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 June 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
August 12, 2010, there were 15,087,624 shares of the Registrant’s common stock,
par value $0.0001 per share, outstanding.





Vystar
Corporation


Form
10-Q for the Quarter Ended June 30, 2010





Index





Part I.  Financial
      InformationItem
      1.
                    Financial Statements
                    3Balance Sheets at June 30, 2010 (unaudited) and
      December 31, 2009
                    3Statements of Operations for the Three and Six
      Months Ended June 30, 2010 and 2009 (unaudited)
                    4Statements of Cash Flows for the Six Months Ended
      June 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


June 30, 2010
                                      
                                      
                                      December 31, 2009(unaudited)ASSETSCURRENT
      ASSETSCash
                                      
                                      $
                                      812,362
                                      
                                      
                                      $
                                      780,147Accounts
      receivable
                                      
                                      
                                      151,423
                                      
                                      
                                      
                                      25,678Inventory
                                      
                                      
                                      333,507
                                      
                                      
                                      
                                      140,827Deposits
                                      
                                      
                                      3,066
                                      
                                      
                                      
                                      11,786Prepaid
      expenses
                                      
                                      
                                      81,906
                                      
                                      
                                      
                                      97,483Note
      receivable due from related party
                                      
                                      
                                      -
                                      
                                      
                                      
                                      137,949Other
                                      
                                      
                                      16,124
                                      
                                      
                                      
                                      19,649TOTAL
      CURRENT ASSETS
                                      
                                      
                                      1,398,388
                                      
                                      
                                      
                                      1,213,519PROPERTY
      AND EQUIPMENT, NET
                                      
                                      
                                      4,332
                                      
                                      
                                      
                                      8,104OTHER
      ASSETSPatents
      and trademarks, net
                                      
                                      
                                      120,409
                                      
                                      
                                      
                                      115,975Other
                                      
                                      
                                      4,421
                                      
                                      
                                      
                                      5,887TOTAL
      ASSETS
                                      
                                      $
                                      1,527,550
                                      
                                      
                                      $
                                      1,343,485LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                      
                                      $
                                      223,886
                                      
                                      
                                      $
                                      128,888Accrued
      expenses
                                      
                                      
                                      381,189
                                      
                                      
                                      
                                      127,922TOTAL
      CURRENT LIABILITIES
                                      
                                      
                                      605,075
                                      
                                      
                                      
                                      256,810LONG-TERM
      LIABILITIES
                                      
                                      
                                      20,312
                                      
                                      
                                      
                                      47,399TOTAL
      LIABILITIES
                                      
                                      
                                      625,387
                                      
                                      
                                      
                                      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; 14,956,024 and
      13,042,774 shares issued and outstanding at June 30, 2010 and December 31,
      2009, respectively
                                      
                                      
                                      1,496
                                      
                                      
                                      
                                      1,304Additional
      paid-in capital
                                      
                                      
                                      13,649,983
                                      
                                      
                                      
                                      11,994,522Deferred
      compensation
                                      
                                      
                                      (264,363
                                      )
                                      
                                      
                                      (84,428
                                      )Accumulated
      deficit
                                      
                                      
                                      (12,484,953
                                      )
                                      
                                      
                                      (10,872,122
                                      )TOTAL
      STOCKHOLDERS' EQUITY
                                      
                                      
                                      902,163
                                      
                                      
                                      
                                      1,039,276TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                      
                                      $
                                      1,527,550
                                      
                                      
                                      $
                                      1,343,485




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


3


VYSTAR
CORPORATION


STATEMENTS
OF OPERATIONS


(unaudited)





Three Months Ended June 30,
                                  
                                  
                                  Six Months Ended June 30,2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009REVENUES
                                  
                                  $
                                  353,302
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  436,711
                                  
                                  
                                  $
                                  2,530COST
      OF REVENUES
                                  
                                  
                                  482,462
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  554,687
                                  
                                  
                                  
                                  -Gross
      Margin
                                  
                                  
                                  (129,160
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (117,976
                                  )
                                  
                                  
                                  2,530OPERATING
      EXPENSESSales
      and marketing
                                  
                                  
                                  196,606
                                  
                                  
                                  
                                  172,640
                                  
                                  
                                  
                                  385,085
                                  
                                  
                                  
                                  314,483General
      and administrative
                                  
                                  
                                  614,741
                                  
                                  
                                  
                                  343,577
                                  
                                  
                                  
                                  1,081,329
                                  
                                  
                                  
                                  668,650Research
      and development
                                  
                                  
                                  12,591
                                  
                                  
                                  
                                  45,956
                                  
                                  
                                  
                                  29,528
                                  
                                  
                                  
                                  128,093Total
      Operating Expenses
                                  
                                  
                                  823,938
                                  
                                  
                                  
                                  562,173
                                  
                                  
                                  
                                  1,495,942
                                  
                                  
                                  
                                  1,111,226LOSS
      FROM OPERATIONS
                                  
                                  
                                  (953,098
                                  )
                                  
                                  
                                  (562,173
                                  )
                                  
                                  
                                  (1,613,918
                                  )
                                  
                                  
                                  (1,108,696
                                  )OTHER
      INCOME (EXPENSE)Interest
      income
                                  
                                  
                                  863
                                  
                                  
                                  
                                  2,613
                                  
                                  
                                  
                                  2,046
                                  
                                  
                                  
                                  10,236Interest
      expense
                                  
                                  
                                  (331
                                  )
                                  
                                  
                                  (701
                                  )
                                  
                                  
                                  (959
                                  )
                                  
                                  
                                  (720
                                  )Other
      income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  30,000NET
      LOSS
                                  
                                  $
                                  (952,566
                                  )
                                  
                                  $
                                  (560,261
                                  )
                                  
                                  $
                                  (1,612,831
                                  )
                                  
                                  $
                                  (1,069,180
                                  )Basic
      and Diluted Loss per Share
                                  
                                  $
                                  (0.07
                                  )
                                  
                                  $
                                  (0.05
                                  )
                                  
                                  $
                                  (0.12
                                  )
                                  
                                  $
                                  (0.09
                                  )Basic
      and Diluted Weighted Average Number of Common Shares
      Outstanding
                                  
                                  
                                  14,342,238
                                  
                                  
                                  
                                  12,376,829
                                  
                                  
                                  
                                  13,861,871
                                  
                                  
                                  
                                  12,165,791





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


4


VYSTAR
CORPORATION


STATEMENTS
OF CASH FLOWS


(unaudited)





Six Months Ended June 30,2010
                                    
                                    
                                    2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                                    
                                    $
                                    (1,612,831
                                    )
                                    
                                    $
                                    (1,069,180
                                    )Adjustment
      to reconcile net loss to net cashused
      in operating activitiesStock-based
      compensation expense
                                    
                                    
                                    166,076
                                    
                                    
                                    
                                    59,401Stock
      and warrants issued for services
                                    
                                    
                                    51,327Recovery
      on related party note receivable
                                    
                                    
                                    
                                    
                                    
                                    
                                    (30,000
                                    )Amortization
      of deferred compensation
                                    
                                    
                                    298,565
                                    
                                    
                                    
                                    99,245Depreciation
                                    
                                    
                                    3,772
                                    
                                    
                                    
                                    3,433Amortization
                                    
                                    
                                    4,160
                                    
                                    
                                    
                                    1,492(Increase)
      decrease in assetsAccounts
      receivable
                                    
                                    
                                    (125,745
                                    )
                                    
                                    
                                    -Inventory
                                    
                                    
                                    (192,680
                                    )
                                    
                                    
                                    (52,592
                                    )Prepaid
      expenses
                                    
                                    
                                    15,577
                                    
                                    
                                    
                                    18,051Other
                                    
                                    
                                    13,711
                                    
                                    
                                    
                                    (30,851
                                    )Increase
      (decrease) in liabilitiesAccounts
      payable
                                    
                                    
                                    94,998
                                    
                                    
                                    
                                    30,756Accrued
      expenses
                                    
                                    
                                    253,267
                                    
                                    
                                    
                                    2,119Other
                                    
                                    
                                    (27,087
                                    )
                                    
                                    
                                    (2,317
                                    )Net
      cash used in operating activities
                                    
                                    
                                    (1,056,890
                                    )
                                    
                                    
                                    (970,443
                                    )CASH
      FLOWS FROM INVESTING ACTIVITIESRedemption
      of investment
                                    
                                    
                                    
                                    
                                    
                                    
                                    750,000Proceeds
      on related party note receivable
                                    
                                    
                                    137,949
                                    
                                    
                                    
                                    30,000Cost
      of patents
                                    
                                    
                                    (8,594
                                    )
                                    
                                    
                                    (6,677
                                    )Net
      cash provided by investing activities
                                    
                                    
                                    129,355
                                    
                                    
                                    
                                    773,323CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock
                                    
                                    
                                    959,750
                                    
                                    
                                    
                                    585,200Net
      cash provided by financing activities
                                    
                                    
                                    959,750
                                    
                                    
                                    
                                    585,200NET
      INCREASE IN CASH
                                    
                                    
                                    32,215
                                    
                                    
                                    
                                    388,080CASH
      - BEGINNING OF PERIOD
                                    
                                    
                                    780,147
                                    
                                    
                                    
                                    956,655CASH
      - END OF PERIOD
                                    
                                    $
                                    812,362
                                    
                                    
                                    $
                                    1,344,735SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for interest
                                    
                                    $
                                    959
                                    
                                    
                                    $
                                    720





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


5





VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


June 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 six month periods ended June 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


June 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 six month periods ended June 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 3,695,000 shares and 3,360,000 shares of
common stock for the six months ended June 30, 2010 and 2009, respectively, as
their effect would be anti-dilutive.  Warrants to purchase 2,187,059
shares and 2,548,318 shares of common stock for the six months ended June 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 August 12, 2010 when 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 June 30, 2010, the accumulated deficit
amounted to approximately $12,485,000.





Vystar was in the
development stage for most of 2009, transitioning to the operational stage in
the final quarter of 2009.  At June 30, 2010, the Company had cash of
approximately $812,000.  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 2010
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 August 12, 2010, the Company has
raised additional capital of $560,000 and $431,000 through the private placement
and stock warrant exercises, respectively.   The Company is in
discussions with several investment banks and advisors and plans to raise at
least an additional $2,000,000 from a private placement or other instrument
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 or 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


June 30,
2010 (unaudited)





NOTE
3 – PROPERTY AND EQUIPMENT





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





June 30, 2010
                    
                    
                    December 31, 2009Furniture
      and fixtures
                    
                    $
                    15,347
                    
                    
                    $
                    15,347Equipment
                    
                    
                    23,431
                    
                    
                    
                    23,43138,778
                    
                    
                    
                    38,778Accumulated
      depreciation
                    
                    
                    (34,446
                    )
                    
                    
                    (30,674
                    )$
                    4,332
                    
                    
                    $
                    8,104





Depreciation
expense for each of the three months ended June 30, 2010 and 2009 was $1,886 and
for the six months ended June 30, 2010 and 2009 was $3,772 and $3,433,
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


June 30,
2010 (unaudited)





Patents
and trademarks are as follows:





June 30, 2010
                    
                    
                    December 31,2009Patents
                    
                    $
                    127,331
                    
                    
                    $
                    118,737Accumulated
      amortization
                    
                    
                    (15,994
                    )
                    
                    
                    (11,834
                    )111,337
                    
                    
                    
                    106,903Trademarks
                    
                    
                    9,072
                    
                    
                    
                    9,072$
                    120,409
                    
                    
                    $
                    115,975





Amortization
expense for of the three months ended June 30, 2010 and 2009 was $3,414 and
$746, respectively, and for the six months ended June 30, 2010 and 2009 was
$4,160 and $1,492, respectively.





NOTE
5 – INCOME TAXES





There is
no income tax benefit recorded for the losses for the three and six months ended
June 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 $547,500 and issued 438,000 shares of common stock
and warrants to purchase an additional 438,000 shares of common
stock.   Cumulatively since November 2, 2009, the Company
received $977,500 and issued 782,000 shares of common stock and 782,000 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


June 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 six month periods ended June 30, 2010 related to these
shares was $46,250 and $80,664, respectively.





In May
and June 2010, the Company issued 220,000 shares of common stock valued at
$293,500 under an agreement for professional services to be provided over a
period of four to six months.  The amortization of deferred
compensation expense for the three month period ended June 30, 2010 related to
these shares was $133,474.





Additionally,
the Company recorded $40,750 and $84,427 in amortization of deferred
compensation expense for the three and six month periods ended June 30, 2010,
respectively, related to 2009 common stock and warrants issuances for
services.





NOTE
7 – STOCK-BASED COMPENSATION





Generally
accepted accounting principles requires share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values at the date of grant, net of estimated
forfeitures.





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 $97,016 and $47,140 for the three month periods ended June 30,
2010 and 2009, respectively, and $166,076 and $59,401 for the six month periods
ended June 30, 2010 and 2009, respectively, of stock-based compensation expense
related to employee and board member stock options.  As of June 30,
2010, $995,454 of unrecognized compensation expense related to non-vested
share-based awards remains to be recognized over a weighted average period of
approximately 3.6 years.


10


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


June 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 March 31, 2010, there were 4,025,000 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 and no expense has yet been recorded for these
options.





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





2010
                  
                  
                  2009Expected
      Dividend Yield
                  
                  
                  -
                  
                  
                  
                  -Expected
      Volatility in Stock Price
                  
                  
                  39.27
                  %
                  
                  
                  37.85
                  %Risk-Free
      Interest Rate
                  
                  
                  3.00
                  %
                  
                  
                  1.71
                  %Expected
      Life of Stock Awards - Years
                  
                  
                  6
                  
                  
                  
                  5Weighted
      Average Fair Value at Grant Date
                  
                  $
                  0.75
                  
                  
                  $
                  0.58





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


Number of
                    
                    
                    Weighted AverageOptions
                    
                    
                    Exercise PriceOutstanding,
      December 31, 2009
                    
                    
                    5,175,000
                    
                    
                    $
                    1.23Granted
                    
                    
                    800,000
                    
                    
                    $
                    1.94Forfeited
                    
                    
                    -
                    
                    
                    $
                    -Outstanding,
      June 30, 2010
                    
                    
                    5,975,000
                    
                    
                    $
                    1.33Exercisable,
      June 30, 2010
                    
                    
                    3,695,000
                    
                    
                    $
                    1.08





Warrants





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





2010
                  
                  
                  2009Expected
      Dividend Yield
                  
                  
                  -
                  
                  
                  
                  -Expected
      Volatility in Stock Price
                  
                  
                  38.68
                  %
                  
                  
                  37.85
                  %Risk-Free
      Interest Rate
                  
                  
                  2.42
                  %
                  
                  
                  1.71
                  %Expected
      Life of Awards, Years
                  
                  
                  5
                  
                  
                  
                  4.9




11


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


June 30,
2010 (unaudited)





The
following table represents the Company’s warrant activity for the six months
ended June 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
                  
                  
                  567,000
                  
                  
                  
                  
                  
                  $
                  2.38Granted
                  
                  
                  19,595
                  
                  
                  $
                  0.59
                  
                  
                  $
                  1.58Exercised
                  
                  
                  (1,006,250
                  )
                  
                  
                  
                  
                  
                  $
                  0.41Expired
                  
                  
                  (129,800
                  )
                  
                  
                  
                  
                  
                  $
                  0.93Outstanding,
      June 30, 2010
                  
                  
                  2,187,059
                  
                  
                  
                  
                  
                  
                  $
                  1.69
                  
                  
                  
                  3.46Exercisable,
      June 30 2010
                  
                  
                  2,187,059
                  
                  
                  
                  
                  
                  
                  $
                  1.69
                  
                  
                  
                  3.46





The
Company issued 19,595 warrants for services during the six months ended June 30,
2010 at exercise prices ranging from $1.15 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
$11,621 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 June 30, 2019.


12


VYSTAR
CORPORATION


NOTES TO
FINANCIAL STATEMENTS


June 30,
2010 (unaudited)





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





Other





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 June 30, 2010 were $40,626 and $20,312,
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.


14


RESULTS
OF OPERATIONS




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




Revenues




Revenues
for the three months ended June 30, 2010 and 2009 were $353,302 and $0,
respectively.     During the quarter ended June 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.




Operating
Expenses




Three Months EndedJune 30,
                                      
                                      
                                      $
                                      
                                      
                                      %2010
                                      
                                      
                                      2009
                                      
                                      
                                      Change
                                      
                                      
                                      ChangeOPERATING
      EXPENSES:Sales
      and marketing
                                      
                                      $
                                      196,606
                                      
                                      
                                      $
                                      172,640
                                      
                                      
                                      $
                                      23,966
                                      
                                      
                                      
                                      13.9
                                      %General
      and administrative
                                      
                                      
                                      614,741
                                      
                                      
                                      
                                      343,577
                                      
                                      
                                      
                                      271,164
                                      
                                      
                                      
                                      78.9
                                      %Research
      and development
                                      
                                      
                                      12,591
                                      
                                      
                                      
                                      45,956
                                      
                                      
                                      
                                      (33,365
                                      )
                                      
                                      
                                      -72.6
                                      %$
                                      823,938
                                      
                                      
                                      $
                                      562,173
                                      
                                      
                                      $
                                      261,765
                                      
                                      
                                      
                                      46.6
                                      %




Our
operating expenses were $823,938 and $562,173 for the three months ended June
30, 2010 and 2009, respectively, for an increase of $261,765 or
46.6%.  In the three months ended June 30, 2010, $97,016 was recorded
for stock-based compensation as well as an additional $220,474 for amortization
of deferred compensation.  The deferred compensation expense
represents the amortized fair value of stock and warrants issued for future
services to non-employees.  This compares with $47,140 for stock-based
compensation in 2009 for the same period and $4,597 for amortization of deferred
compensation in that period.  The deferred compensation expense for
2009 represents the amortized fair value of warrants issued for future 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 June 30, 2010, the amount
of stock-based compensation included in sales and marketing was $15,588 and in
general and administrative was $81,428.   For the three months
ended June 30, 2009, the amount of stock-based compensation included in sales
and marketing was $12,261 and in general and administrative was
$34,879.




For the
three months ended June 30, 2010 and 2009, sales and marketing expenses were
$196,606 and $172,640, respectively.  The increase of $23,966 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
three months ended June 30, 2010 and 2009, general and administrative expenses
were $614,741 and $343,577, respectively.  The increase of $271,164 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 asother operating
expenses.


15




Included
in our operating expenses for the three months ended June 30, 2010 was $12,591
for research and development expenses compared to $45,956 for the three months
ended June 30, 2009 for a decrease of $33,365.   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 June 30, 2010, consisted of $863 of interest
income on cash deposits net of interest expense of $331.   This
compares to $2,613 of interest income for the three months ended June 30, 2009
net of $701 interest expense.




Net
Loss




Net loss
was $952,566 and $560,261 for the three months ended June 30, 2010 and 2009,
respectively, an increase of $392,305 in the net loss.




Comparison
of the Six Months Ended June 30, 2010 with the Six Months Ended June 30,
2009




Revenues




Revenues
for the six months ended June 30, 2010 and 2009 were $436,711 and $2,530,
respectively.     During the quarter ended June 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.




Operating
Expenses




Six
      Months EndedJune
      30,
                                    
                                    
                                    $
                                    
                                    
                                    %2010
                                    
                                    
                                    2009
                                    
                                    
                                    Change
                                    
                                    
                                    ChangeOPERATING
      EXPENSES:Sales
      and marketing
                                    
                                    $
                                    385,085
                                    
                                    
                                    $
                                    314,483
                                    
                                    
                                    $
                                    70,602
                                    
                                    
                                    
                                    22.5
                                    %General
      and administrative
                                    
                                    
                                    1,081,329
                                    
                                    
                                    
                                    668,650
                                    
                                    
                                    
                                    412,679
                                    
                                    
                                    
                                    61.7
                                    %Research
      and development
                                    
                                    
                                    29,528
                                    
                                    
                                    
                                    128,093
                                    
                                    
                                    
                                    (98,565
                                    )
                                    
                                    
                                    -76.9
                                    %$
                                    1,495,942
                                    
                                    
                                    $
                                    1,111,226
                                    
                                    
                                    $
                                    384,716
                                    
                                    
                                    
                                    34.6
                                    %




16




Our
operating expenses were $1,495,942 and $1,111,226 for the six months ended June
30, 2010 and 2009, respectively, for an increase of $384,716 or
34.6%.  In the six months ended June 30, 2010, $166,076 was recorded
for stock-based compensation as well as an additional $298,565 for amortization
of deferred compensation.  The deferred compensation expense
represents the amortized fair value of stock and warrants issued for future
services to non-employees.  This compares with $59,401 for stock-based
compensation in 2009 for the same period and $99,245 for amortization of
deferred compensation in that period.  The deferred compensation
expense for 2009 represents the amortized fair value of warrants issued for
future 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 six months ended June 30, 2010, the amount of
stock-based compensation included in sales and marketing was $31,176 and in
general and administrative was $134,900.   For the six months
ended June 30, 2009, the amount of stock-based compensation included in sales
and marketing was $24,522 and in general and administrative was
$34,879.




For the
six months ended June 30, 2010 and 2009, sales and marketing expenses were
$385,085 and $314,483, respectively.  The increase of $70,602 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
six months ended June 30, 2010 and 2009, general and administrative expenses
were $1,081,329 and $668,650, respectively.  The increase of $412,679
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 asother operating
expenses.




Included
in our operating expenses for the six months ended June 30, 2010 was $29,528 for
research and development expenses compared to $128,093 for the six months ended
June 30, 2009 for a decrease of $98,565.   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 six months ended June 30, 2010, consisted of $2,046 of interest
income on cash deposits net of interest expense of $959.   This
compares to $10,236 of interest income for the six months ended June 30, 2009
net of $720 interest expense and the $30,000 reversal of a provision for a
related party note receivable.




Net
Loss




Net loss
was $1,612,831 and $1,069,180 for the six months ended June 30, 2010 and 2009,
respectively, an increase of $543,651 in the net loss.




LIQUIDITY
AND CAPITAL RESOURCES




As of
June 30, 2010, we had current assets of $1,398,388, including $812,362 in cash,
and $605,075 of current liabilities, or working capital of
$793,313.  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 2010 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 August 12, 2010, the Company has
raised additional capital of $560,000 and $431,000 through the private placement
and stock warrant exercises, respectively.   The Company is in
discussions with several investment banks and advisors and plans to raise at
least an additional $2,000,000 from a private placement or other instrument
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 or 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
six months ended June 30, 2010 and 2009, net cash used by operations was
$1,056,890 and $970,443, respectively.  The negative cash flow for six
months ended June 30, 2010 was primarily the result of the $1,612,831 net
loss.  This was reduced by several non-cash charges, primarily the
stock-based compensation charges of $166,076, stock and warrants issued for
services of $51,327, and $298,565 for amortization of deferred
compensation.  The receipt of the amount due on the related party note
receivable of $137,949 offset some the above charges.  The Company
made purchases of and deposits on inventory, of approximately $487,000, during
this period.  The negative cash flow for the six months ended June 30,
2009 resulted primarily from the net loss of $1,069,180 reduced by non-cash
charges related to stock-based compensation expense of $59,401 and amortization
of deferred compensation of $99,245.




Net cash
provided by investing activities for the six months ended June 30, 2010 was
$129,355 compared to net cash provided by investing activities for the same
period of 2009 of $773,323.   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 $30,000 in proceeds from a related party note receivable, offset
slightly by costs of $6,677 associated with our patents and
trademarks.


18




Net cash
provided by financing activities for the six months ended June 30, 2010 and
2009, was $959,750 and $585,200, 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 million
of expenditures over the next 12 months including almost $800,000 in both
personnel costs in general and administrative expenses, including professional
fees.  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 June 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 second 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 June 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
April 1, 2010 through June 30, 2010, the Company issued 242,000 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.  Additionally, the Company issued 202,500
shares of its common stock to investors who invested in this offering prior to
it being amended to change the price to $1.25 per share.





From
April 1, 2010 through June 30, 2010, the Company issued 375,000 shares of its
common stock upon the exercise of warrants at $1.00 per share.





From
April 1, 2010 through June 30, 2010, the Company issued 220,000 shares of its
common stock valued at $293,500 for services to be rendered to the Company in
2010.




From
April 1, 2010 through June 30, 2010, the Company issued 1,250 warrants to
purchase one share of common stock at an exercise price of $1.60 per share,
1,250 warrants to purchase one share of common stock at an exercise price of
$1.55 per share, 2,300 warrants to purchase one share of common stock at an
exercise price of $1.15 per share, and 1,000 warrants to purchase one share of
common stock at an exercise price of $1.39 per share, all for services rendered
to the Company.





(b) Stock Option
Grants




From
April 1, 2010 through June 30, 2010, the Company issued options to employees to
purchase an aggregate of 800,000 shares of its common stock at an exercise price
of $1.75 for 200,000 options and $2.00 for 600,000
options.  Generally, the options vest over a period of three years and
none have been exercised as of June 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:  August
      16, 2010
                By:
                /s/ William R. DoyleWilliam
      R. DoyleChairman,
      President, Chief Executive Officer and
                  Director
      (Principal Executive Officer)Date:
      August 16, 2010
                By:
                /s/ Jack W. CallicuttJack
      W. CallicuttChief
      Financial Officer (Principal Financial and
                  Accounting
      Officer)




25