Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2025

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2025, are not necessarily indicative of the results to be expected for future periods or the full year.

Use of Estimates

GAAP requires the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the period. On an on-going basis, the Company reviews and evaluates its estimates and assumptions. Actual results could differ from these estimates.

Financial Condition

As reflected in the unaudited condensed financial statements, the Company generated negative cash flows from operations of $729,536 for the nine months ended September 30, 2025, and had negative working capital of $272,000 and cash of $540,650 as of September 30, 2025. The Company’s financial position and operating results raise substantial doubt about the Company’s ability to continue as a going concern, as reflected by the net loss of $449,752 and $1,061,615 for the three and nine months ended September 30, 2025, respectively, and accumulated deficit of $8,656,012 and $7,594,395, as of September 30, 2025, and December 31, 2024, respectively.

Cash

Cash is carried at cost and represents cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments. The Company had no cash equivalents on September 30, 2025, and December 31, 2024. The Company’s cash is held at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. To date, the Company has not experienced any losses on its invested cash. On September 30, 2025, and December 31, 2024, the Company had approximately $259,685 and $587,084, respectively, of cash in excess of FDIC limits of $250,000. Any loss incurred or a lack of access to such funds above the FDIC limit could have a significant adverse impact on the Company’s financial condition, results of operations and cash flows.

Accounts Receivable and Royalty Receivable

The Company recognizes 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 model, which requires the Company 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, the Company segregated its receivables into 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. For the nine months ended September 30, 2025, the Company reduced the allowance for expected credit losses due to recovery from a major customer. The Company’s allowance for expected credit losses was $54,480 and $131,716 as of September 30, 2025, and December 31, 2024, respectively.

Inventory

Inventory consisting of finished products is stated at the lower of cost or net realizable value. At each balance sheet date, the Company evaluates its ending inventories for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations. As of September 30, 2025 and December 31, 2024, the Company recorded a provision for obsolescence of $0 and $131,052, respectively.

Leases

The Company applied the FASB’s Accounting Standards Codification (“ASC”) Topic 842, Leases (Topic 842) to arrangements with lease terms of 12 months or more. Operating lease right-of-use (“ROU”) assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the statements of operations.

The Company has an operating lease principally for warehouse and office space. Management evaluates each lease independently to determine the purpose, necessity to its future operations in addition to other appropriate facts and circumstances.

Revenue Recognition

The Company recognizes revenues when its customer obtains control of promised goods or services, which occurs at a point in time, typically upon shipment to the customer. in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the performance obligation is satisfied.

Product Revenue

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. 100% of the Company’s revenues for the three and nine months ended September 30, 2025 and 2024, were recognized when the customer obtained control of the Company’s product, which occurred at a point in time, typically upon shipment to the customer.

Royalty Revenue

The Company generates royalty revenue from license and sublicense agreements that grant third parties the right to use its intellectual property, including trademarks and patents, in exchange for sales-based royalties.

License and Sublicense Agreements

On January 2, 2023, the Company entered into a license agreement granting a third-party licensee exclusive rights to use certain trademark and patent assets in exchange for minimum monthly royalty payments of $500,000. Under this structure, the Company received six payments totaling $3,000,000 from March through September 2023, which were recognized ratably over the exclusivity period as performance obligations were satisfied.

In March 2023, the licensee entered into a sublicense agreement with a third-party sublicensee, under which the sublicensee agreed to pay the Company sales-based royalties of 5% of gross sales of sublicensed products.

During the fourth quarter of 2023, the Company and the licensee ended the exclusivity agreement and transitioned to a sales-based royalty structure. Under the revised agreement:

●

The sublicensee continues to pay the Company a 5% royalty on gross sales of sublicensed products; and

●

The licensee pays a matching 5% royalty based on the sublicensee’s reported sales to maintain its licensing rights.

The Company recognizes royalty revenue in the period in which the criteria for revenue recognition under ASC 606, Revenue from Contracts with Customers, are met, which may be based on reported sales or upon receipt of payment.

The following table provides information about accounts receivable, royalty receivable from contracts with customers as of September 30, 2025 and December 31, 2024:

	Accounts		Royalty
	Receivable		Receivable
December 31, 2024	$	346,618	$	38,163
September 30, 2025	$	318,103	$	73,344

Voluntary Recall

In February 2024, the Company initiated a voluntary recall of approximately 62,200 lighters due to a missing child safety feature. Under ASC 606, these products are not eligible for revenue recognition, as revenue cannot be recognized for amounts that are not expected to be entitled. Consequently, the Company recorded this as a refund liability. The total impact of the recall, amounting to $198,068, has been recognized against revenues and receivables for potential credits associated with the recalled products.

To date, the volume of returns has been minimal, and it is not anticipated that returns will exceed the revenue amount already written off. The Company has accounted for this adjustment as a liability and will continue to reevaluate its assumptions based on incoming data. The total refund liability relating to the recall of the lighters was $61,880 and $182,534 as of September 30, 2025, and December 31, 2024, respectively.

Customer Concentration

During the nine months ended September 30, 2025, four customers accounted for approximately 36% of the Company’s net revenues. Receivables from these customers as of September 30, 2025 totaled $208,416. A summary of customer concentrations for the nine months ended September 30, 2025 is presented in the table below.

	2025		2025			2025		2025
Customer	Revenue ($)		Revenue %			Receivables ($)		Receivables %
A	$	505,978		18	%		84,640		22	%
B		183,884		7	%		77,351		20	%
C		179,174		6	%		-		0	%
D		145,196		5	%		46,426		12	%
Total	$	1,014,232		36	%	$	208,416		54	%

During the nine months ended September 30, 2024, 86% of the Company’s net revenues were generated from four customers. Accounts receivable and royalty receivables from these customers as of September 30, 2024, totaled $363,517. A summary of customer concentrations for the nine months ended September 30, 2024 is presented in the table below.

	2024		2024			2024		2024
Customer	Revenue ($)		Revenue %			Receivables ($)		Receivables %
A	$	900,417		33	%		157,433		23	%
B		609,611		22	%		114,428		17	%
C		484,156		17	%		506		0	%
D		377,783		14	%		91,150		13	%
Total	$	2,371,967		86	%	$	363,517		53	%

Unit-Based Compensation

The Company may issue restricted units to consultants for various services. Costs 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 Company’s units 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 units as compensation in future periods for services associated with the registration of the common units.

Unit-based payments to employees, including grants of employee options, are recognized as compensation expense in the financial statements based on their fair value, in accordance with ASC Topic 718. This 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 (typically the vesting period).

For the period ended September 30, 2025, the Company did not recognize any unit-based compensation. For the period ended September 30, 2024, the Company recognized $247,193 in unit-based compensation for the issuance of 2,942,771 common units to three employees, including the Chief Executive Officer and Chief Operating Officer in exchange for services provided. The expense was recognized at the grant date as the units were fully vested and issued as additional compensation for services already performed.

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.

Applicable GAAP require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying units at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the units issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

Fair Value

The carrying values of the Company’s notes payables, convertible notes, and accounts payable and accrued expenses approximate their fair values because of the short-term nature of these instruments.

Basic and Diluted Net (Loss) Income Per Unit

The Company computes net (loss) income per unit in accordance with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per unit (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net (loss) income available to unitholders by the weighted average number of units outstanding during the period. Diluted EPS gives effect to all dilutive potential units outstanding during the period, including options, using the treasury stock method, and convertible notes, using the if-converted method. Diluted EPS excludes all dilutive potential units if their effect is anti-dilutive.

Approximately 1,864,780 units underlying convertible notes were excluded from the calculation of diluted (loss) income per unit for the three and nine months ended September 30, 2024 because their effect was antidilutive.

In the nine months ended September 30, 2025, there were no potentially dilutive units since all convertible notes were fully settled in January 2025 and hence, none were outstanding as of September 30, 2025.

The following summarizes the calculation of basic and diluted (loss) income per unit for the three and nine months ended September 30, 2025 and 2024:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2025			2024			2025			2024
Net (loss) income per common unit – basic:
Net (loss) income allocated to common unit holders	$	(449,752	)	$	(166,884	)	$	(1,061,615	)	$	212,227
Weighted average common units outstanding - basic		91,746,806			89,935,870			91,746,806			89,179,936
Net (loss) income per common unit – basic	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.00

Net (loss) income per common unit – diluted:
Net (loss) income allocated to common unit holders - basic	$	(449,752	)	$	(166,884	)	$	(1,061,615	)	$	212,227
Add: tax adjusted interest convertible debt		-			-			-			-
Net (loss) income allocated to common unit holders -diluted	$	(449,752	)	$	(166,884	)	$	(1,061,615	)	$	212,227
Weighted average common units outstanding - basic		91,746,806			89,935,870			91,746,806			89,179,936
Add: diluted units related to convertible debt		-			-			-			-
Weighted average common units outstanding - diluted		91,746,806			89,935,870			91,746,806			89,179,936
Net (loss) income per common unit - diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.00

Provision for Income Taxes

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

For the three and nine months ended September 30, 2025, the Company had net losses, and did not anticipate having a tax liability, so no provision for income tax was recorded. During the nine months ended September 30, 2025, 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 for the nine months ended September 30, 2024.

The Company had a total tax liability of $726,538 and $741,222 for the nine months ended September 30, 2025, and the year ended 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 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 ASU affects 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.

VPR Brands, LP. 10-Q