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, 2010




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 former fiscal 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   
x
   NO     ̈





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





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




Large accelerated
                  filer  
       ̈
                Accelerated filer  
       ̈
                Non-accelerated filer  
       ̈
                Smaller reporting
                  company  
      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 8, 2010, there were 15,167,274 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, 2010





Index





Part I.  Financial
      InformationItem
      1.
                                              Financial Statements
                                              
                                              3Balance Sheets at September 30, 2010 (unaudited)
      and December 31, 2009
                                              
                                              3Statements of Operations for the Three and Nine
      Months Ended September 30, 2010 and 2009
(unaudited)
                                              
                                              4Statements of Cash Flows for the Nine Months Ended
      September 30, 2010 and 2009 (unaudited)
                                              
                                              5Notes to Financial Statements
      (unaudited)
                                              
                                              6Item
      2.
                                              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                                              
                                              14Item
      3.
                                              Quantitative and Qualitative Disclosures About
      Market Risk
                                              
                                              20Item
      4.
                                              Controls and Procedures
                                              
                                              20Part II.  Other
      InformationItem
      1.
                                              Legal Proceedings
                                              
                                              21Item
      2.
                                              Unregistered Sales of Equity Securities and Use of
      Proceeds
                                              
                                              21Item
      3.
                                              Defaults Upon Senior
    Securities
                                              
                                              22Item
      5.
                                              Other Information
                                              
                                              22Item
      6.
                                              Exhibits
                                              
                                              22





2


Part
I.       FINANCIAL INFORMATION





ITEM
1.    Financial Statements




VYSTAR
CORPORATION


BALANCE
SHEETS


September 30, 2010
                                  
                                  
                                  December 31, 2009(unaudited)ASSETSCURRENT
      ASSETSCash
                                  
                                  $
                                  385,298
                                  
                                  
                                  $
                                  780,147Accounts
      receivable
                                  
                                  
                                  24,917
                                  
                                  
                                  
                                  25,678Inventory
                                  
                                  
                                  389,973
                                  
                                  
                                  
                                  140,827Deposits
                                  
                                  
                                  45,460
                                  
                                  
                                  
                                  11,786Prepaid
      expenses
                                  
                                  
                                  130,163
                                  
                                  
                                  
                                  97,483Note
      receivable due from related party
                                  
                                  
                                  -
                                  
                                  
                                  
                                  137,949Other
                                  
                                  
                                  11,737
                                  
                                  
                                  
                                  19,649TOTAL
      CURRENT ASSETS
                                  
                                  
                                  987,548
                                  
                                  
                                  
                                  1,213,519PROPERTY
      AND EQUIPMENT, NET
                                  
                                  
                                  3,258
                                  
                                  
                                  
                                  8,104OTHER
      ASSETSPatents
      and trademarks, net
                                  
                                  
                                  127,340
                                  
                                  
                                  
                                  115,975Other
                                  
                                  
                                  4,421
                                  
                                  
                                  
                                  5,887TOTAL
      ASSETS
                                  
                                  $
                                  1,122,567
                                  
                                  
                                  $
                                  1,343,485LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                  
                                  $
                                  241,362
                                  
                                  
                                  $
                                  128,888Accrued
      expenses
                                  
                                  
                                  414,952
                                  
                                  
                                  
                                  127,922TOTAL
      CURRENT LIABILITIES
                                  
                                  
                                  656,314
                                  
                                  
                                  
                                  256,810LONG-TERM
      LIABILITIES
                                  
                                  
                                  10,152
                                  
                                  
                                  
                                  47,399TOTAL
      LIABILITIES
                                  
                                  
                                  666,466
                                  
                                  
                                  
                                  304,209STOCKHOLDERS'
      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; 15,112,274 and
      13,042,774 shares issued and outstanding at September 30, 2010 and
      December 31, 2009, respectively
                                  
                                  
                                  1,511
                                  
                                  
                                  
                                  1,304Additional
      paid-in capital
                                  
                                  
                                  13,901,366
                                  
                                  
                                  
                                  11,994,522Deferred
      compensation
                                  
                                  
                                  (58,087
                                  )
                                  
                                  
                                  (84,428
                                  )Accumulated
      deficit
                                  
                                  
                                  (13,388,689
                                  )
                                  
                                  
                                  (10,872,122
                                  )TOTAL
      STOCKHOLDERS' EQUITY
                                  
                                  
                                  456,101
                                  
                                  
                                  
                                  1,039,276TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
                                  $
                                  1,122,567
                                  
                                  
                                  $
                                  1,343,485


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


3


VYSTAR
CORPORATION


STATEMENTS
OF OPERATIONS


(unaudited)





Three Months Ended September 30,
                                  
                                  
                                  Nine Months Ended September 30,2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009REVENUES
                                  
                                  $
                                  217,580
                                  
                                  
                                  $
                                  5,673
                                  
                                  
                                  $
                                  654,291
                                  
                                  
                                  $
                                  17,581COST
      OF REVENUES
                                  
                                  
                                  290,351
                                  
                                  
                                  
                                  5,575
                                  
                                  
                                  
                                  845,038
                                  
                                  
                                  
                                  14,953Gross
      Margin
                                  
                                  
                                  (72,771
                                  )
                                  
                                  
                                  98
                                  
                                  
                                  
                                  (190,747
                                  )
                                  
                                  
                                  2,628OPERATING
      EXPENSESSales
      and marketing
                                  
                                  
                                  183,593
                                  
                                  
                                  
                                  156,440
                                  
                                  
                                  
                                  568,678
                                  
                                  
                                  
                                  470,923General
      and administrative
                                  
                                  
                                  627,801
                                  
                                  
                                  
                                  352,412
                                  
                                  
                                  
                                  1,709,130
                                  
                                  
                                  
                                  1,021,062Research
      and development
                                  
                                  
                                  19,617
                                  
                                  
                                  
                                  67,213
                                  
                                  
                                  
                                  49,145
                                  
                                  
                                  
                                  195,306Total
      Operating Expenses
                                  
                                  
                                  831,011
                                  
                                  
                                  
                                  576,065
                                  
                                  
                                  
                                  2,326,953
                                  
                                  
                                  
                                  1,687,291LOSS
      FROM OPERATIONS
                                  
                                  
                                  (903,782
                                  )
                                  
                                  
                                  (575,967
                                  )
                                  
                                  
                                  (2,517,700
                                  )
                                  
                                  
                                  (1,684,663
                                  )OTHER
      INCOME (EXPENSE)Interest
      income
                                  
                                  
                                  618
                                  
                                  
                                  
                                  1,770
                                  
                                  
                                  
                                  2,664
                                  
                                  
                                  
                                  12,006Interest
      expense
                                  
                                  
                                  (572
                                  )
                                  
                                  
                                  (992
                                  )
                                  
                                  
                                  (1,531
                                  )
                                  
                                  
                                  (1,712
                                  )Recovery
      on note receivable from related party
                                  
                                  
                                  -
                                  
                                  
                                  
                                  90,205
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  120,205NET
      LOSS
                                  
                                  $
                                  (903,736
                                  )
                                  
                                  $
                                  (484,984
                                  )
                                  
                                  $
                                  (2,516,567
                                  )
                                  
                                  $
                                  (1,554,164
                                  )Basic
      and Diluted Loss per Share
                                  
                                  $
                                  (0.06
                                  )
                                  
                                  $
                                  (0.04
                                  )
                                  
                                  $
                                  (0.18
                                  )
                                  
                                  $
                                  (0.13
                                  )Basic
      and Diluted Weighted Average Number of Common Shares
      Outstanding
                                  
                                  
                                  15,053,429
                                  
                                  
                                  
                                  12,670,214
                                  
                                  
                                  
                                  14,263,421
                                  
                                  
                                  
                                  12,335,443





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


4


VYSTAR
CORPORATION


STATEMENTS
OF CASH FLOWS


(unaudited)





Nine Months Ended September 30,2010
                                      
                                      
                                      2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                                      
                                      $
                                      (2,516,567
                                      )
                                      
                                      $
                                      (1,554,164
                                      )Adjustment
      to reconcile net loss to net cashused
      in operating activitiesStock-based
      compensation expense
                                      
                                      
                                      252,944
                                      
                                      
                                      
                                      171,816Stock
      and warrants issued for services
                                      
                                      
                                      54,808
                                      
                                      
                                      
                                      49,384Recovery
      on related party note receivable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (120,205
                                      )Amortization
      of deferred compensation
                                      
                                      
                                      637,140
                                      
                                      
                                      
                                      59,134Depreciation
                                      
                                      
                                      4,846
                                      
                                      
                                      
                                      5,318Amortization
                                      
                                      
                                      6,240
                                      
                                      
                                      
                                      2,236(Increase)
      decrease in assetsAccounts
      receivable
                                      
                                      
                                      761
                                      
                                      
                                      
                                      -Inventory
                                      
                                      
                                      (249,146
                                      )
                                      
                                      
                                      (73,495
                                      )Prepaid
      expenses
                                      
                                      
                                      (32,680
                                      )
                                      
                                      
                                      (32,924
                                      )Other
                                      
                                      
                                      (24,296
                                      )
                                      
                                      
                                      (36,717
                                      )Increase
      (decrease) in liabilitiesAccounts
      payable
                                      
                                      
                                      112,474
                                      
                                      
                                      
                                      (86,815
                                      )Accrued
      expenses
                                      
                                      
                                      287,030
                                      
                                      
                                      
                                      14,903Other
                                      
                                      
                                      (37,247
                                      )
                                      
                                      
                                      (3,475
                                      )Net
      cash used in operating activities
                                      
                                      
                                      (1,503,693
                                      )
                                      
                                      
                                      (1,605,004
                                      )CASH
      FLOWS FROM INVESTING ACTIVITIESRedemption
      of investment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      750,000Proceeds
      on related party note receivable
                                      
                                      
                                      137,949
                                      
                                      
                                      
                                      45,000Cost
      of patents and trademarks
                                      
                                      
                                      (17,605
                                      )
                                      
                                      
                                      (11,864
                                      )Net
      cash provided by investing activities
                                      
                                      
                                      120,344
                                      
                                      
                                      
                                      783,136CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock
                                      
                                      
                                      988,500
                                      
                                      
                                      
                                      586,200Net
      cash provided by financing activities
                                      
                                      
                                      988,500
                                      
                                      
                                      
                                      586,200NET
      DECREASE IN CASH
                                      
                                      
                                      (394,849
                                      )
                                      
                                      
                                      (235,668
                                      )CASH
      - BEGINNING OF PERIOD
                                      
                                      
                                      780,147
                                      
                                      
                                      
                                      956,655CASH
      - END OF PERIOD
                                      
                                      $
                                      385,298
                                      
                                      
                                      $
                                      720,987SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for interest
                                      
                                      $
                                      1,531
                                      
                                      
                                      $
                                      1,712





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


5


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





History
and Nature of Business


Vystar
Corporation (“Vystar”, the “Company”, “we”, “us”, or “our”) is the creator and
exclusive owner of the innovative technology to produce Vytex® Natural Rubber
Latex ("NRL"). 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 “ultra low
protein” natural rubber latex, throughout the worldwide marketplace that uses
NRL or latex substitutes as a component of manufactured
products.  Natural rubber latex or latex substitutes are 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 produces Vytex through toll
manufacturing and licensing agreements and has started introducing Vytex NRL
into the supply channels with 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.  In March 2010, the
Company signed a licensing agreement for the production of Vytex NRL with
GrupoAgroindustrialOccidente's "Pica de Hule Natural," located in
Guatemala.





Vystar
LLC, the predecessor to the Company, was formed February 2, 2000, as a Georgia
limited liability company. The Company’s operations under the LLC entity were
focused substantially on the research, development and testing of the Vytex NRL
process, as well as attaining intellectual property rights. In 2003, the Company
reorganized as Vystar Corporation, a Georgia corporation, at which time all
assets and liabilities of the limited liability company became assets and
liabilities of Vystar Corporation, including all intellectual property rights,
patents and trademarks.





Basis
of Presentation


The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles of the United States of America
(“GAAP”) for interim financial information.  Accordingly, certain
information and footnotes required by GAAP for complete financial statements may
be condensed or omitted.  These interim financial statements should be
read in conjunction with our audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2009, filed with the Securities and Exchange Commission
("SEC").  In the opinion of Vystar management, these financial
statements contain all adjustments (which comprise only normal and recurring
accruals) necessary to present fairly the financial position and results of
operations as of and for the nine month periods ended September 30, 2010 and
2009.  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.





Concentration
of Credit Risk


Certain
financial instruments potentially subject the Company to concentrations of
credit risk. These financial instruments consist primarily of cash and accounts
receivable.  Cash held in operating accounts 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.


6


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





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 for the nine month periods ended September 30,
2010 and 2009, 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 3,883,333 shares and 3,485,000 shares of
common stock for the nine months ended September 30, 2010 and 2009,
respectively, as their effect would be anti-dilutive.  Warrants to
purchase 2,110,000 shares and 2,523,409 shares of common stock for the nine
months ended September 30, 2010 and 2009, respectively, were also excluded from
the computation of diluted loss per share as their effect would be
anti-dilutive.




Revenue


The
Company recognizes revenue when the following four criteria are met: (1)
persuasive evidence of an arrangement exists; (2) shipment or delivery has
occurred; (3) the price is fixed or determinable and (4) collectability is
reasonably assured.    Revenue is recognized at the time
product is shipped and title passes to the customer.





Fair
Value of Financial Instruments


The
carrying value of cash, accounts 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 the date that these financial
statements were issued.  We are not aware of any significant events that
occurred subsequent to the balance sheet date but prior to the filing of this
report that would have a material impact on our financial
statements.





NOTE
2 – LIQUIDITY AND MANAGEMENT’S PLANS





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, 2010, the accumulated deficit
amounted to approximately $13,388,689.





Vystar
was in the development stage for most of 2009, transitioning to the operational
stage in the final quarter of 2009.  At September 30, 2010, the
Company had cash totaling $385,298.  Management plans to finance
future operations through the use of cash on hand, increased revenues and
raising additional capital through a private placement or other equity or debt
offering and stock warrant exercises from existing shareholders.  As
the Company’s product continues to gain market acceptance, the Company expects
sales in the fourth quarter of 2010 and 2011 to continually increase. The
Company also has been engaged in raising additional capital through a private
placement and stock warrant exercises from existing
shareholders.  Year-to-date through September 30, 2010, the Company
has raised capital of $560,000 and $428,500 through the private placement and
stock warrant exercises, respectively, with an additional $18,125 raised from
stock warrant exercises after September 30, 2010 through the date that these
financial statements were issued.  The Company has engaged two
investment advisory firms and plans to raise at least $2,000,000 from a private
placement of equity or debt during 2010.  If no additional funding is
completed, we estimate that we will have sufficient cash to operate through the
end of 2010.  In view of these matters, the Company’s ability to
continue as a going concern is dependent upon our ability to secure additional
financing necessary until the Company is able to generate adequate funds from
operations.   Since inception, the Company has financed its activities
principally from the sale of equity securities. While the Company has been
successful in the past in obtaining the necessary capital to support its
operations, there is no assurance that the Company will be able to raise
additional equity capital or other financing under commercially reasonable terms
and conditions, or at all. Furthermore, if the Company issues equity or debt
securities to raise additional funds, existing shareholders may experience
dilution and the new equity or debt securities it issues may have rights,
preferences and privileges senior to those of existing shareholders. In
addition, if the Company raises additional funds through collaboration,
licensing or other similar arrangements, it may be necessary to relinquish
valuable rights to products or proprietary technologies, or grant licenses on
terms that are not favorable. If the Company does not achieve its revenue
projections and cannot raise funds on acceptable terms, the Company will not be
able to continue as a going concern and execute the Company’s business plan,
take advantage of future opportunities, or respond to competitive pressure or
unanticipated customer requirements. Any of these events would adversely affect
the Company’s ability to achieve the Company’s sales goals, which could have a
material adverse effect on the Company’s business, results of operations and
financial condition. The Company’s financial statements do not include any
adjustments relating to the recoverability or classification of assets or the
amounts of liabilities that might result from the outcome of these
uncertainties.


7


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





NOTE
3 – PROPERTY AND EQUIPMENT





Property
and equipment consists of the following at September 30, 2010 and December 31,
2009:





September 30, 2010
                          
                          
                          December 31, 2009Furniture
      and fixtures
                          
                          $
                          15,347
                          
                          
                          $
                          15,347Equipment
                          
                          
                          23,431
                          
                          
                          
                          23,43138,778
                          
                          
                          
                          38,778Accumulated
      depreciation
                          
                          
                          (35,520
                          )
                          
                          
                          (30,674
                          )$
                          3,258
                          
                          
                          $
                          8,104





Depreciation
expense for the three months ended September 30, 2010 and 2009 was $1,074 and
$1,856, respectively, and for the nine months ended September 30, 2010 and 2009
was $4,846 and $5,318, respectively.





NOTE
4 – PATENTS AND TRADEMARKS





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





The
Company has incurred legal and other fees associated with its application to the
USPTO for trademark protection for “Vystar”, “Vytex”, and “Created by Nature.
Recreated by Science.” during 2010 and 2009.


8


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





Patents
and trademarks are as follows:





September 30, 2010
                          
                          
                          December 31, 2009Patents
                          
                          $
                          136,343
                          
                          
                          $
                          118,737Accumulated
      amortization
                          
                          
                          (18,075)
                          
                          
                          
                          (11,834
                          )118,268
                          
                          
                          
                          106,903Trademarks
                          
                          
                          9,072
                          
                          
                          
                          9,072$
                          127,340
                          
                          
                          $
                          115,975





Amortization
expense for of the three months ended September 30, 2010 and 2009 was $2,081 and
$745, respectively, and for the nine months ended September 30, 2010 and 2009
was $6,240 and $2,236, respectively.





NOTE
5 – INCOME TAXES





There is
no income tax benefit recorded for the losses for the three and nine months
ended September 30, 2010 and 2009 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 and shareholders 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




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. In May 2010, the Company modified the private placement memorandum by
changing the price of the common stock to $1.25 per share.   The
exercise price of the warrants also was modified to $1.00 per share if exercised
by December 31, 2010.   If the warrants are not exercised by
December 31, 2010, then the price per share reverts back to the $1.50 per share
or $3.25 per share, respectively. A total of an additional 129,000 shares of
common stock and 129,000 warrants were issued to investors who participated in
this private placement in 2009 prior to the modification of
terms.   During 2010, the Company received $560,000 and issued
448,000 shares of common stock and warrants to purchase an additional 448,000
shares of common stock.   Cumulatively since November 2, 2009,
the Company received $990,000 and issued 792,000 shares of common stock and
792,000 warrants related to this private placement memorandum.





In
January 2010, the Company issued 20,000 shares of common stock valued at $40,598
under an agreement for professional services that were provided in the three
month period ended March 31, 2010.  The value of the common stock was
expensed and included in stock-based compensation expense in the three month
period ended March 31, 2010.


9


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





In
January 2010, the Company issued 100,000 shares of common stock valued at
$185,000 under an agreement for professional services to be provided over a
period of twelve months.  The amortization of deferred compensation
expense for the three and nine month periods ended September 30, 2010 related to
these shares was $46,250 and $126,914, respectively.





From May
through September 2010, the Company issued 350,000 shares of common stock valued
at $425,800 under agreements for professional services to be provided over
periods of four to six months.  The amortization of deferred
compensation expense for the three month and nine month periods ended September
30, 2010 related to these shares was $292,326 and $425,800,
respectively.





Additionally,
the Company had recorded $84,427 in amortization of deferred compensation
expense during the six month period ended June 30, 2010, related to 2009 common
stock and warrants issuances for services.





NOTE
7 – STOCK-BASED COMPENSATION





Generally
accepted accounting principles require 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.





Options





The
Company used the Black-Scholes option pricing model to estimate the grant-date
fair value of awards granted during 2009 and 2010.  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 trading in the Company’s stock began late in 2009, there
      was insufficient data to project the Company’s future volatility and
      instead 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 1.32 – 3.00%;
      and


·
            Expected Life of Awards – because
      the Company 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 $86,868 and $65,440 for the three month periods ended September
30, 2010 and 2009, respectively, and $252,944 and $124,418 for the nine month
periods ended September 30, 2010 and 2009, respectively, of stock-based
compensation expense related to employee and board member stock
options.  As of September 30, 2010, $912,304 of unrecognized
compensation expense related to non-vested share-based awards remains to be
recognized over a weighted average period of approximately 3.4
years.


10


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





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, which was also approved by the Company’s shareholders, 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, 2010, there were 4,012,500 shares of
common stock reserved for issuance under the Plan.  The Plan permits
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”), although to date no Incentive Stock Options have been
granted.  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.    In the three months ended June 30, 2010,
the Company issued a total of 600,000 non-qualified stock options to certain
employees that will only vest upon achievement of certain financial targets
during 2010-2012. No expense has yet been recorded through September 30, 2010
for these options as 2010 targets are not expected to be met.





The
weighted-average assumptions used in the option pricing model for stock option
grants were as follows for the nine months ended September 30, 2010 and
2009:





2010
                    
                    
                    2009Expected
      Dividend Yield
                    
                    
                    -
                    
                    
                    
                    -Expected
      Volatility in Stock Price
                    
                    
                    39.23
                    %
                    
                    
                    38.15
                    %Risk-Free
      Interest Rate
                    
                    
                    2.93
                    %
                    
                    
                    1.88
                    %Expected
      Life of Stock Awards - Years
                    
                    
                    6
                    
                    
                    
                    5Weighted
      Average Fair Value at Grant Date
                    
                    $
                    0.72
                    
                    
                    $
                    0.59





The
following table summarizes all stock option activity of the Company for the nine
months ended September 30, 2010:


Number of
                        
                        
                        Weighted AverageOptions
                        
                        
                        Exercise PriceOutstanding,
      December 31, 2009
                        
                        
                        5,175,000
                        
                        
                        $
                        1.23Granted
                        
                        
                        812,500
                        
                        
                        $
                        1.92Forfeited
                        
                        
                        -
                        
                        
                        $
                        -Outstanding,
      September 30, 2010
                        
                        
                        5,987,500
                        
                        
                        $
                        1.33Exercisable,
      September 30, 2010
                        
                        
                        3,883,333
                        
                        
                        $
                        1.11





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 during the nine months ended September 30 2010 and
2009:





2010
                    
                    
                    2009Expected
      Dividend Yield
                    
                    
                    -
                    
                    
                    
                    -Expected
      Volatility in Stock Price
                    
                    
                    38.63
                    %
                    
                    
                    36.87
                    %Risk-Free
      Interest Rate
                    
                    
                    2.09
                    %
                    
                    
                    1.82
                    %Expected
      Life of Awards, Years
                    
                    
                    5
                    
                    
                    
                    5




11


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





The
following table represents the Company’s warrant activity for the nine months
ended September 30, 2010:





Weighted Average
                      
                      
                      
                      
                      
                      Weighted AverageNumber of
                      
                      
                      Grant Date
                      
                      
                      Weighted Average
                      
                      
                      RemainingWarrants
                      
                      
                      Fair Value
                      
                      
                      Exercise Price
                      
                      
                      Contractual Life (Years)Outstanding,
      December 31, 2009
                      
                      
                      2,736,514
                      
                      
                      
                      
                      
                      $
                      1.17
                      
                      
                      
                      3.60Issued
      in private placement
                      
                      
                      577,000
                      
                      
                      
                      
                      
                      $
                      2.38Granted
                      
                      
                      31,286
                      
                      
                      $
                      0.48
                      
                      
                      $
                      1.30Exercised
                      
                      
                      (1,022,500
                      )
                      
                      
                      
                      
                      
                      $
                      0.42Expired
                      
                      
                      (212,300
                      )
                      
                      
                      
                      
                      
                      $
                      0.91Outstanding,
      September 30, 2010
                      
                      
                      2,110,000
                      
                      
                      
                      
                      
                      
                      $
                      1.72
                      
                      
                      
                      3.37Exercisable,
      September 30 2010
                      
                      
                      2,110,000
                      
                      
                      
                      
                      
                      
                      $
                      1.72
                      
                      
                      
                      3.37





The
Company issued 31,286 warrants for services during the nine months ended
September 30, 2010 at exercise prices ranging from $0.75 to $1.70 per share,
exercisable over 10 years from the grant date.  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 was
$14,210 and was recorded as stock based compensation expense when vesting
occurred.





NOTE
8 – RELATED PARTY TRANSACTIONS





Climax
Global Energy




During
2005 and 2006, the Company advanced cash and made payments on behalf of Climax
Global Energy, Inc. (“Climax”), a development stage company controlled by the
Company’s former CEO, resulting in a note.  On August 15, 2008, the
Company entered into an agreement with Climax which specified the repayment
terms of the note receivable.  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, (C) equal monthly payments
of $5,000 will commence in October 2008, and (D) the note shall be due and
payable in full no later than January 31, 2010.  In 2009 all payments
due under the agreement had been received by the Company and the note was paid
in full in the first quarter of 2010.





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 September 30, 2019.


12


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


September
30, 2010 (unaudited)





The
options granted to one of the Board members were forfeited in September 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





At
December 31, 2009, the Company had 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.  The payments on this liability began in January 2010 and will
be satisfied in 24 equal monthly payments.  The current and long-term
portions of this liability at September 30, 2010 were $40,626 and $10,153,
respectively.


13





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 Vytex
NRL. This technology reduces antigenic protein in natural rubber latex products
to virtually undetectable levels in both liquid NRL and finished latex
products.  We have started to introduce Vytex NRL, our new “ultra low
protein” natural rubber latex, throughout the worldwide marketplace that uses
NRL or latex substitutes as a component of manufactured
products.  Natural rubber latex is used in an extensive range of
products including balloons, textiles, footwear and clothing (threads),
adhesives, foams, furniture, carpet, paints, coatings, protective equipment,
sporting equipment, and especially health care products such as condoms,
surgical and exam gloves. We produce Vytex through 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 no
longer a development stage company, having transitioned to the operating stage
during the last quarter of 2009.  Our primary focus now is increasing
market-acceptance for Vytex NRL and, accordingly, increasing
sales.  With this change in our status, we expect that our financial
condition and results of operations will undergo substantial change from what we
experienced as a development stage company.  In addition to recording
both revenue and expense from product sales, we expect 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 are
based upon our 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.  Furthermore, for a discussion of our most critical accounting
policies, please refer to our Annual Report on Form 10-K for the year ended
December 31, 2009, filed with the Securities and Exchange Commission
("SEC").


14


RESULTS OF OPERATIONS




Comparison
of the Three Months Ended September 30, 2010 with the Three Months Ended
September 30, 2009




Revenues




Revenues
for the three months ended September 30, 2010 and 2009 were $217,580 and $5,673,
respectively.     During the quarter ended September
30, 2010, we offered introductory pricing to customers to partially offset the
costs they incurred in preparation and startup costs associated with introducing
Vytex into their manufacturing processes which generated the negative gross
margin in the quarter.  We expect that positive gross margins will
occur in the fourth quarter of 2010 and forward.




Operating
Expenses




Three Months EndedSeptember 30,
                            
                            
                            $
                            
                            
                            %2010
                            
                            
                            2009
                            
                            
                            Change
                            
                            
                            ChangeOPERATING
      EXPENSES:Sales
      and marketing
                            
                            $
                            183,593
                            
                            
                            $
                            156,440
                            
                            
                            $
                            27,153
                            
                            
                            
                            17.4
                            %General
      and administrative
                            
                            
                            627,801
                            
                            
                            
                            352,412
                            
                            
                            
                            275,389
                            
                            
                            
                            78.1
                            %Research
      and development
                            
                            
                            19,617
                            
                            
                            
                            67,213
                            
                            
                            
                            (47,596
                            )
                            
                            
                            -70.8
                            %$
                            831,011
                            
                            
                            $
                            576,065
                            
                            
                            $
                            254,946
                            
                            
                            
                            44.3
                            %




Our
operating expenses were $831,011 and $576,065 for the three months ended
September 30, 2010 and 2009, respectively, for an increase of $254,946 or
44.3%.  In the three months ended September 30, 2010, $86,868 was
recorded for stock-based compensation as well as an additional $338,576 for
amortization of deferred compensation.  The deferred compensation
expense represents the amortized fair value of stock and warrants issued for
services to non-employees.  This compares with $65,440 for stock-based
compensation in 2009 for the same period and $40,750 for amortization of
deferred compensation in that period.  The deferred compensation
expense for 2009 represents the amortized fair value of warrants issued for
services to non-employees.  The stock-based compensation charges to
operations in 2010 and 2009 were primarily for stock options granted under our
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.   Amortization of deferred compensation is recorded in
general and administrative expenses.   Stock-based compensation
expense is included in sales and marketing and general and administrative
expenses.   For the three months ended September 30, 2010, the
amount of stock-based compensation included in sales and marketing was $15,794
and in general and administrative was $71,074.   For the three
months ended September 30, 2009, the amount of stock-based compensation included
in sales and marketing was $15,331 and in general and administrative was
$49,686.




For the
three months ended September 30, 2010 and 2009, sales and marketing expenses
were $183,593 and $156,440, respectively.  The increase of $27,153 is
primarily due to in 2010 having one additional full-time sales professional and
increases in travel and other related sales activities.   Sales
and marketing expenses consist primarily of compensation and support costs for
sales and marketing personnel, professional services, promotional, marketing and
related activities.




For the
three months ended September 30, 2010 and 2009, general and administrative
expenses were $627,801 and $352,412, respectively.  The increase of
$275,389 is primarily composed of increased costs of being a public company and
relate primarily to investor and public relations, and insurance cost increases,
as well as the increase in amortization of deferred compensation for stock and
warrants issued for services and increase in stock-based compensation
expense.   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.


15


Included
in our operating expenses for the three months ended September 30, 2010 was
$19,617 for research and development expenses compared to $67,213 for the three
months ended September 30, 2009 for a decrease of $47,596.   The
decrease is primarily due to the completion of many research and development
projects in 2009 with more focus in 2010 on sales and marketing and less on
research and development activities.   Research and development
expenses consist primarily of compensation for employees and contractors engaged
in internal research and product development activities, laboratory operations,
and related expenses.




Other
Income (Expense)




Other
income for the three months ended September 30, 2010, consisted of $618 of
interest income on cash deposits net of interest expense of
$572.   This compares to $1,770 of interest income for the three
months ended September 30, 2009 net of $992 interest
expense.   Additionally, recorded in the three months ended
September 30, 2009 is the release of a provision for a related party note
receivable of $90,205.




Net
Loss




Net loss
was $903,736 and $484,984 for the three months ended September 30, 2010 and
2009, respectively, an increase of $418,752 in the net loss.




Comparison
of the Nine Months Ended September 30, 2010 with the Nine Months Ended September
30, 2009




Revenues




Revenues
for the nine months ended September 30, 2010 and 2009 were $654,291 and $17,581,
respectively.     During the quarter ended September
30, 2010, we offered introductory pricing to customers to partially offset the
costs they incurred in preparation and startup costs associated with introducing
Vytex into their manufacturing processes which generated the negative gross
margin in the quarter.  In August 2010, the Company filed a Form 8-K
which included certain estimated financial results for the second half of
2010.   As noted in that presentation, one requirement to
achieving the estimates was the completion of a financing event of at least $2
million.   Through November 12, 2010, the Company has not
completed such financing and as a result, will not meet those projections for
2010.  Achieving the projections for 2011 will be dependent on, among
other factors, completion of an adequate financing event before the end of
2010.




Operating
Expenses




Nine Months EndedSeptember 30,
                          
                          
                          $
                          
                          
                          %2010
                          
                          
                          2009
                          
                          
                          Change
                          
                          
                          ChangeOPERATING
      EXPENSES:Sales
      and marketing
                          
                          $
                          568,678
                          
                          
                          $
                          470,923
                          
                          
                          $
                          97,755
                          
                          
                          
                          20.8
                          %General
      and administrative
                          
                          
                          1,709,130
                          
                          
                          
                          1,021,062
                          
                          
                          
                          688,068
                          
                          
                          
                          67.4
                          %Research
      and development
                          
                          
                          49,145
                          
                          
                          
                          195,306
                          
                          
                          
                          (146,161
                          )
                          
                          
                          -74.8
                          %$
                          2,326,953
                          
                          
                          $
                          1,687,291
                          
                          
                          $
                          639,662
                          
                          
                          
                          37.9
                          %




16


Our
operating expenses were $2,326,953 and $1,687,291 for the nine months ended
September 30, 2010 and 2009, respectively, for an increase of $639,662 or
37.9%.  In the nine months ended September 30, 2010, $252,944 was
recorded for stock-based compensation as well as an additional $637,140 for
amortization of deferred compensation.  The deferred compensation
expense represents the amortized fair value of stock and warrants issued for
services to non-employees.  This compares with $171,816 for
stock-based compensation in 2009 for the same period and $59,134 for
amortization of deferred compensation in that period.  The deferred
compensation expense for 2009 represents the amortized fair value of warrants
issued for services to non-employees.  The stock-based compensation
charges to operations in 2010 and 2009 were primarily for stock options granted
under our 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 stock
purchase warrants were also made to third parties for various services
rendered.   Amortization of deferred compensation is recorded in
general and administrative expenses.   Stock-based compensation
expense is included in sales and marketing and general and administrative
expenses.   For the nine months ended September 30, 2010, the
amount of stock-based compensation included in sales and marketing was $46,970
and in general and administrative was $205,974.   For the nine
months ended September 30, 2009, the amount of stock-based compensation included
in sales and marketing was $39,937, and in general and administrative was
$131,879.




For the
nine months ended September 30, 2010 and 2009, sales and marketing expenses were
$568,678 and $470,923, respectively.  The increase of $97,755 is
primarily due to in 2010 having one additional full-time sales professional,
increases in travel and other related sales activities, including consulting
services and promotional and advertising expenditures.   Sales
and marketing expenses consist primarily of compensation and support costs for
sales and marketing personnel, professional services, promotional, marketing and
related activities.




For the
nine months ended September 30, 2010 and 2009, general and administrative
expenses were $1,709,130 and $1,021,062, respectively.  The increase
of $688,068 is primarily composed of increased costs of being a public company
and relate primarily to investor and public relations, and insurance cost
increases, as well as the increase in amortization of deferred compensation for
stock and warrants issued for services and increase in stock-based compensation
expense.   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.




Included
in our operating expenses for the nine months ended September 30, 2010 was
$49,145 for research and development expenses compared to $195,306 for the nine
months ended September 30, 2009 for a decrease of $146,161.   The
decrease is primarily due to the completion of many research and development
projects in 2009 with more focus in 2010 on sales and marketing and less on
research and development activities.   Research and development
expenses consist primarily of compensation for employees and contractors engaged
in internal research and product development activities, laboratory operations,
and related expenses.




Other
Income (Expense)




Other
income for the nine months ended September 30, 2010, consisted of $2,664 of
interest income on cash deposits net of interest expense of
$1,531.   This compares to $12,006 of interest income for the
nine months ended September 30, 2009 net of $1,712 interest expense and the
$120,205 reversal of a provision for a related party note
receivable.




Net
Loss




Net loss
was $2,516,567 and $1,554,164 for the nine months ended September 30, 2010 and
2009, respectively, an increase of $962,403 in the net loss.




LIQUIDITY
AND CAPITAL RESOURCES




As of
September 30, 2010, we had current assets of $987,548, including $385,298 in
cash, and $656,314 of current liabilities, or working capital of
$331,234.  We use working capital to finance our ongoing operations
and since those operations do not currently cover all of our operating costs,
managing working capital is essential to our company’s future
success.


17


Management
plans to finance future operations through the use of cash on hand, increased
revenues and raising additional capital through a private placement or other
equity or debt offering and stock warrant exercises from existing
shareholders.  As the Company’s product continues to gain market
acceptance, the Company expects sales in the fourth quarter of 2010 and 2011 to
continually increase. The Company also has been engaged in raising additional
capital through a private placement and stock warrant exercises from existing
shareholders.  Year-to-date through September 30, 2010, the Company
has raised capital of $560,000 and $428,500 through the private placement and
stock warrant exercises, respectively, with an additional $18,125 raised from
stock warrant exercises after September 30, 2010 through the date that these
financial statements were issued.  The Company has engaged two
investment advisory firms and plans to raise at least $2,000,000 from a private
placement of equity or debt during 2010.   If no additional funding is
completed, we estimate that we will have sufficient cash to operate through the
end of 2010.  In view of these matters, the Company’s ability to
continue as a going concern is dependent upon our ability to secure additional
financing necessary until the Company is able to generate adequate funds from
operations.  Since inception, the Company has financed its activities
principally from the sale of equity securities. While the Company has been
successful in the past in obtaining the necessary capital to support its
operations, there is no assurance that the Company will be able to raise
additional equity capital or other financing under commercially reasonable terms
and conditions, or at all. Furthermore, if the Company issues equity or debt
securities to raise additional funds, existing shareholders may experience
dilution and the new equity or debt securities it issues may have rights,
preferences and privileges senior to those of existing shareholders. In
addition, if the Company raises additional funds through collaboration,
licensing or other similar arrangements, it may be necessary to relinquish
valuable rights to products or proprietary technologies, or grant licenses on
terms that are not favorable. If the Company does not achieve its revenue
projections and cannot raise funds on acceptable terms, the Company will not be
able to continue as a going concern and execute the Company’s business plan,
take advantage of future opportunities, or respond to competitive pressure or
unanticipated customer requirements. Any of these events would adversely affect
the Company’s ability to achieve the Company’s sales goals, which could have a
material adverse effect on the Company’s business, results of operations and
financial condition. The Company’s financial statements do not include any
adjustments relating to the recoverability or classification of assets or the
amounts of liabilities that might result from the outcome of these
uncertainties.




Sources
and Uses of Cash




For the
nine months ended September 30, 2010 and 2009, net cash used by operations was
$1,503,693 and $1,605,004, respectively.  The negative cash flow for
nine months ended September 30, 2010 was primarily the result of the $2,516,567
net loss.  This was reduced by several non-cash charges, primarily the
stock-based compensation charges of $252,944, stock and warrants issued for
services of $54,808, and $637,140 for amortization of deferred
compensation.   The negative cash flow for the nine months ended
September 30, 2009 resulted primarily from the net loss of $1,554,164 reduced by
non-cash charges related to stock-based compensation expense of $221,200 and
amortization of deferred compensation of $59,134.




Net cash
provided by investing activities for the nine months ended September 30, 2010
was $120,344 compared to net cash provided by investing activities for the same
period of 2009 of $783,136.   Cash provided in 2010 was related
to the proceeds from a related party note receivable offset partially by legal
and other costs associated with our patents and trademarks.   In
2009, we received the proceeds from a maturing certificate of deposit of
$750,000 and $45,000 in proceeds from a related party note receivable, offset
slightly by costs of $11,864 associated with our patents and
trademarks.


18


Net cash
provided by financing activities for the nine months ended September 30, 2010
and 2009, was $988,500 and $586,200, respectively, representing proceeds from
the sale of common stock and common stock purchase warrants and the exercise of
common stock purchase warrants.




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
$2.5 million of operating expenditures over the next 12 months including almost
$1 million in personnel costs.  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.




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.




Off-Balance
Sheet Arrangements




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




DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS




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




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


19





ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





Not
required.





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, 2010.  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.





(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 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





(C)
            Limitations
      on the Effectiveness of Controls





We have
confidence in our internal controls and procedures. Nevertheless, our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure procedures and controls or our internal
controls will prevent all errors or intentional fraud. An internal control
system, no matter how well-conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of such internal controls are met.
Further, the design of an internal control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all internal
control systems, no evaluation of controls can provide absolute assurance that
all our control issues and instances of fraud, if any, have been
detected.


20


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,
2010, 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, 2010 through September 30, 2010, the Company issued 10,000 shares of its
common stock at $1.25 per share.  In connection with such offering,
the Company issued one warrant to purchase common stock at $1.50 per share and
one warrant to purchase common stock at $3.25 per share for each two shares of
common stock purchased.





From July
1, 2010 through September 30, 2010, the Company issued 16,250 shares of its
common stock upon the exercise of warrants at $1.00 per share.





From July
1, 2010 through September 30, 2010, the Company issued 130,000 shares of its
common stock valued at $132,300 for services to be rendered to the Company in
2010.




From July
1, 2010 through September 30, 2010, the Company issued 2,000 warrants to
purchase one share of common stock at an exercise price of $1.00 per share,
2,222 warrants to purchase one share of common stock at an exercise price of
$0.90 per share, 2,469 warrants to purchase one share of common stock at an
exercise price of $0.81 per share, and 5,000 warrants to purchase one share of
common stock at an exercise price of $0.75 per share, all for services rendered
to the Company.





(b)  
Stock
Option Grants




From July
1, 2010 through September 30, 2010, the Company issued options to employees to
purchase an aggregate of 12,500 shares of its common stock at an exercise price
of $0.75.  Generally, the options vest over a period of three years
and none have been exercised as of September 30, 2010.





(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.


21


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
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)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)


22





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)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)


23





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)10.15
              
              Employment
      Agreement between Vystar Corporation and Matthew Clark dated January 4,
      2010 (incorporated by reference to Vystar’s Current Report on Form 8-K
      filed on April 13, 2010)10.16
              
              Employment
      Agreement between Vystar Corporation and Jack W. Callicutt dated April 8,
      2010 (incorporated by reference to Vystar’s Current Report on Form 8-K
      filed on April 13, 2010)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.


24


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
      12, 2010
                      By:
                      /s/
      William R. DoyleWilliam
      R. DoyleChairman,
      President, Chief Executive Officer and
                        Director
      (Principal Executive Officer)Date:
      November 12, 2010
                      By:
                      /s/
      Jack W. CallicuttJack
      W. CallicuttChief
      Financial Officer (Principal Financial and
                        Accounting
      Officer)





25