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VPR Brands, LP. (VPRB)·Q3 2016 Earnings Summary

Executive Summary

  • Q3 2016 delivered record revenue of $608,354, up sharply versus both Q2 2016 and Q3 2015, driven by the July 29 acquisition of Vapor Corp’s wholesale division; the company still posted a net loss of $121,583 due to transition, legal, and accounting costs tied to the acquisition .
  • Sequentially, revenue increased 889% versus Q2 2016 ($61,526), with gross profit expanding to $198,554 as acquired inventory and customer accounts ramped; however operating expenses rose to $312,856 with 13 employees now supporting wholesale operations .
  • Balance sheet shifted materially: notes payable totaled ~$792,918 (current and long-term) linked to acquisition financing (4.5% one-year note and prime+2% three-year note), with cash of $214,192 and working capital of ~$570,501 at quarter-end .
  • Management highlighted successful operational integration, stabilization of sales, and positioning amid FDA e-cigarette regulation, with cannabis-focused vaporization devices cited as the primary revenue source; no formal quantitative guidance was issued .
  • No earnings call transcript or Wall Street consensus estimates were available; investor narrative hinges on integration progress, regulatory tailwinds, and wholesale channel reactivation .

What Went Well and What Went Wrong

What Went Well

  • Record top-line: “VPR Brands… announces record third quarter revenues, with revenues of $608,354 which represent an 889% increase over the second quarter 2016 revenues,” attributed to the Vapor Corp wholesale acquisition and two months of Q3 contribution .
  • Integration and stabilization: “We have worked diligently and have stabilized sales, which were in rapid decline… prior to the acquisition,” reflecting operational continuity by retaining key employees and customer relationships .
  • Strategic positioning: Primary revenue from cannabis-oriented vaporization devices; management emphasized alignment with extraction/distribution partners and benefits from FDA’s August 8, 2016 market freeze favoring existing products .

What Went Wrong

  • Profitability remained negative: Net loss of $121,583 due to one-time transition, implementation, legal, and accounting expenses tied to the acquisition; interest expense began to accrue from new notes .
  • Operating expense intensity: SG&A rose to $312,856 versus $50,823 in Q2 as payroll and operational costs scaled with the acquired wholesale business .
  • Internal controls/material weakness: Management disclosed disclosure controls “not effective” in Q3 2016 and ongoing remediation needs, elevating execution risk for future reporting .

Financial Results

Consolidated P&L and Margins (oldest → newest)

MetricQ3 2015Q2 2016Q3 2016
Revenue ($USD)$0 $61,526 $608,354
Cost of Sales ($USD)$0 $36,936 $409,800
Gross Profit ($USD)$0 $24,590 $198,554
Gross Margin (%)0.0% 40.0% (24,590/61,526) 32.6% (198,554/608,354)
SG&A ($USD)$18,662 $50,823 $312,856
Interest Expense ($USD)$0 $0 $7,293
Net Loss ($USD)$(18,662) $(26,233) $(121,583)
Loss per Common Unit ($)$(0.00) $(0.00) $(0.00)

Notes:

  • YoY growth in revenue reflects zero base in Q3 2015 and contribution from acquired wholesale operations in Q3 2016 .
  • Sequential margin compression in Q3 2016 versus Q2 2016 reflects wholesale mix, transition costs, and initial scaling of operations .

Balance Sheet and Liquidity (point-in-time)

MetricQ1 2016Q2 2016Q3 2016
Cash ($USD)$35,470 $3,521 $214,192
Accounts Receivable ($USD)$0 $0 $445,831
Inventory ($USD)$136,118 $184,389 $216,071
Current Assets ($USD)$171,588 $187,910 $876,094
Current Liabilities ($USD)$40,058 $19,558 $305,593
Working Capital ($USD)$131,530 (171,588−40,058) $168,352 (187,910−19,558) $570,501 (876,094−305,593)
Notes Payable – Current ($USD)$0 $0 $246,000
Notes Payable – Long-term ($USD)$0 $0 $546,918
Total Notes Payable ($USD)$0 $0 $792,918

Acquisition debt details:

  • $370,000 one-year secured note at 4.5% (monthly $10,000 payments began Oct 28, 2016); balance $288,171 at 9/30/2016 .
  • $500,000 secured promissory note at prime+2% (monthly $14,000 payments begin Jan 26, 2017); balance $504,747 at 9/30/2016 .

Segment Breakdown

Segment/BrandQ3 2016 Revenue
Not disclosed by brand/category; primary revenue from cannabis vaporization devices (extract oils/concentrates)

KPIs and Operating Metrics

KPIQ2 2016Q3 2016
Employees13 13 (post-acquisition)
Facility rent change—Rent reduced ~30% at Fort Lauderdale facility
AR aging (Vapor Corp AR retained by seller)$244,735 <90 days (as of 7/28/16) Credited up to $150,000 against the $370,000 note post-collection

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2016NoneNo formal quantitative guidance; management expects co-branded items to roll out in Q4 2016 Maintained (no formal guidance)
Margins/OpExFY/Q4 2016NoneNo formal quantitative guidance; integration ongoing and sales stabilized Maintained
DividendsOngoingNoneNoneMaintained

Earnings Call Themes & Trends

No earnings call transcript was filed for Q3 2016 .

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2016)Trend
Product development (Helium)Launch plans, trade shows, initial sales ($61,526 in Q2) Continued, but wholesale revenue dominated; Helium remains part of portfolio Broadening portfolio focus
Supply chain/operationsMinimal scale; no wholesale ops (Q1) Integration of Vapor Corp wholesale ops; retained staff; rent cut by 30% Improving operational scale/efficiency
Regulatory/macro (FDA)Not highlightedFDA Aug 8 cutoff favors existing products; wholesaler positioning emphasized Supportive backdrop
Cannabis market focusNot a primary revenue source in Q1; small-scale Primary revenue from cannabis-oriented devices; partnerships with extraction/distribution Increasing focus
Internal controlsQ2 controls deemed effective Q3 controls “not effective” with remediation steps outlined Deteriorated; remediation underway

Management Commentary

  • “I am very pleased with the successful integration and consolidation of business operations so far. We have worked diligently and have stabilized sales…” — Kevin Frija, CEO/CFO .
  • “Our primary revenue source is from vaporization devices specifically created for use with medical cannabis and recreational marijuana.” .
  • “The transition has been seamless… while strategically lowering costs by eliminating corporate redundancies and creating a business culture that is efficient and fiscally responsible.” .
  • “We… have even negotiated a reduction in our monthly facility rent by 30% per month.” .
  • “The government had set August 8, 2016 as the cutoff date of any new product… It is expected this provision will allow for products… prior to August 8, 2016 to remain… likely through 2019.” .

Q&A Highlights

  • No formal Q3 2016 earnings call or transcript was available to derive Q&A themes; management clarifications came via press releases and the 10-Q, focusing on integration, revenue drivers, and regulatory positioning .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q3 2016 EPS and revenue was not available for VPRB; coverage appears limited for this micro-cap. We attempted retrieval; consensus data could not be obtained [GetEstimates error].
  • Given the step-change in reported revenue versus Q2, any future estimates (if initiated) would likely need to reflect wholesale operations scale and financing costs from acquisition notes .

Key Takeaways for Investors

  • Acquisition-driven inflection: Wholesale integration produced a material revenue step-up; watch the sustainability of run-rate into Q4/Q1 as payments on notes begin and integration matures .
  • Margin dynamics: Gross margin was ~33% in Q3; monitor product mix (cannabis vaporizers vs other brands) and the path to operating leverage as SG&A normalizes post-integration .
  • Liquidity and leverage: Cash improved to ~$214k; total notes payable ~$793k; assess covenant constraints and repayment schedules ($10k/month and $14k/month starts) for near-term cash needs .
  • Regulatory tailwinds: FDA’s August 8 freeze may advantage incumbents; cannabis device demand underpins strategy; execution with partners across key states is a catalyst .
  • Controls/remediation: Material weaknesses noted in Q3 necessitate monitoring; remediation progress could reduce reporting risk .
  • No guidance/no call: Absent quantitative guidance or an earnings call, rely on filings for updates; near-term stock narrative likely tied to wholesale customer reactivation and cost discipline .
  • Data discrepancies: Management’s press note on “very low float of 2,343,816” contrasts with 50,672,125 common units outstanding as of Nov 14, 2016; treat float claims cautiously and anchor on SEC-filed share counts .

Sources: Q3 2016 8-K/press release ; Q3 2016 10-Q ; Nov 3, 2016 8-K corporate update ; Q2 2016 10-Q ; Q1 2016 10-Q .