United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended
OR
From the transition period ___________ to ____________.
Commission File Number
(Exact name of small business issuer as specified in its charter)
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7389 |
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(State or jurisdiction of |
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(Primary Standard Industrial |
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(IRS Employer |
(Address of principal executive offices)
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(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class of Stock | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
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:
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).
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 [_]
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 [_]
As of September 18, 2023, there were shares of Common Stock of the issuer outstanding.
TABLE OF CONTENTS
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PART I. |
FINANCIAL INFORMATION |
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ITEM 1. |
3 | |
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Condensed Consolidated Statement of Changes in Stockholders’ Deficit (Unaudited) |
5 - 6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
27 |
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ITEM 3. |
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ITEM 4. |
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PART II. |
OTHER INFORMATION |
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ITEM 2. |
33 | |
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ITEM 6. |
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34 |
- 2 -
PART I — FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AUTO PARTS 4LESS GROUP, INC.
Condensed Consolidated Balance Sheets
| July 31, 2023 |
January 31, 2023 * |
||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and Cash Equivalents | $ | $ | |||||
| Inventory | |||||||
| Prepaid Expenses | |||||||
| Other Current Assets | |||||||
| Total Current Assets | |||||||
| Operating Lease Assets | |||||||
| Property and Equipment, net of accumulated depreciation of $ |
|||||||
| Total Assets | $ | $ | |||||
| Liabilities and Stockholders’ Deficit | |||||||
| Current Liabilities | |||||||
| Accounts Payable | $ | $ | |||||
| Accrued Expenses | |||||||
| Accrued Expenses – Related Party | |||||||
| Customer Deposits | |||||||
| Deferred Revenue | |||||||
| Short-Term Debt | |||||||
| Current Operating Lease Liability | |||||||
| Short-Term Convertible Debt, net of debt discount of $ |
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| Derivative Liabilities | |||||||
| Shareholder Loans Payable | |||||||
| Current Portion – Long-Term Debt | |||||||
| Total Current Liabilities | |||||||
| Non-Current Lease Liability | |||||||
| Long-Term Debt | |||||||
| Total Liabilities | |||||||
| Commitments and Contingencies | |||||||
| Redeemable Preferred Stock | |||||||
| Series D Preferred Stock, $ par value, shares authorized, and shares issued and outstanding | |||||||
| Stockholders’ Deficit | |||||||
| Preferred Stock – Series A, $ par value, shares authorized, and shares issued and outstanding | |||||||
| Preferred Stock – Series B, $ par value, shares authorized, and shares issued and outstanding | |||||||
| Preferred Stock – Series C, $ par value, shares authorized, and shares issued and outstanding | |||||||
| Common Stock, $ par value, shares authorized, and shares issued, issuable and outstanding | |||||||
| Additional Paid In Capital | |||||||
| Accumulated Deficit | ( |
) | ( |
) | |||
| Total Stockholders’ Deficit | ( |
) | ( |
) | |||
| Total Liabilities and Stockholders’ Deficit | $ | $ | |||||
| * |
The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.
- 3 -
AUTO PARTS 4LESS GROUP, INC.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended July 31, 2023 and July 31, 2022
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||
| July 31, 2023 | July 31, 2022 | July 31, 2023 | July 31, 2022 | ||||||||||
| Revenue | $ | $ | $ | $ | |||||||||
| Cost of Revenue | |||||||||||||
| Gross Profit | |||||||||||||
| Operating Expenses: | |||||||||||||
| Depreciation | |||||||||||||
| Postage, Shipping and Freight | |||||||||||||
| Marketing and Advertising | |||||||||||||
| E Commerce Services, Commissions and Fees | |||||||||||||
| Operating lease cost | |||||||||||||
| Personnel Costs | |||||||||||||
| General and Administrative | |||||||||||||
| Total Operating Expenses | |||||||||||||
| Net Operating Loss | ( |
) | ( |
) | ( |
) | ( |
) | |||||
| Other Income (Expense) | |||||||||||||
| Gain (Loss) on Sale of Property and Equipment | |||||||||||||
| Gain (Loss) on Derivatives | ( |
) | ( |
) | ( |
) | ( |
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| Gain on Settlement of Debt | |||||||||||||
| Amortization of Debt Discount | ( |
) | ( |
) | ( |
) | ( |
) | |||||
| Interest Expense | ( |
) | ( |
) | ( |
) | ( |
) | |||||
| Total Other Income (Expense) | ( |
) | ( |
) | ( |
) | ( |
) | |||||
| Net Income (Loss) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
| Basic Weighted Average Shares Outstanding; | |||||||||||||
| Basic Income (Loss) per Share | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
| Diluted Average Shares Outstanding; | |||||||||||||
| Diluted Income (Loss) per Share | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.
- 4 -
AUTO PARTS 4LESS GROUP, INC.
Condensed Consolidated Statement of Changes in Stockholders’ Deficit
For the Six Months Ended July 31, 2022 and July 31, 2021
(Unaudited)
| Preferred Series A | Preferred Series B | Preferred Series C | Common Stock | Paid in | Accumulated | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||
| January 31, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
| Conversion of Preferred Series C Shares into Shares Of Common Stock | — | — | ( |
) | ( |
) | |||||||||||||||||||||||
| Relative Fair Value of Equity Issued with Debt | — | — | — | ||||||||||||||||||||||||||
| Penalty Warrants Recorded as Interest | — | — | — | — | |||||||||||||||||||||||||
| Rounding shares | — | — | — | ||||||||||||||||||||||||||
| Net (Loss) | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||
| April 30, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
| Relative Fair Value of Equity Issued with Debt | — | — | — | ||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | ||||||||||||||||||||||||||
| Penalty Warrants Recorded as Interest | — | — | — | — | |||||||||||||||||||||||||
| Stock Based Compensation | — | — | — | — | |||||||||||||||||||||||||
| Rounding shares | — | — | — | ||||||||||||||||||||||||||
| Net (Loss) | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||
| July 31, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
- 5 -
| Preferred Series A | Preferred Series B | Preferred Series C | Common Stock | Paid in | Accumulated | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||
| January 31, 2023 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
| Common Stock Issued as Payment for Accrued Expenses | — | — | — | ||||||||||||||||||||||||||
| Conversion of Notes Payable and Accrued Interest into Shares Of Common Stock | — | — | — | ||||||||||||||||||||||||||
| Derivative Liability Reclassified as Equity Upon Conversion of Common Shares | — | — | — | — | |||||||||||||||||||||||||
| Penalty Warrants Expensed as Interest | — | — | — | — | — | ||||||||||||||||||||||||
| Relative Fair Value of Equity Issued with Debt | — | — | — | ||||||||||||||||||||||||||
| Net Income | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||
| April 30, 2023 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
| Penalty Warrants Expensed as Interest | — | — | — | — | — | ||||||||||||||||||||||||
| Relative Fair Value of Equity Issued with Debt | — | — | — | ( |
|||||||||||||||||||||||||
| Net Income | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||
| July 31, 2023 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.
- 6 -
AUTO PARTS 4LESS GROUP, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended July 31, 2023 and July 31, 2022
(Unaudited)
| 2023 | 2022 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
| Net Income (Loss) | $ | ( |
) | $ | ( |
) | |
| Adjustments to reconcile net income (loss) to cash used by operating activities: | |||||||
| Depreciation | |||||||
| Reduction of Right of Use Asset | |||||||
| Accretion of Lease Liability | |||||||
| (Gain) loss in Fair Value on Derivative Liabilities | |||||||
| Amortization of Debt Discount | |||||||
| Debt Discount Expensed | |||||||
| Debt Discount in Excess of Face Value of Note to Interest Expense | |||||||
| Loan Penalties Capitalized to Loan | |||||||
| Interest Expense on Penalty Warrants | |||||||
| Stock Based Compensation | |||||||
| Deferred Salary for Former CEO | |||||||
| Gain on Sale of Property and Equipment | ( |
) | |||||
| Gain on Settlement of Debt | ( |
) | ( |
) | |||
| Change in Operating Assets and Liabilities: | |||||||
| Decrease in Inventory | |||||||
| (Increase) in Prepaid Rent and Expenses | ( |
) | ( |
) | |||
| Decrease (Increase) in Other Current Assets | ( |
) | |||||
| Decrease in Bank Overdraft | ( |
) | |||||
| Decrease in Accounts Payable | ( |
) | ( |
) | |||
| Increase (Decrease) in Accrued Expenses | |||||||
| Operating Lease Payments | ( |
) | ( |
) | |||
| Decrease in Accrued Expenses -Related Party | ( |
) | |||||
| Decrease in Customer Deposits | ( |
) | ( |
) | |||
| Decrease in Deferred Revenue | ( |
) | ( |
) | |||
| CASH FLOWS (USED IN) OPERATING ACTIVITIES | ( |
) | ( |
) | |||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
| Purchase of Property and Equipment | ( |
) | |||||
| CASH FLOWS (USED IN) INVESTING ACTIVITIES | ( |
) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
| Proceeds from Convertible Notes Payable | |||||||
| Proceeds from Short Term Debt | |||||||
| Payments on Short Term Debt | ( |
) | ( |
) | |||
| Shareholder Loans Payable | |||||||
| Repayments on Shareholder Loans Payable | ( |
) | |||||
| Payments on Long Term Debt | ( |
) | ( |
) | |||
| Payments on Convertible Notes Payable | ( |
) | ( |
) | |||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | |||||||
| NET INCREASE IN CASH | |||||||
| CASH AT BEGINNING OF PERIOD | |||||||
| CASH AT END OF PERIOD | $ | $ | |||||
| Supplemental Disclosure of Cash Flows Information: | |||||||
| Cash Paid for Interest | $ | $ | |||||
| Issuance of Shares as payment for Accrued Expenses | $ | $ | |||||
| Transfer of Vehicle At Fair Market Value to Accounts Payable Related Party | $ | $ | |||||
| Transfer of Vehicle Loan to Accounts Payable Related Party | $ | $ | |||||
| Convertible Notes Interest ,Fees and Derivatives Converted to Common Stock | $ | $ | |||||
| Fair Value of Instruments Issued With Debt | $ | $ | |||||
| Derivative Debt Discount | $ | $ | |||||
| Debt Discount | $ | $ | |||||
The Accompanying Notes are an Integral Part of these Unaudited Condensed Consolidated Financial Statements.
- 7 -
AUTO PARTS 4LESS GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business:
Nature of Business – Auto Parts 4Less
Group, Inc., (the “Company”), formerly The 4Less Group, Inc., was incorporated under the laws of the State of Nevada on
On November 29, 2018,
4LESS was formed as Vegas Suspension & Offroad, LLC on October 24, 2013, as a Nevada limited liability company and converted to a Nevada corporation with the same name on May 8, 2017. On April 2, 2018, the Company changed its name to The 4LESS Corp. The Corporation had S Corporation status. The Corporation operates as an e-commerce auto and truck parts sales company. As a result of the share exchange, The 4Less Group, Inc. is now a holding company operating through 4LESS and offers products including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and shocks. On December 30, 2019 4LESS changed its name to Auto Parts 4Less, Inc.. On April 28, 2022, the Company changed its name from The 4Less Group, Inc. to Auto Parts 4Less Group, Inc.
Significant Accounting Policies:
The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenue and expense. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these condensed financial statements.
Basis of Presentation:
The Company prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States.
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim unaudited consolidated financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended January 31, 2023 and notes thereto contained in the Company’s Annual Report on Form 10-K filed on August 11, 2023.
Principles of Consolidation:
The condensed financial statements include the accounts of Auto Parts 4Less Group, Inc. as well as The Auto Parts 4Less, Inc., and JBJ Wholesale LLC. All significant inter-company transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.
Use of Estimates:
In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based. The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to value derivative liabilities.
Reclassifications
Certain amounts in the Company’s condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
Cash and Cash Equivalents:
The Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The carrying amount of cash and cash equivalents approximates fair market value.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Inventories are valued on a first-in, first-out (FIFO) basis. Inventory is comprised of finished goods.
Concentrations
Cost of Goods Sold
For the three months ended July 31, 2023 the Company
purchased approximately
Leases
We elected the hindsight practical expedient to determine the lease term for existing leases. Our election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements. In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized when items of income and expense are recognized in the financial statements in different periods than when recognized in the tax return. Deferred tax assets arise when expenses are recognized in the financial statements before the tax returns or when income items are recognized in the tax return prior to the financial statements. Deferred tax assets also arise when operating losses or tax credits are available to offset tax payments due in future years. Deferred tax liabilities arise when income items are recognized in the financial statements before the tax returns or when expenses are recognized in the tax return prior to the financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending January 31, 2023, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements.
Fair Value of Financial Instruments:
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, 2023:
| July 31, 2023 | Quoted Prices in Active Markets For Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||
| Liabilities: | |||||||||||||
| Derivative Liabilities – embedded redemption feature | $ | 6,470,081 | $ | — | $ | — | $ | 6,470,081 | |||||
| Totals | $ | $ | $ | $ | |||||||||
Related Party Transactions:
The Company has a verbal policy that includes procedures intended to ensure compliance with the related party provisions in common practice for public companies. For purposes of the policy, a “related party transaction” is a transaction in which the Company or any one of its subsidiaries participates and in which a related party has a direct or indirect material interest, other than ordinary course, arms-length transactions of less than 1% of the revenue of the counterparty. Any transaction exceeding the 1% threshold, and any transaction involving consulting, financial advisory, legal or accounting services that could impair a director’s independence, must be approved by the CEO. Any related party transaction in which an executive officer or a Director has a personal interest, or which could present a possible conflict under the Guide to Ethical Conduct, must be approved by Board of Directors, following appropriate disclosure of all material aspects of the transaction.
Derivative Liability
The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments.
The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock. However, because the historical volatility of the Company’s common stock is so high (see Note 9), the sensitivity required to change the liability by 1% as of July 31, 2022 is greater than 25% change in historical volatility as of that date. The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.
Revenue Recognition
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
Because the Company’s sales agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.
Disaggregation of Revenue: Channel Revenue
The following table shows revenue split between proprietary and third-party website revenue for the three months ended July 31, 2023 and 2022:
| Change | ||||||||||||
| 2023 | 2022 | $ | % | |||||||||
| Proprietary website and marketplace revenues | $ | $ | $ | ( |
) | ( |
) | |||||
| Third party website revenue | ( |
) | ( |
) | ||||||||
| Total Revenue | $ | $ | $ | ( |
) | ( |
) | |||||
The following table shows revenue split between proprietary and third-party website revenue for the six months ended July 31, 2023 and 2022:
| Change | ||||||||||||
| 2023 | 2022 | $ | % | |||||||||
| Proprietary website and marketplace revenue | $ | $ | $ | ( |
) | ( |
) | |||||
| Third party website revenue | ( |
) | ( |
) | ||||||||
| Total Revenue | $ | $ | $ | ( |
) | ( |
) | |||||
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.
The Company accounts for stock options at fair value. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option.
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options and/or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.
Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss per share, except the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of convertible debt and other such convertible instruments. Diluted loss per share contemplates a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.
Recently Issued Accounting Standards:
In August 2020, the FASB issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments. The amended guidance is effective for interim and annual periods in 2022. The application of the amendments in the new guidance are to be applied either on a modified retrospective or a retrospective basis. We are currently assessing the effect that the adoption of this standard will have on the Company’s consolidated financial statements upon adoption.
In addition to the above, the Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively. Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements for prior acquisitions; however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.
In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to the company’s financial statements. The guidance is effective for annual periods beginning in 2022 and is to be applied on either a prospective or retrospective basis. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
There were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows.
NOTE 2 – GOING CONCERN AND FINANCIAL POSITION
The consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has an accumulated deficit of $ as of July 31, 2023 and has a working capital deficit at July 31, 2023 of $
Management’s plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues can sustain the Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – PROPERTY
The Company capitalizes all property purchases over $1,000 and depreciates the assets on a straight-line basis over their useful lives of 3 years for computers and 7 years for all other assets. Property consists of the following at July 31, 2023 and January 31, 2022:
| July 31, 2023 | January 31, 2023 | ||||||
| Office furniture, fixtures and equipment | $ | $ | |||||
| Shop equipment | |||||||
| Vehicles | |||||||
| Sub-total | |||||||
| Less: Accumulated depreciation | ( |
) | ( |
) | |||
| Total Property | $ | $ | |||||
Additions to fixed assets for the six months ended
July 31, 2023 were $
For the six months ended July 31, 2023, a vehicle
having a cost of $
Depreciation expense was $ and $
Depreciation expense was $ and $
- 13 -
NOTE 4 – LEASES
We lease certain warehouses and office space.
Most leases include one or more options to renew,
with renewal terms that can extend the lease term from
Below is a summary of our lease assets and liabilities at July 31, 2023 and January 31, 2023.
| Leases | Classification | July 31, 2023 | January 31, 2023 | ||||||
| Assets | |||||||||
| Operating | Operating Lease Assets | $ | $ | ||||||
| Liabilities | |||||||||
| Current | |||||||||
| Operating | Current Operating Lease Liability | $ | $ | ||||||
| Noncurrent | |||||||||
| Operating | Noncurrent Operating Lease Liabilities | ||||||||
| Total lease liabilities | $ | $ | |||||||
Note: As most of our leases do not provide an implicit
rate, we use our incremental borrowing rate of
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 $
Operating lease cost and rent was $
NOTE 5 – CUSTOMER DEPOSITS
The Company receives payments from customers on orders
prior to shipment and these customer deposits on cancelled orders were either returned to the customers subsequent to July 31 2023 or
will remain as deposits until the item is either delivered and recorded as revenue or cancelled and refunded. At July 31, 2023 the Company
had received $
NOTE 6 – DEFERRED REVENUE
The Company receives payments from customers on orders
prior to shipment and orders that were unfulfilled at July 31, 2023 because of both normal order processing and fulfillment requirements,
and back orders are recorded as deferred revenue. At July 31, 2023 the Company had received $
- 14 -
NOTE 7 – SHORT-TERM AND LONG-TERM DEBT
The components of the Company’s debt as of July 31, 2023 and January 31, 2023 were as follows:
| July 31, 2023 | January 31, 2023 | ||||||
| Forklift Note Payable, original note of $ |
* | ||||||
| Vehicle loan original loan of $ |
# | ||||||
| Vehicle loan original loan of $ |
|||||||
| Working Capital Note Payable - $ |
* | ||||||
| Working Capital Note Payable - $ |
* | ||||||
| Demand loan - $ |
* | ||||||
| Demand loan - $ |
* | ||||||
| Demand loan - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Demand loan, non-interest bearing. | * | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Promissory note - $ |
* | ||||||
| Total | $ | $ | |||||
| July 31, 2023 | January 31, 2023 | ||||||
| Short-Term Debt | $ | $ | |||||
| Current Portion of Long-Term Debt | |||||||
| Long-Term Debt | |||||||
| Total | $ | $ | |||||
| † | |
| * | |
| # | |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) | |
| (8) | |
| (9) | |
| (10) | |
| (11) |
The following are the minimum amounts due on the notes as of July 31, 2023:
| Year Ended | Amount | |||
| $ | ||||
| Total | $ | |||
- 16 -
NOTE 8 – SHORT-TERM CONVERTIBLE DEBT
The components of the Company’s debt as of July 31, 2023 and January 31, 2023 were as follows.
| Interest | Default Interest | Conversion | Outstanding Principal at | ||||||
| Maturity Date | Rate | Rate | Price (a) | July 31, 2023 | January 31, 2023 | ||||
| $ |
$ | $ | |||||||
| $ |
|||||||||
| $ |
|||||||||
| $ |
|||||||||
| (1) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (5) | |||||||||
| (4) | |||||||||
| (4) | |||||||||
| (4)(b)(iv) | |||||||||
| (4)(b)(iv) | |||||||||
| (4)(b)(iv) | |||||||||
| (4)(b)(iv) | |||||||||
| (4)(b)(iv) | |||||||||
| (6)(b)(iii) | |||||||||
| (2) | |||||||||
| (2) | |||||||||
| (2) | |||||||||
| (4) | |||||||||
| (3) | — | ||||||||
| (7) | — | ||||||||
| (7) | — | ||||||||
| (3) | — | ||||||||
| (7) | — | ||||||||
| Sub-total | |||||||||
| Debt Discount | ( |
) | ( |
) | |||||
| $ | $ | ||||||||
| * | |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) | |
| (a) | |
| (b) | |
| (i) | Penalty of 100% of the loan and accrued interest added to the principal and accrued interest, respectively. |
| (ii) | Penalty of 25% of the loan and accrued interest added to the principal and accrued interest, respectively. |
| (iii) | |
| (iv) |
The Company had accrued interest payable of $
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 July 31, 2023 and 2022, the Company recorded amortization of debt discount expense of $
On April 20, 2023,
In April 2023,
On May 5, 2023,
On June 1, 2023
On June 13, 2023,
On June 13, 2023,
On July 17, 2023,
As of July 31, 2023, the Company had $
NOTE 9 – DERIVATIVE LIABILITIES
As of July 31, 2023, and January 31, 2023, the Company
had derivative liabilities of $
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, 2023. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.
| Level 3 | ||||
| Derivatives | ||||
| Balance, January 31, 2023 | $ | |||
| Changes Due to Issuance of New Convertible Notes | ||||
| Changes due to Settlements of Convertible Notes | ||||
| Changes due to Conversions of Notes Payable | ( |
) | ||
| Mark to Market Change in Derivatives | ||||
| Balance, July 31, 2023 | $ | |||
The derivatives arise from convertible debt where the debt is convertible into common stock at variable conversion prices which are linked to the trading and/or bid prices of the Company’s common stock as traded on the OTC market.
The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of July 31, 2023, is as follows:
| Embedded Derivative Liability As of July 31, 2023 |
|||
| Strike price | - | ||
| Contractual term (years) | - years | ||
| Volatility (annual) | |||
| Underlying fair market value | |||
| Risk-free rate | |||
| Dividend yield (per share) |
NOTE 10 – STOCKHOLDERS’ DEFICIT
Preferred Stock:
The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of both July 31, 2023, and January 31, 2023 the Company had shares of Series A Preferred issued and outstanding and authorized with a par value of $ per share.
At both July 31, 2023 and January 31, 2023, there were and 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 Series B preferred shares authorized and issued of the Series B Preferred Stock with a par-value of $ per share.
At both July 31, 2023 and January 31, 2023, there were Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. On February 1, 2022 the 7,250 Series C Preferred stockholders converted all of their outstanding shares for 905,110 shares of common stock. Currently, there are 0 Series C preferred shares authorized and issued with a par-value of $ per share.
At both July 31, 2023 and January 31, 2023, there
were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $. All shares of Series D Preferred
Stock will rank subordinate and junior to all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any
of the Corporation’s preferred stock hereafter created as to distributions of assets upon dissolution or winding up of the Corporation,
whether voluntary or involuntary.
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 $ per share.
(2) Should the Corporation exercise the right of Optional Redemption it shall provide each holder of Preferred Stock with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption Notice”). Any optional redemption pursuant to this Section VI shall be made ratably among holders in proportion to the Liquidation Value of Preferred Stock then outstanding and held by such holders. The Optional Redemption Notice shall state the Liquidation Value of Preferred Stock to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty (30) or more than sixty (60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the Corporation to the holders at the address of such holder appearing on the register of the Corporation for the Preferred Stock. Within seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation with instructions as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via wire transfer to the account designated by the holders, and (B) the holders will deliver the certificates relating to that number of shares of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that number of shares to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which funds should be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such Optional Redemption to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of shares of Preferred Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed no longer outstanding. Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.
(3) Should the holder exercise the right of Optional Redemption it shall provide the Corporation with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption Notice”). The Optional Redemption Notice shall state the value of the Preferred Stock to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty (30) or more than sixty (60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the holder to the Corporation at the address of the Corporation for the Preferred Stock. Within seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation with instructions as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via wire transfer to the account designated by the holder, and (B) the holder will deliver the certificates relating to that number of shares of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that number of shares to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which funds should be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such Optional Redemption to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of shares of Preferred Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed no longer outstanding. Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.
The Series D Preferred Stock is not entitled to any pre-emptive or subscription rights in respect of any securities of the Corporation.
Neither the Company nor any Series D preferred stockholders has given notice to exercise the redemption as of July 31, 2023, on the date of the financial statements.
Because the holders of the Series D preferred stock have the right to demand cash redemption, the cumulative amount of the redemption feature is included in Temporary Equity as of July 31, 2023, and January 31, 2023.
Common Stock
The Company is authorized to issue common shares at a par value of $ per share. These shares have full voting rights. The Company undertook a 10-1 reverse stock split on April 28, 2022. The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At July 31, 2023 and January 31, 2023 there were and shares outstanding and issuable, respectively. No dividends were paid in the three months ended July 31, 2023 or 2022. The Company’s articles of incorporation include a provision that the Company is not allowed to issue fractional shares.
| Common shares | July 31, 2023 | January 31, 2023 | |||||
| Issued | |||||||
| Shares to be cancelled | ( |
) | ( |
) | |||
| Issuable | |||||||
| Issued, issuable and outstanding | |||||||
The Company issued the following shares of common stock in the six months ended July 31, 2023:
The Company issued common shares at fair value
of $ to settle $
The Company issued shares and warrants to acquire common shares along with debt for a relative fair value of $ with an adjustment to paid -on capital and a corresponding adjustment to debt discount.
Options and Warrants:
The Company has and options outstanding as of both July 31, 2023, and or January 31, 2023.
The Company recorded option and warrant expense of
$
For the six months ended July 31, 2023
| Expected volatility | - % |
| Exercise price | $ - $ |
| Stock price | $ - $ |
| Expected life | - years |
| Risk-free interest rate | % - % |
| Dividend yield | % |
For the six months ended July 31, 2022
| Expected volatility | - % |
| Exercise price | $ - $ |
| Stock price | $ - $ |
| Expected life | - years |
| Risk-free interest rate | % - % |
| Dividend yield | % |
The Company had the following fully vested warrants outstanding at July 31, 2023:
| Issued To | # Warrants | Dated | Expire | Strike Price * | Expired | Exercised |
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ per share | N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ per share | N | N | ||||
| $ per share | N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| On exercise | $ |
N | N | |||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N | ||||
| $ |
N | N |
| * |