Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

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 financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 "Risk Factors", which are included elsewhere in this Annual Report on Form 10-K.

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:

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Design, market, license, and distribute a line of vaporizers under the "ELF" brand;

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Design, market and distribute a line of e liquids under the "HELIUM" brand;

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Design, market and distribute a line vaporizers for essential oils, concentrates, and dry herbs under the "HONEYSTICK" brand;

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Design, market and distribute a line of cannabidiol ("CBD") products under the "GOLD LINE" brand;

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Design, market and distribute electronic cigarettes and popular vaporizers under the KRAVE brand;

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Prosecute and enforce our patent and trademark rights;

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License our intellectual property; and

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Develop private label manufacturing programs.

For the fiscal years ended December 31, 2024 and 2023, we generated revenues of $5,676,359 and $9,853,825, respectively; reported net loss before taxes of $66,353 and net income before taxes of $3,812,605, respectively, and positive cash flow from operating activities of $274,094 and $3,481,356, respectively. As noted in our financial statements, we had an accumulated deficit of approximately $7,594,395 as of December 31, 2024.

Results of Operations

Results of Operations for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Revenues

Our revenues for the twelve months ended December 31, 2024 and 2023 was $5,676,359 and $9,853,825, respectively. The decrease was a result of a decrease in customer sales and royalty revenue in the year ended December 31, 2024.

Cost of Sales

Cost of sales for the year ended December 31, 2024 and 2023 was $4,143,529 and $4,972,497, respectively. The decrease is the result of a decrease in sales during 2024. Gross margins decreased to 31% in 2024 from 80% in 2023 primarily due to no upfront royalties received in the year ended December 31, 2024.

Operating Expenses

Operating expenses for the year ended December 31, 2024 were $2,902,920, as compared to $2,210,072 for the year ended December 31, 2023. The increase was primarily due to unit-based compensation increases and increases in selling, general and administrative expenses in the year ended December 31, 2024.

Other Income

Other income increased to $1,303,737 for the year ended December 31, 2024, as compared to $1,141,349 for the year ended December 31, 2023. The increase was mainly attributable to estimated penalties related to the underpayment of income taxes..

Net (Loss) Income

Net loss for the year ended December 31, 2024 was $143,224, compared to net income of $2,932,802 for the year ended December 31, 2023.

Liquidity and Capital Resources

The following table sets forth a summary of our net cash flows for the periods indicated:

		For the Years Ended December 31,
		2024				2023
Net cash flows provided by operating activities		$	274,094			$	3,481,356
Net cash used in investing activities		$	-				(30,000	)
Net cash flows used in financing activities		$	(621,420	)		$	(1,706,517	)

We generated cash from operating activities of $274,094 for the year ended December 31, 2024, as compared to generating cash of $3,481,356 for the year ended December 31, 2023. The decrease in cash generated by operating activities was primarily a result of decreased levels of product sales and royalty revenue, inventory, partially offset by an increase in accounts payables.

During the years ended December 31, 2024 and 2023, the Company paid debt of $577,871 in 2024, as compared to $1,665,042 in 2023. During 2024 and 2023, the Company used cash from financing activities of $621,420 and $1,706,517, respectively.

Assets

At December 31, 2024 and 2023, we had total assets of $2,753,410 and $3,191,246, respectively. Assets primarily consist of the cash accounts held by us, inventory, vendor deposits, accounts receivable and a right-to-use asset. In 2024, our inventory increased by $42,416 as a result of additional purchases for new products, accounts receivable and royalty receivable collectively decreased by $41,279 from sales, vendor deposits decreased by $74,891, and right of use asset decreased by $28,890.

Liabilities

At December 31, 2024 and 2023, we had total liabilities of $2,035,131 and $2,576,936, respectively. The decrease was primarily due to a reduction in related party notes payable and convertible notes payable, partially offset by an increase in customer deposits and accounts payable.

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 December 31, 2024, we had $1,419,934 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 Annual Report on Form 10-K 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 audited financial statements included elsewhere in this Annual Report on Form 10-K 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

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our 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 audited financial statements as of and for the year ended December 31, 2024.

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 three 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 December 31, 2024, and 2023, we had an allowance for expected credit losses of $131,716 and $10,925, respectively.

Income Taxes

We have recorded 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 2023, we do not believe we have any uncertain tax positions that would require recognition or disclosure in the accompanying audited financial statements.

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 our accounting and reporting. We believe 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 (i) consistent categories and greater disaggregation of information in the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024.

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. We are currently evaluating the impact of the adoption of ASU 2024-01 on its 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. We are currently evaluating the potential impact of ASU 2024-03 on our financial reporting and disclosures.