Table of Contents
AUTO PARTS 4LESS GROUP, INC.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended April 30, 2023 and April
30, 2022
(Unaudited)
| |
|
|
|
|
|
| |
|
2023 |
|
2022 |
|
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
| Net Income (Loss) |
|
$ |
(2,871,291 |
) |
$ |
(2,594,158 |
) |
| Adjustments to reconcile net loss to cash used by operating activities: |
|
|
|
|
|
|
|
| Depreciation |
|
|
12,417 |
|
|
12,938 |
|
| (Gain) loss in Fair Value on Derivative Liabilities |
|
|
1,006,700 |
|
|
337,737 |
|
| Amortization of Debt Discount |
|
|
628,613 |
|
|
725,280 |
|
| Interest Expense on Penalty Warrants |
|
|
34,500 |
|
|
315,150 |
|
| Loan Penalties Capitalized to Loan |
|
|
90,928 |
|
|
— |
|
| Debt Discount Expensed |
|
|
5,000 |
|
|
— |
|
| Debt Discount in Excess of Face Value Charged as Interest |
|
|
13,428 |
|
|
— |
|
| Gain on Settlement of Debt |
|
|
53,756 |
|
|
(3,589 |
) |
| Reduction of Right of Use Asset |
|
|
24,128 |
|
|
27,357 |
|
| Accretion of Lease Liability |
|
|
2,573 |
|
|
3,122 |
|
| Deferred Salary for Former CEO |
|
|
20,000 |
|
|
— |
|
| Change in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
| Decrease (Increase) in Inventory |
|
|
4,711 |
|
|
33,702 |
|
| (Increase) Decrease in Prepaid Rent and Expenses |
|
|
(7,631 |
) |
|
(5,667 |
) |
| (Increase) Decrease in Other Current Assets |
|
|
28,537 |
|
|
11,346 |
|
| Increase (Decrease) in Accounts Payable |
|
|
51,289 |
|
|
(134,100 |
) |
| Increase in Accrued Expenses |
|
|
589,275 |
|
|
147,088 |
|
| Increase (Decrease) in Accrued Expenses -Related Party |
|
|
180 |
|
|
100 |
|
| Operating Lease Payments |
|
|
(26,701 |
) |
|
(30,479 |
) |
| Increase (Decrease) in Customer Deposits |
|
|
(22,196 |
) |
|
(239,216 |
) |
| Increase (Decrease) in Deferred Revenue |
|
|
(65,544 |
) |
|
(332,320 |
) |
| CASH FLOWS (USED IN) OPERATING ACTIVITIES |
|
|
(427,328 |
) |
|
(1,725,709 |
) |
| |
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| Purchase of Property and Equipment |
|
|
— |
|
|
(1,142 |
) |
| CASH FLOWS (USED IN) INVESTING ACTIVITIES |
|
|
— |
|
|
(1,142 |
) |
| |
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| Advances (Repayments) of Shareholder loans payable, net |
|
|
249,915 |
|
|
(69,476 |
) |
| Proceeds from Short Term Debt |
|
|
107,980 |
|
|
— |
|
| Payments on Short Term Debt |
|
|
(5,067 |
) |
|
(162,913 |
) |
| Payments on Long Term Debt |
|
|
(7,324 |
) |
|
(6,848 |
) |
| Proceeds from Issuance of Convertible Notes Payable |
|
|
130,800 |
|
|
2,395,250 |
|
| Payments on Convertible Notes Payable |
|
|
— |
|
|
(45,600 |
) |
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES |
|
|
476,304 |
|
|
2,110,413 |
|
| |
|
|
|
|
|
|
|
| NET INCREASE IN CASH |
|
|
48,976 |
|
|
383,562 |
|
| |
|
|
|
|
|
|
|
| CASH AT BEGINNING OF PERIOD |
|
|
4,737 |
|
|
77,498 |
|
| |
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
|
$ |
53,713 |
|
$ |
461,060 |
|
| |
|
|
|
|
|
|
|
| Supplemental Disclosure of Cash Flows Information: |
|
|
|
|
|
|
|
| Cash Paid for Interest |
|
$ |
57,058 |
|
$ |
23,872 |
|
| Derivative Debt Discount |
|
$ |
137,012 |
|
$ |
394,203 |
|
| Relative Fair Value of Warrants and Common Shares Issued with Debt and Applies as Discount |
|
$ |
32,984 |
|
$ |
1,064,965 |
|
| Debt discount |
|
$ |
23,200 |
|
$ |
474,750 |
|
| Conversion of Series C Preferred Stock Into Common Stock |
|
$ |
— |
|
$ |
6 |
|
| Conversion of Notes Payable, Accrued Interest and Derivative Into Common Stock |
|
$ |
187,249 |
|
$ |
— |
|
| Issuance of Common Shares as Payment for Accrued Expenses |
|
$ |
122,109 |
|
$ |
— |
|
The Accompanying Notes are an Integral Part of these
Unaudited Condensed Consolidated Financial Statements.
- 7 -
Table of Contents
AUTO PARTS 4LESS GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
Business:
Nature of Business – Auto Parts 4Less
Group, Inc., (the “Company”), formerly The 4Less Group, Inc., was incorporated under the laws of the State of Nevada on December
5, 2007. The Company, under the name MedCareers Group, Inc. (“MCGI”) formally operated a website for nurses, nursing schools
and nurses’ organizations designed for better communication between nurses and the nursing profession.
On November 29, 2018, the Company entered into a transaction
(the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of The
4LESS Corp. (“4LESS”), in exchange for the issuance of (i) nineteen thousand (19,000) shares of Series B Preferred Stock,
(ii) six thousand seven hundred fifty (6,750) shares of Series C Preferred Stock, and (iii) 870 shares of Series D Preferred Stock. The
Series C Preferred Shares have a right to convert into common stock of the Company by multiplying the number of issued and outstanding
shares of common stock by 2.63 on the conversion date. The Share Exchange closed on November 29, 2018. As a result of the Share Exchange,
the former shareholders of 4LESS became the controlling shareholders of the Company. The Share Exchange was accounted for as a reverse
takeover/recapitalization effected by a share exchange, wherein 4LESS is considered the acquirer for accounting and financial reporting
purposes. The capital, share price, and earnings per share amount in these consolidated financial statements for the period prior to the
reverse merger were restated to reflect the recapitalization in accordance with the shares issued as a result of the reverse merger except
otherwise noted.
4LESS was formed as Vegas Suspension & Offroad,
LLC on October 24, 2013 as a Nevada limited liability company and converted to a Nevada corporation with the same name on May 8, 2017.
On April 2, 2018, the Company changed its name to The 4LESS Corp. The Corporation had S Corporation status. The Corporation operates as
an e-commerce auto and truck parts sales company. As a result of the share exchange, The 4Less Group, Inc. is now a holding company operating
through 4LESS and offers products including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and
shocks. On December 30, 2019 4LESS changed its name to Auto Parts 4Less, Inc. On April 28, 2022
the Company changed its name from The 4Less Group, Inc. to Auto Parts 4Less Group, Inc.
Significant Accounting Policies:
The Company’s management selects accounting
principles generally accepted in the United States of America and adopts methods for their application. The application of accounting
principles requires the estimating, matching and timing of revenue and expense. The accounting policies used conform to generally accepted
accounting principles which have been consistently applied in the preparation of these condensed financial statements.
Basis of Presentation:
The Company prepares its financial statements on the
accrual basis of accounting in conformity with accounting principles generally accepted in the United States.
The accompanying unaudited condensed consolidated
financial statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”) for interim unaudited consolidated financial information. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated
financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with
GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement
of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
of the Company for the year ended January 31, 2023 and notes thereto contained in the Company’s Annual Report on Form 10-K filed
on August 11, 2023.
Principles of Consolidation:
The condensed financial statements include the accounts
of Auto Parts 4Less Group, Inc. as well as The Auto Parts 4Less, Inc., and JBJ Wholesale LLC. All significant inter-company transactions
have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.
Use of Estimates:
In order to prepare financial statements in conformity
with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect
the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the
financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution
currently anticipated by management and on which the financial statements are based. The most significant estimates included in these
consolidated financial statements are those associated with the assumptions used to value derivative liabilities.
Reclassifications
Certain amounts in the Company’s condensed consolidated
financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have
not changed the results of operations of prior periods.
Cash and Cash Equivalents:
The Company considers all highly liquid instruments
with a maturity of three months or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance
Corporation (“FDIC”) insurance limits. The carrying amount of cash and cash equivalents approximates fair market value.
Inventory Valuation
Inventories are stated at the lower of cost or net
realizable value. Inventories are valued on a first-in, first-out (FIFO) basis. Inventory is comprised of finished goods.
Concentrations
Cost of Goods Sold
For the three months ended April 30, 2023 the Company
purchased approximately 50% of its inventory and items available for sale from third parties from one vendors. As of April 30, 2023, the
net amount due to one vendors included in accounts payable was $322,392. For the three months ended April 30, 2022, the Company purchased
from three vendors approximately 52% of its inventory and items available for sale from third parties. As of April 30, 2022, the net amount
due to these vendors included in accounts payable was $433,897. The Company believes there are numerous other suppliers that could be
substituted should a supplier become unavailable or non-competitive.
Leases
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.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax
Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws
and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation
is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from
35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act
will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to
analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s
fiscal year ending January 31, 2024, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated
financial statements.
Fair Value of Financial Instruments:
The Company’s financial instruments consist
of cash, accounts payable, advances and notes payable. The Company considers the carrying value of such amounts in the financial statements
to approximate their fair value due to the short-term nature of these financial instruments. Derivatives are recorded at fair value at
each period end. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price)
in an orderly transaction between market participants at the reporting date.
The ASC guidance for fair value measurements and disclosure
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Inputs – Quoted prices for identical
instruments in active markets.
Level 2 Inputs – Quoted prices for similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations
whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs – Instruments with primarily
unobservable value drivers.
The following table sets forth, by level within the
fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of April
30, 2023:
| |
|
April 30, 2023 |
|
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 |
|
$ |
4,493,374 |
|
$ |
— |
|
$ |
— |
|
$ |
4,493,374 |
|
| Totals |
|
$ |
4,493,374 |
|
$ |
— |
|
$ |
— |
|
$ |
4,493,374 |
|
Related Party Transactions:
The Company has a verbal policy that includes procedures
intended to ensure compliance with the related party provisions in common practice for public companies. For purposes of the policy, a
“related party transaction” is a transaction in which the Company or any one of its subsidiaries participates and in which
a related party has a direct or indirect material interest, other than ordinary course, arms-length transactions of less than 1% of the
revenue of the counterparty. Any transaction exceeding the 1% threshold, and any transaction involving consulting, financial advisory,
legal or accounting services that could impair a director’s independence, must be approved by the CEO. Any related party transaction
in which an executive officer or a Director has a personal interest, or which could present a possible conflict under the Guide to Ethical
Conduct, must be approved by Board of Directors, following appropriate disclosure of all material aspects of the transaction.
Derivative Liability
The derivative liabilities are valued as a level 3
input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and
accrued interest is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability
due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to
market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled
instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused
shares would first be used to satisfy the earliest issued equity-linked instruments.
The fair value of the derivative liability is determined
using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including
our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive
inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s
common stock. However, because the historical volatility of the Company’s common stock is so high (see Note 9), the sensitivity
required to change the liability by 1% as of April 30, 2023 is greater than 25% change in historical volatility as of that date. The
other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable
results in a significantly less than 1% change in the calculated derivative liability.
Revenue Recognition
The Company recognizes revenue under ASC 606, “Revenue
from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control
is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable
that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer.
The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the
customer
Step 2: Identify the performance obligations
in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price
to the performance obligations in the contract
Step 5: Recognize revenue when the company
satisfies a performance obligation
Because the Company’s sales agreements generally
have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose
information about its remaining performance obligations.
Disaggregation of Revenue: Channel Revenue
The following table shows revenue split between proprietary
and third-party website revenue for the three months ended April 30, 2023 and 2022:
| |
|
|
|
|
|
Change |
|
| |
|
2023 |
|
2022 |
|
$ |
|
% |
|
| Proprietary website and marketplace revenue |
|
$ |
106,833 |
|
|
1,236,243 |
|
$ |
(1,129,410 |
) |
(91% |
) |
| Third-party website revenue |
|
|
29,231 |
|
|
493,687 |
|
|
(464,456 |
) |
(94% |
) |
| Total Revenue |
|
$ |
136,064 |
|
$ |
1,729,930 |
|
$ |
(1,593,866 |
) |
(92% |
) |
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 and commissions on sales from the new consumer marketplace autopart4less.com.
Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue. Sales tax and other similar
taxes are excluded from revenue.
Stock-Based Compensation:
The Company accounts for stock options at fair value.
The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides
for expense recognition over the service period, if any, of the stock option.
Earnings (Loss) Per Common Share:
Basic earnings (loss) per share (“EPS”)
is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the
treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options and/or warrants. Diluted
EPS excluded all dilutive potential shares if their effect is anti-dilutive.
Basic loss per common share is computed based on the
weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss
per share, except the weighted-average number of shares outstanding is increased to include all common shares, including those with the
potential to be issued by virtue of convertible debt and other such convertible instruments. Diluted loss per share contemplates a complete
conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.
Recently Issued Accounting Standards:
In August 2020, the FASB issued amended guidance on
the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for
convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends
diluted earnings per share (EPS) calculations for certain convertible debt instruments. The amended guidance is effective for interim
and annual periods in 2022. The application of the amendments in the new guidance are to be applied either on a modified retrospective
or a retrospective basis. We are currently assessing the effect that the adoption of this standard will have on the Company’s consolidated
financial statements upon adoption.
In addition to the above, the Company has reviewed
all other recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements
will have a material impact on its financial condition or the results of its operations.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued optional guidance to
ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently
issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships,
and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued
because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time
between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial
statements.
In October 2021, the FASB issued amended guidance
that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with
existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively.
Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will
not have a material impact on the Company’s consolidated financial statements for prior acquisitions; however, the impact in future
periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.
In November 2021, the FASB issued new guidance to
increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model
by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant
terms and conditions, the accounting treatment and the impact to the company’s financial statements. The guidance is effective for
annual periods beginning in 2022 and is to be applied on either a prospective or retrospective basis. The Company is currently evaluating
the impact of adoption on its consolidated financial statements.
There were various other accounting standards and
interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash
flows.
- 12 -
Table of Contents
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 $49,107,549 as of April 30, 2023 and has a working capital deficit at April 30, 2023 of $23,136,653.
As of April 30, 2023, the Company only had cash and cash equivalents of $53,713 and approximately $14,085,000 of short-term loans and
convertible debt in default. The short-term loans and debt and convertible 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 plans to grow its revenues through
the new website, at this time, our current liquidity position raises substantial doubt about the Company’s ability to continue as
a going concern.
Management’s plan is to raise additional funds
in the form of debt or equity in order to 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 April 30, 2023 and January 31, 2023:
| |
|
April 30, 2023 |
|
January 31, 2023 |
|
| Office furniture, fixtures and equipment |
|
$ |
95,183 |
|
$ |
95,183 |
|
| Shop equipment |
|
|
43,004 |
|
|
43,004 |
|
| Vehicles |
|
|
206,760 |
|
|
206,760 |
|
| Sub-total |
|
|
344,947 |
|
|
344,947 |
|
| Less: Accumulated depreciation |
|
|
(185,892 |
) |
|
(173,475 |
) |
| Total Property |
|
$ |
159,055 |
|
$ |
171,472 |
|
Additions to fixed assets for the three months ended
April 30, 2023 were $0. Additions to fixed assets for the three months ended April 30, 2022 were $1,142.
Depreciation expense was $12,917 and 12,938 for the
three months ended April 30, 2023 and April 30, 2022, respectively.
- 13 -
Table of Contents
NOTE 4 – LEASES
We lease certain warehouses and office space. Leases
with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line
basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and
non-lease components.
Most leases include one or more options to renew,
with renewal terms that can extend the lease term from one to 17 years or more. The exercise of lease renewal options is at our sole discretion.
The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title
or purchase option reasonably certain of exercise.
Below is a summary of our lease assets and liabilities at April 30, 2023
and January 31, 2023.
| Leases |
|
Classification |
|
April 30, 2023 |
|
January 31, 2023 |
|
| Assets |
|
|
|
|
|
|
|
|
|
| Operating |
|
Operating Lease Assets |
|
$ |
114,423 |
|
$ |
138,551 |
|
| Liabilities |
|
|
|
|
|
|
|
|
|
| Current |
|
|
|
|
|
|
|
|
|
| Operating |
|
Current Operating Lease Liability |
|
$ |
29,784 |
|
$ |
53,912 |
|
| Noncurrent |
|
|
|
|
|
|
|
|
|
| Operating |
|
Noncurrent Operating Lease Liabilities |
|
|
84,639 |
|
|
84,639 |
|
| Total lease liabilities |
|
|
|
$ |
114,423 |
|
$ |
138,551 |
|
Note: As most of our leases do not provide an implicit
rate, we use our incremental borrowing rate of 8% based on the information available at commencement date in determining the present value
of lease payments.
CAM charges were not included in operating lease expense
and were expensed in general and administrative expenses as incurred.
Operating lease cost and rent was $26,701 and $30,479
for the three months ended April 30, 2023 and April 30, 2022, respectively.
NOTE 5 – CUSTOMER DEPOSITS
The Company receives payments from customers on orders
prior to shipment and these customer deposits on cancelled orders were either returned to the customers subsequent to April 30, 2023 or
will remain as deposits until the item is either delivered and recorded as revenue or cancelled and refunded. At April 30, 2023 the Company
had received $16,250 (January 31, 2023- $38,448) in customer deposits for orders that were unfulfilled at April 30, 2023 and either canceled
subsequent to year end or still awaiting shipment.
NOTE 6 – DEFERRED REVENUE
The Company receives payments from customers on orders
prior to shipment and orders that were unfulfilled at April 30, 2023 because of both normal order processing and fulfillment requirements,
and back orders are recorded as deferred revenue. At April 30, 2023 the Company had received $609 (January 31, 2023 - $66,153) in customer
payments for orders that were unfulfilled at April 30, 2023 and delivered subsequent to April 30, 2023.
- 14 -
Table of Contents
NOTE 7 – SHORT-TERM AND LONG-TERM DEBT
The components of the Company’s debt as of April
30, 2023 and January 31, 2023 were as follows:
Schedule of the components of the Company’s debt
| |
|
|
|
|
|
|
|
| |
|
April 30, 2023 |
|
January 31, 2023 |
|
| Forklift Note Payable, original note of $20,433 Sept 26, 2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023.(1) |
|
|
2,705 |
* |
|
3,836 |
|
| 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 $66,096.† |
|
|
61,499 |
# |
|
66,538 |
|
| 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 $61,943.† |
|
|
43,169 |
# |
|
45,454 |
|
| 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) |
|
|
351,923 |
* |
|
351,923 |
|
| 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) |
|
|
439,882 |
* |
|
443,819 |
|
| Demand loan - $5,000 dated February 1, 2020, 15% interest, 5% fee on outstanding balance |
|
|
5,000 |
* |
|
5,000 |
|
| Demand loan - $2,500, dated March 8, 2019, 25% interest, 5% fee on outstanding balance |
|
|
2,500 |
* |
|
2,500 |
|
| Demand loan - $65,500 dated February 27, 2019, 25% interest, 5% fee on outstanding balance, Secured by the general assets of the Company |
|
|
12,415 |
* |
|
12,415 |
|
| Promissory note - $60,000 dated September 18, 2020 maturing April 30, 2022(10), including $5,000 original issue discount, 15% compounded interest payable monthly.† |
|
|
60,000 |
* |
|
60,000 |
|
| Promissory note - $425,000 dated August 28, 2020, including $50,000 original issue discount, 15% compounded interest payable monthly. This note matures when the Company receives proceeds through a financing event of $825,000 plus accrued interest on the note.(5)† |
|
|
425,000 |
* |
|
425,000 |
|
| Promissory note - $1,200,000 dated August 28, 2020, maturing August 28, 2022, 12% interest payable monthly with the first six months interest deferred until the 6th month and added to principal.(6)† |
|
|
1,200,000 |
* |
|
1,200,000 |
|
| Promissory note - $420,000 dated December 27, 2021, including $20,000 original issue discount, maturing January 27, 2022, non-interest bearing.(9)† |
|
|
420,000 |
* |
|
420,000 |
|
| Promissory note - $30,000 dated November 4, 2022, including $5,000 original issue discount, maturing April 30, 2023, non-interest bearing.(11) |
|
|
30,000 |
* |
|
30,000 |
|
| Promissory note - $90,000 dated November 7, 2022, including $15,000 original issue discount, maturing April 30, 2023, non-interest bearing.(3) |
|
|
90,000 |
* |
|
90,000 |
|
| Demand loan, non-interest bearing. |
|
|
80,480 |
* |
|
22,500 |
|
| Promissory note - $22,000 dated December 27, 2022, including $2,000 original issue discount maturing January 6, 2023, non-interest bearing.(10)† |
|
|
22,000 |
* |
|
22,000 |
|
| Promissory note - $22,000 dated February 21, 2023, including $2,000 original issue discount maturing April 1, 2023, non-interest bearing.(10)† |
|
|
22,000 |
* |
|
— |
|
| Promissory note - $30,000 dated April 21, 2023, including $3,000 original issue discount maturing September 30, 2023, non-interest bearing.(10) |
|
|
33,000 |
* |
|
— |
|
| Total |
|
$ |
3,301,573 |
|
$ |
3,200,985 |
|
| |
|
April 30, 2023 |
|
January 31, 2023 |
|
| Short-Term Debt |
|
$ |
3,196,905 |
|
$ |
3,088,993 |
|
| Current Portion of Long-Term Debt |
|
|
24,907 |
|
|
24,569 |
|
| Long-Term Debt |
|
|
79,761 |
|
|
87,423 |
|
| Total |
|
$ |
3,301,573 |
|
$ |
3,200,985 |
|
__________
| † |
|
| |
|
| * |
|
| |
|
| # |
|
| |
|
| (1) |
|
| |
|
| (2) |
|
| |
|
| (3) |
|
| |
|
| (4) |
|
| |
|
| (5) |
|
| |
|
| (6) |
|
| |
|
| (7) |
|
| |
|
| (8) |
|
| |
|
| (9) |
|
| |
|
| (10) |
|
| |
|
| (11) |
|
The following are the minimum amounts due on the notes as of April 30,
2023:
| Year Ended |
|
Amount |
|
| April 30, 2024 |
|
$ |
3,221,812 |
|
| April 30, 2025 |
|
|
26,118 |
|
| April 30, 2026 |
|
|
27,447 |
|
| April 30, 2027 |
|
|
26,196 |
|
| Total |
|
$ |
3,301,573 |
|
- 16 -
Table of Contents
NOTE 8 – SHORT-TERM CONVERTIBLE DEBT
The components of the Company’s debt as of April
30, 2023 and January 31, 2023 were as follows:
| |
Interest |
Default Interest |
Conversion |
Outstanding Principal at |
|
| Maturity Date |
Rate |
Rate |
Price (a) |
April 30, 2023 |
|
January 31, 2023 |
|
| Nov.
4, 2013* |
12% |
12% |
$1,800,000 |
$ |
100,000 |
|
$ |
100,000 |
|
| Jan. 31, 2014* |
12% |
18% |
$2,400,000 |
|
16,000 |
|
|
16,000 |
|
| July 31, 2013* |
12% |
12% |
$1,440,000 |
|
5,000 |
|
|
5,000 |
|
| Jan. 31, 2014* |
12% |
12% |
$2,400,000 |
|
30,000 |
|
|
30,000 |
|
| Nov. 12, 2022* |
8% |
12% |
(1) |
|
3,000,000 |
|
|
3,000,000 |
|
| Feb. 14, 2023* |
12% |
20% |
(4) |
|
2,400,000 |
|
|
2,400,000 |
|
| Feb. 25, 2023* |
12% |
20% |
(4) |
|
195,000 |
|
|
250,000 |
|
| Feb. 25, 2023* |
12% |
20% |
(4) |
|
700,000 |
|
|
700,000 |
|
| Mar. 9 2023* |
12% |
20% |
(4) |
|
400,000 |
|
|
400,000 |
|
| Mar. 9, 2023* |
12% |
20% |
(4) |
|
400,000 |
|
|
400,000 |
|
| Apr. 22, 2023* |
12% |
20% |
(4) |
|
880,000 |
|
|
880,000 |
|
| Apr. 22, 2023* |
12% |
20% |
(4) |
|
220,000 |
|
|
220,000 |
|
| May 19, 2023* |
12% |
16% |
(5) |
|
500,000 |
|
|
500,000 |
|
| Feb. 11, 2023* |
12% |
18% |
(4) |
|
275,000 |
|
|
275,000 |
|
| Dec. 27, 2022* |
12% |
18% |
(4) |
|
275,000 |
|
|
275,000 |
|
| Jan. 6, 2023* |
12% |
18% |
(4)(b)(iv) |
|
140,000 |
|
|
125,000 |
|
| Jan. 6, 2023* |
12% |
18% |
(4)(b)(iv) |
|
140,000 |
|
|
125,000 |
|
| Jan. 11, 2023* |
12% |
18% |
(4)(b)(iv) |
|
153,890 |
|
|
138,890 |
|
| Apr. 22, 2023 |
12% |
18% |
(4)(b)(iv) |
|
290,000 |
|
|
275,000 |
|
| Apr. 22, 2023 |
12% |
18% |
(4)(b)iv) |
|
290,000 |
|
|
275,000 |
|
| Sept. 29, 2023* |
12% |
22% |
(6)(b)(iii) |
|
187,101 |
|
|
211,428 |
|
| May 10, 2023 |
12% |
18% |
(2) |
|
186,450 |
|
|
186,450 |
|
| May 10, 2023 |
12% |
18% |
(2) |
|
186,450 |
|
|
186,450 |
|
| Nov. 21, 2023 |
12% |
22% |
(2) |
|
54,432 |
|
|
54,432 |
|
| July 5, 2024 |
12% |
18% |
(4) |
|
327,000 |
|
|
250,000 |
|
| Apr. 20, 2024 |
12% |
18% |
(3) |
|
77,000 |
|
|
— |
|
| Sub-total |
|
|
|
|
11,428,323 |
|
|
11,278,650 |
|
| Debt Discount |
|
|
|
|
(404,664 |
) |
|
(840,067 |
) |
| |
|
|
|
$ |
11,023,659 |
|
$ |
10,438,583 |
|
| * |
|
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
| (5) |
|
| (6) |
|
| (a) |
|
| (b) |
|
| (i) |
Penalty of 100% of the loan and accrued interest added to the principal and accrued interest, respectively. |
| (ii) |
Penalty of 25% of the loan and accrued interest added to the principal and accrued interest, respectively. |
| (iii) |
|
| (iv) |
|
The Company had accrued interest payable of $1,810,560
and $1,342,097 on the notes at April 30, 2023 and January 31, 2023, 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 three months ended April 30, 2023 and 2022, the Company recorded amortization expense
of $628,613 and $725,280, respectively.
For the three months ended April 30, 2023 and 2022
the Company added $90,028 and $0 in penalty interest to the loans, respectively. For the three months ended April 30, 2023, lenders converted
$95,256 of principal, $7,965 of interest, derivative of $ 81,429 and $2,600 of fees all totaling $187,249 into 434,434 common shares.
On April 20, 2023, the Company entered into a convertible
note for $77,000 with a one year maturity, interest rate of 12% with a warrant to purchase 388,884 common shares with a five year maturity
and an exercise price of $0.25, and 50,000 common shares. The Company will receive $60,800 and recorded an original issue discount of
$7,000 along with fees of $9,200, a derivative discount of 60,800 for the conversion feature, recognized $27,541 based on a relative fair
value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants and shares. The Company
expensed $13,428 as interest which was the amount of the derivative discount that exceeded the face value of the loan. The discount is
amortized over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due
and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at
150%. The note is secured on all assets of the Company subordinated to a prior security.
In April 2023, the Company issued an amended and restated
note replacing the July 5, 2022 $250,000 note with a January 5, 2023 maturity. In addition, the Company issued a warrant to acquire 97,221
shares with a $1.00 exercise price and a 5 year maturity, and the maturity of the note was revised to July 5, 2023. The terms of the amended
note are that the Company received $70,000 with an original issue discount of $7,000 a derivative discount of $76,212 for the conversion
feature, recognized $5,443 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital
for the attached warrants. The original note had cash proceeds of $225,000 and an original issue discount of $25,000, a derivative discount
of $33,860 for the conversion feature, recognized $139,638 based on a relative fair value calculation as debt discount with a corresponding
adjustment to paid-in capital for the attached warrants and shares, and transaction fees of $35,000. When combined with the original note,
the total new note will now be for $327,000 having total cash proceeds of $295,000 and total original issue discount of $32,000 a derivative
discount of $110,072 for the conversion feature, recognized $145,101 based on a relative fair value calculation as debt discount with
a corresponding adjustment to paid-in capital for the attached warrants and shares and transaction fees of $35,000. The discount is amortized
over the term of the loan. The note has certain default provisions such as failure to pay any principal or interest when due and failure
to issue shares upon conversion.
As of April 30, 2023, the Company had $11,024,323
of convertible debt in default. The agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point
have pursued their legal remedies. The Company continues to accrue interest at the listed rates, and plans to seek their conversion or
payoff within the next twelve months.
NOTE 9 – DERIVATIVE LIABILITIES
As of April 30, 2023 and January 31, 2023, the Company
had derivative liabilities of $4,493,374 and $3,271,058, respectively. During the three months ended April 30, 2023 and 2022, the Company
recorded a loss of $1,006,700 and a loss of $337,737, respectively, from the change in the fair value of derivative liabilities. Any liabilities
resulting from the warrants outstanding are immaterial.
The derivative liabilities are valued as a level 3
input for valuing financial instruments.
The following table presents changes in Level 3 liabilities
measured at fair value for the three months ended April 30, 2022. Both observable and unobservable inputs were used to determine the fair
value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities
within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest
rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.
| |
|
Level 3 |
|
| |
|
Derivatives |
|
| Balance, January 31, 2023 |
|
$ |
3,271,058 |
|
| Changes Due to Issuance of New Convertible Notes |
|
|
297,045 |
|
| Changes due to Conversions of Notes Payable |
|
|
(81,429 |
) |
| Mark to Market Change in Derivatives |
|
|
1,006,700 |
|
| Balance, April 30, 2023 |
|
$ |
4,493,374 |
|
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.
The fair value of the derivative liability is determined
using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including
our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average
(in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded
conversion feature that are categorized within Level 3 of the fair value hierarchy as of April 30, 2023 is as follows:
| |
|
Embedded
Derivative Liability
As of
April 30, 2023 |
|
| Strike price |
|
$0.15 - 1.40 |
|
| Contractual term (years) |
|
0.08 - 1.00 years |
|
| Volatility (annual) |
|
225% - 313.9% |
|
| Underlying fair market value |
|
$0.15 |
|
| Risk-free rate |
|
10.78% - 11.25 |
|
| Dividend yield (per share) |
|
0 |
|
NOTE 10 – STOCKHOLDERS’ DEFICIT
Preferred Stock:
The Series A Preferred Stock has an automatic forced
conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion
features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total
recapitalization of the Company. As of both April 30, 2023, and January 31, 2023 the Company had 0 shares of Series A Preferred issued
and outstanding and 330,000 authorized with a par value of $0.001 per share.
At both April 30, 2023 and January 31, 2023, there
were 20,000 and 20,000 Series B preferred shares outstanding, respectively. The Series B Preferred Stock have voting rights equal to 51%
of the total voting rights at any time. There are no conversion rights granted holders of Series B Preferred shares, they are not entitled
to dividends, and the Company does not have the right of redemption. Currently, there are 20,000 Series B preferred shares authorized
and issued of the Series B Preferred Stock with a par-value of $0.001 per share.
At both April 30, 2023 and January 31, 2023, there
were 0 Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock
of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders
of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. On February 1, 2022
the 7,250 Series C Preferred stockholders converted all of their outstanding shares for 905,110 shares of common stock. Currently, there
are 0 Series C preferred shares authorized and issued with a par-value of $0.001 per share.
At both April 30, 2023 and January 31, 2023, there
were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $0.001. All shares of Series D Preferred
Stock will rank subordinate and junior to all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any
of the Corporation’s preferred stock hereafter created as to distributions of assets upon dissolution or winding up of the Corporation,
whether voluntary or involuntary. These shares are non-voting, do not receive dividends and are redeemable according to the terms set
out as follows:
OPTIONAL REDEMPTION.
(1) At any time, either the Corporation
or the holder may redeem for cash out of funds legally available therefor, any or all of the outstanding Series D Preferred Stock (“Optional
Redemption”) at $1,000 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.
(3) Should the holder exercise the right
of Optional Redemption it shall provide the Corporation with at least 30 days’ notice of any proposed optional redemption pursuant
this Section VI (an “Optional Redemption Notice”). The Optional Redemption Notice shall state the value of the Preferred Stock
to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty (30) or more than sixty
(60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the holder to the Corporation
at the address of the Corporation for the Preferred Stock. Within seven (7) business days after the date of delivery of the Optional Redemption
Notice, each holder shall provide the Corporation with instructions as to the account to which payments associated with such Optional
Redemption should be deposited. On the date of the Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the
Corporation will deliver the redemption amount via wire transfer to the account designated by the holder, and (B) the holder will deliver
the certificates relating to that number of shares of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed
stock powers, in either case, transferring that number of shares to be redeemed. Upon the occurrence of the
wire transfer (or, in the absence of a holder designating an account to which funds should be transferred, delivery of a certified or
bank cashier’s check in the amount due such holder in connection with such Optional Redemption to the address of such holder appearing
on the register of the Corporation for the Preferred Stock), that number of shares of Preferred Stock redeemed pursuant to such Optional
Redemption as represented by the previously issued certificates will be deemed no longer outstanding. Notwithstanding anything to the
contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the terms hereof until the date such
Preferred Stock is actually redeemed pursuant to an Optional Redemption.
The Series D Preferred Stock is not entitled to any
pre-emptive or subscription rights in respect of any securities of the Corporation.
Neither the Company nor any Series D preferred stockholders
has given notice to exercise the redemption as of April 30, 2023 on the date of the financial statements.
Because the holders of the Series D preferred stock
have the right to demand cash redemption, the cumulative amount of the redemption feature is included in Temporary Equity as of April
30, 2023 and January 31, 2023.
Common Stock
The Company is authorized to issue 75,000,000 common
shares at a par value of $0.000001 per share. These shares have full voting rights. The Company undertook a 10-1 reverse stock split on
April 28, 2022. The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At April 30, 2023
and January 31, 2023 there were 2,570,374 and 1,917,982 shares outstanding and issuable, respectively. No dividends were paid in
the three months ended April 30, 2023 or 2022. The Company’s articles of incorporation include a provision that the Company is not
allowed to issue fractional shares.
The Company issued the following shares of common
stock in the three months ended April 30, 2023:
| - |
Lenders converted $95,256 of principal, $7,965 of interest and $2,600 of fees all totaling $105,820 into 434,434 common shares. |
| |
|
| - |
The Company issued 167,958 common shares at fair value of $122,109 to settle $196,958 in accrued expenses and recorded a gain on settlement of debt of $74,489. |
| |
|
| - |
The Company issued 50,000 shares and warrants to acquire 486,105 common shares along with debt this quarter for a relative fair value of $32,984 with an adjustment to paid -on capital and a corresponding adjustment to debt discount. |
The Company issued the following shares of common
stock in the three months ended April 30, 2022:
The Company issued 905,110 shares upon conversion
of 7,250 Series C preferred shares. Along with associated debt, the Company issued 254,141 shares and warrants to purchase 265,000 shares
all with a relative fair value of $1,064,965.
Options and Warrants:
The Company has 250,000 and 250,000 options outstanding
as of April 30, 2023 and January 31, 2023, respectively.
The Company recorded option and warrant expense of
$0 and $0 for the three months ended April 30, 2023 and 2022, respectively.
For the quarter ended April 30, 2023 the Company issued
warrants to purchase 486,105 common shares along with debt to various lenders as well as warrants to acquire 125,000 common shares as
penalty interest. The table below provides the significant estimates used that resulted in the Company determining the relative fair value
of the 486,105 warrants (and 50,000 common shares mentioned above) at $32,984, which has been recorded as a debt discount and the 125,000
warrants at $34,500 which has been recorded as interest both with corresponding adjustments to paid-in capital.
Schedule of warrants fair value
| Expected volatility |
588 - 2,224% |
| Exercise price |
$0.15 - $1.03 |
| Stock price |
$0.15 - $1.10 |
| Expected life |
3 - 5 years |
| Risk-free interest rate |
3.57% - 4.44% |
| Dividend yield |
0% |
The Company had the following warrants outstanding at April 30, 2023:
| 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 |
60,845 |
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 |
| Lender |
120,000 |
2/14/2022 |
2/14/2027 |
$15.00 per share |
N |
N |
| Lender |
35,000 |
2/25/2022 |
2/25/2027 |
$15.00 per share |
N |
N |
| Lender |
15,000 |
2/25/2022 |
2/25/2027 |
$15.00 per share |
N |
N |
| Lender |
20,000 |
3/9/2022 |
3/9/2027 |
$15.00 per share |
N |
N |
| Lender |
20,000 |
3/9/2022 |
3/9/2027 |
$15.00 per share |
N |
N |
| Lender |
11,000 |
4/22/2022 |
4/22/2027 |
$15.00 per share |
N |
N |
| Lender |
44,000 |
4/22/2022 |
4/22/2027 |
$15.00 per share |
N |
N |
| Lender |
15,000 |
2/26/2022 |
2/26/2025 |
$5.40 per share |
N |
N |
| Lender |
15,000 |
3/28/2022 |
3/28/2025 |
$7.50 per share |
N |
N |
| Lender |
15,000 |
4/27/2022 |
4/27/2025 |
$6.99 per share |
N |
N |
| Lender |
15,000 |
5/27/2022 |
5/27/2025 |
$5.12 per share |
N |
N |
| Lender |
33,333 |
5/19/2022 |
5/19/2027 |
$15.00 per share |
N |
N |
| Lender |
100,000 |
6/27/2022 |
6/27/2027 |
$15.00 per share |
N |
N |
| Lender |
15,000 |
6/26/2022 |
6/26/2025 |
$5.12 per share |
N |
N |
| Lender |
15,000 |
7/26/2022 |
7/26/2025 |
$5.12 per share |
N |
N |
| Lender |
100,000 |
7/5/2022 |
7/5/2027 |
$15.00 per share |
N |
N |
| Lender |
50,000 |
7/6/2022 |
7/6/2027 |
$15.00 per share |
N |
N |
| Lender |
50,000 |
7/6/2022 |
7/6/2027 |
$15.00 per share |
N |
N |
| Lender |
50,000 |
7/11/2022 |
7/11/2027 |
$15.00 per share |
N |
N |
| Lender |
100,000 |
8/11/2022 |
8/11/2027 |
$15.00 per share |
N |
N |
| Lender |
100,000 |
8/22/2022 |
8/22/2027 |
$15.00 per share |
N |
N |
| Lender |
100,000 |
8/22/2022 |
8/22/2027 |
$15.00 per share |
N |
N |
| Lender |
15,000 |
8/25/2022 |
8/25/2025 |
$5.10 per share |
N |
N |
| Lender |
15,000 |
9/24/2022 |
9/24/2025 |
$4.00 per share |
N |
N |
| Lender |
15,000 |
10/24/2022 |
10/24/2025 |
$3.30 per share |
N |
N |
| Lender |
75,000 |
11/10/2022 |
11/10/2027 |
$15.00 per share |
N |
N |
| Lender |
75,000 |
11/10/2022 |
11/10/2027 |
$15.00 per share |
N |
N |
| Lender |
15,000 |
11/23/2022 |
11/23/2025 |
$2.20 per share |
N |
N |
| Lender |
15,000 |
12/23/2022 |
12/23/2025 |
$3.30 per share |
N |
N |
| Lender |
15,000 |
1/22/2023 |
1/22/2026 |
$3.30 per share |
N |
N |
| Lender |
15,000 |
2/21/2023 |
2/21/2026 |
$1.03 per share |
N |
N |
| Lender |
15,000 |
3/21/2023 |
1/22/2026 |
$1.00 per share |
N |
N |
| Lender |
388,884 |
4/20/2023 |
4/20/2028 |
$1.00 per share |
N |
N |
| Lender |
15,000 |
4/23/2023 |
1/22/2026 |
$0.20 per share |
N |
N |
| Lender |
97,221 |
4/27/2023 |
4/27/2028 |
$0.25 per share |
N |
N |
| Lender |
60,000 |
4/30/2023 |
1/22/2026 |
$0.15 per share |
N |
N |
| Lender |
20,000 |
4/30/2023 |
1/22/2026 |
$0.15 per share |
N |
N |
__________
The following table summarizes the activity of options and warrants issued
and outstanding as of and for the three months ended
April 30, 2023:
Schedule of warrants issued and outstanding
| |
|
Options |
|
Weighted Average
Exercise Price |
|
Warrants |
|
Weighted Average
Exercise Price |
|
| Outstanding at January 31, 2023 |
|
250,000 |
|
$ |
4.00 |
|
1,609,728 |
|
$ |
13.49 |
|
| Granted |
|
— |
|
|
— |
|
611,105 |
|
|
0.75 |
|
| Exercised |
|
— |
|
|
— |
|
— |
|
|
— |
|
| Forfeited and canceled |
|
— |
|
|
— |
|
— |
|
|
— |
|
| Outstanding at April 30, 2023 |
|
250,000 |
|
$ |
4.00 |
|
2,220,833 |
|
$ |
9.98 |
|
NOTE 11 – RELATED PARTY TRANSACTIONS
As of April 30, 2023 and January 31, 2023, the
Company had $94,291
and $74,111, respectively of related party accrued expenses related to accrued compensation for employees and consultants.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
On August 30, 2016, the Company entered into a 60-month
lease agreement for its 3,554 sf warehouse facility starting in December 2016 with a minimum base rent of $2,132 and estimated monthly
CAM charges of $1,017 per month. This lease is with a shareholder.
On July 1, 2018, the Company entered into a 60-month
lease agreement with its minority shareholder for its 8,800 sf warehouse facility with a minimum base rent of $6,400 per month.
Schedule of minimum lease obligations
| Maturity of Lease Liabilities |
Operating
Leases |
|
| April 30 2024 |
$ |
42,803 |
|
| April 30, 2025 |
|
30,003 |
|
| April 30, 2025 |
|
30,003 |
|
| April 30, 2026 |
|
17,503 |
|
| Total lease payments |
|
120,312 |
|
| Less: Interest |
|
(5,889 |
) |
| Present value of lease liabilities |
$ |
114,423 |
|
The Company had total operating lease and rent expense
of $26,701 and $30,479 for the three months ended April 30, 2023 and 2022 respectively.
- 23 -
Table of Contents
NOTE 13 – EARNINGS (LOSS) PER SHARE
The net income (loss) per common share amounts were
determined as follows:
| |
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
| |
|
April 30, |
|
| |
|
2023 |
|
2022 |
|
| Numerator: |
|
|
|
|
|
|
|
| Net income (loss) available to common shareholders |
|
$ |
(2,871,291 |
) |
$ |
(2,594,158) |
|
| |
|
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
|
| Weighted average shares – basic |
|
|
2,060,429 |
|
|
1,342,433 |
|
| |
|
|
|
|
|
|
|
| Net income (loss) per share – basic |
|
$ |
(1.39 |
) |
$ |
(1.93 |
) |
| |
|
|
|
|
|
|
|
| Effect of common stock equivalents |
|
|
|
|
|
|
|
| Add: interest expense on convertible debt |
|
|
476,428 |
|
|
112,742 |
|
| Add: amortization of debt discount |
|
|
628,613 |
|
|
725,280 |
|
| Add (less): (gain) loss on settlement of debt on convertible notes |
|
|
54,756 |
|
|
— |
|
| Add (Less): loss (gain) on change of derivative liabilities |
|
|
1,006,700 |
|
|
337,737 |
|
| Net income (loss) adjusted for common stock equivalents |
|
|
(704,794 |
) |
|
(1,418,399 |
) |
| Dilutive effect of common stock equivalents: |
|
|
|
|
|
|
|
| Convertible notes and accrued interest |
|
|
— |
|
|
— |
|
| Convertible Class C Preferred shares |
|
|
— |
|
|
— |
|
| Warrants and options |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
|
| Weighted average shares – diluted |
|
|
2,060,429 |
|
|
1,342,433 |
|
| |
|
|
|
|
|
|
|
| Net income (loss) per share – diluted |
|
$ |
(1.39 |
) |
$ |
(1.93 |
) |
The anti-dilutive shares of common stock equivalents
for the three months ended April 30, 2023 and April 30, 2022 were as follows:
| |
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
| |
|
April 30, |
|
| |
|
2023 |
|
2022 |
|
| |
|
|
|
|
|
|
|
| Convertible notes and accrued interest |
|
|
65,499,076 |
|
|
701,281 |
|
| Options |
|
|
1,666,667 |
|
|
50,000 |
|
| Warrants |
|
|
15,611,885 |
|
|
670,550 |
|
| Total |
|
|
82,777,628 |
|
|
1,421,831 |
|
- 24 -
Table of Contents
NOTE 14 – SUBSEQUENT EVENTS
Subsequent to April 30, 2023 through to August 10,
2023:
• The Company first entered
into a $250,000 note with a lender on July 5, 2022 with a January 5, 2023 maturity. That note was amended on April 27, 2023 bringing it
to $327,000 now with a July 6, 2023 maturity. On June 1, 2023 the Company further amended this note with a second amendment. The Company
received $72,652 with an original issue discount of $8,850 bringing the value of the new note to $408,502 having total cash proceeds of
$367,6523 with a total original issue discount of $40,850. In addition, the Company issued 100,000 common shares and a warrant to acquire
up to 1,000,000 common shares at an exercise price of $0.00001 and a maturity upon full exercise of this warrant. On July 12, 2023, the
Company again amended the above note with a third amendment. The Company received $50,000 with an original issue discount of $25,000.
The principal value of this amended note is now $483,502.37 with total cash proceeds of $417,652.13 and total original issue discount
of $65,850.24. All other terms and conditions remain the same. Default interest is 18%.
• On July 17, 2023, the Company
entered into a convertible note for $127,500 with a January 17, 2024, maturity, interest rate of 10% with 255,000 common shares. The Company
will receive $115,000 and recorded an original issue discount of $11,500 along with fees of $1,000. The discount is amortized over the
term of the loan. The note is convertible at a price lower of $0.20 or 80% of closing market price prior to conversion date. The note
has certain default provisions such as failure to pay any principal or interest when due and failure to issue shares upon conversion.
In the event of these or any other default provisions, default interest is 18%. Penalty shares of 16.67% of the outstanding loan balance
is due if the note is not paid at maturity.
• On May 17, 2023 the Company entered into a Debt
Forgiveness Agreement with its former CEO. Total debt owed to the CEO was $99,110 and was forgiven in exchange for the Company's 2021
Ram Truck.
- 25 -
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this quarterly report as
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this quarterly report as
the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates
and predictions about future results and events. These statements may use words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “predict,” “project” and similar expressions
as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs
and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and
assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this quarterly report. Factors that can cause
or contribute to these differences include those described under the headings “Risk Factors” and “Management Discussion
and Analysis and Plan of Operation.”
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking
statement you read in this quarterly report reflects our current views with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent
written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety
by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this
quarterly report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking
statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements
will prove to be correct.
Company
The Auto Parts 4Less Group Inc. (“FLES”,
the “Company”, “we” or “us”), the Company described herein, was incorporated
under the laws of the State of Nevada on December 5, 2007, with offices located at 106 W Mayflower, Las Vegas, Nevada 89030. Our phone
number is (702) 267-7100.
Nature of Business – Auto Parts 4Less
Group Inc., formerly known The 4Less Group, Inc. and as MedCareers Group, Inc. (the “Company”, “MCGI”), was incorporated
under the laws of the State of Nevada on December 5, 2007.
On November 29, 2018, the Company entered into a transaction
(the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of The
4Less Corp. (“4LESS”), in exchange for the issuance of (i) nineteen thousand (19,000) shares of Series B Preferred Stock,
(ii) six thousand seven hundred fifty (6,750) shares of Series C Preferred Stock, and (iii) 870 shares of Series D Preferred Stock. The
Series C Preferred Shares have a right to convert into common stock of the Company by multiplying the number of issued and outstanding
shares of common stock by 2.63 on the conversion date. The Share Exchange closed on November 29, 2018. As a result of the Share
Exchange, the former shareholders of 4LESS became the controlling shareholders of the Company. The Share Exchange was accounted for
as a reverse takeover/recapitalization effected by a share exchange, wherein 4LESS is considered the acquirer for accounting and financial
reporting purposes. The capital, share price, and earnings per share amount in these consolidated financial statements for the period
prior to the reverse merger were restated to reflect the recapitalization in accordance with the shares issued as a result of the reverse
merger except otherwise noted.
On November 19, 2019 The 4Less Group acquired the
URL Autoparts4Less.com and changed the name of their wholly owned subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc. On
April 28, 2022 the Company changed its name from The 4LESS Group, Inc. to Auto Parts 4Less Group, Inc.
Our Business
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.
- 26 -
Table of Contents
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 large sellers, which included not only ecommerce sites presently selling
parts online, but also interest from other large parts sellers such as warehouse distributors, new car dealers with large inventories
of parts as well as brick and mortar parts retailers looking to move sales online, the platform originally created would soon be inadequate.
As such, the Company made the decision to upgrade to a larger and more advanced platform solution so they immediately began implementation
of the AWS Fargate serverless platform solution.
The platform upgrade was completed
in the 1st quarter FYE 2023, with marketplace sales expected to begin in 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.
Results of Operations for the Three Months Ended April 30, 2023 Compared
to the Three Months Ended April 30, 2022
The following table shows our results of operations
for the three months ended April 30, 2023 and 2022. The historical results presented below are not necessarily indicative of the results
that may be expected for any future period.
| |
|
|
|
|
|
Change |
|
| |
|
2023 |
|
2022 |
|
$ |
|
% |
|
| Total Revenues |
|
$ |
136,064 |
|
$ |
1,729,930 |
|
$ |
(1,593,866 |
) |
(92% |
) |
| Gross Profit |
|
|
122,740 |
|
|
261,927 |
|
|
(139,187 |
) |
(53% |
) |
| Total Operating Expenses |
|
|
529,260 |
|
|
1,282,955 |
|
|
(753,695 |
) |
(59% |
) |
| Total Other Income (Expense) |
|
|
(2,464,771 |
) |
|
(1,573,130 |
) |
|
(891,641 |
) |
(57% |
) |
| Net Income (Loss) |
|
$ |
(2,871,291 |
) |
$ |
(2,594,158 |
) |
$ |
(277,133 |
) |
(11% |
) |
Revenue
The following table shows revenue split between proprietary
and third-party website revenue for the three months ended April 30, 2023 and 2022:
| |
|
|
|
|
|
Change |
|
| |
|
2023 |
|
2022 |
|
$ |
|
% |
|
| Proprietary website and marketplace revenues |
|
$ |
106,833 |
|
$ |
1,236,243 |
|
$ |
(1,129,410 |
) |
(91% |
) |
| Third party website revenues |
|
|
29,231 |
|
|
493,687 |
|
|
(464,456 |
) |
(94% |
) |
| Total Revenues |
|
$ |
136,064 |
|
$ |
1,729,930 |
|
$ |
(1,593,866 |
) |
(92% |
) |
- 27 -
Table of Contents
We had total revenue of $136,064 for the three months
ended April 30, 2023, compared to $1,729,930 for the three months ended April 30, 2022. Sales decreased by $1,129,410. For the three months
ended April 30, 2023, the Company began selling off its inventory and transitioning its business to the newly developed autoplarts4less.com
marketplace. For the three months ended April 30, 2023, marketplace revenues were $13,516 ($2022 - $0). There are no associated cost of
sales with these revenues as they represent fees earned on sales. However, sales fell dramatically since the Company is only concentrating
on the new marketplace which is its future and continues cutting costs associated with its old business model.
Gross Profit
We had gross profit of $122,740 for the three
months ended April 30, 2023, compared to gross profit of $261,927 for the three months ended April 30, 2022. Gross profit decreased
by $139,187 as a result of the decreased revenues explained above. However in terms of gross profit % there was a large increase
from 15% in 2022 to 90% in 2023. We saw this due to realizations of inventory sold that was written off and reversals of deferred
revenue and deposits previously accrued. As well, the marketplace revenue are fees earned on sales and have no associated cost of
sale.
Operating Expenses
The following table shows our operating expenses for
the three months ended April 30, 2023 and 2022:
| |
|
|
|
|
|
Change |
|
| |
|
2023 |
|
2022 |
|
$ |
|
% |
|
| Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
$ |
12,417 |
|
$ |
12,938 |
|
$ |
(521 |
) |
(4% |
) |
| Postage, Shipping and Freight |
|
|
5,744 |
|
|
74,698 |
|
|
(68,954 |
) |
(92% |
) |
| Marketing and Advertising |
|
|
74,889 |
|
|
274,427 |
|
|
(199,538 |
) |
(73% |
) |
| E Commerce Services, Commissions and Fees |
|
|
180,929 |
|
|
330,697 |
|
|
(149,768 |
) |
(45% |
) |
| Operating lease cost |
|
|
26,701 |
|
|
30,479 |
|
|
(3,778 |
) |
(12% |
) |
| Personnel Costs |
|
|
81,484 |
|
|
205,299 |
|
|
(123,815 |
) |
(60% |
) |
| General and Administrative |
|
|
147,096 |
|
|
354,417 |
|
|
(207,321 |
) |
(58% |
) |
| Total Operating Expenses |
|
$ |
529,260 |
|
$ |
1,282,955 |
|
$ |
(753,695 |
) |
(59% |
) |
• Depreciation decreased by $520.
• Postage shipping and freight decreased
by $68,954 due to lower sales, fewer shipments as a result of new focus on marketplace.
• Marketing and advertising decreased
by $199,539 due to cost cutting and limiting spend on new marketplace.
• E Commerce Services, Commissions
and Fees decreased by $149,768 due to lower sales.
• Personnel Costs decreased by $123,815
due to staff reductions as a result of lower demand and CEO not taking a salary in 2023.
• General and Administrative decreased
by $207,321 due to a decreases of the following: $121,830 due to lower legal and accounting costs, $49,478 lower sub-contractors due
to less outside work being needed for new marketplace compared to websites $22,410 decreases in insurance costs due to lower health plan
costs on fewer employees, with the remaining decrease to office expenses.
Other Income (Expense)
The following table shows our other income and expenses
for the three months ended April 30, 2023 and 2022:
| |
|
|
|
|
|
Change |
|
| |
|
2023 |
|
2022 |
|
$ |
|
% |
|
| Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
| Gain (Loss) on Derivatives |
|
$ |
(1,006,700 |
) |
$ |
(337,737 |
) |
$ |
(668,963 |
) |
(198% |
) |
| Gain on Settlement of Debt |
|
|
(53,756 |
) |
|
3,589 |
|
|
(57,345 |
) |
(1,598% |
) |
| Amortization of Debt Discount |
|
|
(628,613 |
) |
|
(725,280 |
) |
|
(96,667 |
) |
(13% |
) |
| Interest Expense |
|
|
(775,702 |
) |
|
(513,702 |
) |
|
(262,000 |
) |
(51% |
) |
| Total Other Income (Expense) |
|
$ |
(2,464,771 |
) |
$ |
(1,573,130 |
) |
$ |
(891,641 |
) |
(57% |
) |
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Table of Contents
The changes above can be explained by the
increases in loss on derivatives and interest expense this quarter ended April 30, 2023. Debt increases, yet many notes reaching
maturity led to an increase in interest expenses and slight decrease in amortization. The penalties added to the loans increased the
loss on the derivatives.
We had a net loss of $2,871,291 for three months ended
April 30, 2023, compared to net loss of $2,594,158 for three months ended April 30, 2022. The increase in net loss was mainly due to the
increase in other expense offset partially by the lower operating costs.
Liquidity and Capital Resources
Management believes that we will continue to incur
losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive
cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern.
Our unaudited consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification
of liabilities that may be necessary should we be unable to continue as a going concern.
As of April 30, 2023, we had a cash balance of $53,713,
inventory of $45,289 and $23,257,757 in current liabilities. At the current cash consumption rate, we will need to consider additional
funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.
The successful outcome of future activities cannot
be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business
plan or generate positive operating results.
Capital Resources
The following table summarizes total current assets,
liabilities and working capital (deficit) for the periods indicated:
| |
|
April 30, 2023 |
|
January 31, 2023 |
|
| Current assets |
|
$ |
121,104 |
|
$ |
97,745 |
|
| Current liabilities |
|
|
23,257,757 |
|
|
20,768,832 |
|
| Working capital (deficits) |
|
$ |
(23,136,653 |
) |
$ |
(20,671,087 |
) |
Net cash used in operations for the three months ended
April 30, 2023 was $427,328 as compared to net cash used in operations of $1,725,709 for the three months ended April 30, 2022. Net cash
used in investing activities for the three months ended April 30, 2023 was $0 as compared to $1,142 for the same period in 2022. Net cash
provided by financing activities for the three months ended April 30, 2023 was $476,304 as compared to $2,110,413 for the three months
ended April 30, 2022.
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk.
Pursuant to Item 305(e) of Regulation S-K (§
229.305(e)), we are not required to provide the information required by this Item as it is a “smaller reporting company,”
as defined by Rule 229.10(f)(1).
ITEM 4. Controls and Procedures
(a) Evaluation
of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness
of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded
that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information
we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Moving forward, we hope that our Chief Executive Officer and Principal Financial Officer will be able to devote the
additional time and effort required so that our disclosure controls and procedures can become effective. Notwithstanding the assessment
that our internal controls and procedures were not effective, we believe that our financial statements contained in this Quarterly Report
for the quarter ended April 30, 2023 fairly present our financial position, results of operations and cash flows for the years and months
covered thereby in all material respects.
(b) Changes
in internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent
fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
- 29 -
Table of Contents
PART II — OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
Recent Sales of Unregistered Securities
Common Stock
On March 16, 2023, we issued an aggregate of 100,000
shares of Common Stock to a supplier for $1.00 per share as payment for services.
On March 16, 2023, we issued an aggregate of 6,000
shares of Common Stock to a supplier for $1.00 per share as payment for services.
On April 13, 2023, we issued an aggregate of 61,958
shares of Common Stock to a supplier for $1.00 per share as payment for services.
On April 20, 2023, pursuant to the senior secured
promissory note issued to Auctus Fund, LLC, we issued 50,000 shares of Common Stock to the lender.
Warrants
On April 20, 2023, pursuant to the senior secured
promissory note issued to Auctus Fund, LLC, we issued warrants to purchase 388,884 shares of Common Stock to the lender.
On April 27, 2023, pursuant to the amended and restated
promissory note issued to AJB Capital Investment LLC, we issued warrants to purchase 97,221 shares of Common Stock to the lender.
Convertible Promissory Notes
On April 20, 2023, we issued a senior secured promissory
note in the principal amount of $77,000 to Auctus Fund, LLC.
On April 27, 2023, we issued an amended and restated
promissory note to AJB Capital Investments LLC in the principal amount of $327,000.
The sales of the securities above were made in reliance
on Section 4(a)(2) under the Securities Act and were made without general solicitation or advertising. The securities offered have not
been registered under the Securities Act, and may not be offered or sold in the United States without registration or an applicable exemption
from the registration requirements of the Securities Act. There were no sales commissions paid in connection with the sales of these securities.
Item 6. Exhibits
See the Exhibit Index immediately following the signature
page of this Report on Form 10-Q.
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Auto Parts 4Less Group, Inc.
By: /s/ Christopher Davenport
Christopher Davenport
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial and Accounting Officer)
Date: August 14, 2023
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Table of Contents
EXHIBIT INDEX
__________
* Filed herewith.
** In accordance with Regulation S-T, the Interactive
Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
- 31 -