VPR Brands, LP 10-Q for FY2024 Q1
VPR Brands, LP. (VPRB)
About this 10-Q
VPR Brands, LP filed this 10-Q on May 16, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.52M
- down 50.7% from $3.08M a year earlier
- Net income
- $203.06K
- up 702.2% from net income of $25.31K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from to
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (zip code)
(Registrant’s telephone number, including area code)
3001 Griffin Road, Fort Lauderdale, FL 33312
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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| Large Accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of units outstanding of each of the registrant’s classes of common units as of the latest practicable date.
| Class | Outstanding at May 16, 2024: | |
| Common Units, No par value |
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, 2023 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
VPR BRANDS, LP
CONDENSED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Royalty receivable | ||||||||
| Inventory, net | ||||||||
| Vendor deposits | ||||||||
| Employee advance | ||||||||
| Deposits | ||||||||
| Total current assets | ||||||||
| Right to Use Asset | ||||||||
| Intangible Assets | ||||||||
| 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 | ||||||||
| Note payable-related parties | - | |||||||
| 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 - | ||||||||
| Common units to be issued; | ||||||||
| 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, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | ||||||||
| Product sales | $ | $ | ||||||
| Royalty revenue | ||||||||
| Total revenues | ||||||||
| Cost of Sales | ||||||||
| Gross profit | ||||||||
| Operating Expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Net Operating (Loss) Income | ( | ) | ||||||
| Other Income (Expense): | ||||||||
| Settlement income, net | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense- related parties | ( | ) | ( | ) | ||||
| Total other income (expense), net | ( | ) | ||||||
| Net Income before Provision for Income Tax | $ | $ | ||||||
| Provision for Income Taxes | ( | ) | ||||||
| Net Income | ||||||||
| Net Income Per Common Unit - Basic | $ | $ | ||||||
| Net 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/(DEFICIT)
(Unaudited)
| Total | ||||||||||||||||||||||||
| Partners’ | ||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||
| Common Units | Common Units to be Issued | Accumulated | Surplus/ | |||||||||||||||||||||
| Number | Amount | Number | Amount | Deficit | (Deficit) | |||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | ( | ) | ||||||||||||||||||||
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, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash provided by 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 | ( | ) | ||||||
| Contract liability | ||||||||
| Employee advances | ( | ) | ||||||
| Refund liability | ( | ) | ||||||
| Accounts payable related party | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Income tax payable | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments of notes payable | ( | ) | ||||||
| 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 | $ | $ | ||||||
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, 2024 AND 2023
(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, 2023, as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2024 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 positive cash flows from operations of $
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, 2024 and December 31, 2023. 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, 2024 and December 31, 2023, the Company had approximately $
5
Accounts Receivable and Royalty Receivable
The Company recognizes an allowance for expected credit losses in accordance with the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses.” This ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. An allowance for credit losses is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available.
As
of March 31, 2024 and December 31, 2023, the Company had an allowance for expected credit loss 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, 2024 and December 31, 2023, the provision for potential inventory obsolescence was $
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.
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 revenue when the risk gets transferred to the customer which occurs at a point in time, typically upon shipment of promised 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) we satisfy the performance obligation.
Revenues from product sales are recognized when the risk got transferred to the customer which occurred at a point in time, typically upon shipment of promised goods 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 revenues consist of license and sublicense agreements to use the Company’s intellectual property in exchange for a sales-based royalty. Royalty revenue is recognized over time as the performance obligations are satisfied by licensees and sublicensees through sales of licensed products.
6
The
Company records contract liabilities when cash payments are received or due in advance of satisfaction of performance obligations by
licensees and sublicensees. During the year ended December 31, 2023, the Company received cash payments totaling $
The
sublicense agreement executed in March 2023 provides for monthly royalties to the Company totaling
Voluntary Recall
In
February 2024, the Company initiated a voluntary recall of approximately 62,200 lighters due to a missing child safety feature. Under
ASC 606, these products are not eligible for revenue recognition, as revenue cannot be recognized for amounts that are not expected to
be entitled. Consequently, the Company recorded this as a refund liability. For the year ended December 31, 2023, the total impact of
the recall, amounting to $
During
the three months ended March 31, 2024, $
As
of March 31, 2024, and December 31, 2023, the refund liability was $
| Accounts | Royalty | Refund | ||||||||||
| Receivable | Receivable | Liability | ||||||||||
| December 31, 2023 | $ | $ | $ | |||||||||
| March 31, 2024 | $ | $ | $ | |||||||||
Unit-Based Compensation
Unit-based payments to employees, including grants of employee stock options are recognized as compensation expense in the financial statements based on their fair values, in accordance with ASC Topic 718. That 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 (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented. The Company may issue units as compensation in future periods for employee services.
7
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.
Convertible Instruments
The Company accounts for convertible instruments in accordance with ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This update significantly simplifies the accounting for convertible instruments by eliminating the requirement to bifurcate embedded conversion options from their host instruments, unless the conversion feature independently meets the definition of a derivative under ASC 815, Derivatives and Hedging Activities. Under ASC 815, a conversion feature is treated as a derivative only if its economic characteristics and risks are not clearly and closely related to those of the host contract, and other specific conditions are met.
When it is determined that the embedded conversion options do not require bifurcation, the entire convertible instrument is accounted for as a single liability at amortized cost. Discounts or premiums on convertible instruments are recognized based on the difference between the proceeds received and the principal amount, and are amortized over the life of the instrument using the effective interest method.
In the rare instances where a conversion option is bifurcated and accounted for as a derivative, the Company would apply 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 Per Unit
The
Company computes net income 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. Approximately
| Weighted | ||||||||
| Average | Net | |||||||
| For the Three Months Ended March 31, 2023: | Units | Income | ||||||
| $ | ||||||||
| $ | ||||||||
8
In
the three months ended March 31, 2024,
| Weighted | ||||||||
| For the Three Months Ended March 31, 2024: | Average Units | Net Income | ||||||
| Basic | $ | |||||||
| $ | ||||||||
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, 2024 and December 31, 2023 that would require either recognition or disclosure in the accompanying unaudited financial statements.
During the three months ended March 31, 2023, the Company had minimal net income and a history of losses, and did not anticipate having a tax liability, so no provision for income tax was recorded.
| March
31, 2024 | ||||
| Income tax expense at U.S. statutory rate | $ | |||
| State income taxes, net of federal benefit | ||||
| Valuation allowance | ||||
| Provision for income tax | $ | |||
| Three
Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Provision for Income Taxes | $ | $ | ||||||
| Statutory Federal Income Tax Rate | % | % | ||||||
| State Income taxes, net of federal benefit | % | % | ||||||
| Valuation Allowance | ( | )% | ||||||
| Effective Tax Rate | % | |||||||
The Company’s effective tax rate for the first quarter of 2024 was higher than the statutory federal income tax rate, primarily due to state income taxes. Additionally, the effective tax rate for the first quarter of 2024 was higher compared to the same quarter in 2023 because the Company had losses to offset income, which were fully utilized during 2023.
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.
9
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance became effective for the Company as of January 1, 2024. The adoption of this standard did not have a material impact on our financial statements, as our existing convertible instruments issued prior to January 1, 2024, did not have bifurcated conversion features and were past due by the effective date. Future issuances of convertible instruments will comply with the new standard, which may simplify both measurement and disclosure of these instruments.
NOTE 3: INTELLECTUAL PROPERTY
On November 16, 2023, the Company entered into
a Bill of Sale and Assignment and Assumption Agreement with CartDub LLC, a Florida corporation (“Seller”), to purchase certain
intangible assets for a total purchase price of $
The
Company has allocated the purchase price among the acquired intangible assets based on their fair values at the acquisition date.
| Purchased Asset | Purchase Price | Useful Life | ||||
| Intellectual Property | $ | |||||
| Trademarks | ||||||
| Trade name | ||||||
| Total Intangible Assets | $ | |||||
Amortization expense related to these intangible assets is recognized in the general and administrative expenses income statement line item and is included in the Company’s financial statements for the three months ended March 31, 2024.
For
the three months ended March 31, 2024 there was $
| For the fiscal year ending December 31, | Amortization Expense | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
NOTE 4: NOTES PAYABLE
On
September 6, 2018, the Company issued the Amended and Restated Secured Promissory Note in the principal amount of $
On
September 24, 2019, the Company entered into a working capital account agreement with Paypal Working Capital (“Paypal Note”),
pursuant to which the Company borrowed $
In
October 2022, the Company entered into a purchase and sale agreement with BRMS, LLC (“BRMS Note 2”), pursuant to which
the Company received proceeds of $
10
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
$
Daiagi Note
On
May 18, 2022, the Company issued a promissory note in the principal amount of $
| Balance at December 31, 2023 | $ | |||
| Repayments of notes payable | ||||
| Balance at March 31, 2024 | $ | |||
| Current portion | ( | ) | ||
| Notes payable, less current portion | $ |
NOTE 5: NOTES AND ACCOUNTS PAYABLE – RELATED PARTIES
During
the three months March 31, 2024 and year ended December 31, 2023, 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 December 31, 2023 the outstanding balance of the remaining notes was $
During
the year ended December 31, 2023 the Company repaid the notes amounting to $
| Balance at December 31, 2023 | $ | |||
| Repayments of principal | ( | ) | ||
| Balance at March 31, 2024 | $ |
11
NOTE 6: 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 will 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.
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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) $
NOTE 7: PARTNERS’ CAPITAL SURPLUS/(DEFICIT)
The
Company is authorized to issue
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 8: COMMITMENTS AND CONTINGENCIES
Lease Agreements
Warehouse and Office Space
On
May 19, 2022, the Company entered into a
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Warehouse and office lease right-of-use assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Right-of-use assets, net | $ | $ | ||||||
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| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| 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, 2024, the weighted average lease term remaining is
| Twelve Months Ended March 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| Remaining | ||||
| Total minimum non-cancelable operating lease payments | ||||
| Less: discount to fair value | ( | ) | ||
| Total lease liability as of March 31, 2024 | $ | |||
The
Company amortized $
Rent
expense for the three months ended March 31, 2024 and 2023 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 “Agreement”) with Safa Goods, LLC regarding
trademark and patent infringements of Company branded products. Pursuant to the terms of the Agreement, the Company is to receive cash
payments $
Voluntary Recall
In February 2024, the Company initiated a voluntary
recall of approximately
During the three months ended March 31, 2024,
$
As of March 31, 2024, and December 31, 2023, the
refund liability was $
Customer Concentration
During
the three months ended March 31, 2024,
During
the three months ended March 31, 2023,
NOTE 9: SUBSEQUENT EVENTS
No events occurred subsequent to the date of the Company’s financial statements that would require adjustments to, or disclosure in, the aforementioned financial statements. The Company evaluated subsequent events through the date the financial statements are issued,
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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 19, 2024.
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, 2024 Compared to the Three Months Ended March 31, 2023
Revenues
Our revenues from product sales for the three months ended March 31, 2024 and 2023 were $1,183,701 and $3,039,354, respectively. Royalty revenues for the three months ended March 31, 2024 and 2023 were $335,058 and $41,667, respectively. The increase in total revenues was a result of royalty revenue from the licensing of intellectual property.
Cost of Sales
Cost of sales for the three months ended March 31, 2024 and 2023 was $1,041,903 and $2,557,348, respectively. Gross margins decreased to 31% for the three months ended March 31, 2024 compared to 17% for the three months ended March 31, 2023, due to increased portion of product sales mix attributable to lower margin products.
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Operating Expenses
Operating expenses for the three months ended March 31, 2024 were $646,866 as compared to $404,665 for the three months ended March 31, 2023.
Other Income
Net other income for the three months ended March 31, 2024 was $442,007 compared to net other expense of $93,694 for the three months ended March 31, 2023.
Net Income
Net income for the three months ended March 31, 2024 was $203,059 compared to $25,314 for the three months ended March 31, 2023.
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, | ||||||||
| 2024 | 2023 | |||||||
| Net cash flows provided by operating activities | $ | 23,444 | $ | 281,528 | ) | |||
| Net cash flows used in financing activities | $ | (268,249 | ) | $ | (200,531 | ) | ||
| Net cash used in investing activities | $ | - | - | |||||
Cash provided by operations was $23,444 for three months ended March 31, 2024 as compared to $281,528 in three months ended March 31, 2023. Cash provided by operations during the three months ended March 31, 2024 was mainly a result of the Company’s net income and increases in vendor deposit assets and royalty receivables and partially offset by uses of cash relating increases in inventory and a decrease in customer deposit liabilities.
Cash provided by operations during the three months ended March 31, 2023 was mainly a result of the Company’s net income and increases in vendor deposit assets and contract liabilities and partially offset by uses of cash relating increases in inventory, accounts receivable and decrease in customer deposits and refund liabilities.
During the three months ended March 31, 2024, the Company repaid $91,860 of principal on convertible notes payable, repaid $165,810 of principal on notes payable to related parties and repaid $10,579 of lease liability principal.
During the three months ended March 31, 2023, the Company repaid $78,589 of notes principal, repaid $69,529 of principal on convertible notes payable, repaid $42,338 of principal on notes payable to related parties and repaid $10,075 of lease liability principal.
Assets
At March 31, 2024 and December 31, 2023, we had total assets of $3,103,269 and $3,191,246, respectively. Assets primarily consist 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, 2024. the Company’s accounts receivable increased by $147,501, royalty receivable decreased by $45,418, inventory increased by $106,272, net of obsolesce and vendor deposits decreased by $44,459.
Liabilities
At March 31, 2024 and December 31, 2023, we had total liabilities of $2,285,900 and $2,576,936, respectively.
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, 2024, we had $1,522,455 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.
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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.
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 our recognition of revenues, accounting for intangible assets and related impairment analyses, the allowance for doubtful accounts and accounting for equity transactions, 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, 2024.
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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 U.S. 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, 2023, as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for future periods or the full year.
Use of Estimates
U.S. 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 positive cash flows from operations of $23,444 for the three months ended March 31, 2024 and had positive working capital of $1,161,935 and had cash of $1,522,455 as of March 31, 2024. These factors serve to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern. The Company believes that the Company has sufficient cash and positive cash flows to meet its obligations for a minimum of twelve months from the date of issuance of these financial statements.
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, 2024 and December 31, 2023. 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, 2024 and December 31, 2023, the Company had approximately $707,145 and $947,184 , respectively, of cash in excess of FDIC limits of $250,000. Any loss incurred or a lack of access to such funds above the FDIC limit could have a significant adverse impact on the Company’s financial condition, results of operations and cash flows.
Accounts Receivable and Royalty Receivable
The Company recognizes an allowance for expected credit losses in accordance with the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses.” This ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. An allowance for credit losses is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available.
As of March 31, 2024 and December 31, 2023, the Company had an allowance for expected credit loss of $15,937 and $10,925, respectively.
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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, 2024 and December 31, 2023, the provision for potential inventory obsolescence was $32,876 and $0, respectively.
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.
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 revenue when the risk gets transferred to the customer which occurs at a point in time, typically upon shipment of promised 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) we satisfy the performance obligation.
Revenues from product sales are recognized when the risk got transferred to the customer which occurred at a point in time, typically upon shipment of promised goods 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 revenues consist of license and sublicense agreements to use the Company’s intellectual property in exchange for a sales-based royalty. Royalty revenue is recognized over time as the performance obligations are satisfied by licensees and sublicensees through sales of licensed products.
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The Company records contract liabilities when cash payments are received or due in advance of satisfaction of performance obligations by licensees and sublicensees. During the year ended December 31, 2023, the Company received cash payments totaling $3,000,000 for the prepayment of royalties pursuant to a license agreement executed on January 2, 2023. The license agreement provides for monthly royalties to the Company totaling 5% of gross sales of licensed products by licensee and provides the licensee exclusive use of certain trademark and patent assets for an initial term of six months commencing March 2023 and expiring in September 2023. The Company is recognizing prepaid royalties over the initial term of exclusivity. The license agreement requires monthly minimum royalty payments of $500,000 to maintain exclusivity on a month-to-month basis beyond September 2023.
The sublicense agreement executed in March 2023 provides for monthly royalties to the Company totaling 5% of gross sales of licensed products by sublicensee and provides the sublicensee exclusive use of certain trademark and patent assets in exchange for minimum monthly royalty payments totaling $250,000 beginning June 2023. The Company recognizes sublicense royalty revenue in the same period as the sublicensee for sales of licensed products.
Voluntary Recall
In February 2024, the Company initiated a voluntary recall of approximately 62,200 lighters due to a missing child safety feature. Under ASC 606, these products are not eligible for revenue recognition, as revenue cannot be recognized for amounts that are not expected to be entitled. Consequently, the Company recorded this as a refund liability. For the year ended December 31, 2023, the total impact of the recall, amounting to $198,068, has been recognized against revenues and receivables for potential credits associated with the recalled products.
During the three months ended March 31, 2024, $363 was refunded to retail consumers in cash, and $79,670 in credits was issued to wholesale and distributor customers. Only $1,971 of the credits were utilized during the three months ended March 31, 2024, the remaining unutilized credits are still included in the refund liability. The Company anticipates issuing refunds related to the recall throughout the year and will continue to evaluate potential losses.
As of March 31, 2024, and December 31, 2023, the refund liability was $184,151 and $186,485, respectively.
The following table provides information about accounts receivable, royalty receivable from contracts with customers and the refund liability as of March 31, 2024 and December 31, 2023:
| Accounts | Royalty | Refund | ||||||||||
| Receivable | Receivable | Liability | ||||||||||
| December 31, 2023 | $ | 337,774 | $ | 88,286 | $ | 186,485 | ||||||
| March 31, 2024 | $ | 485,275 | $ | 42,868 | $ | 184,151 | ||||||
Unit-Based Compensation
Unit-based payments to employees, including grants of employee stock options are recognized as compensation expense in the financial statements based on their fair values, in accordance with ASC Topic 718. That 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 (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented. The Company may issue units as compensation in future periods for employee services.
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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.
Convertible Instruments
The Company accounts for convertible instruments in accordance with ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This update significantly simplifies the accounting for convertible instruments by eliminating the requirement to bifurcate embedded conversion options from their host instruments, unless the conversion feature independently meets the definition of a derivative under ASC 815, Derivatives and Hedging Activities. Under ASC 815, a conversion feature is treated as a derivative only if its economic characteristics and risks are not clearly and closely related to those of the host contract, and other specific conditions are met.
When it is determined that the embedded conversion options do not require bifurcation, the entire convertible instrument is accounted for as a single liability at amortized cost. Discounts or premiums on convertible instruments are recognized based on the difference between the proceeds received and the principal amount, and are amortized over the life of the instrument using the effective interest method.
In the rare instances where a conversion option is bifurcated and accounted for as a derivative, the Company would apply 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 Per Unit
The Company computes net income 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. Approximately 7,412,194 units underlying convertible notes were excluded from the calculation of diluted loss per share for the three months ended March 31, 2023 because their effect was antidilutive. The following summarizes the calculation of diluted income per unit for the three months ended March 31, 2023:
| Weighted | ||||||||
| Average | ||||||||
| For the Three Months Ended March 31, 2023: | Units | Net Income | ||||||
| Basic and Diluted | 88,804,035 | $ | 25,314 | |||||
| Net Income Per Common Unit – Basic and Diluted | $ | 0.00 | ||||||
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In the three months ended March 31, 2024, 3,893,300 units underlying convertible notes were excluded from the calculation of diluted loss per share for the three months ended March 31, 2024 because their effect was antidilutive. The following summarizes the calculation of diluted income per unit for the three months ended March 31, 2024:
| Weighted | ||||||||
| For the Three Months Ended March 31, 2024: | Average Units | Net Income | ||||||
| Basic | 88,804,035 | $ | 203,059 | |||||
| Net Income Per Common Unit – Basic and Diluted | $ | 0.00 | ||||||
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, 2024 and December 31, 2023 that would require either recognition or disclosure in the accompanying unaudited financial statements.
During the three months ended March 31, 2023, the Company had minimal net income and a history of losses, and did not anticipate having a tax liability, so no provision for income tax was recorded.
The items accounting for the difference between income taxes at the effective Federal statutory rate and the provision for income taxes for the three months ended March 31, 2024 were as follows:
| March 31, 2024 | ||||
| Income tax expense at U.S. statutory rate | $ | 57,119 | ||
| State Income taxes, net of federal benefit | 11,818 | |||
| Valuation allowance | - | |||
| Provision for income tax | $ | 68,938 | ||
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The provision for income taxes, effective tax rate, statutory federal income tax rate, and rate reconciliation for the three months ended March 31, 2024, and 2023 were as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Provision for Income Taxes | $ | 68,938 | $ | - | ||||
| Statutory Federal Income Tax Rate | 21.00 | % | 21.00 | % | ||||
| State Income taxes, net of federal benefit | 4.35 | % | 4.35 | % | ||||
| Valuation Allowance | - | (25.35 | )% | |||||
| Effective Tax Rate | 25.35 | % | - | |||||
The Company’s effective tax rate for the first quarter of 2024 was higher than the statutory federal income tax rate, primarily due to state income taxes. Additionally, the effective tax rate for the first quarter of 2024 was higher compared to the same quarter in 2023 because the Company had losses to offset income, which were fully utilized during 2023.
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.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance became effective for the Company as of January 1, 2024. The adoption of this standard did not have a material impact on our financial statements, as our existing convertible instruments issued prior to January 1, 2024, had not bifurcated conversion features and were past due by the effective date. Future issuances of convertible instruments will comply with the new standard, which may simplify both measurement and disclosure of these instruments.
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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, 2024. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2024, 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 generally accepted accounting principles in the United States. 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. |
| ● | 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. |
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| ● | 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, 2024 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
There are no current, pending or threatened legal proceedings against the Company.
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, 2023. 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, 2024, no director or officer of the Company
ITEM 6. EXHIBITS
| Exhibit Number |
Description | |
| 10.1 | ||
| 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 |
28
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 16, 2024 | By: | /s/ Kevin Frija |
| Chief Executive Officer | ||
| (principal executive officer, | ||
| principal financial officer and | ||
| principal accounting officer) | ||
29
Exhibit 31.1
CERTIFICATIONS
I, Kevin Frija, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 of VPR Brands, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant) and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: May 16, 2024
| /s/ Kevin Frija | |
| Kevin Frija | |
| Chief Executive Officer | |
| (principal executive officer) |
Exhibit 31.2
CERTIFICATIONS
I, Kevin Frija, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 of VPR Brands, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant) and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: May 16, 2024
| /s/ Kevin Frija | |
| Kevin Frija | |
| Chief Executive Officer | |
| (principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of VPR Brands, LP (the “Company”) on Form 10-Q for the quarter ended March 31, 2024 as filed with the Securities and Exchange Commission (the “Report”), I, Kevin Frija, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: May 16, 2024
| /s/ Kevin Frija | |
| Kevin Frija, Chief Executive Officer | |
| (principal executive officer and principal financial officer) |