Auto Parts 4Less Group, Inc. - Quarter Report: 2021 April (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 April 30, 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)

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

Yes [X] No [_]

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

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

Large Accelerated Filer [_] Accelerated Filer [_]

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

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

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

Yes [_] No [X].

As of June 14, 2021, there were 2,584,413 shares of Common Stock of the issuer outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22

ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	26

ITEM 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	27

ITEM 1.	Legal Proceedings	27

ITEM 1A.	Risk Factors	27

ITEM 2.	Unregistered Sales of Securities and Use of Proceeds	27

ITEM 3.	Default Upon Senior Securities	27

ITEM 4.	Mine Safety Disclosures	27

ITEM 5.	Other Information	27

ITEM 6.	Exhibits	27

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PART 1: FINANCIAL INFORMATION

ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets

	April 30, 2021			January 31, 2021
	Unaudited			(*)
Assets
Current Assets
Cash and Cash Equivalents	$	1,342,321		$	277,664
Share Subscriptions Receivable		94,817			100,000
Inventory		307,526			323,411
Prepaid Expenses		11,609			11,859
Other Current Assets		4,827			2,149
Total Current Assets		1,761,100			715,083
Operating Lease Assets		319,698			344,413
Property and Equipment, net of accumulated depreciation of $99,558, and $88,823		255,619			80,027

Total Assets	$	2,336,417		$	1,139,523

Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts Payable	$	865,586		$	869,765
Accrued Expenses		560,934			1,382,839
Accrued Expenses – Related Party		81,173			106,173
Customer Deposits		268,932			188,385
Deferred Revenue		981,830			687,766
Short-Term Debt		446,404			716,142
Current Operating Lease Liability		99,937			90,286
Short-Term Convertible Debt, net of debt discount of $180,789 and $309,317		340,711			336,683
Derivative Liabilities		148,957			213,741
PPP Loan-current portion		79,362			43,294
Current Portion – Long-Term Debt		588,067			424,064
Total Current Liabilities		4,461,893			5,059,138

Non-Current Lease Liability		211,195			244,049
PPP Loan -long term portion		130,085			166,153
Long-Term Debt		1,018,990			890,373

Total Liabilities		5,822,163			6,359,713

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

Stockholders’ Deficit
Preferred Stock – Series A, $0.001 par value, 330,000 shares authorized, 0 and 0 shares issued and outstanding		—			—
Preferred Stock – Series B, $0.001 par value, 20,000 shares authorized, 20,000 and 20,000 shares issued and outstanding		20			20
Preferred Stock – Series C, $0.001 par value, 7,250 shares authorized, 7,250 and 7,250 shares issued and outstanding		7			7
Common Stock, $0.000001 par value, 15,000,000 shares authorized, 2,574,413 and 1,427,163 shares issued, issuable and outstanding		3			1
Additional Paid In Capital		16,593,758			14,291,759
Accumulated Deficit		(20,949,534	)		(20,381,977	)
Total Stockholders’ Deficit		(4,355,746	)		(6,090,190	)

Total Liabilities and Stockholders’ Deficit	$	2,336,417		$	1,139,523

* Derived from audited information

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

	2021			2020
Revenue	$	3,728,784		$	2,000,071

Cost of Revenue		2,766,578			1,428,304

Gross Profit		962,206			571,767

Operating Expenses:
Depreciation		10,735			6,647
Postage, Shipping and Freight		193,187			113,138
Marketing and Advertising		608,034			18,068
E Commerce Services, Commissions and Fees		416,127			166,419
Operating lease cost and rent		30,479			34,079
Personnel Costs		297,493			266,735
General and Administrative		648,509			175,642
Total Operating Expenses		2,204,564			780,728

Net Operating Loss		(1,242,358	)		(208,961	)

Other Income (Expense)
Gain (Loss) on Derivatives		4,187			(74,780	)
Gain on Settlement of Debt		914,049			2,172,646
Amortization of Debt Discount		(128,528	)		(578,913	)
Interest Expense		(114,907	)		(123,094	)
Total Other Income (Expense)		674,801			1,395,859

Net Income (Loss)	$	(567,557)		$	1,186,898

Basic Average Shares Outstanding		1,940,098			551,590
Basic Income (Loss) per Share	$	(0.29)		$	2.15
Diluted Weighted Average Shares Outstanding		1,940,098			88,598,209
Diluted Income (Loss) per Share	$	(0.29)		$	0.01

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

	Preferred Series A			Preferred Series B			Preferred Series C			Common Stock			Paid in		Retained
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings			Total
January 31, 2020	—	$	—	20,000	$	20	6,750	$	7	538,464	$	1	$	13,449,336	$	(21,569,153	)	$	(8,119,789	)

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

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

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

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

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

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

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

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

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

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

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

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended April 30, 2021 and April 30, 2020

(Unaudited)

	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	(567,557	)	$	1,186,898
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation		10,735			6,647
(Gain) loss in Fair Value on Derivative Liabilities		(4,187	)		74,780
Amortization of Debt Discount		128,528			578,913
Loan Penalties Capitalized to Loan and Accrued Interest		28,000			—
Stock Based Payment of Consulting Fees		107,500			—
Gain on Settlement of Debt		(914,049	)		(2,172,646	)
Change in Operating Assets and Liabilities:
Decrease (Increase) in Inventory		15,886			(35,451	)
Decrease in Prepaid Rent and Expenses		1,762			3,156
(Increase) Decrease in Other Current Assets		(2,677	)		(21,721	)
Increase (Decrease) in Accounts Payable		(2,558	)		175,430
Increase in Accrued Expenses		28,548			151,078
Decrease in Accrued Expenses -Related Party		(25,000	)		—
Increase in Customer Deposits		80,547			—
Increase in Deferred Revenue		294,064			—
CASH FLOWS (USED IN) OPERATING ACTIVITIES		(820,458	)		(52,916	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment		(35,000	)		—
CASH FLOWS (USED IN) INVESTING ACTIVITIES		(35,000	)		—

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Common Shares		2,099,683			—
Proceeds from Share Subscriptions Receivable		100,000			—
Proceeds from Short Term Debt		—			205,000
Payments on Short Term Debt		(128,075	)		(124,716	)
Payments on Long Term Debt		(1,993	)		(1,249	)
Payments on Convertible Notes Payable		(149,500	)		—
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		1,920,115			79,035

NET INCREASE IN CASH		1,064,657			26,119

CASH AT BEGINNING OF PERIOD		277,664			162,124

CASH AT END OF PERIOD	$	1,342,321		$	188,243

Supplemental Disclosure of Cash Flows Information:
Cash Paid for Interest	$	42,949		$	13,210
Convertible Notes Interest and Derivatives Converted to Common Stock	$	—		$	11,503
Short Term Debt and Interest Extinguished Through Issuance of Series C Preferred Stock	$	—		$	144,076
Convertible Notes and Interest Extinguished Through Issuance of Series C Preferred Stock	$	—		$	1,245,456
Issuance of Common Shares for Share Subscription Receivable	$	94,817		$	—
Loans to acquire Fixed Assets	$	151,327		$	—

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

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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 three months ended April 30, 2021 the Company purchased approximately 54% of its inventory and items available for sale from third parties from three vendors. As of April 30, 2021, the net amount due to the vendors included in accounts payable was $462,991. For the three months ended April 30, 2020, the Company purchased from three vendors approximately 53% of its inventory and items available for sale from third parties. As of April 30, 2020, the net amount due to these vendors included in accounts payable was $434,528. The Company believes there are numerous other suppliers that could be substituted should a supplier become unavailable or non-competitive.

Leases

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

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

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $454,087 and $454,087 respectively, as of February 1, 2019. The standard did not materially impact our consolidated net earnings, retained earnings and had no impact on cash flows.

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Income Taxes

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

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending January 31, 2022, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments:

The Company’s financial instruments consist of cash, accounts payable, advances and notes payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments. Derivatives are recorded at fair value at each period end. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 Inputs – Quoted prices for identical instruments in active markets.

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs – Instruments with primarily unobservable value drivers.

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of April 30, 2021:


	April 30, 2021		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Derivative Liabilities – embedded redemption feature	$	148,957	$	—	$	—	$	148,957
Totals	$	148,957	$	—	$	—	$	148,957

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Related Party Transactions:

The Company has a verbal policy that includes procedures intended to ensure compliance with the related party provisions in common practice for public companies. For purposes of the policy, a “related party transaction” is a transaction in which the Company or any one of its subsidiaries participates and in which a related party has a direct or indirect material interest, other than ordinary course, arms-length transactions of less than 1% of the revenue of the counterparty. Any transaction exceeding the 1% threshold, and any transaction involving consulting, financial advisory, legal or accounting services that could impair a director’s independence, must be approved by the CEO. Any related party transaction in which an executive officer or a Director has a personal interest, or which could present a possible conflict under the Guide to Ethical Conduct, must be approved by Board of Directors, following appropriate disclosure of all material aspects of the transaction.

Derivative Liability

The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments.

The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock. However, because the historical volatility of the Company’s common stock is so high (see Note 10), the sensitivity required to change the liability by 1% as of April 30, 2021 is greater than 25% change in historical volatility as of that date. The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

Revenue Recognition

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

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

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

Disaggregation of Revenue: Channel Revenue

The following table shows revenue split between proprietary and third party website revenue for the three months ended April 30, 2021 and 2020:

					Change
	2021		2020		$		%
Proprietary website revenue	$	2,123,101		1,109,106	$	1,013,995	91%
Third party website revenue		1,605,683		890,965		714,718	80%
Total Revenue	$	3,728,784	$	2,000,071	$	1,728,713	86%

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

Stock-Based Compensation:

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

Earnings (Loss) Per Common Share:

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

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

Recently Issued Accounting Standards:

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

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

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

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

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

- 11 -

NOTE 2 – GOING CONCERN AND FINANCIAL POSITION

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $20,949,534 as of April 30, 2021 and has a working capital deficit at April 30, 2021 of $2,700,793. As of April 30, 2021, the Company only had cash and cash equivalents of $1,342,321 and approximately $151,000 of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. While the Company has continued to grow its revenues, at this time, the three months ended July 31, 2020 was only the first quarter the Company was able to achieve profitability from operations prior to interest and other expenses. While the Company believes it will continue to build on the results achieved in this quarter, our current liquidity position raises substantial doubt about the Company’s ability to continue as a going concern.

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

NOTE 3 – PROPERTY

The Company capitalizes all property purchases over $1,000 and depreciates the assets on a straight-line basis over their useful lives of 3 years for computers and 7 years for all other assets. Property consists of the following at April 30, 2021 and January 31, 2021:


	April 30, 2021			January 31, 2021
Office furniture, fixtures and equipment	$	85,413		$	85,413
Shop equipment		43,004			43,004
Vehicles		226,760			40,433
Sub-total		355,177			168,850
Less: Accumulated depreciation		(99,558	)		(88,823	)
Total Property	$	255,619		$	80,027

Additions to fixed assets for the three months ended April 30, 2021 and were $186,327 with $35,000 paid in cash and $151,327 financed through vehicle loans. Additions to fixed assets were nil for the three months ended April 30, 2020.

Depreciation expense was $10,735 and $6,647 for the three months ended April 30, 2021 and April 30, 2020, respectively.

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NOTE 4 – LEASES

We lease certain warehouses and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and non-lease components.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 17 years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Below is a summary of our lease assets and liabilities at April 30, 2021 and January 31, 2021.


Leases	Classification	April 30, 2021		January 31, 2021
Assets
Operating	Operating Lease Assets	$	319,698	$	344,413
Liabilities
Current
Operating	Current Operating Lease Liability	$	99,937	$	90,286
Noncurrent
Operating	Noncurrent Operating Lease Liabilities		211,195		244,049
Total lease liabilities		$	311,132	$	334,335

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

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

Operating lease cost and rent was $30,479 and $34,079 for the three months ended April 30, 2021 and April 30, 2020, respectively.

NOTE 5 – CUSTOMER DEPOSITS

The Company receives payments from customers on orders prior to shipment. At April 30, 2021 the Company had received $268,932 (January 31, 2021- $188,385) in customer deposits for orders that were unfulfilled at April 30, 2021 and canceled subsequent to year end. The orders were unfulfilled at April 30, 2021 because of supply chain issues due to supplier back-orders because of the Covid-19 pandemic. The deposits were returned to the customers subsequent to April 30, 2021.

NOTE 6 – DEFERRED REVENUE

The Company receives payments from customers on orders prior to shipment. At April 30, 2021 the Company had received $981,830 (January 31, 2021- $687,766) in customer payments for orders that were unfulfilled at April 30, 2021 and delivered subsequent to April 30, 2021. The orders were unfulfilled at April 30, 2021 because of supply chain issues due to supplier back-orders because of the Covid-19 pandemic as well as processing and delivery timing.

NOTE 7 – PPP LOAN

On May 2, 2020 the Company entered into a Paycheck Protection Promissory (PPP) Note Agreement whereby the lender would advance proceeds of $209,447 at a fixed rate of 1% per annum and a May 2, 2022 maturity. The loan is repayable in monthly installments of $8,818 commencing September 2, 2021 and continuing on the second day of every month thereafter until maturity when any remaining principal and interest are due and payable. At April 30, 2021 the loan is classified as $79,362 current and $130,085 long-term. The Company used the proceeds of this loans for working capital and the Company intends to use these proceeds in a manner consistent with obtaining loan forgiveness, which the Company is currently in the process of gathering the required information to file its forgiveness application and expects to have filed its application before the end of its second fiscal quarter.

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NOTE 8 – SHORT-TERM AND LONG-TERM DEBT

The components of the Company’s debt as of April 30, 2021 and January 31, 2021 were as follows:

	April 30,			January 31,
	2021			2021

Loan dated October 8, 2019, and revised February 29, 2020 and November 10, 2010 repayable June 30, 2022 with an additional interest payment of $20,000⁽³⁾		102,168	#		102,168

SFS Funding Loan, original loan of $389,980 January 8, 2020, 24% interest, weekly payments of $6,006, maturing July 28, 2021⁽²⁾		83,152	*		161,227

Forklift Note Payable, original note of $20,433 Sept 26, 2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023⁽¹⁾		11,269	#		12,269

Vehicle loan original loan of $93,239 February 16, 2021, 2.90 % interest. 72 monthly payments of $1,414 beginning on April 2, 2021 and ending on March 2, 2027. Secured by vehicle having net book value of $94,316.		92,246	#

Vehicle loan original loan of $59,711 March 20,2021, 7.89% interest. 72 monthly payments of $1,048 beginning on May 4, 2021 and ending on April 4, 2027. Secured by vehicle having net book value of $87,575.		59,711	#

Demand loan - $5,000 dated February 1, 2020, 15% interest, 5% fee on outstanding balance		5,000	*		5,000

Demand loan - $2,500, dated March 8, 2019, 25% interest, 5% fee on outstanding balance		2,500	*		2,500

Demand loan - $65,500 dated February 27, 2019, 25% interest, 5% fee on outstanding balance, Secured by the general assets of the Company		12,415	*		12,415

Promissory note -$60,000 dated September 18, 2020 maturing September 18, 2021, including $5,000 original issue discount, 15% compounded interest payable monthly		60,000	*		60,000

Promissory note -$425,000 dated August 28, 2020, including $50,000 original issue discount, 15% compounded interest payable monthly. This notes matures when the Company receives proceeds through a financing event of $825,000 plus accrued interest on the note. (4)		425,000	*		425,000

Promissory note -$1,200,000 dated August 28, 2020,maturing August 28, 2022, 12% interest payable monthly with the first six months interest deferred until the 6th month and added to principal. (5)		1,200,000	#		1,200,000

Promissory note -$50,000 dated August 31, 2020,maturing February 28, 2021, 10% interest payable accrued monthly payable at maturity Fully repaid at April 30, 2021		—	*		50,000

Total	$	2,053,461		$	2,030,579

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	30-Apr-21		31-Jan-21
Short-Term Debt	$	446,404	$	716,142
Current Portion Of Long-Term Debt		588,067		424,064
Long-Term Debt		1,018,990		890,373
	$	2,053,461	$	2,030,579

*Short-term loans

#Long-term loans of $11,269 including current portion of $3,812

$102,168 including current portion of $0

$ 59,711 including current portion $8,077

$ 92,246 including current portion $14,515

$1,200,000 including current portion of $420,000

(1) Secured by equipment having a net book value of $11,650

(2) The amounts due under the note are personally guaranteed by an officer or a director of the Company.

(3) On November 10, 2020 the Company amended the agreement extending the maturity to June 30, 2022 from April 8, 2021 and changing monthly payments to $0 from $5,705 and interest rate from 13% to a $20,000 lump sum payable at maturity.

(3) The Company has pledged a security interest on all accounts receivable and banks accounts of the Company.

(4) Financing event would be a sale or issuance of assets, debt, shares or any means of raising capital. As the Company expects to enter into such a transaction within the calendar year this loan is treated as current.

(5) Secured by all assets of the Company. Loan payable in 2 instalments, $445,200 payable August 28, 2021 and $826,800 payable August 28, 2022

NOTE 9 – SHORT-TERM CONVERTIBLE DEBT

The components of the Company’s debt as of April 30, 2021 and January 31, 2021 were as follows:

	Interest	Default Interest	Conversion	Outstanding Principal at
Maturity Date	Rate	Rate	Price	April 30, 2021			January 31, 2021
Nov 4, 2013*	12%	12%	$1,800,000	$	100,000		$	100,000
Jan 31, 2014*	12%	18%	$2,400,000		16,000			16,000
July 31, 2013*	12%	12%	$1,440,000		5,000			5,000
Jan 31, 2014*	12%	12%	$2,400,000		30,000			30,000
Oct. 12, 2021	12%	16%	(1)		130,000			230,000
Nov. 16, 2021	12%	16%	(1)		125,000			100,000
Nov. 23, 2021	12%	16%	(1)		115,500			165,000
Sub-total					521,500			646,000
Debt Discount					(180,789	)		(309,317	)
				$	340,711		$	336,683

* In default.

(1)	closing bid price on the day preceding the conversion date.

The Company had accrued interest payable of $222,667 and $240,713 on the notes at April 31, 2021 and January 31, 2021, respectively.

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that some instruments should be classified as liabilities due to there being a variable number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the embedded conversion option resulted in a discount to the note on the debt modification date. For the three months ended April 30, 2021 and 2020, the Company recorded amortization of debt discount expense of $128,538 and $578,913, respectively. See more information in Note 10.

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During the three months ended April 30, 2021 and April 30, 2020 the Company added $28,000 and nil in penalty interest to the loan, respectively.

As of April 30, 2021, the Company had $151,000 of aggregate debt in default. The agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company continues to accrue interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.

NOTE 10 – DERIVATIVE LIABILITIES

As of April 30, 2021 and January 31, 2021, the Company had derivative liabilities of $148,957 and $213,741, respectively. During the three months ended April 30, 2021 and 2020, the Company recorded a gain of $4,187 and a loss of $74,780, respectively, from the change in the fair value of derivative liabilities. Any liabilities resulting from the warrants outstanding are immaterial.

The derivative liabilities are valued as a level 3 input for valuing financial instruments.

The following table presents changes in Level 3 liabilities measured at fair value for the three months ended April 30, 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.


	Level 3
	Derivatives
Balance, January 31, 2021	$	213,741
Settlement due to Repayment of Debt		(60,597	)
Mark to Market Change in Derivatives		(4,187)
Balance, April 30, 2021	$	148,957

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

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

The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of April 30, 2021 is as follows:

	Embedded
	Derivative Liability
	As of April 30, 2021
Strike price	$	2.10 - 4.30
Contractual term (years)		0.25 - 1.00 years
Volatility (annual)		116.5% - 537.3	%
High yield cash rate		24.90% - 29.42	%
Underlying fair market value	$	2.10
Risk-free rate		0.07% - 0.17	%
Dividend yield (per share)		0	%

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NOTE 11 – STOCKHOLDERS’ DEFICIT

Preferred Stock:

The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of both April 30, 2021, and January 31, 2021 the Company had 0 shares of Series A Preferred issued and outstanding and 330,000 authorized with a par value of $0.001 per share.

At both April 30, 2021 and January 31, 2021, there were 20,000 and 20,000 Series B preferred shares outstanding, respectively. The Series B Preferred Stock have voting rights equal to 51% of the total voting rights at any time. There are no conversion rights granted holders of Series B Preferred shares, they are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 20,000 Series B preferred shares authorized and issued of the Series B Preferred Stock with a par-value of $0.001 per share.

At both April 30, 2021 and January 31, 2021, there were 7,250 and 7,250 Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 7,250 Series C preferred shares authorized and issued with a par-value of $0.001 per share.

At both April 30, 2021 and January 31, 2021, there were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $.001. All shares of Series D Preferred Stock will rank subordinate and junior to all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any of the Corporation’s preferred stock hereafter created as to distributions of assets upon dissolution or winding up of the Corporation, whether voluntary or involuntary. These shares are non-voting, do not receive dividends and are redeemable according to the terms set out as follows:

OPTIONAL REDEMPTION.

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

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

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

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

Neither the Company nor any Series D preferred stockholders has given notice to exercise the redemption as of April 30, 2021 on the date of the financial statements.

Because the holders of the Series D preferred stock have the right to demand cash redemption, the cumulative amount of the redemption feature is included in Temporary Equity as of April 30, 2021 and January 31, 2021.

Common Stock

The Company is authorized to issue 15,000,000 common shares at a par value of $0.000001 per share. These shares have full voting rights. The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At April 30, 2021 and January 31, 2021 there were 2,574,413 and 1,427,163 shares outstanding and issuable, respectively. No dividends were paid in the three months ended April 30, 2021 or 2020. The Company’s articles of incorporation include a provision that the Company is not allowed to issue fractional shares.

The Company issued the following shares of common stock in the three months ended April 30, 2021:

The Company issued 1,097,250 shares for $2,194,500 as part of Regulation A filing. The company received $2,099,683 in cash proceeds with the remaining $94,817 recorded as share proceeds receivable.

Issuance of 50,000 shares with a fair value of $107,500 as payment for fees to a consultant.

Options and Warrants:

The Company has no options outstanding as of April 30, 2021 or January 31, 2021.

The Company recorded option and warrant expense of $0 and $0 for the three months ended April 30, 2021 and 2020, respectively.

The Company had the following fully vested warrants outstanding at April 30,2021:


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

- 18 -

	Options	Weighted Average Exercise Price		Warrants	Weighted Average Exercise Price
Outstanding at January 31, 2021	—	$	—	955,000	$	0.42
Granted	—		—	—		—
Exercised	—		—	—		—
Forfeited and canceled	—		—	—		—
Outstanding at April 30, 2021	—	$	—	955,000	$	0.42

NOTE 12 – RELATED PARTY TRANSACTIONS

As of April 30, 2021 and January 31, 2021, the Company had $81,173 and $106,173, respectively of related party accrued expenses related to accrued compensation for employees and consultants.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

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

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

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


Maturity of Lease Liabilities	Operating Leases
April 30 2022	$	121,917
April 30, 2023		113,100
April 30, 2024		42,803
April 30, 2025		30,003
April 30, 2026		30,003
After April 30, 2026		17,503
Total lease payments		355,329
Less: Interest		(44,197	)
Present value of lease liabilities	$	311,132

The Company had total operating lease and rent expense of $30,479 and $34,079 for the three months ended April 30, 2021 and 2020 respectively.

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

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NOTE 14 – EARNINGS (LOSS) PER SHARE

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

	For the Years Ended
	April 30,
	2021			2020
Numerator:
Net income (loss) available to common shareholders	$	(567,557	)	$	1,186,898

Denominator:
Weighted average shares – basic		1,940,098			551,590

Net income (loss) per share – basic	$	(0.29	)	$	2.15

Effect of common stock equivalents
Add: interest expense on convertible debt		34,652			103,540
Add: amortization of debt discount		128,528			—
Add (Less): loss (gain) on change of derivative liabilities		(4,187	)		—
Net income (loss) adjusted for common stock equivalents		(408,564	)		1,290,438


Dilutive effect of common stock equivalents:
Convertible notes and accrued interest		—			86,413,848
Convertible Class C Preferred shares		—			1,632,770
Warrants (1)		—			1

Denominator:
Weighted average shares – diluted		1,940,098			88,598,209

Net income (loss) per share – diluted	$	(0.29	)	$	0.01

The anti-dilutive shares of common stock equivalents for the three months ended April 30, 2021 and April 30, 2020 were as follows:

	For the Years Ended
	April 30,
	2021		2020
Convertible notes and accrued interest		354,365		—
Convertible Class C Preferred shares		6,770,706		—
Warrants		955,500		—
Total		8,080,571		—

- 20 -

NOTE 15 – GAIN ON SETTLEMENT OF DEBT

For the three months ended April 30, 2021 the gain on settlement of debt of $914,049 consisted of a $853,452 gain that resulted from the settlement of accounts payable totaling $950,151 that was settled for $96,699, and a $60,597 gain that resulted from the reduction in the derivative liability due to cash repayments on convertible debt. For the three months ended April 30, 2020 the gain on settlement of debt of $2,172,646 consisted of a gain that resulted from the settlement of $1,070,035 in convertible notes, and $175,422 in accrued interest, as well as $122,000 in short-term debt and $22,076 in accrued interest, and the associated derivative liability of $792,218 all totaling $2,181,751 in exchange for 250 Class C shares having a fair-value of $9,105.

NOTE 16 – SUBSEQUENT EVENTS

Subsequent to quarter year end up to June 8, 2021 a lender converted $18,750 in principal for 10,000 shares of common stock

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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*

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

Our LiftKit4Less.com web site, represents:

	•	Approximately 179,000 Parts
	•	From 46 Manufacturers

Can Search Products Listed

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

Select Parts for Over

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

AutoParts4Less.com Launch Expected Timeline

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

	•	Development Team
		March 2020 India Development Team is hired.

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

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

	•	Data Input
		Manufacturers start loading their parts info 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%

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Sales

Our sales are derived from the following:

•	Proprietary websites. 57% of our sales are currently generated through our own websites. We intend to build and launch additional niche websites

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

Business Strategies

	•	Continually develop best in class technological modules to increase visitor conversions.
	•	Work to develop and launch the website www.autoparts4less.com by approximately mid-to-late FY2022 into what we believe will be the first standalone multi-vendor automotive parts marketplace.

Results of Operations for the Three Months Ended April 30, 2021 Compared to the Three Months Ended April 30, 2020

The following table shows our results of operations for the three months ended April 30, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

						Change
	2021			2020		$			%
Total Revenues		3,728,784			2,000,071		1,728,713			86	%
Gross Profit		962,206			571,767		390,439			68	%
Total Operating Expenses		2,204,564			780,728		1,423,836			182	%
Total Other Income (Expense)		674,801			1,395,859		(721,058	)		(52	%)
Net Income (Loss)		(567,557	)		1,186,898		(1,754,455	)		(148	%)

Revenue

The following table shows revenue split between proprietary and third-party website revenue for the three months ended April 30, 2021 and 2020:

					Change
	2021		2020		$		%
Proprietary website revenue	$	2,123,101		1,109,106	$	1,013,995		91	%
Third party website revenue		1,605,683		890,965		714,718		80	%
Total Revenue	$	3,728,784	$	2,000,071	$	1,728,713		86	%

We had total revenue of $3,728,784 for the three months ended April 30, 2021, compared to $2,000,071 for the three months ended April 30, 2020. Sales increased by $1,728,713 due to aggressive advertising and increased consumer demand. The Company also recorded $981,830 in deferred revenue, which will be recognized as revenue next quarter and recognized $687,766 from last quarter. The deferred revenue represents orders paid by customers this period but delivered in the following period due to back orders and processing and delivery times. The Company also recorded $268,932 in customer deposits for the three months ended April 30, 2021 and recognized $188,385 from the prior quarter. The customer deposits are orders paid by customers and canceled in the following period due to back orders or other reasons.

The Company’s focus continues in growing its proprietary website revenues and the Company was successful in that, increasing its proprietary website revenue by 91%.

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Gross Profit

We had gross profit of $962,206 for the three months ended April 30, 2021, compared to gross profit of $571,767 for the three months ended April 30, 2020. Gross profit increased by $390.439 as a result of the increased revenues explained above and partly offset by an increase in cost of revenue due to the Company having to purchase goods at higher product costs from distributers rather than the usual manufacturers due to higher than anticipated demand which manufacturers were not able to meet.

Operating Expenses

The following table shows our operating expenses for the three months ended April 30, 2021 and 2020:

Operating expenses					Change
	2021		2020		$			%
Depreciation		10,735		6,647		4,088			62	%
Postage, Shipping and Freight		193,187		113,138		80,049			71	%
Marketing and Advertising		608,034		18,068		589,966			3265	%
E Commerce Services, Commissions and Fees		416,127		166,419		249,708			150	%
Operating lease cost		30,479		34,079		(3,600	)		(11	%)
Personnel Costs		297,493		266,735		30,758			12	%
General and Administrative		648,509		175,642		472,867			269	%
Total Operating Expenses		2,204,564		780,728		1,423,836			182	%

• Depreciation increased by $4,088 due to two new vehicles acquired this quarter..

• Postage shipping and freight increased by $80,049 due to higher sales.

• Marketing and advertising increased by $589,966 due to aggressive promotional efforts in 2021 to drive sales to our proprietary websites and build our brands. Note for the three months ended April 30, 2020 the Company had reduced spending due to the Covid 19 pandemic.

• E Commerce Services, Commissions and Fees increased by $249,708 due to higher sales.

• Operating Lease Cost decreased by $3,600 due to one less operating lease in 2021.

• Personnel Costs increased by $30,758 due to temporary layoffs in the prior year’s quarter commencing March 2020 as a result of the Covid-19 pandemic.

• General and Administrative in increased by $472,867 due to increases of $273,720 in investor relations costs as a result of the REG A subscription offering and $173,543 in professional fees due to reporting and business requirements. Note for the three months ended April 30, 2020, the Company had reduced spending significantly due to the Covid 19 pandemic.

Other Income (Expense)

The following table shows our other income and expenses for the three months ended April 30, 2021 and 2020:

							Change
Other Income (Expense)	2021			2020			$			%
Gain (Loss) on Derivatives		4,187			(74,780	)		78,967			(106	%)
Gain on Settlement of Debt		914,049			2,172,646			(1,258,597	)		(58	%)
Amortization of Debt Discount		(128,528	)		(578,913	)		450,385			(78	%)
Interest Expense		(114,907	)		(123,094	)		8,187			(7	%)
Total Other Income (Expense)		674,801			1,395,859			(721,058	)		(52	%)

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The changes above can be explained by the reduction in convertible debt that started in the prior year’s quarter ended April 30,2020. As a result of the debt exchanges and settlements, the gain on settlement of debt was higher and there were reductions in amortization expense and interest expense due to the lower debt. The higher loss on derivatives is a function of the market factors in the valuation of the derivative liability described in Note 8.

We had a net loss of $567,557 for three months ended April 30, 2021, compared to net income of $1,186,898 for three months ended April 30, 2021. The decrease in net income was mainly due to the gain on settlement in debt that occurred in the three months ended April 30, 2020, the higher operating expenses, specifically marketing, investor relations and professional fees in the three months ended April 30, 2021 which were partly offset by the 86% increase in revenues.

Liquidity and Capital Resources

Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the three months ended April 30, 2021, we have increased revenue and are working to achieve positive cash flows from operations.

As of April 30, 2021, we had a cash balance of $1,342,321, share subscription receivable of $94,817, inventory of $307,526 and $4,461,893 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.

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

Capital Resources

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


	April 30, 2021			January 31, 2021
Current assets	$	1,761,100		$	715,083
Current liabilities		4,461,893			5,059,138
Working capital (deficits)	$	(2,700,783	)	$	(4,344,055	)

Net cash used in operations for the three months ended April 30, 2021 was $820,458 as compared to net cash used in operations of $52,916 for the three months ended April 30, 2020. Net cash used in investing activities for the three months ended April 30, 2021 was $35,000 as compared to $0 for the same period in 2020. Net cash provided by financing activities for the three months ended April 30, 2021 was $1,920,115 as compared to $79,035 for the three months ended April 30, 2020.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.

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

ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Moving forward, we hope that our Chief Executive Officer and Principal Financial Officer will be able to devote the additional time and effort required so that our disclosure controls and procedures can become effective. Notwithstanding the assessment that our internal controls and procedures were not effective, we believe that our financial statements contained in this Quarterly Report for the quarter ended April 30, 2021 fairly present our financial position, results of operations and cash flows for the years and months covered thereby in all material respects.

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(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

Recent Sales of Unregistered Securities

None.

Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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

SIGNATURES

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

The 4Less Group, Inc.

By:	/s/ Timothy Armes
Timothy Armes
Chairman (Director), Chief Executive Officer, President, Secretary and Treasurer

Date: June 14, 2021

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EXHIBIT INDEX

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**		XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q.

* 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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