Auto Parts 4Less Group, Inc. - Quarter Report: 2021 July (Form 10-Q)

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2021

[_] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

From the transition period ___________ to ____________.

Commission File Number 333-152444

THE 4LESS GROUP, INC.

(Exact name of small business issuer as specified in its charter)

Nevada		7389		90-1494749
(State or jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(IRS Employer Identification No.)

106 W. Mayflower, Las Vegas, NV 89030

(Address of principal executive offices)

(702) 267-6100

(Issuer’s telephone number)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FLES	OTCQB

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes [X] No [_]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [_].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer [_] Accelerated Filer [_]

Non-Accelerated Filer [X] Smaller Reporting Company [X] Emerging Growth Company [_]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act):

Yes [_] No [X]

As of September 10, 2021, there were 3,326,914 shares of Common Stock of the issuer outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24

ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	30

ITEM 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION	30

ITEM 1.	Legal Proceedings	30

ITEM 1A.	Risk Factors	30

ITEM 2.	Unregistered Sales of Securities and Use of Proceeds	30

ITEM 3.	Default Upon Senior Securities	31

ITEM 4.	Mine Safety Disclosures	31

ITEM 5.	Other Information	31

ITEM 6.	Exhibits	31

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PART 1: FINANCIAL INFORMATION

ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets


	July 31, 2021			January 31, 2021
	Unaudited			(*)
Assets
Current Assets
Cash and Cash Equivalents	$	382,491		$	277,664
Share Subscriptions Receivable		4,195			100,000
Inventory		318,107			323,411
Prepaid Expenses		10,881			11,859
Other Current Assets		8,063			2,149
Total Current Assets		723,737			715,083
Operating Lease Assets		295,819			344,413
Deferred Offering Costs		600,000			—
Property and Equipment, net of accumulated depreciation of $96,989, and $88,823		238,188			80,027

Total Assets	$	1,857,744		$	1,139,523

Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts Payable	$	708,274		$	869,765
Accrued Expenses		505,922			1,382,839
Accrued Expenses – Related Party		71,173			106,173
Customer Deposits		164,900			188,385
Deferred Revenue		298,711			687,766
Short-Term Debt		1,500,473			716,142
Current Operating Lease Liability		77,570			90,286
Short-Term Convertible Debt, net of debt discount of $484,665 and $309,317		639,860			336,683
Derivative Liabilities		415,177			213,741
PPP Loan-current portion		104,198			43,294
Current Portion – Long-Term Debt		444,724			424,064
Total Current Liabilities		4,930,982			5,059,138

Non-Current Lease Liability		211,195			244,049
PPP Loan -long term portion		105,249			166,153
Long-Term Debt		911,272			890,373

Total Liabilities		6,158,698			6,359,713

Commitments and Contingencies		—			—
Redeemable Preferred Stock
Series D Preferred Stock, $0.001 par value, 870 shares authorized, 870 and 870 shares issued and outstanding		870,000			870,000

Stockholders’ Deficit
Preferred Stock – Series A, $0.001 par value, 330,000 shares authorized, 0 and 0 shares issued and outstanding		—			—
Preferred Stock – Series B, $0.001 par value, 20,000 shares authorized, 20,000 and 20,000 shares issued and outstanding		20			20
Preferred Stock – Series C, $0.001 par value, 7,250 shares authorized, 7,250 and 7,250 shares issued and outstanding		7			7
Common Stock, $0.000001 par value, 15,000,000 shares authorized, 2,800,973 and 1,427,163 shares issued, issuable and outstanding		3			1
Additional Paid In Capital		17,530,799			14,291,759
Accumulated Deficit		(22,701,783	)		(20,381,977	)
Total Stockholders’ Deficit		(5,170,954	)		(6,090,190	)

Total Liabilities and Stockholders’ Deficit	$	1,857,744		$	1,139,523

Derived from audited information

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended July 31, 2021 and July 31, 2020

(Unaudited)


	Three Months Ended						Six Months Ended
	July 31, 2021			July 31, 2020			July 31, 2021			July 31, 2020

Revenue	$	2,586,673		$	2,927,209		$	6,315,457		$	4,927,280

Cost of Revenue		1,933,984			2,001,592			4,700,562			3,429,896

Gross Profit		652,689			925,617			1,614,895			1,497,384

Operating Expenses:
Depreciation		12,716			5,951			23,451			12,598
Postage, Shipping and Freight		142,562			151,755			335,749			264,893
Marketing and Advertising		659,290			5,782			1,267,324			23,850
E Commerce Services, Commissions and Fees		309,610			252,848			725,737			419,267
Operating lease cost		30,480			34,079			60,959			68,158
Personnel Costs		461,700			232,869			759,193			499,604
General and Administrative		464,636			159,223			1,113,145			334,865
Total Operating Expenses		2,080,994			842,507			4,285,558			1,623,235

Net Operating Income (Loss)		(1,428,305	)		83,110			(2,670,663	)		(125,851	)

Other Income (Expense)
Gain (Loss) on Sale of Property and Equipment		20,345			464			20,345			464
Gain (Loss) on Derivatives		(16,294	)		506,979			(12,107	)		432,199
Gain on Settlement of Debt		49,317			—			963,366			2,172,646
Amortization of Debt Discount		(183,408	)		(47,898	)		(311,936	)		(626,811	)
Interest Expense		(193,904	)		(147,693	)		(308,811	)		(270,787	)
Total Other Income (Expense)		(323,944	)		311,852			350,857			1,707,711

Net Income (Loss)	$	(1,752,249	)	$	394,962		$	(2,319,806	)	$	1,581,860

Basic Weighted Average Shares Outstanding;		2,614,311			763,214			2,282,792			660,668
Basic Income (Loss) per Share	$	(0.67	)	$	0.52		$	(1.02	)	$	2.39

Diluted Average Shares Outstanding;		2,614,311			51,179,725			2,282,792			51,077,179
Diluted Income (Loss) per Share	$	(0.67	)	$	0.00		$	(1.02	)	$	0.00

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Six Months Ended July 31, 2021 and July 31, 2020

(Unaudited)


	Preferred Series A			Preferred Series B			Preferred Series C			Common Stock			Paid in		Retained
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings			Total

Balance at January 31, 2020	—	$	—	20,000	$	20	6,750	$	7	538,464	$	1	$	13,449,336	$	(21,569,153	)	$	(8,119,789	)

Conversion of Notes Payable to Common Stock	—		—	—		—	—		—	82,361		—		3,399		—			3,399

Derivative Liability Reclassified as Equity Upon Conversion of notes	—		—	—		—	—		—	—		—		8,104		—			8,104

Exchange of Debt	—		—	—		—	250		—	—		—		9,105		—			9,105

Net Income	—		—	—		—	—		—	—		—		—		1,186,898			1,186,898

Balance at April 30, 2020	—	$	—	20,000	$	20	7,000	$	7	620,825	$	1	$	13,469,944	$	(20,382,255	)	$	(6,912,283	)

Conversion of Notes Payable to Common Stock	—		—	—		—	—		—	284,187		—		7,656		—			7,656

Derivative Liability Reclassified as Equity Upon Conversion of notes	—		—	—		—	—		—	—		—		12,081		—			12,081

Net Income	—		—	—		—	—		—	—		—		—		394,962			394,962

Balance at July 31, 2020	—	$	—	20,000	$	20	7,000	$	7	904,972	$	1	$	13,489,681	$	(19,987,293	)	$	(6,497,584	)

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	Preferred Series A			Preferred Series B			Preferred Series C			Common Stock			Paid in		Retained
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings			Total

Balance at January 31, 2021	—		—	20,000		20	7,250		7	1,427,163		1		14,291,759		(20,381,977	)		(6,090,190	)

Common Stock Issued as Payment for Fees	—		—	—		—	—		—	50,000		—		107,500		—			107,500

Issuance of Common Stock as Part of REG A Subscription	—		—	—		—	—		—	1,097,250		1		2,194,499		—			2,194,500

Rounding	—		—	—		—	—		—	—		1		—		—			1

Net (Loss)	—		—	—		—	—		—	—		—		—		(567,557	)		(567,557	)

Balance at April 30, 2021	—	$	—	20,000	$	20	7,250	$	7	2,574,413	$	3	$	16,593,758	$	(20,949,534	)	$	(4,355,746	)

Conversion of Notes Payable and Accrued Interest and Fees to Common Stock	—		—	—		—	—		—	30,000		—		59,100		—			59,100

Derivative Liability Reclassified as Equity Upon Conversion of notes	—		—	—		—	—		—	—		—		17,640		—			17,640

Issuance of shares	—		—	—		—	—		—	104,750		—		200,500		—			200,500

Relative fair value of equity issued with debt	—		—	—		—	—		—	91,810		—		59,801		—			59,801

Issuance of warrants	—		—	—		—	—		—	—		—		600,000		—			600,000

Net (Loss)	—		—	—		—	—		—	—		—		—		(1,752,249	)		(1,752,249	)

Balance at July 31, 2021	—	$	—	20,000	$	20	7,250	$	7	2,800,973	$	3	$	17,530,799	$	(22,701,783	)	$	(5,170,954	)

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended July 31, 2021 and July 31, 2020

(Unaudited)

	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	(2,319,806	)	$	1,581,860
Adjustments to reconcile net income (loss) to cash used by operating activities:
Depreciation		23,451			12,598
(Gain) loss in Fair Value on Derivative Liabilities		12,107			(432,199	)
Amortization of Debt Discount		311,936			626,811
Loan Penalties Capitalized to Loan and Accrued Interest		28,000			3,394
Stock Based Payment of Consulting Fees and Shares		273,500			—
Gain on Sale of Property and Equipment		(20,345	)		(464	)
Gain on Settlement of Debt		(963,366	)		(2,172,646	)
Change in Operating Assets and Liabilities:
Decrease in Inventory		5,305			81,322
Decrease in Prepaid Rent and Expenses		4,001			20,870
(Increase) Decrease in Other Current Assets		(5,914	)		2,271
Decrease in Accounts Payable		(156,368	)		(115,251	)
Increase (Decrease) in Accrued Expenses		(31,292	)		231,207
Decrease in Accrued Expenses -Related Party		(35,000	)		—
Decrease in Customer Deposits		(23,485	)		—
Decrease in Deferred Revenue		(389,055	)		—
CASH FLOWS (USED IN) OPERATING ACTIVITIES		(3,286,331	)		(160,227	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds of Sales of Property and Equipment		25,060			9,750
Purchase of Property and Equipment		(35,000	)		—
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES		(9,940	)		9,750

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Common Shares		2,324,805			—
Proceeds from Short Term Debt		1,000,000			205,000
Proceeds from Convertible Notes Payable		699,525			—
Payments on Short Term Debt		(313,009	)		(302,913	)
Proceeds from PPP Loan		—			209,447
Payments on Long Term Debt		(9,223	)		(1,891	)
Payments on Convertible Notes Payable		(301,000	)		—
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		3,401,098			109,643

NET INCREASE IN CASH		104,827			(40,834	)

CASH AT BEGINNING OF PERIOD		277,664			162,124

CASH AT END OF PERIOD	$	382,491		$	121,290

Supplemental Disclosure of Cash Flows Information:
Cash Paid for Interest	$	132,085		$	29,358
Convertible Notes Interest and Derivatives Converted to Common Stock	$	76,740		$	31,240
Short Term Debt and Interest Extinguished Through Issuance of Series C Preferred Stock	$	—		$	144,076
Convertible Notes and Interest Extinguished Through Issuance of Series C Preferred Stock	$	—		$	1,245,456
Fair Value of Instruments Issued With Debt	$	487,284		$	—
Issuance of Warrants to Deferred Offering Costs	$	600,000		$	—
Issuance of Common Shares for Share Subscription Receivable	$	10,488		$	—
Loans to acquire Fixed Assets	$	151,327		$	—

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

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THE 4LESS GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Business:

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

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

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

Significant Accounting Policies:

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

Basis of Presentation:

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

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

Principles of Consolidation:

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

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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 six months ended July 31, 2021 the Company purchased approximately 61% of its inventory and items available for sale from third parties from three vendors. As of July 31, 2021, the net amount due to the vendors included in accounts payable was $389,868. For the six months ended July 31, 2020 the Company purchased approximately 55% of its inventory and items available for sale from third parties from three vendors. As of July 31, 2020, the net amount due to those vendors included in accounts payable was $171,928. The Company believes there are numerous other suppliers that could be substituted should a supplier become unavailable or non-competitive.

Leases

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

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

Income Taxes

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

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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 July 31, 2021:

	July 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	$	415,177	$	—	$	—	$	415,177
Totals	$	415,177	$	—	$	—	$	415,177

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.

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The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock. However, because the historical volatility of the Company’s common stock is so high (see Note 10), the sensitivity required to change the liability by 1% as of July 31, 2021 is greater than 25% change in historical volatility as of that date. The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

Revenue Recognition

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

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

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

Disaggregation of Revenue: Channel Revenue

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

					Change
	2021		2020		$			%
Proprietary website revenue	$	3,946,810		2,403,120	$	1,543,690		64%
Third party website revenue		2,368,647		2,524,160		(155,513	)	(6%	)
Total Revenue	$	6,315,457	$	4,927,280	$	1,388,177		28%

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

Stock-Based Compensation:

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

Earnings (Loss) Per Common Share:

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

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

Recently Issued Accounting Standards:

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

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

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

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

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

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 $22,701,783 as of July 31, 2021 and has a working capital deficit at July 31, 2021 of $4,207,245. As of July 31, 2021, the Company only had cash and cash equivalents of $382,491 and approximately $151,000 of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. Our current liquidity position raises substantial doubt about the Company’s ability to continue as a going concern.

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

NOTE 3 – PROPERTY

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

	July 31, 2021			January 31, 2021
Office furniture, fixtures and equipment	$	85,413		$	85,413
Shop equipment		43,004			43,004
Vehicles		206,760			40,433
Sub-total		335,177			168,850
Less: Accumulated depreciation		(96,989	)		(88,823	)
Total Property	$	238,188		$	80,027

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Additions to fixed assets for the six months ended July 31, 2021 and were $186,327 with $35,000 paid in cash and $151,327 financed through vehicle loans. Additions to fixed assets were nil for the six months ended July 31, 2020.

For the three months ended July 31, 2021 , vehicles having a cost of $20,000 and a net book value of $4,715 was disposed of. Proceeds received of $25,060 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 quarter ended July 31, 2020. Proceeds received of $9,750 and a gain on sale of property and equipment of $464 were recorded.

Depreciation expense was $12,716 and $5,951 for the three months ended July 31, 2021 and July 31, 2020, respectively.

Depreciation expense was $23,451 and $12,598 for the six months ended July 31, 2021 and July 31, 2020, respectively

NOTE 4 – LEASES

We lease certain warehouses and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. 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 July 31, 2021 and January 31, 2021.

Leases	Classification	July 31, 2021		January 31, 2021
Assets
Operating	Operating Lease Assets	$	295,819	$	344,413
Liabilities
Current
Operating	Current Operating Lease Liability	$	77,570	$	90,286
Noncurrent
Operating	Noncurrent Operating Lease Liabilities		211,195		244,049
Total lease liabilities		$	288,765	$	334,335

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

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

Operating lease cost and rent was $30,480 and $34,079 for the three months ended July 31, 2021 and July 31, 2020, respectively.

Operating lease cost and rent was $60,959 and $68,158 for the six months ended July 31, 2021 and July 31, 2020, respectively.

NOTE 5 – CUSTOMER DEPOSITS

The Company receives payments from customers on orders prior to shipment. At July 31, 2021 the Company had received $164,900 (January 31, 2021- $188,385) in customer deposits for orders that were unfulfilled at July 31, 2021 and canceled subsequent to quarter end. The orders were unfulfilled at July 31, 2021 because of supply chain issues due to supplier back-orders because of the Covid-19 pandemic. The deposits were returned to the customers subsequent to July 31, 2021.

NOTE 6 – DEFERRED REVENUE

The Company receives payments from customers on orders prior to shipment. At July 31, 2021 the Company had received $298,711 (January 31, 2021- $687,766) in customer payments for orders that were unfulfilled at July 31, 2021 and delivered subsequent to July 31, 2021. The orders were unfulfilled at July 31, 2021 because of supply chain issues due to supplier back-orders because of the Covid-19 pandemic as well as processing and delivery timing.

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NOTE 7 – PPP LOAN

On May 2, 2020 the Company entered into a Paycheck Protection Promissory (PPP) Note Agreement whereby the lender would advance proceeds of $209,447 at a fixed rate of 1% per annum and a May 2, 2022 maturity. The loan is repayable in monthly installments of $8,818 commencing September 2, 2021 and continuing on the second day of every month thereafter until maturity when any remaining principal and interest are due and payable. At July 31, 2021 the loan is classified as $104,198 current and $105,249 long-term. The Company used the proceeds of this loans for working capital and the Company intends to use these proceeds in a manner consistent with obtaining loan forgiveness. The Company has filed its forgiveness application and expects to have a response before the end of its third fiscal quarter.

NOTE 8 – SHORT-TERM AND LONG-TERM DEBT

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

	July 31,			January 31,
	2021			2021
Loan dated October 8, 2019, and revised February 29, 2020 and November 10, 2010 repayable June 30, 2022 with an additional interest payment of $20,000⁽³⁾	$	97,340	*	$	102,168
SFS Funding Loan, original loan of $389,980 January 8, 2020, 24% interest, weekly payments of $6,006, maturing July 28, 2021⁽²⁾		3,615	*		161,227
Forklift Note Payable, original note of $20,433 September 26, 2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023⁽¹⁾		10,255	#		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 $90,685.		87,989	#		—
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 $84,371.		57,752	#		—
Working Capital Note Payable - $500,000, dated June 4, 2021, repayment of $12,789 per week until June 4, 2022, interest rate of approximately 31%^(2,3)		448,539	*		—
Working Capital Note Payable - $500,000, dated June 4, 2021, repayment of $12,212 per week until June 4, 2022, interest rate of approximately 26%^(2,3)		446,064	*		—
Demand loan - $5,000 dated February 1, 2020, 15% interest, 5% fee on outstanding balance		5,000	*		5,000
Demand loan - $2,500, dated March 8, 2019, 25% interest, 5% fee on outstanding balance		2,500	*		2,500
Demand loan - $65,500 dated February 27, 2019, 25% interest, 5% fee on outstanding balance. Secured by the general assets of the Company.		12,415	*		12,415
Promissory note - $60,000 dated September 18, 2020 maturing September 18, 2021, including $5,000 original issue discount, 15% compounded interest payable monthly		60,000	*		60,000
Promissory note - $425,000 dated August 28, 2020, including $50,000 original issue discount, 15% compounded interest payable monthly. This note matures when the Company receives proceeds through a financing event of $825,000 plus accrued interest on the note.⁽⁴⁾		425,000	*		425,000
Promissory note - $1,200,000 dated August 28, 2020, maturing August 28, 2022, 12% interest payable monthly with the first six months interest deferred until the 6th month and added to principal⁽⁵⁾		1,200,000	#		1,200,000
Promissory note - $50,000 dated August 31, 2020, maturing February 28, 2021, 10% interest payable accrued monthly payable at maturity Fully repaid at April 30, 2021		—			50,000
Total	$	2,856,469		$	2,030,579

	July 31,		January 31,
	2021		2021
Short-Term Debt	$	1,500,473	$	716,142
Current Portion Of Long-Term Debt		444,724		424,064
Long-Term Debt		911,272		890,373
Total, Debt	$	2,856,469	$	2,030,579

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____________________

*	Short-term loans
#	Long-term loans of: $10,255 including current portion of $3,812
	$ 87,989 including current portion $13,334
	$ 57,752 including current portion $7,578
	$1,200,000 including current portion of $420,000
(1)	Secured by equipment having a net book value of $10,921
(2)	The amounts due under the note are personally guaranteed by an officer or a director of the Company.
(3)	On November 10, 2020 the Company amended the agreement extending the maturity to June 30, 2022 from April 8, 2021 and changing monthly payments to $0 from $5,705 and interest rate from 13% to a $20,000 lump sum payable at maturity.
(3)	The Company has pledged a security interest on all accounts receivable and banks accounts of the Company.
(4)	Financing event would be a sale or issuance of assets, debt, shares or any means of raising capital. As the Company expects to enter into such a transaction within the calendar year this loan is treated as current.
(5)	Secured by all assets of the Company. Loan payable in 2 instalments, $445,200 payable August 28, 2021 and $826,800 payable August 28, 2022

NOTE 9 – SHORT-TERM CONVERTIBLE DEBT

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

	Interest	Default Interest	Conversion	Outstanding Principal at
Maturity Date	Rate	Rate	Price	July 31, 2021			January 31, 2021
Nov 4, 2013(a)	12%	12%	$1,800,000	$	100,000		$	100,000
Jan 31, 2014(a)	12%	18%	$2,400,000		16,000			16,000
July 31, 2013(a)	12%	12%	$1,440,000		5,000			5,000
Jan 31, 2014(a)	12%	12%	$2,400,000		30,000			30,000
Oct. 12, 2021	12%	16%	⁽¹⁾		28,000			230,000
Nov. 16, 2021	12%	16%	⁽¹⁾		69,400			100,000
Nov. 23, 2021	12%	16%	⁽¹⁾		66,000			165,000
July 7, 2022	12%	16%	⁽²⁾		231,000			—
July 12, 2022	12%	16%	$2.00		355,000			—
July 23, 2022	10%	22%	⁽²⁾		224,125			—
Sub-total					1,124,525			646,000
Debt Discount					(484,665	)		(309,317	)
				$	639,860		$	336,683

____________________

(a)	In default
(1)	Closing bid price on the day preceding the conversion date.
(2)	Closing bid price on the day preceding the conversion date in the event of default.

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 30,960 shares as a commitment fee and recognized $31,005 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan.

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

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.

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The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that some instruments should be classified as liabilities due to there being a variable number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the embedded conversion option resulted in a discount to the note on the debt modification date. For the six months ended July 31, 2021 and 2020, the Company recorded amortization of debt discount expense of $311,936 and $626,811, respectively. For the three months ended July 31, 2021 and 2020, the Company recorded amortization of debt discount expense of $183,407 and $47,898, respectively.

During the three and six months ended July 31, 2021, the Company converted a total of $56,600 of the convertible notes and $3,500 of fees into 30,000 common shares.

During the three months ended July 31, 2021 and July 31, 2020 the Company added $nil and $3,394 in penalty interest to the loan, respectively. During the six months ended July 31, 2021 and July 31, 2020 the Company added $28,000 and $3,394 in penalty interest to the loan, respectively.

The Company had accrued interest payable of $210,124 and $240,713 on the notes at July 31, 2021 and January 31, 2021, respectively.

As of July 31, 2021, the Company had $151,000 of aggregate debt in default. The agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company continues to accrue interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.

NOTE 10 – DERIVATIVE LIABILITIES

As of July 31, 2021 and January 31, 2021, the Company had derivative liabilities of $415,177 and $213,741, respectively. During the three months ended July 31, 2021 and 2020, the Company recorded a loss of $16,294 and a gain of $506,979, respectively, from the change in the fair value of derivative liabilities. During the six months ended July 31, 2021 and 2020, the Company recorded a loss of $12,107 and a gain of $432,199, 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 July 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.

	Level 3
	Derivatives
Balance, January 31, 2021	$	213,741
Settlement due to Repayment of Debt		(109,914	)
Changes due to Issuance of New Convertible Notes		316,883
Changes due to Conversion of Notes Payable		(17,640	)
Mark to Market Change in Derivatives		12,107
Balance, July 31, 2021	$	415,177

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

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

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The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of July 31, 2021 is as follows:

		Embedded Derivative Liability As of July 31, 2021
Strike price		$2.00 - $2.11
Contractual term (years)		0.25 - 0.97 years
Volatility (annual)		56.4% - 200.0%
High yield cash rate		24.90% - 29.42%
Underlying fair market value		$2.11
Risk-free rate		0.11% - 0.18%
Dividend yield (per share)		0%

NOTE 11 – STOCKHOLDERS’ DEFICIT

Preferred Stock:

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

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

At both July 31, 2021 and January 31, 2021, there were 7,250 and 7,250 Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 7,250 Series C preferred shares authorized and issued with a par-value of $0.001 per share. The Series C Preferred Stock shall eventually convert on December 31, 2024.

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

OPTIONAL REDEMPTION.

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

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

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

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

Neither the Company nor any Series D preferred stockholders has given notice to exercise the redemption as of July 31, 2021 on the date of the financial statements.

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

Common Stock

The Company is authorized to issue 15,000,000 common shares at a par value of $0.000001 per share. These shares have full voting rights. The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At July 31, 2021 and January 31, 2021 there were 2,800,973 and 1,427,163 shares outstanding and issuable, respectively. No dividends were paid in the six months ended July 31, 2021 or 2020. The Company’s articles of incorporation include a provision that the Company is not allowed to issue fractional shares.

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The Company issued the following shares of common stock in the six months ended July 31, 2021:

The Company issued 1,202,000 shares for $2,229,000. The company received $2,224,805 in cash proceeds with the remaining $4,195 recorded as share proceeds receivable. A lender converted $56,600 of convertible notes and $3,500 of fees into 30,000 common shares. The Company issued 50,000 shares with a fair value of $107,500 as payment for fees to a consultant. The Company issued 91,810 shares to lenders as commitment fee with a relative fair value of $59,801.

Options and Warrants:

The Company has no options outstanding as of July 31, 2021 or January 31, 2021.

The Company recorded option and warrant expense of $0 and $0 for the three and six months ended July 31, 2021 and 2020, respectively.

For the three and six months ended July 31 ,2021 the Company issued the following warrants:

In the three months ended July 31, 2021, the Company issued a warrant to Triton Funds LP (“Triton”) to acquire 300,000 shares of the Company’s common stock as part of the Common Stock Purchase Agreement with 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 (see Note 16). 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 of July 31, 2021 as a deferred offering cost. In the event that Triton requests purchases of the Company’s common stock that total less than $600,000, the deferred offering costs will be expenses as professional fees.

Table A

Expected volatility	2181%
Exercise price	$2.11
Stock price	$2.00
Expected life	3 years
Risk-free interest rate	0.37%
Dividend yield	0%

The Company issued no warrants in the three and six months ended July 31, 2020.

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

Issued To	# Warrants	Dated	Expire	Strike Price	Expired	Exercised
Lender	950,000	08/28/2020	08/28/2023	$0.40 per share	N	N
Broker	2,500	10/11/2020	10/11/2025	$4.50 per share	N	N
Broker	3,000	11/25/2020	11/25/2025	$3.00 per share	N	N
Triton	300,000	07/27/2021	07/27/2024	$2.11 per share	N	N

Summary of warrants outstanding

	Options	Weighted Average Exercise Price		Warrants	Weighted Average Exercise Price
Outstanding at January 31, 2021	—	$	—	955,500	$	0.42
Granted	—		—	300,000		2.11
Exercised	—		—	—		—
Forfeited and canceled	—		—	—		—
Outstanding at July 31, 2021	—	$	—	1,255,500	$	0.73

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NOTE 12 – RELATED PARTY TRANSACTIONS

As of July 31, 2021 and January 31, 2021, the Company had $71,173 and $106,173, respectively of related party accrued expenses related to accrued compensation for employees and consultants.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

On August 30, 2016, the Company entered into a 60-month lease agreement for its 3,554 sf warehouse facility starting in December 2016 with a minimum base rent of $2,132 and estimated monthly CAM charges of $1,017 per month. This lease is with a shareholder.

On July 1, 2018, the Company entered into a 60-month lease agreement with its minority shareholder for its 8,800 sf warehouse facility with a minimum base rent of $6,400 per month.

In October 2019 the Company entered into an operating lease for a vehicle with an annual cost of $9,067 and a three year term. The company paid initial fees of $17,744 and will pay fees on lease termination of $395. On a straight-line basis these costs amount to $1,259 per month.

Schedule of minimum lease obligations


Maturity of Lease Liabilities	Operating Leases
July 31 2022	$	121,917
July 31, 2023		102,922
July 31, 2024		30,003
July 31, 2025		30,003
July 31, 2026		30,003
After July 31, 2026		10,002
Total lease payments		324,850
Less: Interest		(36,085	)
Present value of lease liabilities	$	288,765

The Company had total operating lease and rent expense of $30,480 and $34,079 for the three months ended July 31, 2021 and 2020 respectively. The Company had total operating lease and rent expense of $60,959 and $68,158 for the six months ended July 31, 2021 and 2020 respectively.

There is pending litigation initiated by the Company around the validity of a $100,000 note which the Company signed based upon representations of funding from the maker which were never received. The Company initiated litigation to dispute the note and the 1,692 shares that have been issued. There was no consideration for the issuance of the shares and the shares have been accounted for as if they were returned and cancelled although they have not been returned.

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NOTE 14 – EARNINGS (LOSS) PER SHARE

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


	For the Three Months Ended
	July 31,
	2021			2020
Numerator:
Net income (loss) available to common shareholders	$	(1,752,249	)	$	394,962

Denominator:
Weighted average shares – basic		2,614,311			763,214

Net income (loss) per share – basic	$	(0.67	)	$	0.52

Effect of common stock equivalents
Add: interest expense on convertible debt		9,397			132,142
Add: amortization of debt discount		183,407			47,898
Less: gain on settlement of debt on convertible notes		(49,317	)		—
Add (Less): loss (gain) on change of derivative liabilities		16,294			(506,979	)
Net income (loss) adjusted for common stock equivalents		(1,592,468	)		68,023

Dilutive effect of common stock equivalents:
Convertible notes and accrued interest		—			48,036,434
Convertible Class C Preferred shares		—			2,380,076
Warrants (1)		—			1

Denominator:
Weighted average shares – diluted		2,614,311			51,179,725

Net income (loss) per share – diluted	$	(0.67	)	$	0.00

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

	For the Three Months Ended
	July 31,
	2021		2020

Convertible notes and accrued interest		632,535		—
Convertible Class C Preferred shares		7,366,086		—
Warrants		1,255,500		—
Total		9,254,121		—

- 21 -

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


	For the Six Months Ended
	July 31,
	2021			2020
Numerator:
Net income (loss) available to common shareholders	$	(2,319,806	)	$	1,581,860

Denominator:
Weighted average shares – basic		2,282,792			660,668

Net income (loss) per share – basic	$	(1.02	)	$	2.39

Effect of common stock equivalents
Add: interest expense on convertible debt		15,949			235,682
Add: amortization of debt discount		308,811			626,811
Less: gain on settlement of debt on convertible notes		(963,366	)		(1,947,372	)
Add (Less): loss (gain) on change of derivative liabilities		12,107			(432,199	)
Net income (loss) adjusted for common stock equivalents		(2,946,305	)		64,782

Dilutive effect of common stock equivalents:
Convertible notes and accrued interest		—			48,036,434
Convertible Class C Preferred shares		—			2,380,076
Warrants		—			1

Denominator:
Weighted average shares – diluted		2,282,792			51,077,179

Net income (loss) per share – diluted	$	(1.02	)	$	0.00

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

	For the Six Months Ended
	July 31,
	2021		2020

Convertible notes and accrued interest		632,535		—
Convertible Class C Preferred shares		7,366,086		—
Warrants (1)		1,255,500		—
Total		9,254,121		—

NOTE 15 – GAIN ON SETTLEMENT OF DEBT

For the three months ended July 31, 2021 the gain on settlement of debt of $49,317 (2020-$0) which resulted from the reduction in the derivative liability due to cash repayments on convertible debt.

For the six months ended July 31, 2021 the gain on settlement of debt of $963,366 consisted of a $853,452 gain that resulted from the settlement of accounts payable totaling $950,151 that was settled for $96,699, and a $109,914 gain that resulted from the reduction in the derivative liability due to cash repayments on convertible debt. For the three months ended July 31, 2020 the gain on settlement of debt of $2,172,646 consisted of a gain that resulted from the settlement of $1,070,035 in convertible notes, and $175,422 in accrued interest, as well as $122,000 in short-term debt and $22,076 in accrued interest, and the associated derivative liability of $792,218 all totaling $2,181,751 in exchange for 250 Class C shares having a fair-value of $9,105.

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NOTE 16 – SUBSEQUENT EVENTS

Subsequent to quarter year end up to September 10, 2021:

•	a lender converted $76,500 in principal for 40,000 shares of common stock.

•	the Company issued 320,000 common shares for gross proceeds of $ 489,600 under a share purchase agreement with Triton (see below).

•	the Company issued 87,500 common shares for gross proceeds of $175,000.

•	the Company issued 15,480 common shares to a lender as compliance for piggy back registration requirements.

•	the Company issued 13,011 common shares to a broker as compensation.

On July 29, 2021, the Company entered into a Common Stock Purchase Agreement (“CSPA”) with Triton Triton Funds LP (“Triton”). The CSPA allows Triton to purchase up to $1 million of common stock of the Company, in tranches ranging between $25,000 and $500,000, as determined by Triton. The sales price for each tranche requires the company to price the sale of the shares at ninety percent (90%) of the lowest traded price of the common stock ten business days prior to the closing. On August 18, 2021, a registration statement filed on Form S-1 covering up to 600,000 shares went effective at which time the CSPA became effective. As part of the CSPA, the Company may not enter into any agreement with similar terms so long as the CSPA remains active, Triton is limited such that purchases of the CSPA may not cause Triton to have an ownership level greater than 9.99% of the Company’s issued and outstanding common stock and Triton may not engage in any short selling of the Company’s common stock. The company has issued 320,000 common shares for gross proceeds of $ 489,600 under this agreement.

On June 4, 2021 the Company’s shareholders consented to an amendment to the Articles of Incorporation of the Company wherein the name of the Company will be changed to “Auto Parts 4Less Group, Inc.”. The Company expects this name change to become effective in the third quarter of 2021.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this quarterly report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this quarterly report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this quarterly report. Factors that can cause or contribute to these differences include those described under the headings “Risk Factors” and “Management Discussion and Analysis and Plan of Operation.”

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this quarterly report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.

Company

The 4LESS Group Inc. (“FLES”, the “Company”, “we” or “us”), the Company described herein, was incorporated under the laws of the State of Nevada on December 5, 2007, with offices located at 106 W Mayflower, Las Vegas, Nevada 89030. Our phone number is (702) 267-7100.

Nature of Business – The 4LESS Group, Inc., formerly known as MedCareers Group, Inc. (the “Company”, “MCGI”), was incorporated under the laws of the State of Nevada on December 5, 2007.

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

On November 19, 2019 The 4Less Group acquired the URL Autoparts4Less.com and changed the name of their wholly owned subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc.

Our Business

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

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

- 24 -

We target online consumers’ buying habits by shifting away from “all things to all people” web sites to highly targeted niche websites to quickly respond to market forces.

Our LiftKit4Less.com web site, represents:

	•	Approximately 179,000 Parts
	•	From 46 Manufacturers

Can Search Products Listed

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

Select Parts for Over

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

AutoParts4Less.com Launch Expected Timeline

4Less plans to finish development and beta testing with goal to launch AutoParts4Less.com for aftermarket auto parts manufacturers to sell their parts direct to the public.

	•	Development Team
		March 2020 India Development Team was hired.

	•	Platform
		Amazon Web Services (AWS) cloud computing platform chosen to operate AutoParts4Less.com

	•	Marketing
		Began marketing marketplace services to aftermarket manufacturers in December 2020

	•	Data Input
		Manufacturers started loading their parts info 1^st quarter 2021

Auto Parts 4less Marketplace Functionality for Manufacturers

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

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

Distribution

Our distribution is accomplished as follows:

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

Company has launched website in Q3 2021.

- 25 -

Sales

Our sales are derived from the following:

	•	Proprietary websites. 62% of our sales are currently generated through our own websites. We intend to build and launch additional niche websites

	•	Third Party Websites (such as eBay and Walmart)– We sell our products on third party websites and pay fees to these websites in connection with each sale.

Business Strategies

	•	Continually develop best in class technological modules to increase visitor conversions.

	•	Work to develop and launch the website www.autoparts4less.com by approximately mid-to-late FY2022 into what we believe will be the first standalone multi-vendor automotive parts marketplace.

Results of Operations For the Six Months Ended July 31, 2021 compared to the six months ended July 31, 2020

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

						Change
	2021			2020		$			%
Total Revenues	$	6,315,457			4,927,280	$	1,388,177		28%
Gross Profit		1,614,895			1,497,384		117,511		8%
Total Operating Expenses		4,285,558			1,623,235		2,662,323		164%
Total Other Income (Expense)		350,857			1,707,711		(1,356,854	)	(79%	)
Net Income (Loss)	$	(2,319,806	)	$	1,581,860	$	(3,901,666	)	(247%	)

Revenue

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

					Change
	2021		2020		$			%
Proprietary website revenues	$	3,946,810		2,403,120	$	1,543,690		64%
Third party website revenues		2,368,647		2,524,160		(155,513	)	(6%	)
Total Revenues	$	6,315,457	$	4,927,280	$	1,388,177		28%

We had total revenue of $6,315,457 for the six months ended July 31, 2021, compared to $4,927,280 for the six months ended July 31, 2020. Sales increased by $1,388,177 due to due to aggressive advertising and increased consumer demand, mostly experienced in the first quarter ended April 30, 2021. The Company also recorded $298,711 in deferred revenue, which will be recognized as revenue next quarter and recognized $687,666 of deferred revenue recorded January 31, 2021. The deferred revenue represents orders paid by customers this period but delivered in the following period due to back orders and processing and delivery times. The Company also recorded $164,900 in customer deposits and recognized $188,385 recorded January 31, 2021. The customer deposits are orders paid by customers and canceled in the following period due to back orders or other reasons. There was neither deferred revenue nor customer deposits for the six months ended July 31, 2020.

The Company’s focus continues in growing its proprietary website revenues and the Company was successful in that, increasing its proprietary website revenue by 64%. The company believes this strategy will lead to higher revenues and lower overall costs in the future. Third party website revenue fell by 6% due to listing removals which were a result of unfulfilled orders due to manufacturers failure to provide products in a timely basis.

- 26 -

Gross Profit

We had gross profit of $1,614,895 for the six months ended July 31, 2021, compared to gross profit of $1,497,384 for the six months ended July 31, 2020. Gross profit increased by $117,511 as a result of the increased revenues explained above and partly offset by an increase in cost of revenue due to a change in product mix.

Operating Expenses

The following table shows our operating expenses for the six months ended July 31, 2021 and 2020:

					Change
Operating expenses	2021		2020		$			%
Depreciation	$	23,451	$	12,598		10,853		86%
Postage, Shipping and Freight		335,749		264,893		70,856		27%
Marketing and Advertising		1,267,324		23,850		1,243,474		5214%
E Commerce Services, Commissions and Fees		725,737		419,267		306,470		73%
Operating lease cost		60,959		68,158		(7,199	)	(11%	)
Personnel Costs		759,193		499,604		259,589		52%
General and Administrative		1,113,145		334,865		778,280		232%
Total Operating Expenses	$	4,285,558	$	1,623,235		2,662,323		164%

• Depreciation increased by $10,853 due to asset additions in 2021, thus a higher asset value is being depreciated.

• Postage shipping and freight increased slightly by $70,856 due to higher sales.

• Marketing and advertising increased by $1,243,474 due to aggressive promotional efforts in 2021 to drive sales to our proprietary websites and build our brands. The Company also made efforts to reduce spending in 2020 on non-essential expenditures as a result of the economic uncertainty presented by the global Covid-19 pandemic.

• E Commerce Services, Commissions and Fees increased by $306,470 due to higher sales and website development for new website. (AutoParts4Less.com)

• Operating Lease Cost decreased by $7,199 due to one fewer lease in 2021.

• Personnel Costs increased by $259,589 mostly due to the lower costs in 2020 which were a result of temporary layoffs because of the Covid-19 pandemic which began in March 2020 and three new employees in 2021. .

• General and Administrative increased by $778,280 mainly due to higher professional fees , investor relations because of REG A filings and stock based compensation in 2021. In addition in the prior year’s period, the Company reduced expenditures as a result of the Covid-19 pandemic.

Other Income (Expense)

The following table shows our other income and expenses for the six months ended July 31, 2021 and 2020:

							Change
Other Income (Expense)	2021			2020			$			%
Gain (Loss) on Sale of Property and Equipment	$	20,345		$	464			19,881		4285%
Gain (Loss) on Derivatives		(12,107	)		432,199			(444,306	)	(103%	)
Gain on Settlement of Debt		963,366			2,172,646			(1,209,280	)	(56%	)
Amortization of Debt Discount		(311,936	)		(626,811	)		314,875		(50%	)
Interest Expense		(308,811	)		(270,787	)		(38,024	)	14%
Total Other Income (Expense)	$	350,857		$	1,707,711			(1,356,854	)	(79%	)

The changes above can be explained by the reduction in convertible debt that started in the prior year’s quarter ended July 31,2020. As a result of the debt exchanges and settlements, the gain on settlement of debt was higher and there were reductions in amortization expense and due to the lower debt. Interest expense increased as a result of new loans in the current year’s quarter. The higher loss on derivatives in 2020 is a function of the market factors in the valuation of the derivative liability described in Note 10.

- 27 -

We had net loss of $2,319,806 for the six months ended July 31, 2021, compared to net income of $1,581,860 for the six months ended July 31, 2020. The decrease in net income was mainly due to the gain on settlement of debt as well as the large increase in operating expenses as explained in the discussion above.

Results of Operations for the Three Months Ended July 31, 2021 Compared to the Three Months Ended July 31, 2020

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

						Change
	2021			2020		$			%
Total Revenues	$	2,586,673			2,927,209	$	(340,536	)	(12%	)
Gross Profit		652,689			925,617		(272,928	)	(29%	)
Total Operating Expenses		2,080,994			842,507		1,238,487		147%
Total Other Income (Expense)		(323,944	)		311,852		(635,796	)	(204%	)
Net Income (Loss)	$	(1,752,249	)	$	394,962	$	(2,147,211	)	(544%	)

Revenue

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

					Change
	2021		2020		$			%
Proprietary website revenues	$	1,823,709		1,294,014	$	529,695		41%
Third party website revenues		762,964		1,633,195		(870,231	)	(53%	)
Total Revenues	$	2,586,673	$	2,927,209	$	(340,536	)	(12%	)

We had total revenue of $2,586,673 for the three months ended July 31, 2021, compared to $2,927,209 for the three months ended July 31, 2020. Sales decreased by $340,536 due to lower than expected third party revenues. The Company also recorded $298,711 in deferred revenue, which will be recognized as revenue next quarter and recognized $981,830 from last quarter. The deferred revenue represents orders paid by customers this period but delivered in the following period due to back orders and processing and delivery times. The Company also recorded $164,900 in customer deposits for the three months ended July 31, 2021 and recognized $268,932 from the prior quarter. The customer deposits are orders paid by customers and canceled in the following period due to back orders or other reasons.

The Company’s focus continues in growing its proprietary website revenues and the Company was successful in that, increasing its proprietary website revenue by 41%. Third party website revenue fell by 53% due to listing removals which were a result of unfulfilled orders due to manufacturers failure to provide products in a timely basis.

Gross Profit

We had gross profit of $652,689 for the three months ended July 31, 2021, compared to gross profit of $925,617 for the three months ended July 31, 2020. Gross profit decreased by $272,928 as a result of the decreased revenues explained above.

Operating Expenses

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

					Change
Operating expenses	2021		2020		$			%
Depreciation	$	12,716	$	5,951		6,765		114%
Postage, Shipping and Freight		142,562		151,755		(9,193	)	(6%	)
Marketing and Advertising		659,290		5,782		653,508		11302%
E Commerce Services, Commissions and Fees		309,610		252,848		56,762		22%
Operating lease cost		30,480		34,079		(3,599	)	(11%	)
Personnel Costs		461,700		232,869		228,831		98%
General and Administrative		464,636		159,223		305,413		192%
Total Operating Expenses	$	2,080,994	$	842,507		1,238,487		147%

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• Depreciation increased by $6,765 due to two new vehicles acquired last quarter.

• Postage shipping and freight decreased by $9,193 due to lower sales.

• Marketing and advertising increased by $653,308 due to aggressive promotional efforts in 2021 to drive sales to our proprietary websites and build our brands. Note for the three months ended July 31, 2020 the Company had reduced spending due to the Covid 19 pandemic.

• E Commerce Services, Commissions and Fees increased by $56,762 due to website development for new website. (AutoParts4Less.com)

• Operating Lease Cost decreased by $3,599 due to one less operating lease in 2021.

• Personnel Costs increased by $228,831 due to temporary layoffs in the prior year’s quarter commencing March 2020 as a result of the Covid-19 pandemic.

• General and Administrative in increased by $305,413 due to increases in investor relations costs as a result of the REG A subscription offering, professional fees due to reporting and business requirements, and stock based compensation on warrants issued this current quarter. Note for the three months ended July 31, 2020, the Company had reduced spending significantly due to the Covid 19 pandemic.

Other Income (Expense)

The following table shows our other income and expenses for the three months ended July 31, 2021 and 2020:

							Change
Other Income (Expense)	2021			2020			$			%
Gain (Loss) on Sale of Property and Equipment	$	20,345		$	464			19,881		4285%
Gain on Settlement of Debt		49,317			—			49,317		—
Gain (Loss) on Derivatives		(16,294	)		506,979			(523,273	)	(103%	)
Amortization of Debt Discount		(183,408	)		(47,898	)		(135,510	)	283%
Interest Expense		(193,904	)		(147,693	)		(46,211	)	31%
Total Other Income (Expense)	$	(323,944	)	$	311,852			(635,796	)	(204%	)

The higher loss on derivatives is a function of the market factors in the valuation of the derivative liability described in Note 10. Amortization expense and interest increased due to new notes this current quarter.

We had a net loss of $1,752,249 for three months ended July 31, 2021, compared to net income of $394,962 for three months ended July 31, 2021. The decrease in net income was mainly due to the gain on derivatives that occurred in the three months ended July 31, 2020 and the higher operating expenses, specifically marketing, investor relations and professional fees in the three months ended July 31, 2021.

Liquidity and Capital Resources

Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the three months ended July 31, 2021, we have increased revenue and are working to achieve positive cash flows from operations.

As of July 31, 2021, we had a cash balance of $382,491, share subscription receivable of $4,195, inventory of $318,107 and $4,930,982 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.

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

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Capital Resources

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

	July 31, 2021			January 31, 2021
Current assets	$	723,737		$	715,083
Current liabilities		4,930,982			5,059,138
Working capital (deficits)	$	(4,207,245	)	$	(4,344,055	)

Net cash used in operations for the six months ended July 31, 2021 was $3,286,331 as compared to net cash used in operations of $160,227 for the six months ended July 31, 2020. Net cash used in investing activities for the six months ended July 31, 2021 was $9,940 as compared to cash flows provided in investing activities of $9,750 for the same period in 2020. Net cash provided by financing activities for the six months ended July 31, 2021 was $3,401,098 as compared to $109,643 for the six months ended July 31, 2020.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), we are not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Moving forward, we hope that our Chief Executive Officer and Principal Financial Officer will be able to devote the additional time and effort required so that our disclosure controls and procedures can become effective. Notwithstanding the assessment that our internal controls and procedures were not effective, we believe that our financial statements contained in this Quarterly Report for the quarter ended July 31, 2021 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.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

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Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See the Exhibit Index immediately following the signature page of this Report on Form 10-Q.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

The 4Less Group, Inc.

By: /s/ Timothy Armes

Timothy Armes

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

Date: September 14, 2021

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EXHIBIT INDEX

Exhibit Number		Description of Exhibit

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

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

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document **

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document **

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document **

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document **

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document **

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

__________

* Filed herewith.

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

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