United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2021
OR
[_] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE
ACT OF 1934
From the transition period ___________ to ____________.
Commission File Number 333-152444
THE 4LESS GROUP, INC.
(Exact name of small business issuer as specified in its
charter)
Nevada
|
|
7389
|
|
90-1494749
|
(State or jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(IRS Employer
Identification No.)
|
106 W. Mayflower, Las Vegas, NV 89030
(Address of principal executive offices)
(702) 267-6100
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes [X] No [_]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes
[X] No [_].
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act:
Large Accelerated
Filer [_] Accelerated
Filer [_]
Non-Accelerated
Filer [X] Smaller
Reporting
Company [X] Emerging
Growth Company [_]
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. [_]
Indicate by a check mark whether the company is a shell company (as
defined by Rule 12b-2 of the Exchange Act):
Yes [_] No [X].
As of June 14, 2021, there were 2,584,413 shares of Common Stock of
the issuer outstanding.
TABLE OF CONTENTS
PART I.
|
FINANCIAL INFORMATION
|
3
|
|
|
|
ITEM 1.
|
Condensed Consolidated Financial
Statements (Unaudited)
|
3
|
|
|
|
|
Notes to Condensed Consolidated
Financial Statements (Unaudited)
|
7
|
|
|
|
ITEM 2.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
|
22
|
|
|
|
ITEM 3.
|
Quantitative and Qualitative Disclosure
About Market Risk
|
26
|
|
|
|
ITEM 4.
|
Controls and Procedures
|
26
|
|
|
|
PART II.
|
OTHER INFORMATION
|
27
|
|
|
|
ITEM 1.
|
Legal Proceedings
|
27
|
|
|
|
ITEM 1A.
|
Risk Factors
|
27
|
|
|
|
ITEM 2.
|
Unregistered Sales of Securities and Use
of Proceeds
|
27
|
|
|
|
ITEM 3.
|
Default Upon Senior
Securities
|
27
|
|
|
|
ITEM 4.
|
Mine Safety Disclosures
|
27
|
|
|
|
ITEM 5.
|
Other Information
|
27
|
|
|
|
ITEM 6.
|
Exhibits
|
27
|
- 2 -
PART 1: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
- 3 -
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.
- 4 -
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.
- 5 -
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.
- 6 -
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.
- 7 -
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.
- 8 -
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
|
|
- 9 -
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%
|
- 10 -
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.
- 11 -
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.
- 12 -
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.
- 13 -
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
|
|
- 14 -
|
|
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.
- 15 -
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
|
%
|
- 16 -
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.
- 17 -
(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.
Common Stock
The Company is authorized to issue 15,000,000 common shares at a
par value of $0.000001 per share. These shares have full voting
rights. The share capital has been retrospectively adjusted
accordingly to reflect these reverse stock splits. At April
30, 2021 and January 31, 2021 there were 2,574,413 and 1,427,163
shares outstanding and issuable, respectively. No dividends
were paid in the three months ended April 30, 2021 or 2020. The
Company’s articles of incorporation include a provision that the
Company is not allowed to issue fractional shares.
The Company issued the following shares of common stock in the
three months ended 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.
Issuance of 50,000 shares with a fair value of $107,500 as payment
for fees to a consultant.
Options and Warrants:
The Company has no options outstanding as of April 30, 2021 or
January 31, 2021.
The Company recorded option and warrant expense of $0 and $0 for
the three months ended April 30, 2021 and 2020, respectively.
The Company had the following fully vested warrants outstanding at
April 30,2021:
|
|
|
|
|
|
|
Issued To
|
# Warrants
|
Dated
|
Expire
|
Strike Price
|
Expired
|
Exercised
|
Lender
|
950,000
|
08/28/2020
|
08/28/2023
|
$0.40 per share
|
N
|
N
|
Broker
|
2,500
|
10/11/2020
|
10/11/2025
|
$4.50 per share
|
N
|
N
|
Broker
|
3,000
|
11/25/2020
|
11/25/2025
|
$3.00 per share
|
N
|
N
|
- 18 -
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Warrants
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 31, 2021
|
|
—
|
|
$
|
—
|
|
955,000
|
|
$
|
0.42
|
|
Granted
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Exercised
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Forfeited and canceled
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Outstanding at April 30, 2021
|
|
—
|
|
$
|
—
|
|
955,000
|
|
$
|
0.42
|
|
NOTE 12 – RELATED PARTY TRANSACTIONS
As of April 30, 2021 and January 31, 2021, the Company had $81,173
and $106,173, respectively of related party accrued expenses
related to accrued compensation for employees and consultants.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
On August 30, 2016, the Company entered into a 60-month lease
agreement for its 3,554 sf warehouse facility starting in December
2016 with a minimum base rent of $2,132 and estimated monthly CAM
charges of $1,017 per month. This lease is with a shareholder.
On July 1, 2018, the Company entered into a 60-month lease
agreement with its minority shareholder for its 8,800 sf warehouse
facility with a minimum base rent of $6,400 per month.
In October 2019 the Company entered into an operating lease for a
vehicle with an annual cost of $9,067 and a three year term. The
company paid initial fees of $17,744 and will pay fees on lease
termination of $395. On a straight-line basis these costs amount to
$1,259 per month.
|
|
|
|
Maturity of Lease Liabilities
|
Operating
Leases
|
|
April 30 2022
|
$
|
121,917
|
|
April 30, 2023
|
|
113,100
|
|
April 30, 2024
|
|
42,803
|
|
April 30, 2025
|
|
30,003
|
|
April 30, 2026
|
|
30,003
|
|
After April 30, 2026
|
|
17,503
|
|
Total lease payments
|
|
355,329
|
|
Less: Interest
|
|
(44,197
|
)
|
Present value of lease liabilities
|
$
|
311,132
|
|
The Company had total operating lease and rent expense of $30,479
and $34,079 for the three months ended April 30, 2021 and 2020
respectively.
There is pending litigation initiated by the Company around the
validity of a $100,000 note which the Company signed based upon
representations of funding from the maker which were never
received. The Company initiated litigation to dispute the note and
the 1,692 shares that have been issued. There was no consideration
for the issuance of the shares and the shares have been accounted
for as if they were returned and cancelled although they have not
been returned.
- 19 -
NOTE 14 – EARNINGS (LOSS) PER SHARE
The net income (loss) per common share amounts were determined as
follows:
|
|
For the Years Ended |
|
|
|
April 30, |
|
|
|
2021 |
|
|
2020 |
|
Numerator: |
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(567,557 |
) |
|
$ |
1,186,898 |
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted
average shares – basic |
|
|
1,940,098 |
|
|
|
551,590 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic |
|
$ |
(0.29 |
) |
|
$ |
2.15 |
|
|
|
|
|
|
|
|
|
|
Effect
of common stock equivalents |
|
|
|
|
|
|
|
|
Add:
interest expense on convertible debt |
|
|
34,652 |
|
|
|
103,540 |
|
Add:
amortization of debt discount |
|
|
128,528 |
|
|
|
— |
|
Add (Less): loss (gain) on change of derivative liabilities |
|
|
(4,187 |
) |
|
|
— |
|
Net
income (loss) adjusted for common stock equivalents |
|
|
(408,564 |
) |
|
|
1,290,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents: |
|
|
|
|
|
|
|
|
Convertible notes and accrued interest |
|
|
— |
|
|
|
86,413,848 |
|
Convertible Class C Preferred shares |
|
|
— |
|
|
|
1,632,770 |
|
Warrants (1) |
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted
average shares – diluted |
|
|
1,940,098 |
|
|
|
88,598,209 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – diluted |
|
$ |
(0.29 |
) |
|
$ |
0.01 |
|
The anti-dilutive shares of common stock equivalents for the three
months ended April 30, 2021 and April 30, 2020 were as follows:
|
|
For the Years Ended |
|
|
|
April 30, |
|
|
|
2021 |
|
|
2020 |
|
Convertible notes and accrued interest |
|
|
354,365 |
|
|
|
— |
|
Convertible Class C Preferred shares |
|
|
6,770,706 |
|
|
|
— |
|
Warrants |
|
|
955,500 |
|
|
|
— |
|
Total |
|
|
8,080,571 |
|
|
|
— |
|
- 20 -
NOTE 15 – GAIN ON SETTLEMENT OF DEBT
For the three months ended April 30, 2021 the gain on settlement of
debt of $914,049 consisted of a $853,452 gain that resulted from
the settlement of accounts payable totaling $950,151 that was
settled for $96,699, and a $60,597 gain that resulted from the
reduction in the derivative liability due to cash repayments on
convertible debt. For the three months ended April 30, 2020 the
gain on settlement of debt of $2,172,646 consisted of a gain that
resulted from the settlement of $1,070,035 in convertible notes,
and $175,422 in accrued interest, as well as $122,000 in short-term
debt and $22,076 in accrued interest, and the associated derivative
liability of $792,218 all totaling $2,181,751 in exchange for 250
Class C shares having a fair-value of $9,105.
NOTE 16 – SUBSEQUENT EVENTS
Subsequent to quarter year end up to June 8, 2021 a lender
converted $18,750 in principal for 10,000 shares of common
stock
- 21 -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, which we refer to in this quarterly report as
the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, which we refer to in this quarterly report as
the Exchange Act. Forward-looking statements are not statements of
historical fact but rather reflect our current expectations,
estimates and predictions about future results and events. These
statements may use words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “predict,” “project” and similar
expressions as they relate to us or our management. When we make
forward-looking statements, we are basing them on our management’s
beliefs and assumptions, using information currently available to
us. These forward-looking statements are subject to risks,
uncertainties and assumptions, including but not limited to, risks,
uncertainties and assumptions discussed in this quarterly report.
Factors that can cause or contribute to these differences include
those described under the headings “Risk Factors” and “Management
Discussion and Analysis and Plan of Operation.”
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, actual results may vary materially from what we
projected. Any forward-looking statement you read in this quarterly
report reflects our current views with respect to future events and
is subject to these and other risks, uncertainties and assumptions
relating to our operations, results of operations, growth strategy
and liquidity. All subsequent written and oral forward-looking
statements attributable to us or individuals acting on our behalf
are expressly qualified in their entirety by this paragraph. You
are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this quarterly
report. The Company expressly disclaims any obligation to release
publicly any updates or revisions to these forward-looking
statements to reflect any change in its views or expectations. The
Company can give no assurances that such forward-looking statements
will prove to be correct.
Company
The 4LESS Group Inc. (“FLES”, the “Company”, “we” or
“us”), the Company described herein, was incorporated under
the laws of the State of Nevada on December 5, 2007, with offices
located at 106 W Mayflower, Las Vegas, Nevada 89030. Our phone
number is (702) 267-7100.
Nature of Business – The 4LESS Group, Inc., formerly
known as MedCareers Group, Inc. (the “Company”, “MCGI”), was
incorporated under the laws of the State of Nevada on December 5,
2007.
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.
On November 19, 2019 The 4Less Group acquired the URL
Autoparts4Less.com and changed the name of their wholly owned
subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc.
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*
|
- 22 -
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 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 Launch Expected Timeline
4Less plans 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.
|
• |
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.
|
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%
|
- 23 -
Sales
Our sales are derived from the following:
•
|
Proprietary websites. 57% of our sales are currently generated
through our own websites. We intend to build and launch additional
niche websites
|
•
|
Third Party Websites (such as eBay and Walmart)– We sell our
products on third party websites and pay fees to these
websites in connection with each sale.
|
Business Strategies
|
•
|
Continually develop best in class technological modules to increase
visitor conversions.
|
|
•
|
Work to develop and launch the website www.autoparts4less.com by
approximately mid-to-late FY2022 into what we believe will be the
first standalone multi-vendor automotive parts marketplace.
|
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%.
- 24 -
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:
Operating
expenses |
|
|
|
|
|
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
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 |
|
Other Income
(Expense) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
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 |
%) |
- 25 -
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.
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)
|
|
$
|
(2,700,783
|
)
|
$
|
(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.
ITEM 3. Quantitative and Qualitative Disclosure about Market
Risk.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), we are
not required to provide the information required by this Item as it
is a “smaller reporting company,” as defined by Rule
229.10(f)(1).
ITEM 4. Controls and Procedures
(a) Evaluation
of disclosure controls and procedures. Our Chief Executive Officer
and Principal Financial Officer, after evaluating the effectiveness
of our “disclosure controls and procedures” (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Quarterly Report on
Form 10-Q (the “Evaluation Date”), has concluded that as of
the Evaluation Date, our disclosure controls and procedures were
not effective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. Moving
forward, we hope that our Chief Executive Officer and Principal
Financial Officer will be able to devote the additional time and
effort required so that our disclosure controls and procedures can
become effective. Notwithstanding the assessment that our internal
controls and procedures were not effective, we believe that our
financial statements contained in this Quarterly Report for the
quarter ended April 30, 2021 fairly present our financial position,
results of operations and cash flows for the years and months
covered thereby in all material respects.
- 26 -
(b) Changes
in internal control over financial reporting. There were no changes
in our internal control over financial reporting during our most
recent fiscal quarter that materially affected, or were reasonably
likely to materially affect, our internal control over financial
reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There is pending litigation initiated by the Company around the
validity of a $100,000 note which the Company signed based upon
representations of funding from the maker which were never
received. The Company initiated litigation to dispute the note and
the 1,692 shares that have been issued. There was no consideration
for the issuance of the shares and the shares have been accounted
for as if they were returned and cancelled although they have not
been returned.
Item 1A. Risk Factors
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), we are
not required to provide the information required by this Item as it
is a “smaller reporting company,” as defined by Rule
229.10(f)(1).
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
Recent Sales of Unregistered Securities
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
See the Exhibit Index immediately following the signature page of
this Report on Form 10-Q.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The 4Less Group, Inc.
By:
|
/s/ Timothy Armes
|
|
Timothy Armes
|
|
Chairman (Director), Chief Executive Officer, President, Secretary
and Treasurer
|
Date: June 14, 2021
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EXHIBIT INDEX
* Filed herewith.
** In accordance with Regulation S-T, the
Interactive Data Files in Exhibit 101 to the Quarterly Report on
Form 10-Q shall be deemed “furnished” and not “filed.”
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