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 October 31, 20212022

 

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

 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY 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,, NV89030

(Address of principal executive offices)

 

(702)267-6100

(Issuer’s telephone number)

 

Securities registered pursuant to Section 12(b)12(g) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockFLESOTCQB

 

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][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 December 10, 2021,23, 2022, there were 3,410,2351,890,862 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 StatementsBalance Sheets (Unaudited)

83

 

 

 

ITEM 2.

Management’s Discussion and AnalysisCondensed Consolidated Statements of Financial Condition and Results of Operations.Operations (Unaudited)

244

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosure About Market RiskCondensed Consolidated Statement of Changes in Stockholders’ Deficit (Unaudited)

305 - 6

 

 

 

ITEM 4.

Controls and ProceduresCondensed Consolidated Statements of Cash Flows (Unaudited)

307

 

 

 

PART II.

OTHER INFORMATIONNotes to Condensed Consolidated Financial Statements (Unaudited)

308

 

 

 

ITEM 1.2.

Legal ProceedingsManagement’s Discussion and Analysis of Financial Condition and Results of Operations.

3028

 

 

 

ITEM 1A.3.

Quantitative and Qualitative Disclosure About Market Risk Factors

3033

 

 

 

ITEM 2.4.

Unregistered Sales of SecuritiesControls and Use of ProceedsProcedures

3033

 

 

 

ITEM 3.PART II.

Default Upon Senior SecuritiesOTHER INFORMATION

3134

 

 

 

ITEM 4.1.

Mine Safety DisclosuresLegal Proceedings

3134

 

 

 

ITEM 5.1A.

Other InformationRisk Factors

3134

 

 

 

ITEM 6.2.

ExhibitsUnregistered Sales of Securities and Use of Proceeds

3234

ITEM 3.

Default Upon Senior Securities

34

ITEM 4.

Mine Safety Disclosures

34

ITEM 5.

Other Information

34

ITEM 6.

Exhibits

34

SIGNATURES

35

 

- 2 -


Table of Contents

 

PART 1:I: FINANCIAL INFORMATION

 

ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets

      
  October 31, 2021 January 31, 2021 
  Unaudited (*) 
Assets       
Current Assets       
Cash and Cash Equivalents $350,299 $277,664 
Share Subscriptions Receivable  2,301  100,000 
Inventory  401,444  323,411 
Prepaid Expenses  10,848  11,859 
Other Current Assets  41,419  2,149 
Total Current Assets  806,311  715,083 
Operating Lease Assets  270,187  344,413 
Deferred Offering Costs  282,000   
Property and Equipment, net of accumulated depreciation of $109,468, and $88,823  234,338  80,027 
        
Total Assets $1,592,836 $1,139,523 
        
Liabilities and Stockholders’ Deficit       
Current Liabilities       
Accounts Payable $1,089,619 $869,765 
Accrued Liabilities  646,964  1,382,839 
Accrued Expenses – Related Party  46,173  106,173 
Customer Deposits  220,776  188,385 
Deferred Revenue  241,292  687,766 
Short-Term Debt  3,132,568  716,142 
Current Operating Lease Liability  103,874  90,286 
Short-Term Convertible Debt, net of debt discount of $354,526 and $309,317  594,774  336,683 
Derivative Liabilities  391,868  213,741 
PPP Loan-current portion    43,294 
Current Portion – Long-Term Debt  25,076  424,064 
Total Current Liabilities  6,492,984  5,059,138 
        
Non-Current Lease Liability  160,770  244,049 
PPP Loan -long term portion    166,153 
Long-Term Debt  125,286  890,373 
        
Total Liabilities  6,779,040  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  0  0 
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, 3,410,235 and 1,427,163 shares issued, issuable and outstanding  3  1 
Additional Paid In Capital  19,212,123  14,291,759 
Accumulated Deficit  (25,268,357) (20,381,977)
Total Stockholders’ Deficit  (6,056,204) (6,090,190)
        
Total Liabilities and Stockholders’ Deficit $1,592,836 $1,139,523 

        
  October 31, 2022 January 31, 2022 
  Unaudited (*) 
Assets       
Current Assets       
Cash and Cash Equivalents $46,026 $77,498 
Inventory  142,251  432,583 
Prepaid Expenses  8,018  16,065 
Deferred Offering Costs  23,000  23,000 
Other Current Assets  33,248  15,469 
Total Current Assets  252,543  564,615 
Operating Lease Assets  160,770  242,583 
Property and Equipment, net of accumulated depreciation of $161,056, and $122,469  183,891  221,336 
        
Total Assets $597,204 $1,028,534 
        
Liabilities and Stockholders’ Deficit       
Current Liabilities       
Bank overdraft $ $11,055 
Accounts Payable  1,317,984  1,228,039 
Accrued Expenses  1,536,626  796,397 
Accrued Expenses – Related Party  45,673  46,173 
Customer Deposits  57,856  530,900 
Deferred Revenue  66,153  665,143 
Short-Term Debt  2,985,041  3,454,133 
Current Operating Lease Liability  70,214  100,001 
Short-Term Convertible Debt, net of debt discount of $2,374,330 and $2,131,034  5,766,920  647,966 
Derivative Liabilities  3,663,597  1,263,442 
Shareholder Loans Payable    119,476 
Current Portion – Long-Term Debt  22,149  27,737 
Total Current Liabilities  15,532,213  8,890,462 
        
Non-Current Lease Liability  90,556  138,551 
Long-Term Debt  95,803  115,900 
        
Total Liabilities  15,718,572  9,144,913 
        
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, 0 and 7,250 shares issued and outstanding    7 
Common Stock, $0.000001 par value, 75,000,000 shares authorized, 1,823,708 and 341,023 shares issued, issuable and outstanding  2   
Additional Paid In Capital  24,689,118  19,465,327 
Accumulated Deficit  (40,680,508) (28,451,733)
Total Stockholders’ Deficit  (15,991,368) (8,986,379)
        
Total Liabilities and Stockholders’ Deficit $597,204 $1,028,534 

 

*Derived from audited information

 

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

 

- 3 -


Table of Contents

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended October 31, 20212022 and October 31, 20202021

(Unaudited)

              
  Three Months Ended Nine Months Ended 
  October 31,
2021
 October 31,
2020
 October 31,
2021
 October 31,
2020
 
              
Revenue $3,114,062 $2,334,826 $9,429,519 $7,262,106 
              
Cost of Revenue  2,274,564  1,861,130  6,975,126  5,291,026 
              
Gross Profit  839,498  473,696  2,454,393  1,971,080 
              
Operating Expenses:             
Depreciation  12,479  6,299  35,930  18,897 
Postage, Shipping and Freight  94,356  113,702  430,105  378,595 
Marketing and Advertising  609,252  25,497  1,876,576  49,347 
E Commerce Services, Commissions and Fees  434,832  222,425  1,160,569  641,692 
Operating lease cost  30,478  23,279  91,437  91,437 
Personnel Costs  319,256  330,184  1,078,449  829,788 
PPP loan forgiveness  (209,447)   (209,447)  
General and Administrative  1,569,721  263,619  2,682,866  598,484 
Total Operating Expenses  2,860,927  985,005  7,146,485  2,608,240 
              
Net Operating Income (Loss)  (2,021,429) (511,309) (4,692,092) (637,160)
              
Other Income (Expense)             
Gain (Loss) on Sale of Property and Equipment      20,345  464 
Gain (Loss) on Derivatives  (76,444) (939,873) (88,551) (507,674)
Gain on Settlement of Debt  41,249  2,845,742  1,004,615  5,018,388 
Amortization of Debt Discount  (130,139) (67,357) (442,075) (694,168)
Interest Expense  (379,811) (227,130) (688,622) (497,917)
Total Other Income (Expense)  (545,145) 1,611,382  (194,288) 3,319,093 
              
Net Income (Loss) $(2,566,574)$1,100,073 $(4,886,380)$2,681,933 
              
Basic Weighted Average Shares Outstanding;  3,198,658  1,067,074  2,572,772  797,126 
Basic Income (Loss) per Share $(0.80)$1.03 $(1.90)$3.36 
              
Diluted Average Shares Outstanding;  3,198,658  5,268,957  2,572,772  4,999,009 
Diluted Income (Loss) per Share $(0.80)$(0.13)$(1.90)$(0.13)

              
  Three Months Ended Nine Months Ended 
  October 31,
2022
 October 31,
2021
 October 31,
2022
 October 31,
2021
 
              
Revenue $1,017,986 $3,114,062 $4,089,037 $9,429,519 
              
Cost of Revenue  846,898  2,274,564  3,296,546  6,975,126 
              
Gross Profit  171,088  839,498  792,491  2,454,393 
              
Operating Expenses:             
Depreciation  12,743  12,479  38,587  35,930 
Postage, Shipping and Freight  32,013  94,356  146,962  430,105 
Marketing and Advertising  156,522  609,252  671,348  1,876,576 
E Commerce Services, Commissions and Fees  396,065  434,832  1,076,787  1,160,569 
Operating lease cost  29,219  30,478  90,177  91,437 
Personnel Costs  131,937  319,256  505,253  1,078,449 
PPP Loan Forgiveness    (209,447)   (209,447)
General and Administrative  251,408  1,569,721  2,849,042  2,682,866 
Total Operating Expenses  1,009,907  2,860,927  5,378,156  7,146,485 
              
Net Operating Loss  (838,819) (2,021,429) (4,585,665) (4,692.092)
              
Other Income (Expense)             
Gain (Loss) on Sale of Property and Equipment        20,345 
Gain (Loss) on Derivatives  (184,146) (76,444) (841,772) (88,551)
Gain on Settlement of Debt  10,128  41,249  19,539  1,004,615 
Amortization of Debt Discount  (1,932,722) (130,139) (4,309,329) (442,075)
Interest Expense  (1,186,132) (379,811) (2,511,548) (688,622)
Total Other Income (Expense)  (3,292,872) (545,145) (7,643,110) (194,288) 
              
Net (Loss) $(4,131,691)$(2,566,574)$(12,228,775)$(4,886,380)
              
Basic Weighted Average Shares Outstanding;  1,805,316  319,866  1,576,024  257,277 
Basic (Loss) per Share $(2.29)$(8.02)$(7.76)$(18.99)
              
Diluted Average Shares Outstanding;  1,805,316  319,866  1,576,024  257,277 
Diluted (Loss) per Share $(2.29)$(8.02)$(7.76)$(18.99)

 

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

 

- 4 -


Table of Contents

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Nine Months Ended October 31, 20212022 and October 31, 20202021

(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 
                              
Balance at 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 
                              
Balance at April 30, 2020 $ 20,000 $20 7,000 $7 620,825 $1 $13,469,944 $(20,382,255)$(6,912,283)
                              
Conversion of Notes Payable to Common Stock         284,147    7,656    7,656 
                              
Derivative Liability Reclassified as Equity Upon Conversion of notes             12,081    12,081 
                              
Net Income               394,962  394,962 
                              
Balance at July 31, 20200 $ 20,000 $20 7,000 $7 904,972 $1 $13,489,681 $(19,987,293)$(6,497,584)
                              
Conversion of Notes Payable and Accrued Interest to Common Stock         211,987    4,757    4,757 
                              
Issuance of Shares as Commitment Fee for Loan         19,685    50,000    50,000 
                              
Issuance of Shares to Repay Accrued Expense Related Party         45,000    18,900    18,900 
                              
Issuance of Class C Shares as Part of Debt Settlement      150       20,290    20,290 
                              
Issuance of Class C Shares Repay Accrued Expense Related Party      100       11,177    11,177 
                              
Issuance of 950,000 Warrants as Part of Debt Settlement             351,500    351,500 
                              
Net Income (Loss)               1,100,073  1,100,073 
                              
October 31, 20200 $ 20,000 $20 7,250 $7 1,181,644 $1 $13,946,305 $(18,887,220)$(4,940,887)
                              
 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 
                              
Balance at January 31, 2021   20,000  20 7,250  7 142,716    14,291,760  (20,381,977) (6,090,190)
                              
Common Stock Issued as Payment for Fees         5,000    107,500    107,500 
                              
Issuance of Common Stock as Part of REG A Subscription         109,725    2,194,500    2,194,500 
                              
Rounding             1    1 
                              
Net (Loss)               (567,557) (567,557)
                              
Balance at April 30, 2021 $ 20,000 $20 7,250 $7 257,441 $ $16,593,761 $(20,949,534)$(4,355,746)
                              
Conversion of Notes Payable and Accrued Interest and Fees to Common Stock         3,000    59,100    59,100 
                              
Derivative Liability Reclassified as Equity Upon Conversion of Notes             17,640    17,640 
                              
Issuance of shares         10,475    200,500    200,500 
                              
Relative fair value of equity issued with debt         9,181    59,801    59,801 
                              
Issuance of warrants             600,000    600,000 
                              
Net (Loss)               (1,752,249) (1,752,249)
                              
Balance at July 31, 2021 $ 20,000 $20 7,250 $7 280,097 $ $17,530,802 $(22,701,783)$(5,170,954)
                              
Conversion of Notes Payable and Accrued Interest and Fees to Common Stock         5,977    102,341    102,341 
                              
Derivative Liability Reclassified as Equity Upon Conversion of Notes             58,504    58,504 
                              
Share Issuances, Net of Issuance Costs of $359,445         52,100    392,924    392,924 
                              
Share Issuance for fees         1,301    30,055    30,055 
                              
Additional Shares Issued as Part of Relative Fair Value for Debt         1,548         
                              
Options Issued to Director and CEO             585,000    585,000 
                              
Warrants Issued for Fees             512,500    512,500 
                              
Net (Loss)               (2,566,574) (2,566,574)
                              
Balance at October 31, 2021 $ 20,000 $20 7,250 $7 341,023 $ $19,212,126 $(25,268,357)$(6,056,204)

 

- 5 -


Table of Contents

                              
 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 
                              
Balance at 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)
                              
Balance at April 30, 2021 $ 20,000 $20 7,250 $7 2,574,413 $3 $16,593,758 $(20,949,534)$(4,355,746)
                              
Conversion of Notes Payable and Accrued Interest and Fees to Common Stock         30,000    59,100    59,100 
                              
Derivative Liability Reclassified as Equity Upon Conversion of Notes             17,640    17,640 
                              
Issuance of shares   ���      104,750    200,500    200,500 
                              
Relative fair value of equity issued with debt         91,810    59,801    59,801 
                              
Issuance of warrants             600,000    600,000 
                              
Net (Loss)               (1,752,249) (1,752,249)
                              
Balance at July 31, 2021 $ 20,000 $20 7,250 $7 2,800,973 $3 $17,530,799 $(22,701,783)$(5,170,954)
                              
Conversion of Notes Payable and Accrued Interest and Fees to Common Stock         59,771    102,341    102,341 
                              
Derivative Liability Reclassified as Equity Upon Conversion of Notes             58,504    58,504 
                              
Share Issuances, Net of Issuance Costs of $359,445         521,000    392,924    392,924 
                              
Share Issuance for fees         13,011    30,055    30,055 
                              
Additional Shares Issued as Part of Relative Fair Value for Debt         15,480         
                              
Options Issued to Director and CEO             585,000    585,000 
                              
Warrants Issued for Fees             512,500    512,500 
                              
Net (Loss)               (2,566,574) (2,566,574)
                              
Balance at October 31, 2021 $ 20,000 $20 7,250 $7 3,410,235 $3 $19,212,123 $(25,268,357)$(6,056,204)
                           
 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 
                              
Balance at January 31, 2022 $ 20,000 $20 7,250 $7 341,023 $ $19,465,327 $(28,451,733)$(8,986,379)
                              
Conversion of Preferred Series C Shares into Shares Of Common Stock      (7,250) (7)905,110  1  6     
                              
Relative Fair Value of Equity Issued with Debt         254,141    1,064,965    1,064,965 
                              
Penalty Warrants Recorded as Interest             315,150    315,150 
                              
Rounding shares         88         
                              
Net (Loss)               (2,594,158) (2,594,158)
                              
Balance at April 30, 2022 $ 20,000 $20  $ 1,500,362 $1 $20,845,448 $(31,045,891)$(10,200,422)
                              
Relative Fair Value of Equity Issued with Debt         221,500  1  794,465    794,466 
                              
Exercise of  warrants         10,000         
                              
Penalty Warrants Recorded as Interest             280,050    280,050 
                              
Stock Based Compensation             1,998,000    1,998,000 
                              
Rounding shares         2,587         
                              
Net (Loss)               (5,502,926) (5,502,926)
                              
Balance at July 31, 2022 $ 20,000 $20  $ 1,734,449 $2 $23,917,963 $(36,548,817)$(12,630,832)
                              
Relative Fair Value of Equity Issued with Debt         80,000    567,905    567,905 
                              
Exercise of Warrants         10,000         
                              
Penalty Warrants Recorded as Interest             203,250    203,250 
                              
Cancelled Shares Pursuant to SEC  Ruling         (741)         
                              
Net (Loss)               (4,131,691) (4,131,691)
                              
Balance at October 31, 2022 $ 20,000 $20  $ 1,823,708 $2 $24,689,118 $(40,680,508)$(15,991,368)

 

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

 

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AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended October 31, 20212022 and October 31, 20202021

(Unaudited)

        
  2021 2020 
CASH FLOWS FROM OPERATING ACTIVITIES       
Net Income (Loss) $(4,886,380)$2,681,933 
Adjustments to reconcile net income (loss) to cash used by operating activities:       
Depreciation  35,930  18,897 
Reduction of Right of Use  69,691   
Accretion of Lease  21,746   
(Gain) loss in Fair Value on Derivative Liabilities  88,551  507,674 
Amortization of Debt Discount  442,075  694,168 
Original Issue Discount on Notes to Interest Expense    69,750 
Loan Penalties Capitalized to Loan and Accrued Interest  28,000  3,394 
Stock Based Payment of Consulting Fees and Shares  303,555  50,000 
Stock Based Compensation on Options and Warrants  1,097,500   
Gain on Sale of Property and Equipment  (20,345) (464)
PPP Loan Forgiveness  (209,447)  
Gain on Settlement of Debt  (1,004,615) (5,018,388)
Change in Operating Assets and Liabilities:       
(Increase) Decrease in Inventory  (78,033) 72,268 
Decrease in Prepaid Rent and Expenses  5,546  21,606 
(Increase) Decrease in Other Current Assets  (39,270) (2,853) 
Increase in Accounts Payable  230,225  31,236 
Increase in Accrued Expenses  137,440  293,289 
Operating Lease Payments  (91,437)  
Decrease in Accrued Expenses -Related Party  (60,000)  
Increase in Customer Deposits  32,391   
Decrease in Deferred Revenue  (446,474)  
CASH FLOWS (USED IN) OPERATING ACTIVITIES  (4,343,351) (577,490)
        
CASH FLOWS FROM INVESTING ACTIVITIES       
Proceeds of Sales of Property and Equipment  25,060  9,750 
Purchase of Property and Equipment  (43,628)  
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES  (18,568) 9,750 
        
CASH FLOWS FROM FINANCING ACTIVITIES       
Proceeds from Issuance of Common Shares, Net of Issuance Costs  3,037,625   
Proceeds from Short Term Debt  1,568,472  635,000 
Proceeds from Convertible Notes Payable  699,525  210,250 
Payments on Short Term Debt  (449,386) (370,824)
Proceeds from PPP Loan    209,447 
Payments on Long Term Debt  (14,857) (2,856)
Payments on Convertible Notes Payable  (406,825) (14,329)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES  4,434,554  666,688 
        
NET INCREASE IN CASH  72,635  98,948 
        
CASH AT BEGINNING OF PERIOD  277,664  162,124 
        
CASH AT END OF PERIOD $350,299 $261,072 
        
Supplemental Disclosure of Cash Flows Information:       
Cash Paid for Interest $345,868 $49,638 
Convertible Notes Interest and Derivatives Converted to Common Stock $237,085 $35,997 
Stock Issued to Related Party in Payment of Accrued Expenses $ $30,077 
Operating Lease Asset to Operating Lease Liability $ $39,494 
Fair Value of Instruments Issued With Debt $487,284 $ 
Issuance of Warrants to Deferred Offering Costs $600,000 $ 
Deferred Offering Costs Against Share Proceeds $312,000 $ 
Loans to acquire Fixed Assets $151,327 $ 

  2022 2021 
CASH FLOWS FROM OPERATING ACTIVITIES       
Net (Loss) $(12,228,775)$(4,886,380)
Adjustments to reconcile net income (loss) to cash used by operating activities:       
Depreciation  38,587  35,930 
Inventory Provision  143,000   
Reduction of Right of Use Asset  77,782  69,691 
Accretion of Lease Liability  12,396  21,746 
(Gain) loss in Fair Value on Derivative Liabilities  841,772  88,551 
Amortization of Debt Discount  4,309,329  442,075 
Debt Discount in Excess of Face Value of Note to Interest Expense  225,429   
Loan Penalties Capitalized to Loan and Accrued Interest  600,000  28,000 
Interest Expense on Penalty Warrants  798,450   
Stock Based Compensation  1,998,000  1,097,500 
Stock Based Payment of Consulting Fees and Shares    303,555 
Gain on Sale of Property and Equipment    (20,345)
PPP Loan Forgiveness    (209,447)
Gain on Settlement of Debt  (19,539) (1,004,615)
Change in Operating Assets and Liabilities:       
(Increase) Decrease in Inventory  147,333  (78,033)
Decrease in Prepaid Rent and Expenses  12,077  5,546 
(Increase) in Other Current Assets  (17,779) (39,270)
Decrease in Bank Overdraft  (11,055)  
Increase in Accounts Payable  95,931  230,225 
Increase in Accrued Expenses  741,729  137,440 
Operating Lease Payments  (90,178) (91,437)
Decrease in Accrued Expenses -Related Party  (500) (60,000)
Increase (Decrease) in Customer Deposits  (473,044) 32,391 
Decrease in Deferred Revenue  (598,990) (446,474)
CASH FLOWS (USED IN) OPERATING ACTIVITIES  (3,398,045) (4,343,351)
        
CASH FLOWS FROM INVESTING ACTIVITIES       
Proceeds of Sales of Property and Equipment    25,060 
Purchase of Property and Equipment  (1,142) (43,628)
CASH FLOWS (USED IN) INVESTING ACTIVITIES  (1,142) (18,568)
        
CASH FLOWS FROM FINANCING ACTIVITIES       
Proceeds from Issuance of Common Shares, Net of Issuance Costs    3,037,625 
Proceeds from Short Term Debt    1,568,472 
Proceeds from Convertible Notes Payable  4,006,714  699,525 
Payments on Short Term Debt  (376,699) (449,386)
Shareholder Loans Payable  20,000   
Repayments on Shareholder Loans Payable  (33,561)  
Payments on Long Term Debt  (20,739) (14,857)
Payments on Convertible Notes Payable  (228,000) (406,825)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES  3,367,715  4,434,554 
        
NET INCREASE (DECREASE) IN CASH  (31,472) 72,635 
        
CASH AT BEGINNING OF PERIOD  77,498  277,664 
        
CASH AT END OF PERIOD $46,026 $350,299 
        
Supplemental Disclosure of Cash Flows Information:       
Cash Paid for Interest $75,038 $345,868 
Convertible Notes Interest and Derivatives Converted to Common Stock $ $237,085 
Fair Value of Instruments Issued With Debt $2,427,336 $487,284 
Derivative Debt Discount $1,557,922 $ 
Debt Discount $772,796 $ 
Transfer of Short-term Loan , Shareholder Loan and Accounts payable to Convertible Note $210,740 $ 
Issuance of Warrants to Deferred Offering Costs $ $600,000 
Deferred Offering Costs Against Share Proceeds $ $312,000 
Loans to acquire Fixed Assets $ $151,327 

 

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

 

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AUTO PARTS 4LESS GROUP, INC.

FORMERLY 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 4LESSAuto Parts 4Less Group, Inc., (the “Company”), formerly The 4Less Group, Inc., was incorporated under the laws of the State of Nevada on December 5, 2007.2007. 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.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 4LESSThe 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. On April 28, 2022 the Company changed its name from The 4Less Group, Inc. to Auto Parts 4Less Group, Inc.

 

Significant Accounting Policies: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: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, 20212022 and notes thereto contained in the Company’s Annual Report on Form 10-K filed on May 14, 2021.9, 2022.

 

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Principles of Consolidation:Consolidation:

 

The condensed financial statements include the accounts of The 4LESSAuto Parts 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.

 

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Use of Estimates: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, options and warrants.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: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. At October 31, 2022 the provision for inventory obsolescence was $143,000. (January 31, 2022 - $0)

 

Concentrations

 

Cost of Goods Sold

 

For the nine months ended October 31, 2022 the Company purchased approximately 51% of its inventory and items available for sale from third parties from three vendors. As of October 31, 2022, the net amount due to the vendors included in accounts payable was $426,606. For the nine months ended October 31, 2021 the Company purchased approximately 58% of its inventory and items available for sale from third parties from three vendors. As of October 31, 2021, the net amount due to the vendors included in accounts payable was $440,977. For the nine months ended October 31, 2020 the Company purchased approximately 55% of its inventory and items available for sale from third parties from three vendors. As of October 31, 2020, the net amount due to those vendors included in accounts payable was $393,729.$440,977. 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.

 

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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.

 

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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, 2023, 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: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 October 31, 2021:2022:

 

 October 31,
2021
 Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
  October 31, 2022 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 $391,868 $ $ $391,868  $3,663,597 $ $ $3,663,597 
Totals $391,868 $ $ $391,868  $3,663,597 $ $ $3,663,597 

 

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Related Party Transactions: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.

 

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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)9), the sensitivity required to change the liability by 1% as of October 31, 20212022 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 partythird-party website revenue for the three months ended October 31, 2022 and 2021:

      Change 
  2022 2021 $ % 
Proprietary website revenue $611,799 $2,392,668 $(1,780,869)(74%)
Third party website revenue  406,187  721,394  (315,207)(44%)
Total Revenue $1,017,986 $3,114,062 $(2,096,076)(67%)

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The following table shows revenue split between proprietary and third-party website revenue for the nine months ended October 31, 20212022 and 2020:2021:

     Change      Change 
 2021 2020 $ %  2022 2021 $ % 
Proprietary website revenue $6,339,478  3,704,215 $2,635,263 71%  $2,750,636 $6,339,478 $(3,588,842)(57%)
Third party website revenue  3,090,041  3,557,891  (467,850)(13%)  1,338,401  3,090,041  (1,751,640)(57%)
Total Revenue $9,429,519 $7,262,106 $2,167,413 30%  $4,089,037 $9,429,519 $(5,340,482)(57%)

 

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: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: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.

 

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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: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 December 2019, the Financial Accounting Standards Board (FASB) issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intra-period tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.

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In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.

In August 2020, the FASB issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments. The amended guidance is effective for interim and annual periods in 2022. The application of the amendments in the new guidance are to be applied either on a modified retrospective or a retrospective basis. We are currently assessing the effect that the adoption of this standard will have on the Company’s consolidated financial statements upon adoption

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.

Recently Issued Accounting Standards Not Yet Adopted

In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively. Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements for prior acquisitions; however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.

In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to the company’s financial statements. The guidance is effective for annual periods beginning in 2022 and is to be applied on either a prospective or retrospective basis. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

 

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.

 

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 $25,268,357$40,680,508 as of October 31, 20212022 and has a working capital deficit at October 31, 20212022 of $5,686,673.$15,279,670. As of October 31, 2021,2022, the Company only had cash and cash equivalents of $350,299$46,026 and approximately $1,836,000$6,111,000 of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders of which to this point have pursued their legal remedies. OurWhile the Company has plans to grow its revenues through the new website , at this time, 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) continuingcontinue 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.

 

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NOTE 3 – PROPERTY

 

The Company capitalizes all property purchases over $1,000$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 October 31, 20212022 and January 31, 2021:2022:

 

 October 31, 2021 January 31, 2021  October 31, 2022 January 31, 2022 
Office furniture, fixtures and equipment $94,042 $85,413  $95,183 $94,041 
Shop equipment 43,004 43,004  43,004 43,004 
Vehicles  206,760  40,433   206,760  206,760 
Sub-total 343,806 168,850  344,947 343,805 
Less: Accumulated depreciation  (109,468) (88,823)  (161,056) (122,469)
Total Property $234,338 $80,027  $183,891 $221,336 

 

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Additions to fixed assets for the nine months ended October 31, 2022 were $1,142. Additions to fixed assets for the nine months ended October 31, 2021 and were $186,327$186,327 with $35,000$35,000 paid in cash and $151,327$151,327 financed through vehicle loans foefor vehicles and an additional $8,628$8,628 acquired in equipment. Additions to fixed assets

There were nilno disposals for the nine months ended October 31, 2020.

2022. For the nine months ended October 31, 2021, vehicles having a cost of $20,000 and a net book value of $4,715 was disposed of. Proceeds received of $25,060$25,060 and a gain on sale of property and equipment of $20,345 were recorded.

Office equipment having a cost of $9,750 and a net book value of $9,286 was disposed of during the nine months ended October 31, 2020. Proceeds received of $9,750 and a gain on sale of property and equipment of $464$20,345 were recorded.

 

Depreciation expense was $12,479$12,743 and $6,299$12,479 for the three months ended October 31, 20212022, and October 31, 2020,2021, respectively.

 

Depreciation expense was $35,930$38,587 and $18,897$35,930 for the six months ended October 31, 20212022, and October 31, 2020,2021, respectively.

 

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.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.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 October 31, 20212022 and January 31, 2021.2022.

 

Leases Classification October 31, 2021 January 31, 2021  Classification October 31, 2022 January 31, 2022 
Assets              
Operating Operating Lease Assets $270,187 $344,413  Operating Lease Assets $160,770 $242,583 
Liabilities  
Current  
Operating Current Operating Lease Liability $103,874 $90,286  Current Operating Lease Liability $70,214 $100,001 
Noncurrent  
Operating Noncurrent Operating Lease Liabilities  160,770  244,049  Noncurrent Operating Lease Liabilities  90,556  138,551 
Total lease liabilities $264,644 $334,335  $160,770 $238,552 

 

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 $30,478$29,219 and $23,279$30,478 for the three months ended October 31, 20212022, and October 31, 2020,2021, respectively.

 

Operating lease cost and rent was $91,437$90,177 and $91,437$91,437 for the sixnine months ended October 31, 20212022, and October 31, 2020,2021, respectively.

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NOTE 5 – CUSTOMER DEPOSITS

 

The Company receives payments from customers on orders prior to shipment.shipment and these customer deposits on cancelled orders were either returned to the customers subsequent to October 31, 2022 or will remain as deposits until the item is either delivered and recorded as revenue or cancelled and refunded. At October 31, 20212022 the Company had received $220,776$57,856 (January 31, 2021- $188,385)2022- $530,900) in customer deposits for orders that were unfulfilled at October 31, 20212022 and either canceled subsequent to quarter end. The orders were unfulfilled at October 31, 2021 because of supply chain issues due to supplier back-orders. The deposits were returned to the customers subsequent to October 31, 2021.year end or still awaiting shipment.

 

NOTE 6 – DEFERRED REVENUE

 

The Company receives payments from customers on orders prior to shipment.shipment and orders that were unfulfilled at October 31, 2022 because of both normal order processing and fulfillment requirements, and back orders are recorded as deferred revenue. At October 31, 20212022, the Company had received $241,292$66,153 (January 31, 2021- $687,766)2022- $665,143) in customer payments for orders that were unfulfilled at October 31, 20212022 and delivered subsequent to October 31, 2021. The orders were unfulfilled at October 31, 2021 because of supply chain issues due to supplier back-orders as well as processing and delivery timing for those orders received close to quarter end.2022.

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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 was 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. On September 22, 2021 the loan was forgiven and was recorded as a gain in operating expenses.

 

NOTE 87SHORT-TERM AND LONG-TERM DEBT

 

The components of the Company’s debt as of October 31, 20212022 and January 31, 20212022 were as follows:

      
  October 31, 2022 January 31, 2022 
Loan dated October 8, 2019, and revised February 29, 2020 and November 10, 2020 repayable June 30, 2022 with an additional interest payment of $20,000(3) $*$97,340 
Forklift Note Payable, original note of $20,433 Sept 26, 2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023(1)  4,947* 8,183 
Vehicle loan original loan of $93,239 February 16, 2021, 2.90 % interest. 72 monthly payments of $1,414 beginning on July 2, 2021 and ending on March 2, 2027. Secured by vehicle having net book value of $72,977.  70,277# 81,346 
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 $68,35.  47,675# 54,108 
Working Capital Note Payable - $700,000, dated October 29, 2021, repayment of $17,904 per week until Oct 29, 2022, interest rate of approximately 31%(2)(4)(7)  407,423* ∞ 635,831 
Working Capital Note Payable - $650,000, dated October 25, 2021, repayment of $15,875 per week until October 25, 2022, interest rate of approximately 26%(2)(4)(8)  447,756* ∞ 596,047 
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 April 30, 2022(10), 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 note matures when the Company receives proceeds through a financing event of $825,000 plus accrued interest on the note.(5)  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.(6)  1,200,000* ∞ 1,200,000 
Promissory note - $420,000 dated December 27, 2021, including $20,000 original issue discount, maturing January 27, 2022, non-interest bearing(9)  420,000* ∞ 420,000 
Total $3,102,993 $3,597,770 

 

  October 31, 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) $97,340*$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), fully repaid  * 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)  9,227# 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.  84,975#  
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.  56,160#  
Working Capital Note Payable - $700,000, dated October 29, 2021, repayment of $17,904 per week until Oct 29, 2022, interest rate of approximately 31%(2,4,7)  690,053*  
Working Capital Note Payable - $650,000, dated October 25, 2021, repayment of $15,875  per week until October 25, 2022, interest rate of approximately 26%(2,4,8)  640,260*  
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. (5)  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. (6)  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 $3,282,930 $2,030,579 

 October 31, January 31, 
 2021 2021  October 31, 2022 January 31, 2022 
Short-Term Debt $3,132,568 $716,142  $2,985,041 $3,454,133 
Current Portion Of Long-Term Debt 25,076  424,064 
Current Portion of Long-Term Debt 22,149 27,737 
Long-Term Debt  125,286  890,373   95,803  115,900 
 $3,282,930 $2,030,579 
Total $3,102,993 $3,597,770 

 

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____________________

^In default
*Short-term loans
#Long-term loans of $9,227$47,675 including current portion of $3,913$8,317;
                                 $70,277 including current portion $13,832
 $56,160 including current portion $7,730
In default $2,960,179.
 $84,975 including current portion $13,433
(1)Secured by equipment having a net book value of $10,242$7,285.
(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$5,705 and interest rate from 13%13% to a $20,000$20,000 lump sum payable at maturity. This loan and accrued interest are payable to a shareholder and were transferred to a convertible loan in August 2022.
(4)The Company has pledged a security interest on all accounts receivable and banks accounts of the Company.
(5)Financing event would be a sale or issuance of assets, debt, shares or any means of raising capital. As the Company expects has entered into such a transaction the loan has reached maturity and is treated as current. No noticeAn extension was granted on December 13, 2021 amending the maturity date to April 30, 2022. The April 30, 2022 payment has not been issued bymade and the Company is working on another extension with the lender. .
(6)Secured by all assets of the Company. Loan payable in 2 instalments, $445,200$445,200 payable August 28, 2021 and $826,800$826,800 payable August 28, 2022. TheOn December 13, 2021 the parties amended the maturity date for the first instalment to be April 30, 2022 with the second instalment date unchanged. The April 30, 2022 payment has not been paid so under defaultmade and the loan has matured andCompany is now current. No notice has been issued byworking on another extension with the lender.
(7)This loan replaces $500,000 loan dated June 4, 2021, $422,009$422,009 proceeds were used to repay this loan, net cash received was $253,491$253,491 after payment of $26,500$26,500 in fees.
(8)This loan replaces $500,000 loan dated June 4, 2021, $359,919$359,919 proceeds were used to repay this loan, net cash received was $267,606$267,606 after payment of $22,475$22,475 in fees.
(9)Penalty of 10% of principal amount and 30,000 3 year warrants with an exercise price of $15.00 on initial default and 2% of principal amount and 15,000 3 year warrants with an exercise price of $15.00 for every 30 day default period thereafter. Initial default has been recorded at January 31, 2022 with an interest charge of $42,000 and another $276,000 which was the fair value of the warrants (see Note 11). The Company has defaulted on the February 26, 2022, through to July 26, 2022 and will issue an additional 15,000 warrants for each of those six defaults for a total of 90,000 warrants. The Company has recorded $798,450 based on the fair value of the warrants and $75,600 for the 2% fee as interest expense to October 31, 2022.
(10)The April 30, 2022 payment has not been made and the Company is working on another extension with the lender.

The following are the minimum amounts due on the notes as of October 31, 2022:

Year Ended Amount 
October 31, 2023 $3,007,190 
October 31, 2024  25,174 
October 31, 2025  26,443 
October 31, 2026  27,792 
October 31, 2027  16,394 
Total $3,102,993 

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NOTE 98 SHORT-TERM CONVERTIBLE DEBT

 

The components of the Company’s debt as of October 31, 20212022 and January 31, 20212022 were as follows:follows.

 

  Interest Default Interest Conversion Outstanding Principal at 
Maturity Date Rate Rate Price October 31, 2021 January 31, 2021 
Nov 4, 2013(a) 12% 12% $1,800,000 $100,000 $100,000 
Jan 31, 2014(a) 12% 18% $2,400,000  16,000  16,000 
July 31, 2013(a) 12% 12% $1,440,000  5,000  5,000 
Jan 31, 2014(a) 12% 12% $2,400,000  30,000  30,000 
Oct. 12, 2021 12% 16% (1)    230,000 
Nov. 16, 2021 12% 16% (1)    100,000 
Nov. 23, 2021 12% 16% (1)  33,000  165,000 
July 7, 2022 12% 16% (2)  231,000   
July 12, 2022 12% 16% $2.00  355,000   
July 23, 2022 10% 22% (2)  179,300   
Sub-total        949,300  646,000 
Debt Discount        (354,526) (309,317)
        $594,774 $336,683 
 InterestDefault InterestConversionOutstanding Principal at 
Maturity DateRateRatePrice (a)October 31, 2022 January 31, 2022 
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 
Nov 12, 2022*8%12%(1) 3,000,000  2,400,000 
Jan. 13, 202312%22%(2)   228,000 
Aug. 11, 202210%10%(3)    
Feb. 14, 202312%20%(4) 1,200,000   
Feb 25, 202312%20%(4) 150,000   
Feb. 25, 202312%20%(4) 350,000   
Mar. 9 202312%20%(4) 200,000   
Mar. 9, 202312%20%(4) 200,000   
Apr. 22, 202312%20%(4) 440,000   
Apr. 22, 202312%20%(4) 110,000   
May 19,202312%16%(5) 400,000   
Feb.11, 202312%18%(4) 275,000   
Dec 27, 202212%18%(4) 275,000   
Jan. 5, 202312%18%(4) 250,000   
Jan.6 ,202312%18%(4) 125,000   
Jan.6 ,202312%18%(4) 125,000   
Jan.11 ,202312%18%(4) 138,890   
Apr. 22, 202312%18%(4) 275,000   
Apr. 22, 202312%18%(4) 275,000   
Sept. 9, 202312%22%(6) 201,360   
Sub-total    8,141,250  2,779,000 
Debt Discount    (2,374,330) (2,131,034)
    $5,766,920 $647,966 

____________________

(a)*In default at filing date $3,151,000
(1)Closinglesser of $ 1.25 or 75 % of offering price if there is an uplisting to a national securities exchange.
(2)75% of closing bid price on the day preceding the conversion date.
(2)Closing bid price on the day preceding the conversion date in the event of default.
(3)convertible at 20% discount of the offering price on Company’s uplist to NASDAQ.
(4)convertible upon default at conversion price lower of i) lowest price 20 days prior to Issuance ii) lowest price 20 days prior to conversion.
(5)lesser of $ 5.00 or 75 % of offering price if there is an uplisting to a national securities exchange.

(6)

75% of lowest closing bid price ten days preceding conversion date in event of default.
(a)Note all conversions are subject to dilutive issuance clauses where the conversion price will revert to the lowest transacted share price.

 

OnThe Company had accrued interest payable of $478,271 and $231,412 on the notes at July 7, 2021 the Company entered into a convertible note for $231,000 with a one year maturity, interest rate of 12%, the Company received $199,500 in cash proceeds, recorded an original issue discount of $21,000, a derivative discount of $39,261 related to a conversion feature,31, 2022 and transaction fees of $10,500. As part of the loan the Company issued 30,960 shares as a commitment fee and recognized $31,005 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan.

On July 12, 2021 the Company entered into a convertible note for $355,000 with a one year maturity, interest rate of 12%, the Company received $300,025 in cash proceeds, recorded an original issue discount of $35,500, a derivative discount of $171,250 related to a conversion feature, and transaction fees of $19,475. As part of the loan the Company issued 60,850 shares as a commitment fee and recognized $28,795 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan.

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On July 20, 2021 the Company entered into a new convertible note for $224,125 with a one year maturity, interest rate of 10%, the Company received $200,000 in cash proceeds, recorded an original issue discount of $20,375, a derivative discount of $106,364 related to a conversion feature, and transaction fees of $3,750. The discount is amortized over the term of the loan.January 31, 2022, 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 ninethree months ended October 31, 20212022 and 2020,2021, the Company recorded amortization of debt discount expense of $442,075$1,932,722 and $694,168,$130,139, respectively. For the threenine months ended October 31, 20212022 and 2020,2021, the Company recorded amortization of debt discount expense of $130,139$4,309,329 and $67,357$442,075, respectively.

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On February 11, 2022, the Company entered into an unsecured convertible note for $220,000 with a one year maturity, interest rate of 10%, respectively.the Company received $200,000 in cash proceeds, recorded, an original issue discount of $20,000, and a derivative discount of $117,676 related to a conversion feature. The discount is amortized over the term of the loan. The note is repayable August 11, 2022.

On February 14, 2022, the Company entered into a new convertible note for $1,200,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 120,000 common shares with a five year maturity and an exercise price of $15.00, and 115,000 common shares. If the loan is not in default the company may extend the term to February 14, 2023 with 10 days’ notice. The Company has extended the loan term. On April 7, 2022 the parties agreed to not have the shares returnable in exchange for a waiver on the Company’s breach of certain provisions. The Company received $979,000 in cash proceeds, recorded an original issue discount of $120,000, a derivative discount of $131,489 for the conversion feature, recognized $484,032 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $101,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On February 25, 2022, the Company entered into a new convertible note for $350,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 35,000 common shares with a five year maturity and an exercise price of $15.00, and 33,542 common shares. If the loan is not in default the company may extend the term to February 25, 2023 with 10 days’ notice. The Company has extended the loan term. The Company received $294,000 in cash proceeds, recorded an original issue discount of $35,000, a derivative discount of $37,784 for the conversion feature, recognized $132,255 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $21,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On February 25, 2022, the Company entered into a new convertible note for $150,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 15,000 common shares with a five year maturity and an exercise price of $15.00, and 14,400 common shares. If the loan is not in default the company may extend the term to February 25, 2023 with 10 days’ notice. The Company has extended the loan term. The Company received $119,250 in cash proceeds, recorded an original issue discount of $15,000, a derivative discount of $16,193 for the conversion feature, recognized $52,613 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $15,750. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On March 9, 2022, the Company entered into a new convertible note for $200,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 20,000 common shares with a five year maturity and an exercise price of $15.00, and 19,200 common shares. If the loan is not in default the company may extend the term to March 9, 2023 with 10 days’ notice. The Company has extended the loan term. The Company received $168,000 in cash proceeds, recorded an original issue discount of $20,000, a derivative discount of $22,533 for the conversion feature, recognized $85,815 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $12,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On March 9, 2022, the Company entered into a new convertible note for $200,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 20,000 common shares with a five year maturity and an exercise price of $15.00, and 9,200 common shares. If the loan is not in default the company may extend the term to March 9, 2023 with 10 days’ notice. The Company has extended the loan term. The Company received $168,000 in cash proceeds, recorded an original issue discount of $20,000, a derivative discount of $22,533 for the conversion feature, recognized $85,728 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $12,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

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On April 22, 2022, the Company entered into a new convertible note for $440,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 44,000 common shares with a five year maturity and an exercise price of $15.00, and 42,240 common shares. If the loan is not in default the company may extend the term to April 22, 2023 with 10 days’ notice. The Company has extended the loan term. The Company received $373,600 in cash proceeds, recorded an original issue discount of $40,000, a derivative discount of $36,796 for the conversion feature, recognized $161,815 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $26,400. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On April 22, 2022, the Company entered into a new convertible note for $110,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 11,000 common shares with a five year maturity and an exercise price of $15.00, and 10,560 common shares. If the loan is not in default the company may extend the term to April 22, 2023 with 10 days’ notice. The Company has extended the loan term. The Company received $93,400 in cash proceeds, recorded an original issue discount of $10,000, a derivative discount of $9,199 for the conversion feature, recognized $62,707 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $6,600. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On May 18, 2022, the lender and Company amended the November 12, 2021 $2,400,000 note whereby the $432,000 amortization payments due on June 12, 2022, July 12, 2022 and August 12, 2022 all totaling $1,296,000 are now payable on October 25, 2022. In exchange the second warrant to acquire 90,000 common shares can no longer be cancelled. The Company has accrued the loan penalty of $600,000 with a corresponding charge to interest as the loan was not repaid. The Company recognized a debt discount of $570,195 on this amount. The discount is amortized over the term of the loan.

On May 19, 2022 the Company entered into a new convertible note for $400,000 with a one year maturity, interest rate of 12%, with a warrant to purchase 33,333 common shares with a five year maturity and an exercise price of $15.00, and 41,500 common shares.. The Company received $325,400 in cash proceeds, recorded an original issue discount of $40,000, a derivative discount of $358,088 for the conversion feature, recognized $192,341 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $35,000. The discount is amortized over the term of the loan. The excess discount over the face value of the note of $ $225,429 was expensed to interest. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 125%.

In June 2022, the Company received $50,000 cash proceeds and recorded an original issue discount of $5,000 from the lender of February 11, 2022 maturing August 11, 2022 and on that date the old note of $220,000 plus the accrued interest matures on February 11, 2023 along with new advances of $55,000 forming a combined new note of $275,000 dated August 11, 2022. The new note bears interest at 12% and came with 100,000 warrants with an exercise price of $ 15.00 and a 5 year term and 40,000 common shares . The Company received $50,000 in cash proceeds (in June), recorded an original issue discount of $5,000, a derivative discount of $37,261 for the conversion feature, and recognized $195,219 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares. The discount is amortized over the term of the loan.

On June 27, 2022, the Company entered into a new convertible note for $275,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 100,000 common shares with a five year maturity and an exercise price of $15.00, and 40,000 common shares. The Company received $250,000 in cash proceeds, recorded an original issue discount of $25,000, a derivative discount of $34,488 for the conversion feature, and recognized $197,559 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On July 5, 2022 the Company entered into a new convertible note for $250,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 100,000 common shares with a five year maturity and an exercise price of $15.00, and 40,000 common shares. The Company received $200,000 in cash proceeds, recorded an original issue discount of $25,000, a derivative discount of $33,860 for the conversion feature, recognized $139,638 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $35,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

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On July 6, 2022, the Company entered into a new convertible note for $125,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 50,000 common shares with a five year maturity and an exercise price of $15.00, and 20,000 common shares. The Company received $102,000 in cash proceeds, recorded an original issue discount of $12,000, a derivative discount of $16,484 for the conversion feature, recognized $83,796 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $10,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On July 6, 2022, the Company entered into another new convertible note for $125,000 with a six month maturity, interest rate of 12%, with a warrant to purchase 50,000 common shares with a five year maturity and an exercise price of $15.00, and 20,000 common shares. The Company received $102,000 in cash proceeds, recorded an original issue discount of $12,500, a derivative discount of $16,388 for the conversion feature, recognized $83,796 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $10,000. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On July 11, 2022, the Company entered into another new convertible note for $138,890 with a six month maturity, interest rate of 12%,with a warrant to purchase 50,000 common shares with a five year maturity and an exercise price of $15.00, and 20,000 common shares. The Company received $116,668 in cash proceeds, recorded an original issue discount of $13,889, a derivative discount of $18,735 for the conversion feature, recognized $97,336 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $8,333. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On July 11, 2022, the Company entered into another new convertible note for $138,890 with a six month maturity, interest rate of 12%,with a warrant to purchase 50,000 common shares with a five year maturity and an exercise price of $15.00, and 20,000 common shares. The Company received $116,668 in cash proceeds, recorded an original issue discount of $13,889, a derivative discount of $18,735 for the conversion feature, recognized $97,336 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $8,333. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 200%.

On August 22, 2022, the Company entered into a new convertible note with a shareholder for $275,000 with a six month maturity, interest rate of 12%,with a warrant to purchase 100,000 common shares with a five year maturity and an exercise price of $15.00, and 40,000 common shares. The Company received $39,260 in cash proceeds, and transferred the following to the note holder : a short term loan of $97,340, a shareholder loan of $50,000, accrued interest of $25,000,and accounts payable for unpaid rent of $38,400. The Company recorded an original issue discount of $25,000, a derivative discount of $36,947 for the conversion feature, recognized $186,343 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion.

On August 22, 2022, the Company entered into another new convertible note with a shareholder for $275,000 with a six month maturity, interest rate of 12%,with a warrant to purchase 100,000 common shares with a five year maturity and an exercise price of $15.00, and 40,000 common shares. The Company received $250,000 in cash proceeds, recorded an original issue discount of $25,000, a derivative discount of $37,070 for the conversion feature, recognized $186,343 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion.

On September 29, 2022, the Company entered into another new convertible note for $201,360 with a six month maturity, interest rate of 12%. The Company received $175,536 in cash proceeds, recorded an original issue discount of $21,574, a derivative discount of $17,736 for the conversion feature, and transaction fees of $4,250. The discount is amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 150%.

 

During the three and nine months ended October 31, 2022 and October 31, 2021 the Company converted a total of $125,000 of the convertible notes, $27,691 of accrued interestadded $600,000 and $7,500 of fees into 89,771 common shares.

During the nine months ended October 31, 2021 and October 31, 2020 the Company added $28,000 and $3,394$28,000 in penalty interest to the loan, respectively.

The Company had accrued interest payable of $223,298 and $240,713 on the notes at October 31, 2021 and January 31, 2021,these loans, respectively.

 

As of October 31, 2021,2022, the Company had $151,000$3,151,000 of aggregate convertible 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.

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NOTE 109 DERIVATIVE LIABILITIES

 

As of October 31, 20212022, and January 31, 2021,2022, the Company had derivative liabilities of $391,868$3,663,597 and $213,741,$1,263,442, respectively. During the three months ended October 31, 20212022, and 2020,2021, the Company recorded lossesa loss of $76,444$184,146 and $939,873,a loss of $76,444, respectively, from the change in the fair value of derivative liabilities. During the nine months ended October 31, 20212022, and 2020,2021, the Company recorded lossesa loss of $88,551$841,772 and $507,764,a loss of $88,551, 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 October 31, 2021.2022. 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  (151,163)
Changes due to Issuance of New Convertible Notes  316,883 
Changes due to Conversion of Notes Payable  (76,144)
Mark to Market Change in Derivatives  88,551 
Balance, October 31, 2021 $391,868 
  Level 3 
  Derivatives 
Balance, January 31, 2022 $1,263,442 
Changes Due to Issuance of New Convertible Notes  1,577,922 
Settlement Due to Repayment of Debt  (19,539)
Mark to Market Change in Derivatives  841,772 
Balance, October31, 2022 $3,663,597 

 

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.

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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 October 31, 20212022, is as follows:

 

  Embedded

Derivative Liability

As of

October 31, 20212022
 
Strike price $1.24 - $2.255.20 – 5.55 
Contractual term (years) 0.25 - 0.721.00 years 
Volatility (annual) 59.8%182.9% - 125.2%
High yield cash rate21.79% - 22.80%213.76 
Underlying fair market value $1.245.20 
Risk-free rate 0.28%7.11% - 0.33%8.46 
Dividend yield (per share) 0% 

 

NOTE 1110STOCKHOLDERS’ 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 October 31, 2021,October31, 2022, and January 31, 20212022, the Company had 0 shares of Series A Preferred issued and outstanding and 330,000 authorized with a par value of $0.001$0.001 per share.

 

At both October 31, 20212022, and January 31, 2021,2022, 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$0.001 per share.

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At both October 31, 20212022, and January 31, 2021,2022, there were 7,2500 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. On February 1, 2022 the 7,250 Series C Preferred stockholders converted all of their outstanding shares for 905,110 shares of common stock. Currently, there are 7,2500 Series C preferred shares authorized and issued with a par-value of $0.001$0.001 per share. The Series C Preferred Stock shall eventually convert on December 31, 2024.

 

At both October 31, 20212022, and January 31, 2021,2022, there were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $.001.$0.001. 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$1,000 per share.

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(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.

 

(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 October 31, 20212022, 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 October 31, 20212022, and January 31, 2021.2022.

 

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Common Stock

 

The Company is authorized to issue 15,000,00075,000,000 common shares at a par value of $0.000001$0.000001 per share. These shares have full voting rights. The Company undertook a 10-1 reverse stock split on April 28, 2022. The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At October 31, 20212022 and January 31, 20212022 there were 3,410,2351,823,708 and 1,427,163341,023 shares outstanding and issuable, respectively.  No dividends were paid in the ninethree months ended October 31, 20212022 or 2020.2021. 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 nine months ended October 31, 2021:2022:

 

The Company issued 1,723,000905,110 shares for $3,037,625. The company received $2,224,805 in cash proceeds with the remaining $2,301 recorded as share proceeds receivable. A lender converted $125,000upon conversion of the convertible notes, $27,691 of accrued interest and $7,500 of fees into 89,771 common7,250 Series C preferred shares.

The Company issued 63,011555,641 common shares along with a fair value of $137,555 as paymentwarrants to purchase 948,333 common shares (see below) along with debt for fees to consultants. The Company issued 107,290 shares to lenders as commitment fee with a relative fair value of $59,801.$2,427,336.

 

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A lender exercised on a cash-free basis warrants to acquire 29,155 shares and received 20,000 shares.

 

The Company cancelled 741 common shares pursuant to an SEC enforcement action against a lender.

As part of the reverse split on April 28, 2022 the Company issued 2,675 shares to round up those shareholders for partial shares.

Options and Warrants:

 

The Company has 500,000250,000 and 50,000 options outstanding as of both October 31, 20212022, and nil as ofor January 31, 2021.2022.

 

The Company recorded option and warrant expense of $1,097,500$0 and $1,263,500$0 for both the three and ninesix months ended October 31,October31, 2022, and 2021, respectively.

The Company cancelled the options to acquire 50,000 shares issued to the CEO on July 14, 2021 and issued new options on October11, 2022 to acquire 250,000 shares with a 5 year term and an exercise price of $4.00. The Company recorded optionstock-based compensation of $1,998,000 with a corresponding adjustment to paid-in capital. This amount is the incremental value between the new options of $2,497,500 and warrant expense of nil for both the three and nine months ended October 31, 2020.

For the three and nine months ended October 31 ,2021 the Company issued the following warrants:

On July 27, 2021, the Company issued a warrant to Triton Funds LP (“Triton”) to acquire 300,000 shares of the Company’s common stock as part of the Common Stock Purchase Agreement with Tritonrevalued cancelled options if $499,500 which allows Triton to purchase shares of our common stock and which was included in the Registration Statement on Form S-1 the Company filed on August 5, 2021 and which went effective on August 18, 2021 (see Note 16). The table A below provideswere determined by using the significant estimates used that resulted in the Company determining the fair value of the warrant at $600,000, which has been recorded as a deferred offering cost. In the event that Triton requests purchases of the Company’s common stock that total less than $600,000, the deferred offering costs will be expenses as professional fees.

Table Aestimated determined below:

 

Expected volatility2181%753 - 1,735%
Exercise price$2.114.00 - $15.00
Stock price$2.009.99
Expected life31.5 - 5 years
Risk-free interest rate0.37%3.05% - 3.07%
Dividend yield0%

On August 26, 2021, the Company issued a warrant to consultant to acquire 250,000 shares of the Company’s common stock. The table B below provides the significant estimates used that resulted in the Company determining the fair value of the warrant at $512,500, which has been recorded as consulting fees.

Table B

Expected volatility2174%
Exercise price$1.50
Stock price$2.05
Expected life3 years
Risk-free interest rate0.46%
Dividend yield0%0%

 

For the three and nine months ended October 31, 2020,2022 the Company issued a warrant555,641 common shares and warrants to purchase 948,333 common shares along with debt to various lenders as well as warrants to acquire 950,000135,000 common shares of stock as part of a debt settlement transaction describe in Note 7. The Warrant gives the holder the right to cash settle the warrants if a fundamental transaction as defined in the warrants occurs. However, a member of management and shareholder of the Company who controls approximately 60% of all voting shares would decide if a fundamental transaction would occur. The Company currently is not considering any fundamental transactions. Based on the above the Company used a Black Scholes model to record the value of the warrant. The warrants having a fair value of $351,500 with a corresponding increase in additional paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions:

Expected volatility506.8%
Exercise price$0.40
Stock price$0.37
Expected life3 years
Risk-free interest rate0.19%
Dividend yield0%

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The Company had the following fully vested warrants outstanding at October 31, 2021:

Issued To# WarrantsDatedExpireStrike PriceExpiredExercised
Lender950,00008/28/202008/28/2023$0.40 per shareNN
Broker2,50010/11/202010/11/2025$4.50 per shareNN
Broker3,00011/25/202011/25/2025$3.00 per shareNN
Triton300,00007/27/202107/27/2024$2.11 per shareNN
Consultant250,00008/26/202108/26/2024$1.50 per shareNN

For the three and nine months ended October 31, 2020, the Company issued a stock option to CEO and director T. Armes to acquire 500,000 shares of stock.penalty interest. The table below provides the significant estimates used that resulted in the Company determining the relative fair value of the option555,641 common shares and 948,333 warrants at $585,000,$2,427,336, which has been recorded as stock based compensationa debt discount and the 135,000 warrants at $798,450 which has been recorded as interest both with a corresponding increase in additionaladjustments to paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions:capital.

 

Expected volatility2644%1,686 - 2,227%
Exercise price$1.504.45 - $15.00
Stock price$1.170.95 - $11.99
Expected life23 - 5 years
Risk-free interest rate0.36%1.76% - 4.45%
Dividend yield0%0%

 

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The Company had the following fully vested warrants outstanding at October 31,2022:

Issued To# WarrantsDatedExpireStrike Price *ExpiredExercised
Lender95,00008/28/202008/28/2023$4.00 per shareNN
Broker25010/11/202010/11/2025$45.00 per shareNN
Broker30011/25/202011/25/2025$30.00 per shareNN
Triton30,00007/27/202107/27/2024$21.10 per shareNN
Consultant25,00008/26/202108/26/2024$15.00 per shareNN
Lender60,84511/12/202111/12/2026$15.00 per shareNN
Lender90,00011/12/202111/12/2026$15.00 per shareNN
Lender30,0001/27/20221/27/2025$15.00 per shareNN
Lender120,0002/14/20222/14/2027$15.00 per shareNN
Lender35,0002/25/20222/25/2027$15.00 per shareNN
Lender15,0002/25/20222/25/2027$15.00 per shareNN
Lender20,0003/9/20223/9/2027$15.00 per shareNN
Lender20,0003/9/20223/9/2027$15.00 per shareNN
Lender11,0004/22/20224/22/2027$15.00 per shareNN
Lender44,0004/22/20224/22/2027$15.00 per shareNN
Lender15,0002/26/20222/26/2025$5.40 per shareNN
Lender15,0003/28/20223/28/2025$7.50 per shareNN
Lender15,0004/27/20224/27/2025$6.99 per shareNN
Lender15,0005/27/20225/27/2025$5.12 per shareNN
Lender33,3335/19/20225/19/2027$15.00 per shareNN
Lender100,0006/27/20226/27/2027$15.00 per shareNN
Lender15,0006/26/20226/26/2025$5.12 per shareNN
Lender15,0007/26/20227/26/2025$5.12 per shareNN
Lender100,0007/5/20227/5/2027$15.00 per shareNN
Lender50,0007/6/20227/6/2027$15.00 per shareNN
Lender50,0007/6/20227/6/2027$15.00 per shareNN
Lender50,0007/11/20227/11/2027$15.00 per shareNN
Lender100,0008/11/20228/11/2027$15.00 per shareNN
Lender100,0008/22/20228/22/2027$15.00 per shareNN
Lender100,0008/22/20228/22/2027$15.00 per shareNN
Lender15,0008/25/20228/25/2025$5.10 per shareNN
Lender15,0009/24/20229/24/2025$4.00 per shareNN
Lender15,00010/24/202210/24/2025$3.30 per shareNN

*The strike price is subject to price adjustments due to dilutive issuance clauses.

The Company had the following fully vested options outstanding at October 31, 2021:2022:

 

Issued To# OptionsDatedExpireStrike Price ExpiredExercised
T. Armes500,00050,00010/14/202110/14/20237/11/2022$1.5015.00 per shareYN
T. Armes250,0007/11/20227/11/2027$4.00 per share NN

 

ScheduleThe following table summarizes the activity of options and warrants issued and outstanding as of and for the three months ended October 31, 2022:

 Options Weighted Average
Exercise Price
 Warrants Weighted Average
Exercise Price
  Options Weighted Average
Exercise Price
 Warrants Weighted Average
Exercise Price
 
Outstanding at January 31, 2021  $ 955,500 $0.42 
Outstanding at January 31, 2022 50,000 $15.00 360,550 $12.64 
Granted 500,000  1.50 550,000  1.83  250,000  4.00 1,083,333  15.00 
Exercised           (29,155) 5.00 
Forfeited and canceled        (50,000) (15.00)   
Outstanding at October 31, 2021 500,000 $1.50 1,505,500 $0.58 
Outstanding at October 31, 2022 250,000 $4.00 1,414,728 $13.70 

 

NOTE 1211RELATED PARTY TRANSACTIONS

 

As of October 31, 20212022 and January 31, 2021, the Company had $46,173$45,673 and $106,173,$46,173, respectively of related party accrued expenses related to accrued compensation for employees and consultants. On October 14, 2021 the Company issued an option to acquire CEO and director T. Armes to acquire 500,000 shares

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Table of stock with an exercise price of $1.50 and a two year term having a fair value of $585,000 using the assumptions described in Note 11.Contents

 

NOTE 1312COMMITMENTS 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$2,132 and estimated monthly CAM charges of $1,017 per month. This lease is with a shareholder.

 

On October1,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$6,400 per month.

 

In October 2019 thethe Company entered into an operating lease for a vehicle with an annual cost of $9,067$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.

 

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Schedule of minimum lease obligations

      
Maturity of Lease LiabilitiesOperating
Leases
 Operating
Leases
 
October 31 2022$120,657 
October 31, 2023 81,203 
October 31 2023$81,203 
October 31, 2024 30,003  30,003 
October 31, 2025 30,003  30,003 
October 31, 2026 30,003  30,003 
After October 31, 2026 2,501 
October 31, 2027 2,501 
Total lease payments 294,370  173,713 
Less: Interest (29,726) (12,943)
Present value of lease liabilities$264,644 $160,770 

 

The Company had total operating lease and rent expense of $30,478$29,219 and $23,279$30,478 for the three months ended October 31, 20212022, and 20202021 respectively. The Company had total operating lease and rent expense of $91,437$90,177 and $91,437$91,437 for the nine months ended October 31, 20212022, and 20202021 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.

NOTE 1413EARNINGS (LOSS) PER SHARE

 

The net income (loss) per common share amounts were determined as follows:

        
  For the Three Months Ended 
  October 31, 
  2021 2020 
Numerator:       
Net income (loss) available to common shareholders $(2,566,574)$1,100,073 
        
Denominator:       
Weighted average shares – basic  3,198,658  1,067,074 
        
Net income (loss) per share – basic $(0.80)$1.03 
        
Effect of common stock equivalents       
Add: interest expense on convertible debt  19,247  44,110 
Add: amortization of debt discount  130,139  67,357 
Less: gain on settlement of debt on convertible notes  (41,249) (2,845,742)
Add (Less): loss (gain) on change of derivative liabilities  76,444  939,873 
Net income (loss) adjusted for common stock equivalents  (2,381,993) (694,329)
        
Dilutive effect of common stock equivalents:       
Convertible notes and accrued interest    144,158 
Convertible Class C Preferred shares    3,107,724 
Warrants (1)    950,001 
        
Denominator:       
Weighted average shares – diluted  3,198,658  5,268,957 
        
Net income (loss) per share – diluted $(0.80)$(0.13)

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The anti-dilutive shares of common stock equivalents for the three months ended October 31, 2021 and October 31, 2020 were as follows:

  For the Three Months Ended 
  October 31, 
  2021 2020 
        
Convertible notes and accrued interest  945,643   
Convertible Class C Preferred shares  8,968,918   
Warrants and options  2,005,500   
Total  11,920,061   

The net income (loss) per common share amounts were determined as follows:

        
  For the Three Months Ended 
  October 31, 
  2022 2021 
Numerator:       
Net income (loss) available to common shareholders $(4,131,691)$(2,566,574)
        
Denominator:       
Weighted average shares – basic  1,805,316  319,866 
        
Net income (loss) per share – basic $(2.29)$(8.02)
        
Effect of common stock equivalents       
Add: interest expense on convertible debt  166,046  19,247 
Add: amortization of debt discount  1,932,722  130,139 
Less: gain on settlement of debt on convertible notes  (10,128) (41,249)
Add (Less): loss (gain) on change of derivative liabilities  186,146  76,444 
Net income (loss) adjusted for common stock equivalents  (1,856,905) (2,381,993)
Dilutive effect of common stock equivalents:       
Convertible notes and accrued interest     
Convertible Class C Preferred shares     
Warrants and options     
        
Denominator:       
Weighted average shares – diluted  1,805,316  319,866 
        
Net income (loss) per share – diluted $(2.29)$(8.02)

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Table of Contents

 

        
  For the Nine Months Ended 
  October 31, 
  2021 2020 
Numerator:       
Net income (loss) available to common shareholders $(4,886,380)$2,681,933 
        
Denominator:       
Weighted average shares – basic  2,575,772  797,126 
        
Net income (loss) per share – basic $(1.90)$3.36 
        
Effect of common stock equivalents       
Add: interest expense on convertible debt  35,237  253,691 
Add: amortization of debt discount  442,075  694,168 
Less: gain on settlement of debt on convertible notes  (1,004,615) (4,793,113)
Add (Less): loss (gain) on change of derivative liabilities  88,551  507,674 
Net income (loss) adjusted for common stock equivalents  (5,325,132) (655,647)
        
Dilutive effect of common stock equivalents:       
Convertible notes and accrued interest    144,158 
Convertible Class C Preferred shares    3,107,724 
Warrants    950,001 
        
Denominator:       
Weighted average shares – diluted  2,575,772  4,999,009 
        
Net income (loss) per share – diluted $(1.90)$(0.13)

NOTE 13 – EARNINGS (LOSS) PER SHARE

 

The net income (loss) per common share amounts were determined as follows:

        
  For the Nine Months Ended 
  October 31, 
  2022 2021 
Numerator:       
Net income (loss) available to common shareholders $(12,228,775)$(4,886,380)
        
Denominator:       
Weighted average shares – basic  1,576,024  257,577 
        
Net income (loss) per share – basic $(7.76)$(18.97)
        
Effect of common stock equivalents       
Add: interest expense on convertible debt  278,788  35,237 
Add: amortization of debt discount  4,309,329  442,075 
Less: gain on settlement of debt on convertible notes  (19,539) (1,004,615)
Add (Less): loss (gain) on change of derivative liabilities  841,772  88,551 
Net income (loss) adjusted for common stock equivalents  (6,818,425) (5,325,132)
Dilutive effect of common stock equivalents:       
Convertible notes and accrued interest     
Convertible Class C Preferred shares     
Warrants and options     
        
Denominator:       
Weighted average shares – diluted  1,576,024  257,577 
        
Net income (loss) per share – diluted $(7.76)$(18.97)

The anti-dilutive shares of common stock equivalents for the three and nine months ended October 31, 20212022 and October 31, 20202021 were as follows:

 

  For the Nine Months Ended 
  October 31, 
  2021 2020 
        
Convertible notes and accrued interest  945,643   
Convertible Class C Preferred shares  8,968,918   
Warrants and options  2,005,500   
Total  11,920,061   

  For the Three and Nine Months Ended 
  October 31, 
  2022 2021 
        
Convertible notes and accrued interest  7,093,733  94,564 
Convertible Class C Preferred shares  4,796,352  896,892 
Options  250,000  50,000 
Warrants  1,414,728  150,550 
Total  13,554,813  1,192,006 

 

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NOTE 15 – GAIN ON SETTLEMENT OF DEBT

For the three months ended October 31, 2021 the gain on settlementTable of debt of $41,249 which resulted from the reduction in the derivative liability due to cash repayments on convertible debt. For the three months ended October 31, 2020 the gain on settlement of debt of $2,845,742 resulted from a settlement of notes payable and accrued interest and the associated derivative liability (see below).Contents

For the nine months ended October 31, 2021 the gain on settlement of debt of $1,004,615 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 $151,162 gain that resulted from the reduction in the derivative liability due to cash repayments on convertible debt.

For the nine months ended October 31, 2020 the gain on settlement of debt of $5,018,388 consisted of the following:

  -  A $2,172,646 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.

  -  A $2,820,147 gain that resulted from the settlement of $1,692,690 in convertible notes and $571,454 in accrued interest as well as the associated derivative liability of $2,177,794 all totaling $4,441,938 in exchange for a promissory note of $1,200,000 bearing interest at 12% and maturing August 28, 2022, 950,000 Warrants with a 3 year maturity and an exercise price of $0.40 having a fair value of $351,500 and 150 Class C shares having a fair-value of $20,290.

  -  A $25,595 gain that resulted from the settlement of $40,939 in convertible notes, and $20,111 in accrued interest and default interest as well as $31,320 all totaling $92,370 in exchange for cash payments totaling $66,795.

 

NOTE 1614SUBSEQUENT EVENTS

 

Subsequent to quarter year end upOctober 31, 2022 through to December 10, 2021:26, 2022:

 

•   a lender converted $25,000 in debt and $1,541 in interest into 6434 common shares

•   the Company issued 3,600 shares for marketing services of $18,000

•   On November 12, 202111, 2022. the Company entered into a new convertible note for $2,4000,000$186,450 with a six month maturity, interest rate of 12% with a warrant to purchase 75,000 common shares with a five year maturity and an exercise price of $15.00, and 27,120 common shares. The Company will receive $169,500 in cash proceeds in 3 monthly instalments of $56,500 each starting in November and recorded an original issue discount of $16,950. The note is convertible at a 20% discount in the event of an uplisting to NASDAQ exchange as well as in any event of default. The discount is amortized over the term of the loan. The note is secured on all assets of the Company.

•   On November 11, 2022, the Company entered into a similar convertible note with another lender for $186,450 with a six month maturity, interest rate of 12% with a warrant to purchase 75,000 common shares with a five year maturity and an exercise price of $15.00, and 27,120 common shares. The Company will receive $169,500 in cash proceeds in 3 monthly instalments of $56,500 each starting in November and recorded an original issue discount of $16,950. The note is convertible at a 20% discount in the event of an uplisting to NASDAQ exchange as well as in any event of default. The discount is amortized over the term of the loan. The note is secured on all assets of the Company.

•   On November 21, 2022, the Company entered into a new convertible note for $60,480 with a one year maturity and interest rate of 8%12%. The Company received $1,966,000$54,000 in cash proceeds and recorded an original issue discount of $240,000 and transaction fees$16,950. The discount is amortized over the term of $194,000. Six months after the issue date, the principalloan. The loan and interest are repayable in 10 monthly instalments of $6,774 , starting January 5, 2023. The note is convertible into Common Stockin any event of default. The note has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion. In the Company at a conversion priceevent of the lesser of $1.25 per sharethese or 75% of the share price. Included are two warrants issued on November 12, 2021, each to acquire 900,000 common shares at an exercise price of $1.50 per share, (subject to adjustment as a result of dilutive issuances), and a 5 year maturity. The second warrant (to acquire 900,000 shares) is subject to cancellation by the Company shouldany other default provisions, the note becomes due and accrued interest be repaid without default on or prior to maturity. The Company used a part of the proceeds from the note to repay three investor notes that originated in July totaling $894,480payable at 150%.

 

•  On June 4, 2021December 27, 2022, the Company’s shareholders consented to an amendment to the Articles of IncorporationCompany entered into a promissory note for $22,000 maturing January 6, 2023. The loan bears no interest and is secured on all assets of the Company whereinCompany. The note is also guaranteed by the nameCEO of the Company will be changed to “Auto Parts 4Less Group, Inc.”.Company. The Company expects this name change to become effective, subject to FINRA approval,received $20,000 in cash proceeds and recorded an original issue discount of $2,000. The discount is expensed as interest. If the fourth quarter of fiscal 2022.note is not repaid at maturity there is an initial 15% penalty , followed by a 1.5 % penalty for every subsequent default every seven day period thereafter.

 

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Table of Contents

 

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 4LESSAuto Parts 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 4LESSAuto Parts 4Less Group Inc.Inc.., formerly known The 4Less Group, Inc.and 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.On April 28, 2022 the Company changed its name from The 4LESS Group, Inc. to Auto Parts 4Less Group, Inc.

 

Our Business

 

Along with our website currently under development, autoparts4less.com (as described below)Like many small businesses, Christopher Davenport, the founder of Auto Parts 4Less (“4Less”) previously named The 4less Corp., that we are developing into our flagship website, we operate 3 niche websites through which we sellthe wholly owned subsidiary of Auto Parts 4Less Group, Inc., began selling auto parts on eBay and shipping those items out of his garage in 2013.  What started out as a hobby, quickly grew into a fully functioning ecommerce aftermarket auto parts company that arerequired a significant technical staff and facilities to support their growth. In June of 2015, they leased their first office.

Originally the company listed their auto parts in the different marketplaces such as Amazon, eBay, Walmart and Jet.

Starting in 2016 the company began investing to become their own ecommerce platform thereby allowing their auto parts to be direct listed across marketplace and social media sites,sites. Technical achievements including marketing products through online marketplaces and social media platforms, such as Facebook, Instagram, YouTube and Google:CRM system, warehouse integration API, warehouse inventory software to name a few.

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

 

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Table of Contents

In 2019, shortly after the share exchange with MedCareers Group, Inc., with technology upgrades in place, 4Less began successfully moving majority of sales from third party marketplaces direct to their proprietary ecommerce web site Liftkits4Less.com. By doing so the company saves 8%-10% in fees charged by the major marketplace’s such as e-Bay and Amazon as well as further building the 4less brand as a leading ecommerce site for auto parts.

On November 19, 2019 the Company acquired the URL Autoparts4Less.com and changed the name of their wholly owned subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc. With the acquisition of the URL AutoParts4Less.com, the Company also began focusing all of their efforts and resources on building out a flagship automotive marketplace with the potential to offer buyers a wide range of automotive parts for cars, trucks, boats, motorcycles and RV’s on a single platform.

In August 2021 the Company launched a beta test version of Autoparts4less.com. In a short period of time after the beta launch the company realized that with the amount of interest received from numerous types of larges sellers, which included not only ecommerce sites presently selling parts online, but also interest from other large parts sellers such as warehouse distributors, new car dealers with large inventories of parts as well as brick and mortar parts retailers looking to move sales online, the platform originally created would soon be inadequate. As such, the Company made the decision to upgrade to a larger and more advanced platform solution so they immediately began implementation of the AWS Fargate serverless platform solution.

The platform upgrade was completed in the 1st quarter FYE 2023, with marketplace sales expected to begin in 3rd quarter 2023.

On November 2, 2022 the Company announced that it had officially launched what is believed to be the industry’s first pure-play automotive parts-only marketplace, AutoParts4Less.com, with approximately 2 million parts listed from over 25 parts sellers. Additionally, with the slowdown of the economy including purchases of auto parts accessories such as lift kits, exclusively designed for trucks and SUV’s, the company decided to discontinue operations of their ecommerce website Liftkits4less.com in mid-November to focus entirely on growing their parts marketplace, AutoParts4Less.com. By doing so they also expect to reduce monthly operating costs to under 300k a month for the foreseeable future.

On April 28. 2022 the Company changed its name from The 4Less Group, Inc. to Auto Parts 4Less Group, Inc.

Competition

 

We target online consumers’ buying habits by shifting away frombelieve that our automotive parts marketplace AutoParts4less.com, with no known large challengers presently in the space outside of “all things to all people” web sites to highly targeted niche websitesonline marketplaces Amazon and eBay, has the opportunity to quickly respondbe branded when launched as the auto part’s industry premier marketplace just as sites like Etsy, Wayfair, Uber and Chewey’s have been able to market forces.successfully do in their industries.

 

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

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%

Company has launched website in Q3 2021.

Sales

Our sales are derived from the following:

Proprietary websites. 67% 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 finalize the website www.autoparts4less.com by approximately first or second quarter FY2023 into what we believe will be the first standalone multi-vendor automotive parts marketplace.

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Results of Operations For the Nine Months Ended October 31, 20212022 Compared to the Nine Months endedEnded October 31, 20202021

 

The following table shows our results of operations for the nine months ended October 31, 20212022, and 2020.2021. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

     Change      Change 
 2021 2020 $ %  2022 2021 $ % 
Total Revenues $9,429,519  7,262,106 $2,167,413 30%  $4,089,037 $9,429,519 $(5,340,482)(57%)
Gross Profit 2,454,393 1,971,080 483,313 25%  792,491  2,454,393  (1,661,902)(68%)
Total Operating Expenses 7,146,485 2,608,240 4,538,245 174%  5,378,156  7,146,485  (1,768,329)(25%)
Total Other Income (Expense)  (194,288) 3,319,093  (3,513,381)(106%)  (7,643,110) (194,288) (7,448,822)(3,834%)
Net Income (Loss) $(4,886,380)$2,681,933 $(7,568,314)(282%) $(12,228,775)$(4,886,380)$(7,342,395)(150%)

 

Revenue

 

The following table shows revenue split between proprietary and third partythird-party website revenue for the nine months ended October 31, 20212022, and 2020:2021:

      Change 
  2021 2020 $ % 
Proprietary website revenues $6,339,478  3,704,215 $2,635,263 71% 
Third party website revenues  3,090,041  3,557,891  (467,850)(13%)
Total Revenues $9,429,519 $7,262,106 $2,167,413 30% 
      Change 
  2022 2021 $ % 
Proprietary website revenue $2,750,636 $6,339,478 $(3,588,842)(57%)
Third party website revenue  1,338,401  3,090,041  (1,751,640)(57%)
Total Revenue $4,089,037 $9,429,519 $(5,340,482)(57%)

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We had total revenue of $4,089,037 for the nine months ended October 31, 2022, compared to $9,425,519 for the nine months ended October 31, 2021, compared to $7,262,106 for the nine months ended October 31, 2020.2021. Sales increaseddecreased by $2,167,413$5,340,482 primarily due to aggressive advertising and increasedpresent economic conditions reducing consumer demand mostly experiencedas well as supply chain issues. In the prior year’s quarter, sales were driven by high consumer demand as a result of economic stimulus packages provided during the pandemic and an aggressive marketing push by the Company. In current Q3 the Company began winding its website Liftkits4less in anticipation of the first quarter ended April 30, 2021.November 2022 launch of its new automotive parts marketplace AutoParts4Less.com. The Company also recorded $241,292$66,153 in deferred revenue, which will be recognized as revenue next quarter and recognized $687,666$665,143 of deferred revenue recorded January 31, 2021.2022. 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 $220,776$57,856 in customer deposits and recognized $188,385$530,900 recorded January 31, 2021.2022. The customer deposits are orders paid by customers and canceled in the following period due to back orders or other reasons. There was neitherFor the prior year period, the Company recorded $241,292 in deferred revenue, nor customer deposits forwhich was recognized as revenue the next quarter and recognized $687,766 of deferred revenue that was recorded January 31, 2021. For the nine months ended October 31, 2020.2022, the Company also recorded $220,776 in customer deposits and recognized $188,385 recorded January 31, 2021.

 

The Company’s focus continues in growing itsBoth proprietary website revenues and third party website revenues fell by 57% as the Company was successful in that, increasing its proprietary website revenue by 71%. The company believes this strategy will leadtransitions from a seller of accessories to higher revenues and lower overall costs in the future. Third party website revenue fell by 13% due to listing removals which were a result of unfulfilled orders due to manufacturers failure to provide products in a timely basis.pure-play automotive parts-only marketplace.

 

Gross Profit

 

We had gross profit of $792,491 for the nine months ended October 31, 2022, compared to gross profit of $2,454,393 for the nine months ended October 31, 2021, compared to gross profit of $1,971,080 for the nine months ended October 31, 2020.2021. Gross profit increaseddecreased by $483,313$1,661,902 as a result of the increaseddecreased revenues explained above and partly offset byalso due to an increase in cost because the Company had to purchase goods at higher product costs from distributers rather than the usual manufacturers for many of revenuethe new available products or some of the products that were not available from the usual manufacturers due to still existing supply chain issues. The 2022 gross profit was further reduced by a change$143,000 provision on inventory which will be sold off in product mix.the coming quarter on transitioning to the new AutoParts4Less.com website.

 

Operating Expenses

 

The following table shows our operating expenses for the nine months ended October 31, 20212022, and 2020:2021:

 

      Change 
Operating expenses 2021 2020 $ % 
Depreciation $35,930 $18,897  17,033 90% 
Postage, Shipping and Freight  430,105  378,595  51,510 14% 
Marketing and Advertising  1,876,576  49,347  1,827,229 3,703% 
E Commerce Services, Commissions and Fees  1,160,569  641,692  518,877 81% 
Operating lease cost  91,437  91,437   0% 
Personnel Costs  1,078,449  829,788  248,661 30% 
PPP Loan Forgiveness  (209,447)   (209,447) 
General and Administrative  2,682,866  598,484  2,084,382 348% 
Total Operating Expenses $7,146,485 $2,608,240  4,538,245 174% 

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      Change 
Operating Expenses 2022 2021 $ % 
Depreciation $38,587 $35,930  2,657 7% 
Postage, Shipping and Freight  146,962  430,105  (283,143)(66%)
Marketing and Advertising  671,348  1,876,576  (1,205,228)(64%)
E Commerce Services, Commissions and Fees  1,076,787  1,160,569  (83,782)(7%)
Operating lease cost  90,177  91,437  (1,260)(1%)
Personnel Costs  505,253  1,078,449  (573,196)(53%)
PPP Loan Forgiveness    (209,447) 209,447  
General and Administrative  2,849,042  2,682,866  166,176 6% 
Total Operating Expenses $5,378,156 $7,146,485  (1,768,329)(25%)

 

•   Depreciation increased by $17,033$2,657 due to asset additions in 2021,at the end of fiscal 2022, thus a higher asset value is being depreciated.

 

•   Postage shipping and freight increased slightlydecreased by $51,510$283,143 due to higherlower sales.

 

•   Marketing and advertising increaseddecreased by $1,827,229$1,205,228 due to aggressive promotional efforts in 2021the prior period to drive sales to our proprietary websites and build our brands. The Company also made effortsFor the nine months ended October 31, 2022, the spending has resumed to reduce spendingusual levels and in 2020Q32022 we reduced advertising in anticipation on non-essential expenditures as a result of the economic uncertainty presented by the global Covid-19 pandemic.new website launch in November. 

 

•   E Commerce Services, Commissions and Fees increaseddecreased by $518,877$83,782 due to higher sales and website development for new website. (AutoParts4Less.com)lower sales.

 

•   No change in Operating Lease Cost.

•   Personnel Costs increasedlease cost decreased by $248,661 mostly due to the lower costs in 2020 which were a result of temporary layoffs because of the Covid-19 pandemic which began in March 2020 and three new employees in 2021.$1,260.

 

•   PPP loan forgiveness occurred in September 2021 and is non recurring.was a non-recurring item.

•   Personnel Costs decreased by $573,196 due to staff reductions as a result of lower demand.

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•   General and Administrative increased by $2,084,382$166,176 mainly due to 1,097,500 in share based compensation. Therestock-based compensation of $1,998,000 on the CEO’s 250,000 options. This was also higher professional fees, investor relations becausepartially reduced by reductions of REG A filings1,831,823 across all other general and stock based compensation in 2021. In addition in the prior year’s period,administrative accounts as the Company reduced expendituresfocused on reducing its costs in a declining market. Investor relations were lower as a result of the Covid-19 pandemic.REG A subscription offering in the prior year and there was also a reduction in professional fees due to associated reporting and business requirements of the afore-mentioned REG A subscription from the prior year’s quarter.

 

Other Income (Expense)

 

The following table shows our other income and expenses for the sixnine months ended October 31, 20212022, and 2020:2021:

 

     Change      Change 
Other Income (Expense) 2021 2020 $ %  2022 2022 $ % 
Gain (Loss) on Sale of Property and Equipment $20,345 $464 19,881 4,285%  $ $20,345  (20,345) 
Gain (Loss) on Derivatives (88,551) (507,674) 419,123 83%  (841,772) (88,551) (753,221)851% 
Gain on Settlement of Debt 1,004,615 5,018,388 (4,013,773)(80%) 19,539  1,004,615  (985,076)(98%)
Amortization of Debt Discount (442,075) (694,168) 252,093 36%  (4,309,329) (442,075) (3,867,254)(875%)
Interest Expense  (688,622) (497,917) (190,705)(38%)  (2,511,548) (688,622) (1,822,926)(265%)
Total Other Income (Expense) $(194,288)$3,319,093  (3,513,381)(106%) $(7,643,110)$(194,288) (7,448,822)(3,834%)

 

The changes above can be explained by the reductionincrease in convertible debt that started inat the prior year’s quarterend of last fiscal year and continued for the nine months ended October 31,2020.31, 2022. Convertible debt increased from $949,300 at October 31, 2021 to $8,141,250 at October 31, 2022. As a result of theall debt exchanges and settlements, the gain on settlementrelated items such as amortization of debt was higherdiscount and there were reductions in amortization expense and due to the lower debt. Interestinterest expense increased as a result of new loans in the current year’s quarter.significantly. The higher loss on derivatives in 20202022 is a function of the market factors in the valuation of the derivative liability described in Note 10.9 of the included financial statements as well as the derivative discounts acquired with the new debt.

 

We had net loss of $12,228,775 for the nine months ended October 31, 2022, compared to net income of $4,886,380 for the nine months ended October 31, 2021, compared to net income of $2,681,933 for the nine months ended October 31, 2020.2021. The decreaseincrease in net incomeloss was mainly due to the smaller gain on settlement of debt as well as the large increase in operatingother expenses, for the nine months ended October 31, 2021aslower sales and the increase in stock-based compensation as explained in the discussion above.

 

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Results of Operations for the Three Months Ended October 31, 20212022, Compared to the Three Months Ended October 31, 20202021

 

The following table shows our results of operations for the three months ended October 31, 20212022, and 2020.2021. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

     Change      Change 
 2021 2020 $ %  2022 2021 $ % 
Total Revenues $3,114,062  2,334,826 $779,236 33%  $1,017,986 $3,114,062 $(2,096,074)(67%)
Gross Profit 839,498 473,696 365,802 77%  171,088  839,498  (668,410)(80%)
Total Operating Expenses 2,860,927 985,005 1,875,922 190%  1,009,907  2,860,927  (1,851,020)(65%)
Total Other Income (Expense)  (545,145) 1,611,382  (2,156,527)(134%)  (3,292,872) (545,145) (2,747,727)(504%)
Net Income (Loss) $(2,566,574)$1,100,073 $(3,666,647)(333%) $(4,131,691)$(2,566,574)$(1,565,117)(61%)

 

Revenue

 

The following table shows revenue split between proprietary and third-party website revenue for the three months ended October 31, 20212022 and 2020:2021:

      Change 
  2021 2020 $ % 
Proprietary website revenues $2,392,668  1,301,095 $1,091,573 84% 
Third party website revenues  721,394  1,033,731  (312,337)(30%)
Total Revenues $3,114,062 $2,334,826 $779,236 33% 
      Change 
  2022 2021 $ % 
Proprietary website revenue $611,799 $2,392,668 $(1,780,869)(74%)
Third party website revenue  406,187  721,394  (315,207)(44%)
Total Revenue $1,017,986 $3,114,062 $(2,096,076)(67%)

 

We had total revenue of $1,017,986 for the three months ended October 31, 2022, compared to $3,114,062 for the three months ended October 31, 2021, compared to $2,334,826 for the three months ended October 31, 2020.2021. Sales increaseddecreased by $779,236$2,096,074 primarily due to strong proprietary sales. The Company also recorded $241,292 in deferred revenue, which will be recognizedpresent economic conditions reducing consumer demand as revenue next quarter and recognized $298,711 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 $220,776 in customer deposits for the three months ended October 31, 2021 and recognized $164,900 fromwell as supply chain issues. In the prior quarter. The customer deposits are orders paidyear’s quarter, sales were driven 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 84%. Third party website revenue fell by 30% due to listing removals which werehigh consumer demand as a result of unfulfilled orders due to manufacturers failure to provide productseconomic stimulus packages provided during the pandemic and an aggressive marketing push by the Company. In current Q3 the Company began winding its website Liftkits4less in a timely basis.anticipation of the November 2022 launch of its new automotive parts marketplace AutoParts4Less.com.

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Gross Profit

 

We had gross profit of $171,088 for the three months ended October 31, 2022, compared to gross profit of $839,498 for the three months ended October 31, 2021, compared to gross profit of $473,696 for the three months ended October 31, 2020.2022. Gross profit increaseddecreased by $365,802$668,411 as a result of the increaseddecreased revenues explained above. The 2022 gross profit was further reduced by a $143,000 provision on inventory which will be sold off in the coming quarter on transitioning to the new AutoParts4Less.com website.

 

Operating Expenses

 

The following table shows our operating expenses for the three months ended October 31, 20212022 and 2020:2021:

 

      Change 
Operating expenses 2021 2020 $ % 
Depreciation $12,479 $6,299  6,180 98% 
Postage, Shipping and Freight  94,356  113,702  (19,346)(17%)
Marketing and Advertising  609,252  25,497  583,755 2,290% 
E Commerce Services, Commissions and Fees  434,832  222,425  212,407 95% 
Operating lease cost  30,478  23,279  7,199 31% 
Personnel Costs  319,256  330,184  (10,928)(3%)
PPP Loan Forgiveness  (209,447)   (209,447) 
General and Administrative  1,569,721  263,619  1,306,102 495% 
Total Operating Expenses $2,860,927 $985,005  1,875,922 190% 

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      Change 
Operating Expenses 2022 2021 $ % 
Depreciation $12,743 $12,479  264 2% 
Postage, Shipping and Freight  32,013  94,356  (62,343)(66%)
Marketing and Advertising  156,522  609,252  (452,730)(74%)
E Commerce Services, Commissions and Fees  396,065  434,832  (38,767)(9%)
Operating lease cost  29,219  30,478  (1,259)(4%)
Personnel Costs  131,937  319,256  (187,319)(59%)
PPP Loan Forgiveness    (209,447) 209,447 (100%)
General and Administrative  251,408  1,569,721  (1,318,313)(84%)
Total Operating Expenses $1,009,907 $2,860,927  (1,851,020)(65%)

 

•   Depreciation increased by $6,180 due to two new vehicles acquired last quarter.$264.

 

•   Postage shipping and freight decreased by $19,346$62,343 due to more drop shipments via the higher % of proprietarylower sales.

 

•   Marketing and advertising increaseddecreased by $583,755$452,730 due to aggressive promotional efforts in 2021 to drive sales to our proprietary websites and build our brands. Note forFor the three monthsquarter ended October 31, 2020 the Company had reduced spending due to the Covid 19 pandemic.2022 minimal advertising was done in anticipation on new website launch in November. 

 

•   E Commerce Services, Commissions and Fees increaseddecreased by $212,407$38,767 due to website development for new website. (AutoParts4Less.com)lower sales.

 

•   Operating Lease Costlease cost decreased by $7,199 due to one less operating lease in 2021.$1,259.

 

•   Personnel Costs decreased by 3% or $10,928.$187,319 due to staff reductions as a result of lower demand.

•   PPP loan forgiveness in Q3 2021 was a non-recurring item.

 

•   General and Administrative in increaseddecreased by $1,306,102 mainly$1,338,313 due to 1,097,500the Company reducing its expenses in share based compensation. We also had increases in investora declining market. Investor relations costswere lower as a result of the REG A subscription offering in the prior year and there was also a reduction in professional fees due to associated reporting and business requirements and stock based compensation on warrants issued this currentof the afore-mentioned REG A subscription from the prior year’s quarter. Note for the three months ended October 31, 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 October 31, 20212022, and 2020:2021:

 

     Change      Change 
Other Income (Expense) 2021 2020 $ %  2022 2022 $ % 
Gain (Loss) on Derivatives $(76,444)$(939,873) 863,429 92%  $(184,146)$(76,444) (107,702)(141%)
Gain on Settlement of Debt 41,249 2,845,742 (2,804,493)(99%) 10,128  41,249  (31,121)(75%)
Amortization of Debt Discount (130,139) (67,357) (62,782)(93%) (1,932,722) (130,139) (1,802,583)(1,385%)
Interest Expense  (379,811) (227,130) (152,681)(67%)  (1,186,132) (379,811) (806,321)(212%)
Total Other Income (Expense) $(545,145)$1,611,382  (2,156,527)(134%) $(3,292,872)$(545,145) (2,747,727)(504%)

 

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The changes above can be explained by the increase in convertible debt this quarter ended October 31, 2022. Convertible debt increased from $949,300 at October 31, 2021 to $8,141,250 at October 31, 2022. so accordingly there were large increases in amortization expense and interest expense. The higher loss on derivatives is a function of the market factors in the valuation of the derivative liability described in Note 10. Amortization expense and interest increased due to9 as well as the increase in derivative discount resulting from the new notes this current year.debt issuances.

 

We had a net loss of $2,566,574$4,131,691 for three months ended October 31, 2021,2022, compared to a net incomeloss of $1,100,073$2,566,574 for three months ended October 31, 2021. The decrease in net income was mainly due to the gain on derivatives that occurredlarge increase in other expenses and the lower sales as explained in the three months ended October 31, 2020 and the higher operating expenses, specifically marketing, share based compensation, investor relations and professional fees in the three months ended October 31, 2021.discussion above.

 

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 October 31, 2021, we have increased revenue and are working to achieve positive cash flows from operations.

 

As of October 31, 2021,2022, we had a cash balance of $350,299, share subscription receivable of $2,301,$46,026, net inventory of $401,444$142,251 and $6,492,984$15,532,213 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.

 

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Capital Resources

 

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

 

 October 31, 2021 January 31, 2021  October 31, 2022 January 31, 2022 
Current assets $806,311 $715,083  $252,543 $564,615 
Current liabilities 6,492,984 5,059,138  15,532,213 8,890,462 
Working capital (deficits) $(5,686,673)$(4,344,055) $(15,279,670)$(8,325,847)

 

Net cash used in operations for the nine months ended October 31, 20212022 was $4,343,351$3,398,045 as compared to net cash used in operations of $577,490$4,343,351 for the nine months ended October 31, 2020.2021. Net cash used in investing activities for the nine months ended October 31, 20212022 was $18,568$1,142 as compared to cash flows providedused in investing activities of $9,750$18,568 for the same period in 2020.2021. Net cash provided by financing activities for the nine months ended October 31, 20212022 was $4,434,554$3,367,715 as compared to $666,888$4.434,554 for the nine months ended October 31, 2020.2021.

 

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 October 31, 20212022 fairly present our financial position, results of operations and cash flows for the years and months covered thereby in all material respects.

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(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.None

 

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.

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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.

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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.

 

TheAuto Parts 4Less Group, Inc.

 

By:  /s//s/ Timothy Armes

Timothy Armes

Chairman (Director), Chief Executive Officer, President, Secretary and Treasurer

 

Date: December 15, 2021January 6, 2023

 

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EXHIBIT INDEX

 

Exhibit

Number

 

Description of Exhibit

 

 

 

31.1

 

Certificate of the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

 

 

 

32.1

 

Certificate of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

 

 

 

101.INS

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. **

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document **

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document **

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document **

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document **

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document **

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) **

__________

*   Filed herewith.

 

**   In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shallTo be deemed “furnished” and not “filed.”submitted by amendment.

 

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