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, 2021.
Overview
We are a company engaged in the electronic cigarette, personal vaporizer and
pocket lighter industry. We own a portfolio of electronic cigarette, personal
vaporizer patent and pocket lighter patents which are the basis for our efforts
to:
· Design, market and distribute a line of pocket lighters under the "DISSIM"
brand;
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· 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 rights;
· License our intellectual property; and
· Develop private label manufacturing programs.
Results of Operations for the Three Months Ended June 30, 2021 Compared to the
Three Months Ended June 30, 2020
Revenues
Our revenues for the three months ended June 30, 2021 and 2020 were $1,709,719
and $1,205,370, respectively. The increase was a result of an industry-wide
health-related crisis that hampered sales significantly in 2020, as well as
increased direct on-line sales in 2021.
Cost of Sales
Cost of sales for the three months ended June 30, 2021 and 2020 was $915,815 and
$751,691, respectively. Gross margins increased to 47% in 2021 compared to 37%
in 2020, due to pricing pressures from the decreased demand related to the
industry crisis in 2020, and increased direct sales in 2021.
Operating Expenses
Operating expenses for the three months ended June 30, 2021 were $457,895 as
compared to $372,652 for the three months ended June 30, 2020. The increase in
expenses is primarily due to increased sales activity in 2021.
Other Income (Expense)
Interest expense decreased to $71,223 for the three months ended June 30, 2021
as compared to $131,381 for the three months ended June 30, 2020 due to less
interest expense recognized on related party loans in 2021.
Net Income (Loss)
Net income for the three months ended June 30, 2021 was $264,786 compared to a
net loss of $50,354 for the three months ended June 30, 2020.
Results of Operations for the Six Months Ended June 30, 2021 Compared to the Six
Months Ended June 30, 2020
Revenues
Our revenues for the six months ended June 30, 2021 and 2020 were $2,961,777 and
$1,804,003, respectively. The increase was a result of an industry-wide
health-related crisis that hampered sales significantly in 2020, as well as
increased direct on-line sales in 2021.
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Cost of Sales
Cost of sales for the six months ended June 30, 2021 and 2020 was $1,626,316 and
$1,137,819, respectively. Gross margins increased to 43% in 2021 compared to 35%
in 2020, due to pricing pressures from the decreased demand related to the
industry crisis in 2020, and increased direct sales in 2021.
Operating Expenses
Operating expenses for the six months ended June 30, 2021 were $995,798 as
compared to $849,476 for the six months ended June 30, 2020. The increase in
expenses is primarily due to increased sales activity in 2021.
Other Income (Expense)
Interest expense decreased to $176,528 for the six months ended June 30, 2021 as
compared to $288,652 for the six months ended June 30, 2020 due to less interest
expense recognized on related party loans in 2021.
Net Income (Loss)
Net income for the six months ended June 30, 2021 was $163,135 compared to a net
loss of $471,944 for the six months ended June 30, 2020.
Liquidity and Capital Resources
The Company used cash in operating activities of $52,214 for six months ended
June 30, 2021 as compared to $163,000 of cash used in six months ended June 30,
2020. Cash used in operations in 2021 resulted from the Company's net income of
approximately $163,000, reduced by increases in accounts receivable and vendor
deposits, offset by a decrease in inventory and increase in accounts payable.
Cash used in operations in 2020 related to the Company's net loss of
approximately $471,000, offset by decreases in inventory and accounts receivable
levels as well as increase in accounts payable.
During the six months ended June 30, 2021, the Company received $310,000 from
the issuance of notes payable to related parties, repaid $352,155 of principal
on notes payable to related parties, repaid $78,855 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.
During the six months ended June 30, 2020, the Company received $430,001 of
proceeds from the issuance of notes payable to related parties, received
$353,562 of proceeds from notes payable, repaid $425,383 of principal on notes
payable to related parties, and repaid $198,365 of principal on notes payable.
Assets
At June 30, 2021 and December 31, 2020, we had total assets of $1,114,678 and
$908,345, respectively. Assets primarily consist of the cash accounts held by
the Company, inventory, vendor deposits, accounts receivable and a right-to-use
asset. In 2021, the Company's vendor deposits decreased by $27,292 and inventory
was increased by approximately $51,617 as a result of increased demand from
direct customers.
Liabilities
At June 30, 2021 and December 31, 2020, we had total liabilities of $3,193,512
and $3,150,314, respectively.
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The Company plans to pursue equity funding to expand its brand. Through equity
funding and the current operations, 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.
Going Concern
The Company had an accumulated deficit of $10,179,038 and negative working
capital of $1,537,368 as of June 30, 2021. As of June 30, 2021, the Company had
approximately $16,833 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.
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The Company expects its operations and the impact from COVID-19 to return fully
to pre-COVID-19 function by the end of 2021 and expect demand for its product to
return, as well. 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 
