UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549







FORM
10-Q







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


For
the quarterly period ended September 30, 2009




OR




 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934




For
the transition period from




Commission
File Number 000-53754





VYSTAR
CORPORATION


(Exact
Name of Registrant as Specified in its Charter)









Georgia
            
            20-2027731(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (IRS
      Employer
              Identification
      No.)




3235
Satellite Blvd.


Building
400, Suite 290


Duluth, GA
30096


(Address
of Principal Executive Offices, Zip Code)




(770) 965-0383


(Registrant's
telephone number including area code)


(Former
name, former address and formerfiscal
year, if changed since last report)







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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    YES    ̈
    NO    ̈




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




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




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




As of
November 13, 2009, there were 12,787,274 shares of the Registrant’s common
stock, par value $0.0001 per share, outstanding.









Vystar
Corporation


Form
10-Q for the Quarter Ended September 30, 2009





Index





Part
      I.  Financial InformationItem
      1.
                                                                                                                                  Financial Statements
                                                                                                                                  3Balance Sheets at September 30, 2009 (unaudited)
      and December 31, 2008
                                                                                                                                  3Statements of Operations for the Three and Nine
      Months Ended September 30,2009 and 2008 and for the Period from February 2,
      2000 (Inception) toSeptember 30, 2009
    (unaudited)
                                                                                                                                  4Statements of Stockholders’ Equity for the Nine
      Months Ended September 30,2009 and for the Period from February 2, 2000
      (Inception) to September 30,2009 (unaudited)
                                                                                                                                  5Statements of Cash Flows for the Nine Months Ended
      September 30, 2009and 2008 and for the Period from February 2, 2000
      (Inception) toSeptember 30, 2009
    (unaudited)
                                                                                                                                  7Notes to Financial Statements
      (unaudited)
                                                                                                                                  8Item
      2.
                                                                                                                                  Management’s Discussion and Analysis of Financial
      Condition and Resultsof Operations
                                                                                                                                  20Item
      3.
                                                                                                                                  Quantitative and Qualitative Disclosures About
      Market Risk
                                                                                                                                  25Item
      4.
                                                                                                                                  Controls and Procedures
                                                                                                                                  25Part II.  Other
      InformationItem
      1.
                                                                                                                                  Legal Proceedings
                                                                                                                                  26Item
      2.
                                                                                                                                  Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                                                                                                  26Item
      3.
                                                                                                                                  Defaults Upon Senior
    Securities
                                                                                                                                  27Item
      4.
                                                                                                                                  Submission of Matters to a Vote of Security
      Holders
                                                                                                                                  27Item
      5.
                                                                                                                                  Other Information
                                                                                                                                  27Item
      6.
                                                                                                                                  Exhibits
                                                                                                                                  27


2


Part
I.       FINANCIAL INFORMATION





ITEM
1.             Financial
Statements





VYSTAR
CORPORATION


(A
Development Stage Company)


BALANCE
SHEETS




September30,2009
                  
                  
                  December31,2008(unaudited)ASSETSCURRENT
      ASSETSCash
                  
                  $
                  720,987
                  
                  
                  $
                  956,655Investments
                  
                  
                  -
                  
                  
                  
                  750,000Note
      receivable due from related party, net of allowance for uncollectible
      amount of $120,205 at December 31, 2008
                  
                  
                  152,949
                  
                  
                  
                  60,000Inventory
                  
                  
                  73,495
                  
                  
                  
                  -Prepaid
      expenses
                  
                  
                  120,990
                  
                  
                  
                  44,938Deposits
                  
                  
                  37,714
                  
                  
                  
                  -Other
                  
                  
                  219
                  
                  
                  
                  1,217TOTAL
      CURRENT ASSETS
                  
                  
                  1,106,354
                  
                  
                  
                  1,812,810PROPERTY
      AND EQUIPMENT, NET
                  
                  
                  9,989
                  
                  
                  
                  15,307OTHER
      ASSETSNote
      receivable due from related party, net of current portion shown
      above
                  
                  
                  -
                  
                  
                  
                  17,744Patents
      and trademarks, net
                  
                  
                  109,597
                  
                  
                  
                  83,570Other
                  
                  
                  5,887
                  
                  
                  
                  5,887TOTAL
      ASSETS
                  
                  $
                  1,231,827
                  
                  
                  $
                  1,935,318LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  24,135
                  
                  
                  $
                  74,498Accounts
      payable - related party
                  
                  
                  -
                  
                  
                  
                  36,453Accrued
      expenses
                  
                  
                  203,582
                  
                  
                  
                  129,155TOTAL
      CURRENT LIABILITIES
                  
                  
                  227,717
                  
                  
                  
                  240,106LONG-TERM
      LIABILITIES
                  
                  
                  9,101
                  
                  
                  
                  12,574TOTAL
      LIABILITIES
                  
                  
                  236,818
                  
                  
                  
                  252,680STOCKHOLDERS'
      EQUITYPreferred
      stock, $0.0001 par value, 15,000,000 shares authorized; none issued and
      outstanding
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, $0.0001 par value, 50,000,000 shares authorized; 12,787,274 and
      11,951,774 shares issued and outstanding at September 30, 2009 and
      December 31, 2008, respectively
                  
                  
                  1,279
                  
                  
                  
                  1,195Additional
      paid-in capital
                  
                  
                  11,467,619
                  
                  
                  
                  10,466,302Deferred
      compensation
                  
                  
                  (122,250
                  )
                  
                  
                  (18,384
                  )Stock
      subscription receivable
                  
                  
                  (31,000
                  )
                  
                  
                  -Deficit
      accumulated during development stage
                  
                  
                  (10,320,639
                  )
                  
                  
                  (8,766,475
                  )TOTAL
      STOCKHOLDERS' EQUITY
                  
                  
                  995,009
                  
                  
                  
                  1,682,638TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                  
                  $
                  1,231,827
                  
                  
                  $
                  1,935,318





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


3


VYSTAR
CORPORATION


(A
Development Stage Company)


STATEMENTS
OF OPERATIONS


(unaudited)




Period
      From February 2,Three
      Months Ended
                            
                            
                            Nine
      Months Ended
                            
                            
                            2000
      (Inception) ToSeptember
      30, 2009
                            
                            
                            September
      30, 2008
                            
                            
                            September
      30, 2009
                            
                            
                            September
      30, 2008
                            
                            
                            September
      30, 2009NET
      SALES
                            
                            $
                            98
                            
                            
                            $
                            -
                            
                            
                            $
                            2,628
                            
                            
                            $
                            -
                            
                            
                            $
                            2,855COST
      AND EXPENSEResearch
      and development
                            
                            
                            67,557
                            
                            
                            
                            61,851
                            
                            
                            
                            195,650
                            
                            
                            
                            352,466
                            
                            
                            
                            2,314,395General
      and administrative
                            
                            
                            508,508
                            
                            
                            
                            438,871
                            
                            
                            
                            1,491,641
                            
                            
                            
                            3,732,097
                            
                            
                            
                            8,047,443576,065
                            
                            
                            
                            500,722
                            
                            
                            
                            1,687,291
                            
                            
                            
                            4,084,563
                            
                            
                            
                            10,361,838LOSS
      FROM OPERATIONS
                            
                            
                            (575,967
                            )
                            
                            
                            (500,722
                            )
                            
                            
                            (1,684,663
                            )
                            
                            
                            (4,084,563
                            )
                            
                            
                            (10,358,983
                            )OTHER
      INCOME (EXPENSE)Interest
      income
                            
                            
                            1,770
                            
                            
                            
                            7,772
                            
                            
                            
                            12,006
                            
                            
                            
                            14,069
                            
                            
                            
                            55,352Recovery
      on note receivable from related party
                            
                            
                            90,205
                            
                            
                            
                            -
                            
                            
                            
                            120,205
                            
                            
                            
                            -
                            
                            
                            
                            -Loss
      on disposal of assets
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (13,400
                            )Interest
      expense
                            
                            
                            (992
                            )
                            
                            
                            (858
                            )
                            
                            
                            (1,712
                            )
                            
                            
                            (858
                            )
                            
                            
                            (3,554
                            )Other
      expense
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (54
                            )
                            
                            
                            (54
                            )NET
      LOSS
                            
                            $
                            (484,984
                            )
                            
                            $
                            (493,808
                            )
                            
                            $
                            (1,554,164
                            )
                            
                            $
                            (4,071,406
                            )
                            
                            $
                            (10,320,639
                            )Basic
      and Diluted Loss per Share
                            
                            $
                            (0.04
                            )
                            
                            $
                            (0.04
                            )
                            
                            $
                            (0.13
                            )
                            
                            $
                            (0.36
                            )Basic
      and Diluted Weighted Average Number of Common Shares
      Outstanding
                            
                            
                            12,670,214
                            
                            
                            
                            11,445,019
                            
                            
                            
                            12,335,443
                            
                            
                            
                            11,429,799




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


4


VYSTAR
CORPORATION


(A
Development Stage Company)


STATEMENTS
OF STOCKHOLDERS’ EQUITY





Number
      of
                    Shares
                  
                  
                  Common
      Stock
                  
                  
                  Additional
      Paid-in
                    Capital
                  
                  
                  Stock
                    Subscription
                    Receivable
                  
                  
                  Deferred
                    Compensation
                  
                  
                  Deficit
                    Accumulated
                    During
                    Development
                    Stage
                  
                  
                  TotalBeginning
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,100Common
      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
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  607,167Share-based
      compensation to employees vested during 2004
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,868
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,868Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (500,154
                  )
                  
                  
                  (500,154
                  )Ending
      Balance, 12/31/04
                  
                  
                  11,992,000
                  
                  
                  
                  1,199
                  
                  
                  
                  660,330
                  
                  
                  
                  (10,000
                  )
                  
                  
                  -
                  
                  
                  
                  (534,548
                  )
                  
                  
                  116,981Common
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  84,100Common
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,112,253Share-based
      compensation to employees vested during 2005
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,760
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,760Share-based
      payments for services vested during 2005
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,232
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,232Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,265,923
                  )
                  
                  
                  (1,265,923
                  )Ending
      Balance, 12/31/05
                  
                  
                  12,865,674
                  
                  
                  
                  1,287
                  
                  
                  
                  1,929,587
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,800,471
                  )
                  
                  
                  130,403Common
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,143,651Common
      stock issued for exercise of warrants
                  
                  
                  19,000
                  
                  
                  
                  2
                  
                  
                  
                  9,498
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,500Common
      stock issued for services rendered during June, 2006, valued at
      $1.00/share
                  
                  
                  7,500
                  
                  
                  
                  1
                  
                  
                  
                  7,499
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,500Common
      stock issued for services rendered during September, 2006, valued at
      $1.00/share
                  
                  
                  2,500
                  
                  
                  
                  -
                  
                  
                  
                  2,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,500Common
      stock issued for services rendered during October, 2006, valued at
      $1.00/share
                  
                  
                  6,000
                  
                  
                  
                  1
                  
                  
                  
                  5,999
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,000Common
      stock issued for services rendered during December, 2006, valued at
      $1.00/share
                  
                  
                  36,490
                  
                  
                  
                  4
                  
                  
                  
                  36,486
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36,490Share-based
      compensation to employees vested during 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  204,659
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  204,659Share-based
      payments for services vested during 2006
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,803
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,803Net
      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.


5


VYSTAR
CORPORATION


(A
Development Stage Company)


STATEMENTS
OF STOCKHOLDERS’ EQUITY





Number
      of
                  Shares
                
                
                Common
                  Stock
                
                
                Additional
      Paid-in
                  Capital
                
                
                Stock
                  Subscription
                  Receivable
                
                
                Deferred
                  Compensation
                
                
                Deficit
                  Accumulated
                  During
                  Development
                  Stage
                
                
                TotalEnding
      Balance, 12/31/06
                
                
                13,760,295
                
                
                $
                1,377
                
                
                $
                3,342,600
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (2,886,768
                )
                
                $
                457,209Common
      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
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                824,692Common
      stock issued for exercise of warrants
                
                
                757,399
                
                
                
                76
                
                
                
                379,374
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                379,450Common
      stock issued for services rendered during January, 2007, valued at
      $1.00/share
                
                
                2,500
                
                
                
                -
                
                
                
                2,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,500Common
      stock issued for services rendered during February, 2007, valued at
      $1.00/share
                
                
                4,000
                
                
                
                -
                
                
                
                4,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,000Common
      stock issued for services rendered during March, 2007, valued at
      $1.00/share
                
                
                14,200
                
                
                
                1
                
                
                
                14,199
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                14,200Common
      stock issued for services rendered during April, 2007, valued at
      $1.00/share
                
                
                9,925
                
                
                
                1
                
                
                
                9,924
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,925Common
      stock issued for services rendered during June, 2007, valued at
      $1.00/share
                
                
                2,500
                
                
                
                -
                
                
                
                2,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,500Share-based
      compensation to employees vested during 2007
                
                
                -
                
                
                
                -
                
                
                
                97,502
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                97,502Share-based
      payments for services vested during 2007
                
                
                -
                
                
                
                -
                
                
                
                22,314
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                22,314Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,239,634
                )
                
                
                (1,239,634
                )Ending
      Balance, December 31, 2007
                
                
                15,148,320
                
                
                
                1,515
                
                
                
                4,699,545
                
                
                
                -
                
                
                
                -
                
                
                
                (4,126,402
                )
                
                
                574,658Common
      stock issued in private placement memorandum at $1.50/share during 2008,
      net of issuance costs of $375 cash
                
                
                5,000
                
                
                
                -
                
                
                
                7,125
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,125Contribution
      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
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,000Common
      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
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                55,000Common
      stock issued for services rendered during May, 2008, valued at
      $1.50/share
                
                
                1,333
                
                
                
                -
                
                
                
                2,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,000Common
      stock issued for services rendered during May, 2008, valued at
      $1.63/share
                
                
                3,374
                
                
                
                1
                
                
                
                5,499
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,500Common
      stock issued for services rendered during December, 2008, valued at
      $2.00/share
                
                
                10,500
                
                
                
                1
                
                
                
                20,999
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                21,000Common
      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
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,286,628Common
      stock issued for exercise of warrants during 2008, net of issuance costs
      of $7,317 cash
                
                
                430,167
                
                
                
                43
                
                
                
                211,224
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                211,267Share-based
      compensation to employees vested during 2008
                
                
                -
                
                
                
                -
                
                
                
                1,572,276
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,572,276Share-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
                
                
                
                -
                
                
                
                1,527,311Forgiveness
      of debt by founder
                
                
                -
                
                
                
                -
                
                
                
                54,946
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                54,946Net
      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
                )
                
                
                1,682,638Common
      stock issued in private placement memorandum at $2.00/share during 2009,
      net of issuance costs of $10,300 cash and $1,405 non-cash
                
                
                288,000
                
                
                
                29
                
                
                
                565,362
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                565,391Common
      stock issued for exercise of warrants during 2009
                
                
                447,500
                
                
                
                45
                
                
                
                51,455
                
                
                
                (31,000
                )
                
                
                -
                
                
                
                -
                
                
                
                20,500Common
      stock issued for services rendered during August, 2009, valued at
      $1.63/share
                
                
                100,000
                
                
                
                10
                
                
                
                162,990
                
                
                
                -
                
                
                
                (163,000
                )
                
                
                -
                
                
                
                -Share-based
      compensation to employees vested during 2009
                
                
                -
                
                
                
                -
                
                
                
                122,188
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                122,188Share-based
      payments for services vested during 2009
                
                
                -
                
                
                
                -
                
                
                
                99,322
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                99,322Amortization
      of deferred compensation during 2009
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                59,134
                
                
                
                -
                
                
                
                59,134Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,554,164
                )
                
                
                (1,554,164
                )Ending
      Balance, September 30, 2009 (unaudited)
                
                
                12,787,274
                
                
                $
                1,279
                
                
                $
                11,467,619
                
                
                $
                (31,000
                )
                
                $
                (122,250
                )
                
                $
                (10,320,639
                )
                
                $
                995,009





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





6


VYSTAR
CORPORATION


(A
Development Stage Company)


STATEMENTS
OF CASH FLOWS





Period
      From February 2,Nine
      Months Ended
                        
                        
                        2000
      (Inception) ToSeptember
      30, 2009
                        
                        
                        September
      30, 2008
                        
                        
                        September
      30, 2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                        
                        $
                        (1,554,164
                        )
                        
                        $
                        (4,071,406
                        )
                        
                        $
                        (10,320,639
                        )Adjustment
      to reconcile net loss to net cash used in operating
      activitiesStock-based
      compensation expense
                        
                        
                        221,200
                        
                        
                        
                        1,528,712
                        
                        
                        
                        2,546,724Recovery
      on related party note receivable
                        
                        
                        (120,205
                        )
                        
                        
                        -
                        
                        
                        
                        -Amortization
      of deferred compensation
                        
                        
                        59,134
                        
                        
                        
                        1,513,524
                        
                        
                        
                        1,586,446Forgiveness
      of debt by founder
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        54,946Depreciation
                        
                        
                        5,318
                        
                        
                        
                        5,738
                        
                        
                        
                        29,389Amortization
                        
                        
                        2,236
                        
                        
                        
                        2,242
                        
                        
                        
                        11,088Loss
      on disposal of assets
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        13,400(Increase)
      decrease in assetsInventory
                        
                        
                        (73,495
                        )
                        
                        
                        -
                        
                        
                        
                        (73,495
                        )Prepaid
      expenses
                        
                        
                        (32,924
                        )
                        
                        
                        (68,384
                        )
                        
                        
                        (114,574
                        )Deposits
                        
                        
                        (37,714
                        )
                        
                        
                        -
                        
                        
                        
                        (37,714
                        )Other
                        
                        
                        997
                        
                        
                        
                        11,210
                        
                        
                        
                        (6,106
                        )Increase
      (decrease) in liabilitiesAccounts
      payable
                        
                        
                        (50,362
                        )
                        
                        
                        64,550
                        
                        
                        
                        24,136Accounts
      payable - related party
                        
                        
                        (36,453
                        )
                        
                        
                        -
                        
                        
                        
                        -Accrued
      expenses
                        
                        
                        14,903
                        
                        
                        
                        37,395
                        
                        
                        
                        144,058Other
                        
                        
                        (3,475
                        )
                        
                        
                        (1,998
                        )
                        
                        
                        43,492Net
      cash used in operating activities
                        
                        
                        (1,605,004
                        )
                        
                        
                        (978,417
                        )
                        
                        
                        (6,098,849
                        )CASH
      FLOWS FROM INVESTING ACTIVITIESRedemption
      (purchase) of investment
                        
                        
                        750,000
                        
                        
                        
                        (500,000
                        )
                        
                        
                        -Advances
      to related party - note receivable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (257,908
                        )Proceeds
      on related party note receivable
                        
                        
                        45,000
                        
                        
                        
                        27,460
                        
                        
                        
                        104,959Cost
      of patents and trademarks
                        
                        
                        (11,864
                        )
                        
                        
                        (1,516
                        )
                        
                        
                        (67,574
                        )Purchase
      of property and equipment
                        
                        
                        -
                        
                        
                        
                        (8,320
                        )
                        
                        
                        (52,778
                        )Net
      cash provided by (used in) investing activities
                        
                        
                        783,136
                        
                        
                        
                        (482,376
                        )
                        
                        
                        (273,301
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock, net of issuance costs of $11,705, $94,086, and
      $476,522 for the periods ended September 30, 2009, September 30,
      2008, and from inception to September 30, 2009,
      respectively
                        
                        
                        586,200
                        
                        
                        
                        1,718,577
                        
                        
                        
                        7,093,137Net
      cash provided by financing activities
                        
                        
                        586,200
                        
                        
                        
                        1,718,577
                        
                        
                        
                        7,093,137NET
      INCREASE (DECREASE) IN CASH
                        
                        
                        (235,668
                        )
                        
                        
                        257,784
                        
                        
                        
                        720,987CASH
      - BEGINNING OF PERIOD
                        
                        
                        956,655
                        
                        
                        
                        573,177
                        
                        
                        
                        -CASH
      - END OF PERIOD
                        
                        $
                        720,987
                        
                        
                        $
                        830,961
                        
                        
                        $
                        720,987SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCASH
      PAID DURING THE PERIOD FORInterest
                        
                        $
                        1,712
                        
                        
                        $
                        858
                        
                        
                        $
                        3,554SUPPLEMENTAL
      DISCLOSURE OF NON-CASH FINANCING ACTIVITY:Issuance
      of common stock for services rendered
                        
                        $
                        163,000
                        
                        
                        $
                        71,580
                        
                        
                        $
                        341,190





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


7





VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





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 and licensing agreements and
has started introducing 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 is a non-exclusive, toll manufacturer for Vystar
and is in full production mode to manufacture Vytex NRL
commercially.  In May 2009, the Company and Alatech Healthcare, LLC
received 510(k) clearance from the U.S. Food and Drug Administration to market
and sell Alatech’s Envy TM
condom manufactured with Vytex NRL.  The Envy condom will be the first
medical product available in the U.S. made from Vytex NRL and it will carry
labeling that will reflect the lowest antigenic protein content currently
available in a natural rubber latex medical device.  In July 2009, the
Company and Alatech further received 510(k) clearance from the FDA to market and
sell Alatech's unpowdered medical exam glove manufactured with Vytex NRL.
The Alatech exam glove will include labeling of less than 50 micrograms/gram of
total proteins.





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.





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.  On February 11, 2009, the Company amended the
initial statement and filed a second pre-effective amendment on May 29, 2009,
registering additional shares that were previously issued.  Additional
pre-effective amendments were subsequently filed and the Company’s 1933 Act S-1
Registration Statement and 1934 8-A registration were declared effective by the
SEC on August 7, 2009.  The Company has 4,803,338 shares of its common
stock registered and expects to have its shares trading on the Over the Counter
Bulletin Board (OTCBB) during the fourth quarter of 2009.





Basis
of Presentation


The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles of the United States of America
(“GAAP”) for interim financial information.  Accordingly, certain
information and footnotes required by GAAP for complete financial statements may
be condensed or omitted.  These interim financial statements should be
read in conjunction with our audited financial statements and notes thereto
included in our Form S-1, Registration Statement under the Securities Act of
1933.  In the opinion of Vystar management, these Financial Statements
contain all adjustments (which comprise only normal and recurring accruals)
necessary to present fairly the financial position and results of operations as
of and for the three and nine month periods ending September 30, 2009 and
2008.  The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying
disclosures.  Although these estimates are based on management’s best
knowledge of current events and actions the Company may undertake in the future,
actual results could differ from these estimates.


8


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Concentration
of Credit Risk


Certain
financial instruments potentially subject the Company to concentrations of
credit risk.These financial
instruments consist primarily of cash and, as discussed in Note 8, 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.  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.





Inventory


Inventory
is stated at the lower of cost or market and cost is determined using the
first-in, first-out (FIFO) method. The valuation of inventory requires the
Company to estimate net realizable value. Inventory is written down for
estimated obsolescence to the lesser of cost or market value.





Loss
Per Share


Because
the Company reported a net loss in 2009 and 2008, 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 3,485,000 shares and 3,250,000 shares of common stock for
2009 and 2008, respectively, as their effect would be
anti-dilutive.  Warrants to purchase 2,523,409 shares and 2,338,939
shares of common stock for 2009 and 2008, respectively, were also excluded from
the computation of diluted loss per share as their effect would be
anti-dilutive.




Revenue


Revenue
is recognized at the time product is shipped.





Fair
Value of Financial Instruments


The
carrying value of cash, the note receivable, accounts payable and certain other
financial instruments (such as accrued expenses and other current liabilities)
included in the accompanying balance sheets approximates their fair value
principally due to the short-term maturity of these
instruments.





Subsequent
Events


The
Company evaluated subsequent events through November 16, 2009 when these
financial statements were issued.  We are not aware of any significant
events other than what has been disclosed in Note 9 that occurred subsequent to
the balance sheet date but prior to the filing of this report that would have a
material impact on our financial statements.


9


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Recently
Adopted Pronouncements





In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update 2009-01, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles-a
replacement of FASB Statement No. 162. The FASB Accounting Standards
Codification is intended to be the source of authoritative U.S. generally
accepted accounting principles (GAAP) and reporting standards as issued by
the Financial Accounting Standards Board. Its primary purpose is to improve
clarity and use of existing standards by grouping authoritative literature under
common topics. This Statement is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The Codification
does not change or alter existing GAAP and there was no impact on our financial
position or results of operations.





In June
2006 the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income
Taxes, now included in ASC 740-10, 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,now included in ASC 740. 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. Effective
January 1, 2009, we adopted the provisions of FIN 48 (ASC 740-10), which
did not have a material effect on our financial position or results of
operations.





Recently
Issued Pronouncements





In April
2009, the FASB issued authoritative guidance requiring publicly traded companies
to include certain fair value disclosure related to financial
instruments in their interim financial statements.  This guidance,
which was incorporated into ASC Topic 825, “Financial Instruments,” was
effective for interim periods ending after June 15, 2009.





NOTE
2 – OPERATIONS





The
Company's financial statements are prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the
United States of America and have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities in the
normal course of business.  The Company has incurred significant
losses and experienced negative cash flow since its
inception.  Further, at September 30, 2009, the deficit accumulated
during the development stage amounted to approximately
$10,321,000.


10


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
2 – OPERATIONS (CONTINUED)





The
Company is still in the development stage at September 30, 2009.  As
of November 16, 2009, during 2009 the Company has received approximately
$617,000, net of issuance costs, through the issuance of 735,500 shares of
common stock, primarily through private placements (Notes 6 and 9) and exercise
of warrants. The Company plans to continue raising funds during 2009 through the
exercise of outstanding warrants and sale of its common stock in private
placements and expects to generate sufficient liquidity to maintain operations
until sustained revenue generation occurs.  The Company’s product
development is proceeding on schedule and revenue generation has begun on a
limited basis during 2009.  Successful completion of the Company’s
development program and, ultimately, the attainment of profitable operations are
dependent upon future events, including obtaining adequate equity investment and
acceptance by manufacturers of the Vytex NRL technology and consumer confidence
in products manufactured using it.





As a development stage company, our
business does not presently generate the cash needed to finance our current and
anticipated operations. We believe we have raised sufficient capital which,
together with projected revenues, will finance our operations for the next six
(6) months.  If our currently outstanding warrants from our last
private placement are exercised at a rate consistent with the exercise of
warrants from prior offerings, we will have sufficient capital to finance our
operations for the next twelve (12) months.  If either our projected
revenues or our projected warrant exercises are significantly below our
projections, our capital could be depleted in less than six (6) months. Management believes the
current business plan is attractive enough to investors to raise the additional
capital necessary to allow the Company to continue as a going concern through
September 30, 2010.


.


NOTE
3 – PROPERTY AND EQUIPMENT





Property
and equipment consists of the following at September 30, 2009 and December 31,
2008:





September30,2009
                  
                  
                  December31,2008Furniture
      and fixtures
                  
                  $
                  15,347
                  
                  
                  $
                  15,347Equipment
                  
                  
                  23,431
                  
                  
                  
                  23,43138,778
                  
                  
                  
                  38,778Accumulated
      depreciation
                  
                  
                  (28,789
                  )
                  
                  
                  (23,471
                  )$
                  9,989
                  
                  
                  $
                  15,307





Depreciation
expense for the three months ended September 30, 2009 and 2008 was $1,856 and
$2,153, respectively, and for the nine months ended September 30, 2009 and 2008
was $5,318 and $5,738, respectively.


11


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





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 2009 and 2008.





Patents
and trademarks are as follows:





September30,2009
                  
                  
                  December31,2008Patents
                  
                  $
                  112,071
                  
                  
                  $
                  86,884Accumulated
      amortization
                  
                  
                  (11,088
                  )
                  
                  
                  (8,852
                  )100,983
                  
                  
                  
                  78,032Trademarks
                  
                  
                  8,614
                  
                  
                  
                  5,538$
                  109,597
                  
                  
                  $
                  83,570





Amortization
expense for the three months ended September 30, 2009 and 2008 was $745 and
$740, respectively, and for the nine months ended September 30, 2009 and 2008
was $2,236 and $2,242, respectively.





NOTE
5 – INCOME TAXES





There is
no income tax benefit recorded for the losses for the nine months ended
September 30, 2009 and 2008 since management has determined that the realization
of the net deferred tax asset is not assured and has created a valuation
allowance for the entire amount of the net deferred tax asset.





NOTE
6 – STOCKHOLDERS’ EQUITY





In April
2009, the Company’s Board of Directors authorized the number of preferred shares
to be increased from 10,000,000 shares to 15,000,000 shares and the number of
common shares from 25,000,000 shares to 50,000,000 shares.





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.


12


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
6 – STOCKHOLDERS’ EQUITY (CONTINUED)





Common
Stock and Warrants (Continued)





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.





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.  In April 2009 the Company opened the private placement to
existing shareholders and qualified investors under the same terms and
conditions for a period not to exceed May 28, 2009.  The Company
received an additional $585,200 and issued 288,000 shares of common stock and
warrants to purchase an additional 144,000 shares of common
stock.


13


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
6 – STOCKHOLDERS’ EQUITY (CONTINUED)





Common
Stock and Warrants (Continued)





At
December 31, 2008 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.





During
2009 the Company issued stock purchase warrants to purchase 151,130 shares of
common stock at exercise prices ranging from $1.00 to $2.20 in exchange for
services rendered, valued at $96,990.  The warrants are exercisable by
2019 and vested immediately.





NOTE
7 – STOCK-BASED COMPENSATION





Generally
accepted accounting principles 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.





The
Company used the Black-Scholes option pricing model to estimate the grant-date
fair value of awards granted during 2009 and 2008.  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
      23.26% - 39.17%;


·
            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 1.51
      – 5.05%; 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 $81,000 and $40,000 of stock-based compensation
expense for the three month periods ended September 30, 2009 and 2008,
respectively, and approximately $221,000 and $1,507,000 for the nine month
periods ended September 30, 2009 and 2008, respectively, related to employee
stock options and stock warrants issued to board members and
nonemployees.  Of this, approximately $66,000 and $14,000 for the
three month periods ended September 30, 2009 and 2008, respectively, and
approximately $126,000 and $1,375,000 for the nine month periods ended September
30, 2009 and 2008, respectively, was related to stock options issued to
employees that vested during those periods.  As of September 30, 2009,
approximately $1,160,491 of unrecognized compensation expense related to
non-vested share-based awards remains to be recognized over a weighted average
period of approximately 7 years.


14


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
7 – STOCK-BASED COMPENSATION (CONTINUED)





Stock
Options





During
2004, the Board of Directors of the Company adopted a stock option plan (the
“Plan”) and authorized up to 4,000,000 shares to be issued under the
Plan.  In April 2009, the Company’s Board of Directors authorized an
increase in the number of shares to be issued under the Plan to 10,000,000
shares and to include the independent Board members in the plan in lieu of
continuing the previous practice of granting warrants each quarter to
independent board members for services.  At September 30, 2009, there
were 4,825,000 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 the nine months ended September 30, 2009
options to purchase 2,175,000 shares were issued under the Plan, of which
400,000 were forfeited during the period.





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


2009
                    
                    
                    2008Expected
      Dividend Yield
                    
                    
                    -
                    
                    
                    
                    -Expected
      Volatility in Stock Price
                    
                    
                    38.15
                    %
                    
                    
                    23.51
                    %Risk-Free
      Interest Rate
                    
                    
                    1.88
                    %
                    
                    
                    2.68
                    %Expected
      Life of Stock Awards - Years
                    
                    
                    5
                    
                    
                    
                    5.1Weighted
      Average Fair Value at Grant Date
                    
                    $
                    0.59
                    
                    
                    $
                    0.68





The
following table summarizes all stock option activity of the Company for the nine
months ended September 30, 2009:


Number of
                
                
                Weighted AverageOptions
                
                
                ExercisePriceOutstanding,
      December 31, 2008
                
                
                3,400,000
                
                
                $
                1.03Granted
                
                
                2,175,000
                
                
                $
                1.63Forfeited
                
                
                (400,000
                )
                
                $
                1.63Outstanding,
      September 30, 2009
                
                
                5,175,000
                
                
                $
                1.07Exercisable,
      September 30, 2009
                
                
                3,485,000
                
                
                $
                1.07


15


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
7 – STOCK-BASED COMPENSATION (CONTINUED)





Warrants





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





2009
                  
                  
                  2008Expected
      Dividend Yield
                  
                  
                  -
                  
                  
                  
                  -Expected
      Volatility in Stock Price
                  
                  
                  36.87
                  %
                  
                  
                  22.38
                  %Risk-Free
      Interest Rate
                  
                  
                  1.82
                  %
                  
                  
                  2.19
                  %Expected
      Life of Awards, Years
                  
                  
                  5
                  
                  
                  
                  4.3





The
following table represents the Company’s warrant activity for the nine months
ended September 30, 2009:





Weighted Average
                
                
                
                
                
                Weighted AverageNumber of
                
                
                Grant Date
                
                
                Weighted Average
                
                
                RemainingWarrants
                
                
                FairValue
                
                
                ExercisePrice
                
                
                ContractualLife(Years)Outstanding,
      December 31, 2008
                
                
                2,690,779
                
                
                
                
                
                $
                0.85
                
                
                
                5.14Issued
      in private placement
                
                
                144,000
                
                
                $
                1.00
                
                
                $
                1.00Granted
                
                
                151,130
                
                
                $
                0.64
                
                
                $
                1.48Exercised
                
                
                (447,500
                )
                
                
                
                
                
                $
                0.12Expired
                
                
                (15,000
                )
                
                
                
                
                
                $
                1.00Outstanding,
      September 30, 2009
                
                
                2,523,409
                
                
                
                
                
                
                $
                1.05
                
                
                
                4.48Exercisable,
      September 30, 2009
                
                
                2,523,409
                
                
                
                
                
                
                $
                1.05
                
                
                
                4.48





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 and are 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.





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 with the following assumptions: expected
dividend yield of 0, stock volatility ranging from 22.07% - 39.25%, 3.36% -
5.05% risk-free interest rate, and a 2 to 5 year expected life of the
awards.  The total amount of the fair value ($25,875 expense and
$8,448 cost of raising capital) was recorded when vesting
occurred.


16


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
7 – STOCK-BASED COMPENSATION (CONTINUED)





Warrants
(Continued)





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.





The
Company issued warrants for services during the nine months ended September 30,
2009 at exercise prices ranging from $1.00 to $2.20 per share, exercisable over
5 and 10 year periods.  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
($95,585 expense and $1,405 cost of raising capital) was recorded when vesting
occurred.





NOTE
8 – 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.  As of September 30, 2009, UCM had exercised warrants to
purchase 400,000 shares of the Company’s common stock.





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.  Prior to
its expiration, the Company notified UCM that it did not intend to renew the
management agreement expiring April 30, 2009 for an additional one year term and
the agreement lapsed.





As a
result of these two agreements, UCM held a beneficial ownership of 10.8% in the
Company at September 30, 2009.





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.


17


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
8 – RELATED PARTY TRANSACTIONS (CONTINUED)





Universal
Capital Management (Continued)





In May
2009, as previously discussed in Note 2, the Company prepared a second
pre-effective amendment to its Form S-1, Registration Statement under the
Securities Act of 1933.  The structure in the initial filing, which
included issuing 600,000 shares of its common stock to stockholders of UCM
contingent upon the acceptance of the registration statement, was abandoned in
this amendment.  Under the terms of the August 15, 2008 agreement with
UCM that agreement has been terminated





Climax
Global Energy





During
2006 and 2005, the Company advanced cash to 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 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 September 30, 2009 all payments
due under the agreement had been received by the Company and management
determined that all of the $120,000 reserve created in 2007 could be released,
based upon payment history and available cash balances.




Officers
and Directors





On March
31, 2009, the Company’s four independent directors each received warrants,
valued at approximately $12,000, to purchase 20,000 shares 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 March 31, 2019 and vested
immediately.





As
previously discussed in Note 7, during April 2009 the Company’s Board of
Directors authorized the inclusion of the independent Board members in the
Company’s stock option plan in lieu of continuing the previous practice of
granting warrants each quarter to independent board members.  Each
Board member was granted options to purchase 400,000 shares of the Company’s
common stock at an exercise price of $1.63.  Vesting occurs at the end
of each complete calendar quarter served as an independent board member of the
Company at a rate of 20,000 shares each.  The options are exercisable
in whole or in part before June 30, 2019.


18


VYSTAR
CORPORATION


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2009 AND 2008





NOTE
8 – RELATED PARTY TRANSACTIONS (CONTINUED)





Officers
and Directors (Continued)





The
options granted to one of the Board members were forfeited in June 2009 due to
resignation from the Board.  That member returned to the Board in
September 2009 and was granted an option to purchase 400,000 shares of the
Company’s common stock at an exercise price of $1.63.  The terms are
as discussed in the above paragraph and the options are exercisable in whole or
in part before September 30, 2019.





Other





For the
nine months ended September 30, 2009, Travis Honeycutt, founding CEO, provided
to the Company prospect advisory services in the thread industry and received
$27,000 for his services.





At
September 30, 2009 and December 31, 2008, the Company 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, the Company had 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 satisfied this liability
during September 2009.





NOTE
9 – SUBSEQUENT EVENTS





On
November 2, 2009 the Company began an offering to sell up to 1,000,000 shares of
common stock and 1,000,000 warrants to purchase common stock through a private
placement memorandum.  Under the terms of the private placement
memorandum, the Company is offering up to 1,000,000 shares of common stock at
$2.00 per share.  For each two (2) shares of common stock purchased,
the investor will receive a warrant to purchase a share of common stock at an
exercise price of $1.50 per share exercisable for one year from issuance and an
additional warrant to purchase a share of common stock at an exercise price of
$3.25 per share exercisable for two years from issuance.  The Company
has the right to increase the offering up to 2,000,000 shares of common stock
and 2,000,000 warrants to purchase common stock.


19





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




GENERAL





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
the creator and exclusive owner of the innovative technology to produce 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, our 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. We plan to produce Vytex through toll manufacturing
and licensing agreements and have started introducing Vytex NRL into the supply
channels with aggressive, targeted marketing campaigns directed to the end
users.





We are a
developmental stage company whose primary activities since inception have been
devoted to the development of NRL as well as raising capital to support those
efforts, 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.




Critical
Accounting Policies and Estimates




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.





We
believe the following critical accounting policy affects our more significant
judgments and estimates used in the preparation of our financial
statements.





Generally
accepted accounting principles require all share-based payments, including
grants of employee stock options and warrants, to be recognized in the financial
statements based on their fair values.


20


We
compute the value of awards granted by utilizing the Black-Scholes valuation
model based upon their expected lives, expected volatility, expected dividend
yield, and the risk-free interest rate. The value of the awards is then
straight-line expensed over the service period of the awards.





RESULTS
OF OPERATIONS




Comparison
of the Three Months Ended September 30, 2009 with the Three Months Ended
September 30, 2008




Revenues




We are a
development stage company that has yet to commence significant revenue
generating operations.




Operating
Expenses




Three
      Months EndedSeptember 30
                            
                            
                            $
                            
                            
                            %2009
                            
                            
                            2008
                            
                            
                            Change
                            
                            
                            ChangeCOST
      AND EXPENSEResearch
      and development
                            
                            $
                            67,557
                            
                            
                            $
                            61,851
                            
                            
                            $
                            5,706
                            
                            
                            
                            9.2
                            %General
      and administrative
                            
                            
                            508,508
                            
                            
                            
                            438,871
                            
                            
                            
                            69,637
                            
                            
                            
                            15.9
                            %$
                            576,065
                            
                            
                            $
                            500,722
                            
                            
                            $
                            75,343
                            
                            
                            
                            15.0
                            %




Our
operating expenses were $576,065 and $500,722 for the three months ended
September 30, 2009 and 2008, respectively, for an increase of $75,343 or 15%. In
2009, $80,938 was recorded for stock-based compensation as well as an additional
$40,750 for amortization of deferred compensation.  The deferred
compensation expense represents the amortized fair value of stock issued for
future services to non-employees.  This compares with $39,790 for
stock-based compensation in 2008 for the same period and $13,787 for
amortization of deferred compensation in that period.  The deferred
compensation expense for 2008 represents the amortized fair value of warrants
issued for future services to non-employees.  The stock-based
compensation charges to operations in 2009 and 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 September 30, 2009 was
$67,557 for research and development expenses compared to $61,851 for the three
months ended September 30, 2008 and $508,508 for general and administrative
expenses compared to $438,871 for the same period in 2008.  Without
including the effects of the stock-based compensation and amortization of
deferred charges discussed above, general and administrative expenses increased
$12,477 or 3% compared with 2008.




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


21




General
and administrative expenses consist primarily of compensation and support costs
for management and administrative staff, and for other general and
administrative costs, including professional fees related to accounting,
finance, and legal services as well asother operating
expenses.




Other
Income (Expense)




Other
income was $90,983 for the three months ended September 30, 2009, consisting of
$1,770 of interest income on cash deposits net of interest expense of $992 and
the $90,205 release of a provision for a related party note
receivable.  This compares to $7,772 of interest income for the three
months ended September 30, 2008 net of $858 interest expense.




Net
Loss




Net loss
was $484,984 and $493,807 for the three months ended September 30, 2009 and
2008, respectively, a decrease of $8,823 or 1.8% in the net loss.




Comparison
of the Nine Months Ended September 30, 2009 with the Nine Months Ended September
30, 2008




Revenues




We are a
development stage company that has yet to commence significant revenue
generating operations.




Operating
Expenses




Nine
      Months EndedSeptember 30
                        
                        
                        $
                        
                        
                        %2009
                        
                        
                        2008
                        
                        
                        Change
                        
                        
                        ChangeCOST
      AND EXPENSEResearch
      and development
                        
                        $
                        195,650
                        
                        
                        $
                        352,466
                        
                        
                        $
                        (156,817
                        )
                        
                        
                        -44.5
                        %General
      and administrative
                        
                        
                        1,491,641
                        
                        
                        
                        3,732,097
                        
                        
                        
                        (2,240,456
                        )
                        
                        
                        -60.0
                        %$
                        1,687,291
                        
                        
                        $
                        4,084,563
                        
                        
                        $
                        (2,397,272
                        )
                        
                        
                        -58.7
                        %




Our
operating expenses were $1,687,291 and $4,084,563 for the nine months ended
September 30, 2009 and 2008, respectively, for a decrease of $2,397,272 or 59%.
In 2009, $221,200 was recorded for stock-based compensation as well as an
additional $59,134 for amortization of deferred compensation.  The
deferred compensation expense represents the amortized fair value of stock and
warrants issued for future services to non-employees.  This compares
with $1,506,796 for stock-based compensation in 2008 for the same period and
amortization of deferred compensation of $1,513,524.  The stock-based
compensation charges to operations in both years were primarily for incentive
stock options granted under our Incentive Stock Option Plan to executive
officers and independent board members.  They 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.


22




Included
in our operating expenses for the nine months ended September 30, 2009 was
$195,650 for research and development expenses and $1,491,641 for general and
administrative expenses.  Our research and development expenses were
$352,466 for the nine months ended September 30, 2008, a $156,817 or 45%
decrease.  Our general and administrative expenses were $3,732,097 for
the same period in 2008.  With the stock-based compensation and
amortization of deferred charges discussed above excluded from the comparison,
general and administrative expenses increased $346,724 or 39% during 2009
compared with 2008 due to legal and accounting fees related to filing our
initial registration statement as well as our annual audit fees and increased
staffing, public relations 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
nine months ended September 30, 2009 from the same period in 2008 resulted
primarily from a reduction of $152,805 in stock-based compensation expense for
awards to employees and contractors engaged in these activities.




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




General
and administrative expenses consist primarily of compensation and support costs
for management and administrative staff, and for other general and
administrative costs, including professional fees related to accounting,
finance, and legal services as well as other operating expenses.




We do not
expect general and administrative expenses to increase significantly over our
2008 levels.  While we expect to 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
sales and marketing of our products, these increases will be offset by a reduced
level of stock-based compensation from what we experienced during
2008.




Other
Income (Expense)




Other
income was $130,499 for the nine months ended September 30, 2009, consisting of
$12,006 of interest income on cash deposits, the $120,205 release of a provision
for a related party note receivable and interest expense of
$1,712.  This compares to $14,069 of interest income for the nine
months ended September 30, 2008 reduced by $858 interest expense and $54 of
other expense.




Net
Loss




Net loss
was $1,554,164 and $4,071,406 for the nine months ended September 30, 2009 and
2008, respectively, for a decrease of $2,517,242, primarily resulting from the
reduction of stock-based compensation and deferred compensation amortization
expenses incurred as described above.




LIQUIDITY
AND CAPITAL RESOURCES




As of
September 30, 2009, we had $720,987 in cash.


23


Sources
and Uses of Cash




For the
nine months ended September 30, 2009 and 2008, net cash used by operations was
$1,605,004 and $978,417, respectively.  The negative cash flow for the
September 30, 2009 period was primarily the result of the $1,554,164 net
loss.  This was reduced by several non-cash charges, primarily the
stock-based compensation charges of $221,200 and $59,134 for amortization of
deferred compensation.  Releasing $120,205 of the provision on a
related note receivable offset the above charges.  The Company made
its initial purchases of inventory, in the amount of $73,495, during this
period.  Prepaid expenses increased $32,924 primarily from renewal of
insurance policies.  An increase in deposits against future inventory
purchases of $37,714 offset by an increase in accounts payable of $50,362 and
the payment of $36,453 for a related party payable accounted for the majority of
the remaining negative cash flow from operations.   The negative
cash flow for the nine months ended September 30, 2008 resulted primarily from
the net loss of $4,071,406 reduced by non-cash charges related to stock-based
compensation expense of $1,528,712 and amortization of deferred compensation of
$1,513,524.   Prepaid expenses increased $68,384, primarily from
the timing of the insurance policy renewals and were offset by increases in
accounts payable of $64,550 due to increased marketing and legal costs as well
as accrued expenses of $37,395, primarily from accrued payroll
costs.




Net
cash provided by investing activities for the nine months ended September 30,
2009 was $783,136.  This resulted primarily from the maturing in April
2009 of a $750,000 certificate of deposit.  In addition, we received
$45,000 in proceeds from a related party note receivable during the period and
incurred $11,864 in legal expenses related to our patents and
trademarks.  During the nine months ended September 30, 2008, net cash
of $482,376 was used by investing activities.  This consisted of the
purchase of a $500,000 certificate of deposit, $1,516 in legal expenses related
to our patents and equipment purchases of $8,320 reduced by the proceeds of
$27,460 from a related party receivable.




Net cash
provided by financing activities for the nine months ended September 30, 2009
was $586,200 in proceeds from the sale of common stock and warrants, net of
issuance costs of $11,705.  Net cash provided by financing activities
for the nine months ended September 30, 2008 was $1,718,577.  We
received proceeds from the sale of common stock and warrants of $1,718,577, net
of issuance costs of $94,086.




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 which,
together with projected revenues, will finance our operations for the next six
(6) months.  If our currently outstanding warrants from our last
private placement are exercised at a rate consistent with the exercise of
warrants from prior offerings, we will have sufficient capital to finance our
operations for the next twelve (12) months.  If either our projected
revenues or our projected warrant exercises are significantly below our
projections, our capital could be depleted in less than six (6)
months.  We are currently engaged in raising additional capital
through a private placement and we believe the current business plan is
attractive enough to investors to raise the additional capital necessary to
allow the Company to continue as a going concern through September 30,
2010.


24




We expect
that our cash used in operations will continue to increase 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.




DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS




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




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




ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUTMARKET
      RISK


None





ITEM
4.    CONTROLS AND PROCEDURES





(A)
            Evaluation
      of disclosure controls and
procedures





Our management, including our principal
executive and principal financial officer, has evaluated the effectiveness of
our disclosure controls and procedures as of September 30, 2009.  Our
disclosure controls and procedures are designed to provide reasonable assurance
that the information required to be disclosed in this quarterly report on Form
10-Q has been appropriately recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to our
management, including our principal executive and principal financial officer,
to allow timely decisions regarding required disclosure.  Based on
that evaluation, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures are effective to the
reasonable assurance level.


25


(B)
            Changes
      in internal control over financial
reporting





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





There
were no changes in our internal control over financial reporting that occurred
during the third quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





PART
II.  OTHER INFORMATION




ITEM
      1.
            LEGAL
      PROCEEDINGS




None.




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




Set forth
below is information regarding shares of common stock, warrants and options to
purchase common stock issued by the Company in the quarter ended September 30,
2009, that were not registered under the Securities Act of 1933, as amended (the
“Securities Act”). Also included is the consideration, if any, received by the
Company for such shares, warrants and options and information relating to the
section of the Securities Act, or rule of the Securities and Exchange
Commission, under which exemption from registration was claimed.




(a) Common Stock and
Warrant Financings




From July
1, 2009 through September 30, 2009, the Company issued 30,000 and 1,000 shares
of common stock upon the exercise of warrants issued prior to July 1, 2009 and
during August 2009, respectively, at $1.00 per share.




From July
1, 2009 through September 30, 2009, the Company issued 9,081 warrants to
purchase one share of common stock at an exercise price of $1.00 per share,
10,760 warrants to purchase one share of common stock at an exercise price of
$1.63 per share, and 1,250 warrants to purchase one share of common stock at an
exercise price of $2.20 per share for services rendered to the
Company.





(b) Stock Option
Grants




From July
1, 2009 through September 30, 2009, the Company issued options to employees and
a director and issued options to vendors to purchase an aggregate
of 575,000 shares of common stock at an exercise price of $1.63.
Vesting is as follows:  400,000 options granted to a director vested
20,000 at grant and 20,000 per quarter beginning with the quarter ending
December 31, 2009; 75,000 options vest one-third at grant and one-third on the
two subsequent anniversaries of grant date and 100,000 options vest 20% at grant
and 20% on the four subsequent anniversaries of grant date.  Through
the date hereof, none of such options have been exercised.


26


(c) Application of
Securities Laws and Other Matters




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




The
issuance of stock options as described in section (b) of this Item 2
were issued pursuant to written compensatory plans or arrangements with the
Company’s employees, directors and consultants, in reliance on the exemption
provided by Rule 701 promulgated under the Securities Act. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.




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




ITEM
3.  DEFAULTS UPON SENIOR SECURITIES




None




ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None




ITEM
5.  OTHER INFORMATION




None




ITEM
6.  EXHIBITS




Exhibit
Index *


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





Number
              
              Description3.1
              
              Articles
      of Incorporation of Vystar Acquisition Corporation (now named Vystar
      Corporation) dated December 17, 2003 (as amended) (incorporated by
      reference to Vystar’s Registration Statement on Form S-1 originally filed
      on November 13, 2008, Registration Statement No.
    333-155344)3.2
              
              Bylaws
      of Vystar Corporation (incorporated by reference to Vystar’s Registration
      Statement on Form S-1 originally filed on November 13, 2008, Registration
      Statement No. 333-155344)4.1
              
              Specimen
      Certificate evidencing shares of Vystar common stock (incorporated by
      reference to Vystar’s Registration Statement on Form S-1 originally filed
      on November 13, 2008, Registration Statement No.
    333-155344)


27





4.2
              
              Form
      of Share Subscription Agreements and Investment Letter (First Private
      Placement) (incorporated by reference to Vystar’s Registration Statement
      on Form S-1 originally filed on November 13, 2008, Registration Statement
      No. 333-155344)4.3
              
              Form
      of Share Subscription Agreement and Investment Letter (Second Private
      Placement) (incorporated by reference to Vystar’s Registration Statement
      on Form S-1 originally filed on November 13, 2008, Registration Statement
      No. 333-155344)4.4
              
              Form
      of Vystar Corporation Investor Questionnaire and Subscription Agreement
      (Third Private Placement) (incorporated by reference to Vystar’s
      Registration Statement on Form S-1 originally filed on November 13, 2008,
      Registration Statement No. 333-155344)10.1*
              
              Manufacturing
      Agreement between Vystar Corporation and Revertex (Malaysia) Sdn. Bhd.
      effective April 1, 2008 (incorporated by reference to Vystar’s
      Registration Statement on Form S-1 originally filed on November 13, 2008,
      Registration Statement No. 333-155344)10.2
              
              Executive
      Employment Agreement between Vystar Corporation and William R. Doyle,
      dated November 11, 2008 (incorporated by reference to Vystar’s
      Registration Statement on Form S-1 originally filed on November 13, 2008,
      Registration Statement No. 333-155344)10.3
              
              Management
      Agreement dated January 31, 2008 between Universal Capital Management,
      Inc. and Vystar Corporation (incorporated by reference to Vystar’s
      Registration Statement on Form S-1 originally filed on November 13, 2008,
      Registration Statement No. 333-155344)10.4
              
              Letter
      Agreement dated August 15, 2008 between Universal Capital Management, Inc.
      and Vystar Corporation  (incorporated by reference to Vystar’s
      Registration Statement on Form S-1 originally filed on November 13, 2008,
      Registration Statement No. 333-155344)10.5
              
              Addendum
      to Management Agreement dated February 29, 2008 between Universal Capital
      Management, Inc. and Vystar Corporation (incorporated by reference to
      Vystar’s Registration Statement on Form S-1 originally filed on November
      13, 2008, Registration Statement No. 333-155344)10.6
              
              Warrant
      Purchase Agreement dated January 31, 2008 between Universal Capital
      Management, Inc. and Vystar Corporation (incorporated by reference to
      Vystar’s Registration Statement on Form S-1 originally filed on November
      13, 2008, Registration Statement No. 333-155344)10.7
              
              Management
      Agreement dated April 30, 2008 between Universal Capital Management, Inc.
      and Vystar Corporation (incorporated by reference to Vystar’s Registration
      Statement on Form S-1 originally filed on November 13, 2008, Registration
      Statement No. 333-155344)10.8
              
              Warrant
      Purchase Agreement dated April 30, 2008 between Universal Capital
      Management, Inc. and Vystar Corporation (incorporated by reference to
      Vystar’s Registration Statement on Form S-1 originally filed on November
      13, 2008, Registration Statement No. 333-155344)10.9
              
              Vystar
      Corporation 2004 Long-Term Compensation Plan, as amended (incorporated by
      reference to Vystar’s Registration Statement on Form S-1 originally filed
      on November 13, 2008, Registration Statement No.
    333-155344)


28





10.10
                
                Employment
      Agreement between Vystar Corporation and Sandra Parker dated April 1, 2008
      (incorporated by reference to Vystar’s Registration Statement on Form S-1
      originally filed on November 13, 2008, Registration Statement No.
      333-155344)10.11
                
                First
      Amendment to Employment Agreement dated July 1, 2009, between Vystar
      Corporation and Sandra Parker (incorporated by reference to Vystar’s
      Registration Statement on Form S-1 originally filed on November 13, 2008,
      Registration Statement No. 333-155344)10.12*
                
                Distributor
      Agreement among Vystar Corporation, Centrotrade Minerals & Metals,
      Inc. and Centrotrade Deutschland, GmbH dated January 6, 2009 (incorporated
      by reference to Vystar’s Registration Statement on Form S-1 originally
      filed on November 13, 2008, Registration Statement No.
      333-155344)10.13
                
                Note
      agreement between Vystar Corporation and Climax Global Energy, Inc. dated
      August 15, 2008 (incorporated by reference to Vystar’s Registration
      Statement on Form S-1 originally filed on November 13, 2008, Registration
      Statement No. 333-155344)10.14
                
                Lockup
      Agreement with Glen W. Smotherman dated July 30, 2009 (incorporated by
      reference to Vystar’s Registration Statement on Form S-1 originally filed
      on November 13, 2008, Registration Statement No.
    333-155344)31.1
                
                Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                
                Certification
      of Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act
      of 200232.1
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350 as  adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002




*
            Confidential
      treatment requested as to certain portions, which portions have been
      omitted and filed separately with the Securities and Exchange
      Commission.


29




SIGNATURES




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




VYSTAR
      CORPORATIONDate:  November
      16, 2009
              By:
              /s/ William R. DoyleWilliam
      R. DoyleChairman,
      President, Chief Executive Officer andDirector
      (Principal Executive Officer)Date:
      November 16, 2009
              By:
              /s/ Linda S. HammockLinda
      S. HammockActing
      Chief Financial Officer (Principal Financialand
      Accounting Officer)




30