Vystar Corp (Form: S-1/A, Received: 08/04/2009 16:59:06)

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 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 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.

- 15 -

Discussion of Fina nci al Results

Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007

Rev enues

We had our first sale during the final quarter of 2008 and recognized $227 in net sales but we are still a development stage company that has yet to commence significant revenue generating operations.

O perating Expenses

Our operating expenses were $4,662,145 and $1,139,845 for the years ended December 31, 2008 and 2007, respectively, for an increase of $3,522,300. In 2008, $1,572,277 was recorded for stock-based compensation as well as an additional $1,527,312 for amortization of deferred compensation. The deferred compensation expense represents the amortized fair value of warrants issued for future services to non-employees. This compares with $111,370 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 year ended December 31, 2008 was $403,196 for research and development expenses compared to $427,530 for the year ended December 31, 2007 and $4,258,949 for general and administrative expenses compared to $712,315 for the same period in 2007. Besides the stock-based compensation and amortization of deferred charges discussed above, general and administrative expenses increased $561,585 or 72% during 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.

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.

Other Income (Expense )

Other income was $21,845 for the year ended December 31, 2008, consisting of $22,930 of interest income on cash deposits and other expense of $1,085. This compares to $20,416 of interest income for the year ended December 31, 2007 reduced by $120,205, a charge against operations as a provision for a note receivable from a related party.

- 16 -

Net Loss

Net loss was $4,640,073 and $1,239,634 for the years ended December 31, 2008 and 2007, respectively, for an increase of $3,400,439, primarily resulting from general and administrative expenses incurred as described above.

Comparison of Three Months Ended March 31, 2009 to Three Months Ended March 31, 2008

R evenues

We recognized $3,083 in net sales for the three months ended March 31, 2009; there were no sales during the same period of 2008. Our operations are continuing to develop and expand in anticipation of commencing significant revenue generation later this year but we are still a development stage company as of March 31, 2009.

O perating Expenses

Our operating expenses were $549,054 and $2,585,478 for the three months ended March 31, 2009 and 2008, respectively, for a decrease of $2,036,424. In 2009, $86,072 was recorded for stock-based compensation as well as an additional $13,787 for amortization of deferred compensation. The deferred compensation expense represents the amortized fair value of warrants issued for future services to non-employees. This compares with $1,386,933 for stock-based compensation in 2008 for the same period and amortization of deferred compensation of $993,697. 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 three months ended March 31, 2009 was $82,137 for research and development expenses compared to $227,054 for the three months ended March 31, 2008 and $466,917 for general and administrative expenses compared to $2,358,424 for the same period in 2008. Besides the stock-based compensation and amortization of deferred charges discussed above, general and administrative expenses increased $202,042 or 137% during 2009 compared with 2008 due to legal and accounting fees related to the filing of this registration statement and our year-end audit as well as increased staffing and marketing expenses as we continue developing our operations.

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. The reduction in research and development expenses for the three months ended March 31, 2009 from the same period in 2008 resulted primarily from a reduction of $157,220 in stock-based compensation expense for awards to employees and contractors engaged in these activities.

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

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 2008.

- 17 -

O ther Income (Expense)

Other income was $37,604 for the three months ended March 31, 2009, consisting of $7,623 of interest income on cash deposits, the $30,000 release of a provision for a related party note receivable and interest expense of $19. This compares to $3,458 of interest income for the three months ended March 31, 2008.

N et Loss

Net loss was $508,367 and $2,582,020 for the three months ended March 31, 2009 and 2008, respectively, for a decrease of $2,073,653, primarily resulting from the reduction of stock-based compensation and deferred compensation amortization expenses incurred as described above.

Liquidity and Capital Resources

As of March 31, 2009, we had $502,562 in cash and $750,000 in investments consisting of a certificate of deposit that matured on April 11, 2009.

Sources and Uses of Cas h

For the three months ended March 31, 2009 and 2008, net cash used by operations was $462,416 and $157,970, respectively. The negative cash flow for the March 31, 2009 period was primarily the result of the $508,367 net loss. This was reduced by several non-cash charges, primarily the stock-based compensation charges of $86,072 and $13,787 for amortization of deferred compensation. Releasing $30,000 of the provision on a related note receivable offset the above charges. As part of the Company’s movement to being a product vendor, inventory, in the amount of $26,561 was purchased. This was offset by the decrease in prepaid expenses of $20,258, primarily from expensing prepaid insurance policies. Other assets, primarily accounts receivable trade, increased $11,928 and accounted for the majority of the remaining negative cash flow from operations. The negative cash flow for the three months ended March 31, 2008 resulted from the net loss of $2,582,020 reduced by non-cash charges related to stock-based compensation expense of $1,391,934 and amortization of deferred compensation of $993,697. Prepaid expenses decreased $14,531, primarily from the timing of the insurance policy renewals and accounts payable increased $23,036 due to increased marketing and legal costs.

For the years ended December 31, 2008 and 2007, net cash used by operations was $1,389,781 and $1,042,904, respectively. The negative cash flow at December 31, 2008 resulted from the net loss of $4,640,073 reduced by a number of non-cash charges, specifically stock-based compensation charges of $1,660,776, amortization of deferred compensation of $1,527,312, forgiveness of debt by the company’s founder of $54,496, depreciation of $7,928, and amortization of $2,991. The increase in accounts payable of $57,585 was primarily due to increased legal and accounting costs incurred to date from the timing of work performed in preparation of the company’s registration statement as well as increased marketing expenses. Accrued expenses decreased $21,499 primarily from the debt forgiveness discussed above. Prepaid expenses increased $50,374 due to prepaid legal fees and timing of insurance policy renewals. The negative cash flow for the year ended December 31, 2007 resulted from a net loss of $1,239,634 for the period reduced by non-cash charges related to 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.

- 18 -

Net cash provided by investing activities for the three months ended March 31, 2009 was $8,323. This resulted from our receipt of $15,000 in proceeds from a related party note receivable during the period and the $6,677 incurred in legal expenses related to our patents and trademarks. During the three months ended March 31, 2008, net cash of $11,796 was used by investing activities. This consisted of $7,346 in legal expenses related to our patents and purchasing equipment of $4,450.

Net cash used in investing activities was $731,761 and $7,802 for the years ended December 31, 2008 and 2007, respectively. The investing activities during the year ended December 31, 2008 were due to the purchase of a short-term investment (the certificate of deposit discussed above) of $750,000; expenditures of $15,901 for legal expenses related to our patents and $8,320 for purchases of new equipment. These uses were reduced by $42,460 received from a related party under a note receivable. The $7,802 used by investing activities for the year ended December 31, 2007 were for $12,802 in legal expenses related to our patents reduced by $5,000 received from a related party under a note receivable.

No cash was provided or used by financing activities for the three months ended March 31, 2009. Net cash provided by financing activities for the three months ended March 31, 2008 was $102,933. We received proceeds from the sale of common stock and warrants of $102,933, net of issuance costs of $4,594.

Net cash provided by financing activities for the years ended December 31, 2008 and 2007, respectively, was $2,505,020 and $1,204,145. During the year ended December 31, 2008, we received proceeds from the sale of common stock and warrants of $2,505,020. This is net of issuance costs of $142,221 for the period. During the year ended December 31, 2007, we received proceeds from the sale of common stock and warrants of $1,204,145, net of issuance costs of $71,559.

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.

We expect that our cash used in operations will increase in 2009 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 .

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

Linda S. Hammock (5)
Acting Chief Financial Officer
2008	$	-	$	-	$	-	$	-
2007	$	-	$	-	$	-	$	-
2006	$	-	$	-	$	-	$	-

(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.

(5)

Ms. Hammock is an employee of Accounting Professional Network ("APN"), a provider of professional financial management services to companies. The Company is billed by APN on a periodic basis for Ms. Hammock's services. APN was paid $69,888 and $6,070 in 2008 and 2007, respectively, for Ms. Hammock's services.

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.

- 48 -

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 Employment Agreement was amended on July 1, 2009. The term of the Agreement continues 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 $125,000 per year plus, if earned, a bonus based on Ms. Parker’s sales quotas from July 1, 2009 to June 30, 2010. Such base salary and sales quotas may be adjusted from year-to-year. Further, Ms. Parker is entitled to a monthly bonus of 1% of Total Raw Material Revenue, if any, and 2% of the Total License Revenue, if any. 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 any earned commissions or bonuses, 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.

- 49 -

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 and amended in 2009. A maximum of 10,000,000 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:

- 50 -

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.

- 51 -

PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial ownership of our common stock as of June 30, 2009 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 12,655,274 shares of our common stock outstanding as of June 30, 2009.

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 June 30, 2009 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		19.73	%
Margaret S. Honeycutt Gainesville, GA		2,497,000		19.73	%
Universal Capital Management, Inc. 2601 Annand Dr., #16 Wilmington, DE 19808		1,500,000	(1)	10.90	%
Glen Smotherman Norcross, GA		1,000,000		7.90	%

Directors and Executive Officers
William Doyle*		2,650,000	(2)	17.32	%
Matthew Clark*		550,000	(3)	4.23	%
Sandra Parker*		115,282	(4)	.90	%
Linda S. Hammock*		0		0	%
J. Douglas Craft (5)		270,000		2.10	%
Atlanta, GA
W. Dean Waters (6)		184,334		1.45	%
Atlanta, GA
Mitsy Y. Mangum (6)		85,000		.67	%
Atlanta, GA
All directors and officers (as a group)		3,854,616		23.93	%

* Address for all asterisked is the Company headquarters at: 3235 Satellite Blvd., Bldg, 400, Ste 290, Duluth, GA 30096.

- 52 -

(1)	Includes warrants to acquire 600,000 shares of common stock at $.01 per shares and warrants to acquire 500,000 shares of common stock at $2.00 per share.

(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 and warrants to acquire shares of common stock at $1.00 per share.

(5)	Includes options and warrants to acquire 220,000 shares of common stock at a weighted average price of $1.23 per share.

(6)	Includes options and warrants to acquire 60,000 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 50,000,000 shares of common stock, par value $0.0001 per share, and 15,000,000 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 June 30, 2009, there were 12,655,274 shares of common stock issued and outstanding. As of June 30, 2009, there were 192 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.

- 53 -

VYSTAR CORPORATION

(A Development Stage Company)

FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

F-2

TABLE OF CONTENTS

		PAGE

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS		F-4

BALANCE SHEETS AT DECEMBER 31, 2008 AND 2007		F-6

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2008		F-7

STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2008		F-8 - F-9

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2008		F-10

NOTES TO FINANCIAL STATEMENTS		F-11 – F-24

F-3

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Vystar Corporation

We have audited the accompanying balance sheet of Vystar Corporation (a development stage company (the “Company”) as of December 31, 2008, and the related statements of operations, stockholders’ equity, and cash flows for the year then ended and for the period from February 2, 2000 (date of inception) to December 31, 2008. 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 audit.

We have conducted our audit 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 audit 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 audit provides 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, 2008, and the results of its operations and its cash flows for the year then ended and for the period from February 2, 2000 (date of inception) to December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

/s/ Habif, Arogeti & Wynne, LLP

Atlanta, Georgia

March 18, 2009

F-4

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Vystar Corporation

We have audited the accompanying balance sheet of Vystar Corporation (a development stage company) (the “Company”) as of December 31, 2007, and the related statements of operations, stockholders’ equity, and cash flows for the year then ended. 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 audit.

We conducted our audit 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 audit 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 audit provides 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 the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Tauber & Balser, P.C.

Atlanta, Georgia

September 15, 2008

F-5

VYSTAR CORPORATION

(A Development Stage Company)

BALANCE SHEETS

	December 31, 2008			December 31, 2007
ASSETS

CURRENT ASSETS
Cash	$	956,655		$	573,177
Investments		750,000			-
Note receivable due from related party		60,000			40,000
Prepaid expenses		44,938			23,078
Other		1,217			15,000
TOTAL CURRENT ASSETS		1,812,810			651,255

PROPERTY AND EQUIPMENT, NET		15,307			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 December 31, 2008 and 2007		17,744			80,204
Patents and trademarks, net		83,570			42,147
Other		5,887			5,887

TOTAL ASSETS	$	1,935,318		$	794,408

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	74,498		$	16,913
Accounts payable - related party		36,453			36,453
Accrued expenses		129,155			150,654
TOTAL CURRENT LIABILITIES		240,106			204,020

LONG-TERM LIABILITIES		12,574			15,730

TOTAL LIABILITIES		252,680			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;
11,951,774 and 15,148,320 shares issued and outstanding at
December 31, 2008 and 2007, respectively		1,195			1,515
Additional paid-in capital		10,466,302			4,699,545
Deferred compensation		(18,384	)		-
Deficit accumulated during development stage		(8,766,475	)		(4,126,402	)
TOTAL STOCKHOLDERS' EQUITY		1,682,638			574,658

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,935,318		$	794,408

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

F-6

VYSTAR CORPORATION

(A Development Stage Company)

STATEMENTS OF OPERATIONS

							Period From February 2,
	Year Ended			Year Ended			2000 (Inception) To
	December 31, 2008			December 31, 2007			December 31, 2008

NET SALES	$	227		$	-		$	227

COST AND EXPENSE
Research and development		403,196			427,530			2,118,746
General and administrative		4,258,949			712,315			6,555,801
		4,662,145			1,139,845			8,674,547

LOSS FROM OPERATIONS		(4,661,918	)		(1,139,845	)		(8,674,320	)

OTHER INCOME (EXPENSE)
Interest income		22,930			20,416			43,346
Provision for note receivable from related party		-			(120,205	)		(120,205	)
Loss on disposal of assets		-			-			(13,400	)
Interest expense		(1,031	)		-			(1,842	)
Other expense		(54	)		-			(54	)

NET LOSS	$	(4,640,073	)	$	(1,239,634	)	$	(8,766,475	)

Basic and Diluted Loss per Share	$	(0.40	)	$	(0.09	)

Basic and Diluted Weighted Average Number of
Common Shares Outstanding		11,522,901			14,495,395

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

F-7

VYSTAR CORPORATION

(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS’ EQUITY

	Number of Shares			Common Stock </ fon t>			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
Share-based compensation to employees vested during 2008		-			-			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-8

VYSTAR CORPORATION

(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS’ EQUITY

(CONTINUED)

	Number of Shares			Common Stock </ fon t>			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
Share-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 rendered during March, 2008, valued at $1.00/share		5,000			-			5,000		-		-			-			5,000
Common stock issued for services rendered during April, 2008, valued at $1.00/share, net of issuance costs of $4,080 non-cash		59,080			6			54,994		-		-			-			55,000
Common stock issued for services rendered during May, 2008, valued at $1.50/share		1,333			-			2,000		-		-			-			2,000
Common stock issued for services rendered during May, 2008, valued at $1.63/share		3,374			1			5,499		-		-			-			5,500
Common stock issued for services rendered during December, 2008, valued at $2.00/share		10,500			1			20,999		-		-			-			21,000
Common stock issued in private placement memorandum at $2.00/share during 2008, net of issuance costs of $91,371 cash and $17,162 non-cash		1,189,000			119			2,286,509		-		-			-			2,286,628

Common stock issued for exercise of warrants during 2008, net of issuance costs of $7,317 cash		430,167			43			211,224		-		-			-			211,267
Share-based compensation to employees vested during 2008		-			-			1,572,276		-		-			-			1,572,276
Share-based payments for services vested during 2008, net of issuance costs of $21,916 non-cash		-			-			1,545,695		-		(1,545,695	)		-			-
Amortization of deferred compensation during 2008		-			-			-		-		1,527,311			-			1,527,311
Forgiveness of debt by founder		-			-			54,946		-		-			-			54,946
Net loss		-			-			-		-		-			(4,640,073	)		(4,640,073	)
Ending Balance, December 31, 2008		11,951,774		$	1,195		$	10,466,302	$	-	$	(18,384	)	$	(8,766,475	)	$	1,682,638

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

F-9

VYSTAR CORPORATION

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

							Period From February 2,
	Year Ended			Year Ended			2000 (Inception) To
	December 31, 2008			December 31, 2007			December 31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,640,073	)	$	(1,239,634	)	$	(8,766,475	)
Adjustment to reconcile net loss to net cash used in operating activities
Stock-based compensation expense		1,660,776			152,936			2,162,524
Provision on related party note receivable		-			120,205			120,205
Amortization of deferred compensation		1,527,312			-			1,527,312
Forgiveness of debt by founder		54,946			-			54,946
Depreciation		7,928			6,603			24,070
Amortization		2,991			2,384			8,852
Loss on disposal of assets		-			-			13,400
(Increase) decrease in assets
Prepaid expenses		(50,374	)		(12,456	)		(81,650	)
Other		13,783			(14,079	)		(10,893	)
Increase (decrease) in liabilities
Accounts payable		57,585			14,696			74,498
Accounts payable - related party		-			-			36,453
Accrued expenses		(21,499	)		(71,851	)		129,155
Other		(3,156	)		(1,708	)		46,968

Net cash used in operating activities		(1,389,781	)		(1,042,904	)		(4,660,635	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment		(750,000	)		-			(746,210	)
Advances to related party - note receivable		-			-			(257,908	)
Proceeds on related party note receivable		42,460			5,000			59,959
Cost of patents and trademarks		(15,901	)		(12,802	)		(55,710	)
Purchase of equipment		(8,320	)		-			(52,778	)

Net cash used in investing activities		(731,761	)		(7,802	)		(1,052,647	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net of issuance costs of $142,221, $71,559 and $464,817 for the years ended December 31, 2008, December 31, 2007 and from inception to December 31, 2008, respectively		2,505,020			1,204,145			6,669,937

Net cash provided by financing activities		2,505,020			1,204,145			6,669,937

NET INCREASE IN CASH		383,478			153,439			956,655

CASH - BEGINNING OF PERIOD		573,177			419,738			-

CASH - END OF PERIOD	$	956,655		$	573,177		$	956,655

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

F-10

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 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. During 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 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, investments (unsecured certificate of deposit) and, as discussed in Note 9, an unsecured related party note receivable. Cash held in operating accounts in many cases exceeds the Federal Deposit Insurance Corporation, or FDIC, insurance limits. While we monitor cash balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. The certificate of deposit, in the amount of $750,000, is held with Royal Bank of Canada and is insured for $250,000 by the FDIC. To date, we have experienced no loss or lack of access to our cash; however, we can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets.

F-11

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

Patents and Trademarks

Patents are carried at cost and are being amortized on a straight-line basis over their estimated useful lives, or 20 years. Trademarks are carried at cost and since their estimated life is indeterminable, no amortization is recognized. Instead, they are evaluated for impairment.

Impairment of Long-lived Assets

Long-lived assets, including property and equipment and intangible assets with finite lives, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets is based on discounted cash flows and the fair value of the asset .

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, investments, note receivable due from related party, accounts payable and accrued expenses. The carrying values of cash, investments, 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.

Investments

At December 31, 2008 the Company held a certificate of deposit in the amount of approximately $750,000 which matures April 11, 2009.

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 or carryforwards 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 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 3,287,500 shares and 1,162,667 shares of common stock for 2008 and 2007, respectively, as their effect would be anti-dilutive. Warrants to purchase 2,690,779 shares and 627,725 shares of common stock for 2008 and 2007, respectively, were also excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

F-12

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

Recently Adopted Pronouncements

On January 1, 2008, the Company adopted 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. The standard applies when assets or liabilities are required or allowed to be measured at fair value; it does not expand the use of fair value in any new circumstance. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and liabilities, except for those that are disclosed in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 on a prospective basis and the impact did not have a material effect on its results of operations, financial position, or cash flows.

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 was effective for the Company at the beginning of the annual period ending December 31, 2008. In December 2008, the FASB issued FSP FIN 48-3, which deferred the effective date of FIN 48 for certain enterprises to the beginning of the annual period ending December 31, 2009. Management has elected to defer the application of FAS FIN 48, Accounting for Uncertain Tax Positions in accordance with FSP FIN 48-3. The Company will continue to follow FAS 5, Accounting for Contingencies, until it adopts FIN 48. 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.

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-13

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Pronouncements (Continued)

In April 2008, the FASB directed the FASB Staff to issue FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets . FSP FAS 142-3 amends the factors that should be considered in developing a renewal or extension assumptions used for purposes of determining the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets . FSP FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other generally accepted accounting principles. FSP FAS 142-3 is effective for the Company January 1, 2009. We are currently evaluating the potential impact of the adoption of FSP 142-3 on our results of operations, financial position and cash flows.

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, 2008, the deficit accumulated during the development stage amounted to approximately $8,766,000.

The Company is still in the development stage at December 31, 2008. During 2008, the Company received approximately $2,505,000, net of issuance costs, through the issuance of 1,624,167 shares of common stock, primarily through a private placement (Note 7) and exercise of warrants. 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 December 31, 2009.

On November 13, 2008 the Company filed Form S-1, Registration Statement under the Securities Act of 1933, with the United States Securities and Exchange Commission (SEC) to register 500,000 shares of the Company’s common stock previously issued. In addition, 600,000 shares are being registered that will be issued, when the registration statement is effective, to stockholders of Universal Capital Management, Inc., as discussed in Note 9. The Company has since amended the initial statement and expects it to be accepted by the SEC around the end of the first quarter of 2009. The Company plans to have its shares trading on the Over the Counter Bulletin Board (OTCBB) after the registration is effective.

F-14

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 2008 and 2007:

	December 31, 2008			December 31, 2007

Furniture and fixtures	$	15,347		$	15,347
Equipment		23,431			15,111
		38,778			30,458
Accumulated depreciation		(23,471	)		(15,543	)

	$	15,307		$	14,915

Depreciation expense for the years ended December 31, 2008 and 2007 was $7,928 and $6,603, respectively.

NOTE 4 – PATENTS AND TRADEMARKS

Patents represent legal and other fees associated with the registration of patents. The Company has two patents and two provisional patent submissions with the United States Patent and Trade Office (USPTO) as well as an international PCT (Patent Cooperation Treaty) patent.

The Company has incurred legal and other fees associated with its application to the USPTO for trademark protection for “Vystar”, “Vytex”, and “Created by Nature. Recreated by Science.” during 2008.

Patents and trademarks are as follows:

	December 31, 2008			December 31, 2007

Patents	$	86,884		$	48,008
Accumulated amortization		(8,852	)		(5,861	)
		78,032			42,147
Trademarks		5,538			-

	$	83,570		$	42,147

Amortization expense for the years ended December 31, 2008 and 2007 was $2,991 and $2,384, respectively.

F-15

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

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

2009	$	61,068
2010		67,953

Total	$	129,021

Rent expense approximating $54,000 and $56,000 is included in general and administrative expense for the years ended December 31, 2008 and 2007, respectively.

NOTE 6 – INCOME TAXES

Differences between the income tax benefit for 2008 and 2007 and the amount determined by applying the statutory federal income tax rate (34%) to the loss before income taxes were as follows:

	2008			2007
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 as of December 31:

	2008			2007

Deferred tax assets:
Net operating loss carryforwards	$	2,007,000		$	1,368,000
Stock-based compensation		1,397,000			157,000
Other		86,000			109,000
Net deferred tax asset before valuation allowance		3,490,000			1,634,000

Valuation allowance		(3,490,000	)		(1,634,000	)
Net deferred tax asset	$	-		$	-

F-16

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 6 – INCOME TAXES (CONTINUED)

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, 2008 and 2007 was an increase of $1,856,000 and $495,000, respectively.

As of December 31, 2008, the Company had net operating loss carryforwards of approximately $5,016,000, expiring during the years ending December 31, 2024 through 2028. This amount can be used to offset future taxable income of the Company.

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; 823,131 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 $7,125, net of issuance costs of $375 cash, 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 2008 and 2007, 423,167 and 755,899 shares issued in the private placement, respectively, were purchased through the exercise of the warrants. The unexercised warrants, representing 26,000 shares, expired 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.

F-17

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock and Warrants (Continued)

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.

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.

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.

At December 31, 2008, as discussed in Note 9, the Company recognized an increase of $54,946 in additional paid-in-capital resulting from forgiveness of debt by the former CEO.

During 2008 the Company issued stock purchase warrants to purchase 1,924,721 shares of common stock at exercise prices ranging from $.01 to $2.00 in exchange for services rendered, valued at $1,769,916. The warrants are exercisable for periods ranging from 2012 through 2018 and vested immediately.

During 2008 the Company issued 79,287 shares of common stock for professional services valued at $88,500, including 4,080 shares valued at $4,080 for services rendered in connection with the Company’s private placement memorandum.

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, net of estimated forfeitures. 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) and reflected compensation expense during 2006 in accordance with the transition provisions. Under the modified prospective method, prior periods are not restated to reflect the impact of adopting the new standard at earlier dates.

F-18

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

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% - 34.64%;

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 1.55 – 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 $1,572,000 and $111,000 of stock-based compensation expense for the years ended December 31, 2008 and 2007, respectively, related to employee stock options and stock warrants issued to board members and nonemployees. Of this, approximately $1,387,000 and $85,000 for the years ended December 31, 2008 and 2007, respectively, was attributable to the fair value of shares issued under the Company’s stock option plan that vested during those periods. As of December 31, 2008, approximately $128,700 of unrecognized compensation expense related to non-vested share-based awards remains to be recognized over a weighted average period of approximately 2 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 December 31, 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. Stock options are typically granted at an exercise price equal to the fair market value of the Company’s common stock on the date of grant, typically vest over periods up to 4 years and are typically exercisable up to 10 years. During 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:

	2008			2007
Expected Dividend Yield		-			-
Expected Volatility in Stock Price		23.51	%		23.32	%
Risk-Free Interest Rate		2.68	%		4.68	%
Expected Life of Stock Awards - Years		5.1			5
Weighted Average Fair Value at Grant Date	$	0.71		$	0.30

F-19

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

Stock Options (Continued)

The following tables summarize all stock option activity of the Company for the years ended December 31, 2008 and 2007:

	Number of		Weighted Average
	Shares		Exercise Price

Outstanding, December 31, 2006		1,100,000	$	1.08

Granted		100,000	$	1.00

Outstanding, December 31, 2007		1,200,000	$	1.08

Granted		2,200,000	$	0.68

Outstanding, December 31, 2008		3,400,000	$	1.03

Exercisable, December 31, 2008		3,250,000	$	1.03

	Number of		Weighted Average Remaining		Range of
	Shares		Contractual Life (Years)		Exercise Prices

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

Granted		2,200,000		9.10	$	1.00

Outstanding, December 31, 2008		3,400,000		8.34	$	1.00 - $1.50

E xercisable, December 31, 2008		3,250,000		8.30	$	1.00 - $1.50

F-20

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 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 in 2008 and 2007:

	2008			2007
Expected Dividend Yield		-			-
Expected Volatility in Stock Price		22.38	%		23.59	%
Risk-Free Interest Rate		2.19	%		4.35	%
Expected Life of Awards, Years		4.3			5

The following table represents the Company’s warrant activity for the years ended December 31, 2008 and 2007:

				Weighted Average				Weighted Average
	Number of			Issuance or		Weighted Average		Remaining
	Warrants			Grant Date Fair Value		Exercise Price		Contractual Life (Years)

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

Issued in private placement		594,500		$	1.00	$	1.00
Granted		1,924,721		$	0.92	$	0.76
Exercised		(430,167	)			$	0.51
Expired		(26,000	)			$	0.50

Outstanding, December 31, 2008		2,690,779				$	0.85		5.14

Exercisable, December 31, 2008		2,690,779				$	0.85		5.14

For the period since inception through December 31, 2006, the Company issued warrants to purchase shares of the Company’s common stock for services rendered. The warrants were issued at exercise prices ranging from $.50 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 with the following assumptions: expected dividend yield of 0, stock volatility ranging from 26.17% - 29.93%, 3.36% - 4.34% risk-free interest rate, and a 2.5 to 5 year expected life of the awards. The total amount of the fair value ($6,095 expense and $14,854 cost of raising capital) was recorded when vesting occurred. All warrants issued were fully vested within the calendar year in which they were granted.

F-21

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

Warrants (Continued)

During 2007 the Company issued warrants for services 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.

The Company issued warrants for services during 2008 at exercise prices ranging from $1.00 to $2.00 per share, exercisable over periods ranging from four 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 ($185,143 expense, $1,545,695 deferred compensation cost, and $39,078 cost of raising capital) was recorded when vesting occurred.

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"), a venture capital company that invests in development stage companies. Under this agreement, UCM agreed 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 continue 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.

As a result of these two agreements, UCM held a beneficial ownership of 11.15% in the Company at December 31, 2008.

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 to stockholders of UCM, 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-22

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED)

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. While the Company will provide its best efforts to fully collect the balance due, which is unsecured, management has reserved at December 31, 2008 and 2007 approximately $120,000 of the balance remaining due to the uncertainty involved. 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. As of December 31, 2008 all payments due under the agreement had been received by the Company.

Travis Honeycutt

During February 2008 Travis Honeycutt, founding CEO, surrendered 4,900,000 shares of the Company’s common stock (Note 7) that had been issued to him during 2004. On March 21, 2008, he retired from the Company.

At December 31, 2007, the Company had 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 was not collected in full by December 31, 2008. The Company removed the accrued back-pay from its liabilities at December 31, 2008 and recorded an increase in additional paid-in-capital as the forgiveness of debt. This was considered a capital transaction due to the related party nature of the parties.

During 2008 Travis Honeycutt provided to the Company prospect advisory services in the thread industry and received $9,000 for his services.

Officers and Directors

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.

On April 1, 2008, the Company added an independent 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.

F-23

VYSTAR CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED)

Officers and Directors (continued)

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.

On October 1, 2008, the Company added two additional directors to its Board of Directors.

At December 31, 2008 the Company’s four independent Board members received warrants, valued at approximately $10,700, 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 December 31, 2018 and vested immediately.

Other

At December 31, 2008 and 2007, the Company also has accrued severance of $81,250 payable to the Company’s former CFO, Glenn 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.

At December 31, 2008 and 2007, the Company has a balance payable to Reactive Energy, LLC, a company wholly owned by the Company’s former CEO, for management fees and contract services of $36,453. The Company intends to satisfy this liability upon the effectiveness of its registration statement.

NOTE 10 – DEFINED CONTRIBUTION PLAN

The Company maintains a tax-qualified retirement plan that provides all regular employees with an opportunity to save for retirement on a tax-advantaged basis. Under the 401(k) plan, 100 percent of participants’ contributions up to a maximum of 3 percent of compensation and 50 percent of participants’ contributions up to an additional 2 percent of compensation are matched. Company costs under the plan were approximately $13,000 for the year ended December 31, 2008; no costs were incurred during 2007.

NOTE 11 – SUBSEQUENT EVENTS

On January 6, 2009, the Company entered into a Distributor 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 for Vytex. The Company has established the network during the first quarter of 2009. The agreement provides product storage and distribution services in addition to sales and marketing support as well as exclusive distribution of Vytex products in specified geographic areas and nonexclusive distribution otherwise worldwide.

As previously discussed in Note 2, the Company filed a pre-effective amendment to the Form S-1 Registration Statement Under the Securities Act of 1933 on February 11, 2009.

F-24


Georgia	8731	20-2027731
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

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		4,803,338	$	2.00	(1)	$	9,606,676	(1)	$	536.05

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	- 11 -

UNITED STATES TAX CONSIDERATIONS	- 12 -

SELECTED FINANCIAL DATA	- 13 -

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	- 15 -

BUSINESS	- 20 -

GOVERNMENT REGULATION	- 40 -

MANAGEMENT	- 41 -

LIMITATION OF LIABILITY AND INDEMNIFICATION	- 50 -

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	- 51 -

PRINCIPAL SHAREHOLDERS	- 52 -

DESCRIPTION OF CAPITAL STOCK	- 53 -

SHARES ELIGIBLE FOR FUTURE SALE	- 54 -

LEGAL MATTERS	- 55 -

EXPERTS	- 55 -

WHERE YOU CAN FIND MORE INFORMATION	- 55 -

FINANCIAL STATEMENTS	F-1

Common Stock to be sold by the Selling Shareholders	Up to 4,803,338 shares

Use of Proceeds	We will not receive any proceeds from the sale of the common stock by the selling shareholders

Common Stock to be Outstanding after this Offering	12,655,274 shares

Risk Factors	You should read the “Risk Factors” section of this prospectus. beginning at page __.

	Year Ended December 31									Three Months Ended March 31
Statement of Operations Data:	2006			2007			2008			2009			2008
	(in thousands, except per share data)

Net sales	$	-		$	-		$	-		$	3		$	-

General and administrative (1)		759			703			2,721			66			1,362
Research and development (1)		305			428			403			467			227
Depreciation and amortization		8			9			1,538			16			996
Total costs and expenses		1,072			1,140			4,662			549			2,585

Operating loss		(1,072	)		(1,140	)		(4,662	)		(546	)		(2,585	)

Interest income (expense), net		(1	)		20			22			8			3
Recovery (provision) for note receivable from related party		-			(120	)		-			30			-
Loss on disposal of assets		(13	)		-			-			-			-
Net loss	$	(1,086	)	$	(1,240	)	$	(4,640	)	$	(508	)	$	(2,582	)

Basic and Diluted Loss per Share	$	(0.08	)	$	(0.09	)	$	(0.45	)	$	(0.04	)	$	(0.22	)

Basic and Diluted Weighted Average Number of Common Shares Outstanding		13,185			14,495			10,319			11,952			11,990

	Actual
	March 31, 2009
	(unaudited)

Cash	$	502,562

Total long-term debt, including current portion	$	-

Stockholders' equity
Common stock, $0.0001 par value, 25,000,000 shares authorized		1,195
Additional paid-in capital		10,553,374
Stock subscription receivable		(1,000	)
Deferred compensation		(4,597	)
Deficit accumulated during development stage		(9,274,842	)
Total stockholders' equity		1,274,130
Total capitalization	$	1,274,130

Name	Shares of common stock Beneficially Owned Before the Offering		Shares of common stock Registered in this Offering		Footnote		Shares of common stock Owned After Offering		Percentage of Outstanding common stock Beneficially Owned After the Offering (1)
Ansari, Irfan		30,000		30,000	(2)			0		*
Arlene Florence James Trust		5,000		5,000		(3)		0		*
Atkinson, John M.		10,000		10,000		(4)		0		*
Bowery Partners LLC		106,000		106,000		(5)		0		*
Braun and Gray Holdings LLC		25,000		25,000		(6)		0		*
Canyon Group, LLC		40,000		40,000		(7)		0		*
Carrus, Janet		100,000		100,000		(8)		0		*
Chambers, Jennifer		6,670		6,670		(9)		0		*
Cloud, Ann Marie		4,000		4,000		(10)		0		*
Davidson, Eugene D.		20,000		20,000		(11)		0		*
Davis, Timothy E.		65,000		40,000		(12)		25,000		0.20	%
DeKeyser, Kelly J.		40,000		40,000		(13)		0		*
Dodd, Mark Alan		14,000		14,000		(14)		0		*
Donoho, Lanny Alan		20,000		20,000		(15)		0		*
Duffin, Richard W. and Emily R.		40,000		40,000		(16)		0		*
Edwards, John A.		31,668		31,668		(17)		0		*
Edwards, John H. and Francyann		20,000		20,000		(18)		0		*
Fiman, Byron G.		12,500		12,500		(19)		0		*
Flickinger, Eric		16,668		16,668		(20)		0		*
Flickinger, Marc W.		10,666		10,666		(21)		0		*
Franks, Mitchell D.		30,000		30,000		(22)		0		*
Gagliano, Arlene		3,333		3,333		(23)		0		*
Gebhart, Brenda S. and Carl		100,000		100,000		(24)		0		*
Gebhart, Lauri		275,000		250,000		(25)		25,000		0.20	%
Graivier, Miles		6,700		6,700		(26)		0		*
Gray, Danielle M.		25,000		25,000		(27)		0		*
Griffin, William A.		6,000		6,000		(28)		0		*
Hall, Elizabeth M.		30,000		30,000		(29)		0		*
Harari, Guy		40,000		40,000		(30)		0		*
Harrison, H. Robert		16,000		16,000		(31)		0		*
Hartman, Robert E.		666		666		(32)		0		*
Hibey, Mary-Ellen		37,500		25,000		(33)		12,500		0.10	%
Hobbs, Philip Gary and Patricia Karen		30,000		30,000		(34)		0		*
Holey, Scott and Dawn		40,000		40,000		(35)		0		*
Honeycutt, Margaret S.		2,497,000		700,000		(36)		1,797,000		14.20	%
Honeycutt, Travis W.		2,497,000		700,000		(37)		1,797,000		14.20	%
James, Stephen B.		38,334		38,334		(38)		0		*
James, Stephen B. and Janice M.		20,000		20,000		(39)		0		*
Kevin F. & Anne F. Spalding Family Trust Dated 7/3/93		30,000		30,000		(40)		0		*
Knapp, William S.		110,000		110,000		(41)		0		*
Massey, Joe B.		20,000		20,000		(42)		0		*
Masters, William L.		67,500		67,500		(43)		0		*
McCoy, Kiara S.		22,000		22,000		(44)		0		*
McEntire, Jan B.		14,000		14,000		(45)		0		*
Meyer, Raymond F.		75,000		75,000		(46)		0		*
Osborn, Keith D.		331,500		300,000		(47)		31,500		0.25	%
Patel, Dinesh		6,666		6,666		(48)		0		*
Patel, Dinesh & Sima		6,666		6,634		(49)		32		0.00	%
Patton, Timothy Ray and Maureen T.		25,000		25,000		(50)		0		*
Patton, Timothy Ryan		10,000		10,000		(51)		0		*
Phineas Enterprises, LP		35,000		20,000		(52)		15,000		0.12	%
Raymond, Joseph R.		40,000		40,000		(53)		0		*
Rieke, Alexander B.		4,000		4,000		(54)		0		*
Risner, F. Reed		35,000		35,000		(55)		0		*
Risner, F. Reed and Mildred E.		50,000		50,000		(56)		0		*
Root, Barry C.		12,500		12,500		(57)		0		*
Saunders, Jonathan N.		50,000		50,000		(58)		0		*
Schwartz, Fred J.		12,500		12,500		(59)		0		*
Scott, Mitchell S.		30,000		30,000		(60)		0		*
Shadetree Investment Group, LLC		86,667		86,667		(61)		0		*
Shapiro, Philip J. and Janet R.		50,000		50,000		(62)		0		*
Sisung, Brian		34,330		34,330		(63)		0		*
Smotherman, Glen W.		1,000,000		250,000		(64)		750,000		5.93	%
Somerville, Robert D.		50,000		25,000		(65)		25,000		0.20
Spalding, Arthur F.		20,000		20,000		(66)		0		*
Steinberg, David Lewis		32,500		10,000		(67)		22,500		0.18	%
Steven and Kaye Yost Family Trust Dated 2/7/92		20,000		20,000		(68)		0		*
Stowe, J. Ronald		10,000		10,000		(69)		0		*
Tomaras, Christopher R.		20,000		20,000		(70)		0		*
Troutman, Bruce J.		6,670		6,670		(71)		0		*
Universal Capital Management, Inc.		400,000		400,000		(72)		0		*
Varel, Ed		10,000		10,000		(73)		0		*
Verska, Thomas E. and Agnes E.		90,000		85,000		(74)		5,000		0.04	%
Walker, Daniel E.		12,000		12,000		(75)		0		*
Walker, Denise Z.		22,000		22,000		(76)		0		*
Weil, Richard		12,500		12,500		(77)		0		*
White, Benjamin		80,000		80,000		(78)		0		*
Wolfe, Derek		58,166		20,166		(79)		38,000		0.30	%
Yeoham, Paul		50,000		25,000		(80)		25,000		0.20	%
Yost Financial Consultants, Inc. Profit Sharing Plan		25,000		10,000		(81)		15,000		0.12	%

TOTAL:		9,386,870		4,803,338				4,583,532

(1)	Based on 12,655,274 shares outstanding on June 30, 2009.

(2)	Shares acquired in first private placement and second private placement.

(3)	Shares acquired in second private placement. Arlene F. James is the beneficial owner of the Arlene Florence James Trust and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(4)	Shares acquired in first private placement.

(5)	Shares acquired in second private placement. Robert Delman is the Partner of Bowery Partners, LLC and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(6)	Shares acquired in first private placement. Danielle Marie Gray is the Managing Member of Braun and Gray Holdings, LLC and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(7)	Shares acquired in second private placement. James Cooke is the manager of Canyon Group, LLC and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(8)	Shares acquired in third private placement.

(9)	Shares acquired in second private placement.

(10)	Shares acquired in second private placement.

(11)	Shares acquired in third private placement.

(12)	Shares acquired in second private placement.

(13)	Shares acquired in second private placement.

(14)	Shares acquired in second private placement.

(15)	Shares acquired in second private placement.

(16)	Shares acquired in second private placement.

(17)	Shares acquired in second private placement.

(18)	Shares acquired in third private placement.

(19)	Shares acquired in first private placement.

(20)	Shares acquired in second private placement.

(21)	Shares acquired in second private placement.

(22)	Shares acquired in third private placement.

(23)	Shares acquired in second private placement.

(24)	Shares acquired in second private placement.

(25)	200,000 shares acquired in second private placement and 50,000 shares acquired in third private placement.

(26)	Shares acquired in second private placement.

(27)	Shares acquired in first private placement.

(28)	Shares transferred from Travis Honeycutt.

(29)	25,000 shares acquired in first private placement and 5,000 shares acquired in third private placement.

(30)	Shares acquired in second private placement.

(31)	Shares acquired in second private placement.

(32)	Shares acquired in second private placement.

(33)	Shares acquired in third private placement.

(34)	Shares acquired in first private placement.

(35)	Shares acquired in second private placement.

(36)	Margaret Honeycutt is the wife of Mr. Honeycutt. She has never had any relationship with the Company.

(37)	Travis Honeycutt is the founder of the Company. He was a director, Chairman of the Board and Chief Executive Officer of the company from organization to March 2008.

(38)	Shares acquired in second private placement.

(39)	Shares acquired in third private placement.

(40)	Shares acquired in second private placement. Kevin F. Spalding and Anne F. Spalding are the beneficiaries of the Kevin F. & Anne F. Spalding Family Trust Dated 7/3/93 and are deemed to have voting and dispositive power of the shares held by this selling shareholder.

(41)	100,000 shares acquired in second private placement and 10,000 shares acquired in third private placement.

(42)	Shares acquired in second private placement.

(43)	Shares acquired in third private placement.

(44)	Shares acquired in first private placement.

(45)	Shares acquired in second private placement.

(46)	Shares acquired in first private placement.

(47)	Shares acquired in second private placement.

(48)	Shares acquired in second private placement.

(49)	Shares acquired in second private placement.

(50)	Shares acquired in first private placement.

(51)	Shares acquired in third private placement.

(52)	Shares acquired in third private placement. Joel E. Berenson is the President of Phineas, Inc., which is the General Partner of Phineas Enterprises, LP and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(53)	Shares acquired in second private placement.

(54)	Shares acquired in second private placement.

(55)	25,000 shares acquired in first private placement and 10,000 shares acquired in second private placement.

(56)	15,000 shares acquired in first private placement and 35,000 shares acquired in second private placement.

(57)	Shares acquired in third private placement.

(58)	Shares acquired in third private placement.

(59)	Shares acquired in second private placement.

(60)	Shares acquired in second private placement.

(61)	80,000 shares acquired in first private placement and 6,667 shares acquired in second private placement. Miles H. Marks is the Managing Member of Shadetree Investment Group, LLC and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(62)	Shares acquired in third private placement.

(63)	Shares acquired in second private placement.

(64)	Mr. Smotherman is a co-founder and former Chief Financial Officer of the Company, and received his shares of common stock upon the founding of the Company. Mr. Smotherman and the Company have entered into a Lockup Agreement with respect to the resale by Mr. Smotherman of the 750,000 shares of common stock owned by him other than the 250,000 shares registered for resale in the registration statement of which this prospectus is a part. Pursuant to such agreement, Mr. Smotherman will be restricted from selling shares of his common stock except as follows: Any sales of Company common stock in one (1) business day that do not exceed 10,000 shares in the aggregate; provided, however, that in no event shall aggregate sales in any ninety (90) day period beginning on the effective date of the registration statement of which this prospectus is a part, and ending 270 calendar days from such date exceed 126,500 shares of Company common stock. Notwithstanding the foregoing, the parties agreed that there will be no such quantity restrictions on the resale by Mr. Smotherman of up to 250,000 shares of Company common stock pursuant to such registration statement.

(65)	Shares acquired in third private placement.

(66)	Shares acquired in third private placement.

(67)	Shares acquired in third private placement.

(68)	10,000 shares acquired in second private placement and 10,000 shares acquired in third private placement. Steven A. Yost is the Trustee of Steven and Kaye Yost Family Trust Dated 2/7/92 and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(69)	Shares acquired in first private placement.

(70)	Shares acquired in second private placement.

(71)	Shares acquired in second private placement.

(72)	Universal Capital Management, Inc. received its shares upon exercise of warrants to purchase common stock received for services provided to the Company. Michael Queen is the CEO of Universal Capital Management, Inc., a public company, and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

(73)	Shares acquired in second private placement.

(74)	70,000 shares acquired in second private placement and 15,000 shares acquired in third private placement.

(75)	Shares acquired in second private placement.

(76)	Shares acquired in second private placement.

(77)	Shares acquired in first private placement.

(78)	60,000 shares acquired in second private placement and 20,000 shares acquired in third private placement.

(79)	17,666 shares acquired in second private placement and 2,500 shares acquired in third private placement.

(80)	Shares acquired in third private placement.

(81)	Shares acquired in second private placement. Steven A. Yost is the Trustee of Yost Financial Consultants, Inc. Profit Sharing Plan and is deemed to have voting and dispositive power of the shares held by this selling shareholder.

	Year Ended December 31															For the Three Months Ended
($ in thousands)	2004			2005			2006			2007			2008			March 31, 2009

Net sales	$	-		$	-		$	-		$	-		$	-		$	3

General and administrative		155			657			759			703			2,721			66
Research and development		345			604			305			428			403			467
Depreciation and amortization		-			5			8			9			1,538			16
Total costs and expenses		500			1,266			1,072			1,140			4,662			549

Operating loss		(500	)		(1,266	)		(1,072	)		(1,140	)		(4,662	)		(546	)

Interest income (expense), net		-			-			(1	)		20			22			8
Recovery (provision) for note receivable from related party		-			-			-			(120	)		-			30
Loss on disposal of assets		-			-			(13	)		-			-			-
Net loss	$	(500	)	$	(1,266	)	$	(1,086	)	$	(1,240	)	$	(4,640	)	$	(508	)

	Year Ended December 31											March 31
	2004		2005			2006		2007		2008		2009		2008
Balance Sheet Data:
Cash	$	353	$	30		$	420	$	573	$	957	$	503	$	506
Total current assets		353		35			436		651		1,813		1,397		593
Total liabilities		236		232			279		220		253		245		241
Total shareholders' equity		117		130			457		575		1,683		1,274		481
Working capital (deficiency)		353		(180	)		175		447		1,573		1,164		403

										February 2, 2000
										(inception)
							Three Months			through
	Year Ended December 31,						Ended March 31,			March 31,
	2007			2008			2009			2009
Net sales	$	-		$	-		$	3		$	3
Total operating expenses		1,140			4,662			549			9,224
Loss from operations		(1,140	)		(4,662	)		(546	)		(9,221	)
Interest income		20			22			8			51
Recovery (provision) for note receivable from related party		(120	)		-			30			(90	)
Loss on disposal of assets		-			-			-			(13	)
Interest expense		-			-			-			(2	)
Net loss	$	(1,240	)	$	(4,640	)	$	(508	)	$	(9,275	)

Net loss per share, basic and diluted	$	(0.09	)	$	(0.45	)	$	(0.04	)

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

	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

	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

	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.

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	%

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

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
Linda S. Hammock	58	Acting Chief Financial Officer
J. Douglas Craft	45	Director (1)(2)(3)
W. Dean Waters	43	Director (1)(2)
Mitsy Y. Mangum	45	Director (1)

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

		PAGE

AUDITED FINANCIAL STATEMENTS

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS		F-4

BALANCE SHEETS AT DECEMBER 31, 2008 AND 2007		F-6

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2008		F-7

STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2008		F-8

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO DECEMBER 31, 2008		F-10

NOTES TO FINANCIAL STATEMENTS		F-11

UNAUDITED FINANCIAL STATEMENTS

BALANCE SHEETS AT MARCH 31, 2009 AND DECEMBER 31, 2008		F-27

STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO SEPTEMBER 30, 2008		F-28

STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO MARCH 31, 2009		F-29

STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 AND FOR THE PERIOD FROM FEBRUARY 2, 2000 (INCEPTION) TO MARCH 31, 2009		F-31

NOTES TO FINANCIAL STATEMENTS		F-32

							Period From February 2,
	Three Months Ended						2000 (Inception) To
	March 31, 2009			March 31, 2008			March 31, 2009

NET SALES	$	3,083		$	-		$	3,310

COST AND EXPENSE
Research and development		82,137			227,054			2,200,883
General and administrative		466,917			2,358,424			7,022,718
		549,054			2,585,478			9,223,601

LOSS FROM OPERATIONS		(545,971	)		(2,585,478	)		(9,220,291	)

OTHER INCOME (EXPENSE)
Interest income		7,623			3,458			50,969
Recovery (provision) for note receivable from related party		30,000			-			(90,205	)
Loss on disposal of assets		-			-			(13,400	)
Interest expense		(19	)		-			(1,861	)
Other expense		-			-			(54	)

NET LOSS	$	(508,367	)	$	(2,582,020	)	$	(9,274,842	)

Basic and Diluted Loss per Share	$	(0.04	)	$	(0.22	)

Basic and Diluted Weighted Average Number of Common Shares Outstanding		11,952,407			11,989,913

															Deficit
															Accumulated
										Stock					During
	Number of						Additional Paid-in			Subscription			Deferred		Development
	Shares			Common Stock			Capital			Receivable			Compensation		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
Share-based compensation to employees vested during 2008		-			-			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

				Weighted Average				Weighted Average
	Number of Warrants			Grant Date Fair Value		Weighted Average Exercise Price		Remaining Contractual Life (Years)

Outstanding, December 31, 2008		2,690,779				$	0.85		5.14

Granted		118,577		$	0.62	$	-
Exercised		(1,000	)			$	1.00
Expired		-				$	-

Outstanding, March 31, 2009		2,808,356				$	0.88		4.41

Exercisable, March 31, 2009		2,808,356				$	0.88		4.41

	Amount

Securities and Exchange Commission registration fee	$	536
Accountants’ fees and expenses		32,000
Legal fees and expenses		200,000
Transfer Agent’s fees and expenses		20,000
Printing and engraving expenses		10,000
Miscellaneous		10,000
Total Expenses	$	272,536

		Vystar Corporation
	By:	/s/ William R. Doyle
		William R. Doyle
		Chairman, President and Chief Executive Officer

Signature	Title	Date

/s/ WILLIAM R. DOYLE	Chairman, President, Chief Executive Officer and Director (Principal Executive Officer)	August 4, 2009
/s/ LINDA S. HAMMOCK	Chief Financial Officer (Principal Financial and Accounting Officer)	August 4, 2009
/s/ J. DOUGLAS CRAFT*	Director	August 4, 2009
/s/ MITSY Y. MANGUM*	Director	August 4, 2009
/s/ W. DEAN WATERS*	Director	August 4, 2009

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 (previously filed)

4.2		Form of Share Subscription Agreements and Investment Letter (First Private Placement)

4.3		Form of Share Subscription Agreement and Investment Letter (Second Private Placement)

4.4		Form of Vystar Corporation Investor Questionnaire and Subscription Agreement (Third Private Placement)

5.1		Opinion of Greenberg Traurig LLP

10.1*		Manufacturing Agreement between Vystar Corporation and Revertex (Malaysia) Sdn. Bhd. effective April 1, 2008 (previously filed)

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, as amended (previously filed)

10.10		Employment Agreement between Vystar Corporation and Sandra Parker dated April 1, 2008 (previously filed)

10.11		First Amendment to Employment Agreement dated July 1, 2009, between Vystar Corporation and Sandra Parker.

10.12*		Distributor Agreement among Vystar Corporation, Centrotrade Minerals & Metals, Inc. and Centrotrade Deutschland, GmbH dated January 6, 2009 (previously filed)

10.13		Note agreement between Vystar Corporation and Climax Global Energy, Inc. dated August 15, 2008 (previously filed)

10.14		Lockup Agreement with Glen W. Smotherman dated July 30, 2009.

21.1		Subsidiaries of Vystar Corporation (previously filed)

23.1		Consent of Independent Registered Public Accounting Firm

23.2		Consent of Independent Registered Public Accounting Firm

23.3		Consent of Greenberg Traurig, LLP (included in Exhibit 5.1)

24.1		Powers of Attorney (included on signature page) (previously filed)

1.	Personal .

	Name
		(Exact name as it should appear on stock certificate)

		Additional Investor (i.e., joint tenant, tenant in common, community property holder)

	Residence Address
	Home Telephone
	Date of Birth
	Social Security Number
	Employer
	Business Address
	Business Telephone
	Occupation
	Citizenship


2.	Joint Ownership.

	Complete for Tenants in Common, Joint Tenants and Community Property held in two names ONLY if the information differs from that given above:

1.	Identification .

Name
(Exact name as it will appear on stock certificate)

Address of Principal
Place of Business
Jurisdiction of Formation
Or Incorporation
Contact Person
Telephone Number
Federal Employer Identification No.
Type of Entity

______	Limited Partnership
______	General Partnership
______	Corporation
______	Revocable Trust (in Attachment A, identify each grantor, and indicate under which circumstances the trust is revocable by the grantor) 1
______	Other Type of Trust (indicate type of trust and, for trusts other than pension trusts, name the grantors and beneficiaries in Attachment A)
______	Other form of organization (indicate form of organization below)


		Name of Investor (Please Print) By: _____________________________ Signature of Investor Title: _____________________________ Number of Securities Subscribed: __________ shares of Common Stock (and accompanying warrants to purchase one share of Common Stock at the rate of one (1) warrant for each two (2) shares of Common Stock subscribed) at $1.00 per share.


	/s/ Habif, Arogeti & Wynne, LLP Habif, Arogeti & Wynne, LLP Atlanta, Georgia August 4, 2009