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 15, 2022.
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 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 KRANE brand;
? Prosecute and enforce our patent rights;
? License our intellectual property; and
? Develop private label manufacturing programs.
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Results of Operations for the Three Months Ended September 30, 2022 Compared to
the Three Months Ended September 30, 2021
Revenues
Our revenues for the three months ended September 30, 2022 and 2021 were
$1,231,057 and $1,651,215, respectively. The decrease was a result of 2021
including higher online direct to customer sales compared to 2022 due to
COVID-19.
Cost of Sales
Cost of sales for the three months ended September 30, 2022 and 2021 was
$813,252 and $1,114,202, respectively. The decrease was a result of 2021
including higher online direct to customer sales compared to 2022 due to
COVID-19.
Operating Expenses
Operating expenses for the three months ended September 30, 2022 were $410,810
as compared to $489,061 for the three months ended September 30, 2021.
Other Income (Expense)
Net other expense for the three months ended September 30, 2022 were $61,516 as
compared to net other expense of $96,366 for the three months ended September
30, 2021. The change is due primarily to forgiveness of the PPP loans,
settlement income and gain on modification of lease.
Net Income (Loss)
Net loss for the three months ended September 30, 2022 was $54,521 compared to
net loss of $48,414 for the three months ended September 30, 2021.
Results of Operations for the Nine Months Ended September 30, 2022 Compared to
the Nine Months Ended September 30, 2021
Revenues
Our revenues for the nine months ended September 30, 2022 and 2021 were
$3,206,994 and $4,612,992, respectively. The decrease was a result of 2021
including higher online direct to customer sales compared to 2022 due to
COVID-19.
Cost of Sales
Cost of sales for the nine months ended September 30, 2022 and 2021 was
$1,995,494 and $2,740,518, respectively. The decrease was a result of 2021
including higher online direct to customer sales compared to 2022 due to
COVID-19.
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Operating Expenses
Operating expenses for the nine months ended September 30, 2022 were $1,386,723
as compared to $1,484,859 for the nine months ended September 30, 2021.
Other Income (Expense)
Net other income for the nine months ended September 30, 2022 was $47,194 as
compared to net other expenses of $272,894 for the nine months ended September
30, 2021. The change is due primarily to forgiveness of the PPP loans,
settlement income and gain on modification of lease.
Net Loss
Net loss for the nine months ended September 30, 2022 was $128,029 compared to
net income of $114,721 for the nine months ended September 30, 2021.
Liquidity and Capital Resources
The Company used cash in operating activities of $298,752 for nine months ended
September 30, 2022 as compared to $238,952 of cash used in nine months ended
September 30, 2021. Cash used in operations in 2022 resulted from the Company's
net loss of approximately $128,029 and decreases in accounts payable, increase
in vendor deposits and customer deposits, offset by decreases in accounts
receivable and inventory. Cash used in operations in 2021 resulted from the
Company's net income of approximately $114,000, reduced by increase in
inventory, offset by a decrease in vendor deposits, accounts receivable and
increase in accounts payable.
During the nine months ended September 30, 2022, the Company received $541,006
from the issuance of notes payable to related parties, $250,000 from the
issuance of a promissory note, repaid $111,081 of principal on notes payable to
related parties, repaid $164,685 of principal on notes payable, and repaid
$389,256 of convertible debt. During the nine months ended September 30, 2021,
the Company received $475,004 from the issuance of notes payable to related
parties, repaid $534,689 of principal on notes payable to related parties,
repaid $133,562 of principal on notes payable, and received $190,057 of notes
payable proceeds under the Paycheck Protection Program ("PPP") and Economic
Injury Disaster Loan ("EIDL") program. Both the PPP and EIDL are financial
programs under the Coronavirus Aid, Relief and Economic Security Act ("CARES
Act") signed into law by the U.S. President on March 27, 2020 to provide
economic relief to small businesses adversely impacted by COVID-19.
Assets
At September 30, 2022 and December 31, 2021, we had total assets of $1,119,266
and $1,254,772, respectively. Assets primarily consist of the cash accounts held
by the Company, inventory, vendor deposits, accounts receivable and a
right-to-use asset.
Liabilities
At September 30, 2022 and December 31, 2021, we had total liabilities of
$3,362,090 and $3,369,567, respectively.
The Company plans to pursue equity funding to expand its brand. Through equity
funding and the current operations, including the acquisition of the Vapor line
of business, the Company expects to meet its current capital needs. There can be
no assurance that additional capital will be available to us, or that, if
available, it will be on terms satisfactory to us. Any additional financing may
involve dilution to our shareholders. In the alternative, additional funds may
be provided from cash flow in excess of that needed to finance our day-to-day
operations, although we may never generate this excess cash flow. If we do not
raise additional capital or generate additional funds, implementation of our
plans for expansion will be delayed. If necessary we may withdraw from certain
growth strategies to conserve cash for continued operations.
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Going Concern
The Company had an accumulated deficit of $10,343,028 and negative working
capital of $1,862,609 as of September 30, 2022. As of September 30, 2022, the
Company had approximately $3,463 in cash and cash equivalents, which will not be
sufficient to fund the operations and strategic objectives of the Company over
the next twelve months from the date of issuance of these financial statements.
These factors raise substantial doubt regarding the Company's ability to
continue as a going concern.
The Company will be required to obtain additional financing and capital and
expects to satisfy its cash needs primarily from the additional issuance of
equity securities or indebtedness in order to sustain operations until it can
achieve profitability and positive cash flows, if ever. There can be no
assurances, however, that adequate additional funding will be available on
favorable terms, or at all. If such funds are not available in the future, the
Company may be required to delay, significantly modify or terminate its
operations, all of which could have a material adverse effect on the Company.
COVID-19
In March 2020, the World Health Organization declared the novel coronavirus
(COVID-19) a global pandemic and recommended containment and mitigation measures
worldwide. The spread of COVID-19 has affected segments of the global economy
and may affect our operations, including the potential interruption of our
supply chain. We are monitoring this situation closely, and although operations
have not been materially affected by the COVID-19 outbreak to date, the ultimate
duration and severity of the outbreak and its impact on the economic environment
and our business is uncertain.
The spread of COVID-19, or another infectious disease, could also negatively
affect the operations at our third-party manufacturers, which could result in
delays or disruptions in the supply of our products. In addition, we may take
temporary precautionary measures intended to help minimize the risk of the virus
to our employees, including temporarily requiring all employees to work
remotely, suspending all non-essential travel worldwide for our employees, and
discouraging employee attendance at industry events and in-person work-related
meetings, which could negatively affect our business.
The extent to which COVID-19 impacts our operations will depend on future
developments, which are highly uncertain and cannot be predicted with
confidence, including the duration of the outbreak, new information which may
emerge concerning the severity of COVID-19 and the actions to contain the
coronavirus or treat its impact, among others. In particular, the continued
spread of the coronavirus globally could adversely impact our operations,
including among others, our manufacturing and supply chain, sales and marketing
and could have an adverse impact on our business and our financial results. The
COVID-19 outbreak is a widespread health crisis that has adversely affected the
economies and financial markets of many countries, resulting in an economic
downturn that could affect demand for our products and likely impact our
operating results.
The Company expects its operations and demand for its products will return to
pre-COVID-19 levels in 2022. This depends on the success of the vaccine
distribution and its efficacy during the rest of the year which is uncertain.
The Company has implemented work from home procedures and increased its online
sales capabilities to be able to offset impact from such outbreaks in the
future.
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.
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VPR BRANDS, LP 