Filed Pursuant to Rule 424(b)(3)

Registration No. 333-258521

 

The information in this prospectus is not complete and may be changed without notice. The Selling Stockholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and neither the Registrant nor the Selling Stockholder are soliciting offers to buy these securities, in any state where the offer or sale of these securities is not permitted.

 

PROSPECTUS

August 23, 2021

THE 4LESS GROUP, INC.

900,000 SHARES OF COMMON STOCK

 

This prospectus relates to the resale of up to 900,000 shares of our Common Stock Shares, par value $0.000001 per share (the “Common Stock”) which may be offered by the selling stockholder, Triton Funds, LP, a Delaware Limited Partnership (“Triton” or the “Selling Stockholder”). The shares of common stock being offered by the Selling Stockholder are issuable (a) upon conversion of 300,000 common stock purchase warrants (the “Warrant”) that we issued to Triton on July 27, 2021 and (b) 600,000 shares of common stock pursuant to Company initiated and directed drawdowns pursuant to the terms and conditions of the July 27, 2021 Common Stock Purchase Agreement with Triton (the “Purchase Agreement”, or “CSPA”)

 

The aggregate 900,000 Common Stock Shares, which may be sold pursuant to this Prospectus, would constitute an aggregate of 31.6% of the Company’s issued and outstanding shares as of August 5, 2021 (2,846,223), assuming that we sell all 600,000 shares of common stock to the Selling Stockholder and the Selling Stockholder exercises the Warrant for 300,000 shares of common stock. Triton is a Selling Stockholder and is deemed to be an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Act”) and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents, if any, and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or equivalent expenses and expenses of legal counsel applicable to the sale of the shares.

 

We are not selling any securities under this prospectus and will not receive any of the proceeds from the resale of shares of our common stock by the Selling Stockholder under this Prospectus, however, we may receive gross proceeds of up to $630,000 from the full exercise of the Warrants, subject to adjustment as determined under the common stock warrant agreement, as determined solely by Triton and we may receive gross proceeds of up to $1,000,000 from sales of our common stock to Triton following a Company initiated and directed drawdowns under the Purchase Agreement. Our Common Stock is subject to quotation the OTCQB Market under the symbol “FLES”. On August 4, 2021, the last reported sales price for our Common Stock was $2.00 per share. We urge prospective purchasers of our Common Stock to obtain current information about the market prices of our Common Stock. The Selling Stockholder may offer all or part of the shares of common stock for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. We provide more information about how the Selling Stockholder may sell its shares of common stock in the section titled “Plan of Distribution”. We will pay for all expenses of this Offering.

 

An investment in our common stock involves a high degree of risk. You should purchase our common stock only if you can afford a complete loss of your purchase.

 

We urge you to read carefully the “Risk Factors” section beginning on page 5 where we describe specific risks associated with an investment in these securities before you make your investment decision.

 

Prior to his Offering, there has been a limited market for our securities. While our common stock is quoted on OTC Markets, there has been negligible trading volume. There is no guarantee that an active trading market will develop in our securities.

 

This Offering is highly speculative, and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless of when the time of delivery of this prospectus or the sale of any Common Stock occurs. You should rely only on the information contained in this Prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this Prospectus. The Selling Stockholder may not sell the securities until the Registration Statement filed with the Securities and Exchange Commission is effective and only in compliance with Federal and State securities laws. This prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, the Common Stock in any jurisdiction in which the offer or sale is not permitted.

 

The date of this Prospectus is August 23, 2021.

 

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THE 4LESS GROUP, INC.

 

Table of Contents

 

The following table of contents has been designed to help you find information contained in this prospectus. We encourage you to read the entire prospectus.

 

PART I – INFORMATION REQUIRED IN PROSPECTUS  
   
Summary Information 1
Cautionary Note Regarding Forward-Looking Statements 5
Risk Factors 5
Use of Proceeds 27
Determination of Offering Price 27
Dilution 28
Selling Security Holder 28
The Offering 29
Plan of Distribution 35
Description of Securities to be Registered 36
Interests of Named Experts and Counsel 38
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 39
Where You Can Find More Information 39
Information with Respect to the Registrant  
Description of Business 39
Description of Property 44
Legal Proceedings 44
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45
Management’s Discussion and Analysis of Financial Condition and Results of Operation 46
Directors, Executive Officers and Corporate Governance 53
Executive Compensation 56
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 56
Certain Relationships and Related Transactions, and Director Independence 58
Shares Eligible for Future Sale 58
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59
Index to Financial Statements F-1
Financial Statements F-1

 

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Financial Statements

 

Please read this Prospectus carefully and in its entirety. This Prospectus contains disclosure regarding our business, our financial condition and results of operations and risk factors related to our business and our Common Stock, among other material disclosure items. We have prepared this Prospectus so that you will have the information necessary to make an informed investment decision.

 

You should rely only on information contained in this Prospectus. We have not authorized any other person to provide you with different information. This Prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The Selling Stockholder may not sell the securities listed in this Prospectus until the Registration Statement filed with the Securities and Exchange Commission is effective. The information in this Prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

 

The Registration Statement containing this Prospectus, including the exhibits to the Registration Statement, provides additional information about us and our Common Stock offered under this Prospectus. The Registration Statement, including the exhibits and the documents incorporated herein by reference, can be read on the Securities and Exchange Commission website or at the Securities and Exchange Commission offices mentioned under the heading “Where You Can Find More Information.”

 

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PROSPECTUS SUMMARY

 

You should carefully read all information in the prospectus, including the financial statements and their explanatory notes under the Financial Statements prior to making an investment decision.

 

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is January 31 and our fiscal years ended January 21, 2021 and January 31, 2020 are included in this prospectus, in addition to which our interim unaudited financial statements for the period ending April 30, 2021 are also included. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue.  These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Special Note Regarding Forward-Looking Statements” at page 5 of this Prospectus.

 

Except as otherwise required by the context, references in this prospectus to “we,” “our,” “us” or the “Company” refers to The 4Less Group, Inc.

 

Triton Funds LP is referred to herein as “Triton” or the “Selling Stockholder” or “Investor”.

 

This summary contains basic information about us and the offering. Because it is a summary, it does not contain all the information that you should consider before investing. You should read the entire prospectus carefully, including the risk factors and our financial statements and the related notes to those statements included in this prospectus.

 

We have not authorized anyone to provide you with different information and you must not rely on any unauthorized information or representation. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus, or any sale of our common stock. Our business, financial condition and results of operations may have changed since the date on the front of this prospectus. We urge you to carefully read this prospectus before deciding whether to invest in any of the common stock being offered.

 

Company Overview

 

We operate as an e-commerce retailer and distributor of auto and truck parts, including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and shocks. The e-commerce auto equipment market is composed of 2 segments, the direct replacement referred to as the “OE” (Original Equipment) market, typically used for automobile repairs, and the after-market automobile parts market, typically for customization of vehicles. We deal exclusively in the aftermarket. Our proprietary web sites include order customization, live chat, install videos, directions, and installation services, in our effort to provide a quality buying experience for consumers interested in purchasing aftermarket auto parts on the Internet today. Further details regarding our business is located at page 39 of this Prospectus.

 

About This Offering

 

This prospectus covers the resale of up to an aggregate of 900,000 shares of our Common Stock being registered herein, as follows: (a) 600,000 shares of common stock pursuant to Company initiated and directed drawdowns as provided for in the July 27, 2021 Common Stock Purchase Agreement (the “Purchase Agreement”) with Triton; and (b) 300,000 shares of Common Stock underlying a July 27, 2021 Common Stock Purchase Warrant (the “Warrant”) with Triton. We will not receive proceeds from any sale of shares by Triton Funds; we will receive proceeds from Triton pursuant to Purchase Notices we issue to Triton under the Purchase Agreement and through the exercise of warrants under the Warrant. Further details regarding the Offering are at page 29 of this Prospectus.

 

Going Concern

 

Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern. We had a negative working capital of $4.3 million, an accumulated deficit of $20.4 million, and stockholders’ deficit of $6.1 million as of and for the year ended January 31, 2021, and therefore there is substantial doubt about our ability to continue as a going concern. Further, we had a negative working capital of $2.7 million, an accumulated deficit of $20.9 million as of and for our fiscal quarter ending April 30, 2021, and therefore there is substantial doubt about our ability to continue as a going concern as of April 30, 2021.

 

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Where We are Located

 

Our corporate offices and warehouse are located at 106 W. Mayflower, Las Vegas, Nevada 89030. We have an install shop at 3065 N Rancho Drive, Suite 122-124, Las Vegas, Nevada 89130. We have a remote office at 6515 Goodman Rd., #258, Olive Branch, Mississippi 38654. Our telephone number is (702) 267-6100.

 

Before you invest in our Common Stock, you should carefully consider all the information in this Offering Circular, including matters set forth under the heading “Risk Factors.”

 

Our Filing Status as a “Smaller Reporting Company”

 

We are a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. As a “smaller reporting company,” the disclosure we will be required to provide in our SEC filings are less than it would be if we were not considered a “smaller reporting company.” Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being permitted to provide two years of audited financial statements in annual reports rather than three years. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

 

SUMMARY OF FINANCIAL INFORMATION

 

The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis,” and the Financial Statements and Notes thereto, included elsewhere in this Prospectus. The statement of operations data is derived from our condensed financial statements for the periods ended January 31, 2021 and April 30, 2021(unaudited).

 

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THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets

 

    April 30, 2021   January 31, 2021  
    Unaudited   (*)  
Assets              
Current Assets              
Cash and Cash Equivalents   $ 1,342,321   $ 277,664  
Share Subscriptions Receivable     94,817     100,000  
Inventory     307,526     323,411  
Prepaid Expenses     11,609     11,859  
Other Current Assets     4,827     2,149  
Total Current Assets     1,761,100     715,083  
Operating Lease Assets     319,698     344,413  
Property and Equipment, net of accumulated depreciation of $99,558, and $88,823     255,619     80,027  
               
Total Assets   $ 2,336,417   $ 1,139,523  
               
Liabilities and Stockholders’ Deficit              
Current Liabilities              
Accounts Payable   $ 865,586   $ 869,765  
Accrued Expenses     560,934     1,382,839  
Accrued Expenses – Related Party     81,173     106,173  
Customer Deposits     268,932     188,385  
Deferred Revenue     981,830     687,766  
Short-Term Debt     446,404     716,142  
Current Operating Lease Liability     99,937     90,286  
Short-Term Convertible Debt, net of debt discount of $180,789 and $309,317     340,711     336,683  
Derivative Liabilities     148,957     213,741  
PPP Loan-current portion     79,362     43,294  
Current Portion – Long-Term Debt     588,067     424,064  
Total Current Liabilities     4,461,893     5,059,138  
               
Non-Current Lease Liability     211,195     244,049  
PPP Loan -long term portion     130,085     166,153  
Long-Term Debt     1,018,990     890,373  
               
Total Liabilities     5,822,163     6,359,713  
               
Commitments and Contingencies          
Redeemable Preferred Stock              
Series D Preferred Stock, $0.001 par value, 870 shares authorized, 870 and 870 shares issued and outstanding     870,000     870,000  
               
Stockholders’ Deficit              
Preferred Stock – Series A, $0.001 par value, 330,000 shares authorized, 0 and 0 shares issued and outstanding          
Preferred Stock – Series B, $0.001 par value, 20,000 shares authorized, 20,000 and 20,000 shares issued and outstanding     20     20  
Preferred Stock – Series C, $0.001 par value, 7,250 shares authorized, 7,250 and 7,250 shares issued and outstanding     7     7  
Common Stock, $0.000001 par value, 15,000,000 shares authorized, 2,574,413 and 1,427,163 shares issued, issuable and outstanding     3     1  
Additional Paid In Capital     16,593,758     14,291,759  
Accumulated Deficit     (20,949,534 )   (20,381,977 )
Total Stockholders’ Deficit     (4,355,746 )   (6,090,190 )
               
Total Liabilities and Stockholders’ Deficit   $ 2,336,417   $ 1,139,523  

 

* Derived from audited information

 

The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.

 

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

 

    2021   2020  
Revenue   $ 3,728,784   $ 2,000,071  
               
Cost of Revenue     2,766,578     1,428,304  
               
Gross Profit     962,206     571,767  
               
Operating Expenses:              
Depreciation     10,735     6,647  
Postage, Shipping and Freight     193,187     113,138  
Marketing and Advertising     608,034     18,068  
E Commerce Services, Commissions and Fees     416,127     166,419  
Operating lease cost and rent     30,479     34,079  
Personnel Costs     297,493     266,735  
General and Administrative     648,509     175,642  
Total Operating Expenses     2,204,564     780,728  
               
Net Operating Loss     (1,242,358 )   (208,961 )
               
Other Income (Expense)              
Gain (Loss) on Derivatives     4,187     (74,780 )
Gain on Settlement of Debt     914,049     2,172,646  
Amortization of Debt Discount     (128,528 )   (578,913 )
Interest Expense     (114,907 )   (123,094 )
Total Other Income (Expense)     674,801     1,395,859  
               
Net Income (Loss)   $ (567,557 ) $ 1,186,898  
               
Basic Average Shares Outstanding     1,940,098     551,590  
Basic Income (Loss) per Share   $ (0.29 ) $ 2.15  
Diluted Weighted Average Shares Outstanding     1,940,098     88,598,209  
Diluted Income (Loss) per Share   $ (0.29 ) $ 0.01  

 

See Notes to Financial Statements

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Prospectus includes “forward-looking” statements regarding our business development plans, regulatory reviews, timing, strategies, expectations, anticipated expenses levels, projected profits, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions, as well as historical information. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from anticipated results, performance or achievements expressed or implied by such forward-looking statements. When used in this Prospectus, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan,” “intend,” “may,” “will,” “expect,” “believe,” “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.  Our future operating results are dependent upon many factors, and our further development is highly dependent on market acceptance, which is outside its control. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, (1) Our operations and financial performance could be negatively impacted if we fail to develop our business and expand as we anticipate in connection with the launch of our new expanded auto parts website; (2) We will need substantial additional funding to continue our operations, which could result in dilution to our stockholders (3) We may be unable to raise capital when needed, if at all, which could cause us to have insufficient funds to pursue our operations, or to delay, reduce or eliminate our development of new programs or commercialization efforts; (4) Triton’s sales of our Common Stock may cause material dilution to our existing stockholders; (5) An investment in our shares is highly speculative; (6) Our stock price may decline because Triton will pay less than the then-prevailing market price of our common stock; (7) We may not have future access to the $1,000,000 full amount provided for in the Common Stock Purchase Agreement with Triton; (8) We have a history of operating losses and if we fail to obtain adequate financing or develop profitable operations, you may lose your entire investment in or shares of our Common Stock; (9) We may adversely be impacted due to the outbreak of the coronavirus, COVID-19, and the subsequent distribution of vaccinations and the impact of variants to COVID-19, that could adversely affect domestic and foreign economies and our financial prospects ; and (10) the other factors discussed in “Risk Factors” and elsewhere in this Prospectus.

 

All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise, except to the extent required by federal securities laws.

 

RISK FACTORS

 

An investment in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this Offering Circular, before purchasing our Common Stock. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this Offering Circular, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.

 

RISKS RELATED TO OUR BUSINESS

 

There is substantial doubt as to whether we can continue as a going concern.

 

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. As more fully explained in Note 2 to our financial statements for our fiscal year ending January 31, 2021, which includes management’s plans regarding this uncertainty, we had a negative working capital of $4,344,055 and an accumulated deficit of $20,381,977 and stockholders’ deficit of $6,090,190 as of and for the year ended January 31, 2021. Further, we had a negative working capital of $2,700,793 and an accumulated deficit of $20,949,534 of and for our fiscal quarter ending April 30, 2021. As of April 30, 2021, we only had cash and cash equivalents of $1,342,321 and approximately $151,000 of short-term debt in default. Therefore there is substantial doubt about our ability to continue as a going concern as of January 31, 2021 and April 30, 2021.

 

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Our financial results will fluctuate in the future, which makes them difficult to predict.

 

Our financial results may fluctuate in the future. Additionally, we have a limited operating history with the current scale of our business, which makes it difficult to forecast future results. As a result, you should not rely upon our past financial results as indicators of future performance. You should consider the risks and uncertainties frequently encountered by rapidly growing companies in evolving markets. Our financial results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:

 

The extent to which COVID-19 outbreak as well as the impact of the variants and the levels of vaccinations will impact business and the economy is highly uncertain and cannot be predicted and may add to the risks described below.
   
Our ability to maintain and grow our user base. 
   
Our suppliers may suffer downturns or financial instability.
   
Development and introduction of new products by our competitors.
   
Increases in marketing, sales, service, and other operating expenses that we may incur to grow and expand our operations and to remain competitive.
   
Our ability to maintain gross margins and operating margins;
   
Changes affecting our suppliers and other third-party service providers;
   
Adverse litigation judgments, settlements, or other litigation-related costs; and
   
Changes in business or macroeconomic conditions including regulatory changes.

 

Any one or a combination of the above factors may have a negative impact on our results of operations and which could result in our never achieving profitability.

 

We cannot assure you that we will effectively manage our growth.

 

We intend to hire additional employees, offer new products from our suppliers, substantially increase our marketing and promotion campaign and launch new websites. The growth and expansion of our business create significant challenges for our management, operational, and financial resources, including managing multiple relationships and interactions with users, distributors, vendors, and other third parties. As we continue to grow and refine our information technology systems, internal management processes, internal controls and procedures and production processes may be inadequate to support our operations. To ensure success, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base. As we continue to grow, and implement more complex organizational and management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our current team’s efficiency and expertise, which could negatively affect our results of operations. Additionally, this expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may be unable to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our results of operations such that we may never achieve profitability.

 

Our costs may grow more quickly than our revenues, which may negatively affect our potential profitability.

 

We expect our expenses to continue to increase in the future as we expand our product offerings and hire additional employees. We expect to continue to incur increasing costs, in particular for working capital to purchase inventory and increase the size and scope of our marketing and promotion campaign and to improve our technological tools. Our expenses may be greater than we anticipate which would have a negative impact on our results of operations and our ability to invest in expansion of our business such that we may never achieve profitability.

 

The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.

 

We depend on the continued services and performance of key members of our management team, including our Chief Executive Officer/Chief Financial Officer, Timothy Armes, and the president of our subsidiary, Auto Parts 4Less, Inc., Chris Davenport. If we cannot call upon our officers and/or key management personnel for any reason, our operations and development could be harmed. We do not carry key man life insurance. We have not yet developed a succession plan. Furthermore, as we grow, we will be required to hire and attract additional professionals in programming, accounting, legal, finance, marketing, customer services. We may be unable to locate or attract qualified individuals for such positions, which will affect our ability to grow and expand our business.

 

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If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may be unable to increase net revenue per active customer or continue to report profitable results of operations.

 

Our success depends on our ability to acquire new customers in a cost-effective manner. In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce to purchase the goods we provide and may prefer alternatives to our offerings, such as traditional brick and mortar retailers, the websites of our competitors or our suppliers’ own websites. We have primarily relied upon our organic growth and our advertising through Facebook. We cannot assure you that the net profit from new customers we acquire will ultimately exceed the cost of acquiring those customers. If we fail to deliver a quality shopping experience, or if consumers do not perceive that the products, we offer to be economically advantageous, of high value and quality, we may be unable to acquire new customers. If we are unable to acquire new customers who purchase products in numbers sufficient to grow our business, we be unable to generate the scale necessary to drive beneficial effects with our suppliers, our net revenue may decrease, and our business, financial condition and operating results may be materially adversely affected.

 

Our success depends in part on our ability to increase our net revenue per active customers; if we fail to increase customer loyalty and repeat purchasing as well as maintain high levels of customer engagement, our growth prospects and revenue will be materially adversely affected.

 

Our ability to grow our business also depends on our ability to retain our existing customer base and generate increased revenue and repeat purchases from this customer base and maintain high levels of customer engagement. To do this, we must continue to provide our customers and potential customers with a unified, convenient, efficient, and differentiated shopping experience. If we fail to increase net revenue per active customer, generate repeat purchases or maintain high levels of customer engagement and average order value, our growth prospects, operating results, and financial condition could be materially adversely affected.

 

Uncertain acceptance and maintenance of our brand.

 

We believe that the establishment and maintenance of our brand that the public identifies with us is critical to attracting and expanding its customer base. No assurance can be given that our branding efforts will be successful. Promotion of brand awareness among users will depend, among other things, on our success in our organic growth, our marketing efforts, and the usability of our websites, none of which can be assured.

 

If we do not successfully optimize and operate our fulfillment network our business could be harmed.

 

If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment network successfully, it could result in excess or insufficient fulfillment, or result in increased costs, impairment charges, or both, and harm our business in other ways. As we continue to add fulfillment capability or add new businesses with different requirements, our fulfillment networks become increasingly complex and operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively. In addition, a failure to optimize inventory in our fulfillment network may increase our shipping cost. Orders from several of our websites are fulfilled primarily from a single location, and we have only a limited ability to reroute orders to third parties for drop-shipping.

 

We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If we are unable to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience. In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, acts of God, and similar factors.

 

Third parties either drop-ship or otherwise fulfill an increasing portion of our customers’ orders, and we are increasingly reliant on the reliability, quality, and future procurement of their services. Under some of our commercial agreements, we maintain the inventory of other companies, thereby increasing the complexity of tracking inventory and operating our fulfillment network. Our failure to properly handle such inventory or the inability of these other companies to accurately forecast product demand would result in unexpected costs and other harm to our business and reputation.

 

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We may face inventory risks.

 

We are exposed to inventory risks that may adversely affect our operating results as a result of seasonality, new product launches by manufacturers, rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to our products, and other factors. We endeavor to accurately predict these trends and avoid overstocking or understocking products we sell. Demand for products, however, can change significantly between the time inventory is ordered and the date of sale. In addition, when we begin selling a new product, it may be difficult to establish vendor relationships, determine appropriate product selection, and accurately forecast demand. The acquisition of certain types of inventory may require significant lead-time and prepayment and may not be returnable. We plan to carry a broad selection of inventory and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.

 

Risks associated with the suppliers from whom our products are sourced could materially adversely affect our financial performance as well as our reputation and brand.

 

We depend on our ability to provide our customers with a wide range of products from qualified suppliers in a timely and efficient manner. Political and economic instability, the financial stability of suppliers, suppliers’ ability to meet our standards, labor problems experienced by suppliers, the availability of raw materials, merchandise quality issues, currency exchange rates, transport availability and cost, transport security, inflation, and other factors relating to the suppliers are beyond our control.

 

Our agreements with most of our suppliers do not provide for the long-term availability of merchandise or the continuation of particular pricing practices, nor do they usually restrict such suppliers from selling products to other buyers.

 

There can be no assurance that our current suppliers will continue to seek to sell us products on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms. Our ability to develop and maintain relationships with reputable suppliers and offer high quality merchandise to our customers is critical to our success. If we are unable to develop and maintain relationships with suppliers that would allow us to offer a sufficient amount and variety of quality merchandise on acceptable commercial terms, our ability to satisfy our customers’ needs, and therefore our long-term growth prospects, would be materially adversely affected.

 

We depend on our suppliers to perform certain services regarding the products that we offer.

 

As part of offering our suppliers’ products for sale on our sites, they generally agree to conduct a number of traditional retail operations regarding their products, including maintaining inventory and preparing merchandise for shipment to our customers. We may be unable to ensure that these suppliers will continue to perform these services to our customers’ satisfaction in a manner that provides our customer with a unified brand experience or on commercially reasonable terms. If our customers become dissatisfied with the products and shipments provided by our suppliers, our business, reputation, and brands could suffer.

 

Our business may be adversely affected if we are unable to provide our customers a cost-effective shopping platform that is able to respond and adapt to rapid changes in technology.

 

The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. The smaller screen size, functionality, and memory associated with some alternative devices may make the use of our sites and purchasing our products more difficult. The versions of our sites developed for these devices may not be compelling to consumers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology.

 

As new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for alternative devices and platforms, and we may need to devote significant resources to the creation, support, and maintenance of such applications. If we are unable to attract consumers to our websites through these devices or are slow to develop a version of our websites that is more compatible with alternative devices or a mobile application, we may fail to capture a significant share of consumers which could adversely affect our business.

 

Further, we continually upgrade existing technologies and business applications, and we may be required to implement new technologies or business applications in the future. The implementation of upgrades and changes requires significant investments. Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure. In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed and our business, financial condition and operating results may be materially adversely affected.

 

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Significant merchandise returns could harm our business.

 

We allow our customers to return products, subject to our return policy. If merchandise returns are significant, our business, prospects, financial condition, and results of operations could be harmed. Many of our products are large and require special handling and delivery. From time to time our products are damaged in transit, which can increase return rates and harm our brand.

 

We may be subject to product liability claims if people or property are harmed by the products we sell.

 

Some of the products we sell may expose us to product liability claims relating to personal injury, death, or environmental or property damage, and may require product recalls or other actions. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.

 

We are subject to risks related to online payment methods.

 

We accept payments using a variety of methods, including credit card, debit card, PayPal, and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit card payments from consumers or facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected.

 

We occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition, and results of operations.

 

We could be harmed by data loss or other security breaches.

 

As a result of our services being web-based and the fact that we process, store, and transmit large amounts of data, including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us, and otherwise harm our business. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach, such measures cannot provide absolute security.

 

Legislation or other changes in U.S. tax law could adversely affect our business and financial condition.

 

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many changes have been made to applicable tax laws and changes are likely to continue to occur in the future.

 

For example, the Tax Cuts and Jobs Act, or the TCJA, was enacted in 2017 and made significant changes to corporate taxation, including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the tax deduction for net interest expense to 30% of adjusted taxable income (except for certain small businesses), the limitation of the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income and the elimination of net operating loss carrybacks generated in taxable years ending after December 31, 2017 (though any such net operating losses may be carried forward indefinitely) and the modification or repeal of many business deductions and credits. In addition, on March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security Act” or the CARES Act, which included certain

 

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changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 public health emergency, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters. On April 21, 2020, the Paycheck Protection Program and Health Care Enhancement Act was enacted that increased funding to the Paycheck Protection Program and also provide more funding for hospitals and testing for COVID-19. In addition, new legislation enacted by the current administration, called the “American Rescue Plan”, included economic stimulus provisions, State and local recovery funds, capital project funds, and other financial incentives. All these pieces of legislation may have an impact on our business, financial condition, and results of operations, in their implementation and as well as when they expire, although it is too soon to quantify the effect.

 

It cannot be predicted whether, when, in what form or with what effective dates new tax or stimulus laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our or our shareholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.

 

We face risks related to system interruption and lack of redundancy.

 

We may experience occasional system interruptions and delays that make our websites and services unavailable or slow to respond and prevent us from efficiently fulfilling orders which may reduce our net sales and the attractiveness of our products. If we are unable to continually add software and hardware, effectively upgrade our systems and network infrastructure, and take other steps to improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our operating results.

 

Our computer and communications systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system interruption, delays, and loss of critical data, and could prevent us from accepting and fulfilling customer orders which could make our products less attractive and subject us to liability. Our systems are not fully redundant, and our disaster recovery planning may not be sufficient. In addition, we may have inadequate insurance coverage to compensate for any related losses. Any of these events could damage our reputation and be expensive to remedy.

 

If demand for our products slows, then our business may be materially adversely affected.

 

Demand for the products we sell may be affected by a number of factors we cannot control, including:

 

Number of older vehicles in service since vehicles seven years old or older are generally no longer under the original vehicle manufacturers’ warranties and tend to need more maintenance and repair than newer vehicles.
   
Rising energy prices. Increases in energy prices may cause our customers to defer purchases of certain of our products as they use a higher percentage of their income to pay for gasoline and other energy costs and may drive their vehicles less, resulting in less wear and tear and lower demand for repairs and maintenance.
   
Periods of declining economic conditions, consumers may reduce their discretionary spending by deferring vehicle maintenance or repair or affect our customers’ ability to obtain credit.
   
Milder weather conditions may lower the failure rates of automotive parts, while extended periods of rain and winter precipitation may cause our customers to defer maintenance and repair on their vehicles. Extremely hot or cold conditions may enhance demand for our products due to increased failure rates of our customers’ automotive parts.
   
Advances in automotive technology, such as electric vehicles, and parts design can result in cars needing maintenance less frequently and parts lasting longer.
   
Number of miles vehicles are driven annually (higher vehicle mileage increases the need for maintenance and repair and mileage levels may be affected by gas prices, ride sharing and other factors).
   
Quality of the vehicles manufactured by the original vehicle manufacturers and the length of the warranties or maintenance offered on new vehicles.
   
Restrictions on access to telematics and diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation (these restrictions may cause vehicle owners to rely on dealers to perform maintenance and repairs).

 

These factors could result in a decline in the demand for our products, which could adversely affect our business and overall financial condition.

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If we are unable to compete successfully against other businesses that sell the products that we sell, we could lose customers and our sales and profits may decline.

 

The sale of automotive parts, accessories and maintenance items is highly competitive, and sales volumes are dependent on many factors, including name recognition, product availability, customer service, store location and price. Our competitors include national, regional, and local auto parts chains, independently owned parts stores, online automotive parts stores or marketplaces, wholesale distributors, auto dealers and other retailers that sell aftermarket vehicle parts and supplies, chemicals, accessories, tools, and maintenance parts. Our competitors may gain competitive advantages, such as greater financial and marketing resources allowing them to sell automotive products at lower prices, larger stores with more merchandise, longer operating histories, more frequent customer visits and more effective advertising. Online and multi-channel retailers often focus on delivery services, offering customers faster, guaranteed delivery times and low-price or free shipping. Online businesses have lower operating costs than we do. Many of our competitors are able to compete more effectively in the commercial market on the basis of customer service, merchandise quality, selection and availability, price, product warranty, distribution locations and the strength of their brand name, trademarks and service marks, some automotive aftermarket participants have been in business for substantially longer periods of time than we have, and as a result have developed long-term customer relationships and have large available inventories. If we are unable to profitably develop new commercial customers, our sales growth may be limited.

 

Consolidation among our competitors may negatively impact our business.

 

Historically some of our competitors have merged. Consolidation among our competitors could enhance their market share and financial position, provide them with the ability to achieve better purchasing terms and provide more competitive prices to customers for whom we compete, and allow them to utilize merger synergies and cost savings to increase advertising and marketing budgets to more effectively compete for customers. Consolidation by our competitors could also increase their access to local market parts assortment. These consolidated competitors could take sales volume away from us in certain markets, could achieve greater market penetration, could cause us to change our pricing with a negative impact on our margins or could cause us to spend more money to maintain customers or seek new customers, all of which could negatively impact our business.

 

Our failure to protect our reputation could have a material adverse effect on our brand name and profitability.

 

The value in our brand name and its continued effectiveness in driving our sales growth are dependent to a significant degree on our ability to maintain our reputation for safety, high product quality, friendliness, service, trustworthy advice, integrity, and business ethics. Any negative publicity about these areas could damage our reputation and may result in reduced demand for our merchandise. The increasing use of technology also poses a risk as customers are able to quickly compare products and prices and use social media to provide feedback in a manner that is rapidly and broadly dispersed. Our reputation could be impacted if customers have a bad experience and share it over social media.

 

Failure to comply with ethical, social, product, labor, environmental and anti-corruption standards could also jeopardize our reputation and potentially lead to various adverse actions by consumer or environmental groups, employees, or regulatory bodies.

 

Failure to comply with applicable laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation. If we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, our capital and operating expenses could increase due to implementation of and compliance with existing and future laws and regulations or remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations. The inability to pass through any increased expenses through higher prices would have an adverse effect on our results of operations.

 

Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations and financial condition, as well as require additional resources to rebuild our reputation.

 

Our business, financial condition, results of operations and cash flows may be affected by litigation.

 

We are involved in lawsuits, regulatory investigations, governmental and other legal procedures, arising out of the ordinary course of business. Legal action may be material and may adversely affect our business, results of operations, financial condition, and cash flows.

 

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We rely heavily on our information technology systems for our key business processes. Any failure or interruption in these systems could have a material adverse impact on our business.

 

We rely extensively on our information technology systems, some of which are managed or provided by third-party service providers, to manage inventory, communicate with customers, process transactions, and summarize results. Our systems and the third-party systems we rely on are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches, malicious cyber-attacks, catastrophic events, and design or usage errors by contractors or third-party service providers. Although we and our third-party service providers work diligently to maintain our respective systems, we may not be successful in doing so.

 

We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. As an early-stage company without significant investments in data security protection, we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business, prospects, financial condition, and results of operations.

 

If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could result in lost sales, inability to process purchase orders and/or a potential loss of customer loyalty, which could adversely affect our results of operations.

 

Our business is in the process of developing and implementing various information systems, as well as modifying existing systems. These technological changes will require significant investment of human and financial resources, and our business may experience significant delays, costs increases and other obstacles with these projects. Although we have invested significant resources during our planning, project management and training, implementation issues may arise which may disrupt our operations and negatively impact our business operations, financial condition, and cash flows.

 

Government regulation of the internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

 

We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e-commerce, or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted, and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply, or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries may seek to censor content available on our sites or may even attempt to completely block access to our sites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net revenue and expand our business as anticipated.

 

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Failure to comply with federal, state and international laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.

 

A variety of federal, state, and international laws and regulations govern the collection, use, retention, sharing, export, and security of consumer data. Laws and regulations relating to privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements, and obligations. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal, state or international privacy or consumer protection related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets. Any such claim, proceeding or action could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.

 

Federal, state, and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes. U.S. and foreign governments have enacted, have considered or are considering legislation or regulations that could significantly restrict the ability of companies and individuals to engage in these activities, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective. The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms and consequently, materially adversely affect our business, financial condition and operating results.

 

In addition, various federal, state, and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection and consumer protection. Any such changes may force us to incur substantial costs or require us to change our business practices. This could compromise our ability to pursue our growth strategy effectively and may adversely affect our ability to acquire customers or otherwise harm our business, financial condition, and operating results.

 

A privacy breach could damage our reputation and our relationship with our customers, expose us to litigation risk and adversely affect our business.

 

As part of our normal course of business, we collect, process, and retain sensitive and confidential customer information. Despite security measures we have in place, our facilities and systems may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information could severely damage our reputation and our relationships with our customers, expose us to risks of litigation and liability and adversely affect our business.

 

Our Articles of Incorporation exculpates our officers and directors from certain liability to us or our stockholders.

 

Our Articles of Incorporation contain a provision limiting the liability of our officers and directors for their acts or failures to act, except for acts involving intentional misconduct, fraud, or a knowing violation of law. This limitation on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our stockholders from suing our officers and directors based upon breaches of their duties to us.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

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Business disruptions could affect our operating results

 

A significant portion of our development activities and certain other critical business operations are concentrated in a few geographic areas. A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical facilities could severely affect our ability to conduct normal business operations and, as a result, our future financial results could be materially and adversely affected.

 

We expect to incur substantial expenses to meet our reporting obligations as a public company.

 

We estimate that it will cost a minimum of $250,000 annually to maintain the current level of management and financial controls for our filings required as a public reporting company, funds that would otherwise be spent for our business operations. Our public reporting costs may increase over time, which will increase our expenses and may decrease our potential profitability.

 

Because the President of our wholly owned subsidiary has a controlling interest in our voting shares, he can exert significant control over our business and affairs.

 

The President of our wholly owned subsidiary, Auto Parts 4 Less, Inc. Christopher Davenport, beneficially owns a controlling interest of our outstanding voting stock, specifically controlling 85.5% of the 20,000 shares of Series B Preferred Stock authorized, each share of which entitles the holder to vote on all shareholder manners in total equal to 66.7% of the total vote As a result, the President of our wholly owned subsidiary will have significant influence and control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the following actions:

 

to elect or defeat the election of our directors.
to amend or prevent amendment of our certificate of incorporation or by-laws.
to effect or prevent a merger, sale of assets or other corporate transaction.
to control the outcome of any other matter submitted to our stockholders for a vote.

 

This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for our common stock, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 

There are potential conflicts of interest between the interests of common shareholders and the ownership interests of the holders of Series B and C preferred stock.

 

The certificates of designation of our Series B and C preferred stock contain provisions which provide for super voting rights and conversion rights for the holders of those preferred shares. The result of this is that those holders are not affected by events or transactions which dilute common shareholders until such time as they convert their preferred shares to common shares. In the past, we have issued what are commonly referred to as “toxic” convertible securities. The effect of these issuances resulted in substantial dilution over the past few years to common shareholders. These have had no effect on voting rights or conversion rights of the Series B and C preferred stockholders. Accordingly, there are potential and actual conflicts of interests between the interests of the Series B and C preferred shareholders interests and the interests of our common shareholders. In future periods, if we are unable to maintain profitability of our operations, common shareholders could again become subject to these types of dilution events and transactions.

 

We will need substantial additional funding to continue our operations, which could result in dilution to our stockholders; we may be unable to raise capital when needed, if at all, which could cause us to have insufficient funds to pursue our operations, or to delay, reduce or eliminate our development of new programs or commercialization efforts.

 

We expect to incur additional costs associated with operating as a public company, as disclosed above, and to require substantial additional funding to continue to pursue our business and our expansion plans. We may also encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we expect that we will need to obtain substantial additional funding in order to continue our operations.

 

We have estimated that we will require approximately $4,000,000 to fully carry out our business plan for the next twelve months. At present, absent additional financing, we estimate that we have sufficient cash and anticipated revenue to fully carry out our business plan for three months, after which we may need to scale back our business plan. There is no assurance that actual cash requirements will not exceed our estimates. We will require additional financing to finance working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow.

 

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Our ability to generate positive cash flow will be dependent upon our ability to generate sufficient revenues from our new business plan and raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise additional funds to:

 

support our planned growth and carry out our business plan
hire top quality personnel for all areas of our business; and
address competing market developments

 

To date, we have financed our operations entirely through equity investments by related parties and other investors and the incurrence of debt. We expect to continue to do so in the foreseeable future. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible into equity, it will result in dilution to our existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital through the incurrence of additional indebtedness, we will likely become subject to further covenants restricting our business activities, and holders of debt instruments may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support development of new programs and marketing to current and potential new clients. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate development of new programs or future marketing efforts. Any of these events could significantly harm our business, financial condition, and prospects.

 

Our sales through eBay have declined

 

Apart from selling our products through our own website, we also sell our products through third party websites, including Walmart and eBay, which for our last financial quarter ending April 30, 2021 totaled $1,605,683. Our revenues with respect to eBay have decreased by approximately 64% in our second financial quarter ending July 31, 2021 over prior years 2nd quarter, primarily due to eBay dropping us as a preferred seller due to the inability of manufacturers to manufacture and ship to the buyers on a timely basis. There can be no assurances as to the prospective revenues in upcoming quarters and in the event of a continued decline in revenues, our aggregate revenues and financial condition will be negatively affected.

 

We do not have an independent board of directors which could create a conflict of interests and pose a risk from a corporate governance perspective.

 

Our Board of Directors consists mostly of current executive officers and consultants, which means that we do not have any outside or independent directors. The lack of independent directors:

 

May prevent the Board from being independent from management in its judgments and decisions and its ability to pursue the Board responsibilities without undue influence.
   
May present us from providing a check on management, which can limit management taking unnecessary risks.
   
Create potential for conflicts between management and the diligent independent decision-making process of the Board.
   
Present the risk that our executive officers on the Board may have influence over their personal compensation and benefits levels that may not be commensurate with our financial performance.
   
Deprive us of the benefits of various viewpoints and experience when confronting challenges that we face.

 

Because officers serve on our Board of Directors, it will be difficult for the Board to fulfill its traditional role as overseeing management.

 

Because we do not have a nominating or compensation committee, shareholders will have to rely on the entire board of directors, no members of which are independent, to perform these functions.

 

We do not have a nominating or compensation committee, or any such committee comprised of independent directors. The board of directors performs these functions. No members of the board of directors are independent directors. Thus, there is a potential conflict in that board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions.

 

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We may have difficulty obtaining officer and director coverage or obtaining such coverage on favorable terms or financially be unable to obtain any such coverage, which may make it difficult for our attracting and retaining qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage or financially be unable to obtain such coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed, and our stock price could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards.

 

We expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. Our internal control over financial reporting presently are not effective as defined under Section 404, we cannot predict how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

 

These and other new or changed laws, rules, regulations, and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations, and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.

 

Public disclosure requirements and compliance with changing regulation of corporate governance pose challenges for our management team and result in additional expenses and costs which may reduce the focus of management and the profitability of our company.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

 

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COVID-19 RELATED RISKS

 

The outbreak of the coronavirus may negatively impact sourcing and manufacturing of the products that we sell as well as consumer spending, which could adversely affect our business, results of operations and financial condition.

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect our business, results of operations and financial condition.

 

The COVID-19 Pandemic poses threats to manufacturing capacity and temporary disruption of operations.

 

The ability of our industry to ramp up production to meet demand, and how long the pandemic lasts, will have a direct impact on the amount of inventory remaining in distribution channels once the pandemic subsides. This factor, coupled with the possibility of economic recession or runaway inflation, could have a deleterious impact on sales for a significant period that could negatively impact our revenues and our third-party manufacturing efficiencies. Our ability to increase market penetration is predicated upon our continued ability to sub-manufacturer at a sufficient capacity, however, there can be no guarantees that our manufacturing will not be negatively impacted by the pandemic or government responses to it. Additionally, there is a risk that government responses to thwart the spread of the virus, in the form of local or regional quarantine or shelter-in-place orders, could require temporary curtailment of manufacturing operations of our manufacturers, or prevent the export of our products from the country of origin. In such cases, our inability to deliver product would negatively impact sales.

 

The global impact of COVID-19 and actions taken to reduce its spread continues to rapidly evolve and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of potential impacts on our business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. The length of time it may take for global vaccine distribution and more normal economic and operating conditions to resume remains uncertain and the economic recovery period could continue for a prolonged period even after the health risks of the pandemic subside.  Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows or financial condition. To the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described in this “Risk Factors” section of this prospectus.

 

A terrorism attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the current Coronavirus outbreak, could negatively impact our operations.

 

Our operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, Pandemics, and natural disasters. The occurrence of any of these events could have an adverse effect on our business results and financial condition.

 

We are susceptible to a widespread outbreak of an illness or other health issue, such as the Coronavirus (also referred to herein as “Covid 19”) outbreak first reported in Wuhan, Hubei Province, China in December 2019, resulting in millions of confirmed cases identified around the world and in countries in which we conduct business, including the United States. The outbreak has caused governments to implement quarantines, implement significant restrictions on travel, closed schools, and workplaces, and implement work restrictions, all of which can impair normal business operations. Globally air travel has been significantly interrupted as has air freight, ocean freight, and even truck deliveries.

 

As a result of pandemic outbreaks, businesses have been shut down, supply chains have been interrupted, slowed, or rendered inoperable, and individuals can become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governmental mandates have required forced shutdowns of our facilities for extended or indefinite periods and, if there is a “fourth” wave of COVID-19, may occur again. In addition, these widespread outbreaks of illness could adversely affect our workforce resulting in serious health issues and absenteeism. Pandemic outbreaks and slow recovery could also interfere with general commercial activity related to our supply chain and customer base, which could have an adverse effect on our financial condition and operational results.

 

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The outbreak of the COVID-19 may adversely affect our supply chain.

 

The worldwide outbreak of corona virus could adversely affect our business, results of operations and financial condition. The coronavirus outbreak may materially impact sourcing and manufacturing of auto parts that are manufactured in other countries and materials for our products that are sourced in other countries by overseas manufacturers and in other affected regions. Travel within and into other overseas countries may be restricted, which may impact our manufacturers’ ability to obtain necessary materials and inhibit travel of manufacturers and material suppliers. Additionally, there are potential factory closures, inability to obtain materials, disruptions in the supply chain and potential disruption of transportation of goods produced other countries adversely impacted by the coronavirus outbreak, or threat or perceived threat of such outbreak. As a result, we may be unable to obtain adequate inventory from sources from these regions, which could adversely affect our business, results of operations and financial condition.

 

The outbreak of the COVID-19 may adversely affect our customers.

 

Further, such risks as described above could also adversely affect our customers’ financial condition, resulting in reduced spending for the merchandise we sell. Risks related to an epidemic, pandemic, or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our facilities or operations of our sourcing partners. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic, or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition, and results of operations.

 

THE OUTBREAK OF COVID-19 HAS RESULTED IN A WIDESPREAD HEALTH CRISIS THAT COULD ADVERSELY AFFECT THE ECONOMIES AND FINANCIAL MARKETS WORLDWIDE AND COULD EXPONENTIALLY INCREASE THE RISK FACTORS DESCRIBED ABOVE AND BELOW.

 

RISKS RELATED TO OUR SECURITIES

 

Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional shares of our common stock.

 

We may rely on equity sales of common stock to fund operations. We may conduct further equity and/or convertible debt offerings in the future to finance operations or other projects that it decides to undertake. If common stock is issued in return for additional funds, or upon conversion or exercise of outstanding convertible debentures or warrants, the price per share could be lower than that paid by existing common stockholders. If we issue additional shares of common stock, your percentage interest will be lower. This condition, often referred to as “dilution”, could result in a reduction in the per share value of your shares of common stock. Our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. The foregoing actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. To the extent that the cash flow from operations are insufficient to fund our operations, we will be required to raise additional capital through equity or debt financing. Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve significant restrictive covenants.

 

Sales of our Common Stock being registered herein on behalf of Triton and the subsequent resale of those shares will have a material dilutive effect upon our shares and will likely have a depressive effect on the market price of our Common Stock, which we have addressed in risk factors beginning at page 5.

 

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The trading price of our common stock may fluctuate significantly.

 

Volatility in the trading price of our common stock may prevent you from being able to sell your shares of our common stock at prices equal to or greater than your purchase price. The trading price of our common stock could fluctuate significantly for various reasons, including:

 

our operating and financial performance and prospects;
   
our quarterly or annual earnings or those of other companies in our industry;
   
the public’s reaction to our press releases, COVID-19, other public announcements and filings with the Securities and Exchange Commission, or SEC;
   
changes in earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies in our industry;
   
strategic actions by us or our competitors;
   
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
   
changes in accounting standards, policies, guidance, interpretations, or principles;
   
changes in general economic conditions in the U.S. and global economies or financial markets, including such changes resulting from war or incidents of terrorism; and
   
sales of our common stock by us or members of our management team.

 

In addition, recently, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the trading price of securities issued by many companies. The changes frequently occur irrespective of the operating performance of the affected companies. Hence, the trading price of our common stock could fluctuate based upon factors that have little or nothing to do with our business.

 

We are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

 

Our Common Stock is subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934 (the “Exchange Act”), commonly referred to as the “penny stock rule.” Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The Securities and Exchange Commission (the “SEC”) generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.

 

Since our Common Stock is deemed to be penny stock, trading in the shares of our Common Stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are persons with assets in excess of $1,000,000 (excluding the value of such person’s primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, except in certain circumstances, the rules require the delivery, prior to the first transaction of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our Common Stock and may affect the ability of our stockholders to sell their shares of Common Stock.

 

There can be no assurance that our shares of Common Stock will qualify for exemption from the “penny stock rule”. In any event, even if our Common Stock were exempt from the “penny stock rule”, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.

 

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Because we are quoted on the otcmarkets.com instead of an exchange or national quotation system, our investors may have a more difficult time selling their stock or experience negative volatility on the market price of our stock.

 

Our common stock is traded on the OTCMarkets.com. The OTCMarkets.com is often highly illiquid. There is a greater chance of volatility for securities that trade on the OTCMarkets.com as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, for the reasons above, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.

 

An investment in our shares is highly speculative.

 

The shares of our common stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the risk factors contained herein relating to our business and prospects. If any of the risks presented herein actually occur, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

The market price of our Common Stock may fluctuate significantly in the future.

 

We expect that the market price of our Common Stock may fluctuate in response to one or more of the following factors, many of which are beyond our control:

 

competitive pricing pressures.
our ability to market our services on a cost-effective and timely basis.
changing conditions in the market.
changes in market valuations of similar companies.
stock market price and volume fluctuations generally.
regulatory developments.
fluctuations in our quarterly or annual operating results.
additions or departures of key personnel.
future sales of our Common Stock or other securities.

 

The price at which you purchase shares of our Common Stock may not be indicative of the price that will prevail in the trading market. Shareholders may experience wide fluctuations in the market price of our securities. These fluctuations may have a negative effect on the market price of our securities and may prevent a shareholder from obtaining a market price equal to the purchase price such shareholder paid when the shareholder attempts to sell our securities in the open market. In these situations, the shareholder may be required either to sell our securities at a market price, which is lower than the purchase price the shareholder paid, or to hold our securities for a longer period than planned. An inactive or low trading market may also impair our ability to raise capital by selling shares of capital stock. You may be unable to sell your shares of Common Stock at or above your purchase price, which may result in substantial losses to you and which may include the complete loss of your investment. Any of the risks described above could adversely affect our sales and profitability and the price of our Common Stock.

 

Any market that develops in shares of our common stock will be subject to the penny stock regulations and restrictions pertaining to low priced stocks that will create a lack of liquidity and make trading difficult or impossible.

 

The trading of our securities will be in the over-the-counter market, which is commonly referred to as the OTC Pink as maintained by FINRA. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of our securities.

 

Rule 3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions that are not available to us. It is likely that our shares will be penny stocks for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our common stock.

 

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For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:

 

– the basis on which the broker or dealer made the suitability determination, and

 

– that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Disclosure also must be made about the risks of investing in penny stocks in public offerings and in secondary trading and commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Additionally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our shares, probably, will be subject to such penny stock rules for the foreseeable future and our shareholders will likely find it difficult to sell their securities.

 

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to buy and sell our Common Stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

Our stock is thinly traded, sale of your holding may take a considerable amount of time.

 

The shares of our Common Stock are thinly traded on the OTC Pink Market, meaning that the number of persons interested in purchasing our Common Stock at or near bid prices at any given time may be relatively small or non-existent. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may be unable to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers for our securities should they to sell securities held by them. Consequently, only investors having no need for liquidity in their investment should purchase our securities and who can hold our securities for an indefinite period. We cannot give you any assurance that a broader or more active public trading market for our Common Stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire to liquidate your shares.

 

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Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of Common Stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Any substantial sales of our Common Stock pursuant to Rule 144 may have a material adverse effect on the market price of our Common Stock.

 

Our annual and quarterly results may fluctuate, which may cause substantial fluctuations in our Common Stock price.

 

Our annual and quarterly operating results may in the future fluctuate significantly depending on factors including the timing of purchase orders, new product releases by us and other companies, gain or loss of significant customers, price discounting of our product, the timing of expenditures, product delivery requirements and economic conditions. Revenues related to our product are required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of revenues from our product is dependent on several factors, including, but not limited to, the terms of any license agreement and the timing of implementation of our products by our customers.

 

Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our Common stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.

 

We have never paid cash dividends and do not anticipate doing so in the foreseeable future.

 

We have never declared or paid cash dividends on our common shares. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

 

The Nevada Revised Statute contains provisions that could discourage, delay, or prevent a change in our control, prevent attempts to replace or remove current management and reduce the market price of our stock.

 

We are subject to the anti-takeover provisions of the NRS. Depending on the number of residents in the state of Nevada who own our shares, we could be subject to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes which, unless otherwise provided in our articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to us.

 

We are subject to the provisions of Sections 78.411 et seq. of the Nevada Revised Statutes. In general, this statute prohibits a publicly held Nevada corporation from engaging in a “combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the combination or the transaction by which the person became an interested stockholder is approved by the corporation’s board of directors before the person becomes an interested stockholder. After the expiration of the three-year period, the corporation may engage in a combination with an interested stockholder under certain circumstances, including if the combination is approved by the board of directors and/or stockholders in a prescribed manner, or if specified requirements are met regarding consideration. The term “combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 10% or more of the corporation’s voting stock. A Nevada corporation may “opt out” from the application of Section 78.411 et seq. through a provision in its articles of incorporation or by-laws. We have not “opted out” from the application of this section.

 

The forward-looking statements contained herein report may prove incorrect.

 

This filing contains certain forward-looking statements, including among others: (i) anticipated trends in our financial condition and results of operations; (ii) our business strategy for expanding our business into various foreign countries; and (iii) our ability to distinguish ourselves from our current and future competitors. These forward-looking statements are based largely on our current expectations and are subject risks and uncertainties. Actual results could differ materially from these forward-looking statements. In addition to the other risks described elsewhere in this “Risk Factors” discussion, important factors to consider in evaluating such forward-looking statements include: (i) changes to external competitive market factors or in our internal budgeting process which might impact trends in our results of operations; (ii) anticipated working capital or other cash requirements; (iii) changes in our

 

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business strategy or an inability to execute our strategy due to unanticipated changes in our business; and (iv) various competitive factors that may prevent us from competing successfully in the marketplace. Considering these risks and uncertainties, many of which are described in greater detail elsewhere in this “Risk Factors” discussion, there can be no assurance that the events predicted in forward-looking statements contained in this Offering Circular will, in fact, transpire.

 

Our stock price may be volatile, which may result in losses to our shareholders.

 

The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies listed on the OTCPNK quotation system in which shares of our common stock are listed, have been volatile in the past and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including the following, some of which are beyond our control:

 

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks can be negatively affected from patterns of fraud and abuse.

 

Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

 

Our Articles of Incorporation exculpates our officers and directors from certain liability to us or our stockholders.

 

Our Articles of Incorporation contain a provision that no director or officer will be personally liable to us or our stockholders for damages regarding breaches of fiduciary duty. This limitation on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our stockholders from suing our officers and directors based upon breaches of their duties to us. . The foregoing indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. Additionally, these provisions and resultant costs may also discourage our bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers, even though such actions, if successful, might otherwise benefit us and our shareholders. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Litigation may adversely affect our business, financial condition, and results of operations

 

From time to time in the normal course of its business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our s operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may be unavailable at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of the insurance coverage for any claims could have a material adverse effect on our business, results of operations, and financial condition.

 

RISKS RELATED TO THE OFFERING

 

This Offering has not been reviewed by independent professionals regarding factual matters represented by our management.

 

We have not retained any independent professionals to review or comment on this Offering or otherwise protect the interest of the investors hereunder. Although we have retained our own counsel, neither such counsel nor any other counsel has made, on behalf of the investors, any independent examination of any factual matters represented by management herein. Therefore, for purposes of deciding to purchase our Offered Shares, you should not rely on our counsel with respect to any matters herein described. Prospective investors are strongly urged to rely on the advice of their own legal counsel and advisors in deciding to purchase our Offered Shares.

 

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Our bylaws limit the liability of, and provide indemnification for, our officers and directors.

 

Our bylaws, provide that we shall indemnify our officers and directors for any liability including reasonable costs of defense arising out of any act or omission of any officer or director on our behalf to the full extent allowed by the laws of the State of Nevada, if the officer or director acted in good faith and in a manner the officer or director reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. Thus, we may be prevented from recovering damages for certain alleged errors or omissions by the officers and directors for liabilities incurred in connection with their good faith acts. Such an indemnification payment might deplete our assets. Stockholders who have questions respecting the fiduciary obligations of our officers and directors should consult with independent legal counsel.

 

It is the position of the SEC that exculpation from and indemnification for liabilities arising under the Securities Act and the rules and regulations thereunder is against public policy and therefore unenforceable.

 

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Common Stock could be negatively affected.

 

Any trading market for our Common Stock will be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our Common Stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the market price and market trading volume of our Common Stock could be negatively affected.

 

RISKS RELATED TO OUR COMMON STOCK

 

An investment in our shares is highly speculative.

 

The shares of our common stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the risk factors contained herein relating to our business and prospects. If any of the risks presented herein actually occur, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

You may experience future dilution as a result of future equity offerings.

 

We may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. Although no assurances can be given that we will consummate new financing, in the event we do, or in the event we sell shares of common stock or other securities convertible into shares of our common stock in the future, additional and substantial dilution could occur. In addition, investors purchasing shares or other securities in the future could have rights superior to investors in prior offerings. Subsequent offerings at a lower price, often referred to as a “down round”, could result in additional dilution.

 

Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which would rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock.

 

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred securities in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our common stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return they may be able to achieve from an investment in our common stock.

 

External economic factors may have a material adverse impact on our business prospects.

 

Success can also be affected significantly by changes in local, regional, and national economic conditions. Factors such as inflation, labor, energy, real estate costs, the availability and cost of suitable employees, fluctuating interest rates, state and local laws and regulations and licensing requirements and increased competition can also adversely affect us.

 

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Cautionary Note

 

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

 

RISKS RELATED TO OUR PREFERRED SHARES

 

The President of our subsidiary, Chris Davenport, has the ability to control corporate and stockholder matters, providing him with the ability to control or influence stockholder decisions.

 

The President of our subsidiary, Chris Davenport, owns 17,100 Series Preferred B Shares, which shares provide Chris Davenport with 66.7 % of our Voting Common Stock Shares outstanding. Chris Davenport’s ability to convert his Preferred B Shares into a majority of our Common Stock Shares outstanding gives him the control over a majority of our outstanding voting power, enabling him to control corporate and stockholder matters, including funding employee equity incentive programs, electing directors, and determining the outcome of all matters submitted to a vote of our stockholders.

 

Preferred C Shares if converted into Common Shares, will cause material dilution to Common Stock held by our shareholders.

 

The President of our subsidiary, Chris Davenport, owns 6,075 Preferred C Shares, which are automatically converted on December 31, 2024 by multiplying the number of issued and outstanding shares of our common stock (2,846,223) by 2.63 (7,485,566), which would cause substantial dilution to holders of our Common Stock.

 

RISKS RELATED TO THE CSPA AND THE WARRANT WITH TRITON

 

TRITON’S sales of our Shares into the open market may cause material decreases in our stock price.

 

The 600,000 shares of Common Stock shares (if issued at our discretion under the Purchase Agreement terms and conditions) and the 300,000 shares of Common Stock underlying the Common Stock Purchase Warrant that are being registered herein may be sold into the market by Triton could cause our stock price to materially decline.

 

Funding from the Purchase Agreement (“CSPA”) with Triton may be limited or insufficient to fund our operations or to implement our strategy.

 

Under our CSPA with TRITON, upon effectiveness of the registration statement of which this prospectus is a part, and subject to other conditions, until December 31, 2021 we may direct Triton to purchase up to $1,000,000 of our common stock. At an assumed [hypothetical] purchase price of $0.9495 (see Illustration table on page 34), and assuming the sale by us to Triton of all of the 600,000 shares being registered under the CSPA pursuant to draw downs under the CSPA, we would receive approximately $569,700 in gross proceeds, which is $430,300 less than we would receive from the maximum financing of $1,000,000, in addition to which other factors may negatively affect the amount of proceeds we receive, including our share price, discount to market, and other factors relating to our common stock. To achieve the maximum financing of $1,000,000, we would be required to file an amendment to the Form S-1 and could not request any further Draw Downs until such registration statement is declared effective.

 

There can be no assurance that we will be able to receive all or any of the total commitment from Triton because the CSPA contains certain limitations, restrictions, requirements, conditions and other provisions that could limit our ability to cause Triton to buy common stock from us. For instance, we are prohibited from issuing a Draw Down Notice if the amount requested in such Draw Down Notice exceeds the Maximum Draw Down Amount of $500,000, or the sale of Shares pursuant to the Draw Down Notice would cause us to sell or Triton to purchase an aggregate number of shares of the Company’s common stock which would result in beneficial ownership by Triton of more than 9.99% of our common stock (as calculated pursuant to Section 13(d) of the Exchange Act and the rules and regulations thereunder). Moreover, there are limitations with respect to the frequency with which we may provide Draw Down Notices to Triton under the CSPA. Also, as discussed above, there must be an effective registration statement covering the resale of any Shares to be issued pursuant to any draw down under the CSPA, and the registration statement of which this prospectus is a part, which covers the resale of 600,000 Shares that may be issuable pursuant to draw downs under the CSPA. The S-1 registration statement may be subject to review and comment by the staff of the Commission and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements cannot be assured.

 

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The extent to which we rely on Triton as a source of funding will depend on a number of factors, including the independent decision by the Board of Directors to provide any Draw Down Notices, amount of working capital needed, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding from Triton were to prove unavailable or prohibitively dilutive, we would need to secure another source of funding. Even if we sell all 600,000 shares of common stock under the Purchase Agreement with Triton, we will still need additional capital to fully implement our current business, operating plans, and development plans.

 

The sale or issuance of our common stock to Triton at a discount may cause substantial dilution and the resale of the shares of common stock by Triton into the public market, or the perception that such sales may occur, could cause the price of our common stock to fall.

 

Under the CSPA, upon effectiveness of the registration statement of which this Prospectus is a part, and subject to other conditions, up to December 31, 2021 we may direct Triton to purchase up to $1,000,000 of our shares of common stock. We are registering an aggregate of 600,000 shares on behalf of Triton pursuant to the CSPA. Based on TRITON’s beneficial ownership limitation of 9.99% set forth in the CSPA, if all of the 600,000 shares offered under this prospectus were issued and outstanding as of July 31, 2021 such shares would represent approximately 31.6 % of the total number of shares of our common stock outstanding on a non-dilutive basis (not including any Preferred Shares that may be converted into Common Shares). The number of shares ultimately offered for sale by Triton under this prospectus is dependent upon a number of factors, including the number of Shares we ultimately issue and sell to Triton under the CSPA. Because the actual Equity Purchase price for the Shares that we may sell to Triton will fluctuate based on the market price of our common stock during the term of the CSPA; as such, we are unable to determine at this time the exact number of shares of our common stock that we will issue under the CSPA and, therefore, the exact number of shares we will ultimately register for resale under the Securities Act.

 

Specifically, because the per share Equity Purchase price for the Shares subject to a Draw Down Notice will be equal to a 10% discount to certain trading prices of our common stock as set forth in the CSPA, Triton will pay less than the then-prevailing market price for our common stock, and the actual Equity Purchase price for the Shares that we may sell to Triton will fluctuate based on the closing prices of our common stock during the term of the CSPA. As a result of this discount, Triton may have a financial incentive to sell our common stock immediately to realize the profit equal to the difference between the Equity Purchase price and the market price. If Triton sells the common stock, the market price of our common stock could decrease. If the market price of our common stock decreases, Triton may have a further incentive to sell the common stock that it holds. These sales may have a further impact on the market price of our common stock.

 

Moreover, there is an inverse relationship between the market price of our common stock and the number of shares of our common stock that may be sold pursuant to the CSPA. That is, the lower the market price, the more shares of our common stock that may be sold under the CSPA. Accordingly, if the market price of our common stock decreases (whether such decrease is due to sales by Triton in the market or otherwise) and, in turn, the Equity Purchase price of our common stock sold to Triton under the CSPA decreases, this could allow Triton to receive greater numbers of shares of our common stock pursuant to draw downs under the CSPA. Although the number of shares of our common stock that our existing stockholders own will not decrease, the common stock owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such sales to TRITON. Depending on market liquidity at the time, the sale of a substantial number of shares of our common stock to Triton at a discount to the then-prevailing market price for our common stock under the CSPA, and the resale of such shares by Triton into the public market, or the perception that such sales may occur, could cause the trading price of our common stock to decline, result in substantial dilution to existing stockholders and make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

 

For a tabular disclosure of the number of securities and percentage ownership to be issued assuming we sell all the securities on the registration statement and assuming sales to Triton at various discounts to our current market price, please see “CSPA with Triton“ on page 29 of this prospectus.

 

The exercise of the Warrant by Triton and the subsequent resale of the shares of common stock by Triton into the public market, or the perception that such sales may occur, could cause the price of our common stock to fall.

 

Under the Warrant, at any time and from time to time until 3 years after the execution date of the Warrant, Triton may exercise in one or more occasions (each, a “Warrant Exercise”) its right to purchase an aggregate of up to 300,000 shares of Common Stock. If this registration statement remains effective at the time of a Warrant Exercise, the resale of the common stock shares by Triton Funds may cause a decline in our stock price.

 

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We may use the net proceeds from sales of our common stock to Triton and the Warrant in ways with which you may disagree.

 

We intend to use the net proceeds from sales of our common stock to Triton pursuant to the CSPA and from Triton’s exercise of the Warrant. As of the date of this prospectus, we cannot specify with certainty all of the particular uses of the proceeds from sales of common stock to Triton pursuant to the CSPA or any proceeds derived from the exercise of the Warrant. Accordingly, we will have significant discretion in the use of the net proceeds of sales of common stock to Triton pursuant to the CSPA and from Triton’s exercise of the Warrant. It is possible that we may allocate the Proceeds differently than investors in this offering desire or that we will fail to maximize our return on these proceeds. We may, subsequent to this offering, modify our intended use of the proceeds from sales of common stock. You will be relying on the judgment of our management with regard to the use of proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the Proceeds are being used appropriately. Any failure to apply the Proceeds from sales of common stock to Triton pursuant to the CSPA or exercise of the Warrant effectively could have a material adverse effect on our business and cause a decline in the market price of our common stock.

 

Because the risk factors referred to above, as well as other risks not mentioned above, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which ones will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Cautionary Note

 

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

 

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the disposition and/or resale of the shares of common stock by the Selling Stockholder or their transferees. We will, however, receive cash proceeds from Purchase Notices (Put Notices) we issue to Triton, which we intend to use for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that our Board of Directors, in good faith, deem to be in our best interest of the Company.

 

We will receive up to an aggregate of approximately $630,000 from the exercise of the Warrant, assuming the exercise in full for all of the shares underlying the Warrants for cash and using our current number of outstanding shares at an exercise price of $2.10 per share. We expect to use the net proceeds from the exercise of the warrants, if any, for working capital and general corporate purposes and acquisitions or assets, businesses, or operations or for other purposes that our Board of Directors, in good faith, deems to be in our best interest of the Company. Our management will have broad discretion over the use of proceeds from the exercise of the Warrant.

 

There is no assurance that the holders of the warrants will elect to exercise any or all of the warrants. To the extent that the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease. In addition, should a triggering event occur, as described in the Warrant agreement, we could receive less than $2.10 per share.

 

DETERMINATION OF OFFERING PRICE

 

We have not set an offering price for the shares registered hereunder, as the only common shares being registered are those sold pursuant to the CSPA and the Warrant Agreement. Triton may sell all or a portion of the common shares being offered pursuant to this Prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.

 

Therefore, the public offering price of the shares does not necessarily bear any relationship to established valuation criteria and may not be indicative of prices that may prevail at any time or from time to time in the public market for the common stock. You cannot be sure that a public market for any of our securities will develop and continue or that the securities will ever trade at a price at or higher than the offering price in this offering.

 

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DILUTION

 

Not applicable. The Shares registered under this registration statement are not being offered for purchase. The shares are being registered on behalf of Triton pursuant to Put Notices we issue to Triton and shares separately exercised by Triton pursuant to the Warrant.

 

SELLING SECURITY HOLDER

 

Triton, as the sole Selling Stockholder may offer and sell 600,000 shares of our Common Stock Shares mandated to be purchased by Triton following our Draw Down notice pursuant to the CSPA with Triton.

 

In addition, Triton may exercise up to 300,000 shares of our Common Stock pursuant to exercise of the Warrant, subject to adjustment as described in the Warrant agreement, as registered for resale herein. The Warrant was received on June 27, 2021 as consideration for our entering into the CSPA.

 

If all Draw Down shares are issued pursuant to the initiated and directed drawdowns by us through the CSPA and Triton exercised all shares underlying the Warrant, the aggregate total would represent 31.6% of our issued and outstanding shares as of August 5, 2021. However, the Draw Downs are limited such that Triton can only hold, following such Draw Down request by the Company, 9.99% of the then issued and outstanding shares of Common Stock and Triton can only hold, following the exercise of the Warrant, 4.99% of the then issued and outstanding shares of Common Stock.

 

Pursuant to the CSPA between us and Triton, we shall promptly, after we become aware of an event or fact that makes any statement in this Prospectus or the related registration statement untrue in any material respect, we will make changes in the registration statement.

 

The Selling Stockholder identified in the table below may from time to time offer and sell under this Prospectus any or all of the shares of common stock described under the column “Shares of Common Stock Being Offered” in the table below.

 

Triton will be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by the Selling Stockholder may be deemed to be underwriting commissions.

 

We cannot give an estimate as to the number of shares of common stock that will actually be held by the Selling Stockholder upon termination of this offering, because we control, subject to numerical limitations, the number of shares to be issued pursuant to any Draw Down, the Selling Stockholder may offer some or all of the shares of common stock being registered on their individual behalf under the offering contemplated by this Prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

 

The manner in which the Selling Stockholder acquired or will acquire shares of our common stock is discussed below under “The Offering.”

 

The following table sets forth the name of the Selling Stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholders’ account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholders after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days of the date as of which the information is provided, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 2,846,223 shares of our common stock outstanding as of August 5, 2021.

 

Unless otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no Selling Stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.

 

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Name of Selling Stockholder   Shares Owned Before Offering   Shares Being Offered Number Shares(1)(2)(3)(4)   Owned After Offering  
Triton Funds, LP   0   900,000   0  

 

Notes:

__________

  1) Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table.
     
  2) Because the Selling Stockholder may offer and sell all or only some portion of the 900,000(4) shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that the selling stockholder will hold upon termination of the offering. The column titled “Number of Shares Owned After Offering” assumes that the Selling Stockholder will sell all of their Shares.
     
  3) Arnold Nunez exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by Triton.
     
  4) Consists of up to 600,000 shares of common stock to be sold by Triton pursuant to the CSPA and 300,000 shares to pursuant to exercise of the Warrant. The number of shares pursuant to the Warrant is subject to change in the event that events as described in the Warrant agreement occur.

 

THE OFFERING

 

Summary of the Offering

 

Shares currently outstanding:   2,846,223
     
Shares being offered:   900,000 shares of common stock that we may issue to Triton pursuant to: (a) drawdowns at our discretion under the CSPA with TRITON; and (b) 300,000 common stock shares that we will issue to Triton pursuant to exercise of the Warrant by Triton.
     
Offering Price per share:   The Selling Stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices, or at negotiated prices.
     
Use of Proceeds:   We will not receive any proceeds from the sale of the shares of our common stock by the Selling Stockholder. However, we will receive proceeds from: (a) cash proceeds from Put Notices we issue to Triton for our common stock shares; (b) Triton’s exercise of the Warrant into our common stock shares.
     
OTC Markets Symbol:   OTCQB: FLES
     
Risk Factors:   See “Risk Factors” beginning on page 5 and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.

 

Common Stock Purchase Agreement with Triton

 

On July 27, 2021, we entered into a Common Stock Purchase Agreement (the “CSPA”) with Triton whereby subject to the terms and conditions set forth in the CSPA, we agree to sell to Triton our common stock shares having an aggregate value of $1,000,000 and Triton agrees to invest up to $1,000,000 pursuant to Puts (Purchase Notices) that we issue to Triton. We have the right to require Triton to purchase a minimum of $25,000 and up to $500,000 (referred to in the Agreement as a “Tranche”) in shares of our Common Stock every 5 business days.

 

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Our “Puts” to Triton

 

Under the CSPA, we may, in our sole discretion, and subject to the satisfaction of certain conditions, deliver a purchase notice to Triton stating the dollar amount of shares that we intend to sell to Triton. The price of the shares to be sold will depend on, among other things, the market price our common stock at the time that we issue a purchase notice to Triton. The determination of whether to deliver a purchase notice will be solely in the discretion of our Board of Directors. The “Investment Amount” as provided for in the CSPA means the securities in a Purchase Notice multiplied by 90% of the lowest traded price of the Common Stock in the 10 business days prior to Closing, which Closing is defined as a date no later than 5 business days after the Purchase Notice Date. Triton’s obligation to purchase the securities pursuant to our Purchase Notices is conditioned on an effective registration statement on Form S-1 for resale of the shares being purchased and Triton’s ownership not exceeding 9.99% of our issued and outstanding shares.

 

Triton may receive our shares through our issuance of a “Put” to Triton, which means that we are entitled to request equity investments by Triton for our issuance of Common Stock to Triton with an aggregate Purchase Price equal to the value of the Put. The decision to exercise any Put is solely in our discretion. The Purchase Price, referred to in the CSPA as the “Investment Amount” is subject to a price per share calculation based on the number of common stock shares to be purchased multiplied by 90% of the lowest traded price of our common stock for the 10 business days prior to Closing. The Closing of a Purchase Notice shall occur no later than the five (5) Business Days following receipt of shares of Common Stock by Triton’s custodian (the “Purchase Notice Date”).

 

We may issue a Put to Triton pursuant to a “Put Notice”, which is a written notice by us to the Investor with the Put Amount that we intend to sell to the Investor with the current number of Shares to be issued and that are outstanding on such date. The “Purchase Notice means the written notice that we send to the Investor stating the number of securities that we intend to sell to the Investor pursuant to the terms of the CSPA. “Investment Amount” is determined by the number of securities in a Purchase Notice multiplied by 90% of the lowest traded price of the common stock 10 business days prior to Closing. The timing and amounts of each Put is at our sole discretion. No Put may be made in an amount equaling less than $25,000 or greater than $500,000. We may, in our sole discretion, deliver a Put Notice to TRITON stating the dollar amount of shares we intend to sell to TRITON on a designated closing date. We are not entitled to submit a Put Notice until after the previous closing of the Put with respect to the subject Put notice having been completed. Although we are not required to sell shares under the CSPA, the CSPA gives us the option by issuing Put Notices to TRITON to sell up to an aggregate of $1,000,000 worth of our common stock to Triton.

 

Conditions to Puts

 

We are not entitled to deliver a Put Notice and Triton is not obligated to purchase the Shares unless each of the following conditions are satisfied:

 

  1) The Registration Statement has been declared effective and remains effective and available for the resale of all the Registrable Securities at all times until the Closing.
     
  2) Beginning on the related Purchase Notice and ending on and including the related Closing, the Common Stock will  have been listed or quoted for trading on the Principal Market and shall not have been suspended from trading during the Commitment Period (the Commitment Period is defined as the period beginning on the execution date of the CSPA and ending on its expiration as provided of for in the termination provisions defined below) and we shall not have been notified of any pending or threatened proceeding or other action to suspend the trading of our Common Stock
     
  3) We have complied with our obligations and we are not otherwise in breach of the CSPA or any other agreements executed between the parties, which has not been cured prior to delivery of the Purchase Notice.
     
  4) No injunction has been issued and remains in force, or action commenced by a governmental authority, which has not been stayed or abandoned, regarding the purchase of the issuance of the Securities.
     
  5) The issuance of the Securities will not violate any requirements of the Principal Market.  If any of the above events  occur during the Pricing Period, the Investor shall have no obligation to purchase the Put Amount of Common Stock set forth in the applicable Put Notice.

 

Triton’s Beneficial Ownership Limitation

 

Pursuant to the CSPA, the Investor shall not be entitled to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Exchange Act), by Triton, would exceed 9.99% of the number of shares of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the Exchange Act.

 

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Our Representations and Warranties to Triton

 

We represent and warrant to the Selling Stockholder in the CSPA that:

 

  1) We are a corporation duly organized and validly existing in good standing under the laws of the State of Nevada, and has the requisite corporate power and authorization to own our properties and to conduct our business as now being conducted.
     
  2) We and the companies we own or control (“Subsidiaries”) are duly qualified to do business and are in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect .( “Material Adverse Effect” means a change, event, circumstance, effect or state of facts that has had or is reasonably likely to have, a material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on our authority or ability to perform its obligations under the Agreement).
     
  3) We have the requisite corporate power to enter into the Agreement and to issue the Securities.
     
  4) The execution of the Agreement and the issuance of the Securities has been duly and validly authorized by our Board of Directors and the Agreement constitutes our valid and binding obligations.
     
  5) We have reserved the amount of securities in the registration statement as authorized and reserved in the Agreement and  upon issuance the securities will be validly issued, fully paid and free from all taxes, liens and charge.
     
  6) Each of our Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management that we reasonably believe to be prudent and customary in the businesses.
     
  7) We understand and acknowledge that the number of Securities issuable upon purchases will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the common stock declines during the Commitment Period and that our executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect on our shareholders.
     
  8) We will  not pursue a similar transaction with any other party during the Commitment Period. .

 

Our Covenants to Triton

 

We make the following covenants to the Selling Stockholder in the CSPA:

 

  1) We will take all commercially reasonable efforts to timely satisfy each of the conditions set forth in the CSPA.
     
  2) We will file all reports required to be filed with the SEC pursuant to the both the 1933 Act and 1934 Act.
     
  3) We will use the proceeds from the sale of the Securities for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in good faith deem to be in our best interests.
     
  4) During the Commitment Period (as defined as the term of the Purchase Agreement), we agree to make available to the Investor all of our SEC reports, any Registration Statements or amendments filed pursuant to the 1933 Act, and notices and other information made available or given to our shareholders, and documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Association.
     
  5) We will reserve the amount of Securities included in our registration statement for issuance pursuant to the Agreement.
     
  6) In the event that we determine that we do not have a sufficient number of common stock to reserve and keep available for issuance as described, we will use all commercially reasonable efforts to increase the number of common stock by seeking shareholder approval.

 

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  7) We will maintain the listing of the common stock on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which common stock are then listed and shall maintain, such listing of all common stock from time to time issuable under the terms of the Agreement.
     
  8) Neither we or any of our Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the common stock on the Principal Market.
     
  9) We will use all commercially reasonable efforts to preserve and continue our corporate existence of the Company.
     
  10) We will promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment or supplement to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus
     
  11) We will deliver instructions to our transfer agent to issue Common Stock to the Investor that are issuable to the Investor pursuant to the Transaction Documents.

 

The CSPA will expire either upon the sooner of: (a) when the Investor has purchased $1,000,000 of Securities pursuant to this Agreement or December 31, 2021. Further, the CSPA requires that we use our reasonable best efforts to have the registration statement be effective no more than 120 days following the date the initial registration statement was filed. Triton and its affiliates are prohibited from engaging in any short sales during the Commitment Period defined in the CSPA as commencing on the Execution Date (June 18, 2021) and ending on the expiration of the CSPA on December 31, 2021.

 

As we draw down on the Equity Line pursuant to the CSPA, we anticipate our shares of our common stock will be sold into the market by Triton. The sale of these shares could cause our stock price to decline. If our stock price declines and we issue more puts, more shares will come into the market, which could cause a further decline in our stock price. We determine when and whether to issue a put to Triton, so we will know both the stock price used as the reference point, and the number of shares issuable to Triton upon such exercise. You should be aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the CSPA. We have no obligation to utilize the full amount available under the CSPA and all determinations regarding the execution of a put provision remains solely in our discretion.

 

Upon the Execution Date of the CSPA, we are required to pay Triton a $15,000 administrative fee

 

There is no guarantee that we will be able to meet the foregoing conditions or any of the other conditions in the CSPA or that we will be able to draw down any portion of the Total Commitment available under the CSPA with Triton.

 

The CSPA also provides for indemnification of Triton and its affiliates from and against any and all actions, causes of action, suit, claims, losses, costs, penalties, fees, liabilities and damages.

 

Neither Triton nor its affiliates are permitted to engage in short sales during the Commitment Period.

 

The sale of the Shares to Triton under the CSPA are exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act.

 

Additional details can be found beginning at page 29 and in the CSPA, which is filed as Exhibit 10.1 to this prospectus and incorporated by reference.

 

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Common Stock Purchase Warrant with Triton

 

We entered into a July 27, 2021 Common Stock Purchase Warrant (the “Warrant”) whereby we granted Triton a three (3) year right to purchase up to 300,000 shares of Common Stock of the Company (the “Warrant Shares”) subject to an effective S-1 Registration Statement registering the shares of Common Stock of the Company underlying the Warrant. The exercise provisions of the Warrant that Triton is subject to, and a beneficial ownership limitation of 4.99%.

 

The exercise price of the Warrant is $2.11 based on a $6,000,000 valuation (the “Valuation Cap”) per share and based on the current number of outstanding shares.

 

Should there be no effective registration statement at any time after 120 days of the Date of Issuance, Triton may effect a cashless exercise of the Warrant Shares equal to the value of the Warrant or of any portion remaining unexercised) by surrendering the Warrant and submitting a Notice of Exercise, using the following formula:

 

X = Y (A-B)

A

 

Where   X = the number of Shares to be issued to Holder.
     
  Y = the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation).
     
  A = the Market Price (at the date of such calculation).
     
  B = Exercise Price (as adjusted to the date of such calculation).

 

Adjustment of Warrant Due to Fundamental Transaction

 

The Warrant is subject to adjustment at any time while the Warrant is outstanding upon the occurrence of a fundamental transaction, identified in the Warrant, as follows: (i) we effect any merger with or into another entity and we are not the surviving entity, (ii) we effect any sale of all or substantially all of our assets in one or a series of related transactions, (iii) any tender offer or exchange offer is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) we effect any reclassification of our Common Stock or any compulsory share exchange in which our Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”).

 

In the event of a Fundamental Transaction, upon any subsequent exercise of the Warrant, the Holder will have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (defined in the CSPA as the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.  Apart from the provisions in Term 1 and this Term 3 and the Alternate Consideration, the Holder shall not be entitled under any circumstances to more than 300,000 Common Stock Shares from exercise of the Warrant; as such, should the SEC not declare the Registration Statement effective within 120 days after the Date of Issuance, the Holder be entitled to cashless exercises resulting is the issuance of less than the 300,000 shares of Common Stock Shares from exercise of the Warrant.

 

Additional details regarding the Warrant can be found at Exhibit 10.2, which is incorporated by reference.

 

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Illustrative Tables

 

The number of shares of our common stock ultimately offered for resale by Triton is dependent upon a number of factors, including the extent to which we ultimately issue and sell to Triton under the CSPA. The following table sets forth the total number of Shares that would be issued at varying purchase prices for us to receive the entire $1,000,000 in gross proceeds under the CSPA (without accounting for certain fees and expenses) (although at this time we are only registering 600,000 shares of our Common Stock for prospective Draw Downs):

 

Assumed Average
Purchase Price(1)
  Total Number of Shares to be
Issued if Full Purchase
  Percentage of Currently
Outstanding Shares (1)
  Proceeds from the Sale of
Shares to Triton Under the CSPA
 
$ 0.4747 (2)   2,106,593   74%   $ 1,000,000  
$ 0.9495 (3)   1,053,185   37%   $ 1,000,000  
$ 1.4242 (4)   702,148   24%   $ 1,000,000  
$ 2.3737 (5)   421,283   14%   $ 1,000,000  
$ 2.8485 (6)   351,061   13%   $ 1,000,000  

__________

  1. The denominator is based on 2,846,223 shares outstanding as of July 30, 2021 is based on the commitment to purchase the Shares pursuant to the CSPA. The numerator is based on the number of Shares issuable to Triton under the CSPA at the corresponding assumed average purchase price set forth in the adjacent column.
  2. Assumed average purchase price of $0.4747 is equal to 90% of 25% of the July 30, 2021 closing sales price of our common stock of $2.11.
  3. Assumed average purchase price of $0.9495 is equal to 90% of 50% of the July 30, 2021 closing sales price of our common stock of $2.11
  4. Assumed average purchase price $1.4242 is equal to 90% of 75% of the July 30, 2021 closing sale price of our common stock of $2.11
  5. Assumed average purchase price of $2.3737 is equal to 90% of 125% of the July 30, 2021 closing sale price of our common stock of $2.11
  6. Assumed average purchase price of $2.8485 is equal to 90% of 150% of the July 30, 2021 closing sale price of our common stock of $2.11.

 

The following table sets forth the amount of proceeds we would receive from Triton from the sale of Shares under the CSPA that are registered in this offering at varying purchase prices (without accounting for certain fees and expenses):

 

Assumed Average
Purchase Price(1)
  Number of Registered
Shares to be Issued
  Percentage of Currently
Outstanding Shares (1)
  Proceeds from the Sale of
Shares to Triton Under the CSPA
 
$ 0.4747 (2)   600,000   9.99%   $ 284,820  
$ 0.9495 (3)   600,000   9.99%   $ 569,700  
$ 1.4242 (4)   600,000   9.99%   $ 854,520  
$ 2.3737 (5)   600,000   9.99%   $ 1,424,220  
$ 2.8484 (6)   600,000   9.99%   $ 1,709,040  

__________

  1. The denominator is based on 2,846,223 shares outstanding as of July 30, 2021 is based on the commitment to purchase the Shares pursuant to the CSPA. The numerator is based on the number of Shares issuable to Triton under the CSPA at the corresponding assumed average purchase price set forth in the adjacent column.
  2. Assumed average purchase price of $0.4747 is equal to 90% of 25% of the July 30, 2021 closing sales price of our common stock of $2.11.
  3. Assumed average purchase price of $0.9495 is equal to 90% of 50% of the July 30, 2021 closing sales price of our common stock of $2.11
  4. Assumed average purchase price $1.4242 is equal to 90% of 75% of the July 30, 2021 closing sale price of our common stock of $2.11
  5. Assumed average purchase price of $2.3737 is equal to 90% of 125% of the July 30, 2021 closing sale price of our common stock of $2.11
  6. Assumed average purchase price of $2.8484 is equal to 90% of 150% of the July 30, 2021 closing sale price of our common stock of $2.11

 

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PLAN OF DISTRIBUTION

 

The Selling Stockholder, Triton, may, from time to time, sell any or all of its shares of our common stock on otcmarkets.com or any other stock exchange, market or trading facility on which the shares of our common stock are traded, or in private transactions. These sales may be at fixed prices, prevailing market prices at the time of sale, at varying prices, or at negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:

 

Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchases;
   
Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
   
Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
   
Privately negotiated transactions;
   
Broker-dealers may agree with the Selling Stockholder to see a specified number of such shares at a stipulated price per share; or
   
A combination of any such methods of sale.

 

Additionally, broker-dealers engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commissions in compliance with FINRA Rule 2440; and in the case of a principal transaction, a markup or markdown in compliance with FINRA IM-2440. Broker-dealers may agree with the selling stockholder to sell a specified number of shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so acting as agent for the selling stockholder, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to the selling stockholder. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in one or more transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above and pursuant to the one or more of the methods described above) at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such shares commissions computed as described above. To the extent required under the Securities Act, an amendment to this prospectus or a supplemental prospectus will be filed, disclosing:

 

the name of any such broker-dealers;
   
the number of shares involved;
   
the price at which such shares are to be sold;
   
the commission paid or discounts or concessions allowed to such broker-dealers, where applicable;
   
that such broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and
   
other facts material to the transaction.

 

Triton has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock.

 

There can be no assurance that the Selling Stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.

 

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The Selling Stockholder is an underwriter within the meaning of the Securities Act of 1933, as amended (“Securities Act”) and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. Any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.Triton has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute our common stock. Pursuant to a requirement by FINRA, the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act.

 

Discounts, concessions, commissions, and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholders. The Selling Stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the Selling Stockholder against certain losses, claims, damages, and liabilities, including liabilities under the Securities Act. We will not receive any proceeds from the resale of any of the shares of our common stock by the Selling Stockholder. We will, however, receive cash proceeds from Triton pursuant to Put Notices issued by us, at our discretion, to Triton.

 

We have entered into agreements with Triton to keep this prospectus effective until each: (i) has sold all of the common shares purchased by it and (ii) has no further right to acquire any additional shares of common stock under the agreements.

 

The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended (“Exchange Act”) any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholders.

 

We have agreed to pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, including, without limitation, Securities and Exchange Commission filing fees and legal and accounting fees; provided, however, pay all selling commissions, concessions and discounts, and other amounts payable to underwriters, dealers or agents, if any, as well as transfer taxes and certain other expenses associated with the sale of the shares of common stock. We have agreed to indemnify Triton and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Triton has agreed to indemnify us against liabilities under the Securities Act that may arise from any written information furnished to us by Triton specifically for use in this Prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

At any time, a particular offer of the shares of common stock is made by the Selling Stockholder, a revised prospectus or prospectus supplement, if required, will be distributed. Such prospectus supplement or post-effective amendment will be filed with the Commission to reflect the disclosure of any required additional information with respect to the distribution of the shares of common stock. We may suspend the sale of shares by the selling stockholder pursuant to this prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplemented or amended to include additional material information.

 

DESCRIPTION OF SECURITIES TO BE REGISTERED

 

Common Stock

 

We have 15,000,000 common stock shares authorized, par value of $0.000001 per share, 2,846,223 shares of which are outstanding. On September 8, 2020, we filed a Schedule 14C Information Statement with the SEC to reduce our authorized shares from One Billion (1,000,000,000) Common Stock Shares to Fifteen Million Common Stock Shares (15,000,000), which reduced authorized shares will become effective on or about September 28, 2020.

 

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Each share of Common Stock shall have one (1) vote per share for all purposes. Our Common Stock does not provide preemptive, subscription or conversion rights and there is no redemption or sinking fund provisions or rights. Our Common Stockholders are not entitled to cumulative voting for election of Board members. Each share of our Common Stock entitles its holder to one vote in the election of each director and on all other matters voted on generally by our stockholders. Holders of our Common Stock will be entitled to dividends in such amounts and at such times as our Board of Directors in its discretion may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on the Common Stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board of Directors.

 

Holders of our Common Stock Shares

 

As of August 5, 2021, there were 112 holders of record of our common stock.

 

Preferred Stock

 

We have 20,000,000 blank check preferred stock authorized, of which there are 19,641,880 unissued blanks check preferred available for issuance.

 

Series A Preferred

 

We have 330,000 shares of Series A Convertible Preferred Stock authorized that have no liquidation rights or voting rights and are convertible into common stock determined by multiplying the number of issued and outstanding common stock shares on the date of conversion by the conversion price of $0.152 per share. As of this Offering, there are no Series A outstanding, which shares were canceled as part of reverse merger transaction in 2018 and spin-out of Nurses Lounge, Inc.

 

Series B Preferred

 

We have 20,000 shares of Series B Preferred Stock authorized, each share of which entitles the holder to vote on all shareholder manners in total equal to 66.67% of the total vote.

 

To date, we have issued 20,000 Preferred B Shares.

 

Series C Preferred

 

We have 7,250 shares of Series C Convertible Preferred Stock authorized that are convertible into common stock determined by multiplying the number of issued and outstanding common stock shares on the date of conversion by the conversion price of $2.63 per share, which upon conversion will equal 72.5% of our common stock outstanding. Notwithstanding the foregoing, any and all outstanding shares of Series C Convertible Preferred Stock shall automatically convert at the Conversion Price on December 31, 2024. Series C Convertible Shares are not entitled to dividends. We are required to reserve a sufficient number of shares for the conversion of Preferred C Shares. The Series C Convertible Preferred Stock ranks prior to any class of series of our capital stock.

 

To date, we have issued 7,250 Series C Preferred Shares.

 

Series D Preferred

 

We have 870 shares of Series D Convertible Preferred Stock that have no dividend or voting rights and rank subordinate and are junior to Series A, B, and C Preferred Stock. There are 870 Series D Convertible Preferred Shares outstanding. We or the Holder of Series D Preferred may redeem any or all of the outstanding Preferred Stock at $1,000 per share.

 

To date, we have issued 870 Preferred D Shares.

 

Options

 

There are no options outstanding.

 

Warrants

 

There are 955,500 warrants outstanding prior to the date of this Offering, not including the Warrant issued to Triton for 300,000 warrants.

 

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Dividend Rights

 

There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend, as follows:

 

  1. We would not be able to pay our debts as they become due in the usual course of business; or
     
  2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution

 

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

Sales Pursuant to Rule 144

 

Any shares of common stock covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.

 

Rule 144

 

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for a least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

 

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, our affiliates or persons selling shares on behalf of our affiliates who own shares that were acquired from us or an affiliate of ours at least six months prior to the proposed sale are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

1% of the number of shares of common stock then outstanding, which will equal 1,271,906 shares as of the date of this Prospectus; or
   
the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Transfer Agent and Registrar

 

Our transfer agent is ClearTrust, LLC, 16540 Pointe Village Dr Suite 205, Lutz, FL 33558, United States, (https://cleartrustonline.com which website is not incorporated by reference to this Prospectus) which is registered with the SEC as a transfer agent.

 

INTEREST OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or Offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

Frederick M. Lehrer, Esquire of Frederick M. Lehrer, P. A. will pass on the validity of the Common Stock being offered pursuant to this Registration Statement. Neither Frederick M. Lehrer nor Frederick M. Lehrer has ever owned any of our securities and has no agreement to receive any shares in the future.

 

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The consolidated financial statements of The 4Less Group, Inc. (the “Company”), as of January 31, 2021 and 2020, and for the two years then ended have been included herein and in the registration statement in reliance upon the report of L J Soldinger Associates, LLC, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report thereon contains an explanatory paragraph which describes the conditions that raise substantial doubt about the ability of the Company to continue as a going concern and are contained in Footnote 2 to the consolidated financial statements.

 

DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Sections 78.7502 and 78.751 of the Nevada Revised Statutes authorizes a court to award, or a corporation’s board of directors to grant indemnity to directors and officers in terms sufficiently broad to permit indemnification, including reimbursement of expenses incurred, under certain circumstances for liabilities arising under the Securities Act of 1933, as amended. In addition, the registrant’s Bylaws provide that the registrant has the authority to indemnify the registrant’s directors and officers and may indemnify the registrant’s employees and agents (other than officers and directors) against liabilities to the fullest extent permitted by Nevada law. The registrant is also empowered under the registrant’s Bylaws to purchase insurance on behalf of any person whom the registrant is required or permitted to indemnify.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We filed this Registration Statement on Form S-1 with the SEC under the Act with respect to the Common Stock offered by Selling Stockholder in this Prospectus. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement or the exhibits and schedules filed therewith. For further information with respect to us and our Common Stock, please see the Registration Statement and the exhibits and schedules filed with the Registration Statement. Statements contained in this Prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the Registration Statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Registration Statement. The Registration Statement, including its exhibits and schedules, may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

 

DESCRIPTION OF BUSINESS

 

Industry Background

 

The specialty-equipment market includes parts and accessories that are manufactured, sold, and distributed for cars, light trucks, sport utility vehicles, vans, and other passenger vehicles motorcycles, ATVs, UTVs, boats. Our manufactures’ products are designed to customize or enhance the performance, handling, or appearance of both new and used vehicles. The auto specialty equipment market is often described as “the parts you want” rather than “the parts you need.” Our business has been referred to as “Automotive E-Tailing”, which means selling automotive components online. According to a published report by Market Research Future, the global automotive e-tailing market is expected to reach $55.22 Billion by the end of the forecast period in 2022 (Source: https://www.marketwatch.com/press-release/automotive-e-tailing-market---2019-trends-size-share-growth-insight-competitive-analysis-leading-players-regional-and-global-industry-forecast-to-2022-2019-07-17 which report is expressly not incorporated into this Prospectus).

 

Our Corporate History and Background

 

We were originally formed as RX Scripted, LLC on December 30, 2004 as a North Carolina limited liability company and then converted to a Nevada corporation as RX Scripted, Inc. on December 5, 2007. We remain a Nevada corporation. On January 7, 2010, we changed our name to MedCareers Group, Inc. MedCareers Group operated a website for nurses, nursing schools and nurses’ organizations to foster better communication between nurses and the nursing profession. On November 19, 2010, the Company entered into a Share Exchange Agreement (the “Exchange”) with Nurses Lounge, Inc., a Texas corporation (“Nurses Lounge”) and its nine shareholders (the “Nurses Lounge Shareholders”), whereby we issued 24,000,000 restricted shares of common stock to the Nurses Lounge Shareholders in exchange for 100% of the issued and outstanding shares of common stock of Nurses Lounge.

 

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Although 24,000,000 restricted shares were issued in connection with the Exchange, certain of our significant shareholders agreed to cancel some of the shares of common stock they owned so that the net effect of the Exchange was an increase to the outstanding shares of common stock by 7,175,000 shares rather than 24,000,000. Included in the shareholders receiving shares of common stock in connection with the Exchange, was Timothy Armes, founder and president of Nurses Lounge, Inc., who received 14,902,795 shares.

 

On November 29, 2018, we entered into a Share Exchange Agreement whereby we acquired 100% of the issued and outstanding equity securities of The 4LESS Corp. (“4Less”), a private company, in exchange for our issuance of nineteen thousand (19,000) shares of our Series B Preferred Stock, 6,750 Series C Convertible Preferred Shares, and 870 Series D Preferred Shares.

 

Shareholder # of Series B Preferred # of Series C Preferred # of Series D Preferred
Christopher Davenport 17,100 6,075 675
Sergio Salzano 1,900 675 75
Timothy Armes 1,000 0 120
TOTAL 20,000 6,750 870

 

The Series C Convertible Preferred Shares have a right to convert into our common stock by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. Notwithstanding the foregoing, any and all outstanding shares of Series C Convertible Preferred Stock shall automatically convert at the Conversion Price on December 31, 2024. As a result of this Share Exchange, the former shareholders of the private company, 4Less, became our controlling shareholders. The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein the private company, 4Less is considered the acquirer for accounting and financial reporting purposes. Pursuant to the transaction, Tim Armes, our CEO, cancelled 60,000,000 shares of common stock in exchange for 120 shares of Series D Preferred Stock. As a result of the transaction, 4Less, the private company, became our wholly owned subsidiary and there was a change in our control whereby Christopher Davenport and Sergio Salzano, collectively hold voting rights equal to 63.37% of the total voting rights at any given time by virtue of holding 95% of the Series B Preferred Stock. In addition, Tim Armes, our CEO, still retains 1,000 Class B Preferred Shares, representing 3.30% of the Series B Preferred Stock. Accordingly, the total voting rights owned by Chris Davenport, Sergio Salzano, and Tim Armes are 66.67%. On December 12, 2019, The 4Less Corp. name was changed to Auto Parts 4Less, Inc., a Nevada corporation, and continues to operate as our wholly owned subsidiary.

 

Name Change Approval:

 

On June 21, 2021, our Board of Directors and the majority of our shareholders approved a name change to Auto Parts 4Less Group, Inc. The name change will be finalized upon completion of the regulatory requirement (specifically notice to non-voting shareholders), filing of an amendment to the Articles of Incorporation to reflect the new name, and notice provided to Financial Industry Regulatory Authority, Inc. (FINRA) of the name change.

 

Our Business

 

Along with our website currently under development, autoparts4less.com (as described below), that we are developing into our flagship website, we operate 3 niche websites through which we sell auto parts that are direct listed across marketplace and social media sites, including marketing products through online marketplaces and social media platforms, such as Facebook, Instagram, YouTube and Google:

 

LiftKits4LESS.com*
Bumpers4LESS.com*
TruckBedCovers4LESS.com*

 

We operate as an e-commerce retailer and distributor of auto and truck parts, including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and shocks. The e-commerce auto equipment market is composed of 2 segments, the direct replacement referred to as the “OE” (Original Equipment) market, typically used for automobile repairs, and the after-market automobile parts market, typically for customization of vehicles. We deal exclusively in the aftermarket.

 

Our proprietary web sites include order customization, live chat, install videos, directions, and installation services, in our effort to provide a quality buying experience for consumers interested in purchasing aftermarket auto parts on the Internet today.

 

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A list of our current products appears below.

 

Lights Stingers Performance Parts Exterior Accessories
Off-Road LED Lights Fenders Cooling and Heating Soft and Hard Tops
Switches Housing Kits Fender Flares Superchargers Roof Parts
Mounts Fender Liners Recovery Gear and Towing Mud Flaps
Brackets Fender Overlay Trailer Hitches Roof Parts
Light Covers Fender Armor 5th Wheel Hitches Rooftop Tent Parts
Lighting Accessories Inner Fenders 5th Wheel Accessories Awning
Lighting Harness ) Air Intake Parts Gooseneck Hitches Hoods
Vehicle Lights Air Filters Towing Electrical Hood Accessories
Markers) Air Cleaners Wiring Harnesses Windshield
Brake Lights Air Intake Kits Electrical Adapters Cages
3rd Brake Lights Drive Train Taillight Converters Cage Accessories
Taillights Caster and Camber Kits Wiring Connectors Exterior Accessories
Headlights Carrier Bearing Drop kits Towing Accessories Suspension
Work Lights Drive Shaft Tow Hooks Add-A-Leaf
Steering Stabilizers Ring Pinion Tow Straps Control Arms
Dual Ring Pinion Parts Ball Mounts Radius Arms
Single Differentials Couplers) Leaf Springs
Steering Reinforcement Differential Lockers Shackles Traction Bars
Shocks Differential Covers Weight Distribution Sway Bar Kits
Shock Mounts Hoops Overhaul Kits Trailer Parts & Accessories Steering
Coil Overs Differential Parts Cargo Management Tie Rods
Bump Stops And Speed Bumps Transfer Case Winches Spindles
Hydro Transfer Case Parts Winch Rope Knuckles
Nitro Gear Sets Winch Accessories Track Bar
Struts Spider Gear Sets Recovery Rope Coil Spring Components
Shock Accessories Drive Train Accessories Recovery Kits Ball Joints
Performance Drive Train Parts Transmission Hangers
Lift Kits Electronics Clutches Parts and Kits Pitman Steering Arms
Suspension Lifts Exhaust Wheels Block and U-Bolt Kits
Leveling Lifts Catalytic Converters Tire Carriers Lift Blocks
Body Lifts Exhaust Systems Wheel CSPAcers U-Bolts
Accessories Mufflers Wheel Parts Air Bags
Truck Bed Covers & Accessories Exhaust Parts Power Train Lowering Kits
Bed Covers Exhaust Manifolds Engine Brakes
Bed Liners Pipes Belts Brake Lines
Bed Cage Interior Parts Ignition Brake Controllers
Bed Bars Dash and Console CSPArk Plugs Brake Hoses
Bed Rail Floor Mats Tailgate Rotors
Grab & Roll Bar Carpet and Liners Exterior Brake Control Harnesses
Sport Bars Seat Covers Armor and Skid Plates Brake Parts
Tailgate Door and Entry Rock Sliders Axles
Toolboxes and Brackets Carpet Body Armor C-Notch
Cab Covers Dash Parts Rocker Panel Assemblies
Steps Running Boards Door parts Bed Extenders Axle Parts
Sliders Interior Accessories Bike Racks Axle Shafts
Grilles Sunshades Body Axle Accessories
Bumpers Storage Deflectors Other Suspension Parts
Bumper Accessories Mirrors Engine Under Hood Drag Links
Bull Bars Oil Filters Exterior Parts Kicker Braces
      ATV

 

We target online consumers’ buying habits by shifting away from “all things to all people” web sites to highly targeted niche websites to quickly respond to market forces. Our niche Websites allow us to target buyers that are shopping for specific products, for example the lift kits that we offer at LftKits4Less.com. We currently have 3 branded e-commerce websites, which sites offer products from approximately 500 manufacturers:

 

LiftKits4LESS.com
Bumpers4LESS.com
TruckBedCovers4LESS.com

 

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We also direct list and sell our products through social media platforms, most significantly, through Facebook, YouTube, and Google.

 

Our LiftKit4Less*.com web site, represents:

 

Approximately 179,000 Parts
From 46 Manufacturers

 

Can Search Products Listed

 

9 Categories Including Lights & Exterior Accessories
66 Subcategories Including Wheels, Electronics & Interior Parts

 

Select Parts for Over

 

28 Makes of Vehicles Such as Ford, Chevy and Land Rover
100 Models Including Trucks, SUVs and Jeeps

 

AutoParts4Less.com

 

We plan to finish development and beta testing with goal to launch AutoParts4Less.com for aftermarket auto parts manufacturers to sell their parts direct to the public, as follows:.

 

Development Team
  March 2020 India Development Team is hired.
   
Platform
  Amazon Web Services (AWS) cloud computing platform chosen to operate AutoParts4Less.com
   
Marketing
  Begin marketing marketplace services to aftermarket manufacturers in December 2020
   
Data Input
  Manufacturers start loading their parts info 1st quarter 2021

 

Auto Parts 4less Marketplace Functionality for Manufacturers

 

Our Auto Parts 4less website will have the following elements:

 

Manufacturers create an account allowing easy onboarding of products.
Offer premium placement in search results.
Ratings and reviews can be responded to.
Ability to answer basic questions from purchasers.
How-to video galleries.
Keyword advertising.
Promote discounts on products.
4Less can push product lines to other marketplaces such as eBay and Amazon.

 

Significant Developments

 

At the beginning of 2020, we established our goals which were to reduce debt, obtain minimally dilutive new capital, cut costs and develop the AutoParts4Less.com marketplace.

 

The reduction of debt, began in late January of 2020, first by exchanging $1.1 million of debt, that was convertible at highly discounted rates, in exchange for 250 shares of The 4Less Group’s Series C Convertible Preferred Stock. The 250 shares of Series C Preferred represent an approximate 2.5% ownership stake.
   
This was followed in August 2020 by the exchange of the remaining highly discounted convertible debt totaling approximately $2.3 million in principal and accrued interest, plus over $1 million in additional associated derivative liabilities.

 

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The convertible debt was replaced with a $1.2 million, non-convertible promissory note with a 2-year term and a fixed interest rate of 12%, which resulting s in savings of $1.1 million in total debt with a substantially lower interest rate.
   
As part of the settlement, the investor received, along with the 1.2 million note, 950 thousand common stock purchase warrants with a $0.40 exercise price and 150 shares of series C convertible preferred shares.
   
With the Company’s debt restructuring complete, it focused on ways to raise additional capital that would be minimally dilutive to existing shareholders. To accomplish these goals we began first by reducing our authorized shares from 1 billion down to 15 million and then applied for and was approved for our common stock to be quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market (the “OTCQB”) under the symbol “FLES”, which became effective as of the open of trading on February 16, 2021.
   
We achieved substantial cost cutting by reducing our employee head count down to 7 full time individuals as well as the consolidation of office CSPAce into a portion of our warehouse area. Additionally, we hired Commerce Pundit, an international software development firm with offices in the U.S. and India to begin development of our multivendor auto parts marketplace, AutoParts4Less.com, which we expect to launch in mid-summer of 2021.

 

Distribution

 

Our distribution is accomplished as follows:

 

Direct drop ship from manufacturers to consumers – Approximately 80%
Direct drop ship from Warehouse Inventory Companies to consumers – Approximately 15%
Consumer Purchases directly through our own warehouses – Approximately 5%

 

Sales

 

Our sales are derived from the following:

 

eBay and Walmart – We sell our products on eBay and Walmart and pay a fee to eBay or Walmart in connection with each sale.
Build and launch additional niche websites.

 

51% of our sales are currently generated through our own websites

 

Business Strategies

 

Continually develop best in class technological modules to increase visitor conversions.
Direct ordering through our websites

 

Competition

 

We directly compete for buyers to use our web sites over many competitors, e-commerce giants, Amazon, and eBay. The sale of automotive parts, accessories and maintenance items is highly competitive in many areas, including name recognition, product availability, customer service, store location and price. We compete in the aftermarket auto parts industry, which includes both the retail DIY and commercial do-it-for-me (“DIFM”) auto parts and products markets.

 

Our competitors include national, regional and local auto parts chains, independently owned parts stores, online automotive parts stores or marketplaces, wholesale distributors, jobbers, repair shops, car washes and auto dealers, in addition to discount and mass merchandise stores, hardware stores, supermarkets, drugstores, convenience stores, home stores and other retailers that sell aftermarket vehicle parts and supplies, chemicals, accessories, tools and maintenance parts. We compete on the basis of customer service merchandise quality, selection and availability; product warranty; store layouts, location, and convenience; price; and the strength of our brand name, trademarks, and service marks.

 

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Competitive Advantages

 

Our web sites offer substantial value-added content, including:

 

Installation guides
Install videos
High impact photos
Order customization and live chat with a technical expert

 

Competitive Disadvantages

 

Our competitors include national, regional and local auto part chains, independently owned parts stores, online automotive parts stores or marketplaces, wholesale distributors, auto deals, discount and mass merchandise stores, hardware stores, home stores and other retailers that sell vehicles parts and supplies chemicals, accessories, tools, and maintenance parts. Most of our competitors have greater financial and operational resources than we do.

 

Marketing Strategies

 

We have primarily relied upon organic growth, which is estimated to account for approximately 75% of our sales, Additionally, we market via Google reviews, our YouTube channel, Video Review, and advertising on Facebook.

 

Employees

 

We have 7 full-time employees:

 

Our Chief Executive Officer/Chief Financial Officer, Tim Armes
President of our wholly owned subsidiary, Auto Parts 4 Less, Inc. Christopher Davenport
Customer Service Manager
Install Center Manager
Customer assistant
Salesperson
Warehouse Manager
Bookkeeper
Sales support
Technical support

 

Target Markets

 

Our target markets include all users of auto parts.

 

* the content of these websites are expressly not incorporated into this Prospectus.

 

DESCRIPTION OF PROPERTY

 

Our corporate offices are located at 106 W. Mayflower, Las Vegas, Nevada 89030. Our offices are approximately 1,200 square feet, we pay rent of $1,000 per month, and our lease has been renewed to June 30, 2022.

 

Our Install/Retail center is located at 3065 N. Rancho Drive, Suite 122, Las Vegas, Nevada 89130. Our Install/Retail Center is approximately 2,500 square feet, we pay rent of $3,200 per month, and our lease expires on November 30, 2021.

 

Our warehouse is located at 106 W. Mayflower Avenue, North Las Vegas, Nevada 89030 Our warehouse is approximately 8,800 square feet, we pay rent of $6,400 per month and our lease has been renewed to June 30, 2022.

 

LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, or operating results.

 

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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is traded on the OTC Markets OTCQB maintained by OTC Markets under the symbol “FLES”.  The following table sets forth, for the periods indicated, the high and low sales prices, which set forth reflect inter-dealer prices, without retail mark-up or mark-down and without commissions; and may not reflect actual transactions. We effected a 4,000 to 1 reverse stock split on February 25, 2020, so the post reverse split prices are shown.

 

Calendar Quarter Ending Low High
      
January 31, 2021 0.20 4.48
October 31, 2020 0.06 6.40
July 31, 2020 0.05 0.20
April 30, 2020 0.11 0.40
     
January 31, 2020 0.40 7.20
October 31, 2019 4.00 186.40
July 31, 2019 44.00 5,400.00
April 30, 2019 1,199.04 16,786.60

 

During our financial quarter ending July 31, 2021, our low and high quotations were $2.15 and 1.71, respectively.

 

Our high and low quotations for August 4, 2021 were $2.03 and $2.00, respectively.

 

Penny Stock Considerations

 

Our Common Stock will be deemed to be “penny stock” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

 

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, the broker-dealer is required to:

 

Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

 

Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
   
Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and
   
Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.

 

Because of these regulations, broker-dealers may encounter difficulties in their attempt to buy or sell shares of our Common Stock, which may affect the ability of Selling Stockholder or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our Common Stock even if our Common Stock becomes publicly traded. In addition, the liquidity for our Common Stock may be decreased, with a corresponding decrease in the price of our Common Stock. Our shares are likely to be subject to such penny stock rules for the foreseeable future.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management’s discussion and analysis should be read in conjunction with the historical financial statements and the related notes thereto contained in this report. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

 

The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited financial statements originally contained in our Form 10-Q ending April 30, 2021, which we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.

 

Results of Operations for the Three Months Ended April 30, 2021 Compared to the Three Months Ended April 30, 2020

 

The following table shows our results of operations for the three months ended April 30, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

            Change  
    2021   2020   $   %  
Total Revenues   $ 3,728,784   $ 2,000,071   $ 1,728,713   86 %  
Gross Profit     962,206     571,767     390,439   68 %  
Total Operating Expenses     2,204,564     780,728     1,423,836   182 %  
Total Other Income (Expense)     674,801     1,395,859     (721,058 ) (52 %)  
Net Income (Loss)   $ (567,557 ) $ 1,186,898   $ (1,754,455 ) (148 %)  

 

Revenue

 

The following table shows revenue split between proprietary and third-party website revenue for the three months ended April 30, 2021 and 2020:

 

            Change  
    2021   2020   $   %  
Proprietary website revenue   $ 2,123,101   $ 1,109,106   $ 1,013,995   91 %  
Third party website revenue     1,605,683     890,965     714,718   80 %  
Total Revenue   $ 3,728,784   $ 2,000,071   $ 1,728,713   86 %  

 

We had total revenue of $3,728,784 for the three months ended April 30, 2021, compared to $2,000,071 for the three months ended April 30, 2020. Sales increased by $1,728,713 due to aggressive advertising and increased consumer demand. The Company also recorded $981,830 in deferred revenue, which will be recognized as revenue next quarter and recognized $687,766 from last quarter. The deferred revenue represents orders paid by customers this period but delivered in the following period due to back orders and processing and delivery times. The Company also recorded $268,932 in customer deposits for the three months ended April 30, 2021 and recognized $188,385 from the prior quarter. The customer deposits are orders paid by customers and canceled in the following period due to back orders or other reasons.

 

The Company’s focus continues in growing its proprietary website revenues and the Company was successful in that, increasing its proprietary website revenue by 91%.

 

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Gross Profit

 

We had gross profit of $962,206 for the three months ended April 30, 2021, compared to gross profit of $571,767 for the three months ended April 30, 2020. Gross profit increased by $390.439 as a result of the increased revenues explained above and partly offset by an increase in cost of revenue due to the Company having to purchase goods at higher product costs from distributers rather than the usual manufacturers due to higher than anticipated demand which manufacturers were not able to meet.

 

Operating Expenses

 

The following table shows our operating expenses for the three months ended April 30, 2021 and 2020:

 

            Change  
    2021   2020   $   %  
Operating expenses                          
Depreciation   $ 10,735   $ 6,647   $ 4,088   62 %  
Postage, Shipping and Freight     193,187     113,138     80,049   71 %  
Marketing and Advertising     608,034     18,068     589,966   3265 %  
E Commerce Services, Commissions and Fees     416,127     166,419     249,708   150 %  
Operating lease cost     30,479     34,079     (3,600 ) (11 %)  
Personnel Costs     297,493     266,735     30,758   12 %  
General and Administrative     648,509     175,642     472,867   269 %  
Total Operating Expenses   $ 2,204,564   $ 780,728   $ 1,423,836   182 %  

 

•   Depreciation increased by $4,088 due to two new vehicles acquired this quarter.

 

•   Postage shipping and freight increased by $80,049 due to higher sales.

 

•   Marketing and advertising increased by $589,966 due to aggressive promotional efforts in 2021 to drive sales to our proprietary websites and build our brands. Note for the three months ended April 30, 2020 the Company had reduced spending due to the Covid 19 pandemic.

 

•   E Commerce Services, Commissions and Fees increased by $249,708 due to higher sales.

 

•   Operating Lease Cost decreased by $3,600 due to one less operating lease in 2021.

 

•   Personnel Costs increased by $30,758 due to temporary layoffs in the prior year’s quarter commencing March 2020 as a result of the Covid-19 pandemic.

 

•   General and Administrative in increased by $472,867 due to increases of $273,720 in investor relations costs as a result of the REG A subscription offering and $173,543 in professional fees due to reporting and business requirements. Note for the three months ended April 30, 2020, the Company had reduced spending significantly due to the Covid 19 pandemic.

 

Other Income (Expense)

 

The following table shows our other income and expenses for the three months ended April 30, 2021 and 2020:

 

            Change  
    2021   2020   $   %  
Other Income (Expense)                          
Gain (Loss) on Derivatives   $ 4,187   $ (74,780 ) $ 78,967   (106 %)  
Gain on Settlement of Debt     914,049     2,172,646     (1,258,597 ) (58 %)  
Amortization of Debt Discount     (128,528 )   (578,913 )   450,385   (78 %)  
Interest Expense     (114,907 )   (123,094 )   8,187   (7 %)  
Total Other Income (Expense)   $ 674,801   $ 1,395,859   $ (721,058 ) (52 %)  

 

The changes above can be explained by the reduction in convertible debt that started in the prior year’s quarter ended April 30,2020. As a result of the debt exchanges and settlements, the gain on settlement of debt was higher and there were reductions in amortization expense and interest expense due to the lower debt. The higher loss on derivatives is a function of the market factors in the valuation of the derivative liability described in Note 8.

 

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We had a net loss of $567,557 for three months ended April 30, 2021, compared to net income of $1,186,898 for three months ended April 30, 2021. The decrease in net income was mainly due to the gain on settlement in debt that occurred in the three months ended April 30, 2020, the higher operating expenses, specifically marketing, investor relations and professional fees in the three months ended April 30, 2021 which were partly offset by the 86% increase in revenues.

 

Liquidity and Capital Resources

 

Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the three months ended April 30, 2021, we have increased revenue and are working to achieve positive cash flows from operations.

 

As of April 30, 2021, we had a cash balance of $1,342,321, share subscription receivable of $94,817, inventory of $307,526 and $4,461,893 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.

 

The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results.

 

Capital Resources

 

The following table summarizes total current assets, liabilities and working capital (deficit) for the periods indicated:

 

    April 30, 2021   January 31, 2021  
Current assets   $ 1,761,100   $ 715,083  
Current liabilities     4,461,893     5,059,138  
Working capital (deficits)   $ (2,700,793 ) $ (4,344,055 )

 

Net cash used in operations for the three months ended April 30, 2021 was $820,458 as compared to net cash used in operations of $52,916 for the three months ended April 30, 2020. Net cash used in investing activities for the three months ended April 30, 2021 was $35,000 as compared to $0 for the same period in 2020. Net cash provided by financing activities for the three months ended April 30, 2021 was $1,920,115 as compared to $79,035 for the three months ended April 30, 2020.

 

Subsequent Event

Results of Operations for the Three Months Ended April 30, 2021 Compared to the Three Months Ended April 30, 2020

 

Subsequent to our last financial quarter ending April 30, 2021 for which our third party website sales totaled $1,605,683, our revenues with respect to the third party website, eBay, have decreased by approximately 50% in our second financial quarter ending July 31, 2021, primarily due to eBay dropping us as a preferred seller due to the inability of manufacturers to manufacture and ship to the buyers on a timely basis.

 

In the period from the original filing date of the Form 10-Q for the period ended April 30, 2021 on June 14, 2021 through the date of filing of this registration statement on Form S-1, the Company received cash proceeds in the amount of $733,250 for the issuance of three convertible promissory notes with a combined principal amount of $810,125, the difference being original issue discount. One of the notes has interest included in the original issue discount and two of the notes have additional interest of 12% per annum. The maturity dates of the notes range from 10 months to 1 year and contain conversion rights with conversion rates ranging from $2 per share to a 25% discount on the closing trading price on the day immediately prior to conversion. The Company issued 191,810 shares of common stock in conjunction with the issuance of the promissory notes. Two of the three promissory notes rank senior to all unsecured liabilities of the Company.

 

In June 2021, the Company’s wholly owned subsidiary Auto Parts 4 Less, Inc. entered into two factoring loan agreements in which it borrowed gross proceeds of $1 million, less approximately $25,000 in origination costs in which the Company agreed to make 52 weekly payments totaling $1.3 million. The factor loans have an annual interest rate of that ranges from approximately 55% to 65%. The factor loans are secured by all of the cash and receivables of Auto Parts 4 Less, Inc. and have been personally guaranteed by the President of Auto Parts 4 Less, Inc.

 

On July 15, 2021 the automatic conversion date of the Series C Convertible Preferred Stock was extended from December 31, 2021 to December 31, 2024.

 

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January 31, 2021 and January 31, 2020

 

Results of Operations For the Year Ended January 31, 2021 compared to the year ended January 31, 2020

 

The following table shows our results of operations for the years ended January 31, 2021 and 2020, The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

            Change  
    2021   2020   $   %  
Total Revenues   $ 8,171,355   $ 8,186,214   $ (14,859 ) 0%  
Gross Profit     1,460,628     1,911,025     (450,397 ) (24% )
Total Operating Expenses     3,602,462     3,764,289     (161,827 ) (4% )
Total Other Income (Expense)     3,329,010     (2,026,582 )   5,355,592   264%  
Net Income (Loss)   $ 1,187,176   $ (3,879,846 ) $ 5,067,022   131%  

 

Revenue

 

The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2021 and 2020:

 

            Change  
    2021   2020   $   %  
Proprietary website revenue   $ 4,200,624   $ 3,246,351   $ 954,273   29%  
Third party website revenue     3,970,731     4,939,863     (969,132 ) (20% )
Total Revenue   $ 8,171,355   $ 8,186,214   $ (14,859 ) 0%  

 

We had total revenue of $8,171,355 for the year ended January 31, 2021, compared to $8,186,214 for the year ended January 31, 2020. Sales decreased by $14,859. The decrease was due to orders received and paid for at year end that were unfulfilled due to supply chain issues because of supplier back-orders as a result of the Covid-19 pandemic.  The Company at January 31, 2021 had $687,786 of deferred revenue which represents orders received before January 31, 2021 but delivered after. This will be revenue that the Company recognizes in the first quarter ended April 30, 2021.  Also, the Company had $188,385 in customer deposits which represents orders received before January 31, 2021 but cancelled after. Again the cancellation were due to supplier back order issues. The impact of the supply chain issues represents approximately $876,000 in lost revenue to the Company this fiscal year. We do continue to grow our proprietary website revenues which increased by 29% offset by a reduction in third party website revenue by 20%.

 

Gross Profit

 

We had gross profit of $1,460,628 for the year ended January 31, 2021, compared to gross profit of $1,911,025 for the year ended January 31, 2020. Gross profit decreased by $450,397 because cost of revenue was higher due to the Company having to purchase goods at higher product costs from distributers rather than the usual manufacturers due to higher than anticipated demand which manufacturers were not able to meet. This was caused by the supply chain issues mentioned in the previous paragraph.

 

Operating Expenses

 

The following table shows our operating expenses for the years ended January 31, 2021 and 2020. Operating expenses decreased to $3,602,462 for the year ended January 31, 2021 from $3,764,289 for the year ended January 31, 2020:

 

            Change  
    2021   2020   $   %  
Operating expenses                        
Depreciation   $ 25,196   $ 34,832   $ (9,636 ) (28% )
Postage, Shipping and Freight     498,370     453,088     45,282   10%  
Marketing and Advertising     112,531     204,945     (92,414 ) (45% )
E Commerce Services, Commissions and Fees     887,274     763,182     124,092   16%  
Operating Lease Cost     121,917     117,841     4,076   3%  
Personnel Costs     1,128,652     1,274,894     (146,242 ) (11% )
General and Administrative     828,522     915,507     (86,985 ) (10% )
Total Operating Expenses   $ 3,602,462   $ 3,764,289   $ (161,827 ) (4% )

 

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•   Depreciation decreased by $9,636 due to asset disposals in 2021, thus a lower asset value is being depreciated.

 

•   Postage shipping and freight increased by $45,282 due to higher sales.

 

•   Marketing and advertising decreased by $92,414 due to lesser promotional efforts related to the pandemic.

 

•   E Commerce Services, Commissions and Fees increased by $124,092 due to higher sales.

 

•   Operating Lease Cost increased slightly by $4,076 or 3%.

 

•   Personnel Costs decreased by $146,242 due to staff reduction during the first few months of the pandemic.

 

•   General and Administrative decreased by $86,985 mainly due cost reductions during the pandemic. Large reductions in travel and general office expenses were offset by increases in professional fees, investor relations and marketing.

 

Other Income (Expense)

 

The following table shows our other income and expenses for the years ended January 31, 2021 and 2020:

 

            Change  
    2021   2020   $   %  
Other Income (Expense)                        
Gain (Loss) on Sale of Property and Equipment   $ 464   $ 16,295   $ (15,831 ) (97% )
Gain (Loss) on Derivatives     (828,614 )   (180,552 )   (648,062 ) 359%  
Gain on Settlement of Debt     5,060,704     67,623     4,993,081   7384%  
Amortization of Debt Discount     (335,004 )   (800,159 )   465,155   (58% )
Interest Expense     (568,540 )   (1,129,789 )   561,249   (50% )
Total Other Income (Expense)   $ 3,329,010   $ (2,026,582 ) $ 5,355,592   264%  

 

The results of the year ended January 31, 2021 resulted in other income of $ 3,329,010 vs other expense of 2,026,582 for the year ended January 31, 2020.  There were debt settlements and exchanges which resulted in the increase in gain on settlement of debt and lower interest expense. Fair value of derivatives was largely affected by the increase in the market price of our common stock during the current period as well as the significant reduction in convertible debt.

 

We had net income of $1,187,176 for the year ended January 31, 2021, compared to a net loss of $3,879,846 for the year ended January 31, 2020 due mainly to the gain on debt settlement and other factors mentioned above.

 

Liquidity and Capital Resources

 

As of January 31, 2021, we had cash and cash equivalents of $277,664 of cash, $323,411 of inventory and total current liabilities of $5,059,138. We had negative working capital of $4,344,055 as of January 31, 2021.

 

Net cash (used in) operations for the year ended January 31, 2021 was $(859,821) compared to $(1,154,311) for the year ended January 31, 2020.

 

Net cash provided from investing activities for the year ended January 31, 2021 was $9,750 compared to $109,080 for the year ended January 31, 2020.

 

Cash provided by financing activities for the year ended January 31, 2021 was $965,611 compared to $1,147,954 for the year ended January 31, 2020. In both years the cash provided from financing activities was from the net proceeds of notes payable and short term debt and in 2021 additionally the proceeds from the issuance of common shares and PPP loan.

 

As of April 30, 2021, the Company issued 1,097,250 shares for $2,194,500 as part of Regulation A filing. The company received $2,099,683 in cash proceeds with the remaining $94,817 recorded as share proceeds receivable.

 

We borrowed funds and/or sold stock for working capital.  These transactions are detailed in the section “Recent Sales of Unregistered Securities”.

 

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Currently, we don’t have sufficient cash reserves to meet its contractual obligations and its ongoing monthly expenses, which we anticipate totaling approximately $4,000,000 over the next 12 months.  At present, absent additional financing, we estimate that we have sufficient cash and anticipated revenue to fully carry out our business plan for three months, after which we may need to scale back our business plan. Historically, revenues have not been sufficient to cover operating costs that would permit us to continue as a going concern. These conditions raise substantial doubt about our ability to continue as a going concern. We have been able to continue operating to date largely from loans made by its shareholders, other debt financings and sale of common stock.  We are currently looking at both short-term and more permanent financing opportunities, including debt or equity funding, bridge or short-term loans, and/or traditional bank funding, but we have not decided on any specific path moving forward.  Until we have raised sufficient funding to pay our ongoing expenses associated with being a public company, and we have sufficient funds to support our planned operations, we can provide no assurances that it will be able to meet its short and long-term liquidity needs, until necessary financing is secured.

 

We do not currently have any additional formal commitments or identified sources of additional capital from third parties or from our officers, director or significant shareholders. We can provide no assurance that additional financing will be available on favorable terms, if at all. If we are not able to raise the capital necessary to continue our business operations, we may be forced to abandon or curtail our business plan.

 

In the future, we may be required to seek additional capital by selling additional debt or equity securities, selling assets, if any, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.

 

Critical Accounting Policies

 

Revenue Recognition

 

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:

 

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

 

Because the Company’s sales agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

 

Disaggregation of Revenue: Channel Revenue

 

The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2021 and 2020:

 

            Change  
    2021   2020   $   %  
Proprietary website revenue   $ 4,200,624   $ 3,246,351   $ 954,273   29%  
Third party website revenue     3,970,731     4,939,863     (969,132 ) (20% )
Total Revenue   $ 8,171,355   $ 8,186,214   $ (14,859 ) 0%  

 

The Company’s performance obligations are satisfied at the point in time when products are received by the customer, which is when the customer has title and obtained the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Shipping and handling amounts paid by customers are primarily for online orders and are included in revenue. Sales tax and other similar taxes are excluded from revenue.

 

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Revenue is recorded net of provisions for discounts and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to customers. The Company recognizes these discounts and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The customer pays the Company by credit card prior to delivery.

 

The Company offers a 30 day satisfaction guaranteed return policy however the customer must pay for the return shipment. The return must be previously authorized, cannot be either damaged or previously installed and must be in saleable condition. In the Company’s experience this amount is immaterial and therefore no provision has been recorded on the Company’s books. Any defective merchandise falls under the manufacturer’s limited warranty and is subject to the manufacturer’s inspection. The manufacturer has the option to repair or replace the item.

 

All sales to customers are generally final. However, the Company accepts returned product due to quality or issues relating to product description or incorrect product orders and in such instances the Company would replace the product or refund the customers funds The Company’s customers generally pre-pay for the products.

 

Use of Estimates

 

In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.  The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to value derivative liabilities.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash, accounts payable, advances and notes payable.  The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments. Derivatives are recorded at fair value at each period end. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

 

The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described below:

 

Level 1 Inputs – Quoted prices for identical instruments in active markets.

 

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3 Inputs – Instruments with primarily unobservable value drivers.

 

As of January 31, 2021 and 2020, the Company’s derivative liabilities were measured at fair value using Level 3 inputs.  See Note 9.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of January 31, 2021:

 

    January 31, 2021   Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:                          
Derivative Liabilities – embedded redemption feature   $ 213,741   $   $   $ 213,741  
Totals   $ 213,741   $   $   $ 213,741  

 

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Derivative Liability

 

The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments. As of January 31, 2021, warrants to purchase 0 common shares (583 shares before the reverse split of 2/25/2020 issued in July 2014 were not classified as derivative liability while the remaining warrants outstanding were classified as derivative liability based on the FIFO method.

 

The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock.  However, because the historical volatility of the Company’s common stock is so high, the sensitivity required to change the liability by 1% as of January 31, 2020 is greater than 25% change in historical volatility as of that date.  The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Corporate Governance.

 

The following table lists the names and ages of the executive officers and director of the Company.  The director(s) will continue to serve until the next annual shareholders meeting, or until their successors are elected and qualified. All officers serve at the discretion of the Board of Directors.

 

Name   Age   Position   Date First Appointed/ Elected To the Company
Timothy Armes   65   Chairman, Chief Executive Officer, President,
Secretary and Treasurer and President and Chief
Executive Officer of The 4LESS Group, Inc.
  August 2011
             
Chris Davenport   51   President of Autoparts4less   October 2013

 

Timothy Armes: Mr. Armes has served as President and Chief Executive Officer of The 4Less Group (formerly MedCareers Group, Inc.) since August 2011.  From February 2011 to August 2011, Mr. Armes served as the Chief Operating Officer of the Company.  Since August 2011, Mr. Armes has served as the Chairman, Chief Executive Officer, President, Secretary and Treasurer of the Company. In 1992 Mr. Armes launched one of the first online job bulletin boards which eventually grew into jobs.com. As CEO of Jobs.com he raised over 100 million dollars and grew it into one of the top employment web sites before leaving the company in May of 2000. Mr. Armes began his career as an auditor for Ernst and Young and then as a real estate workout specialist with different firms in the mid 1980’s. Mr. Armes obtained a Bachelor of Business Administration degree in Accounting from the University of Texas in 1980 and passed the Certified Public Accountant exam.

 

Director Qualifications:

 

We believe that Mr. Armes is well qualified to serve as a Director of the Company because of his significant experience working with and building Nurses Lounge (which since November 2010 has been our wholly-owned operating subsidiary); his prior experience growing Jobs.com, and his financial and accounting background.

 

Christopher Davenport: Mr. Davenport received his MBA from the University of California in September 2005 where he was recognized by his classmates as “the Most Innovative Thinker”.  Before founding The 4Less Corp, Mr. Davenports’ previous business provided mobile dental services to the employees of the largest gaming corporations in the world.  These contracts covered the lives of several hundred thousand employees on the Las Vegas strip.  Due to the nature of the mobile facilities, Mr. Davenport implemented several new technologies at the time such as:  filmless radiography, virtual patient charts and VPN networks to make for seamless quality health care.  Soon after, Mr. Davenport expanded his mobile dental company to the military where he won several multiyear, multi-million dollars medical/dental National Guard Medical Readiness contracts.  Mr. Davenport has a proven history of implementing innovative technologies that demonstrates his ability to lead The 4Less Corp into the future.

 

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Corporate Governance

 

We promote accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations.

 

In lieu of an Audit Committee, our Board of Directors (currently consisting solely of Timothy Armes), is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of our financial statements and other services provided by our independent public accountants. The Board of Directors reviews our internal accounting controls, practices and policies.

 

Committees of the Board

 

We do not currently does not have nominating, compensation, or audit committees or committees performing similar functions nor do we have a written nominating, compensation or audit committee charter. The Board of Directors believes that it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by the sole director.

 

Audit Committee Financial Expert

 

Our Board of Directors has determined that we do not have an independent board member that qualifies as an “audit committee financial expert” as defined in Item 407(D)(5) of Regulation S-K, nor do we have a Board member that qualifies as “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Exchange Act.

 

We believe that our sole director is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The sole director does not believe that it is necessary to have an audit committee because management believes that the functions of an audit committee can be adequately performed by the sole director. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the stage of our development and the fact that we have not generated any positive cash flows from operations to date.

 

Involvement in Certain Legal Proceedings

 

None of the following events have occurred during the past ten years and are material to an evaluation of the ability or integrity of any director or officer of the Company:

 

  1. A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
     
  2. Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  3. Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

  a. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
     
  b. Engaging in any type of business practice; or
     
  c. Engaging in any activity in connection with the purchase or sale of any security or commodity or in
connection with any violation of Federal or State securities laws or Federal commodities laws;

 

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  4. Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
     
  5. Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
     
  6. Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

  7. Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

  a. Any Federal or State securities or commodities law or regulation; or
     
  b. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
     
  c. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

  8. Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board Meetings and Annual Meeting

 

During the fiscal year ended January 31, 2021, our Board of Directors (currently consisting solely of Timothy Armes) did not meet or hold any formal meetings.  We did not hold an annual meeting in the year ended January 31, 2021.  In the absence of formal board meetings, the Board conducted all of its business and approved all corporate actions during the fiscal year ended January 31, 2021 by the unanimous written consent of its sole director.

 

Code of Ethics

 

We have not adopted a formal Code of Ethics. The Board of Directors evaluated the business of the Company and the number of employees and determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, business conduct and securities laws are adequate ethical guidelines.  In the event our operations, employees and/or directors expand in the future, we may take actions to adopt a formal Code of Ethics.

 

Shareholder Proposals

 

We do have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The sole director believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.

 

A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our Chief Executive Officer, at the address appearing on the first page of this report.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The table below summarizes the total compensation paid or earned by our Chief Executive Officer and Chief Financial Officer during the fiscal years ended January 31, 2021 and 2020.  We did not have any executive officers who received total compensation in excess of $100,000 during the fiscal years disclosed below, other than disclosed below.

 

Name and principal position (1)   Year   Salary*   Bonus   Stock Awards   Option Awards   All other compensation*   Total compensation
                                   
Timothy Armes   2021   $ 91,701             $ 91,701
CEO, President, Treasurer, Secretary and Director (1)   2020   $ 79,414             $ 79,414
                                   
Christopher Davenport   2021   $ 550,200             $ 550,200
President Autoparts4Less   2020   $ 277,500             $ 277,500

__________

* Does not include any accruals not paid in cash or perquisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation.  No executive officer earned any non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported above. The value of the Stock Awards and Option Awards in the table above, if any, was calculated based on the fair value of such securities calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718.
   
(1) No executive or director received any consideration, separate from the compensation they received as an executive officer, for service on the Board of Directors of the Company during the periods disclosed.

 

Grants of Plan-Based Awards.  None.

 

Outstanding Equity Awards at Fiscal Year End.  None.

 

Executive Employment Agreements. None

 

Potential Payments upon Termination or Change in Control

 

We do not have any contract, agreement, plan or arrangement with its named executive officers that provides for payments to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in our control, or a change in the named executive officer’s responsibilities following a change in control.

 

Retirement Plans

 

We do not have any plan that provides for the payment of retirement benefits, or benefits that will be paid primarily following retirement.

 

Compensation of Directors

 

In the past, we have not instituted a policy of compensating non-management directors. However, we plans to use stock-based compensation to attract and retain qualified candidates to serve on its Board of Directors. In setting director compensation, we will consider the significant amount of time that directors expend in fulfilling their duties to us, as well as the skill-level that we require.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth information regarding the beneficial ownership of our voting common stock, as of August 5, 2021, by: (i) each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each of our officers and directors (provided that Mr. Armes currently serves as our sole director); and (iii) all of our officers and directors as a group.

 

- 56 -


 

Based on information available to us, all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them, unless otherwise indicated. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days after the date of this filing are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage of ownership of any other person. The following table is based on 2,846,223 common shares issued and outstanding as of August 5, 2021.

 

COMMON STOCK

 

  Beneficial Owner   Address   Shares   Percent Ownership
               
Common Stock Timothy Armes
Chairman / CEO
President, Secretary, CFO
  106 W Mayflower,
Las Vegas, Nevada 89030
  45,002   1.58%
               
Common Stock Chris Davenport
Founder and President Autoparts4Less
  106 W Mayflower,
Las Vegas, Nevada 89030
    0.00%
               
  All Officers and Directors as a Group
(2 Persons)
      45,002   1.58%
               
  Greater than 5% Shareholders        
               
Common Stock Triton Funds LP       300,000 * 10.54%

__________

* Assuming Triton Funds LP exercises the Warrant for 300,000 Shares

 

The following table is based on 0 shares of Series A Preferred Shares outstanding, 20,000 of Series B Preferred Shares outstanding, 7,250 shares of Series C Preferred Shares outstanding and 870 shares of Series D Preferred shares outstanding as of August 5, 2021.

 

PREFERRED STOCK

 

  Beneficial Owner   Address   Class   Shares   Percent Ownership
                   
Preferred Stock Timothy Armes
Chairman / CEO
President, Secretary, CFO
  106 W Mayflower,
Las Vegas, Nevada 89030
 

Pref  A

Pref  B

Pref  C

Pref  D

 

0

1,000

100

120

 

0.00%

5.00%

1.38%

13.79%

                   
Preferred Stock Chris Davenport
Founder and President of Autoparrts4Less
  106 W Mayflower,
Las Vegas, Nevada 89030
 

Pref  A

Pref  B

Pref  C

Pref  D

 

0

17,100

6,075

675

 

0.00%

90.00%

83.80%

77.58%

                   
  All Officers and Directors as a Group
(2 Persons)
     

Pref  A

Pref  B

Pref  C

Pref  D

 

0

18,100

6,175

795

 

0.00%

90.50%

85.18%

91.38%

                   
  Greater than 5% Shareholders      

Pref  A

Pref  B

Pref  C

Pref  D

 

0

1,900

1,075

75

 

0.00%

9.50%

14.82%

8.62%

 

- 57 -


 

Certain Relationships and Related Transactions, and Director Independence.

 

As a result of the acquisition of the 4Less Corp in November 2018 and disposition of Nurses Lounge in December of 2018, Mr. Armes canceled 100 million shares (16,666 post-split) of his approximate 129,628,000 common shares he owned (21,604 post-split). Along with the cancellation of his common stock and a verbal agreement to stay on as our President, CEO and Chairman of the Board. Mr. Armes received 120 shares of Series D Preferred stock, maintained his 1,000 shares of Series B Preferred stock, received 100 Class C preferred shares (during the year ended January 31, 2021) and a payable to Mr. Armes representing $180,000 of deferred income of which a balance of $ 125,673 remains payable at January 31, 2021.

 

As part of the acquisition of the 4Less Corp., Christopher Davenport, the founder and president of The 4Less Corp, received 17,100 shares of Series B Preferred Stock representing approximately 89% of the 20,000 Series B Preferred stock outstanding, 6,075 shares of Series C Preferred stock outstanding which can be converted into approximately 60% of our outstanding common stock and 675 shares of Series D Preferred stock.

 

Review, Approval and Ratification of Related Party Transactions

 

Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officers, director(s) and significant stockholders. However, we make it a practice of having our Board of Directors (currently consisting solely of Mr. Armes) approve and ratify all related party transactions. In connection with such approval and ratification, our Board of Directors takes into account several factors, including their fiduciary duties to us; the relationships of the related parties to us; the material facts underlying each transaction; the anticipated benefits to us and related costs associated with such benefits; whether comparable products or services are available; and the terms we could receive from an unrelated third party.

 

We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, the Board of Directors will continue to approve any related party transaction based on the criteria set forth above.

 

Director Independence

 

We currently only have one director, Timothy Armes, who is not independent.  We have no current plans to appoint any independent directors.

 

SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, there has been a limited public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of certain restrictions on resale, sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

 

Upon completion of this offering and assuming all 600,000 shares of Common Stock are sold by the Company to Triton and Triton exercise all 300,000 shares of Common Stock underlying the Warrant, we may have outstanding an aggregate of up to 3,746,223 issued and outstanding shares of Common Stock. Of these shares, the aggregate of 900,000 as being registered herein will be freely tradable without restriction or further registration under the Securities Act if issued to the Selling Stockholder pursuant to the terms and conditions Equity Financing Agreement or the Warrant, unless such shares are purchased by individuals who become “affiliates” as that term is defined in Rule 144 under the Securities Act, as the result of the securities they acquire in this offering which provide them, directly or indirectly, with control or the capacity to control us. Our officers and directors will not be purchasing shares in this offering. The remaining shares of common stock held by our existing stockholders are “restricted securities” as that term is defined in Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 and or Section 4(a)(1). As a result of these provisions of Rules 144, additional shares will be available for sale in the public market as follows:

 

no restricted shares will be eligible for immediate sale on the date of this prospectus; and
   
the remainder of the restricted shares will be eligible for sale from time to time pursuant to available exemptions, subject to restrictions on such sales by affiliates.

 

- 58 -


 

Sales pursuant to Rule 144 are subject to certain requirements relating to the availability of current public information about us. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of Hammer Fiber at any time during the 90 days immediately preceding the sale and who has beneficially owned restricted shares for at least six months is entitled to sell such shares under Rule 144 without regard to the resale limitations.

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver to the prospective purchaser a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the prospective purchaser and receive the purchaser’s written agreement to the transaction. Furthermore, subsequent to a transaction in a penny stock, the broker-dealer will be required to deliver monthly or quarterly statements containing specific information about the penny stock. It is anticipated that our common stock will be traded on an OTC market at a price of less than $5.00. In this event, broker-dealers would be required to comply with the disclosure requirements mandated by the penny stock rules.

 

These disclosure requirements will likely make it more difficult for investors in this offering to sell their common stock in the secondary market.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

We have had no changes in, and no disagreements with our accountants on accounting and financial disclosure.

 

OTHER INFORMATION

 

None.

 

- 59 -


 

INDEX TO FINANCIAL STATEMENTS

 

3 Month Period Ending April 30, 2021 (Unaudited) F-2
   
Years Ended January 31, 2021 and January 31, 2020 F-21

 

F-1


 

THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets

 

 

 

April 30, 2021

 

January 31, 2021

 

 

 

Unaudited

 

(*)

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

1,342,321

 

$

277,664

 

Share Subscriptions Receivable

 

 

94,817

 

 

100,000

 

Inventory

 

 

307,526

 

 

323,411

 

Prepaid Expenses

 

 

11,609

 

 

11,859

 

Other Current Assets

 

 

4,827

 

 

2,149

 

Total Current Assets

 

 

1,761,100

 

 

715,083

 

Operating Lease Assets

 

 

319,698

 

 

344,413

 

Property and Equipment, net of accumulated depreciation of $99,558, and $88,823

 

 

255,619

 

 

80,027

 

 

 

 

 

 

 

 

 

Total Assets

 

$

2,336,417

 

$

1,139,523

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts Payable

 

$

865,586

 

$

869,765

 

Accrued Expenses

 

 

560,934

 

 

1,382,839

 

Accrued Expenses – Related Party

 

 

81,173

 

 

106,173

 

Customer Deposits

 

 

268,932

 

 

188,385

 

Deferred Revenue

 

 

981,830

 

 

687,766

 

Short-Term Debt

 

 

446,404

 

 

716,142

 

Current Operating Lease Liability

 

 

99,937

 

 

90,286

 

Short-Term Convertible Debt, net of debt discount of $180,789 and $309,317

 

 

340,711

 

 

336,683

 

Derivative Liabilities

 

 

148,957

 

 

213,741

 

PPP Loan-current portion

 

 

79,362

 

 

43,294

 

Current Portion – Long-Term Debt

 

 

588,067

 

 

424,064

 

Total Current Liabilities

 

 

4,461,893

 

 

5,059,138

 

 

 

 

 

 

 

 

 

Non-Current Lease Liability

 

 

211,195

 

 

244,049

 

PPP Loan -long term portion

 

 

130,085

 

 

166,153

 

Long-Term Debt

 

 

1,018,990

 

 

890,373

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

5,822,163

 

 

6,359,713

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

Redeemable Preferred Stock

 

 

 

 

 

 

 

Series D Preferred Stock, $0.001 par value, 870 shares authorized, 870 and 870 shares issued and outstanding

 

 

870,000

 

 

870,000

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

Preferred Stock – Series A, $0.001 par value, 330,000 shares authorized, 0 and 0 shares issued and outstanding

 

 

 

 

 

Preferred Stock – Series B, $0.001 par value, 20,000 shares authorized, 20,000 and 20,000 shares issued and outstanding

 

 

20

 

 

20

 

Preferred Stock – Series C, $0.001 par value, 7,250 shares authorized, 7,250 and 7,250 shares issued and outstanding

 

 

7

 

 

7

 

Common Stock, $0.000001 par value, 15,000,000 shares authorized, 2,574,413 and 1,427,163 shares issued, issuable and outstanding

 

 

3

 

 

1

 

Additional Paid In Capital

 

 

16,593,758

 

 

14,291,759

 

Accumulated Deficit

 

 

(20,949,534

)

 

(20,381,977

)

Total Stockholders’ Deficit

 

 

(4,355,746

)

 

(6,090,190

)

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$

2,336,417

 

$

1,139,523

 

 

 

* Derived from audited information

 

The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.

 

F-2


 

THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

 

 

 

2021

 

2020

 

Revenue

 

$

3,728,784

 

$

2,000,071

 

 

 

 

 

 

 

 

 

Cost of Revenue

 

 

2,766,578

 

 

1,428,304

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

962,206

 

 

571,767

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

Depreciation

 

 

10,735

 

 

6,647

 

Postage, Shipping and Freight

 

 

193,187

 

 

113,138

 

Marketing and Advertising

 

 

608,034

 

 

18,068

 

E Commerce Services, Commissions and Fees

 

 

416,127

 

 

166,419

 

Operating lease cost and rent

 

 

30,479

 

 

34,079

 

Personnel Costs

 

 

297,493

 

 

266,735

 

General and Administrative

 

 

648,509

 

 

175,642

 

Total Operating Expenses

 

 

2,204,564

 

 

780,728

 

 

 

 

 

 

 

 

 

Net Operating Loss

 

 

(1,242,358

)

 

(208,961

)

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

Gain (Loss) on Derivatives

 

 

4,187

 

 

(74,780

)

Gain on Settlement of Debt

 

 

914,049

 

 

2,172,646

 

Amortization of Debt Discount

 

 

(128,528

)

 

(578,913

)

Interest Expense

 

 

(114,907

)

 

(123,094

)

Total Other Income (Expense)

 

 

674,801

 

 

1,395,859

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(567,557)

 

$

1,186,898

 

 

 

 

 

 

 

 

 

Basic Average Shares Outstanding

 

 

1,940,098

 

 

551,590

 

Basic Income (Loss) per Share

 

$

(0.29)

 

$

2.15

 

Diluted Weighted Average Shares Outstanding

 

 

1,940,098

 

 

88,598,209

 

Diluted Income (Loss) per Share

 

$

(0.29)

 

$

0.01

 

 

The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.

 

F-3


 

THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

 

 

Preferred Series A

 

Preferred Series B

 

Preferred Series C

 

Common Stock

 

Paid in

 

Retained

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Total

 

January 31, 2020

 

$

 

20,000

 

$

20

 

6,750

 

$

7

 

538,464

 

$

1

 

$

13,449,336

 

$

(21,569,153

)

$

(8,119,789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Notes Payable to Common Stock

 

 

 

 

 

 

 

 

 

82,361

 

 

 

 

3,399

 

 

 

 

3,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability Reclassified as Equity Upon Conversion of notes

 

 

 

 

 

 

 

 

 

 

 

 

 

8,104

 

 

 

 

8,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange of Debt

 

 

 

 

 

 

250

 

 

 

 

 

 

 

9,105

 

 

 

 

9,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,186,898

 

 

1,186,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2020

 

$

 

20,000

 

$

20

 

7,000

 

$

7

 

620,825

 

$

1

 

$

13,469,944

 

$

(20,382,255

)

$

(6,912,283

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2021

 

 

 

20,000

 

 

20

 

7,250

 

 

7

 

1,427,163

 

 

1

 

 

14,291,759

 

 

(20,381,977

)

 

(6,090,190

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Issued as Payment for Fees

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

107,500

 

 

 

 

107,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Common Stock as Part of REG A

Subscription

 

 

 

 

 

 

 

 

 

1,097,250

 

 

1

 

 

2,194,499

 

 

 

 

2,194,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rounding

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(567,557

)

 

(567,557

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2021

 

$

 

20,000

 

$

20

 

7,250

 

$

7

 

2,574,413

 

$

3

 

$

16,593,758

 

$

(20,949,534

)

$

(4,355,746

)

 

The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.

 

F-4


 

THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

 

    2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net Income (Loss)   $ (567,557 )   $ 1,186,898  
Adjustments to reconcile net loss to cash used by operating activities:                
Depreciation     10,735       6,647  
(Gain) loss in Fair Value on Derivative Liabilities     (4,187 )     74,780  
Amortization of Debt Discount     128,528       578,913  
Loan Penalties Capitalized to Loan and Accrued Interest     28,000        
Stock Based Payment of Consulting Fees     107,500        
Gain on Settlement of Debt     (914,049 )     (2,172,646 )
Change in Operating Assets and Liabilities:                
Decrease (Increase) in Inventory     15,886       (35,451 )
Decrease in Prepaid Rent and Expenses     1,762       3,156  
(Increase) Decrease in Other Current Assets     (2,677 )     (21,721 )
Increase (Decrease) in Accounts Payable     (2,558 )     175,430  
Increase in Accrued Expenses     28,548       151,078  
Decrease in Accrued Expenses -Related Party     (25,000 )      
Increase in Customer Deposits     80,547        
Increase in Deferred Revenue     294,064        
CASH FLOWS (USED IN) OPERATING ACTIVITIES     (820,458 )     (52,916 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of Property and Equipment     (35,000 )      
CASH FLOWS (USED IN) INVESTING ACTIVITIES     (35,000 )      
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from Issuance of Common Shares     2,099,683        
Proceeds from Share Subscriptions Receivable     100,000        
Proceeds from Short Term Debt           205,000  
Payments on Short Term Debt     (128,075 )     (124,716 )
Payments on Long Term Debt     (1,993 )     (1,249 )
Payments on Convertible Notes Payable     (149,500 )      
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES     1,920,115       79,035  
                 
NET INCREASE IN CASH     1,064,657       26,119  
                 
CASH AT BEGINNING OF PERIOD     277,664       162,124  
                 
CASH AT END OF PERIOD   $ 1,342,321     $ 188,243  
                 
Supplemental Disclosure of Cash Flows Information:                
Cash Paid for Interest   $ 42,949     $ 13,210  
Convertible Notes Interest and Derivatives Converted to Common Stock   $     $ 11,503  
Short Term Debt and Interest Extinguished Through Issuance of Series C Preferred Stock   $     $ 144,076  
Convertible Notes and Interest Extinguished Through Issuance of Series C Preferred Stock   $     $ 1,245,456  
Issuance of Common Shares for Share Subscription Receivable   $ 94,817     $  
Loans to acquire Fixed Assets   $ 151,327     $  

 

The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.

 

F-5


 

THE 4LESS GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Business:

 

Nature of Business – The 4LESS Group, Inc., (the “Company”), was incorporated under the laws of the State of Nevada on December 5, 2007. The Company, under the name MedCareers Group, Inc. (“MCGI”) formally operated a website for nurses, nursing schools and nurses’ organizations designed for better communication between nurses and the nursing profession.

 

On November 29, 2018, the Company entered into a transaction (the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of The 4LESS Corp. (“4LESS”), in exchange for the issuance of (i) nineteen thousand (19,000) shares of Series B Preferred Stock, (ii) six thousand seven hundred fifty (6,750) shares of Series C Preferred Stock, and (iii) 870 shares of Series D Preferred Stock. The Series C Preferred Shares have a right to convert into common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The Share Exchange closed on November 29, 2018.  As a result of the Share Exchange, the former shareholders of 4LESS became the controlling shareholders of the Company. The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein 4LESS is considered the acquirer for accounting and financial reporting purposes. The capital, share price, and earnings per share amount in these consolidated financial statements for the period prior to the reverse merger were restated to reflect the recapitalization in accordance with the shares issued as a result of the reverse merger except otherwise noted.

 

4LESS was formed as Vegas Suspension & Offroad, LLC on October 24, 2013 as a Nevada limited liability company and converted to a Nevada corporation with the same name on May 8, 2017. On April 2, 2018, the Company changed its name to The 4LESS Corp. The Corporation had S Corporation status. The Corporation operates as an e-commerce auto and truck parts sales company. As a result of the share exchange, the 4LESS Group, Inc. is now a holding company operating through 4LESS and offers products including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and shocks. On December 30, 2019 4LESS changed its name to Auto Parts 4Less, Inc.

 

Significant Accounting Policies:

 

The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenue and expense. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these condensed financial statements.

 

Basis of Presentation:

 

The Company prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States.

 

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim unaudited consolidated financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended January 31, 2021 and notes thereto contained in the Company’s Annual Report on Form 10-K filed on May 14, 2021.

 

Principles of Consolidation:

 

The condensed financial statements include the accounts of The 4LESS Group, Inc. as well as The Auto Parts 4Less, Inc., and JBJ Wholesale LLC. All significant inter-company transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.

 

F-6


 

Use of Estimates:

 

In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.  The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to value derivative liabilities.

 

Reclassifications

 

Certain amounts in the Company’s condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.

 

Cash and Cash Equivalents:

 

The Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The carrying amount of cash and cash equivalents approximates fair market value.

 

Inventory Valuation

 

Inventories are stated at the lower of cost or net realizable value. Inventories are valued on a first-in, first-out (FIFO) basis. Inventory is comprised of finished goods.

 

Concentrations

 

Cost of Goods Sold

 

For the three months ended April 30, 2021 the Company purchased approximately 54% of its inventory and items available for sale from third parties from three vendors. As of April 30, 2021, the net amount due to the vendors included in accounts payable was $462,991. For the three months ended April 30, 2020, the Company purchased from three vendors approximately 53% of its inventory and items available for sale from third parties. As of April 30, 2020, the net amount due to these vendors included in accounts payable was $434,528. The Company believes there are numerous other suppliers that could be substituted should a supplier become unavailable or non-competitive.

 

Leases

 

We adopted ASU No. 2016-02—Leases (Topic 842), as amended, as of February 1, 2019, using the full retrospective approach. The full retrospective approach provides a method for recording existing leases at adoption and in comparative periods. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

 

In addition, we elected the hindsight practical expedient to determine the lease term for existing leases. Our election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements. In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.

 

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $454,087 and $454,087 respectively, as of February 1, 2019. The standard did not materially impact our consolidated net earnings, retained earnings and had no impact on cash flows.

 

F-7


 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized when items of income and expense are recognized in the financial statements in different periods than when recognized in the tax return. Deferred tax assets arise when expenses are recognized in the financial statements before the tax returns or when income items are recognized in the tax return prior to the financial statements. Deferred tax assets also arise when operating losses or tax credits are available to offset tax payments due in future years. Deferred tax liabilities arise when income items are recognized in the financial statements before the tax returns or when expenses are recognized in the tax return prior to the financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending January 31, 2022, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements.

 

Fair Value of Financial Instruments:

 

The Company’s financial instruments consist of cash, accounts payable, advances and notes payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments. Derivatives are recorded at fair value at each period end. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

 

The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1 Inputs – Quoted prices for identical instruments in active markets.

 

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3 Inputs – Instruments with primarily unobservable value drivers.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of April 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2021

 

Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities – embedded redemption feature

 

$

148,957

 

$

 

$

 

$

148,957

 

Totals

 

$

148,957

 

$

 

$

 

$

148,957

 

 

F-8


 

Related Party Transactions:

 

The Company has a verbal policy that includes procedures intended to ensure compliance with the related party provisions in common practice for public companies. For purposes of the policy, a “related party transaction” is a transaction in which the Company or any one of its subsidiaries participates and in which a related party has a direct or indirect material interest, other than ordinary course, arms-length transactions of less than 1% of the revenue of the counterparty. Any transaction exceeding the 1% threshold, and any transaction involving consulting, financial advisory, legal or accounting services that could impair a director’s independence, must be approved by the CEO. Any related party transaction in which an executive officer or a Director has a personal interest, or which could present a possible conflict under the Guide to Ethical Conduct, must be approved by Board of Directors, following appropriate disclosure of all material aspects of the transaction.

 

Derivative Liability

 

The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments.

 

The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock.  However, because the historical volatility of the Company’s common stock is so high (see Note 10), the sensitivity required to change the liability by 1% as of April 30, 2021 is greater than 25% change in historical volatility as of that date.  The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

 

Revenue Recognition

 

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:

 

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

 

Because the Company’s sales agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

 

Disaggregation of Revenue: Channel Revenue

 

The following table shows revenue split between proprietary and third party website revenue for the three months ended April 30, 2021 and 2020:

 

 

 

 

 

 

 

Change

 

 

 

2021

 

2020

 

$

 

%

 

Proprietary website revenue

 

$

2,123,101

 

 

1,109,106

 

$

1,013,995

 

91%

Third party website revenue

 

 

1,605,683

 

 

890,965

 

 

714,718

 

80%

Total Revenue

 

$

3,728,784

 

$

2,000,071

 

$

1,728,713

 

86%

 

F-9


 

The Company’s performance obligations are satisfied at the point in time when products are received by the customer, which is when the customer has title and obtained the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue. Sales tax and other similar taxes are excluded from revenue.

 

Stock-Based Compensation:

 

The Company accounts for stock options at fair value. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option.

 

Earnings (Loss) Per Common Share:

 

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options and/or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.

 

Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss per share, except the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of convertible debt and other such convertible instruments. Diluted loss per share contemplates a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.

 

Recently Issued Accounting Standards:

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) which simplifies goodwill impairment testing by requiring that such periodic testing be performed by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The policy is effective for fiscal years, including interim periods, beginning after December 15, 2019. We adopted on February 1, 2020 and the adoption had no impact.

 

Fair Value Measurement: In 2018, the FASB issued amended guidance to remove, modify and add disclosure requirements for fair value measurements. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosure requirements. Transition is on a prospective basis for the new and modified disclosures, and on a retrospective basis for disclosures that have been eliminated. The adoption of this guidance on February 1, 2020 did not have a material impact on our consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting, which is part of the FASB’s simplification initiative to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting. This update provides consistency in the accounting for share-based payments to nonemployees with that of employees. The updated guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In addition to the above, the Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.

 

There were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows.

 

F-10


 

NOTE 2 – GOING CONCERN AND FINANCIAL POSITION

 

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $20,949,534 as of April 30, 2021 and has a working capital deficit at April 30, 2021 of $2,700,793. As of April 30, 2021, the Company only had cash and cash equivalents of $1,342,321 and approximately $151,000 of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. While the Company has continued to grow its revenues, at this time, the three months ended July 31, 2020 was only the first quarter the Company was able to achieve profitability from operations prior to interest and other expenses.  While the Company believes it will continue to build on the results achieved in this quarter, our current liquidity position raises substantial doubt about the Company’s ability to continue as a going concern.

 

Management’s plan is to raise additional funds in the form of debt or equity in order to (a) grow the business through building up brand awareness and developing and launching a potentially much larger auto parts e-commerce web site, autoparts4less.com while (b) continuing to fund losses until such time as revenues can sustain the Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 3 – PROPERTY

 

The Company capitalizes all property purchases over $1,000 and depreciates the assets on a straight-line basis over their useful lives of 3 years for computers and 7 years for all other assets. Property consists of the following at April 30, 2021 and January 31, 2021: 

 

 

 

 

 

 

 

 

 

 

April 30, 2021

 

January 31, 2021

 

Office furniture, fixtures and equipment

 

$

85,413

 

$

85,413

 

Shop equipment

 

 

43,004

 

 

43,004

 

Vehicles

 

 

226,760

 

 

40,433

 

Sub-total

 

 

355,177

 

 

168,850

 

Less: Accumulated depreciation

 

 

(99,558

)

 

(88,823

)

Total Property

 

$

255,619

 

$

80,027

 

 

Additions to fixed assets for the three months ended April 30, 2021 and were $186,327 with $35,000 paid in cash and $151,327 financed through vehicle loans. Additions to fixed assets were nil for the three months ended April 30, 2020.

 

Depreciation expense was $10,735 and $6,647 for the three months ended April 30, 2021 and April 30, 2020, respectively.

 

F-11


 

NOTE 4 – LEASES

 

We lease certain warehouses and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and non-lease components.

 

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 17 years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

 

Below is a summary of our lease assets and liabilities at April 30, 2021 and January 31, 2021.

 

 

 

 

 

 

 

 

 

 

Leases

 

Classification

 

April 30, 2021

 

January 31, 2021

 

Assets

 

 

 

 

 

 

 

 

 

Operating

 

Operating Lease Assets

 

$

319,698

 

$

344,413

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Operating

 

Current Operating Lease Liability

 

$

99,937

 

$

90,286

 

Noncurrent

 

 

 

 

 

 

 

 

 

Operating

 

Noncurrent Operating Lease Liabilities

 

 

211,195

 

 

244,049

 

Total lease liabilities

 

 

 

$

311,132

 

$

334,335

 

 

Note: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate of 8% based on the information available at commencement date in determining the present value of lease payments.

 

CAM charges were not included in operating lease expense and were expensed in general and administrative expenses as incurred.

 

Operating lease cost and rent was $30,479 and $34,079 for the three months ended April 30, 2021 and April 30, 2020, respectively.

 

NOTE 5 – CUSTOMER DEPOSITS

 

The Company receives payments from customers on orders prior to shipment. At April 30, 2021 the Company had received $268,932 (January 31, 2021- $188,385) in customer deposits for orders that were unfulfilled at April 30, 2021 and canceled subsequent to year end. The orders were unfulfilled at April 30, 2021 because of supply chain issues due to supplier back-orders because of the Covid-19 pandemic. The deposits were returned to the customers subsequent to April 30, 2021.

 

NOTE 6 – DEFERRED REVENUE

 

The Company receives payments from customers on orders prior to shipment. At April 30, 2021 the Company had received $981,830 (January 31, 2021- $687,766) in customer payments for orders that were unfulfilled at April 30, 2021 and delivered subsequent to April 30, 2021. The orders were unfulfilled at April 30, 2021 because of supply chain issues due to supplier back-orders because of the Covid-19 pandemic as well as processing and delivery timing.

 

NOTE 7 – PPP LOAN

 

On May 2, 2020 the Company entered into a Paycheck Protection Promissory (PPP) Note Agreement whereby the lender would advance proceeds of $209,447 at a fixed rate of 1% per annum and a May 2, 2022 maturity. The loan is repayable in monthly installments of $8,818 commencing September 2, 2021 and continuing on the second day of every month thereafter until maturity when any remaining principal and interest are due and payable. At April 30, 2021 the loan is classified as $79,362 current and $130,085 long-term. The Company used the proceeds of this loans for working capital and the Company intends to use these proceeds in a manner consistent with obtaining loan forgiveness, which the Company is currently in the process of gathering the required information to file its forgiveness application and expects to have filed its application before the end of its second fiscal quarter. 

 

F-12


 

NOTE 8 – SHORT-TERM AND LONG-TERM DEBT

 

The components of the Company’s debt as of April 30, 2021 and January 31, 2021 were as follows:

 

 

 

April 30,

 

January 31,

 

2021

2021

 

 

 

 

 

 

 

 

 

Loan dated October 8, 2019, and revised February 29, 2020 and November 10, 2010 repayable June 30, 2022 with an additional interest payment of $20,000(3)

 

 

102,168

#

 

102,168

 

 

 

 

 

 

 

 

 

SFS Funding Loan, original loan of $389,980 January 8, 2020, 24% interest, weekly payments of $6,006, maturing July 28, 2021(2)

 

 

83,152

*

 

161,227

 

 

 

 

 

 

 

 

 

Forklift Note Payable, original note of $20,433 Sept 26, 2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023(1)

 

 

11,269

#

 

12,269

 

 

 

 

 

 

 

 

 

Vehicle loan original loan of $93,239 February 16, 2021, 2.90 % interest. 72 monthly payments of $1,414 beginning on April 2, 2021 and ending on March 2, 2027. Secured by vehicle having net book value of $94,316.

 

 

92,246

#

 

 

 

 

 

 

 

 

 

 

 

Vehicle loan original loan of $59,711 March 20,2021, 7.89% interest. 72 monthly payments of $1,048 beginning on May 4, 2021 and ending on April 4, 2027. Secured by vehicle having net book value of $87,575.

 

 

59,711

#

 

 

 

 

 

 

 

 

 

 

 

Demand loan - $5,000 dated February 1, 2020, 15% interest, 5% fee on outstanding balance

 

 

5,000

*

 

5,000

 

 

 

 

 

 

 

 

 

Demand loan - $2,500, dated March 8, 2019, 25% interest, 5% fee on outstanding balance

 

 

2,500

*

 

2,500

 

 

 

 

 

 

 

 

 

Demand loan - $65,500 dated February 27, 2019, 25% interest, 5% fee on outstanding balance, Secured by the general assets of the Company

 

 

12,415

*

 

12,415

 

 

 

 

 

 

 

 

 

Promissory note -$60,000 dated September 18, 2020 maturing September 18, 2021, including $5,000 original issue discount, 15% compounded interest payable monthly

 

 

60,000

*

 

60,000

 

 

 

 

 

 

 

 

 

Promissory note -$425,000 dated August 28, 2020, including $50,000 original issue discount, 15% compounded interest payable monthly. This notes matures when the Company receives proceeds through a financing event of $825,000 plus accrued interest on the note. (4)

 

 

425,000

*

 

425,000

 

 

 

 

 

 

 

 

 

Promissory note -$1,200,000 dated August 28, 2020,maturing August 28, 2022, 12% interest payable monthly with the first six months interest deferred until the 6th month and added to principal. (5)

 

 

1,200,000

#

 

1,200,000

 

 

 

 

 

 

 

 

 

Promissory note -$50,000 dated August 31, 2020,maturing February 28, 2021, 10% interest payable accrued monthly payable at maturity Fully repaid at April 30, 2021

 

 

*

 

50,000

 

 

 

 

 

 

 

 

 

Total

 

$

2,053,461

 

$

2,030,579

 

 

F-13


 

 

 

30-Apr-21

 

31-Jan-21

 

Short-Term Debt

 

$

446,404

 

$

716,142

 

Current Portion Of Long-Term Debt

 

 

588,067

 

 

424,064

 

Long-Term Debt

 

 

1,018,990

 

 

890,373

 

 

 

$

2,053,461

 

$

2,030,579

 

*Short-term loans

#Long-term loans of $11,269 including current portion of $3,812

$102,168 including current portion of $0

$ 59,711 including current portion $8,077

$ 92,246 including current portion $14,515

$1,200,000 including current portion of $420,000

(1) Secured by equipment having a net book value of $11,650

(2) The amounts due under the note are personally guaranteed by an officer or a director of the Company.

(3) On November 10, 2020 the Company amended the agreement extending the maturity to June 30, 2022 from April 8, 2021 and changing monthly payments to $0 from $5,705 and interest rate from 13% to a $20,000 lump sum payable at maturity.

(3) The Company has pledged a security interest on all accounts receivable and banks accounts of the Company.

(4) Financing event would be a sale or issuance of assets, debt, shares or any means of raising capital. As the Company expects to enter into such a transaction within the calendar year this loan is treated as current.

(5) Secured by all assets of the Company. Loan payable in 2 instalments, $445,200 payable August 28, 2021 and $826,800 payable August 28, 2022

 

NOTE 9 – SHORT-TERM CONVERTIBLE DEBT

 

The components of the Company’s debt as of April 30, 2021 and January 31, 2021 were as follows:

 

 

 

Interest

 

Default Interest

 

Conversion

 

Outstanding Principal at

 

Maturity Date

 

Rate

 

Rate

 

Price

 

April 30, 2021

 

January 31, 2021

 

Nov 4, 2013*

 

12%

 

12%

 

$1,800,000

 

$

100,000

 

$

100,000

 

Jan 31, 2014*

 

12%

 

18%

 

$2,400,000

 

 

16,000

 

 

16,000

 

July 31, 2013*

 

12%

 

12%

 

$1,440,000

 

 

5,000

 

 

5,000

 

Jan 31, 2014*

 

12%

 

12%

 

$2,400,000

 

 

30,000

 

 

30,000

 

Oct. 12, 2021

 

12%

 

16%

 

(1)

 

 

130,000

 

 

230,000

 

Nov. 16, 2021

 

12%

 

16%

 

(1)

 

 

125,000

 

 

100,000

 

Nov. 23, 2021

 

12%

 

16%

 

(1)

 

 

115,500

 

 

165,000

 

Sub-total

 

 

 

 

 

 

 

 

521,500

 

 

646,000

 

Debt Discount

 

 

 

 

 

 

 

 

(180,789

)

 

(309,317

)

 

 

 

 

 

 

 

 

$

340,711

 

$

336,683

 

 

* In default.

(1)

closing bid price on the day preceding the conversion date.

 

The Company had accrued interest payable of $222,667 and $240,713 on the notes at April 31, 2021 and January 31, 2021, respectively.

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that some instruments should be classified as liabilities due to there being a variable number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the embedded conversion option resulted in a discount to the note on the debt modification date. For the three months ended April 30, 2021 and 2020, the Company recorded amortization of debt discount expense of $128,538 and $578,913, respectively. See more information in Note 10.

 

F-14


 

During the three months ended April 30, 2021 and April 30, 2020 the Company added $28,000 and nil in penalty interest to the loan, respectively.

 

As of April 30, 2021, the Company had $151,000 of aggregate debt in default. The agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company continues to accrue interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.

 

NOTE 10 – DERIVATIVE LIABILITIES

 

As of April 30, 2021 and January 31, 2021, the Company had derivative liabilities of $148,957 and $213,741, respectively. During the three months ended April 30, 2021 and 2020, the Company recorded a gain of $4,187 and a loss of $74,780, respectively, from the change in the fair value of derivative liabilities. Any liabilities resulting from the warrants outstanding are immaterial.

 

The derivative liabilities are valued as a level 3 input for valuing financial instruments.

 

The following table presents changes in Level 3 liabilities measured at fair value for the three months ended April 30, 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.

 

 

 

 

 

 

 

Level 3

 

 

 

Derivatives

 

Balance, January 31, 2021

 

$

213,741

 

Settlement due to Repayment of Debt

 

 

(60,597

)

Mark to Market Change in Derivatives

 

 

(4,187)

 

Balance, April 30, 2021

 

$

148,957

 

 

The derivatives arise from convertible debt where the debt is convertible into common stock at variable conversion prices which are linked to the trading and/or bid prices of the Company’s common stock as traded on the OTC market.

 

As the price of the common stock varies it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date.

 

The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of April 30, 2021 is as follows:

 

 

 

Embedded

 

 

 

Derivative Liability

 

 

 

As of
April 30, 2021

 

Strike price

 

$

2.10 - 4.30

 

Contractual term (years)

 

 

0.25 - 1.00 years

 

Volatility (annual)

 

 

116.5% - 537.3

%

High yield cash rate

 

 

24.90% - 29.42

%

Underlying fair market value

 

$

2.10

 

Risk-free rate

 

 

0.07% - 0.17

%

Dividend yield (per share)

 

 

0

%

 

F-15


 

NOTE 11 – STOCKHOLDERS’ DEFICIT

 

Preferred Stock:

 

The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of both April 30, 2021, and January 31, 2021 the Company had 0 shares of Series A Preferred issued and outstanding and 330,000 authorized with a par value of $0.001 per share.

 

At both April 30, 2021 and January 31, 2021, there were 20,000 and 20,000 Series B preferred shares outstanding, respectively. The Series B Preferred Stock have voting rights equal to 51% of the total voting rights at any time. There are no conversion rights granted holders of Series B Preferred shares, they are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 20,000 Series B preferred shares authorized and issued of the Series B Preferred Stock with a par-value of $0.001 per share.

 

At both April 30, 2021 and January 31, 2021, there were 7,250 and 7,250 Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 7,250 Series C preferred shares authorized and issued with a par-value of $0.001 per share.

 

At both April 30, 2021 and January 31, 2021, there were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $.001. All shares of Series D Preferred Stock will rank subordinate and junior to all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any of the Corporation’s preferred stock hereafter created as to distributions of assets upon dissolution or winding up of the Corporation, whether voluntary or involuntary. These shares are non-voting, do not receive dividends and are redeemable according to the terms set out as follows:

 

OPTIONAL REDEMPTION.

 

(1)  At any time, either the Corporation or the holder may redeem for cash out of funds legally available therefor, any or all of the outstanding Series D Preferred Stock (“Optional Redemption”) at $1,000 per share.

 

(2)  Should the Corporation exercise the right of Optional Redemption it shall provide each holder of Preferred Stock with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption Notice”). Any optional redemption pursuant to this Section VI shall be made ratably among holders in proportion to the Liquidation Value of Preferred Stock then outstanding and held by such holders. The Optional Redemption Notice shall state the Liquidation Value of Preferred Stock to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty (30) or more than sixty (60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the Corporation to the holders at the address of such holder appearing on the register of the Corporation for the Preferred Stock. Within seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation with instructions as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via wire transfer to the account designated by the holders, and (B) the holders will deliver the certificates relating to that number of shares of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that number of shares to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which funds should be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such Optional Redemption to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of shares of Preferred Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed no longer outstanding. Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.

 

F-16


 

(3)  Should the holder exercise the right of Optional Redemption it shall provide the Corporation with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption Notice”). The Optional Redemption Notice shall state the value of the Preferred Stock to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty (30) or more than sixty (60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the holder to the Corporation at the address of the Corporation for the Preferred Stock. Within seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation with instructions as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via wire transfer to the account designated by the holder, and (B) the holder will deliver the certificates relating to that number of shares of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that number of shares to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which funds should be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such Optional Redemption to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of shares of Preferred Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed no longer outstanding. Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.

 

The Series D Preferred Stock is not entitled to any pre-emptive or subscription rights in respect of any securities of the Corporation.

 

Neither the Company nor any Series D preferred stockholders has given notice to exercise the redemption as of April 30, 2021 on the date of the financial statements.

 

Because the holders of the Series D preferred stock have the right to demand cash redemption, the cumulative amount of the redemption feature is included in Temporary Equity as of April 30, 2021 and January 31, 2021.