UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2022
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to _________________________
Commission file number: 333-152444
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4LESS GROUP, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 90-1494749 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 106 W. Mayflower, Las Vegas, NV | 89030 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 702-267-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
| Title of Each Class of Stock | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | FLES | Other OTC |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 on its corporate Website, if any, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-Accelerated filer | [X] | Smaller reporting company | [X] | |
| Emerging Growth Company | ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
The aggregate market value of common stock, par value $0.000001 per share, held by non-affiliates of the registrant, based on the average bid and asked prices of the common stock on July 31, 2021 (the last business day of the registrant’s most recently completed second quarter) was approximately $5,910,053.
Number of common shares outstanding at April 25, 2022:
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4LESS GROUP, INC.
FORM 10-K
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual 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 annual report. Factors that can cause or contribute to these differences include those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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 annual 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 annual 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.
Auto Parts 4Less Group, Inc. formerly The 4Less Group, Inc. is referred to hereinafter as “we”, “our”, or “us.
PART I
Item 1. Business.
Company
Auto Parts 4Less Group, Inc. formerly The 4LESS Group, Inc., also previously known as MedCareers Group, Inc. (the “Company”, “MCGI”), was incorporated under the laws of the State of Nevada on December 5, 2007. The Company 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, and was converted in December 2021 into common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The Share Exchange closed on November 29, 2018. As a result of the Share Exchange, the former shareholders of 4LESS became the controlling shareholders of the Company. The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein 4LESS is considered the acquirer for accounting and financial reporting purposes. The capital, share price, and earnings per share amount in these consolidated financial statements for the period prior to the reverse merger were restated to reflect the recapitalization in accordance with the shares issued as a result of the reverse merger except otherwise noted.
4Less was formed as Vegas Suspension & Offroad, LLC on October 24, 2013 as a Nevada limited liability company and converted to a Nevada corporation with the same name on May 8, 2017. On April 2, 2018, the Company changed its name to The 4Less Corp. The Corporation had S Corporation status. The Corporation operated as an e-commerce auto and truck parts sales company. As a result of the share exchange, the Company became a holding company operating through 4Less and offers products including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and shocks.
Auto Parts 4Less Group, Inc. formerly The 4LESS Group, Inc. (“4Less”, the “Company”, “we” or “us”), the Company described herein, is a Nevada corporation, with offices located at 106 W Mayflower, Las Vegas, NV 89030. It can be reached by phone at (702) 267-6100.
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History
The Company was formed as RX Scripted, LLC on December 30, 2004 as a North Carolina limited liability company and converted to a Nevada corporation as RX Scripted, Inc. on December 5, 2007.
On or around January 7, 2010 the Company’s name was changed to MedCareers Group, Inc. Additionally, as a result of filing the Certificate, the Company’s symbol on the Over-The-Counter Bulletin Board changed to “MCGI”, effective January 7, 2010.
On or around November 19, 2010, the Company entered into a Share Exchange Agreement (the “Exchange”) with Nurses Lounge, Inc., a Texas corporation (“Nurses Lounge”) and the nine shareholders of Nurses Lounge (the “Nurses Lounge Shareholders”). Pursuant to the Exchange, we agreed to issue 24,000,000 restricted shares of our common stock to the Nurses Lounge Shareholders in exchange for 100% of the issued and outstanding shares of common stock of Nurses Lounge. Although 24,000,000 restricted shares were issued in connection with the Exchange, certain significant shareholders of the Company also agreed to cancel some of the shares they owned so that the net effect of the Exchange was an increase to the outstanding shares by 7,175,000 shares rather than 24,000,000. Included in the shareholders receiving shares in connection with the Exchange, was Timothy Armes founder and president of Nurses Lounge, Inc., who received 14,902,795 shares. In December 2019 Nurses Lounge was disposed of as more fully described elsewhere in this Form 10-K and in the Notes to the Financial Statements.
Auto Parts 4Less
Like many small businesses, Christopher Davenport, the founder of Auto Parts 4Less (“4Less”) previously named The 4less Corp., the 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 required 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. Technical achievements including CRM system, warehouse integration API, warehouse inventory software to name a few.
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 will be done in late 1st quarter FYE 2023, with marketplace sales expected to begin in 2nd quarter 2023.
On April 28. 2022 the Company changed its name from The 4LESS Group, Inc. to Auto Parts 4Less Group, Inc.
Competition
We directly compete for buyers to use our web sites over current e-commerce sites as well as sellers that utilize major marketplaces such as Amazon and eBay. However, we believe our specialty ecommerce website liftkits4less.com offers substantial value-added content including installation guides, install videos, high impact photos, order customization and live chat with a technical expert.
Additionally, we believe that our automotive parts marketplace AutoParts4less.com, with no known large challengers presently in the space outside of “all things to all people” online marketplaces Amazon and eBay, has the opportunity to quickly be 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 successfully do in their industries.
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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 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties.
Executive Offices
We maintain offices at 106 W Mayflower, Las Vegas, Nevada 89030. We pay monthly rent of $6,400 and our lease expires on June 30, 2022, with an additional one year renewal.
Item 3. Legal Proceedings.
None.
Item 4. Mine Safety Disclosures.
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock is traded on the OTC Pink market (otherwise known as the “pink sheets”) maintained by OTC Markets under the symbol “FLES”. The following table sets forth, for the periods indicated, the high and low sales prices, which set forth reflect inter-dealer prices, without retail mark-up or mark-down and without commissions; and may not reflect actual transactions. The Company effected a 10:1 reverse split on April 26,2022 , so the post reverse split prices are shown.
| Calendar Quarter Ending | Low | High |
| $ | $ | |
| January 31, 2022 | 6.80 | 20.00 |
| October 31, 2021 | 9.50 | 23.90 |
| July 31, 2021 | 17.00 | 22.50 |
| April 30, 2021 | 20.60 | 34.50 |
| January 31, 2021 | 2.00 | 44.80 |
| October 31, 2020 | 0.60 | 64.00 |
| July 31, 2020 | 0.50 | 2.00 |
| April 30, 2020 | 1.10 | 4.00 |
No cash dividends on the Company common stock have been declared or paid since the Company’s inception. The Company had approximately 119 shareholders at April 26, 2022. This does not include shareholders that hold their shares in street name or with a broker.
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Recent Sales of Unregistered Securities
Preferred Stock
On June 11, 2018, we filed with the state of Nevada designations for Series C and D Preferred Stock of the Company, as well as amended designation for our Series A and B Preferred Stock. Series A Preferred Stock consists of 330,000 authorized shares. Series A Preferred shares have no voting rights and carry conversion rights into common stock of the Company at a rate equal to factor of total issued and outstanding common stock a the time of conversion divided by 0.0152. Series B Preferred Stock consists of 20,000 shares. Series B shares in total shall have voting rights equal 66.7% of the total voting rights (all common shares plus all other series of preferred stock as if they had converted on that date). Series C Preferred Stock consists of 7,250 shares. The total of the Series C Preferred shares shall convert to our common stock by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. Conversion is automatic as of December 31, 2022, regardless of the acts of the holders. Series D Preferred Stock consists of 870 shares. Series D Preferred shares have no voting rights and are redeemable for $1,000 per share at the discretion of either the holder us. For more details regarding the right and obligations of the respective series of preferred stock, please review the Exhibits 3.1-3.4. filed on Edgar on November 13, 2018 and incorporated herein by reference.
During the year the ended January 31, 2022, there were no transactions of Preferred stock.
On February 1, 2022 all Series C shareholders holding all 7,250 outstanding shares converted all of their shares for 905,111common shares.
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Common Stock
| Consideration | Date | # Shares | ||||
| Number of shares outstanding, January 31, 2017 |
2.3 | |||||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $6,050 of principal and $2,341 of accrued interest | 15-Nov-17 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $4,400 of principal and $1,743 of accrued interest | 29-Nov-17 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $4,400 of principal and $1,745 of accrued interest | 8-Dec-17 | 0.3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,550 of principal | 19-Jan-18 | 0.1 | |||
| Accrued expenses converted to common stock – related party | Convert a portion of accrued expense of $2,250 | 31-Jan-18 | 0.1 | |||
| Accrued expenses converted to common stock – related party | Convert a portion of accrued expense of $1,125 | 31-Jan-18 | 0.1 | |||
| Accrued expenses converted to common stock | Convert a portion of accrued expense of $750 | 31-Jan-18 | — | |||
| Common stock issued for services | Services valued at $3,000 | 31-Jan-18 | — | |||
| Common stock issued for services | Services valued at $300 | 31-Jan-18 | — | |||
| Number of shares outstanding, January 31, 2018 |
3.5 | |||||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $2,200 of principal and $1,145 of accrued interest | 6-Jun-18 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $1,760 of principal and $978 of accrued interest | 30-Jul-18 | 0.2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $1,650 of principal and $944 of accrued interest | 9-Oct-18 | 0.2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $1,540 of principal and $941 of accrued interest | 22-Oct-18 | 0.2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $6,373 of accrued interest | 9-Nov-18 | 0.1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $2,750 of accrued interest | 9-Nov-18 | 0.2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,950 of accrued interest | 15-Nov-18 | 0.2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $13,863 of principal and $9,176 of accrued interest | 16-Nov-18 | 0.1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,235 of accrued interest | 19-Nov-18 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,108 of principal and $1,890 of accrued interest | 21-Nov-18 | 0.4 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $1,322 of principal and $2,328 of accrued interest | 23-Nov-18 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $1,540 of principal and $941 of accrued interest | 30-Nov-18 | 0.4 | |||
| Cancelation of shares | Cancellation in conjunction with acquisition | 30-Nov-18 | (0.3) | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,717 of principal and $133 of accrued interest | 30-Nov-18 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,958 of principal and $92 of accrued interest | 3-Dec-18 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $4,216 of principal and $84 of accrued interest | 6-Dec-18 | 0.4 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,190 of principal and $1,981 of accrued interest | 10-Dec-18 | 0.4 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,843 of principal and $127of accrued interest | 11-Dec-18 | 0.3 |
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Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Cancellation in conjunction with disposal of subsidiary | Shares cancelled due to spinoff of subsidiary and discontinued operations | 12-Dec-18 | (0.2) | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $4,885 of principal and $114 of accrued interest | 16-Nov-18 | 0.4 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $4,950 of principal and $3,096 of accrued interest | 16-Nov-18 | 0.7 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $5,191 of principal and $58 of accrued interest | 16-Nov-18 | 0.4 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $5,934 of principal and $16 of accrued interest | 16-Nov-18 | 0.5 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,088 of principal and $61 of accrued interest | 16-Nov-18 | 0.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $5,500 of principal and $3,480 of accrued interest | 16-Nov-18 | 0.7 | |||
| Convert a portion of accrued expense | Convert a portion of accrued expense of $1,125 | 31-Dec-18 | 0.1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $6,732 of principal and $158 of accrued interest | 10-Jan-19 | 0.6 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $5,500 of principal and $3,523 of accrued interest | 10-Jan-19 | 0.8 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $7,547 of principal and $48 of accrued interest | 17-Jan-19 | 0.6 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $8,000 of accrued interest | 18-Jan-19 | 0.7 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $9,240 of principal and $6,034 of accrued interest | 18-Jan-19 | 1.3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $2,535 of accrued interest | 22-Jan-19 | 0.3 | |||
| Number of shares outstanding, January 31, 2019 |
15 | |||||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $7,952 of principal and 4,844 of accrued interest | 1-Feb-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,202 of principal and $42 of accrued interest | 15-Feb-19 | — | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,527 of principal and $5,473 of accrued interest | 25-Feb-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $10,494 of principal and $56 of accrued interest | 26-Feb-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $10,945 of principal and $7,428 of accrued interest | 26-Feb-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $11,072 of principal and $45 of accrued interest | 27-Feb-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $12,534 of principal and $66 of accrued interest | 1-Mar-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $13,172 of principal and $78 of accrued interest | 5-Mar-19 | 1. | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $12,100 of principal and $8,179 of accrued interest | 5-Mar-19 | 2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $9,265 of interest and $500 of fees | 5-Mar-19 | 1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $3,887 of principal, $6,602 of interest and $500 of fees | 6-Mar-19 | 1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $8,611 of principal, $59 of interest and $500 of fees | 7-Mar-19 | 1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $11,321 of principal, $219 of interest and $500 of fees | 11-Mar-19 | 1 |
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Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $17,600 of principal and $11,966 of accrued interest | 11-Mar-19 | 3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $12,121 of principal, $49 of interest and $500 of fees | 12-Mar-19 | 2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $8,592 of principal, $43 of interest and $500 of fees | 13-Mar-19 | 1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $9,401 of principal, $39 of interest and $500 of fees | 14-Mar-19 | 1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $8,743 of principal, $207 of interest and $500 of fees | 20-Mar-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $12,100 of principal and $8,357of accrued interest | 5-Apr-19 | 3 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $1 of principal and $378 of accrued interest | 5-Apr-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $8,800 of principal and $6,223 of accrued interest | 30-Apr-19 | 1 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $432 of accrued interest | 30-Apr-19 | 2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $469 of accrued interest | 2-May-19 | 2 | |||
| Common stock at issued 52% discount to market per note conversion agreement | Convert a portion of note payable including $8,416 of principal, $196 of interest and $500 of fees | 2-May-19 | 3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $22,000 of principal and $6,738 of accrued interest | 7-May-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $13,300 of principal, $202 of interest and $500 of fees | 10-May-19 | 3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $11,051 of principal, $27 of interest and $500 of fees | 14-May-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,139 of principal | 16-May-19 | 3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,613 of principal and $1,892 of accrued interest | 16-May-19 | — | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,600 of principal and $4,428 of accrued interest | 16-May-19 | 1 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,196 of principal | 17-May-19 | 3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,317 of principal | 20-May-19 | 3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $854 of principal | 21-May-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,317 of principal | 22-May-19 | 3 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $739 of principal | 23-May-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,538 of principal | 28-May-19 | 4 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,538 of principal | 28-May-19 | 4 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,593 of principal | 30-May-19 | 4 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,799 of principal | 31-May-19 | 5 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $11,000 of principal and $8,320 of accrued interest | 31-May-19 | 5 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,879 of principal | 3-Jun-19 | 5 |
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Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $15,362 of principal and $11,670 of accrued interest | 5-Jun-19 | 9 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $12,599 of interest | 5-Jun-19 | 5 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $12,798 of principal and $1,518 of accrued interest | 11-Jun-19 | 6 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including 3,300 of principal and $2,443 of accrued interest | 11-Jun-19 | 2 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $11,364 of principal and $62 of accrued interest | 13-Jun-19 | 6 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $12,016 of principal and $24 of accrued interest | 14-Jun-19 | 7 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $11,625 of principal and $47 of accrued interest | 17-Jun-19 | 7 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,780 of principal and $8 of accrued interest | 18-Jun-19 | 6 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,405 of principal and $671 of accrued interest | 19-Jun-19 | 5 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,165 of accrued interest | 20-Jun-19 | 5 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,985 of principal and $7,679 of accrued interest | 21-Jun-19 | 8 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $10,022 of principal and $114 of accrued interest | 24-Jun-19 | 9 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,064 of principal and $32 of accrued interest | 25-Jun-19 | 4 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,872 of principal and $56 of accrued interest | 27-Jun-19 | 5 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $7,376 of principal and $24 of accrued interest | 28-Jun-19 | 9 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,215 of principal and $59 of accrued interest | 1-Jul-19 | 4 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $8,057 of principal and $17 of accrued interest | 2-Jul-19 | 10 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,154 of principal and $12 of accrued interest | 3-Jul-19 | 8 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,807 of principal and $43 of accrued interest | 8-Jul-19 | 6 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,122 of principal | 8-Jul-19 | 6 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,922 of principal and $8 of accrued interest | 10-Jul-19 | 12 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,244 of accrued interest | 11-Jul-19 | 12 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,081 of accrued interest | 12-Jul-19 | 10 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,347 of principal and $4,133 of accrued interest | 15-Jul-19 | 14 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,147 of principal and $38 of accrued interest | 16-Jul-19 | 9 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,872 of principal and $106 of accrued interest | 19-Jul-19 | 15 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,095 of principal and $96 of accrued interest | 22-Jul-19 | 16 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,293 of principal and $29 of accrued interest | 23-Jul-19 | 16 |
- 10 -
Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,467 of principal and $25 of accrued interest | 24-Jul-19 | 17 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,722 of principal and $21 of accrued interest | 25-Jul-19 | 18 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,022 of principal and $18 of accrued interest | 26-Jul-19 | 19 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,389 of principal and $41 of accrued interest | 29-Jul-19 | 20 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,731 of principal and $10 of accrued interest | 30-Jul-19 | 20 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,855 of principal and $8 of accrued interest | 31-Jul-19 | 22 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,056 of principal and $5 of accrued interest | 1-Aug-19 | 23 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,033 of principal and $3 of accrued interest | 3-Aug-19 | 24 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,759 of accrued interest | 5-Aug-19 | 26 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,721 of accrued interest | 6-Aug-19 | 27 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,997 of accrued interest | 7-Aug-19 | 19 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $229 of principal and $3,529 of accrued interest | 8-Aug-19 | 21 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,123 of principal and $157 of accrued interest | 12-Aug-19 | 30 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,552 of principal and $36 of accrued interest | 13-Aug-19 | 32 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,864 of principal and $32 of accrued interest | 14-Aug-19 | 34 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,132 of principal and $28 of accrued interest | 15-Aug-19 | 35 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,802 of principal and $98 of accrued interest | 19-Aug-19 | 24 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,674 of principal and $22 of accrued interest | 20-Aug-19 | 18 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,089 of principal and $20 of accrued interest | 21-Aug-19 | 27 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,127 of principal and $17 of accrued interest | 22-Aug-19 | 40 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,534 of principal and $13 of accrued interest | 23-Aug-19 | 43 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,846 of principal and $27 of accrued interest | 26-Aug-19 | 45 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $7,030 of principal and $209 of accrued interest | 27-Aug-19 | 47 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $7,603 of accrued interest | 28-Aug-19 | 50 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $7,987 of accrued interest | 29-Aug-19 | 52 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,503 of principal and $1,518 of accrued interest | 30-Aug-19 | 52 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,662 of principal and $141 of accrued interest | 3-Sep-19 | 40 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,997 of principal and $64 of accrued interest | 5-Sep-19 | 55 |
- 11 -
Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,064 of principal and $115 of accrued interest | 9-Sep-19 | 62 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,851 of principal and $25 of accrued interest | 10-Sep-19 | 48 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,549 of principal and $23 of accrued interest | 11-Sep-19 | 48 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,927 of principal and $21 of accrued interest | 12-Sep-19 | 53 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,802 of principal and $18 of accrued interest | 13-Sep-19 | 38 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,055 of principal and $49 of accrued interest | 16-Sep-19 | 73 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,531 of principal and $13 of accrued interest | 17-Sep-19 | 79 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,645 of principal and $18 of accrued interest | 19-Sep-19 | 82 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,647 of principal and $7 of accrued interest | 20-Sep-19 | 87 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,171 of principal and $13 of accrued interest | 23-Sep-19 | 91 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,347 of principal and $2 of accrued interest | 24-Sep-19 | 96 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $248 of principal and $1,546 of accrued interest | 25-Sep-19 | 65 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,633 of accrued interest | 26-Sep-19 | 104 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,853 of accrued interest | 27-Sep-19 | 81 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,599 of accrued interest | 1-Oct-19 | 114 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,777 of principal and $656 of accrued interest | 2-Oct-19 | 107 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,843 of principal and $19 of accrued interest | 3-Oct-19 | 126 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,543 of principal and $17 of accrued interest | 4-Oct-19 | 112 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,090 of principal and $45 of accrued interest | 7-Oct-19 | 137 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,287 of principal and $13 of accrued interest | 8-Oct-19 | 145 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,460 of principal and $11 of accrued interest | 9-Oct-19 | 152 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,639 of principal and $9 of accrued interest | 10-Oct-19 | 160 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,829 of principal and $6 of accrued interest | 11-Oct-19 | 168 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,186 of accrued interest | 14-Oct-19 | 177 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,160 of accrued interest | 15-Oct-19 | 120 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,212 of principal and $18 of accrued interest | 16-Oct-19 | 192 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,318 of principal and $1,079 of accrued interest | 17-Oct-19 | 202 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,562 of accrued interest | 18-Oct-19 | 93 |
- 12 -
Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,717 of principal and $1,676 of accrued interest | 21-Oct-19 | 218 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,374 of principal and $19 of accrued interest | 22-Oct-19 | 229 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,158 of principal and $16 of accrued interest | 23-Oct-19 | 241 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,319 of principal and $14 of accrued interest | 24-Oct-19 | 252 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,486 of principal and $12 of accrued interest | 25-Oct-19 | 265 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,989 of principal and $29 of accrued interest | 28-Oct-19 | 280 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,167 of principal and $8 of accrued interest | 29-Oct-19 | 294 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,331 of principal and $6 of accrued interest | 30-Oct-19 | 309 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,506 of principal and $4 of accrued interest | 31-Oct-19 | 325 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,952 of principal and $919 of accrued interest | 2-Nov-19 | 342 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,003 of accrued interest | 4-Nov-19 | 358 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,265 of accrued interest | 5-Nov-19 | 378 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,383 of accrued interest | 6-Nov-19 | 397 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $977 of principal and $1,528 of accrued interest | 14-Nov-19 | 417 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,084 of principal and $76 of accrued interest | 18-Nov-19 | 360 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,886 of principal and $35 of accrued interest | 20-Nov-19 | 457 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $392 of principal and $1,000 of fees | 20-Nov-19 | 435 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,999 of principal and $16 of accrued interest | 21-Nov-19 | 480 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,409 of principal and $15 of accrued interest | 22-Nov-19 | 505 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,476 of interest and $750 of fees | 25-Nov-19 | 530 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,591 of interest and $750 of fees | 26-Nov-19 | 557 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $840 of principal and $1,000 of fees | 26-Nov-19 | 575 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $2,082 of principal and $750 of fees | 27-Nov-19 | 590 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,765 of principal and $2,177 of accrued interest | 27-Nov-19 | 1,177 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,812 of interest and $750 of fees | 29-Nov-19 | 610 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $2,646 of principal and $750 of fees | 2-Dec-19 | 707 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,213 of interest and $750 of fees | 2-Dec-19 | 467 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,148 of interest and $750 of fees | 3-Dec-19 | 690 |
- 13 -
Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $2,958 of principal and $750 of fees | 3-Dec-19 | 772 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,567 of principal and $2,144 of accrued interest | 4-Dec-19 | 1,452 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,820 of interest and $750 of fees | 4-Dec-19 | 850 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $920 of interest and $1,000 of fees | 4-Dec-19 | 800 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $670 of principal, $2,990 of interest and $750 of fees | 5-Dec-19 | 1,050 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,859 of principal, $53 of interest and $750 of fees | 6-Dec-19 | 1,110 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,690 of principal and $750 of fees | 6-Dec-19 | 1,075 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $112 of principal and $1,000 of fees | 9-Dec-19 | 445 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,002 of principal, $151 of interest and $750 of fees | 9-Dec-19 | 1,167 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $3,298 of principal and $750 of fees | 10-Dec-19 | 1,265 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $3,591 of principal, $48 of interest and $750 of fees | 10-Dec-19 | 1,045 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,190 of principal, $45 of interest and $750 of fees | 10-Dec-19 | 1,425 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $7,282 of principal and $2,401 of accrued interest | 12-Dec-19 | 2,423 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $4,282 of principal and $750 of fees | 12-Dec-19 | 1,572 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,176 of principal, $84 of interest and $750 of fees | 13-Dec-19 | 1,075 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,028 of principal, $122 of interest and $750 of fees | 16-Dec-19 | 1,750 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,392 of principal, $38 of interest and $750 of fees | 17-Dec-19 | 1,850 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,938 of principal, $35 of interest and $750 of fees | 18-Dec-19 | 1,945 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $4,386 of principal and $1,472 of accrued interest | 18-Dec-19 | 1,464 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,052 of principal, $169 of interest and $750 of fees | 23-Dec-19 | 2,122 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $6,380 of principal and $714 of accrued interest | 23-Dec-19 | 3,547 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $2,530 of principal and $750 of fees | 23-Dec-19 | 2,050 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,844 of principal, $519 of interest and $750 of fees | 8-Jan-20 | 2,252 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,500 of principal, $250 of interest and $750 of fees | 16-Jan-20 | 2,500 | |||
| Common shares issuable upon rounding of shares on reverse split | 31-Jan 20 | 170 | ||||
| Number of shares outstanding, January 31, 2020 |
53,846 |
- 14 -
Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $316 of principal | 30-Mar-20 | 2,630 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,585 of principal and $498 of accrued interest | 24-Apr-20 | 5,606 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,793 of principal and $374 of accrued interest | 18-May-20 | 6,104 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $412 of principal. | 10-Jun-20 | 3,320 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,782 of principal and $405 of accrued interest | 17-Jun-20 | 7,045 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,035 of principal and $474 of accrued interest | 25-Jun-20 | 7,720 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $380 of principal. | 6-Jul-20 | 4,225 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $2,001 of accrued interest | 28-Aug-20 | 8,894 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $557 of accrued interest | 3-Sep-20 | 2,485 | |||
| Common stock at issued 55% discount to market per note conversion agreement | Convert a portion of note payable including $358 of interest and $750 of fees | 10-Sep-20 | 4,950 | |||
| Common stock issued | Repayment of accrued expenses for $18,900 | 21-Sep-20 | 4,500 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Payment of commitment fee on loan for $50,000 | 13-Oct-20 | 1,969 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $1,091 of accrued interest | 3-Nov-20 | 4,870 | |||
| Common stock issued | Payment of commitment fee on loan for $20,001 | 17-Nov-20 | 667 | |||
| Common stock issued | Payment of commitment fee on loan for $43,750 | 24-Nov-20 | 1,750 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $5,000 of principal and $4,397 of accrued interest | 31-Dec-20 | 1,506 | |||
| Common stock at issued 50% discount to market per note conversion agreement | Convert a portion of note payable including $10,500 of principal and $9,027 of accrued interest | 31-Dec-20 | 3,129 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $50,000 | 15-Jan-21 | 2,500 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $50,000 | 15-Jan-21 | 2,500 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 15-Jan-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 15-Jan-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $50,000 | 31-Jan-21 | 2,500 | |||
| Number of shares outstanding, January 31, 2021 |
142,716 | |||||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 17-Feb-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $150,000 | 18-Feb-21 | 7,500 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 19-Feb-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $200,000 | 19-Feb-21 | 10,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $120,000 | 2-Mar-21 | 6,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $200,000 | 2-Mar-21 | 10,000 |
- 15 -
Common Stock (continued)
| Consideration | Date | # Shares | ||||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $282,500 | 10-Mar-21 | 14,125 | |||
| Common stock issued for consulting fees | Fair value of $107,500 | 15-Mar-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $25,000 | 18-Mar-21 | 1,250 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 1-Apr-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $50,000 | 4-Apr-21 | 2,500 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 14-Apr-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $200,000 | 20-Apr-21 | 10,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $7,500 | 20-Apr-21 | 375 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $99,500 | 20-Apr-21 | 4,975 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $200,000 | 22-Apr-21 | 10,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 23-Apr-21 | 5,000 | |||
| Common stock issued pursuant to REG A subscription | $$2.00 per share for gross proceeds of $50,000 | 28-Apr-21 | 2,500 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $110,000 | 28-Apr-21 | 5,500 | |||
| Common stock issued at previous day bid price per note conversion agreement | Convert a portion of note payable including $18,750 of principal, and $1,750 of fees | 27-May-21 | 1,000 | |||
| Common stock issued at previous day bid price per note conversion agreement | Convert a portion of note payable including $36,850 of principal, and $1,750 of fees | 21-Jun-21 | 2,000 | |||
| Common stock issued with debt | Relative fair value of $31,006 | 8-Jul-21 | 3,096 | |||
| Common stock issued with debt | Relative fair value of $28,975 | 21-Jul-21 | 6,085 | |||
| Common stock issued | Fair value of $191,000 | 22-Jul-21 | 10,000 | |||
| Common stock issued at previous day bid price per note conversion agreement | Convert a portion of note payable including $25,000 of principal, $13,250 of interest, and $1,750 of fees | 9-Aug-21 | 2,000 | |||
| Common stock issued with debt | Value included with 8-Jul-21 transaction above | 11-Aug-21 | 1,548 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $75,000 | 12-Aug-21 | 3,750 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $5,000 | 13-Aug-21 | 250 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $47,000 | 16-Aug-21 | 2,350 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $100,000 | 17-Aug-21 | 5,000 | |||
| Common stock issued to broker as fees | Fair value of $30,055. | 19-Aug-21 | 1,301 | |||
| Common stock issued pursuant to share purchase agreement | $1.53 per share for gross proceeds of $306,000 | 24-Aug -21 | 20,000 | |||
| Common stock issued pursuant to REG A subscription | $2.00 per share for gross proceeds of $4,500 | 7-Sep-21 | 225 | |||
| Common stock issued pursuant to share purchase agreement | $1.16 per share for gross proceeds of $139,320 | 8-Sep-21 | 12,000 | |||
| Common stock issued at previous day bid price per note conversion agreement | Convert a portion of note payable including $25,000 of principal, $13,250 of interest, and $1,750 of fees | 9-Sep-21 | 2,000 | |||
| Common stock issued at previous day bid price per note conversion agreement | Convert a portion of note payable including $25,000 of principal, $13,250 of interest, and $1,750 of fees | 10-Sep-21 | 1,977 | |||
| Common stock issued pursuant to share purchase agreement | $0.95 per share for gross proceeds of $85,050 | 7-Oct-21 | 9,000 | |||
| Number of shares outstanding, January 31, 2022 |
341,023 |
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Summary of Common Stock Shares Issued in the Year ended January 31, 2022
During the year ended January 31, 2022, the Company issued 172,300 shares for cash proceeds of $3,037,625. A lender converted $125,000 of the convertible notes, $27,691 of accrued interest and $7,500 of fees into 8,977 common shares. The Company issued 6,301 shares with a fair value of $137,555 as payment for fees to consultants. The Company issued 10,729 shares to lenders as commitment fee with a relative fair value of $59,801.
Summary of Common Stock Shares Issued in the Year ended January 31, 2021
During the year ended January 31, 2021, a lender converted a total of $24,803 of the convertible notes and $19,933 accrued interest and $20,185 of derivative liability into 62,485 common shares. We also issued: 17,500 shares for cash proceeds of $350,000 as part of a REG A subscription, 4,385 shares for $35,060 as commitment fees for loans, and 4,500 shares for $18,900 as payment on accrued expenses, related party.
Summary of Class C Preferred Stock Issued in the year ended January 31, 2022:
No transactions.
Summary of Class C Preferred Stock Issued in the year ended January 31, 2021:
● 250 shares valued at $9,105 in exchange of debt
● 100 shares to repay Accrued Expenses , Related Party for $11,177
● 150 shares as part of a debt settlement for $20,290
Options and Warrants
We had the following options and warrants outstanding at January 31, 2022:
| Issued To | # Warrants and Options | Dated | Expire | Strike Price | Expired | Exercised |
| Lender | 95,000 | 08/28/2020 | 08/28/2023 | $4.00 per share | N | N |
| Broker | 250 | 10/11/2020 | 10/11/2025 | $45.00 per share | N | N |
| Broker | 300 | 11/25/2020 | 11/25/2025 | $30.00 per share | N | N |
| Triton | 30,000 | 07/27/2021 | 07/27/2024 | $21.11 per share | N | N |
| Consultant | 25,000 | 08/26/2021 | 08/26/2024 | $15.00 per share | N | N |
| T. Armes | 50,000 | 10/14/2021 | 10/14/2023 | $15.00 per share | N | N |
| Lender | 90,000 | 11/12/2021 | 11/12/2026 | $15.00 per share | N | N |
| Lender | 90,000 | 11/12/2021 | 11/12/2026 | $15.00 per share | N | N |
| Lender | 30,000 | 01/27/2022 | 01/27/2025 | $15.00 per share | N | N |
All of the above transactions our exempt from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Act”) since the foregoing issuances and grants did not involve a public offering, the recipients took the shares and options for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipients were either (a) “accredited investors” and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Act. No underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions.
EQUITY COMPENSATION PLAN INFORMATION
The Company has no shareholder approved compensation plans.
Item 6. Selected Financial Data.
Not applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations For the Year Ended January 31, 2022 compared to the year ended January 31, 2021
The following table shows our results of operations for the years ended January 31, 2022 and 2021, The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| Change | ||||||||||||
| 2022 | 2021 | $ | % | |||||||||
| Total Revenues | $ | 11,018,751 | $ | 8,171,355 | $ | 2,847,396 | 35% | |||||
| Gross Profit | 1,547,447 | 1,460,628 | 86,819 | 6% | ||||||||
| Total Operating Expenses | 9,005,439 | 3,602,462 | 5,402,977 | 150% | ||||||||
| Total Other Income (Expense) | (611,764 | ) | 3,329,010 | (3,940,774 | ) | (118% | ) | |||||
| Net Income (Loss) | $ | (8,069,756 | ) | $ | 1,187,176 | $ | (9,256,932 | ) | (780% | ) | ||
Revenue
The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2022 and 2021:
| Change | ||||||||||||
| 2022 | 2021 | $ | % | |||||||||
| Proprietary website revenue | $ | 7,576,068 | $ | 4,200,624 | $ | 3,375,444 | 80% | |||||
| Third party website revenue | 3,442,683 | 3,970,731 | (528,048 | ) | (13% | ) | ||||||
| Total Revenue | $ | 11,018,751 | $ | 8,171,355 | $ | 2,847,396 | 35% | |||||
We had total revenue of $11,018,757 for the year ended January 31, 2022, compared to $8,171,355 for the year ended January 31, 2021. Sales increased by $2,847,396 or 35%. This large increase can be attributed to many factors such as; economic stimulus payments from government, large increase in product offering, aggressive advertising and promotion, and economic growth emerging from pandemic. The Company at January 31, 2022 had $665,143 (2021-$687,786) of deferred revenue which represents orders received before January 31, 2022 but delivered after. This will be revenue that the Company recognizes in the first quarter ended April 30, 2022. Also, the Company had $530,900 (2021-$188,385) in customer deposits which represents orders received before January 31, 2022 but either cancelled or still unfulfilled after. Both deferred revenues and deposits were a result of inventory shortages and supplier back-order issues. The Company believes that of the unrecognized revenue (deferred revenue and customer deposits combined) in 2022 which totals $1,196,043, $927,518 was a result of supply chain issues with the remaining $268,525 caused by normal operating issues. We do continue to grow our proprietary website revenues which increased by 80% offset by a reduction in third party website revenue by 13%.
Gross Profit
We had gross profit of $1,547,447 for the year ended January 31, 2022, compared to gross profit of $1,460,628 for the year ended January 31, 2021. Gross profit increased by $86,819, yet gross profit % decreased to 14% in fiscal 2022 from 18% in fiscal 2021.
Gross profit increased because of the 35% increase in sales however this was reduced because cost of revenue was higher because the Company had to purchase goods at higher product costs from distributers rather than the usual manufacturers for many of the new available products or some of the products that were not available from the usual manufacturers due to supply chain issues.
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Operating Expenses
The following table shows our operating expenses for the years ended January 31, 2022 and 2021. Operating expenses increased to $9,005,439 for the year ended January 31, 2022 from $3,602,462 for the year ended January 31, 2021:
| Change | ||||||||||||
| 2022 | 2021 | $ | % | |||||||||
| Operating expenses | ||||||||||||
| Depreciation | $ | 48,931 | $ | 25,196 | $ | 23,735 | 94% | |||||
| Postage, Shipping and Freight | 531,954 | 498,370 | 33,584 | 7% | ||||||||
| Marketing and Advertising | 2,430,905 | 112,531 | 2,318,374 | 2,060% | ||||||||
| E Commerce Services, Commissions and Fees | 1,569,825 | 887,274 | 682,551 | 77% | ||||||||
| Operating lease cost | 121,917 | 121,917 | — | 0% | ||||||||
| Personnel Costs | 1,482,448 | 1,128,652 | 353,796 | 31% | ||||||||
| PPP Loan Forgiveness | (209,447 | ) | — | (209,447 | ) | — | ||||||
| General and Administrative | 3,028,906 | 828,522 | 2,200,384 | 266% | ||||||||
| Total Operating Expenses | $ | 9,005,439 | $ | 3,602,462 | $ | 5,402,977 | 150% | |||||
• Depreciation increased by $23,735 due to asset additions totaling $196,569 in 2022, thus a higher asset value is being depreciated.
• Postage shipping and freight increased by $33,584 due to higher sales.
• Marketing and advertising increased by $2,318,374 due to strong promotional efforts geared to increasing brand awareness of the website as well as targeted advertising.
• E Commerce Services, Commissions and Fees increased by $682,551 with approximately $47,000 due to increased sales and approximately $636,000 on the new website.
• Personnel Costs decreased by $353,796 due to some isolated salary increases as well as staff increases in fiscal 2022 compared to fiscal 2021 which saw staff reductions as a result of the pandemic.
• General and Administrative increased by $2,200,384. This increase is attributed to a non cash charge of $ 1,677,055 to stock based compensation, $425,090 increase in professional fees (which comprise of accounting, legal, reporting and transfer agent costs), and $188,215 increase in investor relations.
Other Income (Expense)
The following table shows our other income and expenses for the years ended January 31, 2022 and 2021:
The results of the year ended January 31, 2022 resulted in other expense of $611,764 vs other income of $3,329,010 for the year ended January 31, 2021. For the year ended January 31, 2022 the Company acquired more short term debt which resulted in higher interest costs and debt amortization. For the year ended January 31, 2021 there were debt settlements and exchanges which resulted in the increase in gain on settlement of debt and lower interest expense. Fair value of derivatives was largely affected by the increase in the market price of our common stock during the current period as well as the significant reduction in convertible debt.
We had net loss of $8,069,756 for the year ended January 31, 2022, compared to net income of $1,187,176 for the year ended January 31, 2021 due mainly to the gain on debt settlement for the year ended January 31, 2021 , the higher interest and debt amortization, share based compensation and marketing and advertising for the year ended January 31, 2022 and the other factors mentioned above.
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Liquidity and Capital Resources
As of January 31, 2022, we had cash and cash equivalents of $77,498 of cash, $432,583 of inventory and total current liabilities of $8,890,462. We had negative working capital of $8,325,847 as of January 31, 2022.
Net cash used in operations for the year ended January 31, 2022 was $6,340,468 compared to $859,821 for the year ended January 31, 2021.The use of cash in operations was caused by the net loss offset by non -cash adjustments.
Net cash (used in) provided from investing activities for the year ended January 31, 2022 was ($18,568) compared to $9,750 for the year ended January 31, 2021.
Cash provided by financing activities for the year ended January 31, 2022 was $6,158,870 compared to $965,611 for the year ended January 31, 2021. In both years the cash provided from financing activities was from the proceeds from the issuance of common shares and the net proceeds of notes payable and short term debt and in 2021 the PPP loan.
Subsequent to year end, through the date of filing of this Form 10-K, the company issued loans totaling $2,100,000 for cash proceeds of $1,728,250.
We borrowed funds and/or sold stock for working capital. These transactions are detailed in the section “Recent Sales of Unregistered Securities”.
Currently, we don’t have sufficient cash reserves to meet its contractual obligations and its ongoing monthly expenses, which we anticipate totaling approximately $6,000,000 over the next 12 months. Historically, revenues have not been sufficient to cover operating costs that would permit us to continue as a going concern. These conditions raise substantial doubt about our ability to continue as a going concern. We have been able to continue operating to date largely from loans made by its shareholders, other debt financings and sale of common stock. We are currently looking at both short-term and more permanent financing opportunities, including debt or equity funding, bridge or short-term loans, and/or traditional bank funding, but we have not decided on any specific path moving forward. Until we have raised sufficient funding to pay our ongoing expenses associated with being a public company, and we have sufficient funds to support our planned operations, we can provide no assurances that it will be able to meet its short and long-term liquidity needs, until necessary financing is secured.
We do not currently have any additional formal commitments or identified sources of additional capital from third parties or from our officers, director or significant shareholders. We can provide no assurance that additional financing will be available on favorable terms, if at all. If we are not able to raise the capital necessary to continue our business operations, we may be forced to abandon or curtail our business plan.
In the future, we may be required to seek additional capital by selling additional debt or equity securities, selling assets, if any, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
Critical Accounting Policies
Revenue Recognition
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
Because the Company’s sales agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.
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Disaggregation of Revenue: Channel Revenue
The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2022 and 2021:
| Change | ||||||||||||
| 2022 | 2021 | $ | % | |||||||||
| Proprietary website revenue | $ | 7,576,068 | $ | 4,200,624 | $ | 3,375,444 | 80% | |||||
| Third party website revenue | 3,442,683 | 3,970,731 | (528,048 | ) | (13% | ) | ||||||
| Total Revenue | $ | 11,018,751 | $ | 8,171,355 | $ | 2,847,396 | 35% | |||||
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.
Revenue is recorded net of provisions for discounts and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to customers. The Company recognizes these discounts and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The customer pays the Company by credit card prior to delivery.
The Company offers a 30 day satisfaction guaranteed return policy however the customer must pay for the return shipment. The return must be previously authorized, cannot be either damaged or previously installed and must be in saleable condition. In the Company’s experience this amount is immaterial and therefore no provision has been recorded on the Company’s books. Any defective merchandise falls under the manufacturer’s limited warranty and is subject to the manufacturer’s inspection. The manufacturer has the option to repair or replace the item.
All sales to customers are generally final. However, the Company accepts returned product due to quality or issues relating to product description or incorrect product orders and in such instances the Company would replace the product or refund the customers funds The Company’s customers generally pre-pay for the products.
Use of Estimates
In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based. The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to estimate deferred revenue and customer deposits and value derivative liabilities.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts payable, advances and notes payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments. Derivatives are recorded at fair value at each period end. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.
The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
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Level 1 Inputs – Quoted prices for identical instruments in active markets.
Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs – Instruments with primarily unobservable value drivers.
As of January 31, 2022 and 2021, the Company’s derivative liabilities were measured at fair value using Level 3 inputs. See Note 9.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of January 31, 2022:
| January 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 | $ | 1,263,442 | $ | — | $ | — | $ | 1,263,442 | |||||
| Totals | $ | 1,263,442 | $ | — | $ | — | $ | 1,263,442 | |||||
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. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments. As of January 31, 2022, the Company had warrants to purchase 360,550 common shares and stock options to purchase 50,000 common shares.
The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock. However, because the historical volatility of the Company’s common stock is so high, the sensitivity required to change the liability by 1% as of January 31, 2022 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.
Item 7A. Quantitative and Qualitative Disclosures 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 8. Financial Statements and Supplementary Data.
The Company’s consolidated financial statements, together with the report of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-1. The Company’s balance sheets as of January 31, 2022 and 2021 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended have been audited by independent registered public accounting firm L J Soldinger Associates, LLC.. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to Regulation S-K as promulgated by the Securities and Exchange Commission and are included herein pursuant to Part II, Item 8 of this Form 10-K. The financial statements have been prepared assuming the Company will continue as a going concern.
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Table of Contents of Financial Statements
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure on Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of January 31, 2022. This evaluation was accomplished under the supervision and with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) who concluded that 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 (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure.
We have identified the following material weaknesses and significant deficiencies:
Material weaknesses
| • | The failure of the Company to adequately invest the resources necessary to properly account for and report upon its financial position and results of operations under the requirements of US GAAP. |
| • | The Company incorrectly records revenue in its accounting systems at the time of the customer’s order. Under ASC 606 “Revenue From Contracts With Customers”, revenue is recognized when the Company’s performance obligation is satisfied at the point in time when the product is received by the customer. |
In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Internal Control—Integrated Framework) at January 31, 2021. Based on its evaluation, our management concluded that, as of January 31, 2022, our internal control over financial reporting was not effective because of limited staff and a need for a full time chief financial officer and the identification of the material weaknesses described above. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Controls 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.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table lists the names and ages of the executive officers and director of the Company. The director(s) will continue to serve until the next annual shareholders meeting, or until their successors are elected and qualified. All officers serve at the discretion of the Board of Directors.
| Name | Age | Position | Date First Appointed/ Elected To the Company | |||
| Timothy Armes | 66 | Chairman, Chief Executive Officer, President, Secretary and Treasurer and President and Chief Executive Officer of Auto Parts 4Less Group, Inc. |
August 2011 | |||
| Chris Davenport | 52 | President of Autoparts4less | October 2013 |
Timothy Armes: Mr. Armes has served as President and Chief Executive Officer of Auto Parts 4Less Group, Inc (formerly The 4Less Group, Inc. and MedCareers Group, Inc.) since August 2011. From February 2011 to August 2011, Mr. Armes served as the Chief Operating Officer of the Company. Since August 2011, Mr. Armes has served as the Chairman, Chief Executive Officer, President, Secretary and Treasurer of the Company. In 1992 Mr. Armes launched one of the first online job bulletin boards which eventually grew into jobs.com. As CEO of Jobs.com he raised over 100 million dollars and grew it into one of the top employment web sites before leaving the company in May of 2000. Mr. Armes began his career as an auditor for Ernst and Young and then as a real estate workout specialist with different firms in the mid 1980’s. Mr. Armes obtained a Bachelor of Business Administration degree in Accounting from the University of Texas in 1980 and passed the Certified Public Accountant exam.
Director Qualifications:
We believe that Mr. Armes is well qualified to serve as a Director of the Company because of his significant experience working with and building Nurses Lounge (which since November 2010 has been our wholly-owned operating subsidiary); his prior experience growing Jobs.com, and his financial and accounting background.
Christopher Davenport: Mr. Davenport received his MBA from the University of California in September 2005 where he was recognized by his classmates as “the Most Innovative Thinker”. Before founding The 4Less Corp, Mr. Davenports’ previous business provided mobile dental services to the employees of the largest gaming corporations in the world. These contracts covered the lives of several hundred thousand employees on the Las Vegas strip. Due to the nature of the mobile facilities, Mr. Davenport implemented several new technologies at the time such as: filmless radiography, virtual patient charts and VPN networks to make for seamless quality health care. Soon after, Mr. Davenport expanded his mobile dental company to the military where he won several multiyear, multi-million dollars medical/dental National Guard Medical Readiness contracts. Mr. Davenport has a proven history of implementing innovative technologies that demonstrates his ability to lead The 4Less Corp into the future.
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Corporate Governance
We promote accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations.
In lieu of an Audit Committee, our Board of Directors (currently consisting solely of Timothy Armes), is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of our financial statements and other services provided by our independent public accountants. The Board of Directors reviews our internal accounting controls, practices and policies.
Committees of the Board
We do not currently does not have nominating, compensation, or audit committees or committees performing similar functions nor do we have a written nominating, compensation or audit committee charter. The Board of Directors believes that it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by the sole director.
Audit Committee Financial Expert
Our Board of Directors has determined that we do not have an independent board member that qualifies as an “audit committee financial expert” as defined in Item 407(D)(5) of Regulation S-K, nor do we have a Board member that qualifies as “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Exchange Act.
We believe that our sole director is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The sole director does not believe that it is necessary to have an audit committee because management believes that the functions of an audit committee can be adequately performed by the sole director. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the stage of our development and the fact that we have not generated any positive cash flows from operations to date.
Involvement in Certain Legal Proceedings
Our sole director and our executive officer has not been involved in any of the following events during the past ten years:
| 1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
| 4. | being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
Board Meetings and Annual Meeting
During the fiscal year ended January 31, 2022, our Board of Directors (currently consisting solely of Timothy Armes) did not meet or hold any formal meetings. We did not hold an annual meeting in the year ended January 31, 2022. In the absence of formal board meetings, the Board conducted all of its business and approved all corporate actions during the fiscal year ended January 31, 2022 by the unanimous written consent of its sole director.
- 25 -
Code of Ethics
We have not adopted a formal Code of Ethics. The Board of Directors evaluated the business of the Company and the number of employees and determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, business conduct and securities laws are adequate ethical guidelines. In the event our operations, employees and/or directors expand in the future, we may take actions to adopt a formal Code of Ethics.
Shareholder Proposals
We do have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The sole director believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.
A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our Chief Executive Officer, at the address appearing on the first page of this report.
Item 11. Executive Compensation.
Summary Compensation Table
The table below summarizes the total compensation paid or earned by our Chief Executive Officer and Chief Financial Officer during the fiscal years ended January 31, 2022 and 2021. We did not have any executive officers who received total compensation in excess of $100,000 during the fiscal years disclosed below, other than disclosed below.
| Name and principal position (1) | Year | Salary* | Bonus | Stock Awards | Option Awards | All other compensation* | Total compensation | ||||||||||
| Timothy Armes | 2022 | $ | 150,000 | — | — | $585,000 | — | $ | 735,000 | ||||||||
| CEO, President, Treasurer, Secretary and Director (1) | 2021 | $ | 91,701 | — | — | — | — | $ | 91,701 | ||||||||
| Christopher Davenport | 2022 | $ | 612,790 | — | — | — | — | $ | 612,790 | ||||||||
| President Autoparts4Less | 2021 | $ | 550,200 | — | — | — | — | $ | 550,200 | ||||||||
__________
| * | Does not include any accruals not paid in cash or perquisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation. No executive officer earned any non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported above. The value of the Stock Awards and Option Awards in the table above, if any, was calculated based on the fair value of such securities calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. |
| (1) | No executive or director received any consideration, separate from the compensation they received as an executive officer, for service on the Board of Directors of the Company during the periods disclosed. |
Grants of Plan-Based Awards. None.
Outstanding Equity Awards at Fiscal Year End. Stock option to purchase 50,000 held by CEO.
Potential Payments upon Termination or Change in Control
We do not have any contract, agreement, plan or arrangement with its named executive officers that provides for payments to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in our control, or a change in the named executive officer’s responsibilities following a change in control.
Retirement Plans
We do not have any plan that provides for the payment of retirement benefits, or benefits that will be paid primarily following retirement.
- 26 -
Compensation of Directors
In the past, we have not instituted a policy of compensating non-management directors. However, we plans to use stock-based compensation to attract and retain qualified candidates to serve on its Board of Directors. In setting director compensation, we will consider the significant amount of time that directors expend in fulfilling their duties to us, as well as the skill-level that we require.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of our voting common stock, as of April 25, 2022, by: (i) each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each of our officers and directors (provided that Mr. Armes currently serves as our sole director); and (iii) all of our officers and directors as a group.
Based on information available to us, all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them, unless otherwise indicated. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days after the date of this filing are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage of ownership of any other person. The following table is based on 1,447,476 common shares issued and outstanding as of April 25, 2022 reflecting the reverse splits.
COMMON STOCK
| Beneficial Owner | Address | Shares | Percent Ownership | ||||
| Common Stock | Timothy Armes Chairman / CEO President, Secretary, CFO |
106 W Mayflower, Las Vegas, Nevada 89030 |
16,985 | 1.17% | |||
| Common Stock | Chris Davenport Founder and President Autoparts4Less |
106 W Mayflower, Las Vegas, Nevada 89030 |
758,420 | 52.40% | |||
| All Officers and Directors as a Group (2 Persons) |
775,405 | 53.57% | |||||
| Greater than 5% Shareholders | |||||||
| Chris Davenport | 758,420 | 52.40% | |||||
| Sergio Salzano | 84,269 | 5.82% | |||||
| All 5% Shareholders as a Group | 842,689 | 58.22% |
The following table is based on 0 shares of Series A Preferred Shares outstanding, 20,000 of Series B Preferred Shares outstanding, 0 shares of Series C Preferred Shares outstanding and 870 shares of Series D Preferred shares outstanding as of April 25, 2022.
- 27 -
PREFERRED STOCK
| Beneficial Owner | Address | Class | Shares | Percent Ownership | |||||
| Preferred Stock | Timothy Armes Chairman / CEO President, Secretary, CFO |
106 W Mayflower, Las Vegas, Nevada 89030 |
Pref A Pref B Pref C Pref D |
0 1,000 0 120 |
0.00% 5.00% 0.00% 13.79% | ||||
| Preferred Stock | Chris Davenport Founder and President of Autoparrts4Less |
106 W Mayflower, Las Vegas, Nevada 89030 |
Pref A Pref B Pref C Pref D |
0 17,100 0 675 |
0.00% 90.00% 0.00% 77.58% | ||||
| All Officers and Directors as a Group (2 Persons) |
Pref A Pref B Pref C Pref D |
0 18,100 0 795 |
0.00% 90.50% 0.00% 91.38% | ||||||
| Greater than 5% Shareholders |
Pref A Pref B Pref C Pref D |
0 1,900 0 75 |
0.00% 9.50% 0.00% 8.62% |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
As a result of the acquisition of the 4Less Corp in November 2018 and disposition of Nurses Lounge in December of 2018, Mr. Armes canceled 100 million shares (1,666 post split) of his approximate 129,628,000 common shares he owned (2,160 post split). Along with the cancellation of his common stock and a verbal agreement to stay on as our President, CEO and Chairman of the Board. Mr. Armes received 120 shares of Series D Preferred stock, maintained his 1,000 shares of Series B Preferred stock, received 100 Class C preferred shares (during the year ended January 31, 2021) and a payable to Mr. Armes representing $180,000 of deferred income of which a balance of $ 46,173 remains payable at January 31, 2022. On February 1, 2022 Mr Armes converted his 100 Class C preferred shares for 12,484 common shares.
As part of the acquisition of The 4Less Corp., Christopher Davenport, the founder and president of The 4Less Corp, received 17,100 shares of Series B Preferred Stock representing approximately 89% of the 20,000 Series B Preferred stock outstanding, 6,075 shares of Series C Preferred stock outstanding which can be converted into approximately 60% of our outstanding common stock and 675 shares of Series D Preferred stock. On February 1, 2022 Mr. Davenport Armes converted his 6075 Class C preferred shares for 758,420 common shares.
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officers, director(s) and significant stockholders. However, we make it a practice of having our Board of Directors (currently consisting solely of Mr. Armes) approve and ratify all related party transactions. In connection with such approval and ratification, our Board of Directors takes into account several factors, including their fiduciary duties to us; the relationships of the related parties to us; the material facts underlying each transaction; the anticipated benefits to us and related costs associated with such benefits; whether comparable products or services are available; and the terms we could receive from an unrelated third party.
We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, the Board of Directors will continue to approve any related party transaction based on the criteria set forth above.
Director Independence
We currently only have one director, Timothy Armes, who is not independent. We have plans to appoint three independent directors in 3rd quarter of FYE 2023.
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Item 14. Principal Accounting Fees and Services.
(1) Audit Fees
The aggregate fees billed for professional services rendered by our auditors, for the audit of the registrant’s annual financial statements and review of the financial statements included in the registrant’s Form 10-K and Form 10-Q(s) for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, for fiscal year 2022 was approximately $346,057, for audit and 10-Q fees.
(2) Audit Related Fees
None.
(3) Tax Fees
$10,850
(4) All Other Fees
The aggregate fees billed for professional services rendered by our auditors for work related to registration statements during fiscal year 2022 was $56,580 and the aggregate fees billed for work related to the PPP credit was $3,730.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
1. Consolidated Financial Statements
2. Financial Statement Schedules
Schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.
3. Exhibits
See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Auto Parts 4Less Group, Inc.
By: /s/ Timothy Armes
Timothy Armes, Chairman (Director), Chief Executive Officer, President, Secretary and Treasurer
(Principal Executive Officer and Principal Financial/Accounting Officer)
Date: May 9, 2022
- 30 -
EXHIBIT INDEX
__________
* Filed herewith.
- 31 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Auto Parts 4Less Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Auto Parts 4Less Group, Inc. (the “Company”) as of January 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two years ended January 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two years ended January 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully explained in Note 2, which includes management’s plans in regards to this uncertainty, the Company has a negative working capital of approximately $8.3 million and an accumulated deficit of approximately $28.5 million and stockholders’ deficit of approximately $9.0 million as of the year ended January 31, 2022, and therefore there is substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-1
Critical Audit Matter Description – Revenue Recognition
Revenue Recognition under ASC 606 is based on the core principle of the revenue standard 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 goods or services.
Critical Audit Matter Determination
As discussed in Note 1, the Company recognizes revenue when its performance obligations are satisfied at a point in time, when the products are received by the customer, which is when the customer has title to the goods and obtained the significant risks and rewards of ownership.
Critical Audit Matter Audit Procedures
The audit procedures we performed to address this critical audit matter included the following: (1) obtaining an understanding of the design and operating effectiveness of controls related to identifying when performance obligations were satisfied and determining the timing of revenue recognition, and the (2) selection of a sample of orders and testing that the amount of revenue recorded was proper and delivery occurred in the proper period.
Critical Audit Matter Description – Embedded Conversion Feature
The Company has numerous notes payable from prior years which were settled or converted, and several new notes in the current year with conversions rates that are determined by the closing bid price on the day preceding the conversion date. This and other factors require the embedded conversion feature to be bifurcated and the fair value of the feature to be remeasured at each reporting period. Calculations and accounting for the notes payable and embedded conversion features require management’s judgments related to initial and subsequent recognition of the debt and related conversions features, use of a valuation model, and determination of the appropriate inputs used in the selected valuation model.
Critical Audit Matter Determination
The embedded conversion features and resulting derivative liability is a highly complex area of accounting with significant impact on the liabilities, additional paid in capital and statement of operations of the Company. It takes a high degree of training to understand and recognize the accounting implications of the conversion features and to understand the assumptions and impact of the specific assumptions on the valuation model used in the calculation of the derivative liability.
Critical Audit Matter Audit Procedures
Our audit procedures related to evaluating the Company’s accounting for the convertible note payables with embedded derivatives, warrants issued with the debt, accrued interest and the related derivative liability were as follows:
| - | We read the various instruments, identified the embedded conversion feature, confirmed the amount of the outstanding debt, and recalculated the accrued interest. | |
| - | We assessed the credentials and reputation of the outside firm retained by the Company who performed the calculation of the derivative liabilities. | |
| - | We reviewed the assumptions used to calculate the derivative liabilities at the balance sheet date and various conversion and settlement dates and the related accounting entries. | |
| - | We performed independent calculations on a test basis of specific derivatives to evaluate the model used in calculating the derivatives at various measurement dates. |
F-2
Critical Audit Matter Relevant Financial Statement Disclosures
| - | We read the Company’s disclosures related to the derivative liabilities and changes during the year as a result of mark to market, conversion of debt and settlement of debt activity to ensure the changes were properly accounted for and fully disclosed in the financial statements. |
Critical Audit Matter Description – Going Concern
As discussed in both Note 2 to the consolidated financial statements and above, the Company has incurred significant losses since inception, and has an accumulated deficit of approximately $28.5 million and a working capital deficit of $8.3 million as of January 31, 2022.
Critical Audit Matter Determination
The following items were considered in determining that a going concern was a critical audit matter.
| - | Significant losses and negative working capital and lack of liquidity | |
| - | We also took into consideration the Company’s need to raise additional debt and equity financing over the next twelve months |
Critical Audit Matter Audit Procedures
We reviewed the Company’s negative cash flows from operations.
We noted the negative working capital and continued losses.
We noted subsequent events and proceeds from debt financing in the amount of approximately $1.6 million dollars as of the date of our opinion.
Critical Audit Matter Relevant Financial Statement Disclosures
We reviewed the completeness of the Company’s Going Concern footnote and the details of the Company’s plans to continue operations for the next twelve months and management’s disclosure as noted above that there is substantial doubt about the Company’s ability to continue as a going concern.
/s/ L J Soldinger Associates, LLC
We have served as the Company’s auditor since 2019.
Deer Park, Illinois
May 9, 2022
PCAOB Audit ID # 00318
F-3
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4 LESS GROUP, INC
Consolidated Balance Sheets
January 31, 2022 and 2021
| January 31, 2022 | January 31, 2021 | ||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and Cash Equivalents | $ | 77,498 | $ | 277,664 | |||
| Share proceeds receivable | 100,000 | ||||||
| Inventory | 432,583 | 323,411 | |||||
| Prepaid Expenses | 16,065 | 11,859 | |||||
| Deferred Offering Costs | 23,000 | ||||||
| Other Current Assets | 15,469 | 2,149 | |||||
| Total Current Assets | 564,615 | 715,083 | |||||
| Operating Lease Assets | 242,583 | 344,413 | |||||
| Property and Equipment, net of accumulated depreciation of $122,469 and $88,823 | 221,336 | 80,027 | |||||
| Total Assets | $ | 1,028,534 | $ | 1,139,523 | |||
| Liabilities and Stockholders’ Deficit | |||||||
| Current Liabilities | |||||||
| Bank Overdraft | $ | 11,055 | $ | ||||
| Accounts Payable | 1,228,039 | 869,765 | |||||
| Accrued Expenses | 796,397 | 1,382,839 | |||||
| Accrued Expenses – Related Party | 46,173 | 106,173 | |||||
| Customer Deposits | 530,900 | 188,385 | |||||
| Deferred Revenue | 665,143 | 687,766 | |||||
| Short-Term Debt | 3,454,133 | 716,142 | |||||
| Current Operating Lease Liability | 100,001 | 90,286 | |||||
| Short-Term Convertible Debt, net of debt discount of $2,131,034 and $309,317 | 647,966 | 336,683 | |||||
| Derivative Liabilities | 1,263,442 | 213,741 | |||||
| PPP Loan-current portion | 43,294 | ||||||
| Shareholder Loans Payable | 119,476 | ||||||
| Current Portion – Long-Term Debt | 27,737 | 424,064 | |||||
| Total Current Liabilities | 8,890,462 | 5,059,138 | |||||
| Non-Current Lease Liability | 138,551 | 244,049 | |||||
| PPP Loan -long term portion | 166,153 | ||||||
| Long-Term Debt | 115,900 | 890,373 | |||||
| Total Liabilities | 9,144,913 | 6,359,713 | |||||
| Commitments and Contingencies | |||||||
| Redeemable Preferred Stock | |||||||
| Series D Preferred Stock, $ par value, shares authorized, and shares issued and outstanding | 870,000 | 870,000 | |||||
| Stockholders’ Deficit | |||||||
| Preferred Stock – Series A, $ par value, shares authorized, and shares issued and outstanding | — | — | |||||
| Preferred Stock – Series B, $ par value, shares authorized, and shares issued and outstanding | 20 | 20 | |||||
| Preferred Stock – Series C, $ par value, shares authorized, and shares issued and outstanding | 7 | 7 | |||||
| Common Stock, $ par value, shares authorized, and shares issued, issuable and outstanding | |||||||
| Additional Paid In Capital | 19,465,327 | 14,291,760 | |||||
| Accumulated Deficit | (28,451,733 | ) | (20,381,977 | ) | |||
| Total Stockholders’ Deficit | (8,986,379 | ) | (6,090,190 | ) | |||
| Total Liabilities and Stockholders’ Deficit | $ | 1,028,534 | $ | 1,139,523 | |||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
F-4
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4 LESS GROUP, INC
Consolidated Statements of Operations
For the Years Ended January 31, 2022 and 2021
| 2022 | 2021 | ||||||
| Revenue, net | $ | 11,018,751 | $ | 8,171,355 | |||
| Cost of Revenue | 9,471,304 | 6,710,727 | |||||
| Gross Profit | 1,547,447 | 1,460,628 | |||||
| Operating Expenses: | |||||||
| Depreciation | 48,931 | 25,196 | |||||
| Postage, Shipping and Freight | 531,954 | 498,370 | |||||
| Marketing and Advertising | 2,430,905 | 112,531 | |||||
| E Commerce Services, Commissions and Fees | 1,569,825 | 887,274 | |||||
| Operating lease cost | 121,917 | 121,917 | |||||
| Personnel Costs | 1,482,448 | 1,128,652 | |||||
| PPP Loan Forgiveness | (209,447 | ) | |||||
| General and Administrative | 3,028,906 | 828,522 | |||||
| Total Operating Expenses | 9,005,439 | 3,602,462 | |||||
| Net Operating Loss | (7,457,992 | ) | (2,141,834 | ) | |||
| Other Income (Expense) | |||||||
| Gain (loss) on Sale of Property and Equipment | 20,345 | 464 | |||||
| Gain (Loss) on Change in Fair Value of Derivatives | 235,703 | (828,614 | ) | ||||
| Gain on Settlement of Debt | 1,410,113 | 5,060,704 | |||||
| Amortization of Debt Discount | (918,463 | ) | (335,004 | ) | |||
| Interest Expense | (1,359,462 | ) | (568,540 | ) | |||
| Total Other Income (Expense) | (611,764 | ) | 3,329,010 | ||||
| Net Income (Loss) | $ | (8,069,756 | ) | $ | 1,187,176 | ||
| Basic Weighted Average Shares Outstanding | 279,745 | 108,432 | |||||
| Basic Income (Loss) per Share | $ | (28.85 | ) | $ | 10.95 | ||
| Diluted Weighted Average Shares Outstanding | 279,745 | 607,003 | |||||
| Diluted (Loss) per Share | $ | (28.85 | ) | $ | (3.65 | ) | |
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
F-5
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4LESS GROUP, INC.
Consolidated Statements of Shareholder’s Deficit
For the Years Ended January 31, 2022 and 2021
| Preferred Series A | Preferred Series B | Preferred Series C | Common Stock | Paid in | Retained | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||
| January 31, 2020 | $ | 20,000 | $ | 20 | 6,750 | $ | 7 | 53,846 | $ | $ | 13,449,337 | $ | (21,569,153 | ) | $ | (8,119,789 | ) | |||||||||||||
| Conversion of Notes Payable and Accrued Interest to Common Stock | — | — | — | 62,485 | 44,736 | 44,736 | ||||||||||||||||||||||||
| Derivative Liability Reclassified as Equity Upon Conversion of notes | — | — | — | — | 20,185 | 20,185 | ||||||||||||||||||||||||
| Issuance of Class C Shares In Exchange of Debt | — | — | 250 | — | 9,105 | 9,105 | ||||||||||||||||||||||||
| Issuance of Class C Shares to Repay Accrued Expenses Related Party | — | — | 100 | — | 11,177 | 11,177 | ||||||||||||||||||||||||
| Issuance of Class C Shares as Part of Debt Settlement | — | — | 150 | — | 20,290 | 20,290 | ||||||||||||||||||||||||
| Issuance of Common Shares in Reg A Offering | — | — | — | 17,500 | 350,000 | 350,000 | ||||||||||||||||||||||||
| Issuance of Common Shares as fees for loans | — | — | — | 4,385 | 35,060 | 35,060 | ||||||||||||||||||||||||
| Issuance of Warrants for Broker’s fees | — | — | — | — | 13,470 | 13,470 | ||||||||||||||||||||||||
| Issuance of Common Shares to Repay Accrued Expenses Related Party | — | — | — | 4,500 | 18,900 | 18,900 | ||||||||||||||||||||||||
| Issuance of Warrants as Part of Debt Settlement | — | — | — | — | 351,500 | 351,500 | ||||||||||||||||||||||||
| Legal costs of Reg A subscription | — | — | — | — | (32,000 | ) | (32,000 | ) | ||||||||||||||||||||||
| Net (Loss) | — | — | — | — | 1,187,176 | 1,187,176 | ||||||||||||||||||||||||
| January 31, 2021 | $ | 20,000 | $ | 20 | 7,250 | $ | 7 | 142,716 | $ | $ | 14,291,760 | $ | (20,381,977 | ) | $ | (6,090,190 | ) | |||||||||||||
F-6
| Preferred Series A | Preferred Series B | Preferred Series C | Common Stock | Paid in | Retained | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||
| January 31, 2021 | $ | 20,000 | $ | 20 | 7,250 | $ | 7 | 142,716 | $ | $ | 14,291,760 | $ | (20,381,977 | ) | $ | (6,090,190 | ) | |||||||||||||
| Issuance of Shares as Fees | — | — | — | 6,301 | 137,555 | 137,555 | ||||||||||||||||||||||||
| Issuance of Shares Pursuant to REG A Subscription,Net of Issuance costs of $ | — | — | — | 121,300 | 2,384,556 | 2,384,556 | ||||||||||||||||||||||||
| Issuance of shares | — | — | — | 10,000 | 191,000 | 191,000 | ||||||||||||||||||||||||
| Share Issuances, Net of Issuance Costs of $ | — | — | — | 41,000 | ||||||||||||||||||||||||||
| Conversion of Notes Payable to Common Stock | — | — | — | 8,977 | 161,441 | 161,441 | ||||||||||||||||||||||||
| Derivative Liability Reclassified as Equity Upon Conversion of notes | — | — | — | — | 76,144 | 76,144 | ||||||||||||||||||||||||
| Equity Reinstated from Derivative Liability | — | — | — | — | 15,134 | 15,134 | ||||||||||||||||||||||||
| Relative Fair Value of Equity Issued with Debt | — | — | — | 10,729 | 234,237 | 234,237 | ||||||||||||||||||||||||
| Issuance of Warrants | — | — | — | — | 876,000 | 876,000 | ||||||||||||||||||||||||
| Share Based Compensation on Warrants for Fees | — | — | — | — | 512,500 | 512,500 | ||||||||||||||||||||||||
| Share Based Compensation on Options Issued to CEO | — | — | — | — | 585,000 | 585,000 | ||||||||||||||||||||||||
| Net (Loss) | — | — | — | — | (8,069,756 | ) | (8,069,756 | ) | ||||||||||||||||||||||
| January 31, 2022 | $ | 20,000 | $ | 20 | 7,250 | $ | 7 | 341,023 | $ | $ | 19,465,327 | $ | (28,451,733 | ) | $ | (8,986,379 | ) | |||||||||||||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
F-7
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4LESS GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2022 and 2021
| 2022 | 2021 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net Income (Loss) | $ | (8,069,756 | ) | $ | 1,187,176 | |
| Adjustments to reconcile net income (loss) to cash used by operating activities: | ||||||
| Depreciation | 48,931 | 25,196 | ||||
| Reduction of Right of Use Asset | 95,784 | 87,702 | ||||
| Accretion of Lease Liability | 26,133 | 34,215 | ||||
| Loss (Gain ) in Fair Value on Derivative Liabilities | (235,703 | ) | 828,614 | |||
| Amortization of Debt Discount | 918,463 | 335,004 | ||||
| Interest Expense Related to Excess of Deferred offering Cost Over Share Proceeds | 69,630 | |||||
| Loan Penalties Capitalized to Loan | 28,000 | 3,394 | ||||
| Original Issue Discount on Short-Term Convertible Notes Expensed to Interest | 20,000 | 55,000 | ||||
| Stock Based Compensation | 1,401,055 | 13,470 | ||||
| Interest expense related to warrants issued for debt extension | 276,000 | |||||
| Gain on Settlement of Debt | (1,410,113 | ) | (5,060,704 | ) | ||
| PPP Loan Forgiveness | (209,447 | ) | ||||
| Gain on sale of Property | (20,345 | ) | (464 | ) | ||
| Change in Operating Assets and Liabilities: | ||||||
| Decrease (Increase) in Inventory | (109,173 | ) | 48,484 | |||
| Decrease in Prepaid Rent and Expenses | 1,841 | 2,743 | ||||
| (Increase) in Other Current Assets | (13,320 | ) | (1,091 | ) | ||
| Increase in Bank Overdraft | 11,055 | |||||
| Increase in Accounts Payable | 365,649 | 344,175 | ||||
| Increase in Accrued Expenses | 266,873 | 483,031 | ||||
| Operating Lease Liability Payments | (121,917 | ) | (121,917 | ) | ||
| Increase (Decrease) in Customer Deposits | 342,515 | 188,385 | ||||
| Increase (Decrease) in Deferred Revenue | (22,623 | ) | 687,766 | |||
| CASH FLOWS (USED IN) OPERATING ACTIVITIES | (6,340,468 | ) | (859,821 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Purchase of Property and Equipment | (43,628 | ) | ||||
| Disposal of Property and Equipment | 25,060 | 9,750 | ||||
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES | (18,568 | ) | 9,750 | |||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Proceeds from Issuances of Common Shares, net of Issuance Costs | 3,039,925 | 250,000 | ||||
| Proceeds from Short Term Debt | 1,968,472 | 635,000 | ||||
| Payments on Short Term Debt | (547,821 | ) | (471,920 | ) | ||
| Proceeds on PPP Loan | 209,447 | |||||
| Payments on Long Term Debt | (21,582 | ) | (3,837 | ) | ||
| Proceeds on Shareholder Loans Payable | 119,476 | |||||
| Payments on Accrued Expenses -Related Party | (60,000 | ) | (19,500 | ) | ||
| Legal Costs of Reg A Subscription | (32,000 | ) | ||||
| Proceeds from Convertible Notes Payable | 2,865,525 | 432,750 | ||||
| Payments on Convertible Notes Payable | (1,205,125 | ) | (34,329 | ) | ||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 6,158,870 | 965,611 | ||||
| NET INCREASE IN CASH | (200,166 | ) | 115,540 | |||
| CASH AT BEGINNING OF PERIOD | 277,664 | 162,124 | ||||
| CASH AT END OF PERIOD | $ | 77,498 | $ | 277,664 | ||
| Supplemental Disclosure of Cash Flows Information: | ||||||
| Cash Paid for Interest | $ | 649,234 | $ | 74,244 | ||
| Derivative Debt Discount | $ | 1,933,343 | $ | 264,487 | ||
| Convertible Notes Interest and Derivatives Converted to Common Stock | $ | 237,085 | $ | 64,921 | ||
| Issuance of Warrants to Deferred Offering Costs | $ | 600,000 | $ | |||
| Deferred Offering Costs Against Share Proceeds | $ | 530,370 | $ | |||
| Fixed Assets financed through vehicle loans | $ | 152,950 | $ | |||
| Stock Issued to Related Party in Payment of Accrued Expenses | $ | $ | 30,077 | |||
| Issuance of Common Shares for Subscription Receivable | $ | $ | 100,000 | |||
| Original Issue Discount | $ | 20,000 | $ | 52,000 | ||
| Allocated Value of Common Shares Issued As Fees for Loans | $ | $ | 35,060 | |||
| Operating Lease Asset to Operating Lease Liability | $ | $ | 39,494 | |||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
F-8
AUTO PARTS 4LESS GROUP, INC.
FORMERLY THE 4LESS GROUP, INC.
Notes to Consolidated Financial Statements
January 31, 2021 and 2020
Note 1 – Description of Business and Summary of Significant Accounting Policies
Nature of Business – Auto Parts 4Less Group, Inc. formerly The 4LESS Group, Inc., (the “Company”), was incorporated under the laws of the State of Nevada on December 5, 2007. The Company, under the name MedCareers Group, Inc. (“MCGI” ) formally operated a website for nurses, nursing schools and nurses’ organizations designed for better communication between nurses and the nursing profession.
On November 29, 2018, the Company entered into a transaction (the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of The 4LESS Corp. (“4LESS”), in exchange for the issuance of (i) nineteen thousand (19,000) shares of Series B Preferred Stock, (ii) six thousand seven hundred fifty (6,750) shares of Series C Preferred Stock, and (iii) 870 shares of Series D Preferred Stock. The Series C Preferred Shares have a right to convert into common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The Share Exchange closed on November 29, 2018. As a result of the Share Exchange, the former shareholders of 4LESS became the controlling shareholders of the Company. The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein 4LESS is considered the acquirer for accounting and financial reporting purposes. The capital, share price, and earnings per share amount in these consolidated financial statements for the period prior to the reverse merger were restated to reflect the recapitalization in accordance with the shares issued as a result of the reverse merger except otherwise noted.
4LESS was formed as Vegas Suspension & Offroad, LLC on October 24, 2013 as a Nevada limited liability company and converted to a Nevada corporation with the same name on May 8, 2017. On April 2, 2018, the Company changed its name to The 4LESS Corp. The Corporation had S Corporation status. The Corporation operates as an e-commerce auto and truck parts sales company. As a result of the share exchange, the Company 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 4Less Group , Inc changed its name to Auto Parts 4less Group, Inc.
The financial statements have been adjusted to reflect a 10-1 reverse stock split effective April 28, 2022.
Significant Accounting Policies
The Company’s management selects accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 financial statements.
Basis of Presentation
The Company prepares its financial statements on the accrual basis of accounting in conformity with U.S. GAAP.
Principles of Consolidation
The financial statements include the accounts of Auto Parts 4Less Group, Inc. (formerly The 4Less Group, Inc.) as well as Auto Parts 4Less, Inc. (formerly The 4LESS Corp.) and JBJ Wholesale LLC. All significant inter-company transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.
Use of Estimates
In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based. The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to estimate deferred revenue and customer deposits and value derivative liabilities, options and warrants.
F-9
Reclassifications
Certain amounts in the Company’s consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The carrying amount of cash and cash equivalents approximates fair market value.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Inventories are valued on a first-in, first-out (FIFO) basis. Inventory is comprised of finished goods.
Concentrations
Cost of Goods Sold
For the year ended January 31, 2022 the Company purchased approximately 54% of its inventory and items available for sale from third parties from three vendors. As of January 31, 2021, the net amount due to the vendors included in accounts payable was $349,839. For the year ended January 31, 2021 the Company purchased approximately 57% of its inventory and items available for sale from third parties from three vendors. As of January 31, 2021, the net amount due to the vendors included in accounts payable was $599,072. The Company believes there are numerous other suppliers that could be substituted should the 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.
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.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts payable, advances and notes payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments. Derivatives are recorded at fair value at each period end. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.
F-10
The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Inputs – Quoted prices for identical instruments in active markets.
Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs – Instruments with primarily unobservable value drivers.
As of January 31, 2022 and 2021, the Company’s derivative liabilities were measured at fair value using Level 3 inputs. See Note 10.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of January 31, 2022 and January 31, 2021:
| January 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 | $ | 1,263,442 | $ | $ | $ | 1,263,442 | |||||||
| Totals | $ | 1,263,442 | $ | $ | $ | 1,263,442 | |||||||
| January 31, 2021 | Quoted Prices in Active Markets For Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||
| Liabilities: | |||||||||||||
| Derivative Liabilities – embedded redemption feature | $ | 213,741 | $ | $ | $ | 213,741 | |||||||
| Totals | $ | 213,741 | $ | $ | $ | 213,741 | |||||||
Related Party Transactions
The Company has a verbal policy that includes procedures intended to ensure compliance with the related party provisions in common practice for public companies. For purposes of the policy, a “related party transaction” is a transaction in which the Company or any one of its subsidiaries participates and in which a related party has a direct or indirect material interest, other than ordinary course, arms-length transactions of less than 1% of the revenue of the counterparty. Any transaction exceeding the 1% threshold, and any transaction involving consulting, financial advisory, legal or accounting services that could impair a director’s independence, must be approved by the CEO. Any related party transaction in which an executive officer or a Director has a personal interest, or which could present a possible conflict under the Guide to Ethical Conduct, must be approved by Board of Directors, following appropriate disclosure of all material aspects of the transaction.
Derivative Liability
The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices. 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.
F-11
The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock. However, because the historical volatility of the Company’s common stock is so high (see Note 10), the sensitivity required to change the liability by 1% as of January 31, 2022 is greater than 25% change in historical volatility as of that date. The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.
Revenue Recognition
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
Because the Company’s sales agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.
Disaggregation of Revenue: Channel Revenue
The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2022 and 2021:
| Change | ||||||||||||
| 2022 | 2021 | $ | % | |||||||||
| Proprietary website revenue | $ | 7,576,068 | $ | 4,200,624 | $ | 3,375,444 | 80% | |||||
| Third party website revenue | 3,442,683 | 3,970,731 | (528,048 | ) | (13% | ) | ||||||
| Total Revenue | $ | 11,018,751 | $ | 8,171,355 | $ | 2,847,396 | 35% | |||||
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 (delivery of product). The Company primarily receives fixed consideration for sales of product with variability entering into consideration due to returns on shipped products. 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.
Revenue is recorded net of provisions for discounts and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to customers. The Company recognizes these discounts and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The customer pays the Company by credit card prior to delivery.
The Company offers a 30 day satisfaction guaranteed return policy however the customer must pay for the return shipment. The return must be previously authorized, cannot be either damaged or previously installed and must be in saleable condition. In the Company’s experience this amount is immaterial and therefore no provision has been recorded on the Company’s books. Any defective merchandise falls under the manufacturer’s limited warranty and is subject to the manufacturer’s inspection. The manufacturer has the option to repair or replace the item.
F-12
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.
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options and/or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.
Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss per share, except the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of convertible debt and other such convertible instruments. Diluted loss per share contemplates a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.
Recently Issued Accounting Standards
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) which simplifies goodwill impairment testing by requiring that such periodic testing be performed by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The policy is effective for fiscal years, including interim periods, beginning after December 15, 2019. We adopted on February 1, 2020 and the adoption had no impact.
Fair Value Measurement: In 2018, the FASB issued amended guidance to remove, modify and add disclosure requirements for fair value measurements. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosure requirements. Transition is on a prospective basis for the new and modified disclosures, and on a retrospective basis for disclosures that have been eliminated. The adoption of this guidance on February 1, 2020 did not have a material impact on our consolidated financial statements.
In 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.
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.
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.
F-13
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 $ as of January 31, 2022 and has a working capital deficit at January 31, 2022 of $8,325,847. As of January 31, 2022, the Company only had cash and cash equivalents of $77,498 and approximately $571,000 of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. While the Company has continued to grow its revenues, at this time, 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 continue to fund losses until such time as revenues can sustain the Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – PROPERTY
The Company capitalizes all property purchases over $1,000 and depreciates the assets on a straight-line basis over their useful lives of 3 years for computers and 7 years for all other assets. Property consists of the following at January 31, 2022 and 2021:
| 2022 | 2021 | ||||||
| Office furniture, fixtures and equipment | $ | 94,041 | $ | 85,413 | |||
| Shop equipment | 43,004 | 43,004 | |||||
| Vehicles | 206,760 | 40,433 | |||||
| Sub-total | 343,805 | 168,850 | |||||
| Less: Accumulated depreciation | (122,469 | ) | (88,823 | ) | |||
| Total Property | $ | 221,336 | $ | 80,027 | |||
Additions to fixed assets for the year ended January 31, 2022 were $196,578 with $35,000 paid in cash and $152,950 financed through vehicle loans for vehicles and an additional $8,628 acquired in equipment. Additions to fixed assets were $0 for the year ended January 31, 2021.
F-14
For the year ended January 31, 2022, vehicles having a cost of $20,000 and a net book value of $4,715 was disposed of. Proceeds received of $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 year ended January 31, 2021. Proceeds received of $9,750 and a gain on sale of property and equipment of $464 were recorded.
Depreciation expense was $48,931 and $25,196 for the twelve months ended January 31, 2022 and January 2021, respectively.
NOTE 4 – LEASES
We lease certain warehouses, vehicles and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and non-lease components.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 17 years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Below is a summary of our lease assets and liabilities at January 31, 2022 and January 31, 2021.
| Leases | Classification | January 31, 2022 | January 31, 2021 | ||||||
| Assets | |||||||||
| Operating | Operating Lease Assets | $ | 242,583 | $ | 344,413 | ||||
| Liabilities | |||||||||
| Current | |||||||||
| Operating | Current Operating Lease Liability | $ | 100,001 | $ | 90,286 | ||||
| Noncurrent | |||||||||
| Operating | Noncurrent Operating Lease Liabilities | 138,551 | 244,049 | ||||||
| Total lease liabilities | $ | 238,552 | $ | 334,335 | |||||
Note: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate of 8% based on the information available at commencement date in determining the present value of lease payments. We compare against loans we obtain to acquire physical assets and not loans we obtain for financing. The loans we obtain for financing are generally at significantly higher rates and we believe that physical space or vehicle rental agreements are in line with physical asset financing agreements. CAM charges were not included in operating lease expense and were expensed in general and administrative expenses as incurred.
Effective February 29 ,2020 the Company and landlord terminated the September 2019 lease with an annual rent of $15,480, a 3 year term an 1 year renewal. There were no costs associated with the termination. The Company eliminated the operating lease asset and operating lease liability at termination which was $45,032. (see Note 13)
Operating lease cost was $121,917 and $121,917 for both the twelve months ended January 31, 2022 and January 31, 2021, respectively.
NOTE 5 – CUSTOMER DEPOSITS
The Company receives payments from customers on orders prior to shipment. At January 31, 2022 the Company had received $530,900 (January 31, 2021- $188,385) in customer deposits for orders that were unfulfilled at January 31, 2022 and either canceled subsequent to year end or still awaiting shipment. The deposits on cancelled orders were either returned to the customers subsequent to January 31, 2022 or will remain as deposits until the item is either delivered and recorded as revenue or cancelled and refunded.
NOTE 6 – DEFERRED REVENUE
The Company receives payments from customers on orders prior to shipment. At January 31, 2022 the Company had received $665,143 (January 31, 2021- $687,766) in customer payments for orders that were unfulfilled at January 31, 2022 and delivered subsequent to year end. The orders were unfulfilled at January 31, 2022 because of both normal order processing and fulfillment requirements, and back orders.
F-15
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 $209,447 was recorded as a gain and is included in operating expenses.
NOTE 8 – SHORT-TERM AND LONG-TERM DEBT
The components of the Company’s short-term and long term debt as of January 31, 2022 and 2021 were as follows:
| January 31, 2022 | January 31, 2021 | ||||||
| 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 | * | $ | 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 $ ending August 2023(1) | 8,183 | # | 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. | 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 $76,164. | 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) | 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) | 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 | * | |||||
| 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 | $ | 3,597,770 | $ | 2,030,579 | |||
| January 31, 2022 | January 31, 2021 | ||||||
| Short-Term Debt | $ | 3,454,133 | $ | 716,142 | |||
| Current Portion of Long-Term Debt | 27,737 | 424,064 | |||||
| Long-Term Debt | 115,900 | 890,373 | |||||
| Total | $ | 3,597,770 | $ | 2,030,579 | |||
F-16
__________
| † | In default |
| * | Short-term loans |
| # | Long-term loans of $8,183 including current portion of $4,325 |
| $54,108 including current portion $8,632 | |
| $81,346 including current portion $14,780 | |
| (1) | Secured by equipment having a net book value of $10,242 |
| (2) | The amounts due under the note are personally guaranteed by an officer or a director of the Company. |
| (3) | On November 10, 2020 the Company amended the agreement extending the maturity to June 30, 2022 from April 8, 2021 and changing monthly payments to $0 from $5,705 and interest rate from 13% to a $20,000 lump sum payable at maturity. |
| (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 has entered into such a transaction the loan has reached maturity and is treated as current. An extension was granted on December 13, 2021 amending the maturity date to April 30, 2022. The April 30, 2022 payment has not been made 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 payable August 28, 2021 and $826,800 payable August 28, 2022. On December 13, 2021 the parties amended the maturity date for the first instalment to be April 30, 2022 with ethe second instalment date unchanged. The April 30, 2022 payment has not been made and the Company is working on another extension with the lender. |
| (7) | This loan replaces $500,000 loan dated June 4, 2021, $422,009 proceeds were used to repay this loan , net cash received was $253,491 after payment of $26,500 in fees. |
| (8) | This loan replaces $500,000 loan dated June 4, 2021, $359,919 proceeds were used to repay this loan , net cash received was $267,606 after payment of $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 March 2, 2022, April 1, 2022 and will issue an additional 15,000 warrants for each of those defaults. |
| (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 January 31, 2022:
| Year Ended | Amount | |||
| January 31, 2023 | $ | 3,481,870 | ||
| January 31, 2024 | 28,427 | |||
| January 31, 2025 | 25,798 | |||
| January 31, 2026 | 27,107 | |||
| January 31, 2027 | 28,498 | |||
| January 31, 2028 | 6,070 | |||
| Total | $ | |||
NOTE 9 – SHORT-TERM CONVERTIBLE DEBT
The components of the Company’s convertible debt as of January 31, 2022 and 2021 were as follows:
| Interest | Default Interest | Conversion | Outstanding Principal at | ||||||
| Maturity Date | Rate | Rate | Price | January 31, 2022 | January 31, 2021 | ||||
| Nov 4, 2013* | 12% | 12% | $1,800,000 | $ | 100,000 | $ | 100,000 | ||
| Jan 31, 2014* | 12% | 18% | $2,400,000 | 16,000 | 16,000 | ||||
| July 31, 2013* | 12% | 12% | $1,440,000 | 5,000 | 5,000 | ||||
| Jan 31, 2014* | 12% | 12% | $2,400,000 | 30,000 | 30,000 | ||||
| Oct. 12, 2021 | 12% | 16% | (3) | — | 230,000 | ||||
| Nov. 16, 2021 | 12% | 16% | (3) | — | 100,000 | ||||
| Nov. 23, 2021 | 12% | 16% | (3) | — | 165,000 | ||||
| Nov 12, 2022 | 8% | 12% | (1) | 2,400,000 | — | ||||
| Jan. 13, 2023 | 12% | 22% | (2) | 228,000 | — | ||||
| Sub-total | 2,779,000 | 646,000 | |||||||
| Debt Discount | (2,131,034 | ) | (309,317 | ) | |||||
| $ | 647,966 | $ | 336,683 | ||||||
F-17
__________
| * | In default |
| (1) | lesser 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 day preceding conversion date in event of default |
| (3) | closing bid price on the day preceding the conversion date in the event of default |
The Company had accrued interest payable of $231,412 and $240,713 on the notes at January 31, 2022 and January 31, 2021, respectively.
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that certain features in 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 derivative features 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 and attached warrants resulted in a discount to the note on the debt modification date. For the years ended January 31, 2022 and 2021, the Company recorded amortization expense of $918,463 and $335,004, respectively. See more information in Note 8.
During the years ended January 31, 2022 and 2021 the Company added $28,000 and $3,394 in penalty interest to the loans, respectively.
On 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, and transaction fees of $10,500. As part of the loan the Company issued 3.096 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. The loan has been fully repaid.
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 6,085 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. The loan has been fully repaid.
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.The loan has been fully repaid.
On November 12, 2021 the Company entered into a new convertible note for $2,400,000 with a one year maturity, interest rate of 8%, with a warrant (Warrant 1) to purchase 90,000 common shares with a five year maturity and an exercise price of $15.00, and an additional warrant (Warrant 2) to purchase maturity and an exercise price of $15.00 to be cancelled and extinguished if the note is repaid on or prior to maturity. The Company received $1,966,000 in cash proceeds, recorded an original issue discount of $240,000, a derivative discount of $1,589,617 for the conversion feature, recognized $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 $194,000. The discount is amortized over the term of the loan. The note is repayable in six monthly instalments of $432,000 commencing on June 10, 2022. This note is senior to all existing and future indebtedness of the Company. The Company has pledged a security interest on all the assets of the Company. The note has certain default provisions such as failure to pay any principal or interest when due, failure to uplist to a national stock exchange by May 12, 2022, 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% and Warrant 2 is no longer cancellable for any circumstance.
On January 13, 2021 the Company entered into an unsecured convertible note for $228,000 with a one year maturity, interest rate of 12%, the Company received $200,000 in cash proceeds, recorded an original issue discount of $24,250 and a derivative discount of $26,843, and transaction fees of $3,750. The discount is amortized over the term of the loan. The note is repayable in 10 monthly instalments of $25,536 commencing March 1, 2022. The March, April and May instalments have been paid. The note has certain default provisions such as failure to pay any principal or interest when due, and if the Company is in default of any of its other agreements. In the event of these or any other default provisions, the note becomes due and payable at 150%.
During the year ended January 31, 2022, the Company converted a total of $125,000 of the convertible notes, $27,691 of accrued interest and $8,750 of fees into common shares.
F-18
As of January 31, 2022, the Company had $151,000 of aggregate debt in default. The agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company continues to accrue interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.
NOTE 10 – DERIVATIVE LIABILITIES
As of January 31, 2022 and January 31, 2021, the Company had derivative liabilities of $1,263,442 and $213,741, respectively. During the years ended January 31, 2022 and 2021 the Company recorded a gain of $235,703 and a loss of $828,614 from the change in the fair value of derivative liabilities, respectively.
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 years ended January 31, 2022 and January 31, 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).
| Level 3 | ||||
| Derivatives | ||||
| Balance, January 31, 2020 | $ | 2,611,125 | ||
| Changes due to Issuance of New Convertible Notes | 264,487 | |||
| Reduction of derivative due to extinguishment or repayment | (3,470,300 | ) | ||
| Changes due to Conversion of Notes Payable | (20,185 | ) | ||
| Mark to Market Change in Derivatives | 828,614 | |||
| Balance, January 31, 2021 | 213,741 | |||
| Changes due to Issuance of New Convertible Notes | 1,933,343 | |||
| Reduction of derivative due to extinguishment or repayment | (556,661 | ) | ||
| Reinstatement of Derivative to Equity | (15,134 | ) | ||
| Changes due to Conversion of Notes Payable | (76,144 | ) | ||
| Mark to Market Change in Derivatives | (235,703 | ) | ||
| Balance, January 31, 2022 | $ | 1,263,442 | ||
The derivatives arise from convertible debt where the debt is convertible into common stock at variable conversion prices which are linked to the trading and/or bid prices of the Company’s common stock as traded on the OTC market.
As the price of the common stock varies it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date.
The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s embedded conversion features that are categorized within Level 3 of the fair value hierarchy as of January 31, 2022 is as follows:
| Embedded | ||||
| Derivative Liability | ||||
| As of January 31, 2022 |
||||
| Strike price | $ - $ | |||
| Contractual term (years) | - years | |||
| Volatility (annual) | 99.70% - 126.9% | |||
| High yield cash rate | 17.3% - 27.63% | |||
| Underlying fair market value | ||||
| Risk-free rate | 0.41% - 0.72% | |||
| Dividend yield (per share) | 0% | |||
F-19
NOTE 11 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is authorized to issue 20,000,000 shares of Preferred Stock, having a par value of $0.001 per share.
Series A 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 January 31, 2022, and January 31, 2021 the Company had shares of Series A Preferred issued and outstanding and authorized with a par value of $ per share.
At both January 31, 2022 and January 31, 2021, respectively, there were and Series B preferred shares outstanding. The Series B Preferred Stock have voting rights equal to 66.7% 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 Series B preferred shares authorized and issued of the Series B Preferred Stock with a par-value of $ per share.
At both January 31, 2022 and January 31, 2021, there were and Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are Series C preferred shares authorized and shares issued with a par-value of $ per share. The Series C Preferred Stock will convert before December 31, 2022.
At both January 31, 2022 and January 31, 2021, there were Series D preferred shares authorized and outstanding, respectively which with a par value $. 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 below:
OPTIONAL REDEMPTION.
(1) At any time, either the Corporation or the holder may redeem for cash out of funds legally available therefore, any or all of the outstanding Series D Preferred Stock (“Optional Redemption”) at $ per share.
(2) Should the Corporation exercise the right of Optional Redemption it shall provide each holder of Preferred Stock with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption Notice”). Any optional redemption pursuant to this Section VI shall be made ratably among holders in proportion to the Liquidation Value of Preferred Stock then outstanding and held by such holders. The Optional Redemption Notice shall state the Liquidation Value of Preferred Stock to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty (30) or more than sixty (60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the Corporation to the holders at the address of such holder appearing on the register of the Corporation for the Preferred Stock. Within seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation with instructions as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via wire transfer to the account designated by the holders, and (B) the holders will deliver the certificates relating to that number of shares of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that number of shares to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which funds should be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such Optional Redemption to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of shares of Preferred Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed no longer outstanding. Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.
F-20
(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 January 31, 2022 or by the date the financial statements were issued.
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 January 31, 2022 and 2021.
Common Stock
The Company is authorized to issue common shares at a par value of $ 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 January 31, 2022 and January 31, 2021 there were and shares outstanding and issuable, respectively. No dividends were paid in the years ended January 31, 2022 or 2021. The Company’s articles of incorporation include a provision that the Company is not allowed to issue fractional shares. Included in the shares outstanding at January 31, 2022 are 1,875 issuable shares.
The Company issued the following shares of common stock in the year ended January 31, 2022:
● Conversion of $125,000 notes payable, $27,691 accrued interest, $8,750 of fees and $76,144 of derivative liability to shares of common stock.
● The Company issued shares for gross proceeds $3,039,925.
● The Company issued shares with a fair value of $ as payment for fees to consultants.
● The Company issued 10,729 shares to lenders as commitment fee with a relative fair value of $.
The Company issued the following shares of common stock in the year ended January 31, 2021:
● Conversion of $24,803 notes payable, $19,933 accrued interest and $20,185 of derivative liability to shares of common stock.
● The Company issued shares for $350,000 as part of Regulation A filing. The company received $250,000 in cash proceeds with the remaining $ recorded as share proceeds receivable.
● The Company issued shares for fair value of $18,900 to repay accrued expenses related party.
● The Company issued 4,385 shares to various lenders for fees with a $35,060 charge to debt discount and a corresponding charge to paid-in capital.
F-21
Options and Warrants:
The Company has options outstanding as of January 31, 2022 and as of January 31, 2021.
The Company recorded option and warrant expense of $1,263,500 and $0 for the years ended January 31, 2022 and January 31, 2021, respectively.
For the year ended January 31 ,2021 the Company issued the following warrants:
On July 27, 2021, the Company issued a warrant to Triton Funds LP (“Triton”) to acquire 30,000 shares of the Company’s common stock as part of the Common Stock Purchase Agreement with Triton 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. The table A below provides 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. At January 31,2022 the Company recorded $530,370 of the deferred offering costs against the total net proceeds received in paid -in capital, with the remaining $69,630 charged as interest expense.
At January 31, 2022 deferred offering cost are $23,000, related to an upcoming registration statement.
Table A
| Expected volatility | % |
| Exercise price | $21.10 |
| Stock price | $ |
| Expected life | |
| Risk-free interest rate | % |
| Dividend yield | % |
On August 26, 2021, the Company issued an option to a consultant to acquire shares of the Company’s common stock. The table B-1 below provides the significant estimates used that resulted in the Company determining the fair value of the option at $512,500, which has been recorded as consulting fees.
Table B-1
| Expected volatility | % |
| Exercise price | $ |
| Stock price | $ |
| Expected life | |
| Risk-free interest rate | % |
| Dividend yield | % |
On October 14, 2021, the Company issued an option to the CEO to acquire shares of the Company’s common stock. The table B-2 below provides the significant estimates used that resulted in the Company determining the fair value of the option at $585,000, which has been recorded as consulting fees.
Table B-2
| Expected volatility | % |
| Exercise price | $ |
| Stock price | $ |
| Expected life | |
| Risk-free interest rate | % |
| Dividend yield | % |
On January 27,2022, the Company issued a warrant to a lender to acquire shares of the Company’s common stock. The table C below provides the significant estimates used that resulted in the Company determining the fair value of the warrant at $276,000, which has been recorded as interest.
F-22
Table C
| Expected volatility | % |
| Exercise price | $ |
| Stock price | $ |
| Expected life | |
| Risk-free interest rate | % |
| Dividend yield | % |
On November 12, 2021 as part of a loan agreement referred to in Note 9 issued warrant to purchase common shares with a five year maturity and an exercise price of $15.00, and an additional warrant to purchase 90,000 common shares with a five year maturity and an exercise price of $15.00 to be cancelled and extinguished if the note is repaid on or prior to maturity.
The table D below provides the significant estimates used that resulted in the Company determining the fair value of the warrant at $2,073,053.
Table D
| Expected volatility | % - % |
| Exercise price | $ |
| Stock price | $ - $ |
| Expected life | |
| Risk-free interest rate | % |
| Dividend yield | % |
For the year ended January 31 ,2021 the Company issued the following warrants:
● a warrant to acquire 95,000 shares of stock as part of a debt settlement transaction. 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 was included as part of the consideration in the above mentioned debt settlement transaction with a corresponding increase in additional paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions in the Table A below:
● warrants to a broker to acquire 550 common shares for a fair value of $13,470 recorded as general and administrative expenses with a corresponding increase in additional paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions in the Table A below:
Table A
| Expected volatility | % - % |
| Exercise price | $ - $ |
| Stock price | $ - $ |
| Expected life | - |
| Risk-free interest rate | % - % |
| Dividend yield | % |
The Company had the following options and warrants outstanding at January 31, 2022:
| Issued To | # Warrants | Dated | Expire | Strike Price | Expired | Exercised |
| Lender | 95,000 | 08/28/2020 | 08/28/2023 | $4.00 per share | N | N |
| Broker | 250 | 10/11/2020 | 10/11/2025 | $45.00 per share | N | N |
| Broker | 300 | 11/25/2020 | 11/25/2025 | $30.00 per share | N | N |
| Triton | 30,000 | 07/27/2021 | 07/27/2024 | $21.10 per share | N | N |
| Consultant | 25,000 | 08/26/2021 | 08/26/2024 | $15.00 per share | N | N |
| Lender | 90,000 | 11/12/2021 | 11/12/2026 | $15.00 per share | N | N |
| Lender | 90,000* | 11/12/2021 | 11/12/2026 | $15.00 per share | N | N |
| Lender | 30,000 | 1/27/2022 | 1/27/2025 | $15.00 per share | N | N |
| * | These warrants are extinguished if Company repays note by 11/12/2022 maturity. |
F-23
| Issued To | # Options | Dated | Expire | Strike Price | Expired | Exercised | |
| Consultant | 25,000 | 8/26/2021 | 8/26/2024 | $15.00 per share | N | N | |
| T. Armes | 50,000 | 10/14/2021 | 10/14/2023 | $15.00 per share | N | N |
The following table summarizes the activity of options and warrants issued and outstanding as of and for the year ended January 31, 2022 and 2021:
| Options | Weighted Average Exercise Price |
Warrants | Weighted Average Exercise Price |
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| Outstanding at January 31, 2020 | $ | 0.14 | $ | 2252.200 | |||||||
| Granted | — | — | 95,550 | 4.20 | |||||||
| Exercised | — | — | — | — | |||||||
| Forfeited and canceled | — | — | (0.14 | ) | (2252.200 | ) | |||||
| Outstanding at January 31, 2021 | $ | — | 95,550 | $ | 4.20 | ||||||
| Granted | 75,000 | 15.00 | 265,000 | 15.70 | |||||||
| Exercised | — | — | — | — | |||||||
| Forfeited and canceled | — | — | — | — | |||||||
| Outstanding at January 31, 2022 | 75,000 | $ | 15.00 | 360,550 | $ | 12.64 | |||||
NOTE 12 – INCOME TAXES
The Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The income tax expense (benefit) consisted of the following for the fiscal year ended January 31, 2022 and 2021:
| January 31, 2022 | January 31, 2021 | |||||||
| Total current | $ | $ | ||||||
| Total deferred | ||||||||
| Income tax expense (benefit) | $ | $ | ||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax benefit for the fiscal year ended January 31, 2022(in thousands):
| January 31, 2022 | ||||
| Federal statutory (benefit) | $ | (1,694,649 | ) | |
| Permanent timing differences | 533,949 | |||
| Other | 239,700 | |||
| Change in valuation allowance | 921,000 | |||
| Total | $ | |||
For the year ended January 31, 2022, the expected tax benefit is calculated at the 2019 statutory rate of 21%.
For the year ended January 31, 2021, the expected tax benefit, temporary timing differences and long-term timing differences are calculated at the 21% statutory rate.
F-24
Significant components of the Company’s deferred tax assets and liabilities were as follows for the fiscal year ended January 31, 2022 and 2021:
| January 31, 2021 | January 31, 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 1,860,000 | $ | 939,000 | ||||
| Total deferred tax assets | 1,860,000 | 939,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | ||||||||
| Deferred revenue | ||||||||
| Total deferred tax liabilities | ||||||||
| Net deferred tax assets: | ||||||||
| Less valuation allowance | (1,860,000 | ) | (939,000 | ) | ||||
| Net deferred tax assets (liabilities) | $ | $ | ||||||
The Company has incurred losses since inception, therefore, the Company has no federal tax liability. Additionally there are limitations imposed by certain transactions which are deemed to be ownership changes which occurred in the Company on November 29, 2018. The net deferred tax asset generated by the loss carryforward has been fully reserved. The cumulative net operating loss carryforward was approximately $8,860,000 at January 31, 2022. The net operating loss carryforward that is available for carryforward for federal income tax purposes and begin to expire in 2039.
Although the Company has tax loss carry-forwards, there is uncertainty as to utilization prior to their expiration. Accordingly, the future income tax asset amounts have been fully reserved by a valuation allowance.
The Company has maintained a full valuation allowance against its deferred tax assets at January 31, 2022 and 2021. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided.
The Company does not have any uncertain tax positions at January 31, 2022 and 2021 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.
During the fiscal year ended January 31, 2022 and 2021, the Company recognized no amounts related to tax interest or penalties related to uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions. The Company currently has no years under examination by any jurisdiction.
On November 29, 2018, the Company consummated a share exchange agreement whereby there was a change of control and any net operating losses up to the date of the transaction were forfeited.
The Company’s tax returns for the years ended January 31, 2022, 2021, and 2020 are open for examination under Federal statute of limitations.
F-25
NOTE 13 – COMMITMENTS AND CONTINGENCIES
On June 1, 2015, the Company entered into a 36-month lease agreement for its 2,590 sf office facility with a minimum base rent of $2,720 per month. The Company paid base rent and their share of maintenance expense of $0 and $43,200 related to this lease for the periods ended January 31, 2022 and 2021, respectively. The lease was on a month to month basis since the lease has not been renewed and the Company records the payments as rent expense. This lease has been terminated on December 31, 2020
On August 30, 2016, the Company entered into a 60-month lease agreement for its 3,554 sf warehouse facility starting in December 2016 with a minimum base rent of $2,132 and estimated monthly CAM charges of $1,017 per month. This lease is with a shareholder.
On July 1, 2018, the Company entered into a 60-month lease agreement with its minority shareholder for its 8,800 sf warehouse facility with a minimum base rent of $6,400 per month.
In September 2019 the Company entered into an operating lease for premises with an annual rent of $15,480, a three year term commencing September 1, 2019 to August 31, 2022 and a one year renewal option. On October 23, 2020 the Company and landlord terminated this lease effective February 29, 2020. There were no costs associated with the termination. The Company eliminated the operating lease asset and operating lease liability at termination which was $45,032.
In October 2019 the Company entered into an operating lease for a vehicle with an annual cost of $9,067 and a three year term. The company paid initial fees of $17,744 and will pay fees on lease termination of $395. On a straight-line basis these costs amount to $1,259 per month.
| Maturity of Lease Liabilities | Operating Leases |
||
| January 31, 2023 | $ | 116,879 | |
| January 31, 2024 | 62,003 | ||
| January 31, 2025 | 30,003 | ||
| January 31, 2026 | 30,003 | ||
| January 31, 2027 | 25,003 | ||
| After January 31, 2027 | |||
| Total lease payments | 263,891 | ||
| Less: Interest | (25,339 | ) | |
| Present value of lease liabilities | $ | 238,552 | |
The Company had total rent expense and operating lease cost of $ and $for the years ended January 31, 2022 and 2021, respectively.
F-26
| For the Years Ended | |||||||
| January 31, | |||||||
| 2022 | 2021 | ||||||
| Numerator: | |||||||
| Net income (loss) available to common shareholders | $ | (8,069,756 | ) | $ | 1,187,176 | ||
| Denominator: | |||||||
| Weighted average shares – basic | 279,745 | 108,432 | |||||
| Net income (loss) per share – basic | $ | (28.85 | ) | $ | 10.95 | ||
| Effect of common stock equivalents | |||||||
| Add: interest expense on convertible debt | 83,502 | 259,086 | |||||
| Add: amortization of debt discount | 918,462 | 326,238 | |||||
| Less: gain on settlement of debt on convertible notes | (556,661 | ) | (4,835,429 | ) | |||
| Add (Less): loss (gain) on change of derivative liabilities | (235,703 | ) | 845,586 | ||||
| Net income (loss) adjusted for common stock equivalents | (7,860,156 | ) | (2,217,343 | ) | |||
| Dilutive effect of common stock equivalents: | |||||||
| Convertible notes and accrued interest | 40,417 | ||||||
| Convertible Class C Preferred shares | 363,154 | ||||||
| Warrants and options | 95,000 | ||||||
| Denominator: | |||||||
| Weighted average shares – diluted | 279,745 | 607,003 | |||||
| Net income (loss) per share – diluted | $ | (28.85 | ) | $ | (3.65 | ) | |
| For the Years Ended | |||||||
| January 31, | |||||||
| 2022 | 2021 | ||||||
| Convertible notes and accrued interest | 290,374 | ||||||
| Convertible Class C Preferred shares | 896,892 | ||||||
| Options | 75,000 | ||||||
| Warrants | 320,550 | ||||||
| Total | 1,582,816 | ||||||
NOTE 15 – RELATED PARTY TRANSACTIONS
As of January 31, 2022 and 2021, the Company had $46,173 and $106,173, respectively, of related party accrued expenses related to accrued compensation for employees and consultants. During the year ended January 31, 2022 shareholders loaned $119,476 to the Company. The loans are non-interest-bearing and have no specified repayment terms. During the year ended January 31, 2021 the Company issued 4,500 shares of common stock for a fair value of $18,900 and 100 Class C preferred share at a fair value of $11,177 to repay Accrued Expenses- Related Party.
F-27
NOTE 16 – SUBSEQUENT EVENTS
Subsequent to January 31, 2022 through to May 9, 2022 the Company entered into the following transactions:
| ● | On February 1, 2022 Series C Preferred shareholders converted all of the outstanding Series C Preferred shares totaling Series C Preferred shares in exchange for common shares. The conversion is based on 2.63 multiplied by the outstanding shares per the transfer agent at the conversion date. |
| ● | On February 14, 2022 the Company issued a convertible note for $, maturing August 14, 2022 an interest rate of 12%. The Company received $979,000 in cash proceeds, recorded an original issue discount of $120,000 and transaction fees of $101,000. As part of the loan the Company issued shares with a fair value of $ and with a warrant to purchase common shares with a five year maturity and an exercise price of $15.00, having a fair value of $. The discount will be amortized over the term of the loan. The note is convertible only in the event of default, including if the loan is not repaid at maturity. The conversion price is the lower of the lowest trading price i) previous 20 trading days before issuance date or ii) previous 20 trading days before conversion date. The loan maturity may be extended by an additional six months at the Company’s option. If the loan is not extended, then 60,000 out of the 115,000 shares issued will be cancelled. |
| ● | On February 25, 2022, the Company issued a convertible note for $350,000, maturing August 25, 2022 an interest rate of 12%. The Company received $294,000 in cash proceeds, recorded an original issue discount of $35,000 and transaction fees of $21,000. As part of the loan the Company issued shares with a fair value of $ and with a warrant to purchase common shares with a five year maturity and an exercise price of $15.00, having a fair value of $. The discount will be amortized over the term of the loan. The note is convertible only in the event of default, including if the loan is not repaid at maturity. The conversion price is the lower of the lowest trading price i) previous 20 trading days before issuance date or ii) previous 20 trading days before conversion date. The loan maturity may be extended by an additional six months at the Company’s option. If the loan is not extended, then 17,500 out of the 33,542 shares issued will be cancelled. |
| ● | On February 25, 2022, the Company issued a convertible note for $150,000, maturing August 25, 2022 an interest rate of 12%. The Company received $119,250 in cash proceeds, recorded an original issue discount of $15,000 and transaction fees of $15,750. As part of the loan the Company issued shares with a fair value of $ and with a warrant to purchase common shares with a five year maturity and an exercise price of $15.00, having a fair value of $. The discount will be amortized over the term of the loan. The note is convertible only in the event of default, including if the loan is not repaid at maturity. The conversion price is the lower of the lowest trading price i) previous 20 trading days before issuance date or ii) previous 20 trading days before conversion date. The loan maturity may be extended by an additional six months at the Company’s option. If the loan is not extended, then 7,500 out of the 14,400 shares issued will be cancelled. |
| ● | On March 9, 2022, the Company issued a convertible note for $200,000, maturing October 9, 2022 an interest rate of 12%. The Company received $168,000 in cash proceeds, recorded an original issue discount of $20,000 and transaction fees of $12,000. As part of the loan the Company issued shares with a fair value of $ and with a warrant to purchase common shares with a five year maturity and an exercise price of $15.00, having a fair value of $. The discount will be amortized over the term of the loan. The note is convertible only in the event of default, including if the loan is not repaid at maturity. The conversion price is the lower of the lowest trading price i) previous 20 trading days before issuance date or ii) previous 20 trading days before conversion date. The loan maturity may be extended by an additional six months at the Company’s option. If the loan is not extended, then 10,000 out of the 19,200 shares issued will be cancelled. |
| ● | On March 9, 2022, the Company issued another convertible note for $200,000, maturing October 9, 2022 an interest rate of 12%. The Company received $168,000 in cash proceeds, recorded an original issue discount of $20,000 and transaction fees of $12,000. As part of the loan the Company issued shares with a fair value of $ and with a warrant to purchase common shares with a five year maturity and an exercise price of $15.00, having a fair value of $. The discount will be amortized over the term of the loan. The note is convertible only in the event of default, including if the loan is not repaid at maturity. The conversion price is the lower of the lowest trading price i) previous 20 trading days before issuance date or ii) previous 20 trading days before conversion date. The loan maturity may be extended by an additional six months at the Company’s option. If the loan is not extended, then 10,000 out of the 19,200 shares issued will be cancelled. |
The Company changed it’s name to Auto Parts 4Less Group, Inc. and has done a reverse stock split exchanging 10 common shares for 1 common share, both effective April 28, 2022.
F-28
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy Armes, certify that:
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I have reviewed this Annual Report on Form 10-K of Auto Parts 4Less Group, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; |
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I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 9, 2022
By: /s/ Timothy Armes
Timothy Armes
Chief Executive Officer
(Principal Executive Officer and Principal Financial/Accounting Officer)
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy Armes, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Auto Parts 4Less Group, Inc. on Form 10-K for the year ended January 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Auto Parts 4Less Group, Inc.
By: /s/ Timothy Armes
Timothy Armes
Chief Executive Officer
(Principal Executive Officer and Principal Financial/Accounting Officer)
May 9, 2022