues in either period since we are a development stage company that had yet to commence revenue generating operations.

Operating Expenses

Our operating expenses were $4,084,269 and $887,384 for the nine months ended September 30, 2008 and 2007, respectively, for an increase of $3,196,885. In 2008, $1,506,796 was recorded for stock-based compensation as well as an additional $1,513,524 for amortization of deferred compensation.  This compares with $97,900 for stock-based compensation in 2007 for the same period and no amortization of deferred compensation.  The stock-based compensation charges to operations in 2008 were primarily for incentive stock options granted under our Incentive Stock Option Plan to executive officers and were made so that their interests would be aligned with those of shareholders, providing incentive to improve Company performance on a long-term basis.  Grants of warrants were also made to third parties for various services rendered to preserve operating capital.

Included in our operating expenses for the nine months ended September 30, 2008 was $352,466 for research and development expenses compared to $333,366 for the nine months ended September 30, 2007 and $3,731,804 for general and administrative expenses compared to $554,018 for the same period in 2007.  Besides the stock-based compensation charges discussed above, general and administrative expenses increased $380,083 during the first nine months of 2008 compared with 2007 due to legal and accounting fees related to the filing of this registration statement and our first audit as well as increased staffing, professional fees, and marketing efforts as we move toward becoming a product vendor.

 
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Research and development expenses currently consist primarily of compensation for employees and contractors engaged in internal research and product development activities; laboratory operations, and related operating expenses.

We expect to continue to incur substantial research and development expenses for clinical trials, regulatory submissions, assistance with manufacturing trials, and product enhancements.

General and administrative expense consists primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including executive, accounting and finance, legal, consulting and other operating expenses.

We expect general and administrative expense to remain relatively stable in future periods as we increase the level of corporate and administrative activity, including increases associated with our operation as a public company, and significantly increase expenditures related to the future production and sales of our products.  Offsetting these increases will be a reduced level of stock-based compensation from what we experienced during the first nine months of 2008.

Other Income (Expense)

Other income was $13,157 for the nine months ended September 30, 2008, consisting of $14,069 of interest income on cash deposits and other expense of $912, compared to $14,693 of interest income for the same period ended September 30, 2007.

Net Loss

Net loss was $4,071,113 and $872,691 for the nine months ended September 30, 2008 and 2007, respectively, for an increase of $3,198,422, primarily resulting from research and development and general and administrative expenses incurred as described above.

Liquidity and Capital Resources

As of September 30, 2008, we had $830,961 in cash and $503,790 in short-term investments consisting of a certificate of deposit.

Sources and Uses of Cash

For the nine months ended September 30, 2008 and 2007, net cash used by operations was $906,838 and $808,062, respectively.  The negative cash flow at September 30, 2008 resulted from the net loss of $4,071,113 reduced by a number of non-cash charges, specifically stock-based compensation charges of $1,597,498, amortization of deferred compensation of $1,513,524, depreciation of $5,738, and amortization of $2,242.    The increase in accounts payable of $64,550 was primarily due to increased legal and accounting costs incurred to date from work performed in preparation of the company’s registration statement.  Accrued expenses increased $37,184 due to the timing of the company’s business insurance policies renewals.  This also accounted for the majority of the increase in prepaid expenses of $65,672.  The negative cash flow for the nine months ended September 30, 2007 resulted from a net loss of $872,691 for the period reduced by non-cash charges related to stock-based compensation expense, $137,711, depreciation $4,959 and amortization of $1,788.  Other assets increased $24,079 from deposits related to capital raising costs.  The accrued expenses reduction of $66,347 was the result of the company satisfying back pay accruals from prior periods.

For the years ended December 31, 2007 and 2006, net cash used by operations was $1,042,904 and $761,273, respectively.  The net loss for 2007 of $1,239,634 was reduced by non-cash adjustments for stock-based compensation expense of $152,936, a provision on a related party note receivable of $120,205, depreciation of $6,603, and amortization of $2,384.  In addition to these adjustments, the company’s satisfaction of accrued back pay to employees was the primary factor in a reduction of accrued expenses of $71,851 as well as accounting for most of the remaining difference between the net loss and cash used by operations for 2007.   For 2006, a net loss of $1,086,297 was reduced by non-cash adjustments for stock-based compensation expense of $259,945, depreciation of $5,952, amortization of $2,090, and a loss on disposal of assets of $13,400.  The increase in current liabilities of $44,450 accounts for the net difference in working capital not discussed above.  That increase primarily results from the accrual for severance to the company’s former CFO.

 
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Net cash used in investing activities was $482,376 and $5,314 for the nine months ended September 30, 2008 and 2007, respectively.  The investing activities during the nine months ended September 30, 2008 were due to the purchase of a short-term investment (a certificate of deposit) of $500,000; expenditures of $1,516 for legal expenses related to our patents and $8,320 for purchases of new equipment reduced by $27,460 received from a related party under a note receivable.  The $5,314 used by investing activities for the nine months ended September 30, 2007 were for $10,314 in legal expenses related to our patents reduced by $5,000 received from a related party  under a note receivable.

Net cash used in investing activities was $7,802 and $2,509 for the years ended December 31, 2007 and 2006, respectively.  The investing activities during 2007 involved proceeds of $5,000 received from a related party note receivable reduced by $12,802 for legal expenses related to patents.  During 2006, investing activities consisted of $12,981 advanced to a related party under a note receivable and $12,500 proceeds received from that same related party note receivable as well as $2,028 for purchases of new equipment.

Net cash provided by financing activities for the nine months ended September 30, 2008 and 2007, respectively, was $1,646,998 and $1,032,868.  During the nine months ended September 30, 2008, we received proceeds from the sale of common stock and warrants of $1,646,998.  This is net of issuance costs of $94,086 for the period.  During the nine months ended September 30, 2007, we received proceeds from the sale of common stock and warrants of $1,032,868, net of issuance costs of $60,164.

Net cash provided by financing activities was $1,204,145 and $1,153,156 for the years ended December 31, 2007 and 2006, respectively.  For the year ended December 31, 2007, we received proceeds from the sale of common stock of $1,204,145, net of issuance costs of $71,559.  During 2006, we received proceeds of $1,153,156 from the sale of common stock, net of issuance costs of $91,047.

Our future expenditures and capital requirements will depend on numerous factors, including: the rate at which we can introduce and sell NRL to manufacturers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and market acceptance of our products and competing technological developments. We expect that we will incur in excess of $2 million of expenditures over the next 12 months. As we expand our activities and operations, our cash requirements are expected to increase at a rate consistent with revenue growth after we have achieved sustained revenue generation.

Our business does not presently generate the cash needed to finance our current and anticipated operations. We believe we have raised sufficient capital to finance our operations for the next twelve (12) months, and until we have sustained revenue generation during the second quarter of 2009.

We expect that our cash used in operations will increase during the remainder of 2008 and beyond as a result of the following planned activities:

 
·
The addition of staff to our workforce as needs arise;
 
 
·
Increased spending for the expansion of our research and development efforts, including clinical trials, regulatory submissions, assistance with manufacturing trials and product enhancements;
 
 
·
Increased spending in marketing as our products are introduced into the marketplace;
 
 
·
Increases in our general and administrative activities related to our operations as a reporting public company and related corporate compliance requirements.
 
Inflation and Seasonality

We do not believe that our operations are significantly impacted by inflation. Our business is not seasonal in nature, but is subject to commodity pricing.  Our product is a commodity-based raw material.

 
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BUSINESS
 
History of NRL and its Allergenicity Problems
 
Natural rubber latex is an agricultural product produced from the sap of the rubber tree, Hevea brasiliensis .   Natural rubber latex is composed of cis-isoprene molecules that are formed from naturally produced proteins found in the rubber plant’s sap. These molecules in their mature state provide both the elasticity and the liquid barrier properties of latex   that make NRL such a highly desired material. Once believed to be an inert substance, NRL has become recognized as a major cause of allergic and sensitization reactions, especially among healthcare workers and their patients. One of the naturally occurring proteins, the Rubber Elongation Factor (REF), has been identified as the primary cause of the allergenic reactions to NRL in its unattached or immature state. Contact with the REF, whether by direct skin, aerosol protein forming on powders used in manufacturing, the decomposition of latex or even invasive surgery or inadvertent consumption causes the body to react, often detrimentally, to the REF (an “allergic” reaction).
 
Many physicians and researchers have become concerned that even minimal exposure to NRL may trigger reactions in certain patients who are particularly sensitive to the antigenic proteins. A variety of reactions may occur in persons allergic to NRL, ranging from dry, itchy, irritated skin and more severe skin reactions similar to those associated with poison ivy, to severe asthma and other respiratory problems and, more rarely, to anaphylactic shock, which may be life-threatening. Reports as to the prevalence of NRL allergy vary greatly. Published data indicate that 1% to 6% of the general population suffers from NRL sensitivity, yet approximately 8% to 18% of regularly exposed individuals have some level of NRL allergy. Other studies have shown that 54% of sensitized hospital workers had severe reactions to latex exposure.
 
Beginning in 1997, a number of product liability lawsuits claimed that manufacturers negligently made NRL products that contained allergy-triggering proteins. In September 1997, the United States Food and Drug Administration (FDA) issued a medical glove powder report, which outlined the hazards of NRL use, as well as many negative aspects of glove powder. The FDA issued recommendations to control the use of glove powder and reduce the level of protein in gloves, based on the findings of their report. A significant regulatory development came from the FDA, which issued a labeling rule, effective September 30, 1998, requiring manufacturers of NRL medical products to label their goods with a warning that NRL may cause an allergic reaction. In January 2008, the FDA issued an updated Medical Glove Guidance which remained substantially the same as the 1998 report, although the agency indicated that work was being done to investigate more sensitive testing methodologies, potentially opening the door for different label claims in the future.
 
Current Production of NRL*
*  The statistical data referenced in this section was excerpted from “Natural Rubber Latex: A Global Perspective and Outlook for the Future”, prepared by the Secretariat of the International Rubber Study Group, Singapore and presented at the International Latex Conference, July 2008, Cleveland, Ohio and is available by subscription.

In 2007, over 9.7 million tonnes of NRL were produced globally, of which just over 1.0 million tonnes are liquid latex according to the International Rubber Study Group, Singapore for (e.g., gloves, condoms, catheters and other products that require multiple layers of the NRL) and other latex end products such as foams, adhesives, etc. Since NRL is used in over 40,000 products worldwide, to include textiles, footwear and clothing, toys, automotive parts, housing, furniture, carpet, coatings, protective equipment, sporting equipment and especially health care products, there are few industries untouched by NRL and its allergy concerns.
 
Substantially all of the latex processors are located in South East Asia, India, Africa and Central America and are owned by local groups or large multinational corporations. Thailand leads the world in NRL production with over 620,000 tonnes produced in 2007, a third of all global production. Malaysia is second with 170,000 tonnes and followed by India with 75,000 tonnes.

 
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The typical processor acquires raw NRL (or “field latex”) aggregated from latex plantations. The processors in South East Asia have a worldwide advantage, since latex is predominately a product of that area and labor and water are abundant and inexpensive. However, because of the intrinsic allergenic problems of NRL, the processors’ market volume had been level, if not slightly decreasing, for many years. Significant price and demand increases in NRL have turned the industry into a “sunrise” industry. A sunrise industry indicates a replanting of the natural rubber plantations to keep up with growing worldwide demand. Some reports show a shortage of NRL in the coming decade as a demand in developing countries such as China and India continues to grow. This future demand is awakening interest in other areas of the world where the climate is suitable, particularly in Guatemala, where it is expected the latex industry to grow from 57,000 tonnes produced in 2006 to over 95,000 tonnes by 2016, a 40% increase, in a report issued by the office of Consulate General of Guatemala, Atlanta, Georgia. This is particularly attractive to U.S. manufacturers of latex products who could potentially see reduced transportation costs and lead times over the usual Asian sources.
 
Vytex natural rubber latex is sold only in liquid form to manufacturers using natural rubber latex as a raw material component.  These manufacturers will incorporate Vytex into their current manufacturing process without compromising the production of their final end product.  Vytex NRL has been designed as a “drop-in” raw material meaning that a manufacturer currently using natural rubber latex can switch to Vytex without disrupting their entire manufacturing process.  Natural rubber latex as a raw material component is currently sold in liquid form (versus dry rubber form), and for the foreseeable future, Vytex NRL will serve the NRL market only in the liquid form as a high value raw material component to the liquid latex.

Traditional users of NRL as a product component have been seeking and developing alternative synthetic raw materials. An example of the desire for NRL occurred during Vystar focus groups when surgeons and nurses, asked to design the perfect glove, invariably come up with a non-allergenic NRL glove.
 
Currently, it is estimated that NRL processors have lost one-half the overall latex market to synthetic latex, despite the higher costs and recent capacity issues of these synthetic materials.  Base synthetic feedstocks such as ethylene, propylene and styrene are expected to stabilize in both pricing and supply over the next 12-18 months, however, pricing will remain approximately 60% higher than 2003 prices.  Butadiene users will continue to see short supply and pricing volatility through 2010, according to Chemical Market Associates, Inc., a national petrochemical consulting group  in their report “Synthetic Latex Feedstocks: Can It Get Any Worse?, presented at the International Latex Conference, July 2008, Cleveland, Ohio.   Butadiene is the feedstock most commonly found in synthetic exam gloves and a component of synthetic latex foams.   These facts, coupled with the easy transition to the process to manufacture Vytex NRL, makes it very attractive for the processors to regain lost business.
 
Products and Services (Vytex NRL)
 
The process to manufacture Vytex NRL has been developed to reduce the antigenic properties of the REF protein in NRL, without causing noticeable changes in the highly desirable physical or chemical properties of the remaining molecules and without disrupting the traditional methods of production. In elementary terms, NRL is farmed from rubber tree plantation groves located primarily in South East Asia. Processors collect the field latex, concentrate the latex, age the product, and prepare the latex to specifications required by product manufacturers. Vystar has proved that the best point to produce Vytex NRL is while NRL is in its raw liquid stage, prior to dipping or manufacturing the latex into other forms.

The most strategic point for introduction of the additives used to produce Vytex NRL is in the field latex sap emulsion.  Aluminum hydroxide (Al(OH) 3 ), well known for its protein binding capabilities and the main additive used to produce Vytex NRL, is introduced into the field latex prior to concentration.  The additive package to produce Vytex has been designed to liberate proteins in liquid field latex thus allowing the proteins, and other impurities in the liquid latex that carry a charge, to attach or bind to the surface of insoluble Aluminum hydroxide.  The aluminum hydroxide is removed from the liquid latex solution via centrifugation (commonly used to concentrate field latex) thus creating Vytex NRL.   The production of Vytex NRL relies on the multi patent protected process involving the effective exchange/complexing of proteins from the field latex sap emulsion to/with Al(OH) 3 .   Al(OH) 3 is the most stable form of aluminum under normal conditions.  It is commonly used as an absorbent, emulsifier, ion exchanger or antacid.  Aluminum hydroxide is also used in the purification of water because it can form a jelly-like structure suspending any unwanted materials in water including bacteria.

Literature in this field clearly describes the natural rubber latex proteins’ affinity for USP absorbable dusting powder.  Several papers have been presented on this subject confirming this interaction.  The United States Food and Drug Administration (FDA) recognized this association and recommended a limit on powder and extractable protein per glove.  Allergen-laden glove powder is implicated as a major contributor to the widespread sensitization to NRL and associated workplace symptoms wherein the powder acts as a vector to spread the proteins.     It is this powder and protein relationship that led to trials of the inclusion of insoluble aluminum hydroxide Al(OH) 3 powder in the formula for Vytex NRL production.  It was hypothesized by the Vystar technical team and later confirmed that under certain conditions, Al(OH) 3 produces protein complexes in liquid Vytex NRL solution which can be removed using existing industry practices- centrifuging.  The removal of protein at this stage is significant as it greatly reduces the proteins availability to transfer from the oleo phase to the aqueous and back since the protein is attached to insoluble Al(OH) .

 
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Vytex NRL is produced at the latex processor level and can be easily integrated into the current processing environments without additional capital equipment investment.  The protein removal and modification process that leads to Vytex NRL allows manufacturers to lower manufacturing costs with the benefit of reduced protein levels.  Reduced leaching times and resulting reductions in energy, water and material handling consumption can lead to realized cost savings.   The manufacturing process may occur entirely within a direct manufacturer that takes the NRL in its raw, harvested form all the way through to the final product, such as a large glove manufacturer, but this is rare. Usually, there may be several sub-manufacturers fabricating components to be used in final products, such as elastic thread manufacturers selling product to the bedding and clothing manufacturers. Although not part of the manufacturing process, the links between the NRL processors and the first manufacturer are distributors specializing in NRL, similar to those participating in other agricultural commodity trading.  Natural rubber latex as a raw material component is traditionally sold as a commodity.  The ASTM and more specifically, the ASTM Committee D11 on Rubber, which is the direct responsibility of Subcommitte D11.22 on Natural Rubber, approves and maintains standard specifications for centrifuged natural rubber latex.  The chemical and physical performance requirements for natural rubber latex are identified in ASTM D 1076-06 and natural rubber latex must conform to these requirements.  Every batch of Vytex NRL produced is subjected to these performance requirements and the test results are displayed on the certificate of analysis that accompanies shipments of Vytex NRL to manufacturers.  Supplying manufacturers with a raw material component that meets these performance requirements will help eliminate any concerns such manufacturers may have about switching to Vytex.  More importantly the manufacturers do not have to compromise their raw material component and potentially adversely affect their end product production.

Suppliers and manufacturers of natural rubber latex and its many products have long acknowledged the need and importance of reducing the antigenic properties of NRL.  Recognizing this need and understanding NRL proteins’ affinity for powder, Vystar has developed a multi patented process that introduces insoluble aluminum hydroxide powder into liquid latex that complexes and removes proteins and unwanted impurities from natural rubber latex, thus creating Vytex NRL, a low protein NRL source material.  Products made with Vytex NRL have significantly reduced antigenic protein values over non-Vytex Hevea NRL. The Vytex NRL process removes a significant amount of the antigenic protein from the natural rubber latex. Economically, the process to manufacture Vytex NRL is relatively inexpensive. The additional chemicals required by Vytex NRL represent a small fraction of the total cost of processed NRL and can be easily incorporated into current manufacturing streams, with little or no additional cost. The process to manufacture Vytex NRL requires the addition of a proprietary blend of chemicals to the raw liquid NRL. The chemical solution is mixed into the raw liquid NRL and allowed to stir for a specific period of time in order for the reactions to occur at room temperature, then centrifuged. From this point, Vytex NRL is aged, tested, stored, and shipped in a manner similar to NRL. Repeated testing, over 500 tests, has demonstrated stability and parity essential with non- Vytex NRL in terms of function (chemical and physical properties) and quality of material. Vystar has developed and has implemented a quality assurance (QA) binder to ensure consistent, repeatable Vytex NRL production.
 
Vystar has begun evaluation trials with manufacturers in the medical device, surgical glove, condom, foam and other key product categories worldwide. Vystar expects that Vytex NRL will demand a premium price due to its low antigenic protein levels, ease of manufacturing integration, and its “green” environmental profile while maintaining the desired or improved properties of NRL. A key US manufacturer has initiated the 510(k) process required by the United States Food and Drug Administration (FDA) for using Vytex NRL in condoms and exam gloves.
 
Vystar does not intend to process the NRL or manufacture any finished latex product, eliminating the need for an infrastructure and other investment, distribution and regulatory compliance costs to develop and operate a processing or manufacturing facility. All of these costs are or will be borne by its manufacturing and distribution contractors and/or customers. Therefore, we must show the NRL producers and product manufacturers the economic value proposition of including Vytex NRL in their product lines..

 
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Vystar initially plans to market to multiple industries concurrently, targeting regulated (condoms, surgical and exam gloves) and non-regulated products (foam and non-medical and non-food packaging adhesive) categories to balance the lengthier sales cycles inherent in medical devices with the relative ease of entry in the non-regulated markets.  A manufacturer’s conversion from their standard latex or synthetic raw material to Vytex NRL can be a protracted process, ranging from three to twelve months to complete the sales cycle due to the multiple steps required.  The sales cycles starts with a laboratory analysis of Vytex NRL whereby physical properties and protein levels are tested to ensure it meets the required specifications and then progresses to a full production run on the manufacturer’s equipment.  A manufacturer’s decision to convert to Vytex NRL is impacted by many functional areas including research and development, manufacturing, sales, marketing, purchasing and finance.   If the product is regulated and requires regulatory clearances or approvals prior to commercialization, the sales cycle could be extended by another three to nine months for testing, filing and agency review.  By diversifying the target product categories Vystar expects that this balanced approach will reduce our exposure to market fluctuations.

Vystar has the flexibility of offering and accepting two different models for revenue. First, Vystar has contracted with Revertex (Malaysia), Sdn. Bhd., a division of Yule Catto Group Far East, as a “toll manufacturer” who processes the concentrated Vytex NRL for a fee, while Vystar is responsible for marketing and selling. This model is expected to represent the majority of revenues for Vystar, where Vystar sells the liquid Vytex NRL processed by Revertex Malaysia to a manufacturer who, in turn, adds its own proprietary blend of compounding chemicals to create the final latex raw material acceptable for the manufacture of the product.  The initial Vytex NRL product portfolio will consist of two versions including high ammonia (HA) and low ammonia (LA). This model is also applicable for a vertically integrated manufacturer whose operations span the entire manufacturing chain from the latex plantation to finished goods production.  This is commonly found in glove and condom manufacturing, where today several manufacturers located in Thailand, Malaysia and India control their processes from the tree to the end-product.  The revenue stream in this scenario would be the same as for PV Vytex NRL, the manufacturer pays the company a licensing fee for trademark usage based on volume.

Alternatively, this processor can contract to market and sell a proprietary version of Vytex NRL in a prevulcanized form.  In this scenario Revertex uses its own proprietary compound formula to create a new PV Vytex NRL distinctly their own that becomes part of their portfolio of products.  For this, Revertex will pay Vystar a licensing fee for the use of the Vytex NRL trademark based on the volume of PV Vytex Vytex NRL (PV Vytex) using the Vytex NRL trademark, and pay Vystar a licensing fee for the Vytex NRL processed. Initial PV Vytex results indicate that low protein, high performance products can be made from PV Vytex NRL and commercial availability is expected in first quarter 2009.

Vystar has successfully produced laboratory samples of low ammonia Vytex NRL (LA Vytex) and has shipped LA Vytex to manufacturers for trials and product evaluation. Low ammonia is preferred by manufacturers in specific product applications including catheters, breather bags, foam, etc. The company is investigating the use of Vytex NRL in ammonia free applications. Ammonia free NRL is currently being used in the U.S. for body painting as it eliminates skin and respiratory irritation caused by ammonia.  Additional processors can be added as geographic and volume conditions warrant under similar terms as stated above, to follow the manufacturing trail to India, Turkey and other countries where manufacturing costs are more competitive.
 
Each model will provide Vystar attractive profit margins and net income, since there will be no costs for direct manufacturing infrastructures.  Vystar is optimistic that revenues from both models can be achieved, and is already being proven with one of its current strategic alliances, Revertex Malaysia, where manufacturer interest  in both Vytex NRL and PV Vytex NRL has been generated.  Since the Vystar proprietary process is inexpensive and simple, using the same equipment and procedures now in place at the NRL processors, it is an easy implementation and offers a solution to the NRL processor’s shrinking market share woes. In addition, Vystar has entered into a  Distribution Agreement with Centrotrade Minerals & Metals, US and Centrotrade Deutschland, GmbH, Germany, the leading global distributors of latex raw materials, to create a worldwide distribution network that will further enhance Vystar’s ability to cost effectively reach and service manufacturer customers in these key manufacturing areas.  Vystar expects to have this network established in the first quarter 2009 to provide storage and distribution services in addition to sales and marketing support worldwide.  The agreement with Centrotrade provides for a three-year term with automatic one-year renewals absent termination by either party on 90 days written notice, and provides for exclusive distribution of Vystar’s Vytex products in specified geographic areas and nonexclusive distribution of such products otherwise world wide.  The agreement contemplates that Vystar and Centrotrade will co-market the Vytex product lines with Centrotrade purchasing the Vytex from Vystar on 30 day payment terms and reselling it as a bona fide distributor, subject to Vystar's standard license terms.  Centrotrade will also sample the Vytex products to potential customers pursuant to a Vytex sampling agreement.  All sales and containers containing Vytex will be co-labeled with the Vytex logo, which is also a requirement stated in the manufacturer’s use agreement. There are no liquidated damages or other penalties for violation or termination of the contract other than interest on past due payments of 1.5% per month and what is available by law and equity for a breach.

 
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Revertex (Malaysia), is the world’s largest producer of prevulcanized natural rubber lattices. A Toll Manufacturing Agreement was signed on April 11, 2008, between Vystar and Revertex, covering the areas of processing and technical support. Revertex is a non-exclusive, toll manufacturer for Vystar and   is in full production mode to manufacture Vytex NRL commercially, in anticipation of manufacturer conversions to Vytex NRL.  To date, although very little sales have taken place, the full production runs have been used for process validation and sampling of Vytex by many manufacturers.  Vytex NRL, like all latex, is normally sold on a made- to-order basis with only minimal inventories held to cover safety stock and sampling requirements. Revertex, as the largest producer, has considerable influence and control over the supply of raw liquid latex necessary for the processing of Vytex NRL.  This industry position was key in Vystar’s decision to align with Revertex, ensuring capacity to meet current and future demand based on the sales and marketing strategies outlined herein.

Revertex is producing Vytex NRL in accordance with the Company’s proprietary processes and Standard Operating Procedures (SOPs) and is shipping Vytex NRL to latex product manufacturers labeled as Vytex NRL.  This agreement provides for a three-year term with two-year renewal options upon mutual agreement with 90 days prior written notice, and 120-day no-cause termination options by either party.  For these toll-manufacturing services, Vystar pays a flat rate formula per tonne as an all-inclusive fee for all services, including assistance with developing the scaled-up manufacturing process with volume discount options.  There are no liquidated damages or other penalties for violation of any term of the agreement other than what is available by law or equity for breach of the agreement.
 
Since the introduction of Vytex NRL at various latex and medical conferences, manufacturers of mattresses, threads, surgical gloves, breather bags, probe covers, condoms, balloons, adhesives, etc., have expressed an interest in securing evaluation samples of Vytex NRL. This, in turn, expands the opportunity to market and sell Vytex NRL across a wide range of industries globally. Vystar will strategically respond to meet these new manufacturing demands. Similarly, recent press releases have caused several potential customers in newer, non-medical markets to initiate discussions with Vystar. Due to the relative ease with which these other non-healthcare markets may be entered, compared to the United States healthcare markets, management is entering these markets as a first step while it prepares to enter the United States healthcare market.

Vytex NRL Allergenicity Testing & Results
 
Vystar has treated NRL using the patented Vytex manufacturing process, and then analyzed the resulting material with both chemical and biological immunoassay tests. Over 500 tests were performed by the LEAP Testing Service of the Guthrie Foundation for Medical Research, an independent, highly respected analytical laboratory specializing in immunoassays of NRL for antigenic proteins. These more than 500 tests have been performed on medical and non-medical products made with Vytex NRL and independently tested using accredited ASTM protein test methodologies.  Results show products made with Vytex NRL demonstrate excellent resistance to aging compared to control Hevea NRL samples due to the removal of species vulnerable to free radical breakdown.  Vytex NRL can be substituted for Hevea NRL or synthetic alternative materials when reduced antigenic proteins and good aging characteristics are essential.

Vytex NRL has produced results on finished products that are both “below detection” and “not detectable”, and these results have been reproduced in subsequent tests.  From inception through September 30, 2008, Vystar's research and development costs have been approximately $2.1 million, with an additional $372,000 budgeted for continued efforts for the remainder of 2008 and through all of 2009.  These efforts past and future have been and will continue to be patented and/or trademarked.  As of September 30, 2008, Vystar has expended since inception approximately $86,000 on such patent and trademark costs and has budgeted approximately $29,000 more for the period from October 1, 2008 through December 31, 2009 to continue to pursue and maintain its patents and trademarks around the world, as described in the History and Background sections of this prospectus.
 
The Modified Lowry test is a chemical analysis test that has become the more-often referenced of the two recognized national standards for measuring proteins in NRL (ASTM D5712). This chemical analysis method is based on the binding of chromogenic dye to protein residues as a point of measurement. One early sample of NRL provided to the laboratory had a pre-Vytex NRL manufacturing process measurement in the area of 750 micrograms of total protein per gram of NRL. The results of testing the Vytex NRL product produced readings that were “below detection”. However, the minimum detection level for the Modified Lowry test is 28 micrograms per gram. To some degree, this result is not an exceptional reading, since there are several existing post-manufacturing processes of latex glove manufacturers that, in certain circumstances, also produce “below detection” levels. The unanswered question therefore is “How much below detection?”. The Modified Lowry method detects “total” protein and cannot differentiate that small fraction of antigenic protein.

 
- 23 -

 

Subsequently, Vystar NRL turned to a more specific assay to further define Vytex NRL. The LEAP test (ASTM D6499-07), the other of the two recognized national standards, is an immunochemical test applied to rabbit and human tissue and measures much needed levels of the antigenic proteins. This test is approximately 150 times more sensitive than the Modified Lowry test methods, and has a minimum level of detection of 0.2 micrograms per gram. Repeated tests reported an antigenic protein level less than 0.2 micrograms per gram for several products made with Vytex NRL. Vystar is seeking FDA clearance to make claims to this standard with respect to the finished medical devices using Vytex NRL. In the FDA’s recently published Medical Glove Guidance in January 2008, the agency stated that work was currently underway to determine the sensitivity and detection limits of the ELISA test method, a positive step towards more specific labeling allowances.
 
To fully validate the Vytex process, The Company is investigating the use of a spectrophotometric method (280nm-protein absorbance) to further quantify morphed proteins no longer immuno-reactive (recognized by the ELISA antibodies used in the LEAP testing method). The MOLAR Ò -Micro Optic Latex Analyte Registry-assessment of protein is observed directly and immediately and can be used quantitatively for Vytex NRL preparations as well as native NRL sources. Management believes that with additional laboratory experimentation, further reduction of the antigenic protein is possible with adjustments to the timing and duration of the Vytex NRL manufacturing process steps. However, there can be no assurances that either further reduction can be attained or complete elimination is effective below the minimum detection levels.
 
Additionally, there are other specifications that must be met in order to have a Vytex NRL product that is suitable for the process required to manufacture many end products, and which are needed to entice manufacturers to use it. These necessary physical, chemical and mechanical property tests are continually being performed by independent laboratories on each scale up run of Vytex NRL, and currently show parity with the non-Vytex NRL. By showing this parity, Vystar believes that the Vytex   NRL process has produced NRL that has “below detection” antigenic protein, yet will be able to fit within the current manufacturing processes by industry.

Property & Legal Proceedings

As of the date hereof, Vystar has not been engaged in nor threatened with any legal proceedings.  In the ordinary course of business, we may become subject to litigation and claims on various matters.  It is possible that we will not prevail in all cases.  However, we have no reason to believe that any such litigation or claims would have a material adverse effect on our financial condition.

Properties

Vystar owns no property other than personal property utilized in its office facilities.  Our offices are located in Duluth, Georgia, and consist of approximately of 2,500 square feet of leased space.

Employees

As of the date hereof, we have three full-time and one part-time employees located in Duluth, Georgia.

The Market

 

 
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Several attempts, including new source crops, synthetic lattices and various treatment methods have been made to eliminate problem proteins from Hevea NRL by biological, physical and/or chemical methods that act on proteins.  One approach has been to introduce the latex articles to multiple leaching steps and chlorination.  This approach does reduce the protein levels in the finished product; however it weakens the latex film thus compromising the desirable physical properties of the product.

Another attempt to reduce proteins in NRL is the use of proteolytic enzymes to degrade the proteins in the latex solution.  The issue with this approach is the introduction of another protein (the enzyme) to the latex, which may itself be allergenic.  Attempts to commercialize two other non- Hevea NRL materials have been made in the United States; guayule rubber latex and Taraxacum kok-saghyz, also known as the Russian dandelion.  These materials are reported to be higher in cost compared to natural rubber latex and presently are available only in limited quantities.   Hevea NRL has been around for more than a century and its antigenic proteins have been thoroughly researched.  The allergenic properties and economic viability of latex from the guayule & Taraxacum kok-saghyz have yet to be scrutinized.  Both of these materials have their own unique set of proteins with potential allergenic behavior not yet understood.

Vytex NRL, is a natural, renewable resource, can biodegrade in nature in as little time as six months (or the equivalent of an oak leaf), according to a study conducted on balloons by the Balloon Council- http://www.aballoonabouttown.com/fun.html.  This “green” aspect of Vytex NRL adds an additional marketing component.

Each of the following product segment overviews contains a discussion of specific competitors in the respective markets.

As reflected in the illustration above, NRL is harvested and processed from its raw liquid stage into a more usable form for manufacturers primarily in the South East Asia region. However, the majority of the NRL product consumption is in the North American region, followed closely by the EU. Therefore, with Vystar’s key strategic relationship with Revertex Malaysia and Vystar’s management expertise and contacts in the North American and EU markets, Vystar is well-positioned to take advantage of its new technology for a low protein NRL.

As shown in the pie chart below, the marketplace for non-tire rubber is very diverse and sizeable. According to a report issued at the 2008 International Latex Conference (Cleveland, OH) by the Secretariat of  the International Rubber Study Group, Singapore,  world-wide consumption of liquid latex reached just over one million tonnes. The Group predicts future demand to reach just over 1.32 million tonnes in 2010 and to 2.01 million tonnes in 2020. Based on the current pricing of NRL, the overall market is valued at just above $2 billion. The price of NRL fluctuates regularly and is updated daily on the web site of the Malaysia Rubber Board ( www.lgm.gov.my ). Due to the rising demand and significant price increases in NRL many Asia producing countries  have turned the industry into a “sunrise” industry, replanting natural rubber plantations to keep up with growing worldwide demand. Other countries, such as Guatemala, look at the growing global demand opportunistically and their latex industry is expected to grow from 57,000 tonnes produced in 2006 to over 95,000 tonnes by 2016, a 40% increase (Office of Consulate General of Guatemala, Atlanta, Georgia).

The key market segments that Vystar will focus on to launch Vytex NRL are: surgical gloves, exam gloves, threads, foams, adhesives, balloons, condoms and catheters. Also, Vystar has keen interest from companies in the “other” category that offers a quick entry to the marketplace, and will only add to the vast opportunities represented by the target markets referenced above and reflected in the chart below.

 
- 25 -

 

Worldwide Use of Natural Rubber Latex
 
 
Source: International Rubber Study Group 2006 Report, Singapore
 
Vystar intends to develop and implement a robust marketing strategy aimed at consumers to drive demand to manufacturers adopting Vytex NRL into their product portfolio. An important aspect to the Company’s strategy will be ingredient branding, creating demand for a brand within a product, and thus differentiating the manufacturer and product leading to consumer brand loyalty. Ingredient branding has been a highly successful strategy within the computer and chip industries for over twenty years.
 
With the global emphasis on the environment, Vystar is well positioned to take advantage of the trends towards the consumer’s desire for more natural, healthier green products and the world’s need to adopt more eco-friendly policies. Vytex NRL is an all natural composition, free of known or expected human carcinogens commonly found in synthetics, naturally bactericidal and resistant to dust mites, a common allergy inducer in pillows and bedding products. In addition, natural rubber latex is biodegradable. In a study conducted by The National Association of Balloon Artists, a large balloon trade association, entitled “A Study of the Effect of Balloon Releases on the Environment,” determined latex balloons degrade in the same amount of time as an oak leaf. The “green” benefits of natural rubber latex and Vytex NRL will be the cornerstone of our marketing efforts to capitalize on and offer solutions for this economic, political and cultural world-wide trend.
 
To accelerate the awareness of Vytex NRL and, in turn, induce the manufacturer to adopt Vytex into their product portfolio, Vystar will engage in a comprehensive consumer branding campaign during the fourth quarter 2008 and throughout 2009. The campaign will be aimed at all consumers in all markets, such as condoms, foam bedding, gloves, adhesives, and balloons, using trade PR, established media vehicles, the internet and public service announcements.
 
With over 40,000 products produced with NRL covering 20 plus industries, Vystar intends to focus its sales and marketing efforts in those product areas where there exists strong demand for NRL and where synthetics have flourished due to the latex allergy issue. Diversification is the cornerstone of our sales strategy, focusing on manufacturers large and small, global and regional, in regulated and non-regulated markets and with the market leaders and those who strive to be. Of particular interest to Vystar are those unique manufacturers who operate within the featured category with a niche product, who have the ability to differentiate their product and/or service and successfully create greater profitability on smaller volumes.  An example of this type of  product category is the latex bedding market, which comprises just 18% of the total bedding market yet commands  a price premium of 500% over traditional innerspring mattresses when sold by bedding specialist stores, according to Furniture Today in their June 2008 Spotlight report, available publically by subscription.

Surgical and Exam Gloves
 
According to the most recent Frost and Sullivan U.S. Disposable Gloves Markets Report (2002) available by subscription, the United States medical examination glove market is approximately $1.0 billion for end product sales, with over 24 billion medical examination gloves sold each year. The United States surgical glove market, which requires a higher grade of glove, is approximately $280 million with 380 million pairs of surgical gloves sold annually. The United States healthcare market accounts for approximately 60% of the worldwide consumption of examination and surgical gloves with the European countries accounting for most of the remaining 40%. Since the need for the low protein Vytex NRL is so significant in the healthcare segment, and since health care providers are influential and progressive, successful product introduction into this market will enhance its acceptance by other market segments. Approximately 17% of all health care workers have allergenic sensitivity to NRL. Exam gloves are integral to the practice of medicine, and are the most preferred NRL products in the healthcare workplace. The reason gloves are so critical to the healthcare industry is that they are the first line of defense against infection. Natural rubber latex (vs. synthetic) gloves are perceived to be the best barrier available.

 
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Consequently, because of the allergenic problems associated with natural rubber latex gloves and the myriad of substandard synthetic alternatives to natural rubber latex, the manufacturer may have a dozen or more different types of gloves to provide a hospital client. In fact, the manufacturing trend has been to increase the number of stock keeping units (SKUs) with items ranging from natural rubber latex gloves to synthetic alternatives (vinyl, neoprene, nitrile, polyisoprene, etc.). All of these alternatives cost more than the NRL gloves, with some costing up to 4 or 5 times that of NRL. These costly alternatives, with higher production and development costs, may or may not be producing commensurate increases in profitability for the manufacturers due to the pricing pressures and long term contracts with group purchasing organizations (GPOs) and integrated hospital networks (IHNs). Vystar expects to demonstrate that Vytex NRL is an across-the-board alternative, holding the highest standards of elasticity, tactile sensation and liquid barriers, yet having ultra-low levels of antigenic protein, allowing the purchasing institutions to reduce their SKUs.
 
The chart below highlights the distinct advantages of Vytex NRL over alternative materials:
 
Medical Gloves Raw Material Characteristic Comparison*
 
 
* Several scientific studies have been conducted on the benefits of latex and synthetic materials used in the manufacture of exam and surgical gloves and their effectiveness as a barrier, strength and durability.  Most often cited are published studies conducted by D. Korniewicz, RN, PhD, Maryland School of Nursing, “Failure Rates in Nonlatex Surgical Gloves”, "Integrity of Vinyl and Latex Procedure Gloves” and "Surgical Glove Failures in Clinical Practice Settings” along with independent laboratory testing of the Vytex products which were relied upon for the data contained in the above chart.

Currently, the exam glove marketplace is fragmented with over 40 different glove manufacturers, all with at least some foothold in the United States market. However, there are only four glove manufacturers with significant market shares. Although these four companies provide a majority of the medical gloves sold in the United States, no individual company has a majority of the market share. Recently, the “all other” category of manufacturing companies has emerged as the largest segment in the exam glove arena, comprised mainly of Asian manufacturers who distribute under their own brands and also provide OEM manufacturing for the distributor seeking greater profitability and brand equity, benefits not received from the dominant brand manufacturers.
 
The largest market segment for both surgical and exam gloves is acute care hospitals, where manufacturers sell by negotiated contract, either directly to the hospital or through a buying group representing several hospitals. Conversely, the alternate site healthcare markets (physicians, dentists, nursing homes, etc) are strongly influenced by the distributor servicing their entire medical supply needs and have been slower to align with a purchasing group. Another market segment that Vystar intends to tap into is government and institutional sales, where exam glove usage has exploded in recent years as barrier protection for workers is of concern in agencies such as Homeland Security, TSA, Public Health Service, Department of Defense and others, utilizing a network of minority, disabled and veteran-owned businesses.

 
- 27 -

 

The U.S. surgical glove market, like exam gloves, is dominated by four major companies; Molnlycke Healthcare (Sweden), Cardinal Health Care (Dublin, OH), Ansell Ltd. (Australia) and Medline (Mundelein, IL). Vystar has introduced Vytex NRL to the surgical glove manufacturers and has contracted with several and started evaluation trials globally. Market share is influenced two ways; surgeon preference and GPO/IHN contracting. Vystar intends to increase healthcare workers’ awareness of, and therefore demand for, products manufactured with Vytex NRL through an extensive public relations and marketing campaign aimed at the clinician directly and the clinical advisors of the major purchasing groups and hospital networks. A similar brand marketing campaign to other latex market segments heavily influenced by the choosers and users, such as condoms, is expected to run concurrently with the glove campaign.
 
The allergic reaction of healthcare workers to non-Vytex NRL has a significant effect on the choice of NRL used in the medical industry. With synthetic latex products growing at a rapid rate, the processors of NRL are losing potential revenue while the healthcare industry itself faces higher costs of procurement for these non-latex products. Vystar is introducing Vytex NRL, its new “low protein” NRL, throughout the global marketplace now using NRL or synthetic latex substitutes as a component of manufactured products. Vystar’s goal is for Vytex NRL to become the industry standard for latex. Because the synthetics have a potential negative health and environmental impact due to the chemicals used in their manufacturing processes, it is very reasonable and likely that Vystar will achieve this goal.
 
Vystar management knows of no other commercially available chemical method of removing antigenic proteins that is applied to raw liquid NRL prior to manufacturing of finished latex products. There are certain procedures, such as chlorination, in the glove manufacturing process that attempt to wash the proteins from the finished glove product. This chlorination process, which is mostly a surface treatment, is ineffective in removing all of the protein. Furthermore, it degrades the elasticity and liquid barrier properties of latex. Almost every application of latex or rubber products has synthetic substitutes. Some of these substitutes compromise the intended purpose of the final product. Also, a large number of synthetics are substituted for reasons unrelated to latex allergies. However, some very large markets have adopted synthetics solely to address the allergy issue.
 
As the largest potential customer for Vytex NRL, the Vystar sales strategy is to entice the glove manufacturer and distributor to add a Vytex NRL glove product among its current SKUs offered to the healthcare buyer and enhance their product portfolio. Vystar is confident the manufacturers will see that using the liquid Vytex NRL in the manufacture of its gloves will add only a small percentage to the overall production costs of NRL gloves. The raw NRL material costs are a fraction of the total cost of the gloves, which includes labor, packaging, shipping, etc.
 
Similarly, Vystar is confident that the manufacturer can be shown that the resulting Vytex NRL glove can be priced competitively, especially against other costly synthetic gloves. In fact, the healthcare workers and facilities would likely pay a higher price for better quality, lower protein NRL gloves, thereby avoiding the higher priced synthetic alternatives as well as the workers’ compensation claims associated with latex allergies. In any event, however, the manufacturers’ end product pricing is solely their decision. Pricing either may be held constant or given small increases to increase market share, or it could be raised substantially to compete with synthetic glove prices and thus increase unit margins. Vystar is confident that the result will be that Vytex NRL can capture a significant portion of a manufacturer’s NRL source. If two of these four major manufacturers (or several of the second tier manufacturers) adopt a glove manufactured with Vytex NRL, Vystar expects these gloves will be the accepted alternative and become the standard in the marketplace.

Condoms
 
The worldwide condom market has slowed in year to year growth since the frantic growth of the early AIDS epidemic. Currently, the market grows 3.5 to 4.5 % annually which uses a much larger base than the pre-AIDS years. Strong growth can be attributed to the developing nations such as China, India and South East Asia. Established markets, such as the United States, Great Britain and Europe, are still projected to show moderate volume gains.

 
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A breakdown of condom consumption globally is as follows:
 
Country
 
% of Usage
   
Volume
(000s)
 
Asia Pacific (India, China, SE Asia)
    51.0 %     7,420  
Latin America
    13.9 %     2,074  
Europe
    11.4 %     1,654  
United States
    8.9 %     1,299  
Japan
    5.6 %     813  
Rest of World
    5.1 %     742  
Canada
    3.7 %     536  

 Source: “Condoms- A Global Strategic Business Report”, under license from Global Industry Analysts, Inc., San Jose, CA

This is expected to change as the number of new HIV (Human Immunodeficiency Virus) infections is on the rise throughout East and Central Asia, Eastern and Western Europe, the UK and the United States. HIV is the precursor to AIDS (Acquired Immunodeficiency Syndrome) and can take years for a person infected with HIV to reach the AIDS stage. The World Health Organization (WHO) estimates 33.2 million people world-wide were living with HIV in 2007. Some 2.5 million people became newly infected, and 2.1 million died of AIDS, including 330,000 children. Two thirds of all HIV infections are in sub-Saharan Africa.
 
Alarming HIV infection rates are occurring in countries previously believed to be immune due to religious, socio-economic and political factors (China, Vietnam and Russia). New cases in eastern Europe and central Asia have doubled in the period 2001-2007, from 630,000 cases to over 1.6 million. Today, Russia and the Ukraine alone represent 90% of these new cases. Harsh economic conditions in the Caribbean have fueled active cases to 230,000, three-quarters of those located in Haiti and the Dominican Republic. Globally, more than half of all new HIV infections occur in those under the age of 25, according to the Centers for Disease Control and Prevention (CDC).  

 
Source: UNAIDS 2008 Report on the Global Aids Epidemic
 
The CDC recently revised earlier estimates of 40,000 new HIV infections in 2006 to 56,300 in the U.S. alone. An area of concern for public health officials is the rise in HIV infections among African Americans, now accounting for two-thirds of the reported new cases. Most affected are young black MSM (men having sex with men) and black women, with infection rates nearly 15 times higher than white women and estimated to be 4 times higher than Hispanic women.

 
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The chart below details AIDS cases (2006) by race/ethnicity in the United States:

   
Living with
AIDS
   
% of AIDS
Diagnoses
   
% of
Population
 
White, Non Hispanic
    394,024       30 %     66 %
                         
African American
    409,982       49 %     12 %
                         
Hispanic
    161,505       19 %     15 %
Through 2006
                       
 Source:  www.CDC.gov, “HIV and AIDS in the United States: A Picture of Today’s Epidemic”
 
HIV prevention and education are the cornerstones of the global efforts to contain these spiraling rates. The hallmark of prevention is the male latex condom, the most efficient and available technology to reduce the sexual transmission of HIV 1   , according to the UNAIDS, the Joint United Nations Programme on HIV/AIDS. The organization goes on to say “Condom promotion must be incorporated into a comprehensive prevention strategy that involves leadership from all sections of society, addresses cultural norms and beliefs, promotes gender equality, and promotes widespread knowledge and awareness of how HIV is transmitted and how condoms can avert infection. 1  
 
World-wide prevention programs and the education of at-risk population groups will continue to encourage condom usage. UNAIDS 2008 Report on the Global Aids Epidemic report condom usage among young people (ages 15-24) has increased in recent years. Today, just over 14 billon condoms are sold world-wide with approximately 1.3 billion sold in the United States. The average selling price is $0.19 per unit for a total product market of $238.9 million.

Eighty-one percent of the condoms sold world-wide are made from NRL. The cost to produce a condom (1.5 g NRL) is $0.05 to $0.07 prior to adding advertising costs. World-wide condom usage of over 14 billion units translates to 17,013 tonnes of NRL used in the manufacturing process for a potential Vystar gross sale of $9.4 million. While the condom market is considerably smaller than the glove market, the consumer branding potential that exists here is attractive as U.S. consumers generally purchase based on brand over price. On an individual basis, the average Indian uses 4 condoms per year, while the world wide average is 15 per year. On the other side of the spectrum, the average for the Japanese is 100 per year.
 
Global Industry Analysts, Inc. in a 2006 purchased report “Condoms- A Global Strategic Business Report” states the dominant global manufacturers include SSL International, plc, a British firm, the leading manufacturer at 21% of the market, Ansell Limited (Australia) at 12%, Church and Dwight (United States) having 7% and Okamoto (Japan) at 7%. Okamoto has the #1 brand in Japan, France, Germany and the Nordic countries and Church and Dwight with the leading brand, Trojan, in the United States.

Vystar has sample agreements in place with several condom manufacturers worldwide.
 
Vystar is currently engaged with a U.S. condom manufacturer and a 510(k) required by the United States Food and Drug Administration (FDA) for using Vytex NRL in condoms has been filed. Vystar intends to develop and implement a multi-faceted marketing plan to increase condom consumption overall and build brand equity and visibility for Vytex NRL. Vystar strategies include aligning with federal, state and local HIV/AIDS planning councils and AIDS Service Organizations (ASOs) to assist in the education and promotion of condom usage to reduce the risks of transmission. Vehicles will include public service announcements, focus groups, educational programming, and sampling programs.
 
Another venue for Vytex NRL condom sales is the government and institutional markets where large amounts of condoms are purchased by agencies providing public health and family planning, the Department of Defense and Veteran’s Administration. Vystar expects to utilize a network of minority, disabled and veteran-owned businesses to reach these government markets.

 
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Latex Bedding and Foams

Natural rubber latex is widely used to manufacture mattresses, padding, toppers and pillows for the bedding industry. Natural rubber latex foam is gaining popularity in the United States bedding industry because it is firm, yet conforming to the body, so it provides a very high level of rest and comfort during sleep. Plus, it is a naturally derived, renewable material with superior resiliency properties when compared to SBR (synthetic) foams. NRL foam is three times more resistant to dust mites than ordinary mattresses, estimated to be a factor in 50 to 80 percent of asthmatics according the American Academy of Allergy,Asthma and Immunology (AAAAI). 


1 http://www.unaids.org/en/PolicyAndPractice/Prevention/Condoms/
 
Opening Price Points
 
   
Furniture Stores
   
Bedding Specialists
 
   
Lowest
Reported
   
Median
   
Highest
Reported
   
Lowest
Reported
   
Median
   
Highest
Reported
 
                                     
Innerspring
  $ 99     $ 399     $ 799     $ 159     $ 199     $ 399  
Memory Foam (SBR)
  $ 199     $ 999     $ 1,699     $ 199     $ 899     $ 1,699  
Latex Foam
  $ 699     $ 1,699     $ 1,999     $ 799     $ 1,199     $ 1,949  
Air
  $ 1,199     $ 1,699     $ 2,899     $ 899     $ 1,499     $ 2,199  

Source: Retail Bedding Spotlight, Furniture Today, June 2, 2008
 
In 2005, approximately 75,000 tonnes of NRL were used in the foam industry. NRL foam consumption has grown slightly less than 10,000 tonnes over a 15-year period from 1989.  Asia consumes 47,000 tonnes of NRL foam and Europe consumes 28,500 tonnes.  

According to United States bedding manufacturers, NRL sales in the bedding market have increased more than 70% over the past two years alone. Natural rubber latex has captured over 18% of the specialty sleep market and is projected to grow by 75% over the next two years, at a price point significantly higher than the traditional innerspring market. Latex foam is now accepted by consumers and retailers as a premium bedding component. More and more manufacturers are jumping on the green bandwagon by adding natural rubber latex to their product portfolios, Englander Sleep Products (Billerica, MA), Simmons (Atlanta, GA), Sealy (Trinity, NC) and Spring Air (Tampa, FL) are just a few featured at the Las Vegas Market in the summer of 2008. The percentage of U.S. households spending $1,000 or more for bedding doubled between 2000 and 2006, accounting for more than 27% of the total purchases according to Furniture Today’s consumer research.
 
As consumers increase their spending on bedding they are also spending more on the accessories to protect their bedding investment including pillows and mattress toppers. According to Furniture Today in their 2006 Bedding Retail Survey reported the price points on sleep pillows ranged from $6 to $200, with latex and down at the higher ends of the pricing scale.
 
In the European market, NRL foam is the dominant material used in comfort applications. However, before latex formulations were improved, latex foam was prone to degradation over the long term, developing a disagreeable odor in the process. Polyurethane (PUR) foams offered less performance to NRL foam at a lower price. Today, PUR foam controls a major part of foam bedding in the comfort market. The companies that hold a 75% market share (polymer) in this market are BASF Group (Germany), Dow Chemical (US) and Bayer Material Science (Germany).
 
The European market predominantly uses mechanical spring mattresses when taken as a whole and beyond just the comfort or luxury applications, which accounts for 60% of the total mattress consumption. PUR foam mattress accounts for about 25% of the mattresses consumed. Natural latex foams possess 15% of the market share in the mattress segment and is largely restrained by its higher cost.
 
The consumer demand for high-end bedding is being driven by a new awareness of the physical and mental benefits of sleep world-wide. Sleep has fueled a new area of medical research with most major universities and medical institutions engaged in some form of sleep research or programming.

 
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The Better Sleep Council (BSC) reports in the 2007 Better Sleep Month survey that only 27% of Americans get the proper amount of sleep each night (7.5 – 8.5 hours) and 8 out of 10 report at least one negative work side-effect of not having a good night’s sleep. The top three areas impacted; lack of quality and accuracy of work (31%), clear thinking or judgment (31%) and remembering important details (30%). The Better Sleep Council Canada reports that one in four Canadians are clinically sleep deprived.
 
The BSC estimates sleep deprivation and sleep disorders cost the U.S. over $100 million annually in medical expenses, absenteeism, productivity losses, property and environmental damage. In a consumer survey, this same group reported that 97% of respondents agreed that a good night’s sleep is essential to quality of life and 91% agreed that a good mattress is essential to health and wellbeing. The survey respondents also perceived the cost of a mattress has increased and the majority agreed that price is directly proportional to quality, higher cost equals higher quality.
 
Another area important in the increase of NRL demand in the bedding industry is the rise of allergies and asthma, triggered by allergens. While many allergy symptoms are seasonal, many individuals suffer from perennial allergies and asthma caused by indoor allergens, such as dust mite droppings, indoor molds and pet dander. The Academy of Allergy, Asthma and Immunology (AAAAI) reports approximately 20 million Americans have asthma in the U.S., of which 9 million are children under the age of 18, contributing to more than $11.5 billion in direct health care costs annually.
 
Vytex NRL offers a solution to both of these important health issues facing this industry. Natural rubber latex is naturally hypoallergenic, dust mite resistant, and bactericidal, inhibiting the growth of bacteria, mold and mildew, all known to cause allergies and asthma. In addition, Vytex NRL in its natural state is free of the chemicals typically found in synthetic foams known to cause odor and allergy symptoms.
 
There are several manufacturers of NRL foam serving the European market, including four market leaders: Latexco (Belgium & US), Dunlopillo (UK), Sapsa (Italy) and Dunlop Tech GmbH (Germany). With the increase in domestic demand, several US manufacturers, including Latex Foam International (Shelton, CT) and Sealy Corporation (Trinity, NC) are expanding their manufacturing operations to accommodate future growth.

Vytex NRL foam is well-suited for the foam industry because of its low antigenic protein levels. Although skin contact is rare with foam, direct skin contact with bedding materials can serve as a carrier of latex proteins that reside on the outer surface of the NRL foam products. Since Vytex NRL is made with a process that removes antigenic proteins and other non-rubber solids, the resultant Vytex NRL product foam sample products are far less odorous compared to non-Vytex NRL foam that contains high levels of biodegradable proteins.
 
Vytex NRL is very stable latex due to the reduced protein content and added surfactant. During the manufacturing of foam products from latex, higher shear stress may be exerted on the latex. High shear stress begins with the mixing process and is continued during the storage and dipping process. In the process used to produce foam, high shear stress occurs at the foam head of the machine. The latex must be able to withstand such shear stresses without flocculating. Vytex NRL has a decided advantage for a foam producer, due to its inherent stability under shear stress.
 
A comparison of  NRL foam and other competing foams as extrapolated from a chart created and published on their website ( http://www.latexrubber.com.au/foam_comparison.shtml ) by Parnham and Associates Pty Ltd , Australia a. manufacturer of latex foam, therapeutic pillows follows in the chart below:

   
Natural Latex Foam
 
SBR Latex Foam
 
PUR Foam
History
 
First produced in 1929
 
Used to produce foam in the early 60s.
 
Also produced in the early 60s.
Description
 
Extremely durable highly resilient, non-toxic and environmentally safe.
 
Produced from petrochemicals. Does not have the inherent physical and biological properties of NRL.
 
Produced from a polyol & TDI (isocyanate and cause toxic fumes).
Recovery
 
Very Resilient
 
Not as Resilient
 
Slow Recovery
Support
 
Support without pressure to the body and is self-ventilating
 
Does not give support and ventilation efficiently
 
Poor porosity and does not dissipate body heat and perspiration efficiently
Bacterial Properties
 
Natural
 
None
 
None
Durability
 
Durable and resilient
 
None
 
Poor resilience
Patterns
 
Unique pattern of small pin-hole cavitations on both sides making the hardness characteristics isotropic. This ensures that the surface is uniform and provides maximum comfort.
 
Also has a unique pattern of small pinhole cavitations on both sides and the hardness characteristics are isotropic.
 
Generally, does not have the unique pattern and cavitations of Latex Foam and does not give maximum comfort.
Dust/Asthma Issues
 
Does not get lumpy, create dust or fluff and is excellent for asthma sufferers.
 
Does not get lumpy or create dust and fluff.
 
Can get lumpy, create dust and fluff and is not satisfactory for asthma suffers.
Temperature & Humidity
 
No dampness, remains ventable
 
Does not dissipate heat, moisture and perspiration well.
 
Mattresses become damp and will not ventilate when not used. Perspiration is not dissipated.
Toxicity
 
On ignition, produces black smoke mostly containing unburnt carbon
 
On ignition, produces black smoke containing phenolic substances, which are toxic.
 
On ignition, produces toxic fumes, which can suffocate and cause physical injury.

 
- 32 -

 

Two of the leading global bedding manufacturers have expressed a significant interest in Vytex NRL and evaluation trials began in 3Q2008. Successful trials could get Vytex NRL into this market in 2009 for sponges and mattresses. Additionally, Vystar has successfully completed a manufacturing trial run with a global manufacturer of consumer sponges with a full production run expected.

To drive consumer demand for Vytex NRL bedding products, Vystar must look to the internet, where over 60% of consumers turn to conduct research prior to shopping, particularly consumers with incomes over $50K. However, when they are ready to purchase, more turn to specialty bedding stores (44%) or furniture stores (35%) than to the internet (1%). Incorporation of the internet and alliances with key specialty bedding distributors will be a key component of the Vytex branding campaign for bedding.
 
Adhesives
 
Adhesives are broadly composed of caulks, sealants, fillers, construction materials and variously defined adhesives. Adhesives can be divided into different types based on their chemistry. “Super glues,” or cyanoacrylates, are the “polymerize in place” type with or without a catalyst. Acrylates and methacrylates can also polymerize in place with the aid of a catalyst (an example is bone “cement” used in surgery). Hot melts are another type of adhesive and are generally polyolefins (or other polymers) with low melting points. The hot melt adhesives, once melted in a pot or a hand device, are applied to a surface(s) and allowed to cool (freeze) and thus stick together the two surfaces. Two-part adhesives represent another type of adhesive and are usually epoxies. The two parts are dysfunctional and form a very strong cross-linked condensation polymer. Epoxies are used extensively in the industrial and construction sectors due to their very high strength. Mucilages are another type of adhesives often characterized by “Elmer’s Glue,” which was originally marketed heavily by Borden. Elmer’s Glue is basically a polyvinyl acetate water emulsion. The adhesive is applied to porous surfaces and allowed to dry. This type of adhesive is simple, functional and inexpensive and works well in very light industrial applications as well as in domestic and educational venues. A more durable “marine use” product is also available. It is a more sophisticated polymer ester and resists marine moisture. Again, these materials are available as emulsions, water solutions and organic solvent solutions and become effective as the solution (or emulsion) evaporates and dries.
 
Pressure Sensitive Adhesives (PSAs), are typically used in the label market, dominated by large players such as Avery Dennison (Pasadena, CA), 3M (St. Paul, MN), and Raflatac (Sweden). PSA technologies include hot melt whereby the adhesive is melted, coated onto face stock, cooled and laminated; emulsions and solvents undergo less processing with an adhesive solution coated, dried and laminated. Much of the PSA market has transitioned from NRL to other synthetic materials, including acrylics, and conversions back to NRL would require an extensive raw material qualification process that is unlikely to receive interest among the primary manufacturers. For these reasons, Vystar intends to focus on the Cold Seal or Cohesive market, where NRL has desirable features and benefits.

 
- 33 -

 

Cold seal adhesives or “cohesives” are primarily found in the flexible food packaging, medical and paper markets. Natural rubber latex is used extensively in the flexible packaging market in packaging for chips, snacks, candy bars, etc. The sealants have to be water and oxygen barriers because they are overcoated onto one side of the package film and have to be approved for food contact. Some films are now pattern-coated so there is no food contact. These sealants are generally two parts: one part is a hydrocarbon such as NRL and the other part is an acrylic acid ester polymer as a tacky substance. The acrylic acid ester provides quick grab, and the adhesive such as NRL, provides pressure-sensitive holding and barrier properties. NRL excels at flexibility at low temperatures and thus is the performance leader. The raw material market is small and consolidated with the key players being Bostik/TOTAL (France), Henkel International (Germany), Akzo Nobel N.V. (Netherlands) and DOW Chemical (Midland, MI). Multiple companies participate in the chain from raw material through finished product, including compounders, printers and packagers.
 
While this market is fragmented, Vystar believes cold seal adhesives are a target for Vytex NRL due to the market’s perceived advantages NRL has over synthetics in the areas of cold flow and outstanding “stick”; very important qualities to ensure even coating and a good seal. Vytex NRL provides a solution to NRL’s disadvantages as well since poor mechanical stability inherent in NRL is improved by the Vytex process which removes the substances in NRL subject to free radical breakdown resulting in a more stable and a less odorous product.
 
There have been some reports of allergic reaction to these NRL adhesives found in or around food packaging. Also, since there is no treatment of the finished product as in the glove industry, Vytex NRL with its low-levels of antigenic protein at the outset is an excellent match. The Company believes that the Vytex NRL would be well-received in this market. The volume of NRL used for cold-seal adhesives is believed to be close to 7,500 tonnes in just the British and German markets and is based on population size since so much of the cold adhesives are used in the food industry.

Vystar is engaged with a regional distributor in the United States specializing in the adhesives industry which has led to a large number of Vytex NRL evaluations. In addition, several manufacturer evaluations are underway in the graphics and coatings markets and adhesives for these and the flexible food packaging markets could account for Vystar’s early sales of Vytex NRL.
 
While the U.S. adhesives market for medical tapes is approximately 15,000 tonnes per year, Vystar expects this market to be more challenging to enter since it operates within the medical device area regulated by the Food and Drug Administration (FDA) and subject to the same labeling requirements as other regulated products (gloves, catheters, etc) as discussed earlier. Outside the U.S. Vystar has received interest in the Asia markets for bandages, dressings and other medical adhesives and has begun evaluations with a large Asian manufacturer.
 
Balloons
 
Vytex NRL has several aspects that make it well-suited in the balloon industry. The low initial modulus of Vytex NRL suggests that less force is required for a user to mouth inflate a Vytex NRL balloon. Additionally, because Vytex NRL has greater ultimate elongation, the balloon can accommodate more air or helium thus staying inflated for a longer period of time compared to ordinary NRL. The low antigenic protein value of Vytex NRL could be attractive since the balloon is typically inflated by the mouth and also handled by small children.
 
The world-wide latex balloon industry is estimated at over $235 million USD and growing at 7-15% annually. The worldwide consumption of NRL for the balloon industry is estimated at 27,000 tonnes annually.  The two major consuming countries of NRL balloons are the U.S. with 9,500 tonnes annually and Europe at 2,200 tonnes annually in 2004 according to Trademap (www.trademap.net/pmaps/world_trade.htm)  Each balloon on average costs $0.04 to produce and uses approximately 1.5 g of NRL. The industry is split between Mylar and NRL.

 
- 34 -

 

The Growth of Balloon Consumption Globally:

Country
 
USD
(000s)
   
Share
   
Growth
 
Germany
  $ 29,124       12 %       24 %
Singapore
  $ 20,986       9 %       103 %
U.S.
  $ 15,652       7 %       7 %
China
  $ 13,308       6 %       29 %
U.K.
  $ 12,545       5 %       3 %
France
  $ 9,867       4 %       9 %
Italy
  $ 9,156       4 %       23 %
Belgium
  $ 8,719       4 %       35 %
Spain
  $ 7,912       3 %       11 %
Netherlands
  $ 7,908       3 %       14 %
Denmark
  $ 6,796       3 %       -1 %
Canada
  $ 6,406       3 %       4 %
Sweden
  $ 6,112       3 %       5 %
Mexico
  $ 5,865       2 %       29 %
 
The leading global balloon manufacturers are:

Company
 
NRL
 
Mylar
Anagram International, Inc. (Minneapolis, MN)
     
Ö
Pioneer Balloon (Qualatex) (Wichita, KS)
 
Ö
 
Ö
Betallic LLC (St. Louis, MO)
 
Ö
 
Ö
Everts International (Germany)
 
Ö
 
Ö
CTI Industries (Lake Barrington, IL)
 
Ö
 
Ö
 
Mylar balloons are very seasonal with the majority of sales occurring between December and March. NRL balloon sales are more consistent for a 12 month period, as the majority of NRL balloons are purchased and distributed through “big box” retailers as toys, gifts and party supplies. Mylar is the only substitute for NRL balloons because of the required barrier properties of latex. Although both NRL and Mylar balloons can be filled with helium, Mylar balloons are pre-formed and they can only be filled with helium. Mylar balloons are significantly more expensive compared to NRL balloons. Over 90% of Mylar sales occur in the U.S. because helium is priced reasonably in the United States and supply has been adequate to meet demand.

Balloons are synonymous with children, they come into contact with balloons on a regular basis at home, schools, stores and restaurants. This level of exposure concerns many who are latex allergic or linked to latex allergy through a cross-reactivity with certain foods. There is a reported correlation between food allergies and latex allergy, a shared antigenic component found in certain fruits and vegetables including banana, avocado and to a lesser extent, peanuts and other tree nuts. The American Academy of  Allergy, Asthma and Immunology reports up to 8% of children have food allergies. Children with spina bifida or subjected to multiple medical interventions throughout their lives have a higher exposure to latex and, therefore, a significant greater risk of latex allergy over the general population (up to 73% vs. 1-6%). These issues have given rise to a cluster of U.S. and international support groups dedicated to raising the consumer awareness of latex allergy. Two key domestic groups are the American Latex Allergy Association and ELASTIC (National Latex Allergy Network), both very active in the consumer and legislative arenas, including efforts to ban latex balloons from hospitals and schools.
 
 
The Latex Allergy Support Group (LASG), located in the United Kingdom, surveyed 374 members regarding their reactions to natural rubber latex balloons. Over 30% responded (109) of which 89% have been diagnosed as Type I latex allergic (97). The majority of the respondents have symptoms present when touching, blowing up the balloon or being in a closed area containing balloons. Twenty percent of the survey respondents required a medical intervention (use of adrenaline) after exposure.

 
- 35 -

 

Vystar expects these support groups to continue to grow in both political and consumer strength in the U.S. and abroad, providing good opportunities for Vytex NRL and the message of low protein latex as an alternative. We are engaged in discussions with one of the largest global manufacturers and intend to actively pursue this market utilizing alliances with the latex allergy support groups, balloon artists and the balloon manufacturers.
 
Fibers, Yarns, Threads, Cords, Fabrics
 
The global textile industry manufactures fabrics and garments for uses as varied as clothing, shelter, and fire and ballistic protections. The textile industry produces fibers (both staple and continuous filament), yarns, threads and fabrics. The fibers, yarns and threads are manufactured into woven, non-woven, and knit fabrics. Woven fabrics are produced from yarns inter-tangled at perpendicular angles, whereas non-wovens are produced directly from entangled fibers. Knits are formed by the tangential intersection of loops to form a variety of patterns. The basic chemistry of fibers has not changed for decades, while production has shifted from the industrialized world to less industrialized countries. Basic fiber ingredients are cellulosic (cotton, flax, linen, rayon), polyester, nylon, acrylic, protein (wool, camel hair, etc) and modacrylic, olefin and spandex (also known as elastane). This business plan is focused on the natural rubber thread business and regaining market share lost to spandex due to the “allergy” scare with NRL.
 
Spandex, the generic term for elastic thread, was first invented by DuPont. The most notable brand is Lycra, a trademark of Invista (formerly DuPont). Sales of spandex yarns have been sluggish; in 1980 sales amounted to 25,000 tonnes with a drop-off in subsequent years to 20,000 tonnes and finally rebounding back in 1997 to 1980 levels. Compared with the known sales for NRL yarn which has increased dramatically over a similar time period; growing from a low of 50,000 tonnes in 1989 to 146,000 tonnes in 2006, according to a report by Frost and Sullivan.
 
Spandex producers tend to be very large, well-capitalized, chemical companies such as Invista (USA), Bayer (Germany), Asahi Kasei (Japan) and many others. On the other hand, NRL yarn producers are small, local companies. Spandex is produced from crude oil and natural gas, two non-renewable products, whereas NRL yarns are produced from renewable trees, an agricultural product. The spandex producers do extensive marketing and selling directly through their own employees. The NRL producers do little to no marketing and sell through a mixture of brokers, agents, and jobbers who will sell only on price and availability, and offer no up-selling based on product differentiation. The NRL manufacturing sector lends itself to consolidation with a product that provides clear differentiation, such as that which Vytex NRL yarns would provide. Manufacturers produce in very large quantities and stage for each shipment – 20,000 to 40,000 pounds at a time (20 – 40 foot containers). Natural rubber yarn production has increased from approximately 50,000 tonnes in 1989 to about 135,000 tonnes in 2004, despite “allergy” warnings that have appeared on garments containing NRL yarn.

There are no direct competitors to NRL yarn use in socks, underwear, waistbands, ladies foundation garments and cords (such as bungee). Spandex is a synthetic elastane, and an indirect competitor only that has used the “allergy” issue as a lever to enter these markets at a cost that is several times more expensive. Currently, there are no branded NRL yarns and no advertising of the benefits of a NRL yarn   Spandex, although generically branded, has primarily been used in sportswear, outerwear and other-wear, sheer hosiery, and pantyhose. These markets are not typically markets for natural rubber yarn. Another venue identified is the eco-friendly shoe industry where cork platforms are typically mixed with latex to form the shoe-bed. Vytex NRL provides a compelling green and health story for these niche manufacturers and consumers.
 
The thread market is very attractive to Vystar and has the potential to become a large sector as the dollar volumes are significant even with a very small percentage of the market converting to Vytex NRL if adopted by one of the large, international textile manufacturers (Hanes, Fruit of the Loom) or thread producer like World Flex Public Company, a leading manufacturer of extruded rubber threads. Vystar may be able to introduce the Vytex NRL brand similarly to the existing branded products. Vystar has identified key thread, clothing and shoe manufacturers and is actively pursuing them.
 
Catheters*
* Data cited in this section was obtained from Frost & Sullivan’s 2005 report on the U.S. Medical Catheter Markets, available by subscription.

The catheter market is a high growth segment due to the aging population around the world with increasing incidences of urinary incontinence, chronic cardiovascular and cancer-related diseases, and to the evolution of medicine in finding alternative non-invasive techniques to treat patients, which in many cases utilize catheters, particularly with respect to cardiac procedures. There are 4 main catheter products: coronary or cardiovascular, renal or urinary, neurovascular (used to infuse or remove drugs or fluids from the body parts) and infusion or venous access (used to infuse or remove drugs or fluids from the body’s general circulation). There are also a number of specialty catheters used in pulmonary, neonatal, central nervous system and epidural tissue procedures.

 
- 36 -

 

Western Europe has 18 of the 19 countries with the highest percentage of the global aging population with the U.S. being the nineteenth. There were 68.2 million people in Western Europe over the age of 65 in 2005, or 17% of that population. This segment is estimated to increase to 25% of the population by the year 2030, with a direct correlation to the increase in the age-related medical conditions. Forty-one percent (41%) of all deaths in the EU were from cardiovascular disease, and more than 50% of all deaths in the U.S. in 2003 were from heart diseases or cancer. Add to this increased healthcare need the fact that the current costs of treating vascular occlusive disease is a major concern and a challenge for the European governments and healthcare providers, due in large part to its burdensome costs.
 
The primary materials used for catheters, in addition to NRL, are silicone rubber and the thermoplastic elastomers like polyurethane and fluoropolymers. Natural rubber latex’ largest competitive material for catheters is silicone. The catheters and tubing make up the highest single source of medical silicone products – about 32% of the entire medical silicone market (which is not expected to change much through 2012). Two of the greatest perceived benefits of using the silicone material for catheters are that silicone is non-allergenic and provides greater patient comfort, due to its perceived compatibility with antimicrobial coatings. In fact, the number one market driver of the silicone catheters in the U.S., according to Frost and Sullivan, is the allergic reaction to regular NRL catheters, and as a result, healthcare providers around the world have been willing to pay the higher premium for the silicone catheters, due solely to the allergic reactions to latex catheters and the litigation and other claims that have occurred and are feared to result from using latex.
 
However, with the advent of Vytex NRL, these silicone marketing advantages no longer exist. The virtually non-detectable active antigenic protein count of the Vytex NRL eliminates the greatest advantage silicone had, which was its non-allergenic nature. Since there is little to no advantage that silicone has over NRL in terms of being compatible with antimicrobial coatings, and NRL is less that one-half the cost of silicone, there would be little reason to use silicone in place of Vytex NRL. In fact, even the independent Frost & Sullivan reports indicate that a high restraint and an obstacle to growth of the silicone catheter market are the higher costs of the silicone versions. Additionally, there are certain lobbying groups that continue to push other materials instead of silicone.

In 2005 the revenue for silicone catheters and tubing in Western Europe was €50M which is estimated to translate to 34,399,120 units. The projections for 2006 and 2007 were for more than a 4% increase each year, and the projections for 2008 and 2009 include a 5.5% and 5.7% increase, respectively, with a jump in 2010 to 7%. This amounts to approximately 38 million, 40 million, and 42 million units of silicone catheters and tubing for Western Europe for each of the years 2008, 2009 and 2010, respectively. There is approximately 28 grams of NRL in each catheter unit, and the pricing of silicone catheters and tubing amount to approximately €3.0 to €8.0, or $4 to nearly $11 per pound – a significant price increase over the current pricing for NRL or for Vytex NRL. The estimates of unit usage in the U.S. for the same years of 2008, 2009 and 2010 for all types of catheters include 36 million, 38 million, and 40 million respectively.
 
The healthcare market in both the U.S. and Western Europe is very cost sensitive, with widespread adoption of cost-cutting, group purchasing and cost management initiatives generally. Given this highly cost-conscious nature of the healthcare markets in both the United States and Europe, it is very reasonable to predict that within a year or two after regulatory approval, Vytex NRL could capture a solid percentage of the silicone catheter market. Given these predictions, it is anticipated that catheters made with Vytex NRL could be available for sale in Western Europe towards the end of 2010, and towards the end of 2011 in the U.S.
 
The other measurable market share for catheters includes the thermoplastic elastomer (TPE) - made catheters, like polyurethane (TPU). Western Europe uses far more catheters made of this TPE/TPU material than does the U.S. In Western Europe the estimated projected volume in tonnes for this material for years 2008, 2009 and 2010 is between 5,000 to 6,000 tonnes.
 
Some of the greatest obstacles in the use of TPU for catheters include the high cost of creating a medical grade of TPE/TPU material, which in 2003 was priced between $1.70 and $3.00 per pound. As discussed with silicone above, the greatest advantage of using TPE/TPU was the non-allergenic nature of its material, which is virtually eliminated with the Vytex NRL. Due to the high cost of the manufacturing of and the negatively perceived toxic qualities of medical device-grade TPE materials, Vystar reasonably believes it will capture a greater percentage of the TPE catheter market sooner.

 
- 37 -

 

One of the other competing materials for catheters, PVC, has been virtually eliminated in the marketplace due to the environmental concerns, particularly those containing di-ethylhexylphthalate (DEHP) as a plasticizer. NRL was used as an alternative to PVC when these environmental issues became known.

The world wide projections of catheters already made with NRL amount to 5,125 tonnes for the year 2007. Taking a conservative average growth rate similar to the U.S. and European silicone and TPE catheter markets, the NRL catheter market would increase at an annual average of 5.5% from 2008 through 2010, resulting in NRL usage of 5,407, 5,704 and 6,018 tonnes in each of those years. At 28 grams per NRL catheter, this would translate to approximately 193 million, 203 million, and 214 million units, respectively for each of the years 2008, 2009 and 2010. Vystar reasonably predicts an even easier transition from existing NRL material to Vytex NRL. Once regulatory approvals have been received products manufactured with Vytex NRL can expect to enter the US market in late 2011.
 
Generally, the catheter market is viewed as “relatively saturated”, and so the need for new innovations is rather acute according to some industry experts. Despite the saturation, the market is viewed as still dynamic enough and receptive to such innovations. Given the greater ease of its entry into the medical device market in Western Europe, as compared to the United States, the EU is one of our initial target markets for promoting Vytex NRL for catheters.
 
Plan of Operation & Funding Requirements

Vystar’s forecasted spending requirements for the next nine to twelve months are expected to be fully met by existing investment funds.  Within the Company’s operational plan several key milestones have been identified, however, Vystar does not anticipate the costs associated with reaching these milestones to be material or significant and are expected to be absorbed by the initial spending forecast.

 
·
Execution of exclusive Distribution Agreement covering North America and Europe with Centrotrade Minerals and Metal and Centrotrade Deutschland.  See “BUSINESS - Products and Services”.

 
·
Design, conduct and publish a human skin study conducted by the faculty of the Department of Dermatology at a leading university to test the effect of Vytex NRL on latex allergic patients (Type 1- Immediate, or IgE antibody-mediated   allergic reactions).

 
·
FDA 510(k) approval and clearance to market a Vytex NRL condom and medical exam glove.

 
·
Expansion of Vytex NRL production to meet the needs of the manufacturer of foam, adhesives and certain medical devices.

Agreements with Universal Capital Management, Inc.

Universal Capital Management, Inc. (“UCM”) is a venture capital company that invests in development stage, emerging growth and/or later stage companies where management has no clear exit strategy and/or companies in need of supplemental management skills, at times providing managerial, strategic and financial expertise to those companies it believes have significant upside potential.  UCM invests in a variety of industries where its managers have direct experience or the ability to call on colleagues and consultants who have such experience.  Specific industries include: Consumer Products, Business Services, Healthcare Services, Medical devices and Nanotechnology. UCM may invest in equity, equity-related securities, a combination of debt and equity instruments as well as other beneficial ownership interest. These interests may include warrants, options, and convertible or exchangeable securities. In connection with UCM investments they will, from time to time, provide management recruiting services, assist with the strategic planning process and provide managerial assistance on issues such as personnel, real estate, marketing, capital expenditures and other related matters.  UCM may also provide guidance for financial and tax reporting services for its portfolio companies as well as cash management, treasury, auditing and other business services.

 
- 38 -

 

On January 31, 2008, the Company entered into a Management Agreement with Universal Capital Management, Inc. ("UCM"), a publicly held business development company. Pursuant to the terms of this Agreement, Vystar engaged UCM to provide management services and other assistance including strategic planning, investment banking consultation and investor introduction services, and, investor relations services. This agreement was amended on February 29, 2008 to extend the term from April 30, 2008 through January 31, 2009, pursuant to which,  the Company issued UCM warrants to purchase 1,000,000 shares of its common stock at an exercise price of $0.01. These warrants are exercisable in whole or in part at or before January 31, 2013. This agreement was terminated by the Company on January 31, 2009.
 
On April 30, 2008, the Company entered into an additional management and agreement with UCM pursuant to which UCM agreed to provide management services including day-to-day managerial assistance on issues such as employment, payroll, benefits, real estate leasing, utility utilization, capital expenditures, personnel and other related matters, financial reporting services, tax reporting services and accounts payable services. Pursuant to the terms of this Agreement, UCM was issued warrants to purchase 500,000 shares of the Company's common stock at an exercise price of $2.00 per share. The warrants are exercisable in whole or in part at or before April 30, 2013. In the event that the Company elects to extend the Management Agreement for an additional year term beyond the first year of the Agreement, the Company has agreed to issue additional warrants to purchase 500,000 shares of its common stock at an exercise price of $0.01 per share.
 
On August 15, 2008, the Company entered into an additional agreement with UCM whereby UCM agreed to assist the Company in registering its shares publicly, securing market makers and other similar services with respect to any FINRA application and OTC Bulletin Board approval as well as provide management assistance with certain responsibilities unique to a publicly held entity.  In consideration for these services, the Company agreed to issue 600,000 shares of its common stock, contingent upon the registration statement of which this prospectus is a part becoming effective, on or about the effective date of the registration statement. 

On or about __________, 2009, the Company will issue 600,000 shares of its common stock to UCM as additional compensation for services to Vystar pursuant to this letter agreement, which shares will be distributed to the UCM Stockholders and registered for resale as described in this prospectus.

Private Placement
 
Vystar completed a private placement of its common stock and warrants to purchase common stock to accredited investors in October 2008. In the offering, the Company issued 1,189,000 shares of its common stock at a price of $2.00 per share. For each two (2) shares of common stock purchased, the investor received a warrant to purchase one (1) share of our common stock at $1.00 per share for a period of two (2) years from the date of issue.
 
GOVERNMENT REGULATION
 
In the United States, healthcare products are subject to regulation by the Food and Drug Administration (FDA). Management believes that Vystar is not itself subject to regulation by the FDA due to the fact that it does not manufacture a finished medical device, but only provides Vytex NRL as a component or raw material to healthcare product manufacturers. However, there will be FDA regulation of the labeling of healthcare products that are produced with Vytex NRL. Additionally, effective September 30, 1998, FDA regulations prohibited the use of the term “hypoallergenic” on natural rubber latex gloves. In order to make any such claim, the latex product manufacturer must seek a waiver from the FDA of such regulatory prohibitions. Commentary included with the FDA’s September 1998 rule indicated that the prohibition on the use of the “hypoallergenic” label was based on the fact that, although such labeling was intended to indicate that the risk of allergic reaction to residual levels of processing chemicals was reduced, consumers interpreted the labeling to mean that the risk of allergic reactions to any component in the device would be minimal. Thus the hypoallergenic label was deemed misleading. There can be no assurance, however, that we will succeed in securing FDA approval for any claim regarding the “hypoallergenic” or reduced allergy potential of latex produced with the Vytex NRL process. Failure to secure, if required, such FDA approval, could delay or otherwise detrimentally affect our introduction to natural rubber latex healthcare products. Notwithstanding, the licensed glove manufacturer may be able to use the Vytex NRL trademark on its label to indicate only that the Vytex NRL component was used in the production of the healthcare product, and no further claim is asserted. We believe that we will be able to provide sufficient testing data to the FDA to support our claim with respect to the natural rubber latex antigenic proteins present in Vytex NRL.

 
- 39 -

 

MANAGEMENT
 
Our executive officers and directors and their respective ages and positions as of October 30, 2008, are as follows:

Name
 
Age
 
Title
William R. Doyle
 
51
 
Chairman of the Board, President and Chief Executive Officer (3)
Sandra G. Parker
 
54
 
Executive Vice President, Sales and Marketing
Matthew P. Clark
 
35
 
Vice President, Technical Services
J. Douglas Craft
 
45
 
Director (1)(2)(3)
Joseph C. Allegra, MD
 
59
 
Director (2)(3)
W. Dean Waters
 
43
 
Director (1)(2)
Mitsy M. Mangum
 
44
 
Director (1)
 

(1)      Member of the Audit Committee.

(2)      Member of the Compensation Committee.

(3)      Member of the Executive Committee.
 
Set forth below is biographical information concerning executive officers, other officers, directors and advisors:
 
Executive Officers
 
William R. Doyle, Chairman of the Board, President and Chief Executive Officer , joined Vystar in 2004 as Vice President Sales& Marketing.  He became President and Chief Operating Officer in December 2005.  He became Chairman of the Board, President and Chief Executive Officer of Vystar in March 2008, upon Mr. Honeycutt’s retirement.  Prior to that, Mr. Doyle served as Vice President of Marketing, Women’s Health, for Matria Healthcare, Inc., a disease management company, from  1999 to 2004. Mr. Doyle spearheaded the initial branding efforts at Matria as well as held responsibility for sales development, training, public relations, and marketing. He has worked in many aspects of healthcare industry for over twenty years encompassing manufacturing, sales, marketing and advertising. In addition to Matria, he has experience with such companies as Isolyser Company, Inc., McGaw, Inc., Lederle Laboratories (now Wyeth), and in an advertising capacity for Novartis Ophthalmics. Mr. Doyle is a member of the Board of Directors of the Georgia Chapter of the March of Dimes. He holds a Bachelor of Science in Biochemistry from Penn State University and Master of Business Administration from Pepperdine University.

Sandra Parker, Executive Vice President, Sales And Marketing, brings over 25 years  of extensive management experience to Vystar in business development, strategic planning, sales and marketing with the leading distribution, hospital, manufacturing, group purchasing and trade association companies in the healthcare industry.  Ms. Parker most recently served as senior manager for Kimberly-Clark Healthcare where she was the architect for their expansion into non-hospital markets from  1999 to 2008.  She currently serves as Chair of Professional Women in Healthcare, a national organization of women executives. She is a graduate of the Jackson School of Nursing in Miami. 
  
Matthew P. Clark, Vice President Technical Services , has been an executive officer of Vystar since December 2006, and is responsible for day-to-day Vystar operations as well as IP, trademark and product development. A co-patent holder on the process to reduce the allergenicity of natural rubber latex prior to vulcanization, Mr. Clark is a key company contact for latex industry leaders. He is co-author of four technical papers, “Technological and Physical Properties of a New, Low Antigenic Protein Natural Rubber Latex”, “The Business Aspects of Vytex, an Ultra Low Protein Natural Rubber Latex”, “Vytex Ô Natural Rubber Latex: A Proposed Industry Standard for the Manufacture of Commercial Natural Rubber Products”, and “Vytex Ô Natural Rubber Latex: An Innovative Source Material for Natural Rubber Products Prior to Vystar, he had supervisory roles at Isolyser from  1995 to 2000 and Globe Ticket and Label Company thereafter. He is a graduate of Gwinnett Technical Institute.

 
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Other Officers
 
Linda S. Hammock, Acting Chief Financial Officer, has been Vystar’s Acting Chief Financial Officer since
September 2007.  She has more than 25 years of experience in accounting and financial management and has spent the past 12 years providing consulting services to companies as a part-time CFO and/or controller. For the past three years, Ms. Hammock has been affiliated with Accounting Professionals Network, a provider of professional financial management to companies not requiring it on a full-time basis. Prior to that, she provided part-time CFO and/or controller services through Linda S. Hammock, CPA, as well as through Resources Connection (now Resources Global Professionals) and Callaway Partners (now Huron Consulting Group). She has served as an executive officer with companies in the health care and banking industries. Hammock holds a Master of Accountancy degree from the University of Georgia, is a Certified Public Accountant, and a member of the American Institute of CPAs and the Georgia Society of CPAs.
 
Dawn E. Ely, JD, General Counsel and Chief Legal Officer, has been Vystar’s acting Chief Legal Officer since April 2006.  She has more than 17 years of healthcare and technology law experience, most of which has been as an in-house attorney simultaneously managing legal and operational divisions of small, large, public, private, venture-backed and governmental organizations. Most recently, Ms. Ely served as the Interim General Counsel of Coloplast Corp., the regional headquarters of an international medical device company. She has also served as chief counsel imaging division, global regulatory counsel healthcare, and regional head of regulatory affairs and quality assurance organizations for Agfa and its Americas regional headquarters, serving as the global regulatory expert, strategist and legal counsel for the medical device business, which included product licensing, labeling, marketing, good manufacturing practices and privacy/security regulations. Prior to this, Ms. Ely served as the Vice President of Legal & Administrative Affairs for a venture-backed disease management company, ProMedex, Inc. also managing the human resources department and creating the legal strategy for the company, as well as handling all legal and contractual matters. She is a dual-majored, distinguished honors major B.A. graduate of the University of Virginia, and earned her law degree at Mercer University in Macon, Ga.
 
Directors
 
J. Douglas Craft, Director , joined Vystar’s Board of Directors in October 2006.  Since1983, Mr. Craft has been the founder and chief executive officer of Atlanta-based Medicraft Inc., one of the largest independent distributors for Medtronic Spinal Products worldwide. Mr. Craft has more than 25 years experience in the medical device arena and holds a biomedical engineering degree from Mississippi State University.

Joseph C. Allegra, MD, Director, joined Vystar’s Board of Directors in April 2008. Dr. Allegra is the founder/owner of various limited liability companies in the Atlanta area including Diamond II Investments, Oncology Molecular Imaging, and Pediatric Urgent Care. He is also the owner of Cyberlogistics, Inc and is a partner with the Seraph Group. Dr. Allegra has held various professorships and chairmanships as a practicing oncologist. He has an undergraduate degree in Chemistry from Temple University and obtained his MD from the Milton S. Hershey Medical of the Pennsylvania State University.
 
Mitsy Y. Mangum, Director, joined Vystar’s Board of Directors in October 2008.  Since July 2004, Ms. Mangum has been Vice President-Investments, Financial Advisor WMS, RPC with Raymond James & Associates in the Atlanta area. Ms. Mangum is an accomplished investment professional with over 22 years of financial service and industry experience both from the retail side as well as the institutional side. Ms. Mangum maintains an in-depth knowledge of the financial markets, professional money management and managing portfolios. She has a Bachelor of Science in Business Administration / Management from College of Charleston.
 
W. Dean Waters, Director, joined Vystar’s Board of Directors in October 2008.  Mr. Waters joined Commerce Street Capital’s bank development group as a Senior Vice President in August of 2008 and is responsible for helping community bank management teams raise capital for initial and primary offerings.  Prior to joining Commerce Street Capital, Mr. Waters was the Managing Partner and Founder of Poseidon Capital Investments, LLC, a lease finance consulting and futures trading firm based in Atlanta, GA . He was also Senior Vice President, Director and one of the founding members of the Capital Markets Group within GMAC Commercial Finance’s Equipment Finance Division. Before that, he was Managing Director of equity distributions of Bank of America Leasing & Capital Group.  He received a Bachelor of Science in Economics from East Carolina University in Greenville, N.C., and earned an M.B.A., with honors, from Wake Forest University in Winston-Salem, N.C. Mr. Waters holds a FINRA Series 62 and 63 securities license.

 
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Advisors
 
Seth Goldberg, Special Advisor to the Board , is responsible for assisting Vystar in developing regulatory strategies to bring Vystex NRL to market. Goldberg has been a partner in the Washington D.C. based law firm of Steptoe & Johnson since 1985. Mr. Goldberg’s law practice focuses on chemical and environmental regulation, with principal clients including multinational companies and national trade associations. Mr. Goldberg frequently assists clients in developing regulatory strategies to bring products to market and minimize the impact of government regulation. Mr. Goldberg received a B.A. from the State University of New York in Binghamton and a J.D. from Stanford Law School.
 
Mark C. Swanson, Technical Advisor, is an immunochemist of 30 years working for the Mayo Foundation, Rochester, MN. He graduated in 1978 from St. Cloud State University, St. Cloud, MN with degrees in bio-medical science and chemistry. He founded Quan-Tec-Air, Inc. in 1985. The company is dedicated to the quantification of asthmagenic bio-aerosols using specialized sampling, filtration and immunoassay techniques. The combination of air sampling expertise and de novo immunoassay design and implementation makes him a unique and valuable resource for immuno-aero-biological health hazard assessment. He is contacted frequently by industry and agencies interested in evaluating workplace bio-aerosols and their remedies.
 
Catharine Carole Calkins Burke, Ph.D., Technical Advisor, Skilled biomedical researcher capable of analyzing experiments, data, and information; creative and resourceful in generating ideas and solving problems; recognized by colleagues, peers and professors for initiating and developing ideas within the scope of defined projects, while ensuring quality of work. Dr. Calkins holds a Ph.D. degree in Pharmacology from Wayne State University and Bachelors of Science degree in Chemistry/Biochemistry from San Jose State University.

Vystar Technical Advisory Board. The Vystar Technical Advisory Board is comprised of many leading healthcare experts involved in the ongoing development and implementation of Vytex NRL. The board members include professionals from large healthcare purchasing groups, RNs and surgeons. The board ensures that the ever-changing needs of the healthcare community are addressed.

Board Composition and Election of Directors

Our board of directors currently consists of five members. There are no family relationships among any of our directors or executive officers. In accordance with the terms of our bylaws, our board of directors is composed of one class. As a result, our entire board of directors will be elected each year at our annual meeting of shareholders.
 
Our bylaws provide that the authorized number of directors may be changed only by resolution of our board of directors. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled by vote of a majority of our directors then in office.
 
Director Independence
 
Under Rule 4350 of the Nasdaq Marketplace Rules, independent directors must comprise a majority of a listed company’s board of directors within one year of listing. In addition, Nasdaq Marketplace Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. While Vystar does not currently qualify for listing on Nasdaq and will likely not qualify for some time after the date of this prospectus, it does intend to seek such listing as soon as possible and will conply with its Marketplace Rules immediately. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under Nasdaq Marketplace Rule 4200(a)(15), a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a public company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the public company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

 
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In September 2008, our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that none of Messrs. Craft or Waters, Dr. Allegra or Ms. Mangum, representing four of our five directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under Nasdaq Marketplace Rule 4200(a)(15). Our board of directors also determined that Messrs. Craft, Waters and Ms. Mangum, who comprise our audit committee, and Messrs. Craft and Waters, and Dr. Allegra satisfy the independence standards for those committees established by applicable SEC rules and the Nasdaq Marketplace Rules. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
 
Board Committees
 
Our board of directors has established an executive committee, an audit committee and a compensation committee. Each committee will operate under a charter that will be approved by our board of directors.
 
Executive Committee
 
The members of the Executive Committee are Messrs. Doyle and Craft, and Dr. Allegra. Mr. Doyle chairs the Executive Committee.

The role of Vystar’s Executive Committee is to oversee operations of the Board and personnel matters and if necessary, to act on behalf of the Board during on-demand activities that occur between meetings (these acts are later presented for full board review). Working on behalf of the full Board of Directors, this Committee will provide an opportunity for detailed examination of current policy issues facing Vystar, develop policy recommendations for consideration by the Board, and provide general oversight for the overall direction and operations of Vystar.

Audit Committee

The members of our audit committee are Messrs. Craft and Waters, and Ms. Mangum. Mr. Waters chairs the audit committee. Our board of directors has determined that each audit committee member satisfies the requirements for financial literacy under the current requirements of the Nasdaq Marketplace Rules. Mr. Waters is an “audit committee financial expert,” as defined by SEC rules and satisfies the financial sophistication requirements of The NASDAQ Global Market. Our audit committee assists our board of directors in its oversight of our accounting and financial reporting process and the audits of our financial statements. The audit committee’s responsibilities include:
 
 
·
appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;
 
 
·
overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm;
 
 
·
reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;
 
 
·
monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;
 
·
discussing our risk management policies;
 
 
·
establishing policies regarding hiring employees from the independent registered public accounting firm and procedures for the receipt and resolution of accounting related complaints and concerns;

 
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·
meeting independently with our independent registered public accounting firm and management;
 
·
reviewing and approving or ratifying any related person transactions; and
 
·
preparing the audit committee report required by SEC rules.
 
All audit and non-audit services, other than de minimus non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.
 
Compensation Committee
 
The members of our compensation committee are Messrs. Craft and Waters, and Dr. Allegra. Dr. Allegra chairs the compensation committee. The compensation committee’s responsibilities include:
 
 
·
annually reviewing and approving corporate goals and objectives relevant to chief executive officer compensation;
 
·
determining our chief executive officer’s compensation;
 
 
·
reviewing and approving, or making recommendations to our board of directors with respect to, the compensation of our other executive officers;
 
·
overseeing an evaluation of our senior executives;

·
overseeing and administering our cash and equity incentive plans;
 
 
·
reviewing and making recommendations to our board of directors with respect to director compensation;
 
 
·
reviewing and discussing annually with management our “Compensation Discussion and Analysis” disclosure required by SEC rules; and

·
preparing the compensation committee report required by SEC rules.
 
Compensation Committee Interlocks and Insider Participation
 
None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee is an officer or employee of our company, nor have they ever been an officer or employee of our company.
 
Code of Business Conduct and Ethics
 
We will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics will be available on our website at www.vytex.com shortly after the date of this prospectus.  Any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
 
Director Compensation
 
Since our formation, we have not paid cash compensation to any director for his service as a director. However, we have historically reimbursed our non-employee directors for reasonable travel and other expenses incurred in connection with attending board of director and committee meetings.

 
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Our president and chief executive officer has not received any compensation in connection with his service as a director. The compensation that we pay to our president and chief executive officer is discussed in the “Executive Compensation” section of this prospectus.
 
The following table sets forth information regarding compensation earned by our non-employee directors during 2006-2008 for Mr. Craft, and for 2008 for Dr. Allegra. Mr. Waters and Ms. Mangum have not to date received any options or warrants to purchase shares of our common stock in connection with their service on our board of directors.
 
Name
 
Fees
Earned
or Paid in
Cash
   
Option
Awards
(1)
   
Total
 
Douglas Craft(2)
  $ 0     $ 78,642     $ 78,642  
Joseph C. Allegra, MD(3)
  $ 0     $ 35,981     $ 35,981  
W. Dean Waters (4)
  $ 0     $ 10,715     $ 10,715  
Mitsy Y. Mangum (4)
  $ 0     $ 10,715     $ 10,715  

(1)
Represents the dollar amount of share-based compensation expense recognized for financial statement reporting purposes pursuant to SFAS 123R during 2006 through December 31, 2008, except that such amounts do not reflect an estimate of forfeitures related to service-based vesting conditions. The assumptions used by us with respect to the valuation of option grants are set forth in Note 8 to our financial statements included elsewhere in this prospectus.

(2)
Represents warrants to purchase 180,000 shares of our common stock with a weighted average exercise price of $1.14 per share.

(3) 
Represents warrants to purchase 60,000 shares of our common stock with a weighted average exercise price of $1.42 per share.
(4) 
Represents warrants to purchase 20,000 shares of our common stock with an exercise price of $1.63 per share.

Executive Compensation

Compensation Discussion and Analysis

Overview

Our compensation committee was recently elected by our board of directors. Going forward, the compensation committee of our board of directors will oversee our executive compensation program. In this role, the compensation committee will review and approve annually all compensation decisions relating to our named executive officers. Our historical executive compensation programs were developed and implemented by our board of directors consistent with practices of other venture-backed, privately-held companies. Prior to this offering, our compensation programs, and the process by which they were developed, were less formal than that typically employed by a public company. During this time, our board of directors generally benchmarked our executive compensation on an informal basis by comparing our executives’ compensation to our estimates of executive compensation paid by companies in our industry and region that are also comparable to us in size, revenue, financial condition and capital investment. We refer to this group as our private company peer group. The board of directors and the compensation committee intend to continue to formalize their approach to the development and implementation of our executive compensation programs.
 
Objectives and Philosophy of Our Executive Compensation Programs
 
Our compensation committee’s primary objectives with respect to executive compensation are to:
 
·
attract, retain and motivate talented executives;

 
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·
promote the achievement of key financial and strategic performance measures by linking short- and long-term cash and equity incentives to the achievement of measurable corporate and, in some cases, individual performance goals; and
 
·
align the incentives of our executives with the creation of value for our stockholders.
 
  To achieve these objectives, the compensation committee will evaluate our executive compensation program with the goal of setting compensation at levels the committee believes are competitive with those of our private company peer group. In addition, our executive compensation program will tie a substantial portion of each executive’s overall compensation to key strategic, financial and operational goals such as our financial and operational performance, the growth of our customer base, new development initiatives and the establishment and maintenance of key strategic relationships. We will also provide a portion of our executive compensation in the form of stock options that vest over time, which we believe helps to retain our executives and aligns their interests with those of our shareholders by allowing them to participate in the longer term success of our company as reflected in stock price appreciation.

We compete with many other companies for executive personnel. Accordingly, the compensation committee will generally target overall compensation for executives to be competitive with that of our private company peer group. Variations to this targeted compensation may occur depending on the experience level of the individual and market factors, such as the demand for executives with similar skills and experience.
 
Components of Our Executive Compensation Program
 
 The primary elements of our executive compensation program will be:

·       base salary;

·       cash incentive bonuses;

·       equity incentive awards;

·       change of control benefits; and

·       insurance, retirement and other employee benefits and compensation.

We do not have any formal or informal policy or target for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, our compensation committee will establish these allocations for each executive officer on an annual basis. Our compensation committee will establish cash compensation targets based primarily upon informal benchmarking data, such as comparing the compensation of our executives to companies in our private company peer group, as well as the performance of our company as a whole and of the individual executive and executive team as a whole. Our compensation committee will establish non-cash compensation based upon this informal benchmarking data, the performance of our company as a whole and of the individual executive and executive team as a whole, the executives’ equity ownership percentage and the amount of their equity ownership that is vested equity. We believe that the long-term performance of our business is improved through the grant of stock-based awards so that the interests of our executives are aligned with the creation of value for our shareholders.
 
Summary Compensation Table
 
The following table sets forth information regarding compensation earned by our chairman and chief executive officer, our former chairman and chief executive officer and two other executive officers during 2005, 2006 and 2007. We refer to these executive officers (other than Mr. Honeycutt, our former chairman and chief executive officer) as our “named executive officers” elsewhere in this prospectus.  As discussed above, prior to the date hereof, our Board of Directors developed and implemented compensation consistent with practices of other venture-backed, privately-held companies.  During such period and until April 2008, none of our executive officers had formal employment agreements.  As such, our compensation programs, and the process by which they were developed, were less formal than that typically employed by a public company.  Rather, our Board of Directors generally determined the compensation of our executive officers on an informal basis by comparing such compensation to their estimates of executive compensation paid by comparable companies.

 
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Options granted to our executive officers generally provided for vesting of such option over a period of time.  All options granted to William R. Doyle and Matthew P. Clark have vested.  50,000 of such options granted to Sandra Parker vested upon grant, and the remainder vest at a rate of 50,000 on each of April 1, 2009, 2010 and 2011.
 
       
Option
   
All Other
       
   
Salary
   
Awards
   
Compensation
   
Total
 
Name and Principal Position  
 
($)
   
($)(1)
   
($)(2)
   
($)
 
William R. Doyle
                       
Chairman and Chief Executive Officer
                       
                         
2008
  $ 169,519     $ 1,172,747     $ 2,283     $ 1,344,549  
2007
  $ 168,750     $ -     $ 2,422     $ 171,172  
2006
  $ 154,808     $ 154,909     $ -     $ 309,717  
                                 
Travis Honeycutt (3)
                               
Former Chairman and Chief Executive Officer
                               
2008
  $ 20,914     $ -     $ 2,904     $ 23,818  
2007
  $ 196,875     $ -     $ 12,574     209,449  
2006
  $ 136,859     -     $ 9,541     146,400  
                                 
Sandra Parker (4)
                               
Executive   Vice President, Sales and Marketing
                               
2008
  $ 126,750     $ 147,134     $ 4,370     $ 278,254  
2007
  $ -     $ -     $ -     $ -  
2006
  $ -     -     -     -  
                                 
Matthew P. Clark
                               
Vice President, Technical Services
                               
2008
  $ 70,659     $ 167,535     $ 16,308     $ 254,501  
2007
  $ 75,833     $ 30,388     $ 16,327     $ 122,549  
2006
  $ 60,577     -     8,943     69,520  
 
(1)
Valuation of these options is based on the dollar amount of share-based compensation recognized for financial statement reporting purposes pursuant to SFAS 123R with respect to 2007, except that such amounts do not reflect an estimate of forfeitures related to service-based vesting conditions. The assumptions used by us with respect to the valuation of option grants are set forth in Note 8 to our financial statements included elsewhere in this prospectus. The individual awards reflected in this summary compensation table are further summarized below under “Outstanding Equity Awards at Fiscal Year End.”

(2)
Amounts consist of medical, life insurance and disability insurance premiums paid by us on behalf of the named executive officer.

(3)
Mr. Honeycutt resigned as chairman and chief executive officer of Vystar in March, 2008.

(4)
Ms. Parker was not an employee in 2006 or 2007.

Employment Agreements
 
On November 11, 2008, Vystar entered into an Employment Agreement with William R. Doyle to continue to serve as Vystar’s President, Chief Executive Officer and Chairman of the Board of Directors. The term of the Agreement is effective until terminated by either party in accordance with the terms of the Agreement. Under the Agreement, Mr. Doyle receives a base salary of $185,000 per year, as such base salary may be adjusted by the Board of Directors, and an annual bonus equal to a maximum of 125% of Mr. Doyle’s base salary based on the success of the Company in meeting its objectives, as determined by the Board of Directors; provided, that no cash bonus is payable to Mr. Doyle on any date unless he is employed by the Company on that date. The amount of the annual bonus is determined by the Board of Directors based on the percentage of achievement of the stated company objectives, which have not been finalized as of the date of this prospectus. Notwithstanding, if the Company does not meet at least 90% of its stated objectives, the Board of Directors may choose not to award Mr. Doyle any portion of his annual bonus in the sole and complete discretion of the Board, which may include either no bonus or some other amount the Board chooses, not to exceed the 125%. The effective date of the annual bonus calculation is the Company’s fiscal year-end and is payable in one or more installments as determined by the Board of Directors beginning in the first quarter of the following fiscal year. Mr. Doyle’s Employment Agreement is terminable at will by the Company for cause or without cause as defined in the Agreement. However, if Mr. Doyle’s employment is terminated by Vystar without cause, Vystar is obligated to pay Mr. Doyle compensation earned through the date of termination plus a severance payment equal to six (6) months base salary from the date of termination payable as if he had remained an employee of the Company, plus, assuming Mr. Doyle complies with non-compete and non-solicitation covenants contained in the Employment Agreement, an amount equal to 75% of Mr. Doyle’s base salary amount for the one (1) year period after the date of termination. If Mr. Doyle is terminated for cause or he terminates the Employment Agreement without cause, he is only entitled to compensation accrued through the date of termination.
 
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On April 1, 2008, Vystar entered into an Employment Agreement with Sandra Parker to serve as Vystar’s Executive Vice President Sales and Marketing. The term of the Agreement continues effective unless a party gives the other party notice of intent to not renew 90 days prior to each annual anniversary date, unless earlier terminated as described below. Under the Agreement, Ms. Parker receives a base salary of $95,000 per year plus, for the first six months of Ms. Parker’s employment, a guaranteed bonus of $5,000 per month. Thereafter, a further bonus structure may be made available to Ms. Parker depending upon the performance of Vystar and Ms. Parker, at the complete and sole discretion of the Board of Directors. Ms. Parker was granted a total of 200,000 stock options at an exercise price of $1.00 per share, 50,000 of which vested immediately upon execution of the Employment Agreement and 50,000 of which vest on each of the next three anniversaries of the Employment Agreement. Ms. Parker’s Employment Agreement is terminable at will by the Company for cause or without cause as defined in the Agreement. However, if Ms. Parker’s employment is terminated by Vystar without cause, Vystar is obligated to pay Ms. Parker compensation earned through the date of termination plus a severance payment equal to three (3) months base salary plus employee benefits from the date of termination payable as if she had remained an employee of the Company. If Ms. Parker is terminated for cause or she terminates the Employment Agreement without cause, she is only entitled to compensation through the date of termination.

No other officers of the Company are parties to Employment Agreements.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information with respect to the value of all unexercised options previously awarded to our named executive officers as of December 31, 2008:

Name
 
Number of 
Securities
Underlying
Unexercised
Options
Exercisable
(#)
 
Number of 
Securities 
Underlying 
Unexercised 
Options 
Unexercisable  
(1)(#)
 
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
 
Options
Exercise
Price ($)
 
Option
Expiration
Date
William R. Doyle
    300,000             1.00  
12/2/2014
      100,000             1.50  
4/28/2015
      500,000             1.00  
10/1/2016
      1,750,000             1.00  
2/11/2018
Matthew P. Clark
    100,000             1.00  
1/1/2017
      250,000             1.00  
2/11/2018
Sandra Parker
    50,000  
150,000
 
150,000
    1.00  
4/1/2018

(1)
The remaining unvested portion of the option grants to Sandra Parker vest 50,000 each on April 1, 2009, 2010 and 2011.
 
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2004 Long-Term Incentive Compensation Plan
 
Our 2004 Long-Term Incentive Compensation Plan, as amended, which we refer to as the 2004 Plan, was adopted by our board of directors in 2004. A maximum of 4,000,000 shares of common stock were authorized for issuance under the 2004 Plan.
 
The 2004 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock and other stock-based awards. Our officers, employees, consultants and directors are eligible to receive awards under the 2004 Plan; however, incentive stock options may only be granted to our employees. In accordance with the terms of the 2004 Plan, our board of directors administers the 2004 Plan and, subject to any limitations in the 2004 Plan, selects the recipients of awards and determines:
 
 
·
the number of shares of common stock covered by options and the dates upon which those options become exercisable;

 
·
the exercise prices of options;

 
·
the duration of options;

 
·
the methods of payment of the exercise price; and

 
·
the number of shares of common stock subject to any restricted stock or other stock-based awards and the terms and conditions of those awards, including the conditions for repurchase, issue price and repurchase price.
 
Pursuant to the terms of the 2004 Plan, in the event of a change in control of our company, each outstanding option under the 2004 Plan will vest, but the holders shall have the right, assuming the holder still maintains a continuous service relationship with us, immediately prior to such dissolution or liquidation, to exercise the option to the extent exercisable on the date of such dissolution or liquidation.
 
In the event of a merger or other reorganization event, our board of directors shall have the discretion to provide for any or all of the following: (a) the acceleration of vesting or the termination of our repurchase rights of any or all of the outstanding awards, (b) the assumption or substitution of all options by the acquitting or succeeding entity or (c) the termination of all options that remain outstanding at the time of the merger or other reorganization event.
 
401(k) Plan
 
We maintain a tax-qualified retirement plan that provides all regular employees with an opportunity to save for retirement on a tax-advantaged basis. Under our 401(k) plan, participants may elect to defer a portion of their compensation on a pre-tax basis and have it contributed to the plan subject to applicable annual Internal Revenue Code limits. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. Employee elective deferrals are fully vested at all times. The 401(k) plan allows for matching contributions to be made by us. We currently match dollar for dollar on the first three percent (3%) of compensation and $.50 on each dollar of the next two percent (2%) of compensation. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan and all contributions are deductible by us when made.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
Articles of Incorporation and Bylaws
 
As permitted by Georgia law, provisions in our articles of incorporation and bylaws limit or eliminate the personal liability of our directors. Our articles of incorporation and bylaws limit the liability of directors to the maximum extent permitted by Georgia law. Georgia law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for:
 
- 49 -

 
 
·
any breach of the director’s duty of loyalty to us or our shareholders;
 
 
·
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
 
 
·
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
 
 
·
any transaction from which the director derived an improper personal benefit.
 
These limitations do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission. If Georgia law is amended to authorize the further elimination or limiting of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Georgia law as so amended.
 
As permitted by Georgia law, our articles of incorporation and bylaws also provide that:
 
 
·
we will indemnify our directors and officers to the fullest extent permitted by law;
 
 
·
we may indemnify our other employees and other agents to the same extent that we indemnify our officers and directors, unless otherwise determined by the board of directors; and
 
 
·
we will advance expenses to our directors and executive officers in connection with legal proceedings in connection with a legal proceeding to the fullest extent permitted by law.
 
The indemnification provisions contained in our articles of incorporation and bylaws are in addition to any other remedies that may be available in law or in equity.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
During the three years ended December 31, 2006, Vystar made payments to Reactive Energy, LLC, a company wholly-owned by Travis Honeycutt, the Company’s former CEO, for management fees and contract services including office reimbursements. At December 31, 2007, there was a balance due Reactive Energy, LLC of $36,453. During 2006 and 2005, the Company advanced cash and made payments on behalf of Climax Global Energy, Inc. (“Climax”), a company controlled by the Company’s former CEO, in the amounts of $12,795 and $242,654, respectively. At December 31, 2007, the balance due from Climax was $240,409. Climax is in a pre-revenue, research and development mode, and is in the process of raising capital through a private placement memorandum. The Company expects to be reimbursed in full for the balance, which is unsecured, but due to the uncertainty involved, management has elected to reserve at December 31, 2007, approximately $120,000 of the balance due from Climax. In August 2008, the Company entered into a Note Agreement with Climax which specified the repayment terms of the Note.  The payment of the Climax Note triggers the Company’s obligation for severance of its former CFO.  At December 31, 2007 and 2006, the Company also has accrued severance of $81,250 payable to the Company’s former CFO, Glen Smotherman. Mr. Smotherman has agreed to payment of this liability beginning at the earlier of payment in full of the Climax receivable or the Company’s achievement of specific sales goals. When payment begins, the liability will be satisfied in 24 equal monthly payments. 
 
In February 2008, the Company’s former CEO surrendered 4,900,000 shares of the Company’s common stock issued to him during 2004. These shares were returned to the Company, thereby being available for reissuance  and decreasing the outstanding shares of the Company by 4,900,000 shares.

In March 2008, Travis Honeycutt, Founder and CEO, retired from the Company.
 
- 50 -


PRINCIPAL SHAREHOLDERS
 
  The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2008 by:
 
 
·
each of our directors;
 
 
·
each of our named executive officers;
 
 
·
all of our directors and executive officers as a group; and
 
 
·
each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our voting securities.
 
The “Percentage of Shares Beneficially Owned” column is based on a total of 11,951,774 shares of our common stock outstanding as of December 31, 2008.
 
Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of October 30, 2008 are considered outstanding and beneficially owned by the person holding the options for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, the persons and entities in this table have sole voting and investing power with respect to all of the shares of common stock beneficially owned by them, subject to community property laws, where applicable. Except as otherwise set forth below, the address of the beneficial owner is c/o Vystar Corporation, 3235 Satellite Boulevard, Building 400, Suite 290, Duluth, Georgia 30096.

Name and Address of Beneficial Owner
 
Number of Shares
Beneficially Owned
   
Percentage of Shares
Beneficially Owned
 
             
5% Stockholders:  
             
Travis W. Honeycutt
Gainesville, Ga
   
2,497,000
   
20.89
%
Margaret S. Honeycutt
Gainesville, GA
   
2,497,000
   
20.89
%
Universal Capital Management, Inc.
2601 Annand Dr., #16
Wilmington, DE 19808
   
1,500,000
(1)
 
11.15
%
Glen Smotherman
Norcross, GA
   
1,000,000
   
8.37
%
     
  
   
  
 
Directors and Executive Officers
             
William Doyle*
   
2,650,000
(2)
 
18.15
%
Matthew Clark*
   
550,000
(3)
 
4.47
%
Sandra Parker*
   
50,000
(4)
 
.42
%
J. Douglas Craft (5)
   
230,000
   
1.90
%
Atlanta, GA
             
Joseph C. Allegra, MD (6)
   
335,000
   
2.78
%
Atlanta, GA
             
W. Dean Waters (7)
   
144,334
   
1.21
%
Atlanta, GA
             
Mitsy Y. Mangum (7)
   
45,000
   
.38
%
Atlanta, GA
             
All directors and officers (as a group)
   
4,004,334
   
26.16
%
 * Address for all asterisked is the Company headquarters at: 3235 Satellite Blvd., Bldg, 400, Ste 290, Duluth, GA 30096.
 

 
- 51 -

 
(1)
Includes warrants to acquire 1,000,000 shares of common stock at $.01 per shares and warrants to acquire 500,000 shares of common stock at $2.00 per share.  Does not include 600,000 shares of common stock that will be issued to UCM and distributed to its stockholders as described in this prospectus.
(2)
Consists of options to acquire 2,650,000 shares of common stock at $1.00 per share.
(3)
Consists of 200,000 shares of common stock owned directly and options to acquire 350,000 shares of common stock at $1.00 per share.
(4)
Consists of options to acquire shares of common stock at $1.00 per share.
(5)
Includes warrants to acquire 180,000 shares of common stock at a weighted average price of $1.14 per share.
(6)
Includes warrants to acquire 60,000 shares of common stock at a weighted average price of $1.42 per share, and warrants to acquire 25,000 shares of common stock at a price of $1.00 per share.
(7)
Includes warrants to acquire 20,000 shares of common stock at a exercise price of $1.63 per share
 
DESCRIPTION OF CAPITAL STOCK
 
The following description of our capital stock and provisions of our articles of incorporation and bylaws are summaries only, and they are qualified by reference to complete versions of our articles of incorporation and bylaws, copies of which are available upon request.
 
Our authorized capital stock consists of 25,000,000 shares of common stock, par value $0.0001 per share, 10,000,000 shares of preferred stock, par value $0.0001 per share, all of which preferred stock is undesignated. Our board of directors may establish the rights and preferences of the preferred stock from time to time.
 
As of December 31, 2008, there were 11,951,774 shares of common stock issued and outstanding. As of December 31, 2008, there were 190 stockholders of record of our capital stock.
 
Common Stock
 
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. An election of directors by our shareholders shall be determined by a plurality of the votes cast by the shareholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.
 
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
 
Preferred Stock  
 
Our board of directors is authorized to issue shares of preferred stock in one or more series without shareholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
 
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. As of April 30, 2008, there are no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
 
- 52 -

 
Options and Warrants
 
As of December 31, 2008, options to purchase 3,400,000 shares of common stock and warrants to purchase 2,690,779 shares of common stock, at a weighted-average exercise price of $.96 per share were outstanding.  The warrants are not exercisable on a cashless basis.
 
Shareholder Action; Special Meeting of Shareholders; Advance Notice Requirements for Shareholder Proposals and Director Nominations
 
Our articles of incorporation and our bylaws provide that any action required or permitted to be taken by our shareholders at an annual meeting or special meeting of shareholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. Our articles of incorporation and our bylaws also provide that, except as otherwise required by law, special meetings of the shareholders can only be called by our chairman of the board, our president or chief executive officer or our board of directors. In addition, our bylaws establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of shareholders, including proposed nominations of candidates for election to the board of directors. Shareholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors, or by a shareholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the shareholder’s intention to bring such business before the meeting. These provisions could have the effect of delaying until the next shareholder meeting shareholder actions that are favored by the holders of a majority of our outstanding voting securities. These provisions also could discourage a third party from making a tender offer for our common stock, because even if it acquired a majority of our outstanding voting stock, it would be able to take action as a shareholder, such as electing new directors or approving a merger, only at a duly called shareholders meeting and not by written consent.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for our common stock will be _______________.
 
Over-the-Counter Bulletin Board
 
We intend to apply for approval for our shares of common stock to be traded on the Over-the-Counter Bulletin Board under the symbol “__________.”
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Prior to this distribution and offering, there has been no market for our common stock, and a liquid trading market for our common stock may not develop or be sustained after this distribution and offering. Future sales of substantial amounts of our common stock in the public market, including shares issued upon exercise of outstanding options or in the public market after this distribution and offering, or the anticipation of these sales, could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of equity securities.
 
Upon the closing of this offering, we will have outstanding an aggregate of 12,541,273 shares of common stock, after giving effect to the distribution of an aggregate of 600,000  shares of common stock in the distribution of such shares to the UCM .
 
Rule 144
 
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any shares of our common stock that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, without regard to volume limitations. Sales of our common stock by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than one year.
 
In general, under Rule 144, a person may sell shares of our common stock acquired pursuant to this prospectus immediately upon the distribution or purchase of such shares, without regard to volume limitations or the availability of public information about us, if the person is not our affiliate and has not been our affiliate at any time during the preceding three months.
 
- 53 -

 
Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
 
 
·
1% of the number of shares of our common stock then outstanding, which will equal approximately 125,517 shares immediately after this offering; and
 
 
·
the average weekly trading volume in our common stock on the OTC Bulletin Board or other national securities exchange during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.
 
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
 
Rule 701
 
In general, under Rule 701 of the Securities Act, any of our employees, consultants or advisors who purchased shares from us in connection with a qualified compensatory stock plan or other written agreement is eligible to resell these shares 90 days after the date of this prospectus in reliance on Rule 144, but without compliance with the various restrictions, including the availability of public information about us, holding period and volume limitations, contained in Rule 144.
 
LEGAL MATTERS
 
The validity of the shares of common stock offered hereby is being passed upon for us by Greenberg Traurig, LLP, Atlanta, Georgia.
 
EXPERTS
 
The financial statements as of December 31, 2007 and 2006, and for each of the two years in the period ended December 31, 2007, and the period from February 2, 2000 (date of inception) to December 31, 2007 included in this Prospectus have been audited by Tauber & Balser P.C., an independent registered public accounting firm, as stated in their report appearing herein and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. On November 1, 2008, Tauber & Balser P.C. combined with Habif, Arogeti & Wynne, LLP.
 
WHERE YOU CAN FIND MORE INFORMATION 
 
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock that are being distributed and offered for resale. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits and schedules to the registration statement. Statements contained in this prospectus about the contents of any contract, agreement or other document are not necessarily complete, and, in each instance, we refer you to the copy of the contract, agreement or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
 
You may read and copy the registration statement of which this prospectus is a part at the SEC’s public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can request copies of the registration statement by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s public reference room. In addition, the SEC maintains an Internet website, which is located at http://www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s Internet website. Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information with the SEC.
 
- 54 -

 
This prospectus includes statistical data that were obtained from industry publications. These industry publications generally indicate that the authors of these publications have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data.
 
- 55 -

 
 
VYSTAR CORPORATION
 (A Development Stage Company)

FINANCIAL STATEMENTS
 
   
PAGE
 
       
AUDITED FINANCIAL STATEMENTS
     
       
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
F-2
 
     
 
BALANCE SHEETS AT DECEMBER 31, 2007 AND 2006
 
F-3
 
   
 
 
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2007
 
F-4
 
       
STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2007
     
F-5
 
       
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2007
     
F-6
 
       
NOTES TO FINANCIAL STATEMENTS
 
F-7
 
       
UNAUDITED FINANCIAL STATEMENTS
     
       
BALANCE SHEETS AT SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
 
F-20
 
       
STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND FOR THE PERIOD FROM  FEBRUARY 2, 2000 (INCEPTION) TO SEPTEMBER 30, 2008
     
F-21
 
       
STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS  ENDED SEPTEMBER 30, 2008 AND FOR THE PERIOD FROM  FEBRUARY 2, 2000 (INCEPTION) TO SEPTEMBER 30, 2008
     
F-22
 
       
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED  SEPTEMBER 30, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO SEPTEMBER 30, 2008
     
F-24
 
       
NOTES TO FINANCIAL STATEMENTS
 
F-25
 
 
F-1


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Vystar Corporation

We have audited the accompanying balance sheets of Vystar Corporation (a development stage company) (the “Company”) as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended and for the period from February 2, 2000 (date of inception) to December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vystar Corporation as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended and for the period from February 2, 2000 (date of inception) to December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 8 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006.
 
/s/ Tauber & Balser, P.C.
Atlanta, Georgia
September 15, 2008
 
F-2

 
VYSTAR CORPORATION
(A Development Stage Company)
BALANCE SHEETS
 
   
December 31, 2007
   
December 31, 2006
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 573,177     $ 419,738  
Note receivable due from related party
    40,000       5,000  
Prepaid expenses
    23,078       10,622  
Other
    15,000       921  
TOTAL CURRENT ASSETS
    651,255       436,281  
                 
PROPERTY AND EQUIPMENT, NET
    14,915       21,518  
                 
OTHER ASSETS
               
Note receivable due from related party, net of current
               
portion shown above and allowance for uncollectible amount
               
of $120,205 at December 31, 2007
    80,204       240,409  
Patents, net
    42,147       31,729  
Other
    5,887       5,887  
                 
TOTAL ASSETS
  $ 794,408     $ 735,824  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Accounts payable
  $ 16,913     $ 2,217  
Accounts payable - related party
    36,453       36,453  
Accrued expenses
    150,654       222,507  
TOTAL CURRENT LIABILITIES
    204,020       261,177  
                 
LONG-TERM LIABILITIES
    15,730       17,438  
                 
TOTAL LIABILITIES
    219,750       278,615  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.0001 par value, 10,000,000 shares authorized;
               
none issued and outstanding
    -       -  
Common stock, $0.0001 par value, 25,000,000 shares authorized;
               
15,148,320 and 13,760,295 shares issued and outstanding at
               
December 31, 2007 and 2006, respectively
    1,515       1,377  
Additional paid-in capital
    4,699,545       3,342,600  
Deficit accumulated during development stage
    (4,126,402 )     (2,886,768 )
TOTAL STOCKHOLDERS' EQUITY
    574,658       457,209  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 794,408     $ 735,824  
 
The accompanying notes are an integral part of these financial statements.
 
F-3

 
VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS

               
Period From February 2,
 
    
Year Ended
   
Year Ended
   
2000 (Inception) To
 
    
December 31, 2007
   
December 31, 2006
   
December 31, 2007
 
NET SALES
  $ -     $ -     $ -  
                         
COST AND EXPENSE
                       
Research and development
    427,530       304,680       1,715,550  
General and administrative
    712,315       767,406       2,296,852  
      1,139,845       1,072,086       4,012,402  
                         
LOSS FROM OPERATIONS
    (1,139,845 )     (1,072,086 )     (4,012,402 )
                         
OTHER INCOME (EXPENSE)
                       
Interest income
    20,416       -       20,416  
Provision for note receivable from related party
    (120,205 )     -       (120,205 )
Loss on disposal of assets
    -       (13,400 )     (13,400 )
Interest expense
    -       (811 )     (811 )
                         
NET LOSS
  $ (1,239,634 )   $ (1,086,297 )   $ (4,126,402 )
                         
Basic and Diluted Loss per Share
  $ (0.09 )   $ (0.08 )        
                         
Basic and Diluted Weighted Average Number of Common Shares Outstanding
    14,495,395       13,185,270          

The accompanying notes are an integral part of these financial statements.
 
F-4

 
VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ EQUITY

                           
Deficit
       
                           
Accumulated
       
               
Additional
         
During
       
   
Number of
   
Common
   
Paid in
   
Subscription
   
Development
       
   
Shares
   
Stock
   
Capital
   
Receivable
   
Stage
   
Total
 
Beginning Balance, 2/2/00 (Inception)
    -     $ -     $ -     $ -     $ -     $ -  
Common stock issued to founder of Vystar LLC
    2,500,000       250       (250 )     -       -       -  
Net loss
    -       -       25,311       -       (25,311 )     -  
Ending Balance, 12/31/00
    2,500,000       250       25,061       -       (25,311 )     -  
                                                 
Net loss
    -       -       4,808       -       (4,808 )     -  
Ending Balance, 12/31/01
    2,500,000       250       29,869       -       (30,119 )     -  
                                                 
Net loss
    -       -       4,275       -       (4,275 )     -  
Ending Balance, 12/31/02
    2,500,000       250       34,144       -       (34,394 )     -  
                                                 
Common stock cancelled at merger of Vystar LLC
    (2,500,000 )     (250 )     250       -       -       -  
Common stock issued to founders of Vystar Corporation
    2,825,000       283       3,817       (4,100 )     -       -  
Net loss
    -       -       -       -       -       -  
Ending Balance, 12/31/03
    2,825,000       283       38,211       (4,100 )     (34,394 )     -  
                                                 
Additional founders' shares of common stock issued
    8,475,000       847       (847 )     4,100       -       4,100  
Common stock issued in private placement memorandum at $1.00/share during 2004, net of issuance costs of $74,833
    692,000       69       617,098       (10,000 )     -       607,167  
Share-based compensation to employees vested during 2004
    -       -       5,868       -       -       5,868  
Net loss
    -       -       -       -       (500,154 )     (500,154 )
Ending Balance, 12/31/04
    11,992,000       1,199       660,330       (10,000 )     (534,548 )     116,981  
                                                 
Common stock issued in private placement memorandum at $1.00/share during Jan 2005, net of issuance costs of $3,900
    78,000       8       74,092       10,000       -       84,100  
Common stock issued in private placement memorandum at $1.50/share during 2005, net of issuance costs of $71,806 cash and $9,451 non-cash
    795,674       80       1,112,173       -       -       1,112,253  
Share-based compensation to employees vested during 2005
    -       -       32,760       -       -       32,760  
Share-based payments for services vested during 2005
    -       -       50,232       -       -       50,232  
Net loss
    -       -       -       -       (1,265,923 )     (1,265,923 )
Ending Balance, 12/31/05
    12,865,674       1,287       1,929,587       -       (1,800,471 )     130,403  
                                                 
Common stock issued with warrants in private placement memorandum at $1.50/share during 2006, net of issuance costs of $82,643 cash and $8,404 non-cash
    823,131       82       1,143,569       -       -       1,143,651  
Common stock issued for exercise of warrants
    19,000       2       9,498       -       -       9,500  
Common stock issued for services rendered during June, 2006, valued at $1.00/share
    7,500       1       7,499       -       -       7,500  
Common stock issued for services rendered during September, 2006, valued at $1.00/share
    2,500       -       2,500       -       -       2,500  
Common stock issued for services rendered during October, 2006, valued at $1.00/share
    6,000       1       5,999       -       -       6,000  
Common stock issued for services rendered during December, 2006, valued at $1.00/share
    36,490       4       36,486       -       -       36,490  
Shared-based compensation to employees vested during 2006
    -       -       204,659       -       -       204,659  
Share-based payments for services vested during 2006
    -       -       2,803       -       -       2,803  
Net loss
    -       -       -       -       (1,086,297 )     (1,086,297 )
Ending Balance, 12/31/06
    13,760,295       1,377       3,342,600       -       (2,886,768 )     457,209  
                                                 
Common stock issued with warrants in private placement memorandum at $1.50/share during 2007, net of issuance costs of $61,911 cash and $9,648 non-cash
    597,501       60       824,632       -       -       824,692  
Common stock issued for exercise of warrants
    757,399       76       379,374       -       -       379,450  
Common stock issued for services rendered during January, 2007, valued at $1.00/share
    2,500       -       2,500       -       -       2,500  
Common stock issued for services rendered during February, 2007, valued at $1.00/share
    4,000       -       4,000       -       -       4,000  
Common stock issued for services rendered during March, 2007, valued at $1.00/share
    14,200       1       14,199       -       -       14,200  
Common stock issued for services rendered during April, 2007, valued at $1.00/share
    9,925       1       9,924       -       -       9,925  
Common stock issued for services rendered during June, 2007, valued at $1.00/share
    2,500       -       2,500       -       -       2,500  
Shared-based compensation to employees vested during 2007
    -       -       97,502       -       -       97,502  
Share-based payments for services vested during 2007
    -       -       22,314       -       -       22,314  
Net loss
    -       -       -       -       (1,239,634 )     (1,239,634 )
Ending Balance, 12/31/07
    15,148,320     $ 1,515     $ 4,699,545     $ -     $ (4,126,402 )   $ 574,658  

The accompanying notes are an integral part of these financial statements.
 
F-5


VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS

               
Period From
February 2
 
    
Year Ended
   
Year Ended
   
2000
(Inception)
 
    
December 31,
2007
   
December 31,
2006
   
To December
31,  2007
 
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (1,239,634 )   $ (1,086,297 )   $ (4,126,402 )
Adjustment to reconcile net loss to net cash used in operating activities
                       
Stock-based compensation expense
    152,936       259,945       501,744  
Provision on related party note receivable
    120,205       -       120,205  
Depreciation
    6,603       5,952       16,143  
Amortization
    2,384       2,090       5,861  
Loss on disposal of assets
    -       13,400       13,400  
(Increase) decrease in assets
                       
Prepaid expenses
    (12,456 )     (6,807 )     (23,078 )
Other
    (14,079 )     2,286       (20,888 )
Increase (decrease) in liabilities
                       
Accounts payable
    14,696       (97,795 )     16,914  
Accounts payable - related party
    -       31,196       36,453  
Accrued expenses
    (71,851 )     108,294       150,654  
Other
    (1,708 )     6,463       50,124  
                         
Net cash used in operating activities
    (1,042,904 )     (761,273 )     (3,258,870 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Advances to related party - note receivable
    -       (12,981 )     (257,908 )
Proceeds on related party note receivable
    5,000       12,500       17,500  
Cost of patents
    (12,802 )     -       (48,008 )
Purchase of equipment
    -       (2,028 )     (44,458 )
                         
Net cash used in investing activities
    (7,802 )     (2,509 )     (332,874 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
 
                       
Issuance of common stock, net of issuance costs of $71,559, $91,047 and $322,596 for the periods ended December 31, 2007, December 31, 2006 and from inception to December 31, 2007, respectively
    1,204,145       1,153,156       4,164,921  
                         
Net cash provided by financing activities
    1,204,145       1,153,156       4,164,921  
                         
NET INCREASE IN CASH
    153,439       389,374       573,177  
                         
CASH -BEGINNING OF PERIOD
    419,738       30,364       -  
                         
CASH -END OF PERIOD
  $ 573,177     $ 419,738     $ 573,177  

The accompanying notes are an integral part of these financial statements.
 
F-6


VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
History and Nature of Business
Vystar Corporation (“Vystar” or the “Company”) is the creator and exclusive owner of the innovative technology to produce Vytex™ Natural Rubber Latex ("NRL"). This technology reduces antigenic protein in natural rubber latex products made with Vytex NRL to virtually undetectable levels. Vystar intends to introduce Vytex NRL, its new “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. The Company plans to produce Vytex™ through toll manufacturing agreements and/or licensing arrangements and intends to introduce Vytex NRL into the supply channels with aggressive, targeted marketing campaigns directed to the end users.
 
Vystar LLC, the predecessor to the Company, was formed February 2, 2000, as a Georgia limited liability company by Travis W. Honeycutt. The Company’s operations under the LLC entity were focused substantially on the research, development and testing of the Vytex 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.
 
Development Stage
Since inception as Vystar LLC on February 2, 2000, the Company’s activities have been devoted primarily to the development of the NRL and the raising of capital. Vystar Corporation is considered a development stage company as defined in Statement of Financial Accounting Standards No. 7.
 
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from these estimates.
 
Concentration of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash and, as discussed in Note 9, an unsecured related party note receivable. Cash deposits generally are in excess of the FDIC insurance limits.
 
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial and tax reporting purposes over the estimated useful lives of the assets, generally 5 years.  
 
F-7

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Patents
Patents are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, or 20 years.
 
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, note receivable due from related party, accounts payable and accrued expenses. The carrying values of cash, accounts payable and accrued expenses approximate fair value because of their short maturities. The Company is not able to estimate the fair value of its related party receivable because of the financial circumstances of the related party and its related party aspects.
 
Income Taxes
The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statement and tax bases of assets and liabilities and for net operating loss carryforwards that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.  
 
Loss Per Share
The Company follows SFAS No. 128, “Earnings Per Share,” resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss in 2007 and 2006, 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 1,162,667 shares and 841,333 shares of common stock for 2007 and 2006, respectively, as their effect would be anti-dilutive. Warrants to purchase 627,725 shares and 792,664 shares of common stock for 2007 and 2006, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive.
 
Research and Development Costs
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.
 
F-8

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Recently Issued Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes . FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes . Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for the Company at the beginning of the annual period ending December 31, 2008. The provisions of FIN 48 will be applied to all tax positions under Statement No. 109 upon initial adoption. The cumulative effect of applying the provisions of this interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. We are presently evaluating whether the adoption of this interpretation will have a material impact on our financial statements.
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not believe that the adoption of the provisions of SFAS No. 157 will materially impact the amounts reported in the financial statements. However, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations.
 
On February 15, 2007, the Financial Accounting Standards Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits many financial instruments and certain other items to be measured at fair value at our option. Most of the provisions in SFAS No. 159 are elective; however, the amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS No. 159 permits the choice to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective for financial statements issued for the first fiscal year beginning after November 15, 2007. Early adoption is permitted provided that the choice is made in the first 120 days of that fiscal year and SFAS No. 157, “Fair Value Measurements” is also adopted. We are currently evaluating the impact, if any, that this new standard will have on our results of operations, financial position or cash flows.
 
On December 4, 2007, the FASB issued SFAS No. 141R, Business Combinations . SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Since the standard is generally applicable only for acquisitions completed in the future, we are unable to determine the effect this standard would have on the accounting for such acquisitions.
 
F-9

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 2 – OPERATIONS
 
The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America 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. The Company has incurred significant losses and experienced negative cash flow since its inception. Further, at December 31, 2007, the deficit accumulated during the development stage amounted to approximately $4,126,000.
 
The Company is still in the development stage at December 31, 2007. During 2007, the Company received approximately $1,204,000, net of issuance costs, through the issuance of 597,501 shares of common stock and exercise of warrants. The Company plans to continue raising funds during 2008 through the sale of its common stock in private placements, generating sufficient liquidity to maintain operations until sustained revenue generation occurs. As of September 15, 2008, the Company has raised $1,425,000 and issued 712,500 shares of common stock through a private placement (Note 10). The Company’s product development is proceeding on schedule and management expects to initiate revenue generation no later than the first quarter of 2009. Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate equity investment to fulfill its development activities. The Company is in the process of adding qualified directors and employees to help meet their goals. Management believes the current business plan is attractive enough to investors to raise the necessary capital and this source of funds, in addition to current liquid assets, will allow the Company to continue as a going concern through 2008.
 
F-10

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 3 – PROPERTY AND EQUIPMENT
 
Property and equipment consists of the following at December 31, 2007 and 2006:

   
2007
   
2006
 
             
Furniture and fixtures
  $ 15,347     $ 15,347  
Equipment
    15,111       15,111  
      30,458       30,458  
Less accumulated depreciation
    15,543       8,939  
                 
    $ 14,915     $ 21,518  
 
Depreciation expense for the years ended December 31, 2007 and 2006 was $6,603 and $5,952, respectively.

NOTE 4 – PATENTS
 
Patents represent legal and other fees associated with the registration of patents. The Company has two patents and had a third pending approval by the United States Patent and Trade Office. They are recorded net of accumulated amortization of $5,861 and $3,477 at December 31, 2007 and 2006, respectively. Amortization expense for the years ended December 31, 2007 and 2006 was $2,384 and $2,090, respectively.

NOTE 5 – COMMITMENTS
 
The Company is obligated under operating leases for its corporate office and office equipment expiring through December 31, 2010.

Aggregate minimum future lease payments are as follows:
 
Years Ending
     
December 31
 
Amount
 
       
2008
 
$
59,362
 
2009
   
61,068
 
2010
   
67,953
 
         
Total
 
$
188,383
 

Rent expense approximating $56,000 is included in general and administrative expenses for both of the years ended December 31, 2007 and 2006.
 
F-11

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 6 – INCOME TAXES
 
Differences between the income tax benefit for 2007 and 2006 and the amount determined by applying the statutory federal income tax rate (34%) to the loss before income taxes were as follows:
 
   
2007
   
2006
 
Statutory rate
    (34.0 )%     (34.0 )%
State income taxes, net of federal deduction
    (6.0 )     (6.0 )
Valuation allowance
    40.0       40.0  
      -     - %

Significant components of the Company’s deferred tax assets are as follows:

   
2007
   
2006
 
             
Deferred tax assets:
           
Net operating loss carryforwards
  $ 1,368,000     $ 965,000  
Stock-based compensation
    157,000       113,000  
Other
    109,000       61,000  
Net deferred tax asset before valuation allowance
    1,634,000       1,139,000  
                 
Valuation allowance
    (1,634,000 )     (1,139,000 )
Net deferred tax asset
  $ -     $ -  

Deferred income taxes result from the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and for net operating loss carryforwards. A valuation allowance is provided against deferred tax assets for which it is more likely than not that the asset will not be realized. The ultimate realization of deferred tax assets is dependant upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. The change in the total valuation allowance for the years ended December 31, 2007 and 2006 was an increase of $495,000 and $434,000, respectively.

As of December 31, 2007, the Company had net operating loss carryforwards of approximately $3,420,000, expiring through the year ending December 31, 2027. This amount can be used to offset future taxable income of the Company.
 
F-12

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 7 – STOCKHOLDERS’ EQUITY
 
Common Stock and Warrants
The Company’s predecessor company, Vystar LLC, issued 2,500,000 shares of its common stock at inception in February 2000 to its founder. These shares were cancelled and re-issued by Vystar Corporation at merger in December 2003. Also during 2003, Vystar Corporation issued 325,000 shares to its remaining founders for $4,100. During 2004, the Company issued an additional 8,475,000 shares to its founders in order to adjust the number of issued and outstanding shares at that time.

During the period from November 2004 through January 13, 2005, the Company issued 770,000 shares of its common stock in a private placement for proceeds of $691,267, net of issuance costs of $78,733.

The private placement memorandum was amended on December 28, 2004. Under the terms of the amendment and subsequent revisions on April 10, 2006 and September 25, 2006, the Company issued 795,674 shares in 2005 for proceeds of $1,112,253, net of issuance costs of $71,806 cash and $9,451 non-cash; 813,131 shares in 2006 for proceeds of $1,143,651, net of issuance costs of $82,643 cash and $8,404 non-cash; 597,501 shares in 2007 for proceeds of $824,692, net of issuance costs of $61,911 cash and $9,648 non-cash and 5,000 shares in 2008 for proceeds of $7,500 prior to its closing in April 2008. All of the shares issued were common stock. Terms of the memorandum included issuing warrants to purchase an aggregate of 1,308,965 shares of common stock at $.50 per share. During 2007 and 2006 755,899 shares and 19,000 shares, respectively, were purchased through the exercise of the warrants. The remaining warrants outstanding at December 31, 2007 of 449,167 expire during 2008.

During 2005 the Company issued stock purchase warrants to purchase 17,300 shares of common stock at an exercise price of $.50 in exchange for services rendered with the private placement, valued at $9,451. The warrants are exercisable until January 2010 and vested immediately.

During 2006 the Company issued stock purchase warrants to purchase 36,233 shares of common stock at exercise prices ranging from $1.00 to $1.50 per share in exchange for services rendered, valued at $11,499. The warrants are exercisable for periods ranging from 2011 to 2016 and vested immediately.

During 2006 the Company issued 52,490 shares of common stock for services rendered valued at $52,490.

During 2007 the Company issued stock purchase warrants to purchase 126,525 shares of common stock at exercise prices ranging from $.50 to $1.50 in exchange for services rendered, valued at $34,320. The warrants are exercisable for periods ranging from 2009 through 2017 and vested immediately.

During 2007 the Company issued 33,125 shares of common stock for professional services valued at $33,125.
 
F-13

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 8 – STOCK-BASED COMPENSATION
 
In December 2004 the Financial Accounting Standards Board (“FASB”) issued SFAS 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees , and amends SFAS No. 95, Statement of Cash Flows . Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative.

On January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective method as permitted under SFAS 123(R). Under this transition method, compensation cost recognized during 2006 includes compensation cost for all share-based payments granted prior to but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123. In accordance with the modified prospective method of adoption, the Company’s results of operations and financial position for prior periods have not been restated.

The Company uses the Black-Scholes option pricing model to estimate the grant-date fair value of an award granted during 2006 and 2007. The following assumptions were used:

 
·
Expected Dividend Yield – because the Company does not currently pay dividends, the expected dividend yield is zero;
 
·
Expected Volatility in Stock Price – because the Company is not publicly traded, the expected volatility of similar public entities (including companies engaged in the manufacture and/or distribution of medical, surgical, and healthcare supplies) was considered with expected volatility ranging from 22.07% - 39.25%;

 
·
Risk-free Interest Rate – reflects the average rate on a United States Treasury bond with maturity equal to the expected term of the option, ranging from 3.45 - 4.92%; and
 
·
Expected Life of Awards – because the Company is still in the development stage and has had minimal experience with the exercise of options or warrants for use in determining the expected life for each award, the simplified method was used to calculate an expected life based on the midpoint between the vesting date and the end of the contractual term of the stock award.

The Company recorded approximately $111,000 and $202,000 of stock-based compensation expense for the years ended December 31 2007 and 2006, respectively, related to employee stock options and stock warrants issued to board members. Of this, approximately $85,000 and $196,000 for the years ended December 31, 2007 and 2006, respectively, was attributable to the fair value of shares vested during those periods. As of December 31, 2007, approximately $10,061 of unrecognized compensation expense related to non-vested share-based awards remains to be recognized over a weighted average period of 1 year.
 
F-14

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)
 
Stock 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. At December 31, 2007, there were 2,000,000 shares of common stock reserved for issuance under the Plan. On February 2, 2008, the Board of Directors increased the number of shares reserved for issuance under the Plan to the 4,000,000 shares. 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. During 2007 options for 100,000 shares were issued under the Plan.

The weighted-average assumptions used in the option pricing model for stock option grants were as follows:
 
   
2007
   
2006
 
Expected Dividend Yield
    -       -  
Expected Volatility in Stock Price
    23.32 %     24.44 %
Risk-Free Interest Rate
    4.68 %     4.59 %
Expected Life of Stock Awards - Years
    5       5  
Weighted Average Fair Value at Grant Date
  $ 0.30     $ 0.31  

The following tables summarize all stock option activity of the Company for the years ended December 31, 2007 and 2006:

   
Number of
 
Weighted Average
 
   
Shares
 
Exercise Price
 
           
Outstanding, December 31, 2005
 
600,000
 
$
1.30
 
             
Granted
 
500,000
 
$
1.00
 
             
Outstanding, December 31, 2006
 
1,100,000
 
$
1.08
 
             
Granted
 
100,000
 
$
1.00
 
             
Outstanding, December 31, 2007
 
1,200,000
 
$
1.08
 
             
Exercisable, December 31, 2007
 
1,128,000
 
$
1.05
 
 
F-15

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)
 
Stock Options (continued)

   
Number of
 
Weighted Average Remaining
 
Range of
 
   
Shares
 
Contractual Life (Years)
 
Exercise Prices
 
               
Outstanding, December 31, 2005
   
600,000
 
9.10
  $
1.00 - $1.50
 
                   
Granted
   
500,000
 
9.75
  $
1.00
 
                   
Outstanding, December 31, 2006
   
1,100,000
 
8.85
  $
1.00 - $1.50
 
                   
Granted
   
100,000
 
9.00
  $
1.00
 
                   
Outstanding, December 31, 2007
   
1,200,000
 
7.94
  $
1.00 - $1.50
 
                   
Exercisable, December 31, 2007
   
1,128,000
 
7.97
  $
1.00 - $1.50
 
 
Warrants
Warrants are issued to third parties as payment for services and in conjunction with the issuance of common stock. The fair value of each common stock warrant issued for services is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for warrants granted in 2007 and 2006:

   
2007
   
2006
 
Expected Dividend Yield
    -       -  
Expected Volatility in Stock Price
    23.59 %     26.17 %
Risk-Free Interest Rate
    4.35 %     4.34 %
Expected Life of Awards
    5       5  

The following table represents the Company’s warrant activity for the years ended December 31, 2007 and 2006:

         
Weighted Average
             
   
Number of
   
Issuance or
   
Weighted Average
   
Weighted Average Remaining
 
   
Warrants
   
Grant Date Fair Value
   
Exercise Price
   
Contractual Life (Years)
 
                         
Outstanding, December 31, 2005
    17,300           $ 0.50       4.08  
                               
Issued in private placement
    758,131     $ 0.50     $ 0.50          
Granted
    36,233     $ 0.53     $ 0.99          
Exercised
    (19,000 )           $ 0.50          
Expired
    -                          
                                 
Outstanding, December 31, 2006
    792,664             $ 0.52       7.53  
                                 
Issued in private placement
    550,834     $ 0.50     $ 0.50          
Granted
    126,525     $ 0.36     $ 1.01          
Exercised
    (757,399 )           $ 0.50          
Expired
    (84,899 )           $ 0.50          
                                 
Outstanding, December 31, 2007
    627,725             $ 1.01       7.38  
                                 
Exercisable, December 31, 2007
    627,725             $ 1.01       7.38  
 
F-16

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)
 
Warrants (continued)

All warrants issued were fully vested within the calendar year in which they were granted. Prior to January 1, 2006, the Company issued warrants to purchase shares of the Company’s common stock to an unrelated consultant for services rendered. The warrants were issued at an exercise price of $.50 per share, exercisable over a 5 year period and vested immediately. The fair value of the warrants was calculated as of the date of the grant utilizing the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0, 29.93% stock volatility, 3.36% risk-free interest rate, and a 2.5 year expected life of the award. The fair value of $9,451 was recorded as a cost of raising capital when vesting occurred.

The Company issued warrants for services during 2007 at exercise prices ranging from $.50 to $1.50 per share, exercisable over periods ranging from two to ten years. All of the warrants vested immediately. The fair value of the warrants was calculated as of the date of the grant utilizing the Black-Scholes option pricing model and assumptions detailed above. The total amount of the fair value ($25,875 expense and $8,448 cost of raising capital) was recorded when vesting occurred.

During 2006 the Company issued warrants for services rendered at exercise prices ranging from $1.00 to $1.50 per share, exercisable over periods ranging from five to ten years. All of the warrants vested immediately. The fair value of the warrants was calculated as of the date of the grant utilizing the Black-Scholes option pricing model and assumptions as detailed above. The total amount of the fair value ($6,095 expense and $5,403 cost of raising capital) was recorded when vesting occurred.

NOTE 9 – RELATED PARTY TRANSACTIONS
 
During 2005 and 2004 rent expense in the amount of $40,000 and $12,000, respectively, was paid to the Company’s former CEO, Travis Honeycutt.

During the three years ended December 31, 2006, the Company made payments to Reactive Energy, LLC, a company wholly owned by the Company’s former CEO, for management fees and contract services, including office reimbursements. Rent for 2005 was also paid to Reactive Energy, LLC. The expenses incurred during this period were:

   
2006
   
2005
   
2004
 
                   
Management fees and contract services
  $ -     $ 455,811     $ 125,633  
Research & development expenses
    -       -       250,000  
Technical services
    60,000       179,500       34,373  
Office expenses
    -       43,500       3,000  
Rent
    -       8,000       -  
    $ 60,000     $ 686,811     $ 413,006  
 
F-17

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED) 
 
At December 31, 2007 and 2006, there was a balance due Reactive Energy, LLC of $36,453.

During 2006 and 2005, the Company advanced cash and made payments on behalf of Climax Global Energy, Inc. (“Climax”), a company controlled by the Company’s former CEO, in the amounts of $12,795 and $242,654, respectively. At December 31, 2007 and 2006, the balance due from Climax was $240,409 and $245,409, respectively. Climax is in a pre-revenue, research and development mode and is in the process of raising capital through a private placement memorandum. The Company expects to be reimbursed in full for the balance, which is unsecured, but due to the uncertainty involved, management has elected to reserve at December 31, 2007 approximately $120,000 of the balance due from Climax. As such, the Company has recorded a corresponding charge in 2007 of approximately $120,000 in its statement of operations. In August 2008, the Company entered into a note agreement with Climax which specified the repayment terms of the note (Note 10).

At December 31, 2007 and 2006, the Company has accrued back-pay to the Company’s former CEO in the amount of $54,946. In July 2008, the former CEO entered into an agreement with the Company foregoing any claims to this back-pay if the Climax receivable is not satisfied in full by December 31, 2008. 

At December 31, 2007 and 2006, the Company also has accrued severance of $81,250 payable to the Company’s former CFO, Glen Smotherman. Mr. Smotherman has agreed to payment of this liability beginning at the earlier of payment in full of the Climax receivable or the Company’s achievement of specific sales goals. When payment begins, the liability will be satisfied in 24 equal monthly payments. 

NOTE 10 – SUBSEQUENT EVENTS
 
On January 31, 2008, the Company entered into a management agreement with Universal Capital Management, Inc. ("UCM"), whereby UCM will provide management services, including assistance with strategic planning, investment banking consultation and investor introduction services, and investor relations services. Pursuant to the terms of this agreement, the Company issued UCM warrants, valued at approximately $1,491,000, to purchase 1,000,000 shares of its common stock at an exercise price of $0.01. These warrants are exercisable in whole or in part at or before January 31, 2013 and vested immediately.

During February 2008, the Company’s former CEO surrendered 4,900,000 shares of the Company’s common stock issued to him during 2004. These shares were cancelled and returned to the Company for future re-issue, eliminating the need to increase the Company’s number of authorized shares.

The Company granted share-based compensation in the form of 2,000,000 stock options and 200,000 stock options during February 2008 and April 2008, respectively, to three key employees. The shares issued during February are exercisable at $1.00 per share, expire February 2018, are valued at approximately $1,340,000 and vest immediately. The options issued during April are also exercisable at $1.00 per share, expire April 2018, are valued at approximately $147,000 and vest over a period of four years from the grant date.
 
F-18

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
 
NOTE 10 – SUBSEQUENT EVENTS (CONTINUED)
 
On March 21, 2008, Travis Honeycutt, founding CEO, retired from the Company.

On April 30, 2008, the Company entered into an additional management agreement with UCM pursuant to which UCM agreed to provide management services, including day-to-day managerial. Pursuant to the terms of this agreement, UCM was issued warrants, valued at approximately $55,000, to purchase 500,000 shares of the Company's common stock at an exercise price of $2.00 per share. The warrants are exercisable in whole or in part at or before April 30, 2013 and vested immediately. In the event that the Company elects to extend the management agreement for an additional one year term beyond the first year of the agreement, the Company has agreed to issue additional warrants to purchase 500,000 shares of its common stock at an exercise price of $0.01 per share. 

In April 2008, the Company added a director to its Board of Directors. At June 30, 2008 the Company’s two independent Board members received warrants, valued at approximately $16,000, to purchase 20,000 shares, each, of the Company’s common stock with an exercise price of $1.00. The warrants are exercisable in whole or in part at or before June 30, 2018 and vested immediately.

On April 11, 2008, the Company signed an agreement with Revertex (Malaysia) for the production of Vytex NRL. Revertex will be a non-exclusive, toll manufacturer for Vystar and is in full production mode to manufacture Vytex NRL commercially. Vystar ran its first production February 2, 2008 for use as samples in manufacturers’ trials.
 
On May 5, 2008, the Company initiated an equity raise through a private placement projected at $3,000,000 at completion, through an issuance of 1,500,000 shares of common stock and warrants to purchase an additional 750,000 shares of common stock at $1.00 per share. As of September 15, 2008 the Company has received $1,425,000 and issued 712,500 shares of common stock and warrants to purchase an additional 356,250 shares of common stock.
 
On August 15, 2008, the Company entered into an agreement with Climax which specified the payment terms of the note receivable discussed in Note 9. The significant terms were established as follows: (A) the note is non-interest bearing, (B) a $25,000 payment will be made on or before September 30, 2008, and (C) equal monthly payments of $5,000 will commence in October 2008. In the event that Climax attains certain financial thresholds as specified in the agreement, receives new third party equity funding exceeding $20 million on a cumulative basis or Climax is sold or completes an initial public offering, the remaining amount due shall become payable thirty days following the end of the calendar year in which the event occurred. In any event, the note shall be due and payable in full no later than January 31, 2010.

On August 15, 2008, the Company entered into an agreement with UCM whereby UCM agreed to assist the Company in registering its shares publicly, as well as provide management assistance with certain responsibilities unique to a publicly held entity. In consideration for these services, the Company agreed to issue 600,000 shares of its common stock, contingent upon the Company’s registration statement becoming effective, on or about the effective date of the registration statement. The Company intends to recognize this expense, based upon the existing market value of its shares, on that date.
 
F-19

 
VYSTAR CORPORATION
(A Development Stage Company)
BALANCE SHEETS

 
September 30, 2008
   
December 31, 2007
 
ASSETS
 
(unaudited)
       
             
CURRENT ASSETS
           
Cash
  $ 830,961     $ 573,177  
Investments
    503,790       -  
Note receivable due from related party
    60,000       40,000  
Prepaid expenses
    52,038       23,078  
Other
    -       15,000  
TOTAL CURRENT ASSETS
    1,446,789       651,255  
                 
PROPERTY AND EQUIPMENT, NET
    17,497       14,915  
                 
OTHER ASSETS
               
Note receivable due from related party, net of current portion shown above and allowance for uncollectible amount of $120,205 at September 30, 2008 and December 31, 2007
    32,744       80,204  
Patents, net
    73,109       42,147  
Other
    10,912       5,887  
                 
TOTAL ASSETS
  $ 1,581,051     $ 794,408  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 81,464     $ 16,913  
Accounts payable - related party
    36,453       36,453  
Accrued expenses
    187,838       150,654  
TOTAL CURRENT LIABILITIES
    305,755       204,020  
                 
LONG-TERM LIABILITIES
    13,731       15,730  
                 
TOTAL LIABILITIES
    319,486       219,750  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; none issued and outstanding
    -       -  
Common stock, $0.0001 par value, 25,000,000 shares authorized; 11,529,774 and 15,148,320 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively
    1,153       1,515  
Additional paid-in capital
    9,530,098       4,699,545  
Stock subscription receivable
    (40,000 )     -  
Deferred compensation
    (32,171 )     -  
Deficit accumulated during development stage
    (8,197,515 )     (4,126,402 )
TOTAL STOCKHOLDERS' EQUITY
    1,261,565       574,658  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 1,581,051     $ 794,408  

The accompanying notes are an integral part of these financial statements.
 
F-20

 
VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
 
                           
Period From February 2,
 
   
Three Months Ended
   
Nine Months Ended
   
2000 (Inception) To
 
    
September 30, 2008
   
September 30, 2007
   
September 30, 2008
   
September 30, 2007
   
September 30, 2008
 
                               
NET SALES
  $ -     $ -     $ -     $ -     $ -  
                                         
COST AND EXPENSE
                                       
Research and development
    61,851       95,701       352,466       333,366       2,068,016  
General and administrative
    438,871       174,676       3,731,804       554,018       6,028,657  
      500,722       270,377       4,084,270       887,384       8,096,673  
                                         
LOSS FROM OPERATIONS
    (500,722 )     (270,377 )     (4,084,270 )     (887,384 )     (8,096,673 )
                                         
OTHER INCOME (EXPENSE)
                                       
Interest income
    7,773       7,532       14,069       14,693       34,486  
Provision for note receivable from related party
    -       -       -       -       (120,205 )
Loss on disposal of assets
    -       -       -       -       (13,400 )
Interest expense
    (858 )     -       (858 )     -       (1,669 )
Other expense
    -       -       (54 )     -       (54 )
                                         
NET LOSS
  $ (493,807 )   $ (262,845 )   $ (4,071,113 )   $ (872,691 )   $ (8,197,515 )
                                         
Basic and Diluted Loss per Share
  $ (0.04 )   $ (0.02 )   $ (0.36 )   $ (0.06 )        
                                         
Basic and Diluted Weighted Average Number of Common Shares Outstanding
    11,445,019       14,963,247       11,429,799       14,299,706          
 
The accompanying notes are an integral part of these financial statements.
 
F-21

 
VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
Number of
Shares
   
Common Stock
   
Additional Paid-in
Capital
   
Stock
Subscription
Receivable
   
Deferred
Compensation
   
Deficit
Accumulated
During
Development
Stage
   
Total
 
Beginning Balance, 2/2/00 (Inception)
    -     $ -     $ -     $ -     $ -     $ -     $ -  
Common stock issued to founder of Vystar LLC
    2,500,000       250       (250 )     -       -       -       -  
Net loss
    -       -       25,311       -       -       (25,311 )     -  
Ending Balance, 12/31/00
    2,500,000       250       25,061       -       -       (25,311 )     -  
                                                         
Net loss
    -       -       4,808       -       -       (4,808 )     -  
Ending Balance, 12/31/01
    2,500,000       250       29,869       -       -       (30,119 )     -  
                                                         
Net loss
    -       -       4,275       -       -       (4,275 )     -  
Ending Balance, 12/31/02
    2,500,000       250       34,144       -       -       (34,394 )     -  
                                                         
Common stock cancelled at merger of Vystar LLC
    (2,500,000 )     (250 )     250       -       -       -       -  
Common stock issued to founders of Vystar Corporation
    2,825,000       283       3,817       (4,100 )     -       -       -  
Net loss
    -       -       -       -       -       -       -  
Ending Balance, 12/31/03
    2,825,000       283       38,211       (4,100 )     -       (34,394 )     -  
                                                         
Additional founders' shares of common stock issued
    8,475,000       847       (847 )     4,100       -       -       4,100  
Common stock issued in private placement memorandum at $1.00/share during 2004, net of issuance costs of $74,833
    692,000       69       617,098       (10,000 )     -       -       607,167  
Share-based compensation to employees vested during 2004
    -       -       5,868       -       -       -       5,868  
Net loss
    -       -       -       -       -       (500,154 )     (500,154 )
Ending Balance, 12/31/04
    11,992,000       1,199       660,330       (10,000 )     -       (534,548 )     116,981  
                                                         
Common stock issued in private placement memorandum at $1.00/share during Jan 2005, net of issuance costs of $3,900
    78,000       8       74,092       10,000       -       -       84,100  
Common stock issued in private placement memorandum at $1.50/share during 2005, net of issuance costs of $71,806 cash and $9,451 non-cash
    795,674       80       1,112,173       -       -       -       1,112,253  
Share-based compensation to employees vested during 2005
    -       -       32,760       -       -       -       32,760  
Share-based payments for services vested during 2005
    -       -       50,232       -       -       -       50,232  
Net loss
    -       -       -       -       -       (1,265,923 )     (1,265,923 )
Ending Balance, 12/31/05
    12,865,674       1,287       1,929,587       -       -       (1,800,471 )     130,403  
                                                         
Common stock issued with warrants in private placement memorandum at $1.50/share during 2006, net of issuance costs of $82,643 cash and $8,404 non-cash
    823,131       82       1,143,569       -       -       -       1,143,651  
Common stock issued for exercise of warrants
    19,000       2       9,498       -       -       -       9,500  
Common stock issued for services rendered during June, 2006, valued at $1.00/share
    7,500       1       7,499       -       -       -       7,500  
Common stock issued for services rendered during September, 2006, valued at $1.00/share
    2,500       -       2,500       -       -       -       2,500  
Common stock issued for services rendered during October, 2006, valued at $1.00/share
    6,000       1       5,999       -       -       -       6,000  
Common stock issued for services rendered during December, 2006, valued at $1.00/share
    36,490       4       36,486       -       -       -       36,490  
Shared-based compensation to employees vested during 2006
    -       -       204,659       -       -       -       204,659  
Share-based payments for services vested during 2006
    -       -       2,803       -       -       -       2,803  
Net loss
    -       -       -       -       -       (1,086,297 )     (1,086,297 )
Ending Balance, 12/31/06
    13,760,295     $ 1,377     $ 3,342,600     $ -     $ -     $ (2,886,768 )   $ 457,209  
 
The accompanying notes are an integral part of these financial statements.
 
F-22

 
VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
   
Number of
Shares
   
Common Stock
   
Additional Paid-in
Capital
   
Stock
Subscription
Receivable
   
Deferred
Compensation
   
Deficit
Accumulated
During
Development
Stage
   
Total
 
                                           
Ending Balance, 12/31/06
    13,760,295     $ 1,377     $ 3,342,600     $ -     $ -     $ (2,886,768 )   $ 457,209  
Common stock issued with warrants in private placement memorandum at $1.50/share during 2007, net of issuance costs of $61,911 cash and $9,648 non-cash
    597,501       60       824,632       -       -       -       824,692  
Common stock issued for exercise of warrants
    757,399       76       379,374       -       -       -       379,450  
Common stock issued for services rendered during January, 2007, valued at $1.00/share
    2,500       -       2,500       -       -       -       2,500  
Common stock issued for services rendered during February, 2007, valued at $1.00/share
    4,000       -       4,000       -       -       -       4,000  
Common stock issued for services rendered during March, 2007, valued at $1.00/share
    14,200       1       14,199       -       -       -       14,200  
Common stock issued for services rendered during April, 2007, valued at $1.00/share
    9,925       1       9,924       -       -       -       9,925  
Common stock issued for services rendered during June, 2007, valued at $1.00/share
    2,500       -       2,500       -       -       -       2,500  
Shared-based compensation to employees vested during 2007
    -       -       97,502       -       -       -       97,502  
Share-based payments for services vested during 2007
    -       -       22,314       -       -       -       22,314  
Net loss
    -       -       -       -       -       (1,239,634 )     (1,239,634 )
Ending Balance, December 31, 2007
    15,148,320       1,515       4,699,545       -       -       (4,126,402 )     574,658  
                                                         
Common stock issued in private placement memorandum at $1.50/share during 2008, net of issuance costs of $375 cash
    5,000       -       7,125       -       -       -       7,125  
Contribution of founder's stock
    (4,900,000 )     (490 )     490       -       -       -       -  
Common stock issued for services during 2008, net of issuance costs of $4,080 non-cash
    68,787       7       64,700       -       -       -       64,707  
Common stock issued in private placement memorandum at $2.00/share during 2008, net of issuance costs of $60,398
    777,500       78       1,494,524       (40,000 )     -       -       1,454,602  
Common stock issued for exercise of warrants during 2008, net of issuance costs of $7,317 cash
    430,167       43       211,224       -       -       -       211,267  
Shared-based compensation to employees vested during 2008, net of issuance costs of $21,916 non-cash
    -       -       1,506,795       -       -       -       1,506,795  
Share-based payments for services vested during 2008
    -       -       1,545,695       -       (1,545,695 )     -       -  
Amortization of deferred compensation during 2008
    -       -       -       -       1,513,524       -       1,513,524  
Net loss
    -       -       -       -       -       (4,071,113 )     (4,071,113 )
Ending Balance, September 30, 2008 (unaudited)
    11,529,774     $ 1,153     $ 9,530,098     $ (40,000 )   $ (32,171 )   $ (8,197,515 )   $ 1,261,565  
 
The accompanying notes are an integral part of these financial statements.
 
F-23

 
VYSTAR CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)

             
Period From February 2,
 
    
Nine Months Ended
   
2000 (Inception) To
 
    
September 30, 2008
   
September 30, 2007
   
September 30, 2008
 
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (4,071,113 )   $ (872,691 )   $ (8,197,515 )
Adjustment to reconcile net loss to net cash used in operating activities
                       
Stock-based compensation expense
    1,597,498       137,711       2,099,246  
Provision on related party note receivable
    -       -       120,205  
Amortization of deferred compensation
    1,513,524       -       1,513,524  
Depreciation
    5,738       4,959       21,881  
Amortization
    2,242       1,788       8,103  
Loss on disposal of assets
    -       -       13,400  
(Increase) decrease in assets
                       
Prepaid expenses
    (65,672 )     (5,824 )     (88,750 )
Other
    11,210       (24,079 )     (9,677 )
Increase (decrease) in liabilities
                       
Accounts payable
    64,550       14,909       81,463  
Accounts payable - related party
    -       -       36,453  
Accrued expenses
    37,184       (66,347 )     187,839  
Other
    (1,999 )     1,512       48,125  
                         
Net cash used in operating activities
    (906,838 )     (808,062 )     (4,165,703 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Purchase of investment
    (500,000 )     -       (500,000 )
Advances to related party - note receivable
    -       -       (257,908 )
Proceeds on related party note receivable
    27,460       5,000       44,959  
Cost of patents
    (1,516 )     (10,314 )     (49,524 )
Purchase of equipment
    (8,320 )     -       (52,778 )
                         
Net cash used in investing activities
    (482,376 )     (5,314 )     (815,251 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Issuance of common stock, net of issuance costs of $94,086, $60,164 and $416,682 for the nine months ended September 30, 2008, September 30, 2007 and from inception to September 30, 2008, respectively
    1,646,998       1,032,868       5,811,915  
                         
Net cash provided by financing activities
    1,646,998       1,032,868       5,811,915  
                         
NET INCREASE IN CASH
    257,784       219,492       830,961  
                         
CASH - BEGINNING OF PERIOD
    573,177       419,738       -  
                         
CASH - END OF PERIOD
  $ 830,961     $ 639,230     $ 830,961  

The accompanying notes are an integral part of these financial statements.
 
F-24

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007
 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

History and Nature of Business
Vystar Corporation (“Vystar” or the “Company”) is the creator and exclusive owner of the innovative technology to produce Vytex™ Natural Rubber Latex ("NRL"). This technology reduces antigenic protein in natural rubber latex products to virtually undetectable levels in both liquid NRL and finished latex products.  Vystar intends to introduce Vytex NRL, its new “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. The Company plans to produce Vytex™ through toll manufacturing agreements and intends to introduce Vytex NRL into the supply channels with aggressive, targeted marketing campaigns directed to the end users.

Vystar LLC, the predecessor to the Company, was formed February 2, 2000, as a Georgia limited liability company by Travis W. Honeycutt. The Company’s operations under the LLC entity were focused substantially on the research, development and testing of the Vytex 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.

Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial information.  Accordingly, certain information and footnotes required by GAAP for complete financial statements may be condensed or omitted.  These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included in this Form S-1.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from these estimates.

Loss Per Share
The Company follows SFAS No. 128, “Earnings Per Share,” resulting in the presentation of basic and diluted earnings per share.  Because the Company reported a net loss in 2008 and 2007, 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 3,250,000 shares and 960,000 shares of common stock for September 30, 2008 and 2007, respectively, as their effect would be anti-dilutive.  Warrants to purchase 2,338,939 shares and 957,808 shares of common stock for September 30, 2008 and 2007, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

Investments
At September 30, 2008, the Company held a certificate of deposit in the amount of approximately $504,000 which matures December 24, 2008.
 
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk.  These financial instruments consist primarily of cash, investments and, as discussed in Note 9, an unsecured related party note receivable.  Cash deposits and investments generally are in excess of FDIC insurance limits.
 
F-25

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007
 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes . FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes . Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for the Company at the beginning of the annual period ending December 31, 2008.  The provisions of FIN 48 will be applied to all tax positions under Statement No. 109 upon initial adoption. The cumulative effect of applying the provisions of this interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year.  We are presently evaluating whether the adoption of this interpretation will have a material impact on our financial statements.
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurement.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 , which delayed the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009.   The Company adopted SFAS 157 on January 1, 2008 for all financial assets and liabilities, but the implementation did not require additional disclosures or have a significant impact on the Company's financial statements.  The Company has not yet determined the impact the implementation of SFAS 157 will have on the Company’s non-financial assets and liabilities which are not recognized or disclosed on a recurring basis.  However, the Company does not anticipate that the full adoption of SFAS 157 will significantly impact their financial statements.
 
On February 15, 2007, the Financial Accounting Standards Board issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 .  SFAS No. 159 permits many financial instruments and certain other items to be measured at fair value at our option. Most of the provisions in SFAS No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities , applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS No. 159 permits the choice to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. The Company has adopted SFAS 159 on January 1, 2008 and has elected not to measure any additional financial assets, liabilities or other items at fair value.
 
F-26

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007
 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Pronouncements (Continued)

On December 4, 2007, the FASB issued SFAS No. 141R, Business Combinations . SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Since the standard is generally applicable only for acquisitions completed in the future, we are unable to determine the effect this standard will have on the accounting for such acquisitions.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of Accounting Research Bulletin No. 51 . SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective for the Company beginning January 1, 2009.   This statement is not currently applicable to the Company since it has no majority-owned subsidiaries.

NOTE 2 – OPERATIONS

The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America 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.  The Company has incurred significant losses and experienced negative cash flow since its inception.  Further, at September 30, 2008, the deficit accumulated during the development stage amounted to approximately $8,198,000.

The Company is still in the development stage at September 30, 2008 and for the nine months ended as of that date, has received approximately $1,673,000, net of issuance costs, through the issuance of 1,212,667 shares of common stock and exercise of warrants. The Company continued to raise funds during October, 2008 through the sale of its common stock in private placements, and believes it has generated sufficient liquidity to maintain operations until sustained revenue generation occurs.

For the period from September 30, 2008 through October 31, 2008, the Company raised an additional $823,000 and issued 411,500 shares of common stock, for totals of $2,378,000 raised and 1,189,000 shares of common stock issued, through a private placement (Note 7).  The Company’s product development is proceeding on schedule and management expects to initiate revenue generation no later than the first quarter of 2009.  Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including acceptance by manufacturers of the Vytex NRL technology and consumer confidence in products manufactured using it.  The Company has added qualified directors and employees to help meet their goals and will continue to monitor available capital to determine if additional equity investments will be required to fulfill its development activities.  Management believes the current business plan is attractive enough to investors to raise additional capital if necessary, but believes current liquid assets are sufficient to allow the Company to continue as a going concern through September 30, 2009.
 
F-27

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007
 
NOTE 3 – DEFERRED COMPENSATION

Deferred compensation represents the unamortized fair value of the issuance of warrants for future services to non-employees which was accounted for in accordance with Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued To Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, as follows:

 
September 30,  2008
 
       
Warrants
  $ 1,545,695  
Less accumulated amortization
    1,513,524  
    $ 32,171  
 
NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

 
September 30,  2008
   
December 31,  2007
 
             
Furniture and fixtures
  $ 15,347     $ 15,347  
Equipment
    23,431       15,111  
      38,778       30,458  
Accumulated depreciation
    (21,281 )     (15,543 )
                 
    $ 17,497     $ 14,915  

Depreciation expense for the three months ended September 30, 2008 and 2007 was $2,153 and $1,644, respectively, and for the nine months ended September 30, 2008 and 2007, was $5,738 and $4,959, respectively.

NOTE 5 – PATENTS

Patents represent legal and other fees associated with the registration of patents.  The Company has two patents and a third pending approval by the United States Patent and Trade Office.  They are recorded net of accumulated amortization of $8,103 and $5,861 at September 30, 2008 and December 31, 2007, respectively.  Amortization expense for the three months ended September 30, 2008 and 2007 was $740 and $596, respectively, and for the nine months ended September 30, 2008 and 2007 was $2,242 and $1,788, respectively.
 
F-28

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007
 
NOTE 6 – INCOME TAXES

There is no income tax benefit recorded for the losses for the nine months ended September 30, 2008 and 2007 since management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of the net deferred tax asset.

NOTE 7 – STOCKHOLDERS’ EQUITY

Common Stock and Warrants

The Company’s predecessor company, Vystar LLC, issued 2,500,000 shares of its common stock at inception in February 2000 to its founder.  These shares were cancelled and re-issued by Vystar Corporation at merger in December 2003.  Also during 2003, Vystar Corporation issued 325,000 shares to its remaining founders for $4,100.  During 2004, the Company issued an additional 8,475,000 shares to its founders in order to adjust the number of issued and outstanding shares at that time.

During the period from November 2004 through January 13, 2005, the Company issued 770,000 shares of its common stock in a private placement for proceeds of $691,267, net of issuance costs of $78,733.

The private placement memorandum was amended on December 28, 2004.  Under the terms of the amendment and subsequent revisions on April 10, 2006 and September 25, 2006, the Company issued 795,674 shares in 2005 for proceeds of $1,112,253, net of issuance costs of $71,806 cash and $9,451 non-cash; 813,131 shares in 2006 for proceeds of $1,143,651, net of issuance costs of $82,643 cash and $8,404 non-cash; 597,501 shares in 2007 for proceeds of $824,692, net of issuance costs of $61,911 cash and $9,648 non-cash and 5,000 shares in 2008 for proceeds of $7,500 prior to its closing in April 2008.  All of the shares issued were common stock.  Terms of the memorandum included issuing warrants to purchase an aggregate of 1,308,965 shares of common stock at $.50 per share.  During 2007 and 2006 755,899 shares and 19,000 shares, respectively, were purchased through the exercise of the warrants.  The remaining warrants outstanding at December 31, 2007 of 449,167 expire during 2008.

During 2005 the Company issued stock purchase warrants to purchase 17,300 shares of common stock at an exercise price of $.50 in exchange for services rendered with the private placement, valued at $9,451. The warrants are exercisable until January 2010 and vested immediately.

During 2006 the Company issued stock purchase warrants to purchase 36,233 shares of common stock at exercise prices ranging from $1.00 to $1.50 per share in exchange for services rendered, valued at $11,499.  The warrants are exercisable for periods ranging from 2011 to 2016 and vested immediately.

During 2006 the Company issued 52,490 shares of common stock for services rendered valued at $52,490.

During 2007 the Company issued stock purchase warrants to purchase 126,525 shares of common stock at exercise prices ranging from $.50 to $1.50 in exchange for services rendered, valued at $34,320.  The warrants are exercisable for periods ranging from 2009 through 2017 and vested immediately.
 
F-29


VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock and Warrants (Continued)

During 2007 the Company issued 33,125 shares of common stock for professional services valued at $33,125.

During February 2008, the Company’s former CEO surrendered 4,900,000 shares of the Company’s common stock issued to him during 2004.  These shares were cancelled and returned to the Company for future re-issue, eliminating the need to increase the Company’s number of authorized shares.

During 2008 the Company issued stock purchase warrants to purchase 1,778,631 shares of common stock at exercise prices ranging from $.01 to $2.00 in exchange for services rendered, valued at $1,699,542.  The warrants are exercisable for periods ranging form 2012 through 2018 and vested immediately.

During 2008 the Company issued 68,787 shares of common stock for professional services valued at $68,787.

On May 5, 2008, the Company initiated an equity raise through a private placement projected at $3,000,000 at completion, through an issuance of 1,500,000 shares of common stock and warrants to purchase an additional 750,000 shares of common stock at $1.00 per share.  On October 31, 2008 the Company closed the offering after receiving $ 2,378,000 and issuing 1,189,000 shares of common stock and warrants to purchase an additional 594,500 shares of common stock.

NOTE 8 – STOCK-BASED COMPENSATION

The Company used the Black-Scholes option pricing model to estimate the grant-date fair value of an award granted during 2008 and 2007.  The following assumptions were used:

 
·
Expected Dividend Yield – because the Company does not currently pay dividends, the expected dividend yield is zero;
 
·
Expected Volatility in Stock Price – because the Company is not publicly traded, the expected volatility of similar public entities (including companies engaged in the manufacture and/or distribution of medical, surgical, and healthcare supplies) was considered with expected volatility ranging from 22.07% - 39.25%;
 
·
Risk-free Interest Rate – reflects the average rate on a United States Treasury bond with maturity equal to the expected term of the option, ranging from 1.79 – 4.92%; and
 
·
Expected Life of Awards – because the Company is still in the development stage and has had minimal experience with the exercise of options or warrants for use in determining the expected life for each award, the simplified method was used to calculate an expected life based on the midpoint between the vesting date and the end of the contractual term of the stock award.
 
F-30

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

The Company recorded stock-based compensation expense of approximately $40,000 and $22,000 for the three-month periods ended September 30, 2008 and 2007, respectively, and $1,507,000 and $98,000 for the nine-month periods ended September 30, 2008 and 2007, respectively, related to employee stock options and stock warrants issued to board members.  Of this, approximately $1,375,000 and $78,000 for the nine months ended September 30, 2008 and 2007, respectively, was attributable to the fair value of shares vested during those periods.  As of September 30, 2008, approximately $123,000 of unrecognized compensation expense related to non-vested share-based awards remains to be recognized over a weighted average period of less than 3 years.

Stock 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.  At September 30, 2008, there were 600,000 shares of common stock reserved for issuance under the Plan.  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.  During the nine months ended September 30, 2008 options for 2,200,000 shares were issued under the Plan.

The weighted-average assumptions used in the option pricing model for stock option grants were as follows for the nine months ended September 30:

 
2008
   
2007
 
Expected Dividend Yield
    -       -  
Expected Volatility in Stock Price
    23.48 %     23.32 %
Risk-Free Interest Rate
    2.67 %     4.68 %
Expected Life of Stock Awards - Years
    5.1       5  
Weighted Average Fair Value at Grant Date
  $ 0.71     $ 0.30  
 
The following table summarizes all stock option activity of the Company for the nine months ended September 30, 2008:   
 
 
Number of
   
Weighted Average
   
Weighted Average
 
    
Options
   
Exercise Price
   
Grant-date Fair Value
 
                   
Outstanding, December 31, 2007
    1,200,000     $ 1.08        
                       
Granted
    2,200,000     $ 1.00     $ 0.68  
                         
Outstanding, September 30, 2008
    3,400,000     $ 1.03          
                         
Exercisable, September 30, 2008
    3,250,000     $ 1.03          
 
F-31

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

Warrants

Warrants are issued to third parties as payment for services and in conjunction with the issuance of common stock.  The fair value of each common stock warrant issued for services is estimated on the date of grant using the Black-Scholes option pricing model.  The following weighted- average assumptions were used for warrants granted for the nine months ended September 30:

 
2008
   
2007
 
Expected Dividend Yield
    -       -  
Expected Volatility in Stock Price
    21.59 %     23.59 %
Risk-Free Interest Rate
    2.19 %     3.02 %
Expected Life of Awards, Years
    4.3       5  

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

Warrants (Continued)

The following table represents the Company’s warrant activity for the nine months ended September 30, 2008:

                   
         
Weighted Average
       
    
Number of
   
Issuance or
   
Weighted Average
 
   
Warrants
   
Grant Date Fair Value
   
Exercise Price
 
                   
Outstanding, December 31, 2007
    627,725           $ 1.01  
                       
Issued in private placement
    388,750     $ 1.00     $ 1.00  
Granted
    1,778,631     $ 0.96     $ 0.76  
Exercised
    (430,167 )           $ 0.51  
Expired
    (26,000 )           $ 0.50  
                         
Outstanding, September 30, 2008
    2,338,939             $ 1.02  
                         
Exercisable, September 30, 2008
    2,338,939             $ 1.02  

The Company issued warrants for services during 2008 at exercise prices ranging from $.01 to $2.00 per share, exercisable over periods ranging from three to ten years.  All of the warrants vested immediately.  The fair value of the warrants was calculated as of the date of the grant utilizing the Black-Scholes option pricing model and assumptions detailed above.
 
F-32

 
VYSTAR CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2008 AND 2007
 
NOTE 9 – RELATED PARTY TRANSACTIONS

Universal Capital Management

On January 31, 2008, the Company entered into a management agreement with Universal Capital Management, Inc. ("UCM"), whereby UCM was to provide management services, including assistance with strategic planning, investment banking consultation and investor introduction services, and investor relations services for a period of three months, expiring April 30, 2008.  Pursuant to the terms of this agreement, the Company issued UCM warrants, valued at approximately $1,491,000, to purchase 1,000,000 shares of its common stock at an exercise price of $0.01.  These warrants are exercisable in whole or in part at or before January 31, 2013 and vested immediately.

On April 30, 2008, the Company entered into an additional management agreement with UCM for a period of one year pursuant to which UCM agreed to provide management services, including day-to-day managerial.  Pursuant to the terms of this agreement, UCM was issued warrants, valued at approximately $55,000, to purchase 500,000 shares of the Company's common stock at an exercise price of $2.00 per share.  The warrants are exercisable in whole or in part at or before April 30, 2013 and vested immediately.  In the event that the Company elects to extend the management agreement for an additional one year term beyond the first year of the agreement, the Company has agreed to issue additional warrants to purchase 500,000 shares of its common stock at an exercise price of $0.01 per share.

On August 15, 2008, the Company entered into an additional agreement with UCM whereby UCM agreed to assist the Company in registering its shares publicly, as well as provide management assistance with certain responsibilities unique to a publicly held entity.  In consideration for these services, the Company agreed to issue 600,000 shares of its common stock, contingent upon the Company’s registration statement becoming effective, on or about the effective date of the registration statement.  The Company intends to recognize this expense, based upon the existing market value of its shares, on that date.

Climax Global Energy

During 2006 and 2005, the Company advanced cash and made payments on behalf of Climax Global Energy, Inc. (“Climax”), a company controlled by the Company’s former CEO, in the amounts of $12,795 and $242,654, respectively.  At December 31, 2007, the balance due from Climax was $240,409.  Climax is in a pre-revenue, research and development mode and is in the process of raising capital through a private placement memorandum.  The Company expects to be reimbursed in full for the balance, which is unsecured, but due to the uncertainty involved, management has reserved at December 31, 2007 approximately $120,000 of the balance due from Climax.  As such, the Company recorded a corresponding charge in 2007 of approximately $120,000 in its statement of operations.

On August 15, 2008, the Company entered into an agreement with Climax which specified the payment terms of the note receivable discussed above.  The significant terms were established as follows:  (A) the note is non-interest bearing, (B) a $25,000 payment to be made on or before September 30, 2008, and (C) equal monthly payments of $5,000 will commence in October 2008.  In the event that Climax attains certain financial thresholds as specified in the agreement, receives new third party equity funding exceeding $20 million on a cumulative basis or Climax is sold or completes an initial public offering, the remaining amount due shall become payable thirty days following the end of the calendar year in which the event occurred.  In any event, the note shall be due and payable in full no later than January 31, 2010.

Officers and Directors

On March 21, 2008, Travis Honeycutt, founding CEO, retired from the Company.

At March 31, 2008, the Company’s independent director received warrants, valued at approximately $13,000, to purchase 20,000 shares of the Company’s common stock with an exercise price of $1.00.  The warrants are exercisable in whole or in part at or before March 31, 2018 and vested immediately.
 
F-33


On April 1, 2008, the Company added a director to its Board of Directors.  At June 30, 2008 the Company’s two independent Board members received warrants, valued at approximately $16,000, to purchase 20,000 shares, each, of the Company’s common stock with an exercise price of $1.00.  The warrants are exercisable in whole or in part at or before June 30, 2018 and vested immediately.

At September 30, 2008, the Company’s two independent Board members received warrants, valued at approximately $9,000, to purchase 20,000 shares, each, of the Company’s common stock with an exercise price of $1.63.  The warrants are exercisable in whole or in part at or before September 30, 2018 and vested immediately.

 
NOTE 10 – SUBSEQUENT EVENTS

As previously discussed in Note 7, the Company closed the existing private placement memorandum on October 31, 2008 after receiving an additional $823,000 and issuing 411,500 shares of common stock and warrants to purchase an additional 205,750 shares of common stock since September 30, 2008.

On October 1, 2008, the Company added two additional directors to its Board of Directors.  
 
At December 31, 2008, the Company’s four independent directors received warrants, valued at approximately $10,700, to purchase 20,000 shares, each, of the Company’s common stock at an exercise price of $1.63 per share. The warrants are exercisable in whole or in part at or before December 31, 2018 and vested immediately.
 
F-34

 

 
1,100,000 Shares
of
Common Stock
 
Vystar Corporation
 


Prospectus
 

 
_________, 2009

Until ______,  2009, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments on subscriptions
 

 
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.   Other Expenses of Issuance and Distribution.
 
The following table indicates the expenses to be incurred in connection with the distribution and resale offering described in this Registration Statement, other than underwriting discounts and commissions, all of which will be paid by the Registrant. All amounts are estimated except the Securities and Exchange Commission registration fee and the Financial Industry Regulatory Authority fee.
 
  
 
Amount
 
       
Securities and Exchange Commission registration fee
 
$
86
 
Financial Industry Regulatory Authority fee
     
*
NASDAQ listing fee
     
*  
Accountants’ fees and expenses
     
Legal fees and expenses
     
Blue Sky fees and expenses
     
Transfer Agent’s fees and expenses
     
Printing and engraving expenses
     
*
Miscellaneous
     
Total Expenses
 
$
 
*
 
*To be filed by amendment.
 
Item 14.   Indemnification of Directors and Officers.
 
As permitted by Georgia law, provisions in our articles of incorporation and bylaws limit or eliminate the personal liability of our directors. Our articles of incorporation and bylaws limit the liability of directors to the maximum extent permitted by Georgia law. Georgia law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for:
 
\
 
·
any breach of the director’s duty of loyalty to us or our shareholders;
 
 
·
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
 
 
·
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
 
 
·
any transaction from which the director derived an improper personal benefit.
 
These limitations do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission. If Georgia law is amended to authorize the further elimination or limiting of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Georgia law as so amended.

As permitted by Georgia law, our articles of incorporation and bylaws also provide that:
 
 
·
we will indemnify our directors and officers to the fullest extent permitted by law;
 
 
·
we may indemnify our other employees and other agents to the same extent that we indemnify our officers and directors, unless otherwise determined by the board of directors; and
 
II-1

 
 
·
we will advance expenses to our directors and executive officers in connection with legal proceedings in connection with a legal proceeding to the fullest extent permitted by law.
 
The indemnification provisions contained in our articles of incorporation and bylaws are not exclusive.
 
The Registrant maintains a general liability insurance policy which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers.
 
Item 15.   Recent Sales of Unregistered Securities.
 
Set forth below is information regarding shares of common stock, warrants and options to purchase common stock issued by the Registrant within the past three years 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 Registrant 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 and Warrant Financings  
 
From December 2005 through July 2007, the Registrant issued 1,430,632 shares of its common stock at a price of $1.50 per share. In connection with such offering, the Registrant issued one warrant to purchase one share of common stock at an exercise price of $.50 per share for each share of common stock purchased. From October 2006 through May 2008, the Registrant issued 1,198,066 shares of common stock upon the exercise of such warrants (and warrants issued prior to December 2005) at $.50 per share.
 
From May 2008 through October 2008, the Registrant issued 1,189,000 shares of its common stock at a price of $2.00 per share. In connection with such offering, the Registrant issued one warrant to purchase one share of common stock at an exercise price of $1.00 per share for each two shares of common stock purchased. In September 2008, the Registrant issued 5,000 shares of common stock upon the exercise of such warrants at $1.00 per share.
 
From June 2006 through December 2008, the Registrant issued 164,902 shares of its common stock for services rendered to the Registrant.

(b)   Stock Option Grants
 
Since November 2005, the Registrant has issued options to certain employees and consultants to purchase an aggregate of 2,800,00 shares of common stock at exercise prices from $1.00 to $1.50. Through the date hereof, none of such options have been exercised.
 
(c)   Application of Securities Laws and Other Matters
 
No underwriters were involved in the foregoing sales of securities. The securities described in section (a) of this Item 15 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.
 
The issuance of stock options as described in section (b) of this Item 15 were issued pursuant to written compensatory plans or arrangements with the Registrant’s employees, directors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information.
 
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 15 included appropriate legends setting forth that the securities had not been registered and the applicable restrictions on transfer.
 
II-2

 
Item 16.   Exhibits.
 
The exhibits to the Registration Statement are listed in the Exhibit Index attached hereto and incorporated by reference herein.
 
Item 17.   Undertakings.
 
 (a)   The undersigned registrant hereby undertakes:
 
        (1)   To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
 
          (i)  To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended;
 
         (ii)  To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
 
        (iii)  To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

        (2)   That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
        (3)   To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
 
(4)   That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

(i)
If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Duluth, State of Georgia, on this 10th day of February, 2009.
 
   
Vystar Corporation
 
By: 
/s/  William R. Doyle
   
William R. Doyle
   
Chairman, President and Chief Executive Officer
 
Each person whose signature appears below constitutes and appoints William R. Doyle his true and lawful attorney-in-fact and agent, acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post effective amendments) to this Registration Statement on Form S-1, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post effective amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
 
II-3


Signature  
 
Title
 
Date  
         
/s/ WILLIAM R. DOYLE
 
Chairman, President, Chief Executive
Officer and Director (Principal Executive
Officer)
 
February 10, 2009
/s/  LINDA S. HAMMOCK
 
 
Chief Financial Officer
(Principal Financial and Accounting
Officer)
 
February 10, 2009
/s/ J. DOUGLAS CRAFT*
 
Director
 
February 10, 2009
/s/ JOSEPH C. ALLEGRA*
 
Director
 
February 10, 2009
/s/ MITSY Y. MANGUM*
 
Director
 
February 10, 2009
/s/ W. DEAN WATERS*
 
Director
 
February 10, 2009
 

*By William R. Doyle, attorney in fact.
 
II-4

 
Exhibit Index**
** Some Exhibits have certain confidential information redacted pursuant to a request for confidential treatment

Exhibit
Number
 
 
Description
3.1
 
Articles of Incorporation of Vystar Acquisition Corporation (now named Vystar Corporation) dated December 17, 2003 (as amended) (previously filed)
     
3.2
 
Bylaws of Vystar Corporation (previously filed)
     
4.1*
 
Specimen Certificate evidencing shares of Vystar common stock
     
5.1*
 
Opinion of Greenberg Traurig LLP
     
10.1**
 
Manufacturing Agreement between Vystar Corporation and Revertex (Malaysia) Sdn. Bhd. effective April 1, 2008
     
10.2
 
Executive Employment Agreement between Vystar Corporation and William R. Doyle, dated November 11, 2008 (previously filed)
     
10.3
 
Management Agreement dated January 31, 2008 between Universal Capital Management, Inc. and Vystar Corporation (previously filed)
     
10.4
 
Letter Agreement dated August 15, 2008 between Universal Capital Management, Inc. and Vystar Corporation (previously filed)
     
10.5
 
Addendum to Management Agreement dated February 29, 2008 between Universal Capital Management, Inc. and Vystar Corporation (previously filed)
     
10.6
 
Warrant Purchase Agreement dated January 31, 2008 between Universal Capital Management, Inc. and Vystar Corporation (previously filed)
     
10.7
 
Management Agreement dated April 30, 2008 between Universal Capital Management, Inc. and Vystar Corporation (previously filed)
     
10.8
 
Warrant Purchase Agreement dated April 30, 2008 between Universal Capital Management, Inc. and Vystar Corporation (previously filed)
     
10.9
 
Vystar Corporation 2004 Long-Term Compensation Plan (previously filed)
     
10.10
 
Employment Agreement between Vystar Corporation and Sandra Parker dated April 1, 2008 (previously filed)
     
10.11
 
Distributor Agreement among Vystar Corporation, Centrotrade Minerals & Metals, Inc. and Centrotrade Deutschland, GmbH dated January 6, 2009**
     
10.12   Note agreement between Vystar Corporation and Climax Global Energy, Inc. dated August 15, 2008.
     
21.1*
 
Subsidiaries of Vystar Corporation
     
23.1
 
Consent of Independent Registered Public Accounting Firm
     
23.2*
 
Consent of Greenberg Traurig, LLP (will be included in Exhibit 5.1)
     
24.1
 
Powers of Attorney (included on signature page) (previously filed)
 
*
  To be filed by amendment
**
  Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.

II-5

CONFIDENTIAL TREATMENT REQUESTED
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
AND THAT MATERIAL HAS BEEN FILED SEPARATELY
 
Manufacturing Agreement

This Co-Development and Cooperation Agreement (“Agreement”) is made and entered into by and between Vystar Corporation, a Georgia corporation in the United States with its principal offices located at 3235 Satellite Blvd., Building 400, Suite 290 Duluth, GA 30096 (hereinafter referred to as “Vystar”) and Revertex (Malaysia) Sdn. Bhd., a Malaysian company with its principal offices located at 1 ½ Mile, Jalan Batu Pahat, K.B. 508, 860009 Kluang, Johor, Malaysia (hereinafter referred to as “Revertex”), effective April 1, 2008 (“Effective Date”) based on the terms and conditions contained herein.

RECITALS

WHEREAS Vystar has considerable scientific and technological knowledge and capabilities in the field of low-allergen natural rubber latex, and specifically has obtained the following patents:
(1) 6,906,126; (2) 7,056,970; (3) PCT/US2005/025018 and has filed the following pending applications (1) 11,249,887; and (2) 61/022,250 “Vystar Patents”); and

WHEREAS Revertex has considerable technological knowledge and capabilities in the field of processing natural rubber latex; and

WHEREAS Vystar and Revertex desire to jointly investigate and develop large-scale standard operating procedures (“SOPs”) for processing low-active-protein, low-allergen, natural rubber latex; and

WHEREAS Vystar desires to appoint and Revitex desires to accept such appointment as an authorized and licensed manufacturer of Vystar’s patented Vytex CL60 and Vytex PV forms of natural rubber latex.

WHEREAS the parties have entered into a Letter of Intent dated August 22, 2006, as amended December 31, 2006 and June 19, 2007 (collectively, the “LOI”) in which the parties have begun Development to explore such a relationship.

NOW THEREFORE, in consideration of the mutual performance of the terms and conditions hereinafter set out, IT IS HEREBY AGREED AS FOLLOWS:

ARTICLE I Definitions
1.1 "Application" shall mean the application of chemicals and/or processes to natural rubber latex pursuant to and consistent with the Vystar Patents , including any future patents, continuations, derivative works, and/or new developments that would use any of the Vystar Patents as prior art or are otherwise related to the technology reflected by the Vystar Patents.



1.2 “Confidential Information” shall mean all information disclosed to a Party (“Receiving Party”) by the other Party (“Disclosing Party”) in connection with this Agreement that is conveyed (a) in written, graphic, or other tangible form and conspicuously marked “confidential”, “proprietary” or in some other manner to indicate its confidential or proprietary nature; or (b) orally, provided that such information is designated in writing as confidential or proprietary within thirty (30) days of such oral disclosure. Additionally, the following information shall be deemed Confidential Information even if not conspicuously marked “confidential” or “proprietary”: all documentation, formulations, algorithms, compilations, manuals, manufacturing processes, business methods, computer programs, symbols, or other know-how and supporting material related to the research, development, manufacture, marketing, sale, copy rights, trademarks, patents, technologies, trade secrets, Industrial Property Rights, and internal management systems of the Products, Systems and Technology subject to this Agreement, as defined herein, that are not generally known to the public, whether conveyed verbally, in writing, on diskette, on tape or other media.

1.3 “Confirmation” shall mean the written confirmation signed by both Vystar and Revertex accepting the Plan for Development of the Products.

1.4 “Copyrights” shall mean all copyrights, trademarks, trade names or other usages, whether registered or not, relating to the research, development, design, manufacture, package, assembly, testing, marketing, or sale of the Products in any and all jurisdictions around the world.

1.5 “Development” shall mean the development of manufacturing processes, procedures and other SOPs for the Application in large-scale processing to produce the Products.

1.6 “Improvements” shall mean any modifications, improvements, changes or derivative works to the Products, Technology, technical documentation or Information as defined herein, or Systems.

1.7 “ Industrial Property Right" shall mean any and all inventions, discoveries, developments, improvements and works relating either to the Application and/or the Products and their related manufacturing processes, whether patentable or not, including but not limited to patents and know how, developed by the Parties under this Agreement after the effective date of this Agreement.

1.8 “Know-how” shall include, but shall not be limited to, all technical information, (including but not limited to technical data or specifications, drawings, engineering information, process or production information, formulas, information on compositions of matter, techniques or methods, software or computer programs, and proprietary tools) related to the research, development, design, manufacture, package, assembly or testing of the Products;

2

 
1.9 “Licensed Activities” shall mean to research, develop, design, manufacture, package, assemble, test, and improve the Application for purposes of toll-manufacturing the Products for Vystar and/or marketing, selling and distributing the Products itself .

1.10 “Patents” shall mean all patent rights in any and all jurisdictions and all right, title and interest in all patent applications and patents to issue on them, all letters of patent or equivalent rights and applications, including any reissue, extension, division, continuation or continuation-in-part of applications throughout the world;

1.11 “Plan” shall mean a development plan that reflects the feasibility of the Development of the Products by Revertex, which shall initially be drafted by Revertex, and is attached hereto as Exhibit A, and made a part of this Agreement. Vystar maintains responsibility within the Plan for the Vystar Technology and the Application and Revertex maintains responsibility for the processes of treating and refining the natural rubber latex.

1.12 “Raw Materials” shall mean all items required for the Toll manufacture of the Products.

1.13 “Products” shall mean the low-active-protein and/or low-allergen natural rubber latex processed product resulting from the Application.

1.14 “Revertex Services” shall mean those services listed on Exhibit D attached hereto and incorporated herein by reference.

1.15 “Systems” shall mean any management or other system shared by Vystar with Revertex for the purposes of Revertex’ Development of the Products and optimizing the performance of production lines of Revertex for this purpose.

1.16 “Toll” or “Tolling” shall mean to convert/process Raw Materials into Products.

1.17 “Tolling Waste” shall mean any waste, as that term is defined under Regulatory Requirements as defined in Section 6.3, resulting from the Tolling of Raw Materials into Products under this Tolling Agreement.

1.18 “Technical Documentation” shall mean all drawings, data, charts, graphs, procedures, books, operation manuals, data, technical processes and other tangible technical literature necessary for the Systems and/or the research, development, design, manufacture, package, assembly or testing of the Products.

3

 
1.19 “Technology” shall mean, collectively, patents, know-how, copyrights, trademarks, trade names, and other Confidential Information which are disclosed or provided pursuant to the terms of this Agreement, and are necessary for research, development, manufacture, packaging, assembly or testing of the Products. That Technology controlled by Vystar as of the date of this Agreement, thereafter acquired by Vystar during the term of this Agreement, or otherwise developed during or pursuant to this Agreement or which relates to the Application, including all SOPs and other manufacturing processes previously developed or developed during the term of this Agreement or the LOI related to the Application, shall be referred to as “Vystar Technology”. That Technology controlled by Revertex as of the date of this Agreement, thereafter acquired by Revertex during the term of this Agreement, or otherwise developed during or pursuant to this Agreement related to the processing of compounded latex and prevulcanized lattices, and which does not relate to or depend upon the Application, the Products or the manufacturing or other processing for the Applications and Products, shall be referred to as “Revertex Technology”.

1.20 “Vystar Services” shall mean technical support or consulting services Vystar tenders to Revertex under this Agreement.

1.21 “Vytex CL60” shall mean the particular product resulting from applying the Application to the natural rubber latex that has not been treated with pre-vulcanized chemical processes.

ARTICLE II. Manufacturing, Packaging, Distribution and Commercialization of Products

2.1 Revertex shall procure the relevant Raw Materials for manufacturing and/or processing the Products. The cost for such Raw Materials shall be billed to Vystar on a cost plus model as described in Exhibit C on Revertex Fees for the Products that Vystar sells. Revertex shall inspect and test before unloading all Raw Materials promptly upon receipt and give Vystar immediate notice of defective or substandard Raw Materials. Revertex’s failure to provide such notice shall constitute a material breach of this Agreement.

2.2 Pursuant to the Plan and the Services described on Exhibit D, it is anticipated that Revertex will process, package, distribute, and possibly market and sell the Products. If Revertex desires to engage in these and other Licensed Activities, as defined below, Revertex shall comply with the following requirements:
2.2.1 With the exception of any product that Revertex is currently marketing as of the Effective Date, Revertex shall manufacture, distribute, promote and/or sell only the Vystar Products as Revertex’ chemically-treated, low-active-protein or low-allergen natural rubber latex product.

4


2.2.2 Revertex must include the Vystar trademark and trade name “Vytex” on all Product packaging, and if Revertex sells any of the Products for its own benefit, upon paying Vystar a Licensing fee that will be subject to a separate agreement, Revertex shall require of any of Revertex’ customers to whom Revertex markets, sells or distributes the Products that they similarly include the Vytex tradename and in the same manner as required of Revertex on all Product packaging manufactured, processed, packaged, marketed, sold or otherwise distributed by those Revertex customers. All such trademarks and/or trade names on all packages shall be used and placed as mutually agreed upon by the parties. All such marketing activities and trademark usage requirements shall be incorporated in this Agreement as Exhibit B. Neither Revertex nor any Revertex customer may make any changes to the use and placement of the Vystar trademarks and/or trade names without the express written approval of Vystar.
2.2.3 Should Revertex determine it desires to market and/or sell any of the Products, Vystar and Revertex (and/or Revertex’ agents approved by Vystar) shall mutually market the Vytex natural rubber latex, and each party shall include the other party in its marketing activities and materials, including any electronic or on-line product listing and catalogs.
2.2.4 Generally, Vystar shall have responsibility for marketing to the Product end-users world-wide, including product development and marketing groups located in the North American region and in companies not otherwise covered by Revertex. If Revertex elects to sell any of the Products, Revertex shall have responsibility for sales and marketing of the Products to the Product manufacturers outside of the North American region, specifically in Southeast Asia and Europe currently covered by Revertex, or as otherwise agreed to between the Parties.
2.2.5 Each party shall be fully responsible for the costs of its marketing materials for its marketing efforts. In the event that the parties engage in joint efforts that result in joint marketing materials, the parties shall share equally in these costs unless otherwise expressly agreed by the parties.
2.2.6 Each party shall provide to the other party sufficient documentation and training to facilitate each party’s co-marketing efforts under the licensing and non-disclosure requirements contained in this Agreement.
2.2.7 Each Party hereby grants a limited, nonexclusive, world-wide, non-assignable and non-transferable, royalty-free license to each party’s trademarks and copyrights for the co-marketing and sales activities and materials, provided that the trademarks and marketing materials are not altered or modified from the parties’ approved versions.
2.2.8 Each party shall only use marketing materials related to the other party that are approved by the other party.
2.2.9 Each party shall make opportunities available to invite the other party to marketing and sales meetings with potential customers and each party shall make good faith efforts to attend such sales and marketing meetings.

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2.3 Vystar shall provide to Revertex quarterly estimates, or such other interval mutually agreed to by the parties, reflecting the expected volume for Products required by Vystar.
2.3.1 Vystar will transmit orders for quantities of each of the Products to Revertex by separate orders containing details.
2.3.2 Revertex shall invoice Vystar for processing and storage of Products, along with the invoicing of any Raw Material provided by the Revertex, pursuant to sections 4.1, and in accordance with the schedule of fees shown in Exhibit C.

2.4 Warehousing/Storage.   To the extent that Vystar Raw Materials and Products are stored at Revertex’s site. Revertex shall provide sufficient and appropriate facilities for such storage. Details of such facilities are provided in Exhibit F.

2.5 Sole right and title to Products hereunder shall remain in Vystar at all times. Revertex shall not sell, transfer, grant any security interest in, encumber or otherwise dispose of any interest of Vystar in the Products.

2.6 Transportation.   If required by Revertex, Vystar will supply to Revertex information to assist Revertex in complying with any relevant transportation regulations for shipping Products.

2.6.1 Revertex shall ensure that precautionary labels, tags, hazard warnings statements, and other safety information are affixed to the containers in which the Products are shipped, in accordance with the relevant transportation regulations and specific directions furnished Revertex by Vystar.

2.6.2 Where the drumming of materials is part of the Tolling agreement, Vystar will provide Revertex with specific information which Revertex will use to print drum labels. Revertex shall affix labels to all drums and ensure that all drums, labels and markings comply with all Regulatory Requirement, including, without limitation, any relevant transportation regulations.

2.7 Waste, Recycle & Contamination. Revertex accepts all responsibilities under Regulatory Requirements, including the status of any generator or other equipment, for Tolling Waste. Prior to the initial contract, purchase order, or arrangement for removal, transportation, treatment, storage or disposal of Tolling Waste, Revertex shall notify Vystar with specifics of the transaction, so that Vystar may state any objection.

2.7.1 Revertex agrees promptly to notify Vystar of any change in the Tolling of Vystar Raw Materials into Products that could affect the quantity, type, or character of any Tolling Waste.

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2.7.2 If any non-waste material is produced by Revertex from Vystar Raw Materials or Products, which material Revertex intends to recycle or reuse or send to a third party for recycle or reuse, Revertex agrees to notify Vystar in advance of the recycle or reuse activity.

2.8   Spill and Transportation Accident Notification. Revertex shall immediately notify Vystar upon discovery of any leak or spill of Vystar Raw Materials or Products at Revertex’s site, if such leak or spill is not totally contained, recovered, and prevented from reaching the air, soil or water. Revertex shall report all incidents under Regulatory Requirements.

2.8.1 Revertex shall immediately notify Vystar, within3 hours maximum, of any transportation or operational accident involving Vystar Raw Materials or Finished Products. .
 
2.8.2 Revertex has a continuing obligation to notify Vystar of any matter addressed by this Section 2.8, even if such notice would not be immediate, and to update Vystar of any significant new or changed information or developments.

ARTICLE III. Fees
Where Revertex provides the Revertex Services described in Exhibit D for Vystar without selling any of the Products itself, Vystar shall pay to Revertex the fees described on Exhibit C labeled “Revertex Fees” (“Revertex Fees”).

ARTICLE IV. Limited License
4.1 Subject to the terms and conditions of this Agreement, Vystar hereby grants to Revertex a non-transferable, non-assignable, non-exclusive, world-wide, limited right and license to the Vystar Technology, Technical Documentation and Systems to research, develop, design, manufacture, package, assemble, test, and improve the Application for purposes of toll-manufacturing the Products for Vystar and/or marketing, selling and distributing the Products itself (“Licensed Activities”).

4.2 Subject to the terms and conditions of this Agreement, Vystar hereby also grants to Revertex a non-transferable, non-assignable, non-exclusive, world-wide limited right and limited license to use the Vystar trademarks, “Vytex™”, and other trademarks or trade names as expressly approved by Vystar on the packaging of the Products. Revertex shall not use any of Vystar’s trademarks or trade names in any other manner other than as expressly prescribed by Vystar. Revertex shall not deface, obliterate or otherwise modify any of the Vystar trademarks or trade names.

4.3 The Licenses in Sections 4.1 and 4.2 herein shall collectively be referred to as the “License”.

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4.4 Revertex shall not sell, transfer or assign any aspect of the License. The License shall be valid for the term of this Agreement unless terminated earlier as provided in this Agreement. Revertex shall not, and shall not permit its employees, representatives or agents to sell, assign, lease, sublicense, transfer or disclose to any third party, or allow any third party to use the, Vystar Technology, Technical Documentation, Systems or the Application except as specifically permitted by this Agreement.

4.5 Nothing contained herein shall be construed as granting the receiving party a license, an option on a license or any right to operate under any patent, technology or know how, or more generally under any Industrial Property Right of the disclosing party which may be disclosed by it under this Agreement and which shall remain its complete and full property.

4.6 In the event that Revertex determines it may need to utilize third parties to assist in the manufacturing of Vytex product due to the volume, the parties shall follow the procedures outlined in Article V Restriction on Subcontracting; Nonassignability provision described herein.

ARTICLE V. Restriction on Subcontracting; Nonassignability
5.1 Revertex shall not subcontract the Development or any of the other Licensed Activities in whole or in part to any third party without the prior written consent of Vystar. The rights and obligations granted and imposed upon the Parties pursuant to this Agreement shall not be assignable or otherwise capable of delegation, transferable, or subject to encumbrance by act of either Party or by operation of law or otherwise without the express written consent of the other Party. Any attempt to assign, delegate, transfer or encumber such rights or duties, absent the other Party’s prior written consent shall be null and void. Notwithstanding the foregoing, a transfer of all or substantially all of the assets of either Party to an affiliate of that Party shall not be deemed a prohibited assignment for purposes of this Article.

5.2 In the event that Revertex would require use of a third party to assist in the processing and or manufacture of the Products using the Application in order to meet Vystar’s quantities required, Revertex shall communicate such fact to Vystar with sufficient notice to allow Vystar to review such third party’s qualifications and approve of any such third party. In the event of Vystar’s approval to Revertex’ use of any such third party subcontractor to assist Revertex in processing or manufacturing the Products using the Application, such third party contractor shall be required to execute a limited license and confidentiality agreement with Vystar prior to any disclosure of Vystar’s Application and Vystar Technology by Revertex. For all other components of the subcontractor processing and manufacturing relationship, Revertex shall contract directly with and be responsible to Vystar for the third party’s production of the Products. The use of any third parties pursuant to this section shall not change the Revertex Fees charged to Vystar for the Revertex Services as described herein and on Exhibit C.

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ARTICLE VI. Quality & Performance Standards Compliance
6.1. Revertex shall engage in the Development activities and the other Licensed Activities with reasonable skill and care. Revertex represents that it has the requisite expertise, ability and legal right to engage in the Development activities and other Licensed Activities and that it can and will perform the Development activities and other Licensed Activities in an efficient and ethical manner.

6.2 Revertex shall establish and maintain programs which address continuous improvement of final product quality, and strive to achieve goals similar to the ISO 9001 quality process at a minimum. The status of such programs are to be shared with Vystar.

6.3 Revertex acknowledges that the Products are or may be governed by governmental regulations and licensing in the various jurisdictions in which the Products may be marketed, distributed and/or sold. It shall be the duty of Revertex to ascertain whether any drawings and specifications are at variance with the Regulatory Requirements applicable to it as a toll manufacturer before starting Tolling. If Revertex discovers any variance with the Regulatory Requirements in any drawings and/or specifications, Revertex shall promptly notify Vystar in writing and the necessary changes shall be made before proceeding with the part of the Tolling affected. Revertex shall obtain all permits necessary for the Tolling, and shall give all required notices. Revertex shall be responsible for complying with all government regulations and for seeking all required licenses, certifications and approvals required in order to comply with all governmental regulations and licensing that apply to Revertex’ Development activities and other Licensed Activities and as otherwise may be required of Vystar as the processor of record and which Vystar would be required to pass along to any of its contractor or toll manufacturers (“Regulatory Requirements”). Revertex shall have full and proper regard to and shall comply with all other relevant laws, regulations and codes of conduct in the performance of the Development and other Licensed Activities pursuant to this Agreement.

6.4 Revertex shall have a drug and alcohol policy applicable while performing services for Vystar. Revertex shall ensure that its employees and agents do not perform any service for Vystar while under the influence of alcohol or any controlled substance. Revertex is responsible for all aspects of compliance with regulations promulgated by the Occupational Safety & Health Act, 1994 and any applicable sate worker regulations. This obligation includes all training and hazard communication as required in the OSHA Regulations. If Revertex has not received sufficient information on the Vystar Raw Materials or Products, then Revertex shall contact Vystar for this information. Attached hereto as Exhibit E are Material Safety Data Sheets covering the Vystar Raw Materials to be Tolled by Revertex and covering the Products. If not already posted, Revertex agrees to disseminate and post copies of the Material Safety Data Sheets, including warnings and safety and health information concerning the Vystar Raw Materials and Products and/or their containers, in a conspicuous place in Revertex’s plant to which employees, agents, contractors or customers of Revertex have open and frequent access. Revertex agrees to otherwise advise its employees, agents, contractors or customers by disseminating all information furnished by Vystar regarding the possible hazards of, precautions concerning, and safe-handling procedures utilized in dealing with: (1) the Vystar Raw Materials, and (2) the Products to the extent not already disseminated by Revertex as a result of Revertex’ activities other than Vystar Tolling.

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6.5 Revertex shall not make any modifications to the Technical Documentation, the Systems, the Vystar Technology, Application or the Products without the express written approval of Vystar. If Revertex modifies or causes the modification without Vystar’s approval of the Technical Documentation, Systems, Vystar Technology, Application or the Products that are developed, manufactured, marketed, distributed or sold, Revertex shall indemnify and hold harmless Vystar against any and all claims, damages, fines, costs and expenses (including without limitation, reasonable attorneys’ fees and costs of suit) resulting from the defense, settlement and/or regulatory action related to Revertex’ use, development, manufacture, packaging, marketing, sale, distribution or any other Licensed Activity or other activity with respect to the unapproved modified Products. This indemnification shall survive termination or expiration of the Agreement.

6.6 In compliance with Vystar’s quality assurance procedure, Revertex is required to retain a sample measuring 500 cubic centimeters of Product after loading for each tank truck delivery. The sample shall be retained for three (3) months after each delivery. Provided that, in the event of a claim relating to any Product delivered, the sample of the said Product delivered shall be retained as long as necessary.

6.7 Revertex, in performing its obligations under this Agreement, shall establish and maintain appropriate business standards, procedures, and controls, including those necessary to avoid any real or apparent impropriety or adverse impact on the interests of Vystar. Revertex shall review with Vystar at reasonable frequency during performance of this Agreement, Revertex’s business standards, procedures, and controls, including, without limitation, those related to the activities of Revertex’s employees and agents in their relations with Vystar employees, agents and representatives, suppliers, subcontractors and third parties.

ARTICLE VII.   No   Warranties
BOTH VYSTAR AND REVERTEX GIVE NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE with respect to the activities described in this Agreement except as expressly set forth in this section. Neither party shall communicate any warranties on behalf of the other to any customer to which it markets, sells or distributes the Products other than that expressly described herein. Each party shall hold harmless and indemnify the other party for any warranties that it extends to any third party in violation of this provision.
 
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IN NO EVENT WILL EITHER PARTY OR ANY OF ITS SUPPLIERS OR LICENSORS BE LIABLE TO THE OTHER PARTY FOR: (1) LOST PROFITS, LOST DATA OR LOST USE, OR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR FOR ANY INDIRECT, SPECIAL, OR PUNITIVE DAMAGES REGARDLESS OF THE FORM OF ACTION, WHETHER CONTRACT, TORT STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF CUSTOMER OR ANY OTHER PERSON HAS ADVISED THAT PARTY OR ANY OF ITS SUPPLIERS OR LICENSORS OF THE POSSIBILITY OF SUCH DAMAGES; (2) DAMAGES CAUSED BY THE OTHER PARTY’S FAILURE TO PERFORM ITS RESPONSIBILITIES UNDER THIS AGREEMENT; (3) REPAIRS OR ALTERATIONS DONE WITHOUT THE PRIOR WRITTEN APPROVAL OF THE OTHER PARTY; OR (4) USE OF THE OTHER PARTY’S TECHNOLOGY, TECHNICAL DOCUMENTATION, SYSTEMS, OR APPLICATION OR ULTIMATE PRODUCTS IN A MANNER THAT IS NOT AUTHORIZED BY THIS AGREEMENT. THE REMEDY OF CONSEQUENTIAL DAMAGES SHALL NOT BE AVAILABLE EVEN IN THE EVENT THE SOLE AND EXCLUSIVE REMEDY OF REPAIR AND/OR REPLACEMENT FAILS OF ITS ESSENTIAL PURPOSE.

THIS LIMITATION WILL NOT APPLY TO CLAIMS FOR DEATH OR PERSONAL INJURY CAUSED SOLELY BY THE NEGLIGENCE OF A PARTY OR ITS EMPLOYEES, SUBCONTRACTORS OR AGENTS.

ARTICLE VIII. Reports, Records, Access & Audits
8.1 Revertex shall submit to Vystar its final report on the Development on or prior to the date specified in the Plan.

8.2 In the event that Revertex is unable to submit the final report by the specified date as referred to in the preceding paragraph, Revertex shall notify Vystar to that effect without delay.

8.3 Vystar may from time to time request that Revertex make a report on the progress of the Development and manufacture or other Licensed Activities and Vystar shall be entitled to provide instructions or assistance for, or be present at, the implementation of the Development or manufacture and packaging, at the site where Revertex carries out the Development and/or manufacture and packaging.

8.4 Revertex shall keep accurate and thorough records in sufficient detail to enable Vystar and/or any governmental or licensing body to inspect records and activities related to the Development and other Licensed Activities. Upon Vystar’s request, and after reasonable prior notice, Revertex shall permit Vystar or an independent auditor to have access during ordinary business hours to Revertex’ records and operation to determine Revertex’ compliance with this Agreement and with respect to the Development and other Licensed Activities. Such examination shall be at Vystar’s expense and shall not take place more than once each six (6) months, unless required more often by a governmental or licensing agency or Vystar has reason to believe Revertex may not be complying with the Regulatory Requirements, the License or other obligations described herein.

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8.5 Revertex shall retain the original of the final report on the Development, original data, experimental products, and other related materials in an appropriate manner for a period of 3 years from the date on which the final report is submitted to Vystar. The procedures after the expiration of the retention period shall be determined through discussion between the parties.

8.6 Revertex and Vystar agree that all transactions will be accurately reflected in their books and records, and that no funds or other assets will be paid directly or indirectly to government officials (or persons acting on their behalf) for the purpose of influencing government decisions or actions. Violation of this policy will result in the immediate termination of this Agreement. No employee, agent, contractor, subcontractor or other third party used by Vystar will have the authority to give any direction, either written or oral, relating to the making of any commitment by Revertex, Vystar or their agents to any third party in violation of the terms of this section.

8.7 If Revertex receives any request for audit, inspection, information or other action by a governmental or licensing body, or other third party with respect to the Products or the Application, Revertex shall immediately notify Vystar. If Revertex becomes aware of any defect or other concern regarding the Products or Application which it knows or suspects may cause injury, harm or other hazards associated with the use or control of the Products, Revertex shall immediately inform Vystar of such and both parties will determine the appropriate course of action with respect to notifying any governmental authority, customers or other third party(ies).

ARTICLE IX . Product & Technology Discontinuation or Modification
9.1 Vystar reserves the right to modify or discontinue any Vystar Technology, System, Technical Documentation, Application and resulting Product upon thirty (30) days notice to Revertex. If such modification or discontinuation is due to Regulatory Requirements, as described in this Agreement, the notice period of such modification or discontinuation shall be pursuant to such Regulatory Requirements and will be as stated in the notice to Revertex. In some cases, this modification or discontinuation may be effective immediately.

9.2 In the event that, prior to the completion of the Development, Vystar provides Revertex with notice of discontinuation of all or part of the required test, Revertex shall promptly discontinue the Development. The settlement of the development fees accrued prior to the discontinuation shall be made by agreement through discussion between the parties.
 
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9.3 In cases where the Development is discontinued pursuant to the preceding paragraphs, Revertex shall promptly provide to Vystar the results of the Development achieved prior to the termination. The manner to deal with the original data and experimental products with respect to the Development having been created prior to the discontinuation shall be determined through discussion between the parties.
 
ARTICLE X. Confidentiality
10.1 During the course of performing this Agreement, it is anticipated that both Parties will learn Confidential Information of the other Party. Each Party shall keep confidential the Confidential Information and shall not use or disclose, either directly or indirectly, to any person or entity the Confidential Information of the other Party for any purpose other than as provided for in this Agreement without the express, written permission of the other Party, except that each Party may: (i) use the Confidential Information of the other Party to carry out the activities expressly permitted hereunder; (ii) disclose the Confidential Information of the other Party to those persons who have a need to know such Confidential Information in order to carry out the activities expressly permitted hereunder on behalf of the Receiving Party and who are bound by confidentiality obligations no less stringent than those contained herein; and (iii) disclose the Confidential Information as required by law or orders from any government departments, legislative bodies or governing courts, provided that, in such event, the Receiving Party subject to such obligation shall promptly notify the Disclosing Party to allow intervention to contest or minimize the scope of the disclosure or apply for a protective order. Each Party agrees to take precautions to prevent unauthorized disclosure or use of the Confidential Information, and such precautions shall be consistent with the precautions used to protect the Receiving Party’s own confidential information of like significance, but in no event less than the care exercised by a reasonable business person in the protection of its valuable confidential information. In the event that the Receiving Party learns or has reason to believe that any person who has had access to the Confidential Information of the Disclosing Party has violated or intends to violate the terms of this Agreement, the Receiving Party shall immediately notify the Disclosing Party and shall cooperate with the Disclosing Party in seeking any relief against any such person or violation.

10.2 In the event of any unauthorized disclosure of the Disclosing Party’s Confidential Information by any of the Receiving Party’s employees, vendors, contractors, agents or other third party with access to the Disclosing Party’s Confidential Information, the Disclosing Party shall have the right to commence legal proceedings directly against such employee, vendor, contractor, agent or third party, and such right shall be stipulated in the non-disclosure undertaking executed by the Receiving Party’s employees, vendors, contractors, agents or other third parties. The Parties hereto both acknowledge that damages that would be suffered by the Disclosing Party as a result of a breach of the provisions of this Article X may not be determinable and that an award of a monetary judgment for such a breach would be an inadequate remedy. Consequently, the Disclosing Party shall have the right, in addition to any other rights it may have, to obtain, in any court of competent jurisdiction, injunctive relief or any other equitable relief to restrain any breach or threatened breach of any provision of this Article X or otherwise to specifically enforce any of the provisions hereof.

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10.3 Confidential Information shall include, but shall not be limited to all aspects of the Technology, Systems, Technical Documentation, Application and Products shall be deemed as Confidential Information for all purposes and at all times. Notwithstanding the above, the confidential obligation contained in this paragraph shall not apply to any of the following information to the extent that it can be demonstrated in writing that the information:
1) is already known to the public through no violation of a nondisclosure obligation at the time of disclosure by the other party;
2) becomes known to the public without fault of the receiving party after the disclosure by the other party;
3) is already in the possession of the receiving party at the time of disclosure by the other party;
4) is lawfully obtained without any obligation of confidentiality from a third party who has the right to make such disclosure (subparagraphs 1-4 shall be referred to as “Non-Confidential Information”); or
5) is required to be disclosed by any governmental or judicial agency, but only after the Receiving Party has given the Disclosing Party notice of such disclosure request and given the Disclosing Party an opportunity to object and/or seek a protective order.

10.4 The Receiving Party must seek prior written approval from the Disclosing Party for any vendors, contractors, subcontractors, or other third parties that the Receiving Party proposes to use for any work involving the Disclosing Party’s Confidential Information. Any such vendors, contractors, subcontractors and third parties must be bound by confidentiality, nondisclosure agreement containing terms equivalent to those contained herein and the form of which has been approved by the Disclosing Party. The Receiving Party shall also procure non-disclosure undertakings from its employees having access to the Confidential Information on a need-to-know basis. The terms of the non-disclosure undertaking shall be no less stringent than those contained herein.

10.5 All Confidential Information of a Disclosing Party shall remain the sole property of such Disclosing Party. At the termination or expiration of this Agreement, or at any time the Disclosing Party requires, the Receiving Party shall return to the Disclosing Party all equipment, manuals, reports or other written or soft copy information regardless of the form, whether originals, copies, derivative works, test results or other information created by the Receiving Party reflecting the Disclosing Party’s Confidential Information, and shall not keep or retain any copies of the Disclosing Party’s Confidential Information. The confidentiality and nondisclosure obligations contained in this Article X shall survive termination of this Agreement until such time as the Confidential Information becomes Non-Confidential Information pursuant to the terms contained herein.

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ARTICLE XI. Ownership of Results and Industrial & Intellectual Property Rights
11.1 Any manufacturing techniques or processes or any know how, in the broadest sense, invented and/or developed under this Agreement shall be owned as follows. If relating (i) to the Application and manufacturing processes related to the Application, the Technical Documentation, Systems, Vystar Technology, and resulting processes, components, manufacturing processes and SOPs or other Vystar Confidential Information shall be Industrial Property Rights or other intellectual property rights owned by Vystar (“Vystar Owned Property”; (ii) to manufacturing processes of compounded latex and prevulcanized lattices not relating to the Application, Revertex Technology, and resulting processes, components, manufacturing processes and SOPs or other Revertex Confidential Information shall be Industrial Property Rights or other intellectual property rights owned by Revertex (“Revertex Owned Property”). All of the Technology owned individually by either Vystar or Revertex, as defined herein, shall be prosecuted by that party individually in their sole individual discretion.

11.2 All Improvements made to, which shall include derivative works made from, the individually owned Technology, being either Vystar Owned Property or Revertex Owned Property (“Owning Party”), the corresponding Technical Documentation, Systems, Application or products by one or more employees or contractors of the non-Owning Party shall be works for hire and shall remain the exclusive property of the Owning Party as part of the Owning Party’s Confidential Information.
11.2.1 Such Owning Party Improvements shall become subject to this Agreement; and
11.2.2 The expenses and costs in procuring and maintaining the intellectual property protection for the Improvements shall be the responsibility of the Owning Party, who shall determine whether to apply for patent or other appropriate protection and, if so, which party shall prepare and prosecute such application and in which countries corresponding applications shall be filed and by whom.

11.3 During the term of this Agreement, the non-Owning Party shall notify the Owning Party of Improvements it or one of its contractors has made to the Owning Party’s Technology. The non-Owning Party and/or its contractors, and their employees, representatives and contractors shall cooperate fully with the Owning Party in preparing, prosecuting, and otherwise securing such intellectual property protection. Expenses of preparing, prosecuting and otherwise securing such intellectual property protection shall be borne by the Owning Party.

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11.4 All results obtained by any of the tests carried out shall be vested in the Owning Party, as defined herein, and the Owning Party may use such results without any restriction.

11.5 If a Party becomes aware that the Products infringes upon an Intellectual Property Right of a third party, it will promptly notify the other Party thereof in writing. In such event, each Party will do everything possible to cure the Products from a potential infringement in order to avoid as much as possible an infringement suit. In case an infringement suit is nevertheless instituted by a third party against one or both of the Parties, each Party will equally participate in any and all costs for the defense thereof. If the other Party does not respond favorably to the registered letter within thirty (30) days after the date it has been sent, the initiating Party will have the right to bring a claim or legal action against such infringing entity in such country, the costs and proceeds of which will be borne and recovered by that initiating Party solely.

11.6 In case a counterclaim relating to the Products is instituted against the initiating Party, it will immediately inform the other Party thereof by registered letter or courier with signature evidencing delivery mentioning all details relating to such counterclaim. In such case, the initiating Party will make available to the other Party any defense in such counterclaim and the other Party will have the right to join the initiating party in the claim or legal action at any time possible and/or to participate in the defense of the counterclaim. Any participation and/or observations will be taken into account by the initiating Party in as far as reasonable. In the event that the other Party joins the initiating Party, the costs and proceeds will be handled as if the parties had jointly brought the claim or legal action.

11.7 No settlement by the initiating Party will diminish the rights or interests of the other Party in the Products without the other Party’s prior and explicit written consent.

ARTICLE XII. Health Hazards and Insurance
12.1 In the event that in the course of implementation of the Development or any of the Licensed Activities any employee of Revertex has suffered damage to his/her health caused by or in connection with the Products, Revertex shall take immediate necessary actions and promptly notify Vystar to that effect, and both parties shall discuss and determine necessary matters including the determination as to whether or not the scheduled test shall continue to be carried out.

12.2 Revertex shall maintain and keep in force during the term of this Agreement premises, workers’ compensation, general public liability insurance and any other insurance against any insurable claim which might or could arise regarding the development, manufacturing and packaging or any of the Licensed Activities of the Products. Revertex shall add Vystar as an additional insured on Revertex’ insurance policies, and shall provide Vystar with a copy of such. Revertex shall notify Vystar immediately upon any modification, termination or expiration in coverages.

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ARTICLE XIII. Indemnification
13.1 Each Party (the “Indemnifying Party”) shall defend, indemnify and hold harmless the other Party (the “Indemnified Party”) and its parent, sister and subsidiary companies, affiliates, directors, supervisors, officers, employees, agents, representatives and consultants (“Indemnified Persons”) from and against any and all claims, actions, damages, fines, losses, expenses, costs (including without limitation reasonable attorneys’ fees and litigation or arbitration costs) or other liability incurred by the Indemnified Party and Indemnified Persons, arising out of or relating to any allegation of or actual breach of any: (1) term or condition of this Agreement; (2) any representation, warranty or covenant of the Indemnifying Party under this Agreement; (3) any negligence or willful misconduct; (4) any claims of damages by any third party resulting from any act or omission of the Indemnifying Party; and/or (5) any infringement or violation by the Indemnifying Party of any third person’s intellectual property rights arising as a result of the Indemnifying Party’s entering into and/or performance of or attempt to perform this Agreement and/or (6) any violation of the Regulatory Requirements. Provided that the Indemnified Party shall provide to the Indemnifying Party prompt written notice of any such claim for which indemnification is sought and shall further provide reasonable cooperation in the defense and all related settlement negotiations thereof. The Indemnifying Party shall have the sole right to control the defense of a claim for which indemnification is sought hereunder. Notwithstanding any of the foregoing, the Indemnified Party shall have the right, in its absolute discretion and at its sole cost, to employ attorneys of its own choice in the defense of such claim. Neither Party shall have any liability for claims arising out of the other Party’s use of the Technology, the Technical Documentation, the Systems, and/or the Products not authorized by this Agreement or with any changes not approved by the other party.

13.2 Each Party shall bear all costs and expenses incurred in relation to any claim or cause of action due to that Party’s own misconduct or negligence.

13.3 Where such injury, death, loss or damage is the result of the joint or concurrent negligence or misconduct of both Revertex and Vystar or their respective agents, employees, representatives, or contractors, Revertex’s duty of indemnification shall be reduced in the same proportion attributed to the negligence or misconduct of Vystar, its agents, contractors, employees or representatives.

ARTICLE XIV. Term & Termination
14.1 Term. This Agreement shall become effective on the Effective Date and shall remain in full force and effect for three (3) years from the Effective Date, unless and until earlier terminated hereunder or unless modified by any term provision in the Plan or Confirmation. This Agreement shall be renewable for successive 2-year terms upon mutual agreement of the Parties ninety (90) days prior to each previous term’s expiration.

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14.2 Termination without Cause. Either Party may terminate this agreement upon one hundred twenty (120) days notice to the other Party.

14.3 Termination with Cause. Unless otherwise provided by law, either Party may terminate this Agreement in the event that the other Party breaches any provision of this Agreement after the non-breaching party serves the breaching party with a notification specifying a reasonable period of time, but in no case less than ten (10) days, during which the breach shall be remedied and, if the breaching party fails to remedy the breach within the specified period, the non-breaching party may terminate this Agreement and/or the then effective Plan and Confirmation and may claim from the breaching party direct and ordinary damages resulting from the termination. This liability for damages shall not apply to indirect, special, incidental, consequential or any other damages than the direct or ordinary damages.

14.4 Termination Upon Occurrence of Events. Either Party hereto may immediately terminate this Agreement upon delivering notice to the other party if any of the following events occurs:
14.4.1 Thirty percent (30%) or more of the assets of the other party becomes subject to attachment, provisional attachment, provisional disposition, public sale, procedures for tax delinquency, petition for an auction sale, or any other sanctions imposed by public authorities;
14.4.2 A petition is filed by or against the other party for the institution of proceedings for corporate arrangement, civil rehabilitation or special liquidation, or for bankruptcy, which is not dismissed within thirty (30) days;
14.4.3 An order is issued by a competent regulatory agency to suspend the business of, or revoke the business license or business registration of, the other party that is related to this Agreement;
14.4.4 The other party becomes unable to make any payment or becomes insolvent, or the financial standing of the other party has otherwise seriously deteriorated, or there is a reasonable ground to suspect the deterioration and acceptable reassurances have not been given after twenty (20) days notice of such suspicions.

14.5 Upon the termination of this Agreement Revertex shall cease to use any of the Technology, Systems, Products, Application or Technical Documentation, unless otherwise authorized by Vystar, and shall promptly return to Vystar all information, Technical Documentation (including copies thereof) and the remaining sample substance of the Application or any Product.

14.6 Notwithstanding the foregoing, the termination of this Agreement shall not relieve either Party of any liability or obligation accrued prior to such termination, and such termination shall not affect any provision, which shall be effective after such termination as stipulated or implied herein. The exercising of its rights in this Article XIV by either Party shall not impair the exercising of other rights of such Party pursuant to provisions of law or herein, including, but not limited to the right of the terminating party to claim damages.

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ARTICLE XV. Force Majeure
15.1 Notwithstanding any provisions herein, no Party shall be held liable or responsible to the other Party for failure or delay in fulfilling or performing any obligation under this Agreement if such failure or delay is caused by actions, inactions or events which are beyond the reasonable control of the affected Party, the effect of which is to prevent or interfere with such Party’s performance hereunder, including but not limited to any weather; natural disasters; government action or inaction or other governmental laws, orders, restrictions, embargos or blockades; war; national or regional emergency; city riot or other civil disobedience; revolution or rebellion; strike or other work stoppage; fire; explosion; flood; sabotage; pestilence; accident or breakdown of machinery, unavailability of fuel, labor, containers or transportation facilities; accidents of navigation or breakdown or damage of vessels, or other conveyances for air, land or sea or other impediments or hindrances to transportation; or any other circumstances of like or different character commonly referred to as an act of God or force majeure. Each Party agrees to give the other Party prompt written notice of the occurrence of any such condition and shall make all reasonable efforts to perform despite such occurrence. In the event of that such condition continues for more than three (3) months, the Parties may consult with each other to determine whether or not to terminate this Agreement.

15.2 Notwithstanding the aforesaid, the Parties shall perform obligations stipulated herein as soon as possible after the end of such force majeure.

ARTICLE XVI. Jurisdiction
Vystar and Revertex agree that any disputes arising out of or in connection with this Agreement shall be governed by Georgia law in the United States of America (“U.S.A.”) and submitted into a court of competent jurisdiction in Atlanta, Georgia, U.S.A..

ARTICLE XVII. Matters subject to Discussion/Entire Agreement/Amendment
This Agreement, along with its Schedules, Plans and Confirmations constitutes the entire understanding between the Parties, and supersede all previous undertakings, agreements, and understandings, whether oral or written, between the Parties hereto. No modification, amendment or alteration of this Agreement shall be effective unless agreed to in writing signed by both Parties. Any matters not provided for in this Agreement or any doubts arising in connection with the interpretation of this Agreement shall be resolved through good faith discussions between the parties hereto.

19


ARTICLE XVIII. Notice
All notices, requests and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if delivered by hand or by registered return mail to:
 
In case of Vystar :
William Doyle
President & COO
3235 Satellite Blvd.
Building 400, Suite 290
Duluth, GA 30096
Phone: +1 770-965-0383
Fax: +1 770-965-0162

In case of Revertex
__ Revertex (M) Sdn. Bhd. __
_______________________
Attn:    Chong Yee Ming __
Phone: + 607-770-1300 ____
Fax: +__ 607-776-7062 ____

Provided, however, that if a Party shall have designated a different address by notice to the other Party, then to the last address so designated. Either Party may change its address by giving written notice to the other Party.

ARTICLE XIX. Relationship of the Parties/No Third-Party Beneficiaries
19.1 The relationship between Vystar and Revertex is that of independent contractors with respect to all matters related to this Agreement. Each Party agrees that discretionary authority over all significant business matters with respect to the other Party and its Technology rests with the owning Party, and the non-owning Party shall have no authority, whether express or implied, to make contracts, representations, warranties or any other obligations in the name of, or binding upon, the owning Party. Neither Party shall be responsible for the other Party’s acts .

19.2 This Agreement is made for the benefit of the Parties hereto and is not intended to benefit any third parties and shall not be available for enforcement or benefit of any third parties not a Party to this Agreement as evidenced by a duly authorized signature hereto.

20


ARTICLE XX. Severability
If a court or arbitrative panel of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable, the provisions of this Agreement shall be separable and such invalid or unenforceable term(s) shall be ineffective in the affected jurisdictions to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement. The remaining provisions of this Agreement and the invalidated provisions in other non-affected jurisdictions shall remain in full force and effect until the Agreement terminates or expires.

ARTICLE XXI. Waiver
The waiver by either Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of that particular provision or any other provision on the Agreement. Failure by any Party at any time to enforce any of the provisions of this Agreement shall not affect or impair such provisions in any way, or the right of any Party at any time to avail itself of any remedies it may have for breach of such provisions pursuant to this Agreement, either in equity or in law.

Article XXII Taxes
22.1 Vystar shall reimburse Revertes for any existing taxes which Revertex may be required to pay upon the production, transportation, delivery, use, possession or storage of the Products, but not taxes upon, or measured by, the income of Revertex or the Raw Materials. Vystar shall provide Revertex, upon request, with properly completed exemption certificates for any tax from which Vystar claims an exception.

22.2   Unless it elects otherwise, Vystar shall reimburse Revertex for any new taxes or increase in existing taxes which Revertex may be required to pay upon the production, transportation, delivery, use, possession or storage of the Product (other than taxes upon, or measured by, the income of Revertex or the Raw Materials) if Revertex provides Vystar with written notice of such new or increased tax. However, within thirty (30) days after receiving such written notice from Revertex, Vystar may elect by written notice to Revertex not to reimburse Revertex, in which event Revertex may terminate this Agreement upon written notice. If Vystar does not give written notice of its ele tion not to reimburse Revertex, Vystar shall reimburse Revertex for such new or increased taxes.

22.3   Notwithstanding the above, Vystar shall render all of its property stored or retained at Revertex’ facilities to the appropriate government authorities for the purposes of determining any personal property tax that may be assessed against such property. Vystar shall pay any personal property tax assessed against its property directly to the appropriate government authorities.


21


ARTICLE XXIII. Parts
This Agreement may be executed in two (2) or more counterparts, which together shall form a single agreement as if both Parties had executed the same document.

ARTICLE XXIV. S urvival
The following Sections and Articles shall survive the termination of expiration of this Agreement: Jurisdiction Article XVI, Effect of Termination Section 14.5, Indemnification Article XIII, Ownership Article XII, Confidentiality Article X, Records Retention Section 8.5, No Warranties Article VII, and Audit Section 8.7.

In witness hereof, the Parties hereto have caused this Agreement to be executed in duplicate with their respective names and seals affixed thereto, and each Party shall retain one copy thereof.

Date: April 11, 2008

Vystar Corporation
   
Signature: /s/
  

Name:
  
   
Title:
  
   
Date:
  

Revertex:
   
Signature: /s/
  

Name:
  
   
Title:
  
   
Date:
  
 
22

 
EXHIBIT A
PLAN
CONFIDENTIAL
VYTEX Ô NRL SOP
Preparation of Vytex Ô Natural Rubber Latex from Field Latex
Authors: Travis Honeycutt, Matt Clark, Vystar Corporation

1.0 INTRODUCTION

1.1 Purpose
The purpose of this procedure is to describe a means of chemically reducing the antigenic protein (AP) level in natural field rubber latex without diminishing the physical properties of the latex.

1.2   Procedure
This procedure is performed prior to concentration. The beginning feedstock is field latex, containing approximately 27% total solids content (TSC) prior to de-sludging.
 
1.3   Results
The protein results of this procedure are to be determined by Donald Guthrie Foundation Education Research Institute, an independent laboratory analysis using the ASTM D6499-03 Inhibition ELISA protocol. Once the aging process is completed, as proscribed in Section 4.2, a sample of the batch should be sent within three (3) days to the following address for protein testing:

LEAP Testing Service
c/o Donald Guthrie Foundation for Education & Research Inc
Attn: Dr. David Kostyal
One Guthrie Square
Sayre, Pennsylvania 18840
Phone: (570) 882-4645
Fax: (570) 882-4666 or 882-5151
E-mail: LTS@guthrie.org

2.0 PREPARATION OF CHEMICALS TO TREAT 1 KG OF FIELD LATEX (
***********************

3.0   MIXING & CENTRIFUGING of VYTEX Ô NATURAL RUBBER LATEX
***********************

************* THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT

23


4.0   CONCLUSION & DISCUSSION
4.1 A charged surfactant is mixed with the natural rubber latex emulsion and stirred to extract or ‘wash’ the proteins from the cisisoprene micelles.  The surfactant acts on the protein molecules through van der Waal forces or weak hydrogen bonding to bring the protein into the hydrophilic phase.  Excess surfactant is used to keep the micelles suspended in the hydrophilic phase.  Meanwhile, insoluble aluminum hydroxide is added to the emulsion which captures the proteins with electron pair sharing bonding.  The resultant insoluble complex is separated from the emulsion by centrifuging or filtration.

4.2 Similar to existing practices by processors of latex, Vytex NRL should be stored for 21 days for maturation purposes prior to distribution.  Further, the Certificate of Analysis (COA) that will accompany every Vytex NRL, as described in the Services of Exhibit D, should only include test results taken immediately after the 21 day maturation process.  An example of the COA is attached for reference.  The following is a list of parameters with definitions for completion;

 
·
Date Issued: The initial starting date of the production run.  This should be listed by month & day and year.  For example- February 2, 2008
 
·
Lot#: The lot # is defined by the month, day, and last two digits of the year.  Also noted will be the trial run.  For example- 020208/12
 
·
Product Name: The product name will always be defined as Vytex™ NRL
 
·
Customer: The customer will define the recipient of Vytex NRL.  For example- Regent Hospital Products Sdn Bhd
 
·
Address: The address will reflect the destination of the Vytex NRL material.  For example- Lot 9, Lorong Perusahaan 4, Kulim Industrial Estate 09000 Kulim, Kedah Darul Aman, Malaysia
The test result for each property measured should be the median value of at least three samples measured per property.     

24

 
Certificate of
 
Vytex Ô Natural Rubber Latex (NRL)

DATE ISSUED:     February 2, 2008

LOT #:
020208/12
   
PRODUCT NAME:
VYTEX TM NRL
   
CUSTOMER:
  
   
ADDRESS:
  
   
    

Properties Measured and Units of Measurement
 
Test Date
 
Test Method
 
Test Result
 
Specification
 
TSC (%)
  2-25-08   ISO 124    
60.40
   
60-62
 
Alkalinity (%)
  2-25-08   ISO 125    
0.71
   
0.60-0.80
 
VFA no.
  2-25-08   ISO 506    
0.016
   
0.070 Max
 
Viscosity, cPs (sp 2/60)
  2-25-08   ISO 1652    
62.5
   
20-100
 
Mechanical Stability Test (MST)
  2-25-08   ISO 35    
1,800
   
800-2,500
 
Coagulum (mesh# 80) ppm
  2-25-08   ISO 706    
35
   
100 Max
 
pH
  2-25-08   ISO 976    
10.87
   
10-11.5
 

We certify that we have tested a representative sample from the above product. All tests are carried out in accordance to the following stated QC Test Methods based on relevant standards.

All the test samples were prepared in accordance to Sampling Method ISO 123.
 
25

 
The measurement of uncertainty of the tests is available upon request.
 
   
Approved Signatory
   
Name
  
   
Designation
  
 

Vystar Corporation 3235 Satellite Boulevard, Bldg.400, Ste. 290 • Duluth, GA 30096 • V 770.965.0383 • F 770.965.0162 • www.vytex.com
 
26


EXHIBIT B
TRADEMARKS

Revertex shall place the following trademark label on all packaging and/or bills of lading shipping the Vytex™ NRL. The size of this label shall be appropriate for the size of the packaging. For example, for sample-sized shipments, the label shall be no smaller than 4 inches by 6 inches. For 55 gallon drum-sized shipments, the Vytex label shall be no smaller than 8 inches by 12 inches. Vystar shall provide Revertex with the graphics for such labeling.

If the Vytex order is in a larger sized vessel than a 55-gallon drum, the Vytex label shall be placed on the bill of lading accompanying that shipment. The Vytex trademark label on the bills of lading shall be no smaller than 2 inches by 3 inches.

Revertex shall also comply with the following additional usage requirements:
 
1.
The Vytex logo must be present on all Vytex NRL products and samples.
 
2.
Revertex must not obstruct the Vytex logo by placing any other elements either on or too close to the logo.
 
3.
The Vytex oval shape must not be used as a decorative element.
 
4.
Revertex must not add any trademark symbol to any of the Vytex or other Vystar products or in conjunction with the Vytex or Vystar logos that do not already appear there from Vystar.
 
5.
Revertex may only use the Vystar and Vytex logo or oval symbol in connection with the packing and shipping of Vytex consistent with the terms in this Manufacturing Agreement.

Revertex may use the Vystar and Vytex trademarks only as provided for herein unless expressly approved in writing by Vystar.

The following is the Vytex logo.


Vytex™ is a trademark of Vystar Corporation, Duluth, Ga

27


The following is the Vytex logo as it should be used on product labeling.

 
Vytex™ NRL
Production Date: _________
 
Vytex™ is a trademark of Vystar Corporation, Duluth, Ga

28


EXHIBIT C
FEES
 
The Fees shall be all-inclusive for the Services, as described in this Agreement and as listed in Exhibit D. The Fees shall be calculated initially* as follows:

1.   ***************, plus
2.   ***************, plus
3.   ***************, plus
4.   ***************.

* With an increase in volume of Vytex NRL toll manufacturing, the parties shall negotiate a volume discount schedule.

************* THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT

29


EXHIBIT D
REVERTEX SERVICES

The Revertex Services shall include all activities required to follow the procedures outlined in the Plan and SOP as described in Exhibit A and in the Agreement generally. Without limiting the foregoing, the Services shall include the following:

 
1.
Procurement of all raw materials and raw latex required to manufacture the Vytex™ NRL, as described in the Plan and SOP attached hereto as Exhibit A.
 
2.
Mixing of all materials required to required to manufacture the Vytex NRL.
 
3.
Centrifuging of the NRL and the Vytex NRL mixture after application of the Vytex process and chemicals pursuant to the SOP in Exhibit A.
 
4.
Holding and Aging of the Vytex NRL mixture.
 
5.
Storing Vytex NRL.
 
6.
Testing each batch and/or lot of Vytex NRL and providing a Certificate of Analysis (“COA”) in triplicate with the standard parameters. Revertex shall: (i) send 1 copy of the COA to Vystar upon completion of the testing, (ii) keep 1 copy for the required record retention period (no less than 10 years) and shall send the 3 rd copy to the customer designated for that batch and/or lot number as prescribed by Vystar.
 
7.
Packaging the Vytex NRL for shipment.
 
8.
Arranging for and putting into the hands of the common carrier mutually agreed to by the parties.
 
9.
Notifying Vystar on a periodic basis agreed to by the parties of the status of manufacturing, inventory and shipment, and as otherwise requested by Vystar.
 
10.
Submitting the reports to Vystar on the manufacturing process and test results as requested by Vystar on the intervals mutually agreed to by the parties, but in no event less than quarterly.
 
11.
Participating in periodic conference calls and/or meetings to review the Services and experiences.
 
12.
Participate in and be available for communications with Vystar clients and prospective clients on specifications and other discussions regarding Vytex NRL.
 
13.
Other services as mutually agreed to by the parties.

30


EXHIBIT E
MATERIAL SAFETY DATA SHEETS
 

31



32


EXHIBIT F
REVERTEX STORAGE FACILITIES DESCRIPTION

33

 
CONFIDENTIAL TREATMENT REQUESTED
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND THAT MATERIAL HAS BEEN FILED
SEPARATELY

DISTRIBUTOR AGREEMENT

This Agreement (“Distributor Agreement” or “Agreement”), dated and effective as of January 6, 2009 (the “Effective Date”), is made and entered into by and between Vystar Corporation, a Georgia corporation, with an address of 3235 Satellite Blvd., Bldg. 400, Suite 290, Duluth, GA 30096 (“Company” or “Vystar”), and Centrotrade Minerals & Metals, Inc., a Delaware corporation with an address of 1317 Executive Boulevard, Suite 120, Chesapeake, VA 23320 and Centrotrade Deutschland, GmbH, a German company with an address of Koelner Strasse 10b 65760 Eschborn Germany  (individually and collectively referred to as “Distributor”).

ARTICLE 1   APPOINTMENT
 
Section 1.1   Term and Renewal
 
Company hereby appoints Distributor, and Distributor hereby accepts appointment, as a non-exclusive Distributor for the Company for its Vytex NRL™ products (“Products”) in the territory/ies defined in Schedule A.  ***********************************.  This appointment is subject to the terms and conditions of this Agreement, is effective as of the Effective Date, and shall continue in effect until the end of the third (3 rd ) full calendar year following the Effective Date unless earlier terminated pursuant to Section 1.3 below.  This Agreement shall renew automatically for successive one (1)-year terms thereafter.  Terms may be changed at any time upon mutual agreement in writing.
 
Section 1.2   Category & Responsibilities
 
 (1)
In addition to the responsibilities set forth there and elsewhere in this Agreement, Distributor shall have the following responsibilities:
 
 (a)
To use its best efforts to promote, market, and sell the Products for Company-branded Products located in the Territories pursuant to Schedule A.  Distributor shall accept shipments of such Products at Company’s ship point of Malaysia, pursuant to Section 3.6. The Company branding shall be pursuant to the Trademark Guidelines described in Schedule B;
  (b)
To provide pre-sale, transactional and post sale (technical and logistical) functions including, but not limited to:
 
(i)
making and providing to potential customers reasonable quantities of sales literature relating to such Products available to Distributor; and
 
(ii)
providing such pre-sale functions as Company in its sole discretion shall permit; and
  (iii)
sampling the Products as requested by end-user customers pursuant to the Sampling Agreement contained on Schedule E.  Distributor shall ensure that the Sampling Agreement in Schedule E is either executed by such end-user customers or is made an integral part of the contract and sample ordering between Distributor and end-user customer.
 
(c)
To maintain at its address an active place of business for sale of the Products
 
Distributor Agreement – Page 1

 
*************** THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
(d)
 
To maintain warehouse space that protects the Products from damage and deterioration consistent with: (i) Company’s handling and storage requirements discussed in Schedule C; (ii) the Product labels and packaging; and (iii) all federal and state laws and regulations;  
 
(e)
To promote the Products **********************************************;
 
(f)
To make no representations with respect to any given Product inconsistent with the specifications, documentation, and warranty from Company for the Product;  
 
(g)
To promptly deliver ordered Products to customers only in Company’s original packaging or re-packaging approved by Company.  Distributor shall not deliver Products without a Company-approved user agreement and license being made part of the agreement between Distributor and end-user customer or delivered prior to or along with the shipment of Products delivered to end-user customers.  Distributor shall not otherwise use or distribute the Products (including temporarily or otherwise transferring to a third party) for its own use and purpose or for the use and purpose of others;
 
(h)
To purchase Products only from Company, or another authorized Company Distributor acting within the scope of its authority from Company, , or as otherwise mutually agreed;
 
(i)
To require that Distributor personnel participate in training for the Company Products, and to provide efficient and effective after-sale services, as described in the Company training, and in this Agreement and its Schedules;  
 
(j)
To facilitate Product returns by such customers due to market withdrawals by Company, to ensure Product quality, appearance, and performance prior to redistribution, and to maintain records of all re-distributions and/or returns;
 
(k)
To provide Company with regular and accurate reports and information regarding Distributor’s sale and service of Products in the format and frequency requested by Company;
 
(l)
To maintain distribution records reflecting volumes sold to whom and otherwise sufficient to meet legal and regulatory requirements for recalls relating to the Products, as instructed by Company.  Distributor shall provide Company with these distribution reports quarterly;
 
(m)
 
To immediately notify Company of any concerns, comments or complaints from customers involving the safety, labeling, effectiveness, quality, performance, reliability or other problem with a Product by contacting Company pursuant to the Notice provisions contained herein.  Such notice shall include:
 
(i)
an explanation of the specific nature of each problem or issue; and
 
(ii)
the Product lot and batch number; and
 
(iii)
whether any alleged event involved any injuries or created the potential for injury;
(n)
To comply with local, municipal, state, and federal laws, and
  (o) To otherwise comply with all obligations and requirements of this Agreement and Company Policies, as distributed to Distributor, and which may be updated from time to time as described below.
 
 (2)
Company reserves the right to sell any or all of its products in the Territories and elsewhere directly and/or to appoint other Distributors to sell any or all of its products in Distributor’s non-exclusive Territories.  *****************************************.  Distributor reserves the right, subject to its obligations under this Agreement, to market and/or distribute any products of other manufacturers .
 
Distributor Agreement – Page 2


*************** THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
(3)
Company reserves the right to unilaterally amend, modify or supplement its Policies or adopt additional terms or Policies applicable to Distributors upon thirty (30) days written notice.  Each amended or new provision shall be deemed incorporated by reference herein, shall prevail over any conflicting prior provision, and apply to Distributor by the later of its effective date or the end of the thirty (30) day notice period.
 
(4)
In the event that Company sells Product directly, as provided for in Schedule A, and Company desires to utilize Distributor to receive Product from Company’s manufacturing facility and deliver Product to Company’s end-user customer, Company will so notify Distributor.  Company shall pay Distributor a fee-for-service rate consistent with Distributor’s then-current service rates. Each year of this Agreement, Distributor and Company shall negotiate what those fee-for-service rates for the handling and delivery of Product on behalf of Company shall be.
 
Section 1.3   Termination
 
 (1)
This Agreement may be terminated, to the extent permitted by law, as follows:
 
 (a)
by Company or Distributor, without cause and without regard to any other provision of this Agreement, by providing at least ninety (90) days written notice of termination to the other;
 
(b)
by Company or Distributor, if the other is in violation of any of its obligations under this Agreement, by providing at least thirty (30) days written notice of termination specifying the breach or violation for which termination will occur, but only if such breach or violation is not remedied within the notice period;
 
(c)
by either Party immediately by providing written notice of termination if the other Party, in the first Party’s reasonable judgment, engages in fraud or misrepresentation or violates Article 2, Section 5.1, Section 5.2, Section 5.3, or any other section or provision of this Agreement where a violation cannot be promptly remedied or which indicates within its text that failure to comply with it is immediate grounds for termination;
 
(d)
by Company or Distributor if voluntary or involuntary bankruptcy, arrangement of creditors, insolvency, or receivership proceedings are brought with respect to the other party and (if “voluntary”) not terminated within 30 days.
 
 (2)
Upon termination,
 
 (a)
Distributor shall immediately pay Company for all Products previously ordered and acknowledged by Company whether received by Distributor or not, but not yet paid for and for all other amounts owed to Company for any reason, whether otherwise immediately due or not (neither termination nor receipt of such payments shall limit Company’s other legal or equitable rights under this Agreement or otherwise)
 
(b)
Company shall have the option, but, subject to applicable law, not the obligation, to purchase Distributor’s remaining Product inventory at Distributor’s net cost Company costs, or at such other amount as may be agreed;
 
(c)
Distributor shall no longer in any manner represent or imply that it is a Company Distributor and, with respect to any person or entity who continues to believe, or acts as if it continues to believe, that Distributor is a Company Distributor, shall affirmatively notify said person or entity that Distributor is no longer a Company Distributor;
 
(d)
When this Agreement concludes for any reason, each party shall immediately return, or if not feasible to return, shall destroy and otherwise cease to use all Confidential and Proprietary Information, as defined herein, of the other party in its possession or control (electronic copies on non-removable media shall be erased and made incapable of recovery).
 
Distributor Agreement – Page 3

 
 (3)
Upon the issuance of a notice of termination by either Company or Distributor, Company may, in its discretion and without waiting for the end of the notice or cure period, refuse to accept or cancel or suspend an order or require payment in advance of shipment, cancel or suspend any pending orders or require payment in advance and may direct customers of Distributor to other Company Distributors and/or authorized re-sellers and/or may recommend to other Distributors that they call upon such customers.

 (4)
The following parts of this Agreement survive expiration or termination of this Agreement: Article 2, ARTICLE 4, Section 5.2, and ARTICLE 6.

Section 1.4 Joint Marketing Activities

(1) Vystar and Distributor (and/or Distributor’s agents approved by Vystar) shall mutually market the Vytex natural rubber latex consistent with the training, education and literature Company provides to Distributor as provided above.

(2) Each party shall be fully responsible for the costs of its marketing materials for its marketing efforts.  In the event that the parties engage in joint efforts that result in joint marketing materials, the parties shall share equally in these costs unless otherwise expressly agreed by the parties.

(3) Each party shall provide to the other party sufficient documentation and training to facilitate each party’s marketing efforts under the licensing and non-disclosure requirements contained in this Agreement.

(4) Each Party hereby grants a limited, nonexclusive, world-wide, non-assignable and non-transferable, royalty-free license to each party’s trademarks and copyrights for the joint marketing and sales activities and materials, provided that the trademarks and marketing materials are not altered or modified from the parties’ approved versions.

(5) Each party shall only use marketing materials related to the other party that are approved by the other party.

(6) Distributor may make opportunities available to invite the Company representatives to marketing and sales meetings with potential customers with respect to the Products.  Company may make opportunities available to invite Distributor to such sales meetings with potential customers within Distributor’s exclusive Territories.  Each party shall make good faith efforts to attend such sales and marketing meetings.

ARTICLE 2   INTELLECTUAL PROPERTY
 
Section 2.1   Confidential & Proprietary Information
 
 (1)
Confidential and Proprietary Information of a party includes information concerning its (or any of its affiliated entities) business (including, but not limited to, trade secrets, systems, manufacturing or other processes, technical data and test reports, computer software programs, procedures, prices, pricing policies, discounts, terms of sale, sales data, marketing plans or strategies, customer information, names of customers, manuals and documentation, confidential reports and communications), financial condition, data supplied by Company for technical support, testing, operation and maintenance of its products, or any other information identified by a party in writing upon disclosure as being confidential information or proprietary information.   The terms of this Agreement and its Schedules shall be considered Confidential and Proprietary Information.
 
Distributor Agreement – Page 4

 
 (2)
Each party agrees that it shall not permit (or permit its employees, agents, affiliates or related entities to permit) the duplication or disclosure of any Confidential and Proprietary Information of the other party to any person (other than an employee of the party who must have such information for the performance of his obligations hereunder, and who agrees, in writing, not to disclose such information), unless such duplication, use or disclosure is specifically authorized by the other party in writing.
 
 (3)
Confidential and Proprietary Information does not include information of a party (the “Disclosing Party”) that:
 
(a)
is or becomes publicly available and confirmed through no fault of the non-Disclosing Party;
 
(b)
is rightfully obtained by the non-Disclosing party from an unrelated source not in violation of a non-disclosure obligation; is disclosed with the written consent of the Disclosing Party; or
 
(c)
is disclosed pursuant to court order or other legal compulsion (in which case, however, the non-Disclosing Party who may be compelled to disclose the information shall advise the Disclosing Party of the possibility of disclosure and cooperate with the Disclosing Party in opposing disclosure if the Disclosing  Party so desires).
 
 (4)
Distributor shall treat the terms of this Agreement as Confidential & Proprietary Information of Company, but may disclose the terms as required to lenders, counsel, auditors, or others having legitimate business interests in the content upon a commitment of said persons or entities to be bound by the terms of this Section.  Distributor shall be responsible to Company for any breaches by any such persons or entities of such provisions.
 
Section 2.2   Documentation & Distributor End-Customer Licenses
 
Distributor acknowledges that the purchase of any Product includes a license to use the Product pursuant to Company licensing and other terms for the sale and use of the Product.  Distributor shall have the right to use this license only to the extent that Distributor requires in order to sell and repackage said Products pursuant to Company approval and the terms of this Agreement.  The license must be transferred to a permitted purchaser of said Product, and Distributor must require the end-user customer to execute and/or acknowledge agreement to the license and/or Product purchase agreement provided to Distributor by Company, attached hereto as Schedule D.  Distributor shall not (and shall not authorize any third party to) copy, disassemble or reverse engineer, or otherwise use Product for any purpose other than use or sale for the manufacture of an end consumer product, and shall not make copies or make media translations of the documentation for any Products except as allowed by Company in writing.  Distributor agrees to take commercially reasonable steps to prevent its own employees and agents from allowing access to such documentation other than as part of a Product that is sold in compliance with this Distributor Agreement.

Distributor shall not make any modifications to the end user or sub-contractor Distributor licenses or other documentation without the prior written consent of Company.   Distributor acknowledges that the Products may be used for raw material for the manufacture of medical devices subject to Federal and other medical device regulations (“Regulations”).  Any tampering, alteration or technical service without proper training, certification, and prior authorization from Company could implicate these Regulations.  Such activities may also result in the voiding of the Products’ warranty.  If Distributor modifies, causes modification to be made, or fails to comply with the storage ,shipment and handling requirements contained in this Agreement without the prior written consent of Company, Distributor shall indemnify and hold Company harmless against damages, costs and expenses (including, without limitation, reasonable attorney’s fees and costs of suit) resulting from the defense and settlement of any claim by a third party that Customer’s or Distributor's use or mishandling violates any regulation or law or infringes any intellectual property rights of such claiming party.  The provisions contained in this paragraph shall survive termination or expiration of this Agreement.  Distributor shall require that any end-user customer to whom Distributor sells Products abides by the terms contained in this paragraph.
 
Distributor Agreement – Page 5

 
Section 2.3   Labeling & Marketing Trademarks
 
Company hereby grants to Distributor a non-exclusive license to use the Company trademarks, both the name and the stylized form as used by the Company from time to time, and the applicable Product trademarks (collectively, the “Trademarks”) solely in connection with the advertising, promotion and repackaging of the Products. Distributor’s use shall be strictly in accordance with Company’s policies regarding advertising, labeling and trademark usage, attached hereto as Schedule B, and all uses shall inure to the benefit of Company.  Company shall have the right to monitor the quality of the Products and all uses of Trademarks by Distributor.  Distributor shall provide Company with copies of any and all promotional, advertising, sales or other materials using Company trademarks or product names prior to publication, use and distribution.

Except to the extent set forth above in this paragraph regarding the right to “use” Company trademarks, Distributor shall have no right whatsoever in or to any trademark, trade name, or copyright of Company.  Distributor shall not misuse, alter, remove, obliterate, deface, change, replace, or apply any labeling or trademark, copyright or other proprietary notices including any patent, trademark, copyright or other proprietary notice of Company used on or in connection with Products, documentation and other related materials supplied to Distributor under this Agreement.
 
Section 2.4   Ownership
 
Patents, trademarks, copyrights, trade secrets, documentation and any other intellectual and/or proprietary property and information pertaining to or included with the Products, whether in original form or any derivative works, are acknowledged by Distributor to be valuable trade secrets and the exclusive property of Company and/or its suppliers, and neither Distributor nor any customer shall have or gain any right, title, interest in or to or a license in any such property except where expressly assigned or granted in writing by Company hereunder.

Company maintains and retains exclusively all proprietary rights to any Products specified in this Agreement and to all discoveries, inventions, patents, copyrights and other rights arising out of work done by Company or Distributor in connection with this Agreement and to any and all products developed by Company or Distributor as a result thereof, including the sole right to manufacture, reproduce, sell and license any and all such products.  Distributor shall not, either on its behalf or on behalf of others, register or attempt to register or make any claim of ownership adverse to Company regarding any of the patents, trademarks, copyrights or intellectual property rights of Company or any other rights resembling those of Company.

Distributor shall promptly report to Company any infringement of which Distributor may become aware in connection with the patents, trademarks, copyrights or other intellectual property rights of Company pertaining to the Products.  Company shall have the sole discretion to pursue any such infringements.  If Company pursues such infringements, Distributor shall cooperate with Company as requested.

Distributor Agreement – Page 6

 
ARTICLE 3 ORDERS, CREDIT, SECURITY INTEREST, PAYMENT, SHIPMENT, RETURNS & PRICING
 
Section 3.1    Orders, Forecasts & Minimums
 
Distributor shall place orders with Company as desired and is required to supply Distributor’s end-user customers with Product.  ******************************************  If no forecasts or other advance estimation is given to Company for Product orders, a Distributor order may take up to 90 days from Distributor order to delivery of Product.  In certain instances, at Company’s sole election, Company may provide to Distributor advance stock of Product for Distributor to have on-hand and available to be shipped to Distributor’s end-user customers without having to wait for the full order and shipment schedule from order placement to order receipt (“Advance Stock”).  Distributor will distribute this Advance Stock on a first-in, first-out basis and shall pay Company for such Product within thirty (30) days of shipment to Distributor’s end-user customers, or upon receipt of payment by Distributor, whichever occurs first.
 
Section 3.2   Credit
 
If Distributor intends to purchase Products on credit from Company, it must be approved by Company’s Credit Department.  If Distributor desires to seek such approval, it shall submit a Company Distributor credit application consisting of a completed and signed Company credit application form, a completed and signed Bank Information Release Form, current annual financial report as published (“Credit Documents”), and must authorize Company to investigate its credit.  Distributor shall supply such Credit Documents on an annual basis if requested by Company for the purposes of evaluating Distributor’s credit-worthiness and compliance with the terms of this Distributor Agreement.  Each order received from Distributor shall be subject to Company credit department approval, and shall not be considered binding or valid unless and until accepted in writing by the Company.  Any conflicting terms or conditions set forth in any purchase order or acknowledgment shall have no force or effect, notwithstanding Company’s acceptance of the order.
 
Section 3.3    Payments
 
Distributor shall place purchase orders with Company for all purchases of Products, which shall be payable upon thirty (30) days from date of invoice unless the Parties have mutually agreed otherwise.  Company in its sole discretion may move Distributor to a pre-payment or cash on delivery method of payment if Distributor is more than sixty (60) days delinquent or becomes thirty (30) days or more delinquent in its payments for more than two (2) out of any six (6) month period of time.


*************** THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
Distributor Agreement – Page 7

 
Section 3.4   Security Interest
 
(a)
Company shall retain a security interest in the Products and any related goods and documents until the complete satisfaction and discharge of any and all of Company’s present and future claims and receivables from the business relationship between Company and Distributor. (b) Distributor hereby undertakes to mark and store separately the Products with the security interest retained by Company (i.e., those subject to this reservation of title).  (c) Company shall become the owner of any new products produced in the case that Distributor processes, converts or transforms the Products subject to Company’s reservation or permits any of the foregoing, without incurring thereby any liability or any obligation.  In the case that Distributor combines, mixes, blends, commingles or processes the Products subject to this reservation of title with other goods owned by third parties or transforms them with other goods owned by third parties, Company shall acquire and be entitled to co-ownership of the new goods produced in the proportion to the contributing values of the goods subject to the reservation and the value of the other goods previously owned by third parties.  To that extent, the new goods are considered goods subject to reservation for the purposes of these terms and conditions.  (d) a sale of goods subject to reservation is only permitted in the ordinary course of business.  Any other dispositions, in particular pledging or chattel mortgaging of the goods subject to reservation are not permitted, and Distributor shall not allow any lien or encumbrances on such goods.  Any claims or receivables arising to the Distributor in connection with the goods subject to this reservation due to resale or other disposal or otherwise are hereby fully assigned to Company in advance by Distributor.  In the case of co-ownership, the assignment applies only to the share of the claim or receivable corresponding to Company’s co-ownership.  An onward sale or other disposal is only permitted if the assignment to Company and its and its other rights are maintained and not negatively affected thereby.  (e) Distributor is only authorized to collect the claims and receivables assigned to Company in the ordinary course of business and subject to revocation by Company at any time.  On Company’s request, Distributor shall inform its debtors of the assignment in the proper form.  In addition, Distributor grants Company an irrevocable power of attorney so that Company is likewise entitled and authorized to do so at any time.  (f) Distributor’s authorization to dispose, to process, to transform, to combine, to mix, and to blend the goods subject to this reservation, and to collect the claims and receivables assigned hereby, shall terminate ipso jure upon its non-compliance with the terms of payment, in the case of unauthorized disposals or of any protest in connection with checks, bills or letters of exchange, or default on any other payment obligation or if Distributor files a voluntary bankruptcy petition or if insolvency proceedings are instituted against Distributor, or if a substantial deterioration of the customer’s financial situation becomes apparent or known to Company.  In such cases, Company shall be entitled to take immediate possession of the goods subject to reservation, for this purpose or at any time upon reasonable request (which may be up to 72 hours from Company request) Company may enter Distributor’s premises, and to obtain all information reasonably required by Company on the goods subject to reservation and, if applicable, on claims or receivables which have arisen or may result from their resale or other disposition, as well as to inspect Distributor’s records, if this serves to secure Company’s rights.  Acceptance of the goods, receivables or respective claims by Company involves a rescission of the contract only if explicitly stated in writing by Company.  (g) Should the value of the collateral or security given by Distributor to Company or retained by Company hereunder exceed the value of Company’s claims, rights and receivables as a whole, by more than 20%, Company shall release upon Distributor’s request an appropriate amount of any such surplus of collateral. (h) Company may file or record this Agreement or a copy of this Agreement or financing statement(s), pursuant to the Uniform Commercial Code, to perfect, continue, release, assign, terminate and/or amend its security interest.  (i) When all such amounts have been paid in full, Company shall, at Distributor’s written request, execute financing statements to terminate Company’s security interest in the Products.  (j) Distributor will provide additional security as may, from time to time, be deemed necessary by Company’s credit department.  Such security may include, but is not limited to, personal guarantee(s), security agreement(s) and letter(s) of credit.
 
Distributor Agreement – Page 8

 
Section 3.5   Past Due Payments to Company
 
All amounts more than thirty days past due from Distributor to Company will be subject to a service charge of 1.5% per month or the maximum allowed by law measured from the date the amount was due.  Amounts due from Distributor to Company shall not be subject to set-off against credits or payments due from Company to Distributor.
 
Section 3.6   Shipment
All shipments of Product to Distributor will be F.O.B. Malaysia – 1 st loading point.  Distributor shall be responsible for the cost and payment of all shipments.  Upon mutual agreement by the Parties, Company may pre-pay for shipping and charge to Distributor on its invoices. In the event that Distributor requires shipping methods out of the ordinary course of business for urgent situations or otherwise (e.g., air shipments), Distributor shall be responsible for the costs and risk of loss of such shipments.
 
Section 3.7   Returns and End User Claims
 
Generally, Products are sold without return privileges.  Distributor shall inspect the Products for any physical and observable defects within forty-eight (48) hours of receipt to determine if Products are damaged.  If Products are damaged, as determined within this  forty-eight (48) hour period, Distributor shall notify Company within such forty-eight (48) hour period for instructions on either return or disposal of the Product. Distributor may return to Company Product returned to Distributor which does not meet the published specifications provided Distributor complies with the following requirements: (a) Distributor requires its end-user customers to inspect Product shipped to such end user customers within seven (7) days of such end-user customer receipt and notify Distributor within that seven (7) day period of such Product rejection; (b) Distributor requires that all claims made by its end-user customers in connection with Products be in writing to Distributor disclosing specific information regarding claim of defect or nonconformance, including test results. (c) Distributor notifies Company of any such Product rejection by Distributor’s end-user customers within forty-eight (48) hours of receiving notice of such rejection by Distributor’s end-user customer; (d) Distributor shall require that all Products must be in original condition, unadulterated or altered; (e) Distributor shall require that its end-user customers comply with the storage and handling requirements described in Schedule C; and (f) Distributor complied with the requirements in Schedule C with respect to such rejected Product. Distributor shall be required to retain a return-authorization for all returns.  Failure to make such claim within the stated period or prior to the alteration of Products shall constitute an irrevocable acceptance of the Products and deemed conforming without return privileges.
 
Section 3.8  Pricing
 
Pricing shall be **********************.
 

*************** THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT

Distributor Agreement – Page 9

 
ARTICLE 4   WARRANTIES AND LIMITATIONS
 
Section 4.1   Warranties
 
UNLESS OTHERWISE AGREED IN WRITING, THE WARRANTY (INCLUDING THE REMEDY FOR BREACH THEREOF) ON A PRODUCT PURCHASED BY DISTRIBUTOR, THAT IS SOLD WITH WRITTEN DOCUMENTATION DELIVERED WITH THE PRODUCT THAT INCLUDES A SPECIFIC WARRANTY SHALL BE THE WARRANTY STATED THEREIN, AND, IF THERE IS NO DOCUMENTATION OR NO SPECIFIC WARRANTY WITHIN THE DOCUMENTATION DELIVERED WITH THE PRODUCT, SHALL BE THE PUBLICLY PUBLISHED WARRANTY SET FORTH FOR THE PRODUCT IN THE COMPANY CATALOG OR WEBSITE IN EFFECT AT THE TIME OF THE SALE OR AS OTHERWISE IDENTIFIED IN THIS AGREEMENT OR THE SCHEDULES.  ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY, ARE EXCLUDED.
 
Section 4.2   Limitations of Liability
 
COMPANY SHALL NOT BE LIABLE TO DISTRIBUTOR (OR ANYONE CLAIMING THROUGH DISTRIBUTOR) FOR DAMAGES FOR INTERRUPTION OF BUSINESS, OR INDIRECT, SPECIAL, PUNITIVE, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS).  THIS EXCLUSION APPLIES REGARDLESS OF WHETHER THE ACTION LIES IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR ANY OTHER FORM.  IT APPLIES TO ANY CLAIM RELATED TO ANY DEGREE TO THIS AGREEMENT AND TO ANY CLAIM RELATED TO THE SALE OR PURCHASE OF A SPECIFIC PRODUCT OR SERVICE FROM COMPANY, AND APPLIES EVEN IF COMPANY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  COMPANY SHALL IN NO CASE BE LIABLE TO DISTRIBUTOR (OR ANYONE CLAIMING THROUGH DISTRIBUTOR) ON A CLAIM RELATED TO A GIVEN PRODUCT OR SERVICE IN EXCESS OF THE AMOUNT ACTUALLY PAID BY DISTRIBUTOR FOR THAT PRODUCT, OR ON ANY OTHER KIND OF CLAIM IN EXCESS OF THE AMOUNT PAID BY DISTRIBUTOR TO COMPANY FOR THE SIX MONTHS PRIOR TO OCCURRENCE OF THE LAST EVENT WHICH GAVE RISE TO THE CLAIM.
 
Section 4.3   Indemnification
 
Distributor agrees to defend, indemnify and hold Company, its affiliates and their respective employees, officers, directors and stockholders harmless from and against any and all damages claimed by a third party as a result of actions by Distributor in violation of this Agreement.  Distributor agrees to defend, indemnify and hold Company, its affiliates and their respective employees, officers, directors and stockholders harmless from and against any and all damages for damages to property, bodily injury, death, or other injuries arising from the negligence or misconduct of Distributor or any person for whom Distributor is legally responsible, or has apparent responsibility, relating to the storage, handling, or sale of any of the Products, or otherwise.  Company agrees to defend, indemnify and hold Distributor, its affiliates and their respective employees, officers, directors and stockholders harmless from and against any and all damages arising from a claim of infringement of a United States patent, trademark, or copyright arising from the authorized sale by Distributor of one or more Products.  The party seeking indemnification in any case shall promptly give written notice to the other of the claim for which indemnification is sought and shall cooperate with the other party in the defense of such an action or suit.  The failure to give or delay in giving any such notice shall not limit the indemnifying party’s rights hereunder except to the extent it is prejudiced thereby.  The indemnifying party shall have the right, at its expense, to direct any such legal proceeding and the negotiation and settlement of any such claim or demand.  The indemnifying party shall have no liability for any settlement made without its consent or for any fees or expenses incurred by the other party after the indemnifying party begins directing the legal proceeding.

Distributor Agreement – Page 10

 
ARTICLE 5   MISCELLANEOUS
 
Section 5.1   Independent Contractor; No Property Rights
 
Distributor is not an agent, representative, partner, fiduciary or franchisee of Company and has no right to sell franchises or to become a franchisee under the laws of any state.  Nothing in this Agreement or any other agreement between the parties or in the course of business or course of performance between the parties shall make either party a representative, agent, joint venture, partner, fiduciary or franchisee of the other.  It is not intended by the Parties, and this Agreement shall not be deemed to confer any property or other rights onto Distributor beyond the terms contained herein.  Distributor shall not make any statements or representations to the contrary.  No party shall have any authority to legally bind the other in any way whatsoever.  In all of their respective performance hereunder, the parties are acting solely as independent contractors.
 
Section 5.2   Inspections & Audits
 
Company shall have the right within twenty-four (24) hours of Company’s request during normal business hours to inspect the Products in Distributor’s inventory, and to inspect and audit (i) Distributor’s storage and handling procedures, (ii) Distributor’s purchasing and sales records and other books and records, (iii) Distributor’s, warranty (and post-warranty if applicable) and other contracts and records regarding the Products, and (iv) Distributor’s documentation and procedures relating to information supplied by it to Company for purposes of any discount program or otherwise, all to determine Distributor’s compliance with this Agreement and with Company Policies and requirements.  Company shall be responsible for all third-party costs in conducting such audits.  Otherwise, each party shall bear their respective   internal administrative time and related internal costs incurred in connection with such inspections.  Distributor shall maintain its books and records necessary to verify such compliance for no less than seven years.  Such audit shall be conducted with reasonable notice during normal business hours and may be conducted by Company personnel or by independent agents selected by Company.  Following completion of the audit, Company may deduct from any credits due to Distributor the amount determined by the audit to be owed by Distributor to Company, along with interest on such amounts at the rate identified herein.  If insufficient credits exist to cover the deduction or Company elects not to deduct from credits, Distributor shall promptly transfer to Company funds necessary to cover the amount owed to Company and make Company whole.   Distributor and Company shall reconcile account receivables and inventory accounts monthly or at time increments to be mutually agreed upon.
 
Section 5.3   Assignment and Transfer of Control
 
Distributor may not assign or delegate, or permit the assignment or delegation of this Agreement, in whole or in part, may not accept assignment or delegation by another authorized Company Distributor of its Distributor agreement to Distributor, and may not acquire authorized shipment points of another authorized Company Distributor without the express written consent of Company.  Company has complete discretion regarding the criteria and terms and conditions under which Company may permit assignment of this Agreement, or permit another authorized Company Distributor to assign its Distributor agreement to Distributor, or permit the transfer of authorized shipment points from another authorized Company Distributor.
 
Distributor Agreement – Page 11

 
Section 5.4   Insurance
 
*********************************************.
 
Section 5.5   Taxes
 
Sales, use, property and other taxes measured by sales, receipts or otherwise due as a result of, or in connection with, the sale, license, or transfer of the Products are not included in the prices on Company’s pricing, and shall be the responsibility of Distributor for the purchase of such Products.  Where applicable, such taxes will be billed unless a valid exemption certificate is furnished.  Taxes will be billed on the full price of the items purchased, i.e., the amount prior to discounts due to trade-ins, credits, etc.  Where a valid exemption certificate is furnished, tax will not be billed unless Company can determine that the purchase will be used in a taxable manner.  Omission of tax should not be construed as a basis for exemption.  If items purchased are used in a taxable manner, and no tax is billed by Company, Distributor is required to remit applicable taxes directly to the taxing authorities.  Distributor shall pay all applicable state and local taxes and all shipping and handling charges.  Distributor shall promptly reimburse Company for any such charges paid by Company.  Distributor will be responsible for collecting any taxes due resulting from the re-sale of Product to its end-user customers.

ARTICLE 6   ITEMS OF LAW
 
Section 6.1   Construction & Interpretation
 
This Agreement, together with the attached Schedules, contains the entire agreement between Company and Distributor with respect to the subject matter.  All prior oral and written arrangements, understandings, discussions, representations, demonstrations, negotiations, and correspondence are merged into and superseded by this Agreement.  If any provision of this Agreement is held to be illegal or invalid or unenforceable by any court or arbitrator of competent jurisdiction, such provision shall be deemed severed and deleted, without affecting the validity of the remaining provisions of this Agreement.  The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect in any way the full right to require such performance at any time thereafter, nor shall the waiver by any party of the breach of any provision hereof be held to be a waiver of the provision itself.  All titles and captions, as well as the Table of Contents hereto, are for convenience only and are not to be used in interpretation or construction of this Agreement.  The terms and conditions of this Agreement shall extend to, and inure to the benefit of, and be binding upon the respective permitted successors and assigns of the parties, including shareholders in liquidation.
 
Section 6.2   Law & Disputes
 
This Agreement shall be deemed to have been entered into and executed in Georgia and shall be construed, interpreted, performed, and enforced in all respects (including choice of law principles) in accordance with the laws of Georgia.  Any legal proceedings relating in any manner to this Agreement or the relationship between the parties shall be brought in Atlanta, Georgia.  Distributor irrevocably waives any objection which it may now or hereafter have to such venue, and further irrevocably waives any claim that any such proceedings are in an inconvenient forum.  If Company places Distributor’s account in the hands of an agency or attorney for collection, Distributor will be responsible for the expenses, fees, and costs of collection, including, without limitation, agency and attorney fees and court costs incurred to the extent permitted by law.  In the event of a breach of any provision in ARTICLE 2,

*************** THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
Distributor Agreement – Page 12

 
Section 5.2 (Inspections and Audits), or Section 1.2(1)(h) (Representations of Warranties) by a party, the other party shall, in addition to any other remedies available under this Agreement or in law or equity, be entitled to obtain injunctive relief to require compliance, and costs incurred in obtaining such injunctive relief, and such damages as a court of competent jurisdiction shall award.  EACH PARTY WAIVES ITS RIGHT TO TRIAL BY JURY.
 
Section 6.3   Notices
 
All notices required by this Agreement shall be in writing and be sent (i) by certified mail, return receipt requested; (ii) by hand; or (iii) by a nationally recognized overnight courier service.  A notice shall be effective upon receipt.  A party may change the addresses for notice to it by written notice in compliance with this paragraph.  Notices shall be sent to the following addresses as appropriate:

To Distributor:
« Centrotrade Minerals & Metals, Inc »
1317 Executive Boulevard, Suite 120
 Chesapeake, VA 23320

To Company:
Vystar Corporation
3235 Satellite Blvd
Bldg. 400, Suite 290
Duluth, GA 30096
 
Section 6.4   Force Majeure
 
Force Majeure is defined as any circumstance beyond the reasonable control of the party including, without limitation, fire, explosion, or other casualty, power failure, acts of God, war, revolution, civil commotion, or acts of public enemies, any law, order, regulation, ordinance, or requirement of any government or legal body or any representative of any such government or legal body, or labor unrest including without limitation, strikes, slowdowns, picketing or boycotts.  If either party’s performance under this Agreement is interfered with by reason of a Force Majeure, that party shall be excused from such performance on a day-to-day basis; the excusal shall not apply to Distributor’s obligation to make payment for sums due.
 
Section 6.5   Counterparts
 
This Agreement may be executed in one or more identical counterparts, and shall become effective when one or more identical counterparts have been signed by each of the parties.

IN WITNESS WHEREOF, this Agreement is made and entered into as of the day and year first above written.  The person signing this Agreement on behalf of Distributor personally warrants that he or she has authority to sign this Agreement and bind Distributor to observe and perform as required by this Agreement.

Distributor Agreement – Page 13

 
  Distributor: Centrotrade Minerals & Metals, Inc  
       
   
By:
 
   
Print Name: ________________________________
 
   
Title:
 
   
Date:
 
       
   
Centrotrade Deutschland GmbH
 
       
   
By:_______________________________________
 
   
(Signature)
 
       
   
Name:_____________________________________
 
   
(Print)
 
       
   
Title:______________________________________
 
       
   
Date:______________________________________
 

Distributor Agreement – Page 14

 
Company:
VYSTAR CORPORATION
     
   
By:
 
   
Print Name: 
 
   
Title:
 
   
Date:
 

 
Distributor Agreement – Page 15

 

SCHEDULES

 
Distributor Agreement – Page 16

 
 
SCHEDULE A  –  TERRITORIES

*****************************
*****************************
 ***********************
 ***********************
 ***********************
*****************************

*************************************.

************************************* .

******************************
******************************
 
Distributor Authorized Signatures
   
   
   
 
CENTROTRADE MINERALS & METALS, INC
   
   
 
CENTROTRADE DEUTSCHLAND GMBH
   
   
 
Company Authorized Signature

*************** THESE PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT

 
Distributor Agreement – Page 17

 
 
SCHEDULE B  –  Trademark Usage Guidelines

Distributor shall place the following trademark label on all packaging and/or bills of lading shipping the Vytex™ NRL. The size of this label shall be appropriate for the size of the packaging.  For example, for sample-sized shipments, the label shall be no smaller than 4 inches by 6 inches.  For 55 gallon drum-sized shipments, the Vytex label shall be no smaller than 8 inches by 12 inches.  Vystar shall provide Distributor with the graphics for such labeling.

If the Vytex order is in a larger sized vessel than a 55-gallon drum, the Vytex label shall be placed on the bill of lading accompanying that shipment.  The Vytex trademark label on the bills of lading shall be no smaller than 2 inches by 3 inches.

Distributor shall also comply with the following additional usage requirements:
 
1.
The Vytex logo must be present on all Vytex NRL products and samples.
 
2.
Distributor must not obstruct the Vytex logo by placing any other elements either on or too close to the logo.
 
3.
The Vytex oval shape must not be used as a decorative element.
 
4.
Distributor must not add any trademark symbol to any of the Vytex or other Vystar products or in conjunction with the Vytex or Vystar logos that do not already appear there from Vystar.
 
5.
Distributor may only use the Vystar and Vytex logo or oval symbol in connection with the packing and shipping of Vytex consistent with the terms in this Manufacturing Agreement.

Distributor may use the Vystar and Vytex trademarks only as provided for herein unless expressly approved in writing by Vystar.

The following is the Vytex logo.

Vytex™ and related marks are trademarks of Vystar Corporation, Duluth, Ga

 
2

 

The following is the Vytex logo as it should be used on product labeling.

 
Vytex™ NRL
Production Date: _________

Vytex™ is a trademark of Vystar Corporation, Duluth, Ga

 
3

 
 
SCHEDULE C  –  Shipping, Storage & Handling Requirements
 
1. Vytex NRL has colloidal behavior similar to normal NR centrifuged latex concentrates.  It can be adversely affected if the Vytex NRL is exposed to extreme temperatures, excessive shear and chemical contamination.  Vytex NRL should be stored under a covered roof and away from exposure to direct sunlight.
 
2. Temperature Vytex NRL should be stored at a storage temperature between 10 to 30 ° C.  Excess heat increases the Brownian motion and could result in microcoagulum and coagulum due to particle agglomeration.  Additionally, heat evaporates water and the ammonia in Vytex NRL which would result in a drop in pH that could potentially lead to Vytex NRL destabilization.
 
3. Mechanical Shear Vytex NRL is a colloidally stable compound largely due to the removal of species vulnerable to free radical breakdown.  The stability of Vytex NRL can be overcome if product is subjected to excessive mechanical shear.  When handling Vytex NRL, gravity feed should be used.  When gravity feed is not applicable, single or double diaphragm pumps which produce the lowest level of shear are to be used. Rotor/stator shear or piston pumps must be avoided. Where pump facilities are not available, the practice of using compressed air applied to the barrel is sometimes resorted to. This is a potential safety hazard as the plastic barrels or totes used to supply the latex can on occasion rupture.
 
4. Chemical Destabilization of Vytex NRL would result when the latex is exposed to calcium and magnesium ions commonly found in hard water.  Deionised (DI) ammoniated water should be used when diluting Vytex NRL. DI ammoniated water is to be used when compounding Vytex NRL.
 
5.  Shelf Life Vytex NRL has a shelf life of 6 months when kept away from extreme temperatures.  As previously recorded, the optimum storage temperature is 10 to 30 ° C. Excessive loss of ammonia can occur during storage and possibly lead to destabilization of Vytex NRL.  The pH should be monitored and if the pH drops below 10.0, it should be adjusted to 10.5 with an approved ammonia hydroxide solution.
 
6.  Drum Storage Vytex NRL should be stored and transported in 200Kg/205 litre metal (Bitumen or Epoxy coated) or plastic barrels which are with a mouth for filling and removal of contents.  Drums should be agitated by rolling or with a collapsible stirrer before drawing samples or before use.  For drums being rolled, 20 minutes every 3 to 4 days is optimum.
 
7.  Storage Tanks Vytex NRL should be stored in tanks made from mild steel (MS), stainless steel (SS) or glass fiber reinforced plastics (FRP).  Vytex NRL stored in mild steel tanks, the MS tanks must be given a protective coating to prevent corrosion and contamination of Vytex NRL.  Paraffin wax and epoxy resin based coating materials could both be used.  Prior to coating, the tank surface must be cleaned (if possible sand blasted), dry and free of scale to prevent the lining from lifting.
 
8.  Storage Tank Cleaning Vytex storage tanks must be cleaned regularly and disinfected.  Disinfection is done on the storage tanks twice a year. 30% Formaldehyde solution is used as a disinfectant. If its use is not permitted, sodium hypochlorite can be used or any other permitted bactericide. The solution is left for 12-16 hours, removed and the tank must be cleaned with ammoniated DI water to remove all traces of the disinfectant.
 
4

 
SCHEDULE D  –  “End User License Form”   The attached form shall be used to convey the use, manufacturing and sales license for all end-customers of Products sold by Distributor and its subcontractor distributors.
 
Vystar Corporation
VYTEX™ NRL
MANUFACTURER SALES & LICENSE AGREEMENT

As a condition precedent to receiving the Vytex natural rubber latex (“NRL”), the Customer (hereinafter referred to as “Customer” “You” or “Your”) expressly and implicitly agrees to the following terms and conditions for receipt, use and further processing using the Vytex™ NRL (“Agreement”).  This Agreement is made effective as of the date of Your receipt of the Vytex (“Effective Date”) and shall constitute a binding contract between you and Vystar Corporation, a Georgia corporation with its principal place of business at 3235 Satellite Blvd., Bldg 400, Suite 290, Duluth, GA 30096 (“Vystar” “Company” or “Our”).   The parties hereto may be referred to individually as “Party” or collectively as “Parties.”

1.        Scope and Purpose.     The exclusive purpose for Your purchase of Vytex in its various forms (“Product”) is for further processing and/or manufacturing the Vytex NRL to create end product(s) for the exclusive purpose of sales and distribution of the end product(s) made with Vytex.

2.      Limited License; Ownership.
(a)   Subject to the terms of this Agreement, Company grants to Customer, and Customer accepts a non-transferable, non-exclusive, terminable license (i) to use the Vytex NRL only for the further processing and/or manufacturing of Vytex as a raw material to create an end product for Your sales and distribution, and (ii) to use any Documentation that may be provided by Company in connection with Customer’s use of the Vytex NRL in accordance with this Agreement.  Customer shall not cause, suffer or permit the modification, alteration, reverse engineering, decompilation or creation of derivative works using the Vytex NRL in any way or on any portion thereof beyond your standard compounding, processing and/or manufacturing processes in the ordinary course of your business.  Any derivative works, or other changes to the Vytex NRL shall be the sole and exclusive property of Company.
(b) Customer agrees that, except for the license rights granted in this Agreement, nothing in this Agreement gives Customer any right, title or interest in, to or under any Vytex NRL or Documentation or any intellectual property rights therein, and further agrees that the foregoing are the sole and exclusive property of Company.
(c) Customer shall not, and shall not permit its employees, representatives or agents to (i) move, sell, assign, lease, sublet, sublicense, transfer, pledge, transmit, display or disclose or make available to any third party the Vytex NRL or allow any third party to use any of the Vytex NRL or the Documentation, except as specifically permitted pursuant to this Agreement, or, (ii) copy or otherwise reproduce the Documentation (or any portion thereof) except as necessary for Customer's use, in accordance with the terms and conditions of this Agreement.  Each such copy, whether complete or partial, shall bear the same copyright notices and restrictive legends, if any, as are included in the material delivered to Customer.  All copies shall be the sole and exclusive property of Company and shall be subject to the terms and conditions of this Agreement.
 
3.      Labeling & Trademarks .  With labels, packaging and/or other collateral of sizes at least 1 inch by 1 inch, Customer must include the Vytex logo according to the Trademark and Labeling Use Requirements contained in Attachment 1 to this Agreement.  Company hereby grants to Customer a non-exclusive, limited, non-transferable, terminable license to use the Company trademarks, both the name and the stylized form as used by the Company from time to time, and the applicable Product trademarks (collectively, the “Trademarks”) solely in connection with the advertising, promotion and repackaging of the Products. Customer’s use shall be strictly in accordance with Company’s policies regarding advertising, labeling and trademark usage, attached hereto as Attachment 1, and all uses shall inure to the benefit of Company.  Company shall have the right to monitor the quality of the Products and all uses of Trademarks by Customer, and my revoke Customer’s license at any time in Company’s sole discretion if Company believes Customer has violated this provision.
Except to the extent set forth above in this paragraph regarding the right and license to “use” Company trademarks, Customer shall have no right whatsoever in or to any trademark, trade name, or copyright of Company.  Customer shall not misuse, alter, remove, obliterate, deface, change, replace, or apply any labeling or trademark, copyright or other   proprietary notices including any patent, trademark, copyright or other proprietary notice of Company used on or in connection with Products,   documentation and other related materials supplied to Customer under this   Agreement.  Failure of   Customer to comply with any provision of this paragraph is grounds for immediate termination of this Agreement.

4.        Confidentiality ; Nondisclosure .   Customer acknowledges the proprietary rights of Company in and to the Vytex NRL, the Documentation, and the trademarks, identifying symbols and other supporting material. This Agreement creates a confidential relationship between the parties, based upon which Company is willing to grant the above license, and provide certain proprietary information and knowledge to Customer.  Customer acknowledges and agrees that the use and further processing of the Vytex is furnished to Customer for the sole and exclusive use of Customer.  Except as specifically agreed to in this Agreement, Customer will not use, publish, disclose or otherwise divulge to any person, except as necessary to officers and employees of Customer, at any time, either during or after the termination of this Agreement, or permit its officers or employees to so divulge any such information regarding the Vytex NRL, without the prior written consent of an officer of Company. The provisions in this paragraph shall survive termination or expiration of this Agreement.

 
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5.        Infringement Indemnification.   Company shall defend and indemnify and hold Customer harmless against any action brought against Customer to the extent that it is based on a claim that Vytex NRL, properly used within the scope of this Agreement, infringes a United States patent or copyright, provided Customer notifies Company promptly in writing of the action and gives Company the sole control of the defense, all negotiations and any settlement.  If Vytex NRL becomes, or is likely to become, the subject of an infringement claim, Company may, at its option, secure Customer’s right to continue using the Vytex NRL or replace or modify it to make it non-infringing with substantially similar functions and levels of performance.  If neither of these alternatives is reasonable available, Company may terminate this Agreement.  THIS PARAGRAPH STATES THE ENTIRE RESPONSIBILITY OF COMPANY CONCERNING PATENT, COPYRIGHT OR OTHER PROPRIETARY RIGHT INFRINGEMENT.

6.        Entire Understanding & Future Orders.   This Agreement (inclusive of any Attachments hereto which are all incorporated herein by reference) constitutes the entire agreement and sets forth the entire understanding between the Parties hereto with respect to the subject matter hereof and supersedes all prior agreements, covenants, arrangements, discussions and negotiations with respect thereto.  Any conflicting terms or conditions set forth in any purchase order or acknowledgment shall have no force or effect, notwithstanding Company’s or other third party’s acceptance of the order. No modification, waiver or amendment of this Agreement shall be effective unless it is in writing and signed by an authorized signatory of Company and Customer.  This Agreement shall also apply to all future deliveries, purchases, orders and all other relations between the parties with respect to the subject matter hereof which may occur during the next five (5) years from the effective date of this Agreement, unless the Parties agree to and execute a separate agreement.

7.        Governing Law.   This Agreement shall be governed by, and construed in accordance with, the laws of the State of Georgia without the application of the conflict of laws principles.  Any legal action or proceeding with respect to this Agreement shall be brought and maintained in the state or federal courts located in the city of Atlanta or County of Gwinnett, and, by execution and delivery of this Agreement, each Party hereby accepts for itself and in respect of its property, generally and unconditionally the jurisdiction of the aforesaid courts.  Each Party further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding.

8.        LIMITED WARRANTY/LIMITED LIABILITY. No warranties, whether express, implied or statutory, are made with respect to the Products except as expressly set forth in this Section. So long as Customer complies with the Shipping, Storage and Handling Requirements identified in Attachment 2 to this Agreement, for six (6) months from the date of manufacturer, Company warrants that the Vytex NRL will conform substantially to the specifications set forth in the certificate of analysis (“COA”) provided by Company to Customer with the Vytex NRL shipment.  Company’s sole obligation under this warranty shall be limited to replacing the Vytex NRL, without charge, during Company’s normal production and delivery schedule; provided the Vytex NRL has been inspected and rejected prior to accepting the Vytex NRL as provided in the Acceptance and Return provision stated herein. Excluded Items : This warranty does not cover circumstances beyond Company’s reasonable control (including but not limited to Customer and/or Customer handling, storage and transportation conditions and treatment or acts of God). All warranties and obligations of Company shall terminate if Customer fails to perform its obligations under this or any other agreement between the parties or fails to pay any charge otherwise due Company.
THE WARRANTIES EXPRESSLY SET FORTH IN THIS SECTION ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.  IN NO EVENT WILL COMPANY BE LIABLE FOR: (1) LOST PROFITS OR LOST USE, OR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR FOR ANY INDIRECT, SPECIAL, OR PUNITIVE DAMAGES REGARDLESS OF THE FORM OF ACTION, WHETHER CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF CUSTOMER OR ANY OTHER PERSON HAS ADVISED COMPANY OR ANY OF ITS SUPPLIERS OR LICENSEES OF THE POSSIBILITY OF SUCH DAMAGES; (2) DAMAGE CAUSED BY CUSTOMER’S FAILURE TO PERFORM ITS RESPONSIBILITIES UNDER THIS AGREEMENT; (3) ALTERATIONS DONE WITHOUT THE PRIOR WRITTEN APPROVAL OF COMPANY; OR (4) USE OF VYTEX NRL IN A MANNER THAT IS NOT AUTHORIZED BY THIS AGREEMENT. THE REMEDY OF CONSEQUENTIAL DAMAGES SHALL NOT BE AVAILABLE EVEN IN THE EVENT THE SOLE AND EXCLUSIVE REMEDY OF REPLACEMENT FAILS OF ITS ESSENTIAL PURPOSE.

9.      Independent Contractors.   The relationship between Customer and Company is that of independent contractors.  Neither Party shall be deemed to be the agent, fiduciary or legal representative of the other. Customer and Customer Coordinator shall have no authority to make any representations, or to take any action, which shall be binding upon Company except as is provided for herein or as is otherwise authorized in writing by Company.

10.        Miscellaneous.   The waiver or failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any further right.  Neither party may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of the other; provided, however, the sale of Company or the sale, assignment or other transfer of Company’s business and/or assets will not be deemed an assignment or delegation.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

11.        Company Contact.   For any questions regarding the Vytex NRL sample or Vystar, please contact the following:  Sandra Parker, 3235 Satellite Blvd, Bldg 400, Suite 290, Duluth, GA 30096, USA, P:  001-770-965-0383, F: 001-770-965-0162, E-mail:  sparker@vytex.com.

 
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Attachment 1
Trademarks & Labeling

Customer shall place the following trademark label on all packaging and/or bills of lading shipping the Vytex™ NRL. The size of this label shall be appropriate for the size of the packaging.  For example, for sample-sized shipments, the label shall be no smaller than 4 inches by 6 inches.  For 55 gallon drum-sized shipments, the Vytex label shall be no smaller than 8 inches by 12 inches.  Vystar shall provide Customer with the graphics for such labeling.

If the Vytex order is in a larger sized vessel than a 55-gallon drum, the Vytex label shall be placed on the bill of lading accompanying that shipment.  The Vytex trademark label on the bills of lading shall be no smaller than 2 inches by 3 inches.

Customer shall also comply with the following additional usage requirements:
 
1.
The Vytex logo must be present on all Vytex NRL products and samples.
 
2.
Distributor must not obstruct the Vytex logo by placing any other elements either on or too close to the logo.
 
3.
The Vytex oval shape must not be used as a decorative element.
 
4.
Customer must not add any trademark symbol to any of the Vytex or other Vystar products or in conjunction with the Vytex or Vystar logos that do not already appear there from Vystar.
 
5.
Customer may only use the Vystar and Vytex logo or oval symbol in connection with the packing and shipping of Vytex consistent with the terms in this Manufacturing Agreement.

Customer may use the Vystar and Vytex trademarks only as provided for herein unless expressly approved in writing by Vystar.

The following is the Vytex logo.


Vytex™ and related marks are trademarks of Vystar Corporation, Duluth, Ga

 
 

 

The following is the Vytex logo as it should be used on product labeling.

 
Vytex™ NRL
Production Date: _________

Vytex™ is a trademark of Vystar Corporation, Duluth, Ga

 
 

 

Attachment 2
Shipping, Storage & Handling Requirements
 
1. Vytex NRL has colloidal behavior similar to normal NR centrifuged latex concentrates.  It can be adversely affected if the Vytex NRL is exposed to extreme temperatures, excessive shear and chemical contamination.  Vytex NRL should be stored under a covered roof and away from exposure to direct sunlight.
 
2. Temperature Vytex NRL is to be stored at a storage temperature between 10 to 30 ° C.  Excess heat increases the Brownian motion and could result in microcoagulum and coagulum due to particle agglomeration.  Additionally, heat evaporates water and the ammonia in Vytex NRL which would result in a drop in pH that could potentially lead to Vytex NRL destabilization.
 
3. Mechanical Shear Vytex NRL is a colloidally stable compound largely due to the removal of species vulnerable to free radical breakdown.  The stability of Vytex NRL can be overcome if product is subjected to excessive mechanical shear.  When handling Vytex NRL, gravity feed should be used.  When gravity feed is not applicable, single or double diaphragm pumps which produce the lowest level of shear are to be used. Rotor/stator shear or piston pumps must be avoided. Where pump facilities are not available, the practice of using compressed air applied to the barrel is sometimes resorted to. This is a potential safety hazard as the plastic barrels or totes used to supply the latex can on occasion rupture.
 
4. Chemical Destabilization of Vytex NRL would result when the latex is exposed to calcium and magnesium ions commonly found in hard water.  Deionised (DI) ammoniated water should be used when diluting Vytex NRL. DI ammoniated water is to be used when compounding Vytex NRL.
 
5.  Shelf Life Vytex NRL has a shelf life of 6 months when kept away from extreme temperatures.  As previously recorded, the optimum storage temperature is 10 to 30 ° C. Excessive loss of ammonia can occur during storage and possibly lead to destabilization of Vytex NRL.  The pH should be monitored and if the pH drops below 10.0, it should be adjusted to 10.5 with an approved ammonia hydroxide solution.
 
6.  Drum Storage Vytex NRL should be stored and transported in 200Kg/205 litre metal (Bitumen or Epoxy coated) or plastic barrels which are with a mouth for filling and removal of contents.  Drums should be agitated by rolling or with a collapsible stirrer before drawing samples or before use.  For drums being rolled, 20 minutes every 3 to 4 days is optimum.
 
7.  Storage Tanks Vytex NRL should be stored in tanks made from mild steel (MS), stainless steel (SS) or glass fiber reinforced plastics (FRP).  Vytex NRL stored in mild steel tanks, the MS tanks must be given a protective coating to prevent corrosion and contamination of Vytex NRL.  Paraffin wax and epoxy resin based coating materials could both be used.  Prior to coating, the tank surface must be cleaned (if possible sand blasted), dry and free of scale to prevent the lining from lifting.
 
8.  Storage Tank Cleaning Vytex storage tanks must be cleaned regularly and disinfected.  Disinfection is done on the storage tanks twice a year. 30% Formaldehyde solution is used as a disinfectant. If its use is not permitted, sodium hypochlorite can be used or any other permitted bactericide. The solution is left for 12-16 hours, removed and the tank must be cleaned with ammoniated DI water to remove all traces of the disinfectant.

 
 

 

SCHEDULE E - Sampling Agreement

Vystar Corporation
VYTEX™ NRL
SAMPLING USER LICENSE AGREEMENT

As a condition precedent to receiving the enclosed sample of Vytex natural rubber latex (“NRL”), the Evaluator ( hereinafter referred to as “Evaluator” “You” or “Your”) expressly and implicitly agrees to the following terms and conditions for receipt and use of the enclosed Vytex NRL™ sample (“Agreement”).  This Agreement shall constitute a binding contract between you and Vystar Corporation, a Georgia corporation with its principal place of business at 3235 Satellite Blvd., Bldg 400, Suite 290, Duluth, GA 30096 (“Vystar” “Company” or “Our”).   The parties hereto may be referred to individually as “Party” or collectively as “Parties.”  In consideration of the mutual benefits described in this Agreement, Vystar is pleased to allow Evaluator to use and evaluate Company’s proprietary, low-protein, natural rubber latex, Vytex  NRL, solely under circumstances described herein.

1.        Scope and Purpose.     The exclusive purpose of this evaluation is for further processing or manufacturing the Vytex NRL to create end product(s) for the sole and exclusive purpose of evaluating the Vytex NRL in terms  its (i) reliability and ease of use; (ii) low protein result after processing and/or manufacturing with Vytex NRL; (iii) clarity, composition and other physical properties of end product(s) made with Vytex NRL; and (iv) general quality of end product(s) made with Vytex NRL (“Assessment Metrics”).
2.             Limited License.   Subject to the terms of this Agreement, Company grants to Evaluator, and Evaluator accepts a non-transferable, non-exclusive, terminable license (i) to use the Vytex NRL only for performance, and (ii) to use any Documentation that may be provided by Company in connection with Evaluator’s use of the Vytex NRL in accordance with this Agreement.  Evaluator shall not cause, suffer or permit the modification, alteration, disassembly, reverse engineering or decompilation of or creation of derivative works using the Vytex NRL in any way or on any portion thereof beyond your standard compounding, processing and/or manufacturing processes in the ordinary course of your business.  Any derivative works, or other changes to the Vytex NRL whether authorized or unauthorized shall be the sole and exclusive property of Company.
3.             Future Releases.   Evaluator acknowledges that: (a) the Vytex NRL may not be in the form of subsequent releases and may contain different levels of proteins or have different characteristics within batches; and (b) Company reserves the right, in its sole and absolute discretion, to alter prices, features, specifications, capabilities, functions, licensing terms, release dates, general availability or other characteristics of the Vytex NRL.
4.             Evaluation.   Evaluator shall undertake the testing and evaluation of Vytex NRL as described above.  Evaluator shall test, gather and record all data required for the Assessment Metrics.  Evaluator shall submit to Company or the Company-authorized distributor from whom Evaluator received the Vytex NRL sample,  a brief final report including the Assessment Metrics data, study results, test data, supporting data, etc., but only those which represent the physical attributes of the end products, and which are not proprietary or confidential to Evaluator (“Evaluation Records”).
5.           Ownership and Prohibition on Releasing or Distributing.
(a)           Evaluator agrees that, except for the license rights granted in this Agreement, nothing in this Agreement gives Evaluator any right, title or interest in, to or under any Vytex NRL or Documentation or any intellectual property rights therein, and further agrees that the foregoing are the sole and exclusive property of Company.
(b)           Evaluator shall not, and shall not permit its employees, representatives or agents to (i) move, sell, assign, lease, sublet, sublicense, transfer, pledge, transmit, display or disclose or make available to any third party the Vytex NRL sample or any product made with the Vytex NRL sample, or allow any third party to use any of the Vytex NRL or the Documentation, except as specifically permitted pursuant to this Agreement, or, (ii) copy or otherwise reproduce the Documentation (or any portion thereof) except as necessary for Evaluator's use, in accordance with the terms and conditions of this Agreement.  Each such copy, whether complete or partial, shall bear the same copyright notices and restrictive legends, if any, as are included in the material delivered to Evaluator.  All copies shall be the sole and exclusive property of Company and shall be subject to the terms and conditions of this Agreement.
(c)           In the event that Evaluator desires to sell, market or distribute any Vytex NRL or any product made with Vytex NRL, Evaluator shall enter into a separate agreement with either Company or a Company-authorized distributor describing the terms for such (“Definitive Agreement”).
6.             Publication.   Evaluator shall not issue any press release or otherwise make any public announcement or disclosure regarding this Agreement, Vystar or Vytex NRL without the express written consent of the Company prior to executing a Definitive Agreement for the sales and/or licensing of Vytex NRL.
7.             Infringement Indemnification.   Company shall defend and indemnify and hold Evaluator harmless against any action brought against Evaluator to the extent that it is based on a claim that Vytex NRL, properly used within the scope of this Agreement, infringes a United States patent or copyright, provided Evaluator notifies Company promptly in writing of the action and gives Company the sole control of the defense, all negotiations and any settlement.  If Vytex NRL becomes, or is likely to become, the subject of an infringement claim, Company may, at its option, secure Evaluator’s right to continue using the Vytex NRL or replace or modify it to make it non-infringing with substantially similar functions and levels of performance.  If neither of these alternatives is reasonable available, Company may terminate this Agreement.  THIS PARAGRAPH STATES THE ENTIRE RESPONSIBILITY OF COMPANY CONCERNING PATENT, COPYRIGHT OR OTHER PROPRIETARY RIGHT INFRINGEMENT.
8.             Entire Understanding.   This Agreement and the Confidentiality and/or Non-Disclosure Agreement executed between the Parties (inclusive of any Schedules and Attachments hereto which are all incorporated herein by reference) constitutes the entire agreement and sets forth the entire understanding between the Parties hereto with respect to the subject matter hereof and supersedes all prior agreements, covenants, arrangements, discussions and negotiations with respect thereto.  No modification, waiver or amendment of this Agreement shall be effective unless it is in writing and signed by an authorized signatory of Company and Evaluator.  The waiver or failure of either Party to exercise in any respect any right provided for in this Agreement shall not be deemed a waiver of any further right.

 
 

 

9.             Governing Law.   This Agreement shall be governed by, and construed in accordance with, the laws of the State of Georgia without the application of the conflict of laws principles.  Any legal action or proceeding with respect to this Agreement shall be brought and maintained in the state or federal courts located in the city of Atlanta or County of Gwinnett, and, by execution and delivery of this Agreement, each Party hereby accepts for itself and in respect of its property, generally and unconditionally the jurisdiction of the aforesaid courts.  Each Party further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding.
10.             Disclaimer Of Any And All Warranties. THE VYTEX NRL IS PROVIDED “AS IS” AND “WHERE IS,” WITH ANY FAULTS AND WITHOUT WARRANTY OF ANY KIND.  COMPANY MAKES NO REPRESENTATIONS ABOUT THE SUITABILITY OF THE VYTEX NRL FOR EVALUATOR’S INTENDED REQUIREMENTS OR PURPOSES. COMPANY DOES NOT WARRANT THAT THE VYTEX NRL WILL PERFORM AS DESIRED OR WITH THE DESIRED RESULTS OR IS ERROR-FREE. COMPANY EXPRESSLY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
11.             Limitation of Liability.   IN NO EVENT WILL COMPANY BE LIABLE TO EVALUATOR OR ANY THIRD PARTY ARISING OUT OF THE USE OF VYTEX NRL, OR ANY END PRODUCT MADE WITH VYTEX NRL, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF EVALUATOR OR ANY OTHER PERSON HAS ADVISED COMPANY OR ANY OF ITS LICENSORS OF THE POSSIBILITY OF SUCH DAMAGES.  COMPANY SHALL NOT UNDER ANY CIRCUMSTANCES BE LIABLE TO EVALUATOR OR ANY OTHER PARTY FOR ANY SPECIAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK STOPPAGE, LOST PROFITS, LOST PRODUCT OR LOST USE, FAILURE OR MALFUNCTION OR OTHER LOSS.
12.             Regulatory Filings.   The Parties recognize that the information produced hereunder may be used by Company for filings made with regulatory agencies. Evaluator agrees to assist Company as reasonably necessary for any such regulatory filings.
13.           Independent Contractors.   The relationship between Evaluator and Company is that of independent contractors.  Neither Party shall be deemed to be the agent, fiduciary or legal representative of the other. Evaluator and Evaluator Coordinator shall have no authority to make any representations, or to take any action, which shall be binding upon Company except as is provided for herein or as is otherwise authorized in writing by Company.
14.             Company Contact.   For any questions regarding the Vytex NRL sample or Vystar, please contact the following:  Sandra Parker, 3235 Satellite Blvd, Bldg 400, Suite 290, Duluth, GA 30096, P:  770-965-0383, F:  770-965-0162, E-mail:  sparker@vytex.com.

 
 

 




CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
We hereby consent to the use in this Registration Statement on Form S-1, Pre-Effective Amendment No. 1, of our report dated September 15, 2008 relating to the financial statements of Vystar Corporation, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 
   
 
/s/ Habif, Arogeti & Wynne, LLP (formerly Tauber & Balser, P.C.)
 
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
February 10, 2009