Attached files
| file | filename |
|---|---|
| EX-32.2 - EX-32.2 - VPR Brands, LP. | vprbex32_2.htm |
| EX-32.1 - EX-32.1 - VPR Brands, LP. | vprbex32_1.htm |
| EX-31.2 - EX-31.2 - VPR Brands, LP. | vprbex31_2.htm |
| EX-31.1 - EX-31.1 - VPR Brands, LP. | vprbex31_1.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File No. 000-54435
VPR BRANDS, LP
(Exact name of registrant as specified in its charter)
| Delaware | 45-1740641 | |
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 4401 NW 167th Street, Miami, FL | 33055 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(954) 684-8288
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 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. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of common units outstanding of each of the issuer’s classes of common equity, as of the last practicable date: The number of the Registrant’s voting and non-voting common units representing limited partner interests outstanding as of November 14, 2016 was 50,672,125.
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
VPR BRANDS, L.P.
CONDENSED BALANCE SHEETS
| September 30, 2016 |
December 31, 2015 |
|||||||
| ASSETS: | ||||||||
| Cash | $ | 214,192 | $ | 4,650 | ||||
| Accounts Receivable(Net of Allowance) | 445,831 | – | ||||||
| Inventory | 216,071 | – | ||||||
| Advances to supplier | – | 54,700 | ||||||
| TOTAL CURRENT ASSETS | 876,094 | 59,350 | ||||||
| Intangible Assets | 27,285 | – | ||||||
| Fixed Assets, net of accumulated depreciation of -0- for September 30, 2016 and December 31, 2015 | 10,446 | – | ||||||
| TOTAL ASSETS | $ | 913,825 | $ | 59,350 | ||||
| LIABILITIES: | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 59,593 | $ | 16,815 | ||||
| Notes Payable-Current Portion | 246,000 | – | ||||||
| TOTAL CURRENT LIABILITIES | 305,593 | 16,815 | ||||||
| LONG TERM LIABILITIES: | ||||||||
| Notes Payable | 546,918 | – | ||||||
| TOTAL LIABILITIES | 852,511 | 16,815 | ||||||
| PARTNERS’ EQUITY: | ||||||||
| Partners’ Capital; Common units, 50,672,125 and 29,292,125 issued and outstanding as of September 30, 2016 and December 31, 2015 respectively | 5,908,233 | 5,680,633 | ||||||
| Accumulated deficit | (5,846,919 | ) | (5,638,098) | |||||
| TOTAL PARTNERS’ EQUITY | 61,314 | 42,535 | ||||||
| TOTAL LIABILITIES AND PARTNERS’ EQUITY | $ | 913,825 | $ | 59,350 | ||||
See accompanying Notes to Financial Statements
3
VPR BRANDS, L.P
CONDENSED STATEMENTS OF OPERATIONS
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||||
| REVENUES | $ | 608,354 | $ | – | $ | 669,880 | $ | 342 | ||||||||
| Cost of Sales | (409,800 | ) | – | (446,736 | ) | – | ||||||||||
| Gross Profit | 198,554 | – | 223,144 | 342 | ||||||||||||
| EXPENSES: | ||||||||||||||||
| Selling, General and Administrative | 312,856 | 18,662 | 424,684 | 48,907 | ||||||||||||
| TOTAL EXPENSES | 312,856 | 18,662 | 424,684 | 48,907 | ||||||||||||
| NET OPERATING LOSS | (114,302 | ) | (18,662 | ) | (201,540 | ) | (48,565 | ) | ||||||||
| OTHER INCOME AND EXPENSE: | ||||||||||||||||
| Interest Income | 12 | 12 | ||||||||||||||
| Interest Expense | (7,293 | ) | (7,293 | ) | ||||||||||||
| TOTAL OTHER EXPENSES | (7,281 | ) | – | (7,281 | ) | – | ||||||||||
| NET LOSS | (121,583 | ) | (18,662 | ) | (208,821 | ) | (48,565 | ) | ||||||||
| LOSS PER COMMON UNIT | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted-Average Common Units Outstanding — Basic and Diluted | 50,672,125 | 28,632,125 | 43,545,458 | 22,182,680 | ||||||||||||
See accompanying Notes to Financial Statements
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VPR BRANDS, L.P.
CONDENSED STATEMENT OF CASH FLOWS
| Nine Months Ended | ||||||||
| September 30, 2016 | September 30, 2015 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | (208,821 | ) | $ | (48,565 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Shares issued for services | 27,600 | 32,300 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | (474,814 | ) | – | |||||
| Accounts Receivable | 219,353 | – | ||||||
| Prepaid Expenses | 54,700 | (13,301 | ) | |||||
| Customer Deposits | (63,726 | ) | – | |||||
| Accrued Interest | 7,293 | |||||||
| Accounts payable | 42,778 | (4,260 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES | (395,637 | ) | (33,826 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (10,446 | ) | – | |||||
| Cash flows used in investing activities: | (10,446 | ) | – | |||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 500,000 | – | ||||||
| Payments notes payable-Acquisition | (84,375 | ) | – | |||||
| Proceeds from private placement offering of common units | 200,000 | 100,000 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 615,625 | 100,000 | ||||||
| (DECREASE) INCREASE IN CASH | 209,542 | 66,174 | ||||||
| CASH - BEGINNING OF PERIOD | 4,650 | 9,442 | ||||||
| CASH - END OF PERIOD | $ | 214,192 | $ | 75,616 | ||||
| SCHEDULE OF NON-CASH ACTIVITY: | ||||||||
| FOR ACQUISITION: | ||||||||
| Customer List and Brand Name | $ | 27,285 | $ | – | ||||
| Inventory | 258,743 | – | ||||||
| Accounts Receivable | 147,698 | – | ||||||
| Customer Deposits | (63,726 | ) | – | |||||
| Notes Payable | (370,000 | ) | – | |||||
| Net Cash Paid | $ | – | $ | – |
See accompanying Notes to Financial Statements
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VPR BRANDS, L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
| Common units | Partners’ Capital | Accumulated Deficit | Total Partner’s Capital | |||||||||||||
| Balance at January 1, 2015 | 17,287,125 | 5,548,333 | (5,544,651 | ) | 3,682 | |||||||||||
| Common Units Issued in exchange for services | 25,000 | 12,500 | 12,500 | |||||||||||||
| Common Units issued for prepaid consulting services | 1,980,000 | 19,800 | 19,800 | |||||||||||||
| Private Placement | 10,000,000 | 100,000 | 100,000 | |||||||||||||
| Net Loss | (93,447 | ) | (93,447 | ) | ||||||||||||
| Balance at December 31, 2015 | 29,292,125 | $ | 5,680,633 | $ | (5,638,098 | ) | $ | 42,535 | ||||||||
| Shares Purchased Per Agreement | 20,000,000 | 200,000 | 200,000 | |||||||||||||
| Shares Issued in Exchange for Services | 1,380,000 | 27,600 | 27,600 | |||||||||||||
| Net Loss | (208,821 | ) | (208,821 | ) | ||||||||||||
| Balance at September 30, 2016 | 50,672,125 | $ | 5,908,233 | $ | (5,846,919 | ) | $ | 61,314 |
See accompanying Notes to Condensed Financial Statements
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VPR BRANDS, LP
SEPTEMBER 30, 2016
NOTE 1: BASIS OF PRESENTATION AND BUSINESS DESCRIPTION
The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto for the period ended December 31, 2015 in our Form 10-K filed on April 7, 2016 with the SEC. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or any other period.
Business Description
VPR Brands, LP (the “Company”, “we”, “our”) was incorporated in New York on July 19, 2004, as Jobsinsite.com, Inc. Our articles of incorporation were amended on August 5, 2004, to change our name to Jobsinsite, Inc. On June 18, 2009 we merged with a Delaware corporation and became Jobsinsite, Inc., and 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 amended our articles of incorporation to change 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 portfolio of patents the Company owns in both the US and China, covering electronic cigarette, electronic cigar and personal vaporizer patents. We currently market a brand of electronic cigarette e-liquids marketed under the brand “Helium” in the United States and are undertaking efforts to establish distribution of our electronic cigarette e-liquids brand in China. We are currently also identifying electronic cigarette companies that may be infringing our patents and exploring options to license and or enforce our patents.
On March 4, 2016, the Company announced a new e-liquid innovation, namely Helium Hi Definition E-Liquid, that is chilled 20 degrees below room temperature by mini-chillers or desktop chillers designed by the Company to maintain optimum flavor, freshness and aroma by cooling the e-liquids (reducing the escape of molecules from the mixture of e-liquids into the headspace). Helium Hi Definition E-Liquid will come in (i) a 50ml, squeezable bottle with a drip tip, for our mini chillers, (ii) a 180ml bottle for our personal desktop chiller, or (iii) a sample pack of the 5 flavors offered which are a one-time use in 2ml tubes that are air tight. Helium Hi Definition E-Liquids were available for pre-orders on March 15, 2016 on VapeHelium.com and have been available for sale in Vape shops in the United States since April 1, 2016.
On July 29, 2016, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Vapor Corp. (“Vapor”) and the Company’ Chief Executive Officer, Kevin Frija (the former Chief Executive Officer of Vapor), pursuant to which Vapor sold Vapor’s wholesale operations and inventory related thereto (collectively, “Assets”) to the Company, which Vapor’s business is operated at 3001 Griffin Road, Dania Beach, Florida 33312 (the “Dania Beach Premises”). The transactions contemplated by the Purchase Agreement closed on July 29, 2016.
See note 4, Asset Purchase and Secured Borrowing for further details, concerning total considerations.
7
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash
Cash includes all cash deposits and highly liquid financial instruments with an original maturity of three months or less.
Stock-Based Compensation
Share-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 FASB 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 shares as compensation in future periods for employee services.
The Company may issue restricted stock to consultants for various services. Cost 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 shares as compensation in future periods for services associated with the registration of the common shares.
Revenue recognition
The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin 104 for revenue recognition. Revenue is recognized when persuasive evidence of an arrangement exists; the delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.
Basic and Diluted Net Loss Per Share
Net loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted net loss per share for the Company is the same as basic net loss per share, as the inclusion of common stock equivalents would be anti-dilutive.
Income taxes
The Company is considered a partnership for income tax purposes. Accordingly, the partners report the Partnership’s taxable income or loss on their individual tax returns.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board 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 it financial position, results of operations, and cash flow when implemented.
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NOTE 3: GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated minimal revenues since inception, has incurred a net loss of $208,821 for the nine months ended September 30, 2016, and has an accumulated deficit of $5,846,919 at September 30, 2016. The continuation of the Company as a going concern is dependent upon, among other things, the continued financial support from its shareholders, the ability of the Company to obtain necessary equity or debt financing, and the attainment of profitable operations. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. There is no assurance that the Company will be able to generate revenues in the future. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to continue as a going concern.
NOTE 4: ASSET PURCHASE AND SECURED BORROWING
On July 29, 2016, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Vapor Corp. (“Vapor”) and the Company’ Chief Executive Officer, Kevin Frija (the former Chief Executive Officer of Vapor), pursuant to which Vapor sold Vapor’s wholesale operations and inventory related thereto (collectively, “Assets”) to the Company. The transactions contemplated by the Purchase Agreement closed on July 29, 2016.
The consideration consisted of:
| ● | A secured, one-year promissory note from the Company to Vapor in the principal amount of $370,000 (the “Acquisition Note”) bearing an interest rate of 4.5%, which payments thereunder are $10,000 per month, with such payments deferred and commencing on October 28, 2016, with a balloon payment of the remainder of principal and interest on July 29, 2017. Current balance including accrued interest is $288,171. | |
| In exchange for a $500,000 loan from Vapor to the Company, a secured, 36-month promissory note from the Company to Vapor in the principal amount of $500,000 (the “Secured Promissory Note”; together with the Acquisition Note, are referred to herein as the “Notes”) bearing an interest rate of prime plus 2% (which rate resets annually on July 29th), which payments thereunder are $14,000 per month, with such payments deferred and commencing on January 26, 2017, with subsequent installments payable on the same day of each month thereafter and in the 37th month (on July 29, 2019), a balloon payment for all remaining accrued interest and principal. Current balance including accrued interest is $504,747. | ||
| ● | The assumption by the Company of certain liabilities related to Vapor’s wholesale operations, including but not limited to the month-to-month lease for the Dania Beach Premises (“Assumption of Liabilities”). |
Notwithstanding the above, pursuant to the Purchase Agreement, Vapor continues to own its accounts receivable from its wholesale operations as of July 29, 2016. However, Vapor agreed to use its commercially reasonable efforts, consistent with standard industry practice, to collect such accounts receivable, and any and all amounts so collected (i) up to $150,000 (net of any refunds) in the aggregate shall be credited against payment of the Acquisition Note and (ii) in excess of $150,000 (up to $95,800) will be transferred to Mr. Frija as consideration for the transfer to Vapor by Mr. Frija of 1,405,910,203 shares of Vapor’s common stock that he had acquired on the open market (“Retired Shares”).
The Purchase Agreement contained customary representations, warranties, and covenants of the Company and Vapor. Vapor also agreed to a restrictive covenant prohibiting it from competing with the Company for a period of three years in the wholesale distribution of electronic cigarette products that comprise the Assets.
9
The purchase consideration paid to the Seller was allocated to the preliminary fair value of the net tangible assets acquired, The preliminary purchase price allocation was based, in part, on management’s knowledge of Vapor Corp. business.
| Assets acquired and liabilities assumed at fair value | |||||
| Customer List and Brand Name | $ | 27,285 | |||
| Inventory | $ | 258,743 | |||
| Accounts Receivable | $ | 147,698 | |||
| Customer Deposits | $ | (63,726 | ) | ||
| Note Payable-Short term (paid by Acct. Receivable) | $ | (370,000 | ) | ||
The following presents the unaudited pro-forma combined results of operations of the Company with Vapor Corp. as if both Acquisitions occurred on January 1, 2015.
| September 30, | September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| REVENUES | $ | 877,805 | $ | 1,894,822 | $ | 5,592,433 | $ | 4,872,895 | ||||||||
| Cost of Sales | (644,896 | ) | (1,517,327 | ) | (4,661,874 | ) | (4,215,138 | ) | ||||||||
| Gross Profit | 232,909 | 377,495 | 930,559 | 657,757 | ||||||||||||
| EXPENSES: | ||||||||||||||||
| Selling, General and Administrative | 380,325 | 620,747 | 955,978 | 1,332,505 | ||||||||||||
| TOTAL EXPENSES | 380,325 | 620,747 | 955,978 | 1,332,505 | ||||||||||||
| NET LOSS | (147,416 | ) | (243,252 | ) | (25,419 | ) | (674,748 | ) | ||||||||
| LOSS PER COMMON UNIT | (0.00 | ) | (0.02 | ) | (0.00 | ) | (0.00 | ) | ||||||||
| Weighted-Average Common Units Outstanding — Basic and Diluted | 44,292,125 | 15,156,473 | 39,292,125 | 22,182,680 | ||||||||||||
The unaudited pro-forma results of operations are presented for information purposes only and are based on estimated financial operations. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the Company closed the acquisition effective 1/1/15.
NOTE 5: RELATED PARTY
During the nine months ended September 30, 2016, the Company used the services of a related party of the Company owned by its CEO, and incurred cost of $21,393.
NOTE 6: PARTNER EQUITY/COMMON UNITS
On May 29, 2015, the Company, entered into a Share Purchase Agreement with Kevin Frija (“Frija Share Purchase Agreement”) for a private placement (“Private Placement”) of up to 50,000,000 common units representing limited partnership interest of the Company.
The Private Placement has been expected to occur in multiple tranches. For the first tranche, on June 4, 2015, the Company issued 10,000,000 Common Units to Kevin Frija at a purchase price of $0.01 per unit, resulting in gross proceeds of $100,000 to the Company. In subsequent tranches, Kevin Frija has the right to buy an additional 40,000,000 Common Units at a purchase price of $0.01 per unit. The Company has been expecting to receive gross
10
proceeds of $400,000 in the aggregate upon the closing of the subsequent tranches of the Private Placement, which is expected to be completed by September, 2016. No placement agent has participated in the Private Placement.
In connection with the Share Purchase Agreement, the Company named Kevin Frija chief executive officer and chairman of the board of directors of the Company and as a manager of the Company’s general partner, Soleil Capital Management LLC (the “General Partner”). Contemporaneous with Mr. Frija’s appointment as chief executive officer and chairman of the board of Directors, the Company’s prior chief executive officer and chairman of the board of directors, Messrs. Jon Pan and Greg Pan, respectively, resigned from their respective positions. Notwithstanding, Mr. Greg Pan continues to serve as a member of the board of directors of the Company and as a manager of the General Partner and Mr. Jon Pan continues to serve as a consultant to the Company. In consideration his resignation as chief executive officer, the Company and the General Partner have entered into that certain Share Purchase Agreement with Jon Pan wherein the Company agreed to grant Jon Pan the right to purchase 10,000,000 of the Company’s Common Units, at a price of $0.01 per unit.
The Company, Soleil Capital Management LLC and Greg Pan entered into a Termination of Share Purchase Agreement on August 18, 2015, which terminated the Share Purchase Agreement, dated June 1, 2015, among the Company, Soleil Capital Management LLC and Greg Pan.
In April 2015, the Company issued 25,000 of the Company’s Common Units to a third party in exchange for consulting sales and marketing services for the Company valued at $12,500.
In August 2015, the Company issued 1,980,000 of the Company’s Common Units to the former CEO, Jon Pan in exchange consulting services totaling $19,800.
On March 28, 2016, pursuant to the terms of the Frija Share Purchase Agreement, Mr. Frija exercised a right to buy 15,000,000 Common Units at a purchase price of $0.01 per unit, resulting in 15,000,000 Common Units issued to Mr. Frija in exchange for gross proceeds of $150,000 to the Company, leaving a balance of 25,000,000 Common Units to purchase at $0.01 per unit under the right to buy under the Frija Share Purchase Agreement.
On April 29, 2016, the Company issued an aggregate of 720,000 common units, valued at $0.02 per common unit (for an aggregate of $14,400), to four consultants as total compensation paid-in-advance for services related to product development, creative direction and sales and marketing to be provided under their respective consulting agreements with the Company.
On May 23, 2016 ($20,000) and May 31, 2016 ($20,000) and June 16, 2016 ($10,000), pursuant to the terms of the Frija Share Purchase Agreement, Mr. Frija exercised a right to buy 5,000,000 Common Units at a purchase price of $0.01 per unit, resulting in 5,000,000 Common Units issued to Mr. Frija in exchange for total gross proceeds of $50,000 to the Company, leaving a balance of 20,000,000 Common Units to purchase at $0.01 per unit (an aggregate purchase price of $200,000) under the right to buy under the Frija Share Purchase Agreement.
On August 18, 2016, the Company issued 660,000 of the Company’s Common Units to employees and consultants of the Company. The shares were issued for services totaling $13,200.
NOTE 7: NOTES PAYABLE
As per the acquisition of certain assets of Vapor Corp. the Company secured two notes payable to Vapor Corp.
| Term | Original Amount | Current Balance | Rate | |||||||||
| One Year Note | $ | 370,000 | $ | 288,171 | 4.5 | % | ||||||
| Three Year Note | 500,00 | 504,747 | Prime + 2 | % | ||||||||
NOTE 10: COMMITMENTS AND CONTINGENCIES
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. As of September 30, 2016, there were 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.
NOTE 9: SUBSEQUENT EVENTS
None
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Report contains statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.
Unless stated otherwise, the words “we,” “us,” “our,” the “Company,” in this section collectively refer to VPR Brands, LP.
BUSINESS OVERVIEW
VPR Brands, LP (the “Company”, “we”, “our”) was incorporated in New York on July 19, 2004, as Jobsinsite.com, Inc. Our articles of incorporation were amended on August 5, 2004, to change our name to Jobsinsite, Inc. On June 18, 2009 we merged with a Delaware corporation and became Jobsinsite, Inc., and 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 amended our articles of incorporation to change 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 portfolio of patents the Company owns in both the US and China, covering electronic cigarette, electronic cigar and personal vaporizer patents. We currently market a brand of electronic cigarette e-liquids marketed under the brand “Helium” in the United States and are undertaking efforts to establish distribution of our electronic cigarette e-liquids brand in China. We are currently also identifying electronic cigarette companies that may be infringing our patents and exploring options to license and or enforce our patents.
How We Plan to Generate Revenue
VPR Brands is a technology holding company, whose assets include issued U.S. and Chinese patents for atomization related products including technology for medical marijuana vaporizers and electronic cigarette products and components. The company is also engaged in product development for the vapor or vaping market, including e-liquids.
Electronic cigarettes (also known as ecigs or e-cigs) are electronic devices which deliver nicotine through atomization, or vaping of e-liquids and without smoke and other chemicals constituents typically found in traditional tobacco burning cigarette products.
On March 4, 2016, the Company announced a new e-liquid innovation, namely Helium Hi Definition E-Liquid, that is chilled 20 degrees below room temperature by mini-chillers or desktop chillers designed by the Company to maintain optimum flavor, freshness and aroma by cooling the e-liquids (reducing the escape of molecules from the mixture of e-liquids into the headspace). Helium Hi Definition E-Liquid will come in (i) a 50ml, squeezable bottle with a drip tip, for our mini chillers, (ii) a 180ml bottle for our personal desktop chiller, or (iii) a sample pack of the 5
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flavors offered which are a one-time use in 2ml tubes that are air tight. Helium Hi Definition E-Liquids were available for pre-orders on March 15, 2016 on VapeHelium.com and will be available for sale in Vape shops in the United States by April 1, 2016.
Our portfolio of electronic cigarette and personal vaporizer patents (the “Patents”) are the basis for our efforts to:
| · | Design, market and distribute a line of e-liquids under the “HELUIM” brand; | |
| · | Design, market and distribute electronic cigarettes; | |
| · | Prosecute and enforce our patent rights; | |
| · | License our intellectual property; and | |
| · | Develop private label manufacturing programs. |
Our branded electronic cigarette e-liquids: HELIUM
We design, develop and market electronic cigarette e-liquids sold under the Heluim brand. Our electronic cigarette e-liquids are marketed as an alternative to tobacco burning cigarettes. We launched the Heluim brand in limited U.S. markets in the first quarter of 2016 and grow distribution through third party distributors. Shortly after our U.S. launch we plan to introduce our electronic cigarette brand to the Chinese market. China is the largest producer and consumer of tobacco products in the world, however we believe that Chinese consumption of electronic cigarettes trails U.S. adoption and use. We believe that an opportunity exists to develop and expand our business and our Helium brand electronic cigarette e-liquids in China.
Recent Developments
On July 29, 2016, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Vapor Corp. (“Vapor”) and the Company’ Chief Executive Officer, Kevin Frija (the former Chief Executive Officer of Vapor), pursuant to which Vapor sold Vapor’s wholesale operations and inventory related thereto (collectively, “Assets”) to the Company, which Vapor’s business is operated at 3001 Griffin Road, Dania Beach, Florida 33312 (the “Dania Beach Premises”). The transactions contemplated by the Purchase Agreement closed on July 29, 2016.
The consideration consisted of:
| ● | A secured, one-year promissory note from the Company to Vapor in the principal amount of $370,000 (the “Acquisition Note”) bearing an interest rate of 4.5%, which payments thereunder are $10,000 per month, with such payments deferred and commencing on October 28, 2016, with a balloon payment of the remainder of principal and interest on July 29, 2017. | |
| In exchange for a $500,000 loan from Vapor to the Company, a secured, 36-month promissory note from the Company to Vapor in the principal amount of $500,000 (the “Secured Promissory Note”; together with the Acquisition Note, are referred to herein as the “Notes”) bearing an interest rate of prime plus 2% (which rate resets annually on July 29th), which payments thereunder are $14,000 per month, with such payments deferred and commencing on January 26, 2017, with subsequent installments payable on the same day of each month thereafter and in the 37th month (on July 29, 2019), a balloon payment for all remaining accrued interest and principal. | ||
| ● | The assumption by the Company of certain liabilities related to Vapor’s wholesale operations, including but not limited to the month-to-month lease for the Dania Beach Premises (“Assumption of Liabilities”). |
Notwithstanding the above, pursuant to the Purchase Agreement, Vapor continues to own its accounts receivable from its wholesale operations as of July 29, 2016. However, Vapor agreed to use its commercially reasonable efforts,
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consistent with standard industry practice, to collect such accounts receivable, and any and all amounts so collected (i) up to $150,000 (net of any refunds) in the aggregate shall be credited against payment of the Acquisition Note and (ii) in excess of $150,000 (up to $95,800) will be transferred to Mr. Frija as consideration for the transfer to Vapor by Mr. Frija of 1,405,910,203 shares of Vapor’s common stock that he had acquired on the open market (“Retired Shares”).
The Purchase Agreement contained customary representations, warranties, and covenants of the Company and Vapor. Vapor also agreed to a restrictive covenant prohibiting it from competing with the Company for a period of three years in the wholesale distribution of electronic cigarette products that comprise the Assets.
Results of Operations:
The following discussion should be read in conjunction with our unaudited condensed financial statements and the related notes that appear elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Quarterly Report. Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of our products and through equity or debt securities.
Employees
We currently have 13 employees as a result of the asset acquisition from Vapor Corp.
Comparison of the Three Month Period Ended September 30, 2016 to the Three Month Period Ended September 30, 2015
Revenues
We had revenues of $ 608,354 for the three months ended September 30, 2016, as compared to none the same period ended September 30, 2015. The increase in revenue is a result of the acquisition of the assets from Vapor Corp. and the related customers acquired in the acquisition.
Cost of Sales
We had cost of sales of $409,800 for the three months ended September 30, 2016, as compared to none the same period ended September 30, 2015. The increase in costs of sales is a result of the acquisition of the assets from Vapor Corp. and the related customers acquired in the acquisition.
Gross Profits
We had gross profits of $198,554 or the three months ended September 30, 2016, as compared to none the same period ended September 30, 2015. The increase in gross profits is a result of the acquisition of the assets from Vapor Corp. and the related customers acquired in the acquisition.
Operating Expenses
Operating expenses for the three months ended September 30, 2016 were $312,856 as compared to $18,662 for the three months ended September 30, 2015. The increase in operating expenses are due to payroll expenses related to the acquisition of the assets of Vapor Corp. and the employees to run the business.
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Other Income and Expense:
We had interest expense of $7,293 for the two loans originated from the acquisition. Also the Company had $12 of interest income from its bank accounts.
Net Loss
Net loss for the three months ended September 30, 2016 was $(121,583) compared to a net loss of $(18,662) for the three months ended September 30, 2015. The increase in net loss is a result of increased operating expenses as a result of acquisition of the assets of Vapor Corp offset by the increased gross profits.
Comparison of the Nine Month Period Ended September 30, 2016 to the Nine Month Period Ended September 30, 2015
Revenues
We had revenues of $ 669,880 for the nine months ended September 30, 2016, as compared to $342 the same period ended September 30, 2015. The increase in revenue is a result of the acquisition of the assets from Vapor Corp. and the related customers acquired in the acquisition.
Cost of Sales
We had cost of sales of $446,736 for the nine months ended September 30, 2016, as compared to none the same period ended September 30, 2015. The increase in cost of sales is a result of the acquisition of the assets from Vapor Corp. and the related customers acquired in the acquisition.
Gross Profits
We had gross profits of $223,144 for the nine months ended September 30, 2016, as compared to $342 the same period ended September 30, 2015. The increase in gross profits is a result of the acquisition of the assets from Vapor Corp. and the related customers acquired in the acquisition.
Operating Expenses
Operating expenses for the nine months ended September 30, 2016 were $424,884 as compared to $48,907 for the three months ended September 30, 2015. The increase in operating expenses are due to payroll expenses related to the acquisition of the assets of Vapor Corp. and the employees to run the business.
Other Income and Expense:
We had interest expense of $7,293 for the two loans originated from the acquisition. Also the Company had $12 of interest income from its bank accounts.
Net Loss
Net loss for the nine months ended September 30, 2016 was $(208,821) compared to a net loss of $(48,565) for the three months ended September 30, 2015. The increase in net loss is a result of increased operating expenses as a result of acquisition of the assets of Vapor Corp off set by the gross profits.
Liquidity and Capital Resources
The Company realized cash used in operations of $395,637 for the nine months ended September 30, 2016 as compared to $33,826 used in operations for the nine months ended September 30, 2015. The decrease in cash used is mainly a result of purchase of inventory of $474,814 offset by accounts receivable collected of $219,353. Accounts receivable collected mainly result of those acquired from Vapor Corp.
During the nine months ended September 30, 2016 and 2015 the Company was provided cash from financing activities of $615,625 and $100,000, respectively. The proceeds were from a $500,000 loan from Vapor Corp and $200,000 of proceeds from a private placement from the CEO. As per terms of the agreements previously discussed.
Assets
At September 30, 2016 and December 31, 2015, we had total assets of $913,825 and $59,350, respectively. Assets mainly consist of the cash accounts, accounts receivable, fixed assets and inventory of $866,540. For the year ended December 31, 2015, the assets consisted of $54,700 in advances to suppliers and $4,650 in cash.
Liabilities
Our total liabilities, consisting of accounts payable and notes payable, were $852,511 at September 30, 2016, compared to $16,815 at December 31, 2015. The increase was primarily due to an increase in notes payable of $792,918 as part of the loans by Vapor Corp. in connection with the acquisition of assets from Vapor Corp.
At this time, we have not secured or identified any additional financing to execute our plan of operations over the next 12 months. We do not have any firm commitments nor have we identified sources of additional capital from third parties or from shareholders. 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 operation.
Off –Balance Sheet Operations
We do not have any off-balance sheet operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
With respect to the period ending September 30, 2016, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934.
Based upon our evaluation regarding the period ending September 30, 2016, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that its disclosure controls and procedures were not effective because of continued material weakness in our internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2015 which was filed on April 7, 2016, which material weakness are reiterated below.
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The Company did not maintain an effective financial reporting process to prepare financial statements in accordance with U.S. GAAP. 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. Therefore, our internal controls over financial reporting were not effective as of September 30, 2016.
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. | ||
| • | 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. |
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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 during the quarter ended June 30, 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On August 18, 2016, the Company issued 660,000 of the Company’s Common Units to employees and consultants of the Company. The shares were issued for services totaling $13,200.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
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| Exhibit Number | Description of Exhibit | |||
| 3.1 | State of Delaware Certificate of Limited Partnership of Soleil Capital L.P. (filed as Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended September 30, 2009). | |||
| 3.2 | State of Delaware Amendment to Certificate of Limited Partnership of Soleil Capital L.P. (filed as Exhibit 3.2 to the Company’s Form 10-Q for the quarter ended September 30, 2015). | |||
| 3.3 | Agreement of Limited Partnership of Soleil Capital L.P. dated September 19, 2009 (filed as Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended December 31, 2009). | |||
| 3.4 | First Amendment to Limited Partnership Agreement of Soleil Capital L.P., dated September 10, 2015 (filed as Exhibit 3.1 to the Company’s Form 8-K filed on September 10, 2015). | |||
| 31.1* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. | |||
| 31.2* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. | |||
| 32.1* | Section 1350 Certifications of Chief Executive Officer. | |||
| 32.2* | Section 1350 Certifications of Chief Financial Officer. | |||
| 101.INS* | XBRL Instance | |||
| 101.SCH* | XBRL Taxonomy Extension Schema | |||
| 101.CAL* | XBRL Taxonomy Extension Calculation | |||
| 101.DEF* | XBRL Taxonomy Extension Definition | |||
| 101.LAB* | XBRL Taxonomy Extension Labels | |||
| 101.PRE* | XBRL Taxonomy Extension Presentation | |||
| * | Filed herewith. |
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| VPR Brands, LP | ||
| Date: November 21, 2016 | By: | /s/ Kevin Frija |
| Chief Executive Officer, Chief Financial Officer and Director (Principal Executive Officer & Principal Financial Officer) | ||
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