Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

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 (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") onApril 16, 2025, as the same may be updated from time to time.

Overview

We are a company engaged in the electronic cigarette and personal vaporizer industry. We own a portfolio of electronic cigarette and personal vaporizer patents which are the basis for our efforts to:

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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 of 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.

Results of Operations for the Three Months Ended June 30, 2025, Compared to the Three Months Ended June 30, 2024

Revenues

Our revenues from product sales for the three months ended June 30, 2025 and 2024 were $967,300 and $1,611,190, respectively. Royalty revenues for the three months ended June 30, 2025 and 2024 were $62,237 and $157,943, respectively. The decrease in product and royalty revenues was a result of the business trend experienced since 2024 relating to declining customer sales and licenses of intellectual property. The Company, to overcome this trend, is implementing a strategy to introduce new product lines that bring innovations creative to customers.

Cost of Sales

Cost of sales for the three months ended June 30, 2025 and 2024 was $650,068 and $1,317,664, respectively. Gross margins increased to 37% for the three months ended June 30, 2025, compared to 26% for the three months ended June 30, 2024, The increase in gross margin was primarily due to the product sales mix, as there was a higher sales volume of lower-margin products during the prior period compared to higher-margin products.

Operating Expenses

Operating expenses for the three months ended June 30, 2025, were $653,158, compared to $680,765 for the three months ended June 30, 2024. The decrease in operating expenses was a result of reduced selling costs due to decreased sales, combined with reduced marketing expenditures, mainly relating to termination of internet/Facebook paid advertising.

Other Income

Net other Income for the three months ended June 30, 2025, was $62,658, compared to net other income of $465,117 for the three months ended June 30, 2024, representing a decrease of $462,113. The decrease resulted from settlement income of $130,000 for the three months ended June 30, 2025, compared to $504,392 for the three months ended June 30, 2024. This reduction in net other income was partially offset by the Company's repayment of all convertible loans in January, 2025, which led to a decrease in interest expenses, combined with the decrease of income tax expenses due to the Company reporting net loss for the six months ended June 30, 2025.

Net (Loss) Income

Net loss for the three months ended June 30, 2025, was $321,001, compared to net income of $235,821 for the three months ended June 30, 2024.

Results of Operations for the Six Months Ended June 30, 2025, Compared to the Six Months Ended June 30, 2024

Revenues

Our revenues from product sales for the six months ended June 30, 2025 and 2024 were $1,852,563 and $2,794,891, respectively. Royalty revenues for the six months ended June 30, 2025, and 2024 were $110,282 and $493,001, respectively. The decrease in product and royalty revenues was a result of the business trend experienced since 2024 relating to declining customer sales and licenses of intellectual property.

Cost of Sales

Cost of sales for the six months ended June 30, 2025, and 2024 were $1,362,454 and $2,359,567, respectively. Gross margins increased to 31% for the six months ended June 30, 2025, compared to 28% for the six months ended June 30, 2024, due to the product sales mix, as there was a higher sales volume for the higher margin products group, as compared to the lower margin group.

Operating Expenses

Operating expenses for the six months ended June 30, 2025, were $1,149,618, compared to $1,327,631 for the six months ended June 30, 2024. The decrease in operating expenses was a result of reduced selling costs due to decreased sales, combined with reduced marketing expenditures, mainly relating to termination of internet/Facebook paid advertising.

Other (Expense) Income

Net other expenses for the six months ended June 30, 2025, were $62,658, compared to net other income of $778,417 for the six months ended June 30, 2024, representing a decrease of $841,075.

The decrease resulted in the reduction on settlement net income to $17,279 for the six months ended June 30, 2025, compared to $991,103 for the six months ended June 30, 2024. This reduction in net other income was partially offset by the Company's repayment of all convertible loans in January, 2025, which led to a decrease in interest expenses, combined with the decrease of income tax expenses due to the Company reporting net loss for the six months ended June 30, 2025.

Net (Loss) Income

Net loss for the six months ended June 30, 2025, was$561,560, compared to net income of $379,111 for the six months ended June 30, 2024.

Liquidity and Capital Resources

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

		For the Six Months Ended June 30,
		2025				2024
Net cash flows used in operating activities		$	(572,716	)		$	(94,696	)
Net cash flows used in financing activities		$	(109,419	)		$	(377,117	)
Net cash used in investing activities		$	(16,000	)		$	-

Cash used in operating activities was $572,716 for the six months ended June 30, 2025, compared to cash used in operating activities of $94,696 for the six months ended June 30, 2024. Cash used in operating activities for the six months ended June 30, 2025 related to the Company's net loss of approximately $611,865, decreases in vendor deposit assets, an increase in inventory, account receivable and royalty receivables, partially offset by cash provided by increases in accounts payable.

During the six months ended June 30, 2025, the Company repaid $69,130 of principal on convertible notes payable, compared to $189,973 repaid in the six months ended June 30, 2024, due to the reduction of the principal balance on convertible notes payable. In addition, during the six months ended June 30, 2025, the Company repaid $17,888 in principal and $21,023 in interest to Sara Daiagi on a note payable issued on May 18, 2022.

During the six months ended June 30, 2025, the Company repaid $0 of principal on notes payable to related parties, compared to $165,810 repaid during the six months ended June 30, 2024. The Company repaid in full the note payable to related parties as of March 31, 2024.

During the six months ended June 30, 2025, the Company repaid $22,400 of lease liability principal, compared to $21,334 repaid during the six months ended June 30, 2024.

Assets

At June 30, 2025 and December 31, 2024, we had total assets of $2,158,329 and $2,753,410, respectively. Assets primarily consisted of the cash accounts held by the Company, inventory, vendor deposits, accounts receivable, royalty receivable and a right-to-use asset. During the six months ended June 30, 2025, the Company's accounts receivable increased by $22,054, royalty receivable increased by $39,181, inventory increased by $104,849, net of obsolescence reserve, and vendor deposits decreased by $51,128.

Liabilities

On June 30, 2025 and December 31, 2024, we had total liabilities of $2,051,915 and $2,035,131, respectively. The increase in liabilities was due to a combination of interest expense accrued on income tax payable, offset by reduction in customer deposits, convertible note payables and refund liability balances.

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 June 30, 2025, we had $721,799 of cash on hand. Although we believe that we have access to capital resources, there are no commitments in place for new financing as of the filing date of this Quarterly Report on Form 10-Q and there can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. We expect to have ongoing needs for working capital in order to (a) fund operations; plus (b) fund strategic acquisitions. To that end, we may be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund its liabilities; or (d) seek protection from creditors.

In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our unitholders or that result in our unitholders losing all of their investment in our Company.

If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your units and could be at prices substantially below prices at which our units currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our unitholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.

Our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which contemplate our continuation as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

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 are material to investors.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are described in notes accompanying the financial statements. The preparation of the financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the financial statements apply critical accounting policies described in the notes to our financial statements.

We consider the recognition and related assumptions used in determining the collectability of accounts receivable and the realizability of the deferred tax assets and liabilities to be most critical in understanding the judgments that are involved in the preparation of our financial statements.

Together with our critical accounting policies set out below, our significant accounting policies are summarized in Note 2 of our unaudited condensed financial statements for the three and six months ended June 30, 2025.

Accounts Receivable

We recognize an allowance for expected credit losses in accordance with Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses, issued by the Financial Accounting Standards Board ("FASB"). This ASU establishes a current expected credit loss ("CECL") model, which requires us to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

To estimate expected credit losses, we segregated our receivables into four risk-based categories, each reflecting distinct credit risk characteristics. A loss rate was then applied to each category based on historical experience and anticipated losses given the associated risk factors.

An allowance for credit losses is recorded through a provision for bad debts charged to earnings. The evaluation of expected credit losses is inherently subjective and requires management to make estimates that may be subject to significant revision as additional information becomes available.

As of June 30, 2025, and December 31, 2024, the Company had an allowance for an expected credit loss of $131,716.

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 June 30, 2025, and December 31, 2024, that would require either recognition or disclosure in the accompanying unaudited financial statements.

During the six months ended June 30, 2025, the Company had net losses, and did not anticipate having a tax liability, so no provision for income tax was recorded. The Company made tax payments totaling $14,684 related to 2023 taxable year. The Company recorded this payment as a reduction in income tax payable.

The Company has a total tax liability of $726,538 and $741,222 for the period of June 30, 2025, and December 31, 2024, respectively.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that may have an impact on the Company's accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flow when implemented.

In December 2023, the FASB issued ASU 2023-09, Income Taxes-Improvements to Income Tax Disclosures. This guidance enhances the transparency and decision usefulness of income tax disclosures. More specifically, the amendments relate to the income tax rate reconciliation and income taxes paid disclosures and require 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) income taxes paid disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024. The Company adopted the requirements of the new rule as of January 1, 2025, the effective date of the guidance.

On March 21, 2024, the FASB issued ASU No. 2024-01 ("ASU 2024-01"), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The adoption of this standard did not have a material impact on the unaudited financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update aims to enhance transparency for users of financial statements by requiring public business entities to disaggregate specific expense categories. The update mandates disclosures in the notes to financial statements, detailing the composition and trends of key expense categories within major income statement captions. These enhanced disclosures are expected to help investors more effectively assess the entity's performance, understand its cost structure, and make more accurate forecasts of future cash flow. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2024-03 on its financial reporting and disclosures.

In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) "to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027." Entities within the ASU's scope are permitted to early adopt the ASU. The Company is currently evaluating the potential impact of ASU 2024-03 on its financial reporting and disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instrument-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This Update affect entities that apply the practical expedient and accounting policy election (if applicable) when estimating expected credit losses on current accounts receivable and/or current contract assets arising from transactions under Topic 606, including those assets acquired in a transaction accounted for under Topic 805, Business Combinations. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the potential impact of ASU 2025-05 on its financial reporting and disclosures.