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Washington, D.C. 20549
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TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2024, and our other filings with the Securities and Exchange Commission.
Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “VPR Brands” the “Company,” “we,” “our,” “us,” and similar terms refer to VPR Brands, LP, a Delaware limited partnership.
The information which appears on our website (www.vprbrands.com) is not part of this report.
ii
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
VPR BRANDS, LP
CONDENSED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Royalty receivable | ||||||||
| Inventory | ||||||||
| Vendor deposits | ||||||||
| Deposits | ||||||||
| Total current assets | ||||||||
| Right to use asset | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND PARTNERS’ SURPLUS | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Customer deposits | ||||||||
| Lease liabilities, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Refund Liability | ||||||||
| Convertible notes payable | ||||||||
| Income Tax Payable | ||||||||
| Total current liabilities | ||||||||
| Notes Payable, less current portion | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Total liabilities | ||||||||
| Partners’ Surplus: | ||||||||
| Common units - | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total partners’ surplus | ||||||||
| Total liabilities and partners’ surplus | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
1
VPR BRANDS, LP
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | ||||||||
| Product sales | $ | $ | ||||||
| Royalty revenue | ||||||||
| Total revenues | ||||||||
| Cost of Sales | ||||||||
| Gross profit | ||||||||
| Operating Expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Net Operating Loss | ( | ) | ( | ) | ||||
| Other Income (Expense): | ||||||||
| Settlement income, net | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense- related parties | ( | ) | ||||||
| Total other (expense) income, net | ( | ) | ||||||
| Net (Loss) Income, before Provision for Income Tax | $ | ( | ) | $ | ||||
| Provision for Income Taxes | ( | ) | ||||||
| Net (Loss) Income | ( | ) | ||||||
| Net (Loss) Income Per Common Unit - Basic | $ | ( | ) | $ | ||||
| Net (Loss) Income Per Common Unit - Diluted | $ | ( | ) | $ | ||||
| Weighted-Average Common Units Outstanding - Basic | ||||||||
| Weighted-Average Common Units Outstanding - Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
2
VPR BRANDS, LP
CONDENSED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL SURPLUS
(Unaudited)
| Total | ||||||||||||||||||||||||
| Common Units | Common
Units to be Issued | Accumulated | Partners’ Capital | |||||||||||||||||||||
| Number | Amount | Number | Amount | Deficit | Surplus | |||||||||||||||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||
| Balance at March 31, 2024 | $ | ( | ) | |||||||||||||||||||||
| Three Months Ended March 31, 2025 | ||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance at March 31, 2025 | $ | - | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
3
VPR BRANDS, LP
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities: | ||||||||
| Amortization of right of use asset | ||||||||
| Amortization of intangible | ||||||||
| Provision for inventory obsolescence | ||||||||
| Interest on lease liability | ||||||||
| Bad debt expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Royalty receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Vendor deposits | ||||||||
| Accounts receivable | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Prepaid | ||||||||
| Employee advances | ( | ) | ( | ) | ||||
| Refund liability | ( | ) | ( | ) | ||||
| Accounts payable related party | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash Flow from Investing Activities: | ||||||||
| Purchase of Intangible Assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments of convertible notes payable | ( | ) | ( | ) | ||||
| Payments of notes payable, related parties | ( | ) | ||||||
| Payments on lease liability | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Change in Cash | ( | ) | ( | ) | ||||
| Cash - Beginning of the Year | ||||||||
| Cash - End of the Year | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Interest paid in cash | $ | $ | ||||||
| Income taxes paid in cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
4
VPR BRANDS, LP
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the three months ended MARCH 31, 2025 AND 2024
(Unaudited)
NOTE 1. ORGANIZATION
VPR Brands, LP (the “Company”, “we”, “our”) was incorporated in New York on July 19, 2004, as Jobsinsite.com, Inc. On August 5, 2004, we changed our name to Jobsinsite, Inc. On June 18, 2009, we merged with a Delaware corporation and became Jobsinsite, Inc. On July 1, 2009, we filed articles of conversion with the secretary of state of Delaware and became Soleil Capital L.P., a Delaware limited partnership. On September 2, 2015, we changed our name to VPR Brands, LP. We are managed by Soleil Capital Management LLC, a Delaware limited liability company.
The Company is engaged in various monetization strategies of a U.S. patent that the Company owns covering electronic cigarette, electronic cigar and personal vaporizer patents, as well as a patent for an inverted pocket lighter. The Company also has several trademarks (ELF, PHANTOM, HRB, VPOD, VAPOR X, and RIPPER) for which it is also engaged in licensing and various monetization strategies. The Company also designs, develops, markets and distributes products (the HoneyStick brand of vaporizers and the Goldline CBD products) oriented toward the cannabis markets. This allows us to capitalize on the rapidly growing expansion within the cannabis markets. The Company is also identifying electronic cigarette companies that may be infringing our patents and trademarks and exploring options to license and/or enforce our patents. The Company is now also selling DISSIM brand pocket lighters for which it holds a U.S. patent and patents pending. The Company also has patents pending in the cigar accessory space and sells these proprietary accessories.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2025, are not necessarily indicative of the results to be expected for future periods or the full year.
Use of Estimates
GAAP requires the Company to make judgments, 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, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the period. On an on-going basis, the Company reviews and evaluates its estimates and assumptions. Actual results could differ from these estimates.
Financial Condition
As reflected in the financial statements, the
Company generated negative cash flows from operations of $
5
Cash
Cash is carried at cost and represents cash on hand,
demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three
months or less as of the purchase date of such investments. The Company had no cash equivalents on March 31, 2025, and December 31, 2024.
The Company’s cash is held at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”)
limit. To date, the Company has not experienced any losses on its invested cash. On March 31, 2025, and December 31, 2024, the Company
had approximately $
Accounts Receivable and Royalty Receivable
The Company recognizes an allowance for expected credit losses in accordance with Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses, issued by the Financial Accounting Standards Board (“FASB”). This ASU establishes a current expected credit loss (“CECL”) model, which requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
To estimate expected credit losses, the Company segregated its receivables into four risk-based categories, each reflecting distinct credit risk characteristics. A loss rate was then applied to each category based on historical experience and anticipated losses given the associated risk factors.
An allowance for credit losses is recorded through a provision for bad debts charged to earnings. The evaluation of expected credit losses is inherently subjective and requires management to make estimates that may be subject to significant revision as additional information becomes available.
The Company had an allowance for expected credit losses
of $
Inventory
Inventory consisting of finished products is stated
at the lower of cost or net realizable value. At each balance sheet date, the Company evaluates its ending inventories for excess quantities
and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory on hand, among consideration
of other factors. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation.
Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once
established, write-downs are considered permanent adjustments to the cost basis of the respective inventories. These adjustments are estimates,
which could vary significantly, either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition
of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions
differ from the Company’s estimates and expectations. As of March 31, 2025 and December 31, 2024, the Company had recorded a provision
for obsolescence of $
Leases
The Company applied the FASB’s Accounting Standards Codification (“ASC”) Topic 842, Leases (Topic 842) to arrangements with lease terms of 12 months or more. Operating lease right of use assets (“ROU”) represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the statements of operations.
6
The Company has an operating lease principally for warehouse and office space. Management evaluates each lease independently to determine the purpose, necessity to its future operations in addition to other appropriate facts and circumstances.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services which occurs at a point in time, typically upon shipment to the customer. in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the performance obligation is satisfied.
Product Revenue
Revenues from product sales are recognized when
the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer.
The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that
it would have recognized is one year or less or the amount is immaterial.
Royalty Revenue
The company generates royalty revenue from license and sublicense agreements that grant third parties the right to use its intellectual property, including trademarks and patents, in exchange for sales-based royalties.
License and Sublicense Agreements
On January 2, 2023, the Company entered into a
license agreement granting a third-party licensee exclusive rights to use certain trademark and patent assets in exchange for minimum
monthly royalty payments of $
In March 2023, the licensee entered into a sublicense agreement
with a third-party sublicensee, under which the sublicensee agreed to pay the Company sales-based royalties of
During the fourth quarter of 2023, the Company and the licensee ended the exclusivity agreement and transitioned to a sales-based royalty structure. Under the revised agreement:
| ● | The sublicensee continues to pay the Company a | |
| ● | The licensee now pays a matching |
The Company recognizes royalty revenue in the period in which the criteria for revenue recognition under ASC 606, Revenue from Contracts with Customers, are met, which may be based on reported sales or upon receipt of payment.
The following table provides information about accounts receivable, royalty receivable from contracts with customers as of March 31, 2025 and December 31, 2024:
| Accounts | Royalty | |||||||
| Receivable | Receivable | |||||||
| December 31, 2024 | $ | $ | ||||||
| March 31, 2025 | $ | $ | ||||||
7
Voluntary Recall
In February 2024, the Company initiated a voluntary
recall of approximately
To date, the volume of returns has been minimal,
and it is not anticipated that returns will exceed the revenue amount already written off. The Company has accounted for this adjustment
as a liability and will continue to reevaluate its assumptions based on incoming data. The total refund liability relating to the recall
of the lighters was $
Customer Concentration
During
the three months ended March 31, 2024,
| 2024 | 2024 | 2024 | 2024 | |||||||||||||
| Customer | Revenue ($) | Revenue % | Receivables ($) | Receivables % | ||||||||||||
| A | $ | % | % | |||||||||||||
| B | % | % | ||||||||||||||
| C | % | $ | % | |||||||||||||
| D | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
During the three months ended March 31, 2025,
four customers accounted for approximately
| 2025 | 2025 | 2025 | 2025 | |||||||||||||
| Customer | Revenue ($) | Revenue % | Receivables ($) | Receivables % | ||||||||||||
| A | $ | % | % | |||||||||||||
| B | % | % | ||||||||||||||
| C | % | $ | % | |||||||||||||
| D | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
Unit-Based Compensation
The Company may issue restricted units to consultants for various services. Costs for these transactions will be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of: (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete. The Company may issue units as compensation in future periods for services associated with the registration of the common units.
Unit-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair value, in accordance with ASC Topic 718. This expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (typically the vesting period).
8
For the year ended December 31, 2024, the Company
recognized $
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
Applicable GAAP require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the units issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Fair Value
The carrying values of the Company’s notes payables, convertible notes, and accounts payable and accrued expenses approximate their fair values because of the short-term nature of these instruments.
Basic and Diluted Net Income (Loss) Per Unit
The Company computes net loss per unit in accordance with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes, using the if-converted method. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
In the three months ended March 31, 2024,
| Weighted | ||||||||
| Average | ||||||||
| For the Three Months Ended March 31, 2024: | Units | Net Income | ||||||
| $ | ||||||||
| Net Income Per Common Unit – Basic and Diluted | $ | |||||||
9
In the three months ended March 31, 2025, there
were no potentially dilutive units since all convertible notes were fully settled in January 2025 and hence, none were outstanding as
of March 31, 2025.
| Weighted | ||||||||
| For the Three Months Ended March 31, 2025: | Average Units | Net Loss | ||||||
| Basic | $ | ( | ) | |||||
| Net Loss Per Common Unit – Basic and Diluted | $ | ( | ) | |||||
Provision for Income Taxes
The Company has recorded income taxes in accordance with ASC 740, “Income Taxes.” This standard necessitates the recognition of deferred tax liabilities and assets for the expected future tax consequences of differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases.
The Company follows the provisions of FASB ASC 740-10, “Uncertainty in Income Taxes”. Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. The Company does not believe it has any uncertain tax positions as of March 31, 2025, and December 31, 2024, that would require either recognition or disclosure in the accompanying unaudited financial statements.
During the three months ended March 31, 2025,
the Company had net losses, and did not anticipate having a tax liability, so no provision for income tax was recorded. The Company made
tax payments totaling $
The Company has a total tax liability of $
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flow when implemented.
In December 2023, the FASB issued ASU 2023-09, Income Taxes—Improvements to Income Tax Disclosures. This guidance enhances the transparency and decision usefulness of income tax disclosures. More specifically, the amendments relate to the income tax rate reconciliation and income taxes paid disclosures and require 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) income taxes paid disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024. The Company adopted the requirements of the new rule as of January 1, 2025, the effective date of the guidance.
On March 21, 2024, the FASB issued ASU No. 2024-01 (“ASU 2024-01”), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The adoption of this standard did not have a material impact on the unaudited financial statements.
10
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update aims to enhance transparency for users of financial statements by requiring public business entities to disaggregate specific expense categories. The update mandates disclosures in the notes to financial statements, detailing the composition and trends of key expense categories within major income statement captions. These enhanced disclosures are expected to help investors more effectively assess the entity’s performance, understand its cost structure, and make more accurate forecasts of future cash flow. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2024-03 on its financial reporting and disclosures.
In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. The Company is currently evaluating the potential impact of ASU 2024-03 on its financial reporting and disclosures.
NOTE 3: GOING CONCERN
The accompanying financial statements have been
prepared on a going concern basis, which contemplates the Company will continue to realize its assets and discharge its liabilities in
the normal course of business. Company’s ability to continue as a going concern, as reflected by the net loss of $
The Company expects to meet its current capital requirements through existing operations. However, there can be no assurance that the Company will generate sufficient cash flows to meet all working capital needs. If operating cash flows are insufficient, the Company may need to explore alternative sources of capital to satisfy its liquidity requirements.
NOTE 4: INTELLECTUAL PROPERTY
On March 20, 2025, the Company and KS Brushes
DBA Kief Sweeper LLC (“Kief Sweeper”) entered into a Bill of Sale and Assignment and Assumption Agreement (the “Kief
Sweeper Agreement”). Pursuant to the terms of the Kief Sweeper Agreement, the Company agreed to purchase and Kief Sweeper agreed
to sell to the Company, subject to the provisions of the Kief Sweeper Agreement, certain assets consisting of certain intellectual property,
including but not limited to the trade name “Kief Sweeper”, the internet domain www.kiefsweeper.com, and a patent pending
amounting to $
11
The Company has allocated the purchase price among
the acquired intangible assets based on their fair values at the acquisition date.
| Purchased Asset | March 31, 2025 | December 31, 2024 | Useful Life | |||||||
| Intellectual Property | $ | $ | ||||||||
| Trademarks | $ | $ | ||||||||
| Trade name | $ | $ | ||||||||
| Total Intangible Assets | $ | $ | ||||||||
For the three months ended March
31, 2025, and March 31, 2024, the Company recognize $
The following table presents the future amortization expenses related to the acquired intangible assets:
| For the fiscal year ending December 31, | Amortization Expense | |||
| 2025 (remaining) | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
NOTE 5: NOTES PAYABLE
On September 24, 2019, the Company entered a working
capital note agreement with Paypal Working Capital (“Paypal Note”), pursuant to which the Company borrowed $
Economic Injury Disaster Loan
On July 9, 2020 and June 24, 2020, the Company
received an Economic Injury Disaster Loan (“EIDL”) in the aggregate amount of $
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Daiagi Note
On May 18, 2022, the Company issued a promissory
note in the principal amount of $
The following is a summary of notes payable activity for the three months ended March 31, 2025 and December 31, 2024:
| Total note payable at December 31, 2024 | $ | |||
| Repayments of notes payable | $ | ( | ) | |
| Balance as March 31, 2025 | $ | |||
| Current portion | $ | |||
| Note payable, less current portion | $ |
NOTE 6: RELATED PARTIES TRANSACTIONS
Notes Payable Related Parties
During the year ended December 31, 2024, the
Company repaid multiple unsecured promissory notes to Kevin Frija, who serves as its Chief Executive Officer, President, principal financial
officer, principal accounting officer, Chairman of the Board, and a significant unitholder. These notes carried an interest rate of
As of March 31, 2025, and December 31, 2024, the outstanding balances
of the remaining notes were $
During the year ended December 31, 2024, the Company repaid all outstanding
notes totaling $
Issuance of restricted units for compensation
During the year ended December 31, 2024, the Company issued
Other related party transactions
As of March 31, 2025, and December 31, 2024, the Company owed $
As of March 31, 2025, and December 31, 2024, the Company owed $
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NOTE 7: CONVERTIBLE NOTES PAYABLE
Brikor Note
On February 15, 2019, the Company issued a senior
convertible promissory note in the principal amount of $
At any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any portion of the Brikor Note. The portion of the Brikor Note subject to redemption would be redeemed by the Company in cash.
The Brikor Note is convertible into common units of the Company. Pursuant
to the terms of the Brikor Note, Brikor has the right, at its option, to convert any portion of the outstanding and unpaid Conversion
Amount (as hereinafter defined) into common units in accordance with the provisions of the Brikor Note at the Conversion Rate (as hereinafter
defined). The number of common units issuable upon conversion of any Conversion Amount will be determined by dividing (x) such Conversion
Amount by (y) $
Daiagi and Daiagi Note
On February
15, 2019, the Company issued a senior convertible promissory note in the principal amount of $
At any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any portion of the Daiagi and Daiagi Note. The portion of the Daiagi and Daiagi Note subject to redemption will be redeemed by the Company in cash.
The Daiagi and Daiagi Note is convertible into common units of the
Company. Pursuant to the terms of the Daiagi and Daiagi Note, the Daiagis have the right, at their option, to convert any portion of the
outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the Daiagi and Daiagi Note at the Conversion
Rate. The number of common units issuable upon conversion of any Conversion Amount will be determined by dividing (x) such Conversion
Amount by (y) $
Amber Investments Note
On February 15, 2019, the Company issued a senior convertible promissory
note in the principal amount of $
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At any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any portion of the Amber Investments Note. The portion of the Amber Investments Note subject to redemption will be redeemed by the Company in cash.
The Amber Investments Note is convertible into common units of the
Company. Pursuant to the terms of the Amber Investments Note, Amber Investments has the right, at its option, to convert any portion of
the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the Amber Investments Note at the
Conversion Rate. The number of common units issuable upon conversion of any Conversion Amount will be determined by dividing (x) such
Conversion Amount by (y) $
K& S Pride Note
On February 19, 2019, the Company issued a senior
convertible promissory note in the principal amount of $
At any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any portion of the K & S Pride Note. The portion of the K & S Pride Note subject to redemption will be redeemed by the Company in cash.
The K & S Pride Note is convertible into common
units of the Company. Pursuant to the terms of the K & S Pride Note, K & S Pride has the right, at its option, to convert any
portion of the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the K & S Pride Note
at the Conversion Rate. The number of common units issuable upon conversion of any Conversion Amount will be determined by dividing (x)
such Conversion Amount by (y) $
Surplus Depot Note
On February 20, 2019, the Company issued a senior
convertible promissory note in the principal amount of $
At any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any portion of the Surplus Depot Note. The portion of the Surplus Depot Note subject to redemption will be redeemed by the Company in cash.
The Surplus Depot Note is convertible into common
units of the Company. Pursuant to the terms of the Surplus Depot Note, Surplus Depot has the right, at its option, to convert any portion
of the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the Surplus Depot Note at the Conversion
Rate. The number of common units issuable upon conversion of any Conversion Amount will be determined by dividing (x) such Conversion
Amount by (y) $
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The following is a summary of convertible notes payable activity for the years ended December 31, 2024 and 2023:
| Balance at January 1, 2023 | $ | |||
| Repayments of principal | ( | ) | ||
| Balance at December 31, 2023 | ||||
| Repayments of principal | ( | ) | ||
| Balance at December 31, 2024 | $ |
The following is a summary of convertible notes payable activity for the period ended March 31, 2025, and December 31, 2024:
| Balance at January 1, 2025 | $ | |||
| Repayments of principal | ( | ) | ||
| Balance at March 31, 2025 | $ |
NOTE 8: PARTNERS’ CAPITAL SURPLUS
The Company is authorized to issue
As of December 31, 2023, the Company had
For the year ended December 31, 2024, the Company
recognized $
Amendment to Partnership Agreement
On January 23, 2020, the Company executed the Second Amendment (the “Second Amendment”) to Limited Partnership Agreement (the “Agreement”) in order to create a new class of Company securities titled Class A preferred units.
Pursuant to Section 5.6 of the Agreement, Soleil Capital Management LLC, the Company’s general partner (the “General Partner”) may, without the approval of the Company’s limited partners, issue additional Company securities for any Company purpose at any time and from time to time for such consideration and on such terms and conditions as the General Partner shall determine in its sole discretion, all without the approval of any limited partners, and that each additional Company interest authorized to be issued by the Company may be issued in one or more classes, or one of more series of any such classes, with such designations, preferences, rights, powers and duties as shall be fixed by the General Partner in its sole discretion. Pursuant to Section 13.1 of the Agreement, the General Partner may, without the approval of any partner, any unitholder or any other person, amend any provision of the Agreement to reflect any amendment expressly permitted in the Agreement to be made by the General Partner acting along, therefore including the creation of a new class of Company securities.
The designation, powers, preferences and rights of the Class A preferred units and the qualifications, limitations and restrictions thereof are contained in the Second Amendment, and are summarized as follows:
Number and Stated Value. The number
of authorized Class A preferred units is
Rights. Except as set forth in the Second Amendment, each Class A preferred unit has all of the rights, preferences and obligations of the Company’s common units as set forth in the Agreement and shall be treated as a common unit for all other purposes of the Agreement.
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Dividends.
Rate. Each Class A preferred unit is entitled
to receive an annual dividend at a rate of
Liquidation. In the event of a liquidation, dissolution or winding up of the Company, a merger or consolidation of the Company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, each Class A unit will be entitled to receive, prior an in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common units or any other Company securities ranking junior to the Class A preferred units, or to the General Partner, an amount per Class A preferred unit equal to any accrued but unpaid dividends. If, upon such an event and after the payment of preferential amounts required to be paid to holders of any Company securities having a ranking upon liquidation senior to the Class A preferred units, the assets of the Company available for distribution to the partners of the Company are insufficient to provide for both the payment of the full Class A liquidation preference and the preferential amounts (if any) required to be paid to holders of any other
Company securities having a ranking upon liquidation pari passu with the Class A preferred units, such assets as are so available shall be distributed among the Class A preferred units and the holders of any other series of Company securities having a ranking upon liquidation pari passu with the Class A preferred units in proportion to the relative aggregate preferential amount each such holder is otherwise entitled to receive.
Conversion Rights.
Conversion. Upon notice, a holder of Class A preferred units has the right, at its option, to convert all or a portion of the Class A preferred units held into fully paid and nonassessable Company common units.
Conversion Price. Each Class A preferred
unit is convertible into a number of common units equal to (x) the Stated Value plus any accrued and unpaid dividends, divided by (y)
the Conversion Price (as hereinafter defined). The “Conversion Price” means
Conversion Limitation. In no event
shall a holder of Class A preferred units be entitled to convert any of the Class A preferred units in excess of that number of
Class A preferred units upon conversion of which the sum of (1) the number of common units beneficially owned by such holder and its
affiliates (other than common units which may be deemed beneficially owned through the ownership of the unconverted Class A
preferred units or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion
or exercise analogous to the limitations contained herein), and (2) the number of common units issuable upon the conversion of all
Class A preferred units held by such holder would result in beneficial ownership by the holder and its affiliates of more than
NOTE 9: COMMITMENTS AND CONTINGENCIES
Lease Agreements
Warehouse and Office Space
On May 19, 2022, the Company entered into a 5-year
of approximately
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As of March 31, 2025, and December 31, 2024, right-of-use assets (“ROU”) are summarized as follows:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Warehouse and office lease right-of-use assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Right-of-use assets, net | $ | $ | ||||||
As of March 31, 2025, and December 31, 2024, operating lease liabilities related to the ROU assets are summarized as follows:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Lease liabilities related to warehouse and office lease right-of-use assets | $ | $ | ||||||
| Less: current portion of lease liabilities | ( | ) | ( | ) | ||||
| Lease liabilities, net of current portion | $ | $ | ||||||
As of March 31, 2025, the weighted average lease
term remaining is
The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2025:
| Twelve Months Ended March 31, | Amount | |||
| 2025 (Remainder) | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total minimum non-cancelable operating lease payments | ||||
| Less: discount to fair value | ( | ) | ||
| Total lease liability as of March 31, 2025 | $ | |||
The Company amortized $
The total rent expense for the three months ended March 31, 2025, and
2024 totaled $
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. There are no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
On April 20, 2023, the Company entered into a
Litigation Resolution Agreement (the “Safa Agreement”) with Safa Goods, LLC regarding trademark and patent infringements of
the Company’s branded products. Pursuant to the terms of the Safa Agreement, the Company is to receive cash payments totaling $
On February 17, 2025, the Company entered into
a Settlement Agreement and Release (the “Agreement”) with Pop Vapor Co, LLC regarding patent (United States Patent No. 8,205,622)
infringements of Company branded products. Pursuant to the terms of the Agreement, the Company is to receive cash payment $
On March 27, 2025, the Company entered into a
Settlement Agreement and Release (the “Agreement”) with Zaydan Innovations, Inc. regarding patent (United States Patent No.
8,205,622) infringements of Company branded products. Pursuant to the terms of the Agreement, the Company is to receive cash payment $
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On December 17, 2024 the Company entered into
a Settlement Agreement and Release (“Daze Agreement”) with 7 Daze, LLC regarding patent infringement of the Company’s
branded products. Pursuant to the terms of the Agreement, the Company is to receive cash payments totaling $
During the three months ended March 31, 2025,
and March 31, 2024, the Company received cash payments totaling $
NOTE 10: INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases.
Additionally, the Company follows the provisions of FASB ASC 740-10, “Uncertainty in Income Taxes,” which establishes recognition thresholds for tax positions. Under this standard, an entity may only recognize tax positions that meet a “more-likely-than-not” threshold. As of December 31, 2024, and December 31, 2023, the Company does not believe it has any uncertain tax positions that would require recognition or disclosure in the accompanying audited financial statements.
Income Tax Expense and Tax Liability Changes
For the year ended December 31, 2024, the Company
recorded net loss before taxes of $
For the three months ended March 31, 2025, the
Company recorded net loss before taxes of $
Uncertain Tax Positions and Penalties
The Company’s
2023 tax return included the use of NOL carryforwards to offset taxable income. However, due to uncertainty regarding the acceptance of
these NOLs and the determination that they do not meet the “more-likely-than-not” threshold, the Company has recorded an estimated
liability of $
As of December 31, 2024, the Company has $
The Company
has also recorded a provision for credit losses of $
As of December
31, 2024, the Company recorded deferred tax assets of $
19
As of March 31, 2025, the Company calculated deferred tax assets of
$
These components of deferred income tax assets are presented in the following table:
| Component | Temporary Difference | Tax Effect | ||||||
| Accrued interest | $ | $ | ||||||
| Allowance for bad debts | ||||||||
| Net Operating Losses Carryforward | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Income Tax Provision
The Company’s income tax expense for the three months ended March 31, 2025, and 2024, was as follows:
As of March 31, 2025, the Company’s statutory federal income
tax rate was
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||
| Current tax expense | 2025 | 2024 | ||||||
| Income tax (credit) expense at U.S. federal rate | $ | ( | ) | $ | ||||
| State income taxes, net of federal benefit | ( | ) | $ | |||||
| Valuation allowance | ||||||||
| Provision For Income Tax | $ | $ | ||||||
In the three months ended March 31, 2025, the Company recorded a full
valuation allowance against its deferred tax assets due to uncertainty about its ability to generate sufficient future taxable income.
Although the Company reported a pre-tax loss in the three months ended March 31, 2025, the corresponding effective tax rate of
20
The following table presents the provision for income taxes, statutory federal income tax rate, effective tax rate, and reconciliation for the three months ended March 31, 2025, and March 31, 2024:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||
| 2025 | 2024 | |||||||
| (Credit) tax at Statutory Federal Income Tax Rate | ( | )% | % | |||||
| State Income taxes, net of federal benefit | ( | )% | % | |||||
| Valuation Allowance | % | |||||||
| Effective Tax Rate | % | % | ||||||
Tax Compliance and Examinations
The Company’s tax filings are in compliance with relevant tax laws and regulations. The income tax returns remain open to examination by tax authorities, and the Company is prepared to defend its tax positions if necessary.
NOTE 11: SUBSEQUENT EVENTS
On May 5, 2025, the Company entered into a Settlement
Agreement and Release (the “Agreement”) with Ashh, Inc. regarding trademark and patent infringements of Company branded products.
Pursuant to the terms of the Agreement, the Company is to receive cash payment $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of VPR Brands, LP (“VPRB” or the “Company”) should be read in conjunction with our unaudited condensed financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. This Quarterly Report on Form 10-Q includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to the “Risk Factors” section of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2025, as the same may be updated from time to time.
Overview
We are a company engaged in the electronic cigarette and personal vaporizer industry. We own a portfolio of electronic cigarette and personal vaporizer patents which are the basis for our efforts to:
| ● | Design, market, license, and distribute a line of vaporizers under the “ELF” brand; |
| ● | Design, market and distribute a line of e-liquids under the “HELIUM” brand; |
| ● | Design, market and distribute a line of vaporizers for essential oils, concentrates, and dry herbs under the “HONEYSTICK” brand; |
| ● | Design, market and distribute a line of cannabidiol (“CBD”) products under the “GOLD LINE” brand; |
| ● | Design, market and distribute electronic cigarettes and popular vaporizers under the KRAVE brand; |
| ● | Prosecute and enforce our patent and trademark rights; |
| ● | License our intellectual property; and |
| ● | Develop private label manufacturing programs. |
Results of Operations for the Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024
Revenues
Our revenues from product sales for the three months ended March 31, 2025 and 2024 were $885,283 and $1,183,701, respectively. Royalty revenues for the three months ended March 31, 2025, and 2024 were $48,045 and $335,058, respectively. The decrease in product and royalty revenue was a result of the business trend experienced since 2024 in decline customers sales and licenses of intellectual property.
Cost of Sales
Cost of sales for the three months ended March 31, 2025, and 2024 was $712,386 and $1,041,903, respectively. Gross margins decreased to 25% for the three months ended March 31, 2025, compared to 40% for the three months ended March 31, 2024, due to the product sales mix attributable to lower margin products group has increase its sales volume compared to the higher margin group.
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Operating Expenses
Operating expenses for the three months ended March 31, 2025, were $496,459 as compared to $646,866 for the three months ended March 31, 2024. It is a result of reduction on selling cost due to decrease in sales combined with reduction of marketing expenditure mainly terminating internet Facebook paid advertising.
Other Income (Expense)
Net other expense for the three months ended March 31, 2025, was $15,347 compared to net other income of $442,007 for the three months ended March 31, 2024, a reduction of $457,354 which is a result of the debt elimination strategy implemented during the ended December 31, 2024, and due to reduction of settlement income.
Net (Loss) Income
Net loss for the three months ended March 31, 2025, was $290,864 compared to net income of $203,059 for the three months ended March 31, 2024.
Liquidity and Capital Resources
The following table sets forth a summary of our net cash flows for the periods indicated:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash flows (used in) provided by operating activities | $ | (323,741 | ) | $ | 23,444 | |||
| Net cash flows used in financing activities | $ | (85,408 | ) | $ | (268,249 | ) | ||
| Net cash used in Investing activities | $ | (16,000 | ) | - | ||||
Cash used in operating activities was $323,741 for the three months ended March 31, 2025, as compared to cash provided by operation activities of $23,444 for the three months ended March 31, 2024. Cash used in operations in 2025 related to the Company’s net loss of approximately $290,864 and decreases in vendor deposit assets, the increase in inventory and royalty receivables, and partially offset by cash provide by increases in accounts payable and a decrease in accounts receivable.
During the three months ended March 31, 2025, the Company repaid $69,130 of principal on convertible notes payable compared to $91,860 repaid for three months ended March 31, 2024, it was a result of reduction on principal balance on convertible notes payables. In addition, the Company repaid $6,662 in principal and $10,304 in interest to Sara Daiagi on a note payable.
During the three months ended March 31, 2025, the Company repaid $0 of principal on notes payable to related parties compared to $165,810 repaid for three months ended March 31, 2024, the Company repaid in full the note payable to related parties as March 31, 2024.
During the three months ended March 31, 2025, the Company repaid $9,616 of lease liability principal compared to $10,579 repaid for the three months ended March 31, 2024.
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Assets
At March 31, 2025, and December 31, 2024, we had total assets of $2,325,524 and $2,753,410, respectively. Assets primarily consisted of the cash accounts held by the Company, inventory, vendor deposits, accounts receivable, royalty receivable and a right-to-use asset. During the three months ended March 31, 2025, the Company’s accounts receivable decreased by $95,860, royalty receivable increased by $26,049, inventory increased by $75,257, net of obsolescence reserve and vendor deposits decreased by $13,233.
Liabilities
On March 31, 2025, and December 31, 2024, we had total liabilities of $1,898,109 and $2,035,131, respectively. The decrease in liability is a combination in reduction of customer deposits, convertible note payables and refund liability balances, offset by the increase of account payable and accrued expenses.
Availability of Additional Funds
Our capital requirements going forward will consist of financing our operations until we are able to reach a level of revenues and gross margins adequate to equal or exceed our ongoing operating expenses. We do not have any credit agreement or source of liquidity immediately available to us. Since inception, our operations have primarily been funded through proceeds from equity and debt financing. At March 31, 2025, we had $994,785 of cash on hand. Although we believe that we have access to capital resources, there are no commitments in place for new financing as of the filing date of this Quarterly Report on Form 10-Q and there can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. We expect to have ongoing needs for working capital in order to (a) fund operations; plus (b) fund strategic acquisitions. To that end, we may be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund its liabilities, or (d) seek protection from creditors.
In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our unitholders or that result in our unitholders losing all of their investment in our Company.
If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your units and could be at prices substantially below prices at which our units currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our unitholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.
Our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
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. GAAP. Our significant accounting policies are described in notes accompanying the financial statements. The preparation of the financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the financial statements apply critical accounting policies described in the notes to our financial statements.
We consider the recognition and related assumptions used in determining the collectability of accounts receivable and the realizability of the deferred tax assets and liabilities to be most critical in understanding the judgments that are involved in the preparation of our financial statements.
Together with our critical accounting policies set out below, our significant accounting policies are summarized in Note 2 of our unaudited condensed financial statements as of and for the three months ended March 31, 2025.
Accounts Receivable
We recognize an allowance for expected credit losses in accordance with Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses, issued by the Financial Accounting Standards Board (“FASB”). This ASU establishes a current expected credit loss (“CECL”) model, which requires us to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
To estimate expected credit losses, we segregated our receivables into four risk-based categories, each reflecting distinct credit risk characteristics. A loss rate was then applied to each category based on historical experience and anticipated losses given the associated risk factors.
An allowance for credit losses is recorded through a provision for bad debts charged to earnings. The evaluation of expected credit losses is inherently subjective and requires management to make estimates that may be subject to significant revision as additional information becomes available.
As of March 31, 2025, and December 31, 2024, the Company had an allowance for an expected credit loss of $131,716.
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Provision for Income Taxes
The Company has recorded income taxes in accordance with ASC 740, “Income Taxes.” This standard necessitates the recognition of deferred tax liabilities and assets for the expected future tax consequences of differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases.
The Company follows the provisions of FASB ASC 740-10, “Uncertainty in Income Taxes”. Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. The Company does not believe it has any uncertain tax positions as of March 31, 2025, and December 31, 2024, that would require either recognition or disclosure in the accompanying unaudited financial statements.
During the three months ended March 31, 2025, the Company had net losses, and did not anticipate having a tax liability, so no provision for income tax was recorded. The Company made tax payments totaling $14,684 related to 2023 taxable year. The Company recorded this payment as a reduction in income tax payable.
The Company has a total tax liability of $726,538 and $741,222 for the period of March 31, 2025, and December 31, 2024, respectively.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flow when implemented.
In December 2023, the FASB issued ASU 2023-09, Income Taxes—Improvements to Income Tax Disclosures. This guidance enhances the transparency and decision usefulness of income tax disclosures. More specifically, the amendments relate to the income tax rate reconciliation and income taxes paid disclosures and require 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) income taxes paid disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024. The Company adopted the requirements of the new rule as of January 1, 2025, the effective date of the guidance.
On March 21, 2024, the FASB issued ASU No. 2024-01 (“ASU 2024-01”), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The adoption of this standard did not have a material impact on the unaudited financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update aims to enhance transparency for users of financial statements by requiring public business entities to disaggregate specific expense categories. The update mandates disclosures in the notes to financial statements, detailing the composition and trends of key expense categories within major income statement captions. These enhanced disclosures are expected to help investors more effectively assess the entity’s performance, understand its cost structure, and make more accurate forecasts of future cash flow. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2024-03 on its financial reporting and disclosures.
In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. The Company is currently evaluating the potential impact of ASU 2024-03 on its financial reporting and disclosures.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to include disclosure under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2025. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2025, the disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, because of a continued material weakness in our internal control over financial reporting, as described below.
The Company did not maintain an effective financial reporting process to prepare financial statements in accordance with U.S, GAAP. Specifically, our process lacked timely and complete financial statement reviews and procedures to ensure all required disclosures were made in our financial statements. Also, the Company lacked documented procedures including documentation related to testing of internal controls and entity-level controls, disclosure review, and other analytics. Furthermore, the Company lacked sufficient personnel to properly segregate duties.
A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting.
Remedial Efforts Related to the Material Weakness in Internal Control
In an effort to address the material weakness, we have implemented, or are in the process of implementing, the following remedial steps:
| ● | We intend to establish an audit committee of the board of directors as soon as practicable. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls. |
| ● | We intend to establish an internal audit function and engage a public accounting firm to perform internal audit services under an outsourcing arrangement. We intend for the internal audit service provider to review the policies, procedures and systems to address the material weakness. |
| ● | In addition to supervising all financial aspects of the Company, our Chief Financial Officer is also supervising our Information Technology (“IT”) functions to better facilitate the coordination and development of improved systems to support our financial reporting process. |
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| ● | In furtherance of timely and complete financial statement reviews and procedures to ensure all required disclosures are made in our financial statements and promoting the segregation of duties, we have (i) hired experienced accounting personnel and expect to hire additional experienced accounting personnel, (ii) hired staff to handle the increased workload associated with the reporting structure in place and continue to recruit additional staff in key areas including financial reporting and tax accounting as well as we have engaged temporary staff and (iii) hired consultants to assist in achieving accurate and timely reporting, including hiring additional consultants to assist in the development and enhancement of IT infrastructure systems to support accounting. |
| ● | We have provided and will continue to provide training to our finance and accounting personnel for timely and accurate preparation and management review of documentation to support our financial reporting and period-end close procedures including documentation related to testing of internal controls and entity-level controls, disclosure review, and other analytics. |
| ● | We have been conducting and continue to conduct the assessment and review of our accounting general ledger system to further identify changes that can be made to improve our overall control environment with respect to journal entries. We are continuing to implement more formal procedures related to the review and approval of journal entries. |
| ● | We have been formalizing the periodic account reconciliation process for all significant balance sheet accounts. We are continuing to implement more formal review of these reconciliations by our accounting management and we will increase the number of supervisory personnel to ensure that reviews are performed. |
We believe these additional internal controls will be effective in remediating the material weakness described above; however, we may determine to modify the remediation plan described above by adding remedial steps to or modifying or no longer pursuing (if determined to be unnecessary in remediating the material weakness) the remedial steps set forth above. Until the remediation steps set forth above are fully implemented, the material weakness described above will continue to exist. Notwithstanding, through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct.
The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, the Company’s management, including its CEO and CFO, does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1A. RISK FACTORS
Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2024, as the same may be amended from time to time. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our operations.
ITEM 5. OTHER INFORMATION
| (a) | None. |
| (b) | There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K. |
| (c) | During the quarter ended March 31, 2025, no director or officer of the Company |
ITEM 6. EXHIBITS
| Exhibit Number |
Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act | |
| 31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act | |
| 32.1** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements 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.
| VPR BRANDS, LP | ||
| Dated: May 21, 2025 | By: | /s/ Kevin Frija |
| Chief Executive Officer | ||
| (principal executive officer, | ||
| principal financial officer and | ||
| principal accounting officer) | ||
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