10-K 1 form_10-k.htm FORM 10-K ANNUAL REPORT FOR 01-31-2022
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended   January 31, 2022

 

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

 

For the transition period from _________________________ to _________________________

 

Commission file number:   333-152444

 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   90-1494749
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

106 W. Mayflower, Las Vegas, NV   89030
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code:   702-267-6100

 

Securities registered pursuant to Section 12(b) of the Act:   None

 

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

 

Title of Each Class of Stock Trading Symbol(s) Name of each exchange on which registered
Common Stock FLES Other OTC

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes [  ]          No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Yes [  ]          No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes [X]          No [  ]

 

Indicate by check mark whether the registrant has submitted electronically on its corporate Website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes [X]          No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [X]

 

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

 

  Large Accelerated filer [  ] Accelerated filer [  ]
         
  Non-Accelerated filer [X] Smaller reporting company [X]
         
      Emerging Growth Company [  ]

 

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

 

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

 

Yes [  ]          No [X]

 

The aggregate market value of common stock, par value $0.000001 per share, held by non-affiliates of the registrant, based on the average bid and asked prices of the common stock on July 31, 2021 (the last business day of the registrant’s most recently completed second quarter) was approximately $5,910,053.

 

Number of common shares outstanding at April 25, 2022:  1,447,555

 


 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

FORM 10-K

 

TABLE OF CONTENTS

 

PART I   3
     
ITEM 1. Business 3
ITEM 1A. Risk Factors 5
ITEM 1B. Unresolved Staff Comments 5
ITEM 2. Properties 5
ITEM 3. Legal Proceedings 5
ITEM 4. Mine Safety Disclosures 5
     
PART II   5
     
ITEM 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities 5
ITEM 6. Selected Financial Data 17
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 18
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 22
ITEM 8. Financial Statements and Supplementary Data 22
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23
ITEM 9A. Controls and Procedures 23
ITEM 9B. Other Information 24
     
PART III   24
     
ITEM 10. Directors, Executive Officers and Corporate Governance 24
ITEM 11. Executive Compensation 26
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 27
ITEM 13. Certain Relationships and Related Transactions, and Director Independence 28
ITEM 14. Principal Accounting Fees and Services 29
     
PART IV   29
     
ITEM 15. Exhibits and Financial Statement Schedules 29

 

- 2 -


 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

Auto Parts 4Less Group, Inc. formerly The 4Less Group, Inc. is referred to hereinafter as “we”, “our”, or “us.

 

PART I

 

Item 1.  Business.

 

Company

 

Auto Parts 4Less Group, Inc. formerly The 4LESS Group, Inc., also previously known as MedCareers Group, Inc. (the “Company”,  “MCGI”), was incorporated under the laws of the State of Nevada on December 5, 2007. The Company formally operated a website for nurses, nursing schools and nurses’ organizations designed for better communication between nurses and the nursing profession.

 

On November 29, 2018, the Company entered into a transaction (the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of The 4LESS Corp.  (“4LESS”), in exchange for the issuance of (i) nineteen thousand (19,000) shares of Series B Preferred Stock, (ii) six thousand seven hundred fifty (6,750) shares of Series C Preferred Stock, and (iii) 870 shares of Series D Preferred Stock. The Series C Preferred Shares have a right to convert, and was converted in December 2021 into common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The Share Exchange closed on November 29, 2018.  As a result of the Share Exchange, the former shareholders of 4LESS became the controlling shareholders of the Company. The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein 4LESS is considered the acquirer for accounting and financial reporting purposes. The capital, share price, and earnings per share amount in these consolidated financial statements for the period prior to the reverse merger were restated to reflect the recapitalization in accordance with the shares issued as a result of the reverse merger except otherwise noted.

 

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

 

Auto Parts 4Less Group, Inc. formerly The 4LESS Group, Inc. (“4Less”, the “Company”, “we” or “us”), the Company described herein, is a Nevada corporation, with offices located at 106 W Mayflower, Las Vegas, NV 89030. It can be reached by phone at (702) 267-6100.

 

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History

 

The Company was formed as RX Scripted, LLC on December 30, 2004 as a North Carolina limited liability company and converted to a Nevada corporation as RX Scripted, Inc. on December 5, 2007.

 

On or around January 7, 2010 the Company’s name was changed to MedCareers Group, Inc.  Additionally, as a result of filing the Certificate, the Company’s symbol on the Over-The-Counter Bulletin Board changed to “MCGI”, effective January 7, 2010.

 

On or around November 19, 2010, the Company entered into a Share Exchange Agreement (the “Exchange”) with Nurses Lounge, Inc., a Texas corporation (“Nurses Lounge”) and the nine shareholders of Nurses Lounge (the “Nurses Lounge Shareholders”).  Pursuant to the Exchange, we agreed to issue 24,000,000 restricted shares of our common stock to the Nurses Lounge Shareholders in exchange for 100% of the issued and outstanding shares of common stock of Nurses Lounge.  Although 24,000,000 restricted shares were issued in connection with the Exchange, certain significant shareholders of the Company also agreed to cancel some of the shares they owned so that the net effect of the Exchange was an increase to the outstanding shares by 7,175,000 shares rather than 24,000,000.  Included in the shareholders receiving shares in connection with the Exchange, was Timothy Armes founder and president of Nurses Lounge, Inc., who received 14,902,795 shares. In December 2019 Nurses Lounge was disposed of as more fully described elsewhere in this Form 10-K and in the Notes to the Financial Statements.

 

Auto Parts 4Less

 

Like many small businesses, Christopher Davenport, the founder of Auto Parts 4Less (“4Less”) previously named The 4less Corp., the wholly owned subsidiary of Auto Parts 4Less Group, Inc., began selling auto parts on eBay and shipping those items out of his garage in 2013.  What started out as a hobby, quickly grew into a fully functioning ecommerce aftermarket auto parts company that required a significant technical staff and facilities to support their growth. In June of 2015, they leased their first office.

 

Originally the company listed their auto parts in the different marketplaces such as Amazon, eBay, Walmart and Jet.  Starting in 2016 the company began investing to become their own ecommerce platform thereby allowing their auto parts to be direct listed across marketplace and social media sites. Technical achievements including CRM system, warehouse integration API, warehouse inventory software to name a few.

 

In 2019, shortly after the share exchange with MedCareers Group, Inc., with technology upgrades in place, 4Less began successfully moving majority of sales from third party marketplaces direct to their proprietary ecommerce web site Liftkits4Less.com. By doing so the company saves 8%-10% in fees charged by the major marketplace’s such as e-Bay and Amazon as well as further building the 4less brand as a leading ecommerce site for auto parts.

 

On November 19, 2019 the Company acquired the URL Autoparts4Less.com and changed the name of their wholly owned subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc. With the acquisition of the URL AutoParts4Less.com, the Company also began focusing all of their efforts and resources on building out a flagship automotive marketplace with the potential to offer buyers a wide range of automotive parts for cars, trucks, boats, motorcycles and RV’s on a single platform.

 

In August 2021 the Company launched a beta test version of Autoparts4less.com. In a short period of time after the beta launch the company realized that with the amount of interest received from numerous types of larges sellers, which included not only ecommerce sites presently selling parts online, but also interest from other large parts sellers such as warehouse distributors, new car dealers with large inventories of parts as well as brick and mortar parts retailers looking to move sales online, the platform originally created would soon be inadequate. As such, the Company made the decision to upgrade to a larger and more advanced platform solution so they immediately began implementation of the AWS Fargate serverless platform solution.

 

The platform upgrade will be done in late 1st quarter FYE 2023, with marketplace sales expected to begin in 2nd quarter 2023.

On April 28. 2022 the Company changed its name from The 4LESS Group, Inc. to Auto Parts 4Less Group, Inc.

 

Competition

 

We directly compete for buyers to use our web sites over current e-commerce sites as well as sellers that utilize major marketplaces such as Amazon and eBay.  However, we believe our specialty ecommerce website liftkits4less.com offers substantial value-added content including installation guides, install videos, high impact photos, order customization and live chat with a technical expert.

 

Additionally, we believe that our automotive parts marketplace AutoParts4less.com, with no known large challengers presently in the space outside of “all things to all people” online marketplaces Amazon and eBay, has the opportunity to quickly be branded when launched as the auto part’s industry premier marketplace just as sites like Etsy, Wayfair, Uber and Chewey’s have been able to successfully do in their industries.

 

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Item 1A. Risk Factors

 

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

 

Item 1B.  Unresolved Staff Comments

 

Not applicable.

 

Item 2.  Properties.

 

Executive Offices

 

We maintain offices at 106 W Mayflower, Las Vegas, Nevada 89030.  We pay monthly rent of $6,400 and our lease expires on June 30, 2022, with an additional one year renewal.

 

Item 3.  Legal Proceedings.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

None.

 

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

The Company’s common stock is traded on the OTC Pink market (otherwise known as the “pink sheets”) maintained by OTC Markets under the symbol “FLES”.  The following table sets forth, for the periods indicated, the high and low sales prices, which set forth reflect inter-dealer prices, without retail mark-up or mark-down and without commissions; and may not reflect actual transactions. The Company effected a 10:1 reverse split on April 26,2022 , so the post reverse split prices are shown.

 

Calendar Quarter Ending Low High
  $ $
January 31, 2022 6.80 20.00
October 31, 2021 9.50 23.90
July 31, 2021 17.00 22.50
April 30, 2021 20.60 34.50
     
January 31, 2021 2.00 44.80
October 31, 2020 0.60 64.00
July 31, 2020 0.50 2.00
April 30, 2020 1.10 4.00

 

No cash dividends on the Company common stock have been declared or paid since the Company’s inception. The Company had approximately 119 shareholders at April 26, 2022. This does not include shareholders that hold their shares in street name or with a broker.

 

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Recent Sales of Unregistered Securities

 

Preferred Stock

 

On June 11, 2018, we filed with the state of Nevada designations for Series C and D Preferred Stock of the Company, as well as amended designation for our Series A and B Preferred Stock. Series A Preferred Stock consists of 330,000 authorized shares. Series A Preferred shares have no voting rights and carry conversion rights into common stock of the Company at a rate equal to factor of total issued and outstanding common stock a the time of conversion divided by 0.0152. Series B Preferred Stock consists of 20,000 shares. Series B shares in total shall have voting rights equal 66.7% of the total voting rights (all common shares plus all other series of preferred stock as if they had converted on that date). Series C Preferred Stock consists of 7,250 shares. The total of the Series C Preferred shares shall convert to our common stock by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. Conversion is automatic as of December 31, 2022, regardless of the acts of the holders. Series D Preferred Stock consists of 870 shares. Series D Preferred shares have no voting rights and are redeemable for $1,000 per share at the discretion of either the holder us.   For more details regarding the right and obligations of the respective series of preferred stock, please review the Exhibits 3.1-3.4. filed on Edgar on November 13, 2018 and incorporated herein by reference.

 

During the year the ended January 31, 2022, there were no transactions of Preferred stock.

 

On February 1, 2022 all Series C shareholders holding all 7,250 outstanding shares converted all of their shares for 905,111common shares.

 

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Common Stock

 

    Consideration   Date   # Shares
Number of shares outstanding,
January 31, 2017
          2.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $6,050 of principal and $2,341 of accrued interest   15-Nov-17   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $4,400 of principal and $1,743 of accrued interest   29-Nov-17   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $4,400 of principal and $1,745 of accrued interest   8-Dec-17   0.3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,550 of principal   19-Jan-18   0.1
Accrued expenses converted to common stock – related party   Convert a portion of accrued expense of $2,250   31-Jan-18   0.1
Accrued expenses converted to common stock – related party   Convert a portion of accrued expense of $1,125   31-Jan-18   0.1
Accrued expenses converted to common stock   Convert a portion of accrued expense of $750   31-Jan-18  
Common stock issued for services   Services valued at $3,000   31-Jan-18  
Common stock issued for services   Services valued at $300   31-Jan-18  
Number of shares outstanding,
January 31, 2018
          3.5
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $2,200 of principal and $1,145 of accrued interest   6-Jun-18   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $1,760 of principal and $978 of accrued interest   30-Jul-18   0.2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $1,650 of principal and $944 of accrued interest   9-Oct-18   0.2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $1,540 of principal and $941 of accrued interest   22-Oct-18   0.2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $6,373 of accrued interest   9-Nov-18   0.1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $2,750 of accrued interest   9-Nov-18   0.2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,950 of accrued interest   15-Nov-18   0.2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $13,863 of principal and $9,176 of accrued interest   16-Nov-18   0.1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,235 of accrued interest   19-Nov-18   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,108 of principal and $1,890 of accrued interest   21-Nov-18   0.4
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $1,322 of principal and $2,328 of accrued interest   23-Nov-18   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $1,540 of principal and $941 of accrued interest   30-Nov-18   0.4
Cancelation of shares   Cancellation in conjunction with acquisition   30-Nov-18   (0.3)
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,717 of principal and $133 of accrued interest   30-Nov-18   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,958 of principal and $92 of accrued interest   3-Dec-18   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $4,216 of principal and $84 of accrued interest   6-Dec-18   0.4
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,190 of principal and $1,981 of accrued interest   10-Dec-18   0.4
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,843 of principal and $127of accrued interest   11-Dec-18   0.3

 

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Common Stock (continued)

 

    Consideration   Date   # Shares
Cancellation in conjunction with disposal of subsidiary   Shares cancelled due to spinoff of subsidiary and discontinued operations   12-Dec-18   (0.2)
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $4,885 of principal and $114 of accrued interest   16-Nov-18   0.4
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $4,950 of principal and $3,096 of accrued interest   16-Nov-18   0.7
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $5,191 of principal and $58 of accrued interest   16-Nov-18   0.4
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $5,934 of principal and $16 of accrued interest   16-Nov-18   0.5
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,088 of principal and $61 of accrued interest   16-Nov-18   0.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $5,500 of principal and $3,480 of accrued interest   16-Nov-18   0.7
Convert a portion of accrued expense   Convert a portion of accrued expense of $1,125   31-Dec-18   0.1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $6,732 of principal and $158 of accrued interest   10-Jan-19   0.6
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $5,500 of principal and $3,523 of accrued interest   10-Jan-19   0.8
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $7,547 of principal and $48 of accrued interest   17-Jan-19   0.6
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $8,000 of accrued interest   18-Jan-19   0.7
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $9,240 of principal and $6,034 of accrued interest   18-Jan-19   1.3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $2,535 of accrued interest   22-Jan-19   0.3
Number of shares outstanding,
January 31, 2019
          15
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $7,952 of principal and 4,844 of accrued interest   1-Feb-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,202 of principal and $42 of accrued interest   15-Feb-19  
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,527 of principal and $5,473 of accrued interest   25-Feb-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $10,494 of principal and $56 of accrued interest   26-Feb-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $10,945 of principal and $7,428 of accrued interest   26-Feb-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $11,072 of principal and $45 of accrued interest   27-Feb-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $12,534 of principal and $66 of accrued interest   1-Mar-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $13,172 of principal and $78 of accrued interest   5-Mar-19   1.
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $12,100 of principal and $8,179 of accrued interest   5-Mar-19   2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $9,265 of interest and $500 of fees   5-Mar-19   1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $3,887 of principal, $6,602 of interest and $500 of fees   6-Mar-19   1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $8,611 of principal, $59 of interest and $500 of fees   7-Mar-19   1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $11,321 of principal, $219 of interest and $500 of fees   11-Mar-19   1

 

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Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $17,600 of principal and $11,966 of accrued interest   11-Mar-19   3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $12,121 of principal, $49 of interest and $500 of fees   12-Mar-19   2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $8,592 of principal, $43 of interest and $500 of fees   13-Mar-19   1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $9,401 of principal, $39 of interest and $500 of fees   14-Mar-19   1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $8,743 of principal, $207 of interest and $500 of fees   20-Mar-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $12,100 of principal and $8,357of accrued interest   5-Apr-19   3
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $1 of principal and $378 of accrued interest   5-Apr-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $8,800 of principal and $6,223 of accrued interest   30-Apr-19   1
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $432 of accrued interest   30-Apr-19   2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $469 of accrued interest   2-May-19   2
Common stock at issued 52% discount to market per note conversion agreement   Convert a portion of note payable including $8,416 of principal, $196 of interest and $500 of fees   2-May-19   3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $22,000 of principal and $6,738 of accrued interest   7-May-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $13,300 of principal, $202 of interest and $500 of fees   10-May-19   3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $11,051 of principal, $27 of interest and $500 of fees   14-May-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,139 of principal   16-May-19   3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,613 of principal and $1,892 of accrued interest   16-May-19  
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,600 of principal and $4,428 of accrued interest   16-May-19   1
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,196 of principal   17-May-19   3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,317 of principal   20-May-19   3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $854 of principal   21-May-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,317 of principal   22-May-19   3
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $739 of principal   23-May-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,538 of principal   28-May-19   4
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,538 of principal   28-May-19   4
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,593 of principal   30-May-19   4
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,799 of principal   31-May-19   5
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $11,000 of principal and $8,320 of accrued interest   31-May-19   5
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,879 of principal   3-Jun-19   5

 

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Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $15,362 of principal and $11,670 of accrued interest   5-Jun-19   9
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $12,599 of interest   5-Jun-19   5
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $12,798 of principal and $1,518 of accrued interest   11-Jun-19   6
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including 3,300 of principal and $2,443 of accrued interest   11-Jun-19   2
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $11,364 of principal and $62 of accrued interest   13-Jun-19   6
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $12,016 of principal and $24 of accrued interest   14-Jun-19   7
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $11,625 of principal and $47 of accrued interest   17-Jun-19   7
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,780 of principal and $8 of accrued interest   18-Jun-19   6
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,405 of principal and $671 of accrued interest   19-Jun-19   5
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,165 of accrued interest   20-Jun-19   5
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,985 of principal and $7,679 of accrued interest   21-Jun-19   8
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $10,022 of principal and $114 of accrued interest   24-Jun-19   9
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,064 of principal and $32 of accrued interest   25-Jun-19   4
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,872 of principal and $56 of accrued interest   27-Jun-19   5
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $7,376 of principal and $24 of accrued interest   28-Jun-19   9
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,215 of principal and $59 of accrued interest   1-Jul-19   4
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $8,057 of principal and $17 of accrued interest   2-Jul-19   10
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,154 of principal and $12 of accrued interest   3-Jul-19   8
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,807 of principal and $43 of accrued interest   8-Jul-19   6
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,122 of principal   8-Jul-19   6
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,922 of principal and $8 of accrued interest   10-Jul-19   12
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,244 of accrued interest   11-Jul-19   12
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,081 of accrued interest   12-Jul-19   10
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,347 of principal and $4,133 of accrued interest   15-Jul-19   14
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,147 of principal and $38 of accrued interest   16-Jul-19   9
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,872 of principal and $106 of accrued interest   19-Jul-19   15
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,095 of principal and $96 of accrued interest   22-Jul-19   16
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,293 of principal and $29 of accrued interest   23-Jul-19   16

 

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Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,467 of principal and $25 of accrued interest   24-Jul-19   17
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,722 of principal and $21 of accrued interest   25-Jul-19   18
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,022 of principal and $18 of accrued interest   26-Jul-19   19
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,389 of principal and $41 of accrued interest   29-Jul-19   20
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,731 of principal and $10 of accrued interest   30-Jul-19   20
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,855 of principal and $8 of accrued interest   31-Jul-19   22
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,056 of principal and $5 of accrued interest   1-Aug-19   23
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,033 of principal and $3 of accrued interest   3-Aug-19   24
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,759 of accrued interest   5-Aug-19   26
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,721 of accrued interest   6-Aug-19   27
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,997 of accrued interest   7-Aug-19   19
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $229 of principal and $3,529 of accrued interest   8-Aug-19   21
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,123 of principal and $157 of accrued interest   12-Aug-19   30
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,552 of principal and $36 of accrued interest   13-Aug-19   32
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,864 of principal and $32 of accrued interest   14-Aug-19   34
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,132 of principal and $28 of accrued interest   15-Aug-19   35
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,802 of principal and $98 of accrued interest   19-Aug-19   24
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,674 of principal and $22 of accrued interest   20-Aug-19   18
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,089 of principal and $20 of accrued interest   21-Aug-19   27
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,127 of principal and $17 of accrued interest   22-Aug-19   40
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,534 of principal and $13 of accrued interest   23-Aug-19   43
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,846 of principal and $27 of accrued interest   26-Aug-19   45
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $7,030 of principal and $209 of accrued interest   27-Aug-19   47
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $7,603 of accrued interest   28-Aug-19   50
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $7,987 of accrued interest   29-Aug-19   52
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,503 of principal and $1,518 of accrued interest   30-Aug-19   52
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,662 of principal and $141 of accrued interest   3-Sep-19   40
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,997 of principal and $64 of accrued interest   5-Sep-19   55

 

- 11 -


 

Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,064 of principal and $115 of accrued interest   9-Sep-19   62
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,851 of principal and $25 of accrued interest   10-Sep-19   48
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,549 of principal and $23 of accrued interest   11-Sep-19   48
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,927 of principal and $21 of accrued interest   12-Sep-19   53
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,802 of principal and $18 of accrued interest   13-Sep-19   38
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,055 of principal and $49 of accrued interest   16-Sep-19   73
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,531 of principal and $13 of accrued interest   17-Sep-19   79
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,645 of principal and $18 of accrued interest   19-Sep-19   82
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,647 of principal and $7 of accrued interest   20-Sep-19   87
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,171 of principal and $13 of accrued interest   23-Sep-19   91
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,347 of principal and $2 of accrued interest   24-Sep-19   96
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $248 of principal and $1,546 of accrued interest   25-Sep-19   65
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,633 of accrued interest   26-Sep-19   104
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,853 of accrued interest   27-Sep-19   81
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,599 of accrued interest   1-Oct-19   114
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,777 of principal and $656 of accrued interest   2-Oct-19   107
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,843 of principal and $19 of accrued interest   3-Oct-19   126
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,543 of principal and $17 of accrued interest   4-Oct-19   112
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,090 of principal and $45 of accrued interest   7-Oct-19   137
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,287 of principal and $13 of accrued interest   8-Oct-19   145
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,460 of principal and $11 of accrued interest   9-Oct-19   152
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,639 of principal and $9 of accrued interest   10-Oct-19   160
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,829 of principal and $6 of accrued interest   11-Oct-19   168
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,186 of accrued interest   14-Oct-19   177
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,160 of accrued interest   15-Oct-19   120
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,212 of principal and $18 of accrued interest   16-Oct-19   192
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,318 of principal and $1,079 of accrued interest   17-Oct-19   202
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,562 of accrued interest   18-Oct-19   93

 

- 12 -


 

Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,717 of principal and $1,676 of accrued interest   21-Oct-19   218
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,374 of principal and $19 of accrued interest   22-Oct-19   229
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,158 of principal and $16 of accrued interest   23-Oct-19   241
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,319 of principal and $14 of accrued interest   24-Oct-19   252
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,486 of principal and $12 of accrued interest   25-Oct-19   265
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,989 of principal and $29 of accrued interest   28-Oct-19   280
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,167 of principal and $8 of accrued interest   29-Oct-19   294
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,331 of principal and $6 of accrued interest   30-Oct-19   309
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,506 of principal and $4 of accrued interest   31-Oct-19   325
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,952 of principal and $919 of accrued interest   2-Nov-19   342
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,003 of accrued interest   4-Nov-19   358
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,265 of accrued interest   5-Nov-19   378
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,383 of accrued interest   6-Nov-19   397
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $977 of principal and $1,528 of accrued interest   14-Nov-19   417
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,084 of principal and $76 of accrued interest   18-Nov-19   360
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,886 of principal and $35 of accrued interest   20-Nov-19   457
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $392 of principal and $1,000 of fees   20-Nov-19   435
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,999 of principal and $16 of accrued interest   21-Nov-19   480
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,409 of principal and $15 of accrued interest   22-Nov-19   505
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,476 of interest and $750 of fees   25-Nov-19   530
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,591 of interest and $750 of fees   26-Nov-19   557
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $840 of principal and $1,000 of fees   26-Nov-19   575
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $2,082 of principal and $750 of fees   27-Nov-19   590
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,765 of principal and $2,177 of accrued interest   27-Nov-19   1,177
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,812 of interest and $750 of fees   29-Nov-19   610
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $2,646 of principal and $750 of fees   2-Dec-19   707
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,213 of interest and $750 of fees   2-Dec-19   467
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,148 of interest and $750 of fees   3-Dec-19   690

 

- 13 -


 

Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $2,958 of principal and $750 of fees   3-Dec-19   772
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,567 of principal and $2,144 of accrued interest   4-Dec-19   1,452
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,820 of interest and $750 of fees   4-Dec-19   850
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $920 of interest and $1,000 of fees   4-Dec-19   800
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $670 of principal, $2,990 of interest and $750 of fees   5-Dec-19   1,050
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,859 of principal, $53 of interest and $750 of fees   6-Dec-19   1,110
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,690 of principal and $750 of fees   6-Dec-19   1,075
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $112 of principal and $1,000 of fees   9-Dec-19   445
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,002 of principal, $151 of interest and $750 of fees   9-Dec-19   1,167
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $3,298 of principal and $750 of fees   10-Dec-19   1,265
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $3,591 of principal, $48 of interest and $750 of fees   10-Dec-19   1,045
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,190 of principal, $45 of interest and $750 of fees   10-Dec-19   1,425
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $7,282 of principal and $2,401 of accrued interest   12-Dec-19   2,423
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $4,282 of principal and $750 of fees   12-Dec-19   1,572
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,176 of principal, $84 of interest and $750 of fees   13-Dec-19   1,075
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,028 of principal, $122 of interest and $750 of fees   16-Dec-19   1,750
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,392 of principal, $38 of interest and $750 of fees   17-Dec-19   1,850
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,938 of principal, $35 of interest and $750 of fees   18-Dec-19   1,945
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $4,386 of principal and $1,472 of accrued interest   18-Dec-19   1,464
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,052 of principal, $169 of interest and $750 of fees   23-Dec-19   2,122
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $6,380 of principal and $714 of accrued interest   23-Dec-19   3,547
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $2,530 of principal and $750 of fees   23-Dec-19   2,050
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,844 of principal, $519 of interest and $750 of fees   8-Jan-20   2,252
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,500 of principal, $250 of interest and $750 of fees   16-Jan-20   2,500
Common shares issuable upon rounding of shares on reverse split       31-Jan 20   170
Number of shares outstanding,
January 31, 2020
          53,846

 

- 14 -


 

Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $316 of principal   30-Mar-20   2,630
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,585 of principal and $498 of accrued interest   24-Apr-20   5,606
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,793 of principal and $374 of accrued interest   18-May-20   6,104
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $412 of principal.   10-Jun-20   3,320
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,782 of principal and $405 of accrued interest   17-Jun-20   7,045
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,035 of principal and $474 of accrued interest   25-Jun-20   7,720
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $380 of principal.   6-Jul-20   4,225
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $2,001 of accrued interest   28-Aug-20   8,894
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $557 of accrued interest   3-Sep-20   2,485
Common stock at issued 55% discount to market per note conversion agreement   Convert a portion of note payable including $358 of interest and $750 of fees   10-Sep-20   4,950
Common stock issued   Repayment of accrued expenses for $18,900   21-Sep-20   4,500
Common stock at issued 50% discount to market per note conversion agreement   Payment of commitment fee on loan for $50,000   13-Oct-20   1,969
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $1,091 of accrued interest   3-Nov-20   4,870
Common stock issued   Payment of commitment fee on loan for $20,001   17-Nov-20   667
Common stock issued   Payment of commitment fee on loan for $43,750   24-Nov-20   1,750
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $5,000 of principal and $4,397 of accrued interest   31-Dec-20   1,506
Common stock at issued 50% discount to market per note conversion agreement   Convert a portion of note payable including $10,500 of principal and $9,027 of accrued interest   31-Dec-20   3,129
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $50,000   15-Jan-21   2,500
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $50,000   15-Jan-21   2,500
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   15-Jan-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   15-Jan-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $50,000   31-Jan-21   2,500
Number of shares outstanding,
January 31, 2021
          142,716
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   17-Feb-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $150,000   18-Feb-21   7,500
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   19-Feb-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $200,000   19-Feb-21   10,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $120,000   2-Mar-21   6,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $200,000   2-Mar-21   10,000

 

- 15 -


 

Common Stock (continued)

 

    Consideration   Date   # Shares
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $282,500   10-Mar-21   14,125
Common stock issued for consulting fees   Fair value of $107,500   15-Mar-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $25,000   18-Mar-21   1,250
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   1-Apr-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $50,000   4-Apr-21   2,500
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   14-Apr-21   5,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $200,000   20-Apr-21   10,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $7,500   20-Apr-21   375
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $99,500   20-Apr-21   4,975
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $200,000   22-Apr-21   10,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   23-Apr-21   5,000
Common stock issued pursuant to REG A subscription   $$2.00 per share for gross proceeds of $50,000   28-Apr-21   2,500
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $110,000   28-Apr-21   5,500
Common stock issued at previous day bid price per note conversion agreement   Convert a portion of note payable including $18,750 of principal, and $1,750 of fees   27-May-21   1,000
Common stock issued at previous day bid price per note conversion agreement   Convert a portion of note payable including $36,850 of principal, and $1,750 of fees   21-Jun-21   2,000
Common stock issued with debt   Relative fair value of $31,006   8-Jul-21   3,096
Common stock issued with debt   Relative fair value of $28,975   21-Jul-21   6,085
Common stock issued   Fair value of $191,000   22-Jul-21   10,000
Common stock issued at previous day bid price per note conversion agreement   Convert a portion of note payable including $25,000 of principal, $13,250 of interest, and $1,750 of fees   9-Aug-21   2,000
Common stock issued with debt   Value included with 8-Jul-21 transaction above   11-Aug-21   1,548
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $75,000   12-Aug-21   3,750
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $5,000   13-Aug-21   250
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $47,000   16-Aug-21   2,350
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $100,000   17-Aug-21   5,000
Common stock issued to broker as  fees   Fair value of $30,055.   19-Aug-21   1,301
Common stock issued pursuant to share purchase agreement     $1.53 per share for gross proceeds of $306,000   24-Aug -21   20,000
Common stock issued pursuant to REG A subscription   $2.00 per share for gross proceeds of $4,500   7-Sep-21   225
Common stock issued pursuant to share purchase agreement     $1.16 per share for gross proceeds of $139,320   8-Sep-21   12,000
Common stock issued at previous day bid price per note conversion agreement   Convert a portion of note payable including $25,000 of principal, $13,250 of interest, and $1,750 of fees   9-Sep-21   2,000
Common stock issued at previous day bid price per note conversion agreement   Convert a portion of note payable including $25,000 of principal, $13,250 of interest, and $1,750 of fees   10-Sep-21   1,977
Common stock issued pursuant to share purchase agreement     $0.95 per share for gross proceeds of $85,050   7-Oct-21   9,000
Number of shares outstanding,
January 31, 2022
          341,023

- 16 -


 

Summary of Common Stock Shares Issued in the Year ended January 31, 2022

 

During the year ended January 31, 2022, the Company issued 172,300 shares for cash proceeds of $3,037,625. A lender converted $125,000 of the convertible notes, $27,691 of accrued interest and $7,500 of fees into 8,977 common shares. The Company issued 6,301 shares with a fair value of $137,555 as payment for fees to consultants. The Company issued 10,729 shares to lenders as commitment fee with a relative fair value of $59,801.

 

Summary of Common Stock Shares Issued in the Year ended January 31, 2021

 

During the year ended January 31, 2021, a lender converted a total of $24,803 of the convertible notes and $19,933 accrued interest and $20,185 of derivative liability into 62,485 common shares. We also issued:  17,500 shares for cash proceeds of $350,000 as part of a REG A subscription, 4,385 shares for $35,060 as commitment fees for loans, and 4,500 shares for $18,900 as payment on accrued expenses, related party.

 

Summary of Class C Preferred Stock Issued in the year ended January 31, 2022:

No transactions.

 

 

Summary of Class C Preferred Stock Issued in the year ended January 31, 2021:

 

●   250 shares valued at $9,105 in exchange of debt

●   100 shares to repay Accrued Expenses , Related Party for $11,177

●   150 shares as part of a debt settlement for $20,290

 

Options and Warrants

 

We had the following options and warrants outstanding at January 31, 2022:

 

Issued To # Warrants and Options Dated Expire Strike Price Expired Exercised
Lender 95,000 08/28/2020 08/28/2023 $4.00 per share N N
Broker 250 10/11/2020 10/11/2025 $45.00 per share N N
Broker 300 11/25/2020 11/25/2025 $30.00 per share N N
Triton 30,000 07/27/2021 07/27/2024 $21.11 per share N N
Consultant 25,000 08/26/2021 08/26/2024 $15.00 per share N N
T. Armes 50,000 10/14/2021 10/14/2023 $15.00 per share N N
Lender 90,000 11/12/2021 11/12/2026 $15.00 per share N N
Lender 90,000 11/12/2021 11/12/2026 $15.00 per share N N
Lender 30,000 01/27/2022 01/27/2025 $15.00 per share N N

 

All of the above transactions our  exempt from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Act”) since the foregoing issuances and grants did not involve a public offering, the recipients took the shares and options for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipients were either (a) “accredited investors” and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Act. No underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The Company has no shareholder approved compensation plans.

 

Item 6.  Selected Financial Data.

 

Not applicable.

 

- 17 -


 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Results of Operations For the Year Ended January 31, 2022 compared to the year ended January 31, 2021

 

The following table shows our results of operations for the years ended January 31, 2022 and 2021, The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

            Change  
    2022   2021   $   %  
Total Revenues   $ 11,018,751   $ 8,171,355   $ 2,847,396   35%  
Gross Profit     1,547,447     1,460,628     86,819   6%  
Total Operating Expenses     9,005,439     3,602,462     5,402,977   150%  
Total Other Income (Expense)     (611,764 )   3,329,010     (3,940,774 ) (118% )
Net Income (Loss)   $ (8,069,756 ) $ 1,187,176   $ (9,256,932 ) (780% )

 

Revenue

 

The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2022 and 2021:

 

            Change  
    2022   2021   $   %  
Proprietary website revenue   $ 7,576,068   $ 4,200,624   $ 3,375,444   80%  
Third party website revenue     3,442,683     3,970,731     (528,048 ) (13% )
Total Revenue   $ 11,018,751   $ 8,171,355   $ 2,847,396   35%  

 

We had total revenue of $11,018,757 for the year ended January 31, 2022, compared to $8,171,355 for the year ended January 31, 2021. Sales increased by $2,847,396 or 35%. This large increase can be attributed to many factors such as; economic stimulus payments from government, large increase in product offering, aggressive advertising and promotion, and economic growth emerging from pandemic. The Company at January 31, 2022 had $665,143 (2021-$687,786) of deferred revenue which represents orders received before January 31, 2022 but delivered after. This will be revenue that the Company recognizes in the first quarter ended April 30, 2022.  Also, the Company had $530,900 (2021-$188,385) in customer deposits which represents orders received before January 31, 2022 but either cancelled or still unfulfilled after. Both deferred revenues and deposits were a result of inventory shortages and supplier back-order issues. The Company believes that of the unrecognized revenue (deferred revenue and customer deposits combined) in 2022 which totals $1,196,043, $927,518 was a result of supply chain issues with the remaining $268,525 caused by normal operating issues. We do continue to grow our proprietary website revenues which increased by 80% offset by a reduction in third party website revenue by 13%.

 

Gross Profit

 

We had gross profit of $1,547,447 for the year ended January 31, 2022, compared to gross profit of $1,460,628 for the year ended January 31, 2021. Gross profit increased by $86,819, yet gross profit % decreased to 14% in fiscal 2022 from 18% in fiscal 2021.

 

Gross profit increased because of the 35% increase in sales however this was reduced because cost of revenue was higher because the Company had to purchase goods at higher product costs from distributers rather than the usual manufacturers for many of the new available products or some of the products that were not available from the usual manufacturers due to supply chain issues.

 

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Operating Expenses

 

The following table shows our operating expenses for the years ended January 31, 2022 and 2021. Operating expenses increased to $9,005,439 for the year ended January 31, 2022 from $3,602,462 for the year ended January 31, 2021:

 

            Change  
    2022   2021   $   %  
Operating expenses                        
Depreciation   $ 48,931   $ 25,196   $ 23,735   94%  
Postage, Shipping and Freight     531,954     498,370     33,584   7%  
Marketing and Advertising     2,430,905     112,531     2,318,374   2,060%  
E Commerce Services, Commissions and Fees     1,569,825     887,274     682,551   77%  
Operating lease cost     121,917     121,917       0%  
Personnel Costs     1,482,448     1,128,652     353,796   31%  
PPP Loan Forgiveness     (209,447 )       (209,447 )  
General and Administrative     3,028,906     828,522     2,200,384   266%  
Total Operating Expenses   $ 9,005,439   $ 3,602,462   $ 5,402,977   150%  

 

•   Depreciation increased by $23,735 due to asset additions totaling $196,569 in 2022, thus a higher asset value is being depreciated.

 

•   Postage shipping and freight increased by $33,584 due to higher sales.

 

•   Marketing and advertising increased by $2,318,374 due to strong promotional efforts geared to increasing brand awareness of the website as well as targeted advertising.

 

•   E Commerce Services, Commissions and Fees increased by $682,551 with approximately $47,000 due to increased sales and approximately $636,000 on the new website.

 

•   Personnel Costs decreased by $353,796 due to some isolated salary increases as well as staff increases in fiscal 2022 compared to fiscal 2021 which saw staff reductions as a result of the pandemic.

 

•   General and Administrative increased by $2,200,384. This increase is attributed to a non cash charge of $ 1,677,055 to stock based compensation, $425,090 increase in professional fees (which comprise of accounting, legal, reporting and transfer agent costs), and $188,215 increase in investor relations.

 

Other Income (Expense)

 

The following table shows our other income and expenses for the years ended January 31, 2022 and 2021:

 

            Change  
    2022   2021   $   %  
Other Income (Expense)                        
Gain (Loss) on Sale of Property and Equipment   $ 20,345   $ 464   $ 19,881   4,285%  
Gain (Loss) on Derivatives     235,703     (828,614 )   (1,064,317 ) 128%  
Gain on Settlement of Debt     1,410,113     5,060,704     (3,650,591 ) (72% )
Amortization of Debt Discount     (918,463 )   (335,004 )   (583,459 ) 174%  
Interest Expense     (1,359,462 )   (568,540 )   (790,922 ) 139%  
Total Other Income (Expense)   $ (611,764 ) $ 3,329,010   $ (3,940,774 ) (118% )

 

The results of the year ended January 31, 2022 resulted in other expense of $611,764 vs other income of $3,329,010 for the year ended January 31, 2021. For the year ended January 31, 2022 the Company acquired more short term debt which resulted in higher interest costs and debt amortization. For the year ended January 31, 2021 there were debt settlements and exchanges which resulted in the increase in gain on settlement of debt and lower interest expense. Fair value of derivatives was largely affected by the increase in the market price of our common stock during the current period as well as the significant reduction in convertible debt.

 

We had net loss of $8,069,756 for the year ended January 31, 2022, compared to net income of $1,187,176 for the year ended January 31, 2021 due mainly to the gain on debt settlement for the year ended January 31, 2021 , the higher interest and debt amortization, share based compensation and marketing and advertising for the year ended January 31, 2022 and the other factors mentioned above.

 

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Liquidity and Capital Resources

 

As of January 31, 2022, we had cash and cash equivalents of $77,498 of cash, $432,583 of inventory and total current liabilities of $8,890,462. We had negative working capital of $8,325,847 as of January 31, 2022.

 

Net cash used in operations for the year ended January 31, 2022 was $6,340,468 compared to $859,821 for the year ended January 31, 2021.The use of cash in operations was caused by the net loss offset by non -cash adjustments.

 

Net cash (used in) provided from investing activities for the year ended January 31, 2022 was ($18,568) compared to $9,750 for the year ended January 31, 2021.

 

Cash provided by financing activities for the year ended January 31, 2022 was $6,158,870 compared to $965,611 for the year ended January 31, 2021. In both years the cash provided from financing activities was from the proceeds from the issuance of common shares and the net proceeds of notes payable and short term debt and in 2021 the PPP loan.

 

Subsequent to year end, through the date of filing of this Form 10-K, the company issued loans totaling $2,100,000 for cash proceeds of $1,728,250.

 

We borrowed funds and/or sold stock for working capital.  These transactions are detailed in the section “Recent Sales of Unregistered Securities”.

 

Currently, we don’t have sufficient cash reserves to meet its contractual obligations and its ongoing monthly expenses, which we anticipate totaling approximately $6,000,000 over the next 12 months.  Historically, revenues have not been sufficient to cover operating costs that would permit us to continue as a going concern. These conditions raise substantial doubt about our ability to continue as a going concern. We have been able to continue operating to date largely from loans made by its shareholders, other debt financings and sale of common stock.  We are currently looking at both short-term and more permanent financing opportunities, including debt or equity funding, bridge or short-term loans, and/or traditional bank funding, but we have not decided on any specific path moving forward.  Until we have raised sufficient funding to pay our ongoing expenses associated with being a public company, and we have sufficient funds to support our planned operations, we can provide no assurances that it will be able to meet its short and long-term liquidity needs, until necessary financing is secured.

 

We do not currently have any additional formal commitments or identified sources of additional capital from third parties or from our officers, director or significant shareholders. We can provide no assurance that additional financing will be available on favorable terms, if at all. If we are not able to raise the capital necessary to continue our business operations, we may be forced to abandon or curtail our business plan.

 

In the future, we may be required to seek additional capital by selling additional debt or equity securities, selling assets, if any, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.

 

Critical Accounting Policies

 

Revenue Recognition

 

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

 

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

 

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

 

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Disaggregation of Revenue: Channel Revenue

 

The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2022 and 2021:

 

            Change  
    2022   2021   $   %  
Proprietary website revenue   $ 7,576,068   $ 4,200,624   $ 3,375,444   80%  
Third party website revenue     3,442,683     3,970,731     (528,048 ) (13% )
Total Revenue   $ 11,018,751   $ 8,171,355   $ 2,847,396   35%  

 

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

 

Revenue is recorded net of provisions for discounts and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to customers. The Company recognizes these discounts and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The customer pays the Company by credit card prior to delivery.

 

The Company offers a 30 day satisfaction guaranteed return policy however the customer must pay for the return shipment. The return must be previously authorized, cannot be either damaged or previously installed and must be in saleable condition. In the Company’s experience this amount is immaterial and therefore no provision has been recorded on the Company’s books. Any defective merchandise falls under the manufacturer’s limited warranty and is subject to the manufacturer’s inspection. The manufacturer has the option to repair or replace the item.

 

All sales to customers are generally final. However, the Company accepts returned product due to quality or issues relating to product description or incorrect product orders and in such instances the Company would replace the product or refund the customers funds The Company’s customers generally pre-pay for the products.

 

Use of Estimates

 

In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.  The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to estimate deferred revenue and customer deposits and value derivative liabilities.

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

Level 3 Inputs – Instruments with primarily unobservable value drivers.

 

As of January 31, 2022 and 2021, the Company’s derivative liabilities were measured at fair value using Level 3 inputs.  See Note 9.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of January 31, 2022:

 

    January 31, 2022   Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:                          
Derivative Liabilities – embedded redemption feature   $ 1,263,442   $   $   $ 1,263,442  
Totals   $ 1,263,442   $   $   $ 1,263,442  

 

Derivative Liability

 

The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments. As of January 31, 2022, the Company had warrants to purchase 360,550 common shares and stock options to purchase 50,000 common shares.

 

The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock.  However, because the historical volatility of the Company’s common stock is so high, the sensitivity required to change the liability by 1% as of January 31, 2022 is greater than 25% change in historical volatility as of that date.  The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

 

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

Item 8.  Financial Statements and Supplementary Data.

 

The Company’s consolidated financial statements, together with the report of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-1. The Company’s balance sheets as of January 31, 2022 and 2021 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended have been audited by independent registered public accounting firm L J Soldinger Associates, LLC.. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to Regulation S-K as promulgated by the Securities and Exchange Commission and are included herein pursuant to Part II, Item 8 of this Form 10-K. The financial statements have been prepared assuming the Company will continue as a going concern.

 

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Table of Contents of Financial Statements

 

  Page
Report of Independent Registered Public Accounting Firm F-1
Financial Statements:  
Consolidated Balance Sheets as of January 31, 2022 and 2021 F-4
Consolidated Statements of Operations for the Years Ended January 31, 2022 and 2021 F-5
Consolidated Statement of Changes in Stockholders’ Deficit for the Years Ended January 31, 2022 and 2021 F-6
Consolidated Statements of Cash Flows for the Years Ended January 31, 2022 and 2021 F-8
Notes to the Consolidated Financial Statements for the Years Ended January 31, 2022 and 2021 F-9

 

Item 9.  Change in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None

 

Item 9A.  Controls and Procedures.

 

Evaluation of Disclosure on Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of January 31, 2022. This evaluation was accomplished under the supervision and with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) who concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure.

 

We have identified the following material weaknesses and significant deficiencies:

 

Material weaknesses

 

The failure of the Company to adequately invest the resources necessary to properly account for and report upon its financial position and results of operations under the requirements of US GAAP.
   
The Company incorrectly records revenue in its accounting systems at the time of the customer’s order. Under ASC 606 “Revenue From Contracts With Customers”, revenue is recognized when the Company’s performance obligation is satisfied at the point in time when the product is received by the customer.

 

In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Internal Control—Integrated Framework) at January 31, 2021. Based on its evaluation, our management concluded that, as of January 31, 2022, our internal control over financial reporting was not effective because of limited staff and a need for a full time chief financial officer and the identification of the material weaknesses described above.  A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

Changes in Internal Controls over Financial Reporting

 

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

 

Item 9B. Other Information.

 

None.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

The following table lists the names and ages of the executive officers and director of the Company.  The director(s) will continue to serve until the next annual shareholders meeting, or until their successors are elected and qualified. All officers serve at the discretion of the Board of Directors.

 

Name   Age   Position   Date First Appointed/ Elected To the Company
Timothy Armes   66   Chairman, Chief Executive Officer, President,
Secretary and Treasurer and President and Chief
Executive Officer of Auto Parts 4Less Group, Inc.
  August 2011
             
Chris Davenport   52   President of Autoparts4less   October 2013

 

Timothy Armes: Mr. Armes has served as President and Chief Executive Officer of Auto Parts 4Less Group, Inc (formerly The 4Less Group, Inc. and MedCareers Group, Inc.) since August 2011.  From February 2011 to August 2011, Mr. Armes served as the Chief Operating Officer of the Company.  Since August 2011, Mr. Armes has served as the Chairman, Chief Executive Officer, President, Secretary and Treasurer of the Company. In 1992 Mr. Armes launched one of the first online job bulletin boards which eventually grew into jobs.com. As CEO of Jobs.com he raised over 100 million dollars and grew it into one of the top employment web sites before leaving the company in May of 2000. Mr. Armes began his career as an auditor for Ernst and Young and then as a real estate workout specialist with different firms in the mid 1980’s. Mr. Armes obtained a Bachelor of Business Administration degree in Accounting from the University of Texas in 1980 and passed the Certified Public Accountant exam.

 

Director Qualifications:

 

We believe that Mr. Armes is well qualified to serve as a Director of the Company because of his significant experience working with and building Nurses Lounge (which since November 2010 has been our wholly-owned operating subsidiary); his prior experience growing Jobs.com, and his financial and accounting background.

 

Christopher Davenport: Mr. Davenport received his MBA from the University of California in September 2005 where he was recognized by his classmates as “the Most Innovative Thinker”.  Before founding The 4Less Corp, Mr. Davenports’ previous business provided mobile dental services to the employees of the largest gaming corporations in the world.  These contracts covered the lives of several hundred thousand employees on the Las Vegas strip.  Due to the nature of the mobile facilities, Mr. Davenport implemented several new technologies at the time such as:  filmless radiography, virtual patient charts and VPN networks to make for seamless quality health care.  Soon after, Mr. Davenport expanded his mobile dental company to the military where he won several multiyear, multi-million dollars medical/dental National Guard Medical Readiness contracts.  Mr. Davenport has a proven history of implementing innovative technologies that demonstrates his ability to lead The 4Less Corp into the future.

 

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Corporate Governance

 

We promote accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations.

 

In lieu of an Audit Committee, our Board of Directors (currently consisting solely of Timothy Armes), is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of our financial statements and other services provided by our independent public accountants. The Board of Directors reviews our internal accounting controls, practices and policies.

 

Committees of the Board

 

We do not currently does not have nominating, compensation, or audit committees or committees performing similar functions nor do we have a written nominating, compensation or audit committee charter. The Board of Directors believes that it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by the sole director.

 

Audit Committee Financial Expert

 

Our Board of Directors has determined that we do not have an independent board member that qualifies as an “audit committee financial expert” as defined in Item 407(D)(5) of Regulation S-K, nor do we have a Board member that qualifies as “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Exchange Act.

 

We believe that our sole director is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The sole director does not believe that it is necessary to have an audit committee because management believes that the functions of an audit committee can be adequately performed by the sole director. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the stage of our development and the fact that we have not generated any positive cash flows from operations to date.

 

Involvement in Certain Legal Proceedings

 

Our sole director and our executive officer has not been involved in any of the following events during the past ten years:

 

1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
   
4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

Board Meetings and Annual Meeting

 

During the fiscal year ended January 31, 2022, our Board of Directors (currently consisting solely of Timothy Armes) did not meet or hold any formal meetings.  We did not hold an annual meeting in the year ended January 31, 2022.  In the absence of formal board meetings, the Board conducted all of its business and approved all corporate actions during the fiscal year ended January 31, 2022 by the unanimous written consent of its sole director.

 

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Code of Ethics

 

We have not adopted a formal Code of Ethics. The Board of Directors evaluated the business of the Company and the number of employees and determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, business conduct and securities laws are adequate ethical guidelines.  In the event our operations, employees and/or directors expand in the future, we may take actions to adopt a formal Code of Ethics.

 

Shareholder Proposals

 

We do have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The sole director believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.

 

A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our Chief Executive Officer, at the address appearing on the first page of this report.

 

Item 11.  Executive Compensation.

 

Summary Compensation Table

 

The table below summarizes the total compensation paid or earned by our Chief Executive Officer and Chief Financial Officer during the fiscal years ended January 31, 2022 and 2021.  We did not have any executive officers who received total compensation in excess of $100,000 during the fiscal years disclosed below, other than disclosed below.

 

Name and principal position (1)   Year   Salary*   Bonus   Stock Awards   Option Awards   All other compensation*   Total compensation
                                   
Timothy Armes   2022   $ 150,000         $585,000     $ 735,000
CEO, President, Treasurer, Secretary and Director (1)   2021   $ 91,701             $ 91,701
                                   
Christopher Davenport   2022   $ 612,790             $ 612,790
President Autoparts4Less   2021   $ 550,200             $ 550,200

__________

* Does not include any accruals not paid in cash or perquisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation.  No executive officer earned any non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported above. The value of the Stock Awards and Option Awards in the table above, if any, was calculated based on the fair value of such securities calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718.
   
(1) No executive or director received any consideration, separate from the compensation they received as an executive officer, for service on the Board of Directors of the Company during the periods disclosed.

 

Grants of Plan-Based Awards.  None.

 

Outstanding Equity Awards at Fiscal Year End.  Stock option to purchase 50,000 held by CEO.

 

Potential Payments upon Termination or Change in Control

 

We do not have any contract, agreement, plan or arrangement with its named executive officers that provides for payments to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in our control, or a change in the named executive officer’s responsibilities following a change in control.

 

Retirement Plans

 

We do not have any plan that provides for the payment of retirement benefits, or benefits that will be paid primarily following retirement.

 

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Compensation of Directors

 

In the past, we have not instituted a policy of compensating non-management directors. However, we plans to use stock-based compensation to attract and retain qualified candidates to serve on its Board of Directors. In setting director compensation, we will consider the significant amount of time that directors expend in fulfilling their duties to us, as well as the skill-level that we require.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth information regarding the beneficial ownership of our voting common stock, as of April 25, 2022, by: (i) each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each of our officers and directors (provided that Mr. Armes currently serves as our sole director); and (iii) all of our officers and directors as a group.

 

Based on information available to us, all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them, unless otherwise indicated. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days after the date of this filing are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage of ownership of any other person. The following table is based on 1,447,476 common shares issued and outstanding as of April 25, 2022 reflecting the reverse splits.

 

COMMON STOCK

 

  Beneficial Owner   Address   Shares   Percent Ownership
               
Common Stock Timothy Armes
Chairman / CEO
President, Secretary, CFO
  106 W Mayflower,
Las Vegas, Nevada 89030
  16,985   1.17%
               
Common Stock Chris Davenport
Founder and President Autoparts4Less
  106 W Mayflower,
Las Vegas, Nevada 89030
  758,420   52.40%
               
  All Officers and Directors as a Group
(2 Persons)
      775,405   53.57%
               
  Greater than 5% Shareholders            
               
  Chris Davenport       758,420   52.40%
               
  Sergio Salzano       84,269   5.82%
               
  All 5% Shareholders as a Group       842,689   58.22%

 

The following table is based on 0 shares of Series A Preferred Shares outstanding, 20,000 of Series B Preferred Shares outstanding, 0 shares of Series C Preferred Shares outstanding and 870 shares of Series D Preferred shares outstanding as of April 25, 2022.

 

- 27 -


 

PREFERRED STOCK

 

  Beneficial Owner   Address   Class   Shares   Percent Ownership
                   
Preferred Stock Timothy Armes
Chairman / CEO
President, Secretary, CFO
  106 W Mayflower,
Las Vegas, Nevada 89030
 

Pref  A

Pref  B

Pref  C

Pref  D

 

0

1,000

0

120

 

0.00%

5.00%

0.00%

13.79%

                   
Preferred Stock Chris Davenport
Founder and President of Autoparrts4Less
  106 W Mayflower,
Las Vegas, Nevada 89030
 

Pref  A

Pref  B

Pref  C

Pref  D

 

0

17,100

0

675

 

0.00%

90.00%

0.00%

77.58%

                   
  All Officers and Directors as a Group
(2 Persons)
     

Pref  A

Pref  B

Pref  C

Pref  D

 

0

18,100

0

795

 

0.00%

90.50%

0.00%

91.38%

                   
  Greater than 5% Shareholders      

Pref  A

Pref  B

Pref  C

Pref  D

 

0

1,900

0

75

 

0.00%

9.50%

0.00%

8.62%

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

 

As a result of the acquisition of the 4Less Corp in November 2018 and disposition of Nurses Lounge in December of 2018, Mr. Armes canceled 100 million shares (1,666 post split) of his approximate 129,628,000 common shares he owned (2,160 post split). Along with the cancellation of his common stock and a verbal agreement to stay on as our President, CEO and Chairman of the Board. Mr. Armes received 120 shares of Series D Preferred stock, maintained his 1,000 shares of Series B Preferred stock, received 100 Class C preferred shares (during the year ended January 31, 2021) and a payable to Mr. Armes representing $180,000 of deferred income of which a balance of $ 46,173 remains payable at January 31, 2022. On February 1, 2022 Mr Armes converted his 100 Class C preferred shares for 12,484 common shares.

 

As part of the acquisition of The 4Less Corp., Christopher Davenport, the founder and president of The 4Less Corp, received 17,100 shares of Series B Preferred Stock representing approximately 89% of the 20,000 Series B Preferred stock outstanding, 6,075 shares of Series C Preferred stock outstanding which can be converted into approximately 60% of our outstanding common stock and 675 shares of Series D Preferred stock. On February 1, 2022 Mr. Davenport Armes converted his 6075 Class C preferred shares for 758,420 common shares.

 

Review, Approval and Ratification of Related Party Transactions

 

Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officers, director(s) and significant stockholders. However, we make it a practice of having our Board of Directors (currently consisting solely of Mr. Armes) approve and ratify all related party transactions. In connection with such approval and ratification, our Board of Directors takes into account several factors, including their fiduciary duties to us; the relationships of the related parties to us; the material facts underlying each transaction; the anticipated benefits to us and related costs associated with such benefits; whether comparable products or services are available; and the terms we could receive from an unrelated third party.

 

We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, the Board of Directors will continue to approve any related party transaction based on the criteria set forth above.

 

Director Independence

 

We currently only have one director, Timothy Armes, who is not independent.  We have plans to appoint three independent directors in 3rd quarter of FYE 2023.

 

- 28 -


 

Item 14.  Principal Accounting Fees and Services.

 

(1) Audit Fees

 

The aggregate fees billed for professional services rendered by our auditors, for the audit of the registrant’s annual financial statements and review of the financial statements included in the registrant’s Form 10-K and Form 10-Q(s) for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, for fiscal year 2022 was approximately $346,057, for audit and 10-Q fees.

 

(2) Audit Related Fees

 

None.

 

(3) Tax Fees

 

$10,850

 

(4) All Other Fees

 

The aggregate fees billed for professional services rendered by our auditors for work related to registration statements during fiscal year 2022 was $56,580 and the aggregate fees billed for work related to the PPP credit was $3,730.

 

PART IV

 

Item 15.  Exhibits and Financial Statement Schedules.

 

1. Consolidated Financial Statements

 

  Page
Report of Independent Registered Public Accounting Firm F-1
Financial Statements:  
Consolidated Balance Sheets as of January 31, 2022 and 2021 F-4
Consolidated Statements of Operations for the Years Ended January 31, 2022 and 2021 F-5
Consolidated Statement of Changes in Stockholders’ Deficit for the Years Ended January 31, 2022 and 2021 F-6
Consolidated Statements of Cash Flows for the Years Ended January 31, 2022 and 2021 F-8
Notes to the Consolidated Financial Statements for the Years Ended January 31, 2022 and 2021 F-9

 

2. Financial Statement Schedules

 

Schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.

 

3. Exhibits

 

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

 

- 29 -


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Auto Parts 4Less Group, Inc.

 

By:  /s/  Timothy Armes

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

(Principal Executive Officer and Principal Financial/Accounting Officer)

 

Date: May 9, 2022

 

- 30 -


 

EXHIBIT INDEX

 

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

__________

*   Filed herewith.

 

 

- 31 -


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and

Stockholders of Auto Parts 4Less Group, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Auto Parts 4Less Group, Inc. (the “Company”) as of January 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two years ended January 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two years ended January 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully explained in Note 2, which includes management’s plans in regards to this uncertainty, the Company has a negative working capital of approximately $8.3 million and an accumulated deficit of approximately $28.5 million and stockholders’ deficit of approximately $9.0 million as of the year ended January 31, 2022, and therefore there is substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

F-1


 

Critical Audit Matter Description – Revenue Recognition

 

Revenue Recognition under ASC 606 is based on the core principle of the revenue standard that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for goods or services.

 

Critical Audit Matter Determination

 

As discussed in Note 1, the Company recognizes revenue when its performance obligations are satisfied at a point in time, when the products are received by the customer, which is when the customer has title to the goods and obtained the significant risks and rewards of ownership.

 

Critical Audit Matter Audit Procedures

 

The audit procedures we performed to address this critical audit matter included the following: (1) obtaining an understanding of the design and operating effectiveness of controls related to identifying when performance obligations were satisfied and determining the timing of revenue recognition, and the (2) selection of a sample of orders and testing that the amount of revenue recorded was proper and delivery occurred in the proper period.

 

Critical Audit Matter Description – Embedded Conversion Feature

 

The Company has numerous notes payable from prior years which were settled or converted, and several new notes in the current year with conversions rates that are determined by the closing bid price on the day preceding the conversion date. This and other factors require the embedded conversion feature to be bifurcated and the fair value of the feature to be remeasured at each reporting period.  Calculations and accounting for the notes payable and embedded conversion features require management’s judgments related to initial and subsequent recognition of the debt and related conversions features, use of a valuation model, and determination of the appropriate inputs used in the selected valuation model.

 

Critical Audit Matter Determination

 

The embedded conversion features and resulting derivative liability is a highly complex area of accounting with significant impact on the liabilities, additional paid in capital and statement of operations of the Company.  It takes a high degree of training to understand and recognize the accounting implications of the conversion features and to understand the assumptions and impact of the specific assumptions on the valuation model used in the calculation of the derivative liability.

 

Critical Audit Matter Audit Procedures

 

Our audit procedures related to evaluating the Company’s accounting for the convertible note payables with embedded derivatives, warrants issued with the debt, accrued interest and the related derivative liability were as follows:

 

  - We read the various instruments, identified the embedded conversion feature, confirmed the amount of the outstanding debt, and recalculated the accrued interest.  
     
  - We assessed the credentials and reputation of the outside firm retained by the Company who performed the calculation of the derivative liabilities.
     
  - We reviewed the assumptions used to calculate the derivative liabilities at the balance sheet date and various conversion and settlement dates and the related accounting entries.
     
  - We performed independent calculations on a test basis of specific derivatives to evaluate the model used in calculating the derivatives at various measurement dates.

 

F-2


 

Critical Audit Matter Relevant Financial Statement Disclosures

 

  - We read the Company’s disclosures related to the derivative liabilities and changes during the year as a result of mark to market, conversion of debt and settlement of debt activity to ensure the changes were properly accounted for and fully disclosed in the financial statements.

 

Critical Audit Matter Description – Going Concern

 

As discussed in both Note 2 to the consolidated financial statements and above, the Company has incurred significant losses since inception, and has an accumulated deficit of approximately $28.5 million and a working capital deficit of $8.3 million as of January 31, 2022.

 

Critical Audit Matter Determination

 

The following items were considered in determining that a going concern was a critical audit matter.

 

  - Significant losses and negative working capital and lack of liquidity
     
  - We also took into consideration the Company’s need to raise additional debt and equity financing over the next twelve months

 

Critical Audit Matter Audit Procedures

 

We reviewed the Company’s negative cash flows from operations.

 

We noted the negative working capital and continued losses.

 

We noted subsequent events and proceeds from debt financing in the amount of approximately $1.6 million dollars as of the date of our opinion.

 

Critical Audit Matter Relevant Financial Statement Disclosures

 

We reviewed the completeness of the Company’s Going Concern footnote and the details of the Company’s plans to continue operations for the next twelve months and management’s disclosure as noted above that there is substantial doubt about the Company’s ability to continue as a going concern.

 

 

 

/s/ L J Soldinger Associates, LLC

 

We have served as the Company’s auditor since 2019.

 

Deer Park, Illinois

 

May 9, 2022

PCAOB Audit ID # 00318

 

F-3


 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4 LESS GROUP, INC

Consolidated Balance Sheets

January 31, 2022 and 2021

 

    January 31, 2022   January 31, 2021  
Assets              
Current Assets              
Cash and Cash Equivalents   $ 77,498   $ 277,664  
Share proceeds receivable         100,000  
Inventory     432,583     323,411  
Prepaid Expenses     16,065     11,859  
Deferred Offering Costs     23,000      
Other Current Assets     15,469     2,149  
Total Current Assets     564,615     715,083  
Operating Lease Assets     242,583     344,413  
Property and Equipment, net of accumulated depreciation of $122,469 and $88,823     221,336     80,027  
               
Total Assets   $ 1,028,534   $ 1,139,523  
               
Liabilities and Stockholders’ Deficit              
Current Liabilities              
Bank Overdraft   $ 11,055   $  
Accounts Payable     1,228,039     869,765  
Accrued Expenses     796,397     1,382,839  
Accrued Expenses – Related Party     46,173     106,173  
Customer Deposits     530,900     188,385  
Deferred Revenue     665,143     687,766  
Short-Term Debt     3,454,133     716,142  
Current Operating Lease Liability     100,001     90,286  
Short-Term Convertible Debt, net of debt discount of $2,131,034 and $309,317     647,966     336,683  
Derivative Liabilities     1,263,442     213,741  
PPP Loan-current portion         43,294  
Shareholder Loans Payable     119,476      
Current Portion – Long-Term Debt     27,737     424,064  
Total Current Liabilities     8,890,462     5,059,138  
               
Non-Current Lease Liability     138,551     244,049  
PPP Loan -long term portion         166,153  
Long-Term Debt     115,900     890,373  
               
Total Liabilities     9,144,913     6,359,713  
               
Commitments and Contingencies              
               
Redeemable Preferred Stock              
Series D Preferred Stock, $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, 75,000,000 shares authorized, 341,023 and 142,716 shares issued, issuable and outstanding          
Additional Paid In Capital     19,465,327     14,291,760  
Accumulated Deficit     (28,451,733 )   (20,381,977 )
Total Stockholders’ Deficit     (8,986,379 )   (6,090,190 )
               
Total Liabilities and Stockholders’ Deficit   $ 1,028,534   $ 1,139,523  

 

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

 

F-4


 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4 LESS GROUP, INC

Consolidated Statements of Operations

For the Years Ended January 31, 2022 and 2021

 

    2022   2021  
Revenue, net   $ 11,018,751   $ 8,171,355  
               
Cost of Revenue     9,471,304     6,710,727  
               
Gross Profit     1,547,447     1,460,628  
               
Operating Expenses:              
Depreciation     48,931     25,196  
Postage, Shipping and Freight     531,954     498,370  
Marketing and Advertising     2,430,905     112,531  
E Commerce Services, Commissions and Fees     1,569,825     887,274  
Operating lease cost     121,917     121,917  
Personnel Costs     1,482,448     1,128,652  
PPP Loan Forgiveness     (209,447 )    
General and Administrative     3,028,906     828,522  
Total Operating Expenses     9,005,439     3,602,462  
               
Net Operating Loss     (7,457,992 )   (2,141,834 )
               
Other Income (Expense)              
Gain (loss) on Sale of Property and Equipment     20,345     464  
Gain (Loss) on Change in Fair Value of  Derivatives     235,703     (828,614 )
Gain on Settlement of Debt     1,410,113     5,060,704  
Amortization of Debt Discount     (918,463 )   (335,004 )
Interest Expense     (1,359,462 )   (568,540 )
Total Other Income (Expense)     (611,764 )   3,329,010  
               
Net Income (Loss)   $ (8,069,756 ) $ 1,187,176  
               
Basic Weighted Average Shares Outstanding     279,745     108,432  
Basic Income (Loss) per Share   $ (28.85 ) $ 10.95  
Diluted Weighted Average Shares Outstanding     279,745     607,003  
Diluted (Loss) per Share   $ (28.85 ) $ (3.65 )

 

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

 

F-5


 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Consolidated Statements of Shareholder’s Deficit

For the Years Ended January 31, 2022 and 2021

                                                             
  Preferred Series A   Preferred Series B   Preferred Series C   Common Stock   Paid in   Retained      
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total  
January 31, 2020   $   20,000   $ 20   6,750   $ 7   53,846   $   $ 13,449,337   $ (21,569,153 ) $ (8,119,789 )  
Conversion of Notes Payable and Accrued Interest to Common Stock                   62,485         44,736         44,736    
Derivative Liability Reclassified as Equity Upon Conversion of notes                           20,185         20,185    
Issuance of Class C Shares In Exchange of Debt             250               9,105         9,105    
Issuance of Class C Shares to Repay Accrued Expenses Related Party             100               11,177         11,177    
Issuance of Class C Shares as Part of Debt Settlement             150               20,290         20,290    
Issuance of Common Shares in Reg A Offering                   17,500         350,000         350,000    
Issuance of Common Shares as fees for loans                   4,385         35,060         35,060    
Issuance of 5500 Warrants for Broker’s fees                           13,470         13,470    
Issuance of Common Shares to Repay Accrued Expenses Related Party                   4,500         18,900         18,900    
Issuance of 950,000 Warrants as Part of Debt Settlement                           351,500         351,500    
Legal costs of Reg A subscription                           (32,000 )       (32,000 )  
Net (Loss)                               1,187,176     1,187,176    
                                                             
January 31, 2021   $   20,000   $ 20   7,250   $ 7   142,716   $   $ 14,291,760   $ (20,381,977 ) $ (6,090,190 )  

 

F-6


 

                                                             
  Preferred Series A   Preferred Series B   Preferred Series C   Common Stock   Paid in   Retained      
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total  
January 31, 2021   $   20,000   $ 20   7,250   $ 7   142,716   $   $ 14,291,760   $ (20,381,977 ) $ (6,090,190 )  
Issuance of Shares as Fees                   6,301         137,555         137,555    
Issuance of Shares Pursuant to REG A Subscription,Net of Issuance costs of $41,444                   121,300         2,384,556         2,384,556    
Issuance of shares                   10,000         191,000         191,000    
Share Issuances, Net of Issuance Costs of $530,370                   41,000                    
Conversion of Notes Payable to Common Stock                   8,977         161,441         161,441    
Derivative Liability Reclassified as Equity Upon Conversion of notes                           76,144         76,144    
Equity Reinstated from Derivative Liability                           15,134         15,134    
Relative Fair Value of Equity Issued with Debt                   10,729         234,237         234,237    
Issuance of Warrants                           876,000         876,000    
Share Based Compensation on Warrants for Fees                            512,500         512,500    
Share Based Compensation on Options Issued to CEO                           585,000         585,000    
Net (Loss)                               (8,069,756 )   (8,069,756 )  
                                                             
January 31, 2022   $   20,000   $ 20   7,250   $ 7   341,023   $   $ 19,465,327   $ (28,451,733 ) $ (8,986,379 )  

 

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

 

F-7


 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Consolidated Statements of Cash Flows

For the Years Ended January 31, 2022 and 2021

 

  2022   2021  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net Income (Loss) $ (8,069,756 ) $ 1,187,176  
Adjustments to reconcile net income (loss) to cash used by operating activities:            
Depreciation   48,931     25,196  
Reduction of Right of Use Asset   95,784     87,702  
Accretion of Lease Liability   26,133     34,215  
Loss (Gain ) in Fair Value on Derivative Liabilities   (235,703 )   828,614  
Amortization of Debt Discount   918,463     335,004  
Interest Expense Related to Excess of Deferred offering Cost Over Share Proceeds   69,630      
Loan Penalties Capitalized to Loan   28,000     3,394  
Original Issue Discount on Short-Term Convertible Notes Expensed to Interest   20,000     55,000  
Stock Based Compensation   1,401,055     13,470  
Interest expense related to warrants issued for debt extension   276,000      
Gain on Settlement of Debt   (1,410,113 )   (5,060,704 )
PPP Loan Forgiveness   (209,447 )    
Gain on sale of Property   (20,345 )   (464 )
Change in Operating Assets and Liabilities:            
Decrease (Increase) in Inventory   (109,173 )   48,484  
Decrease in Prepaid Rent and Expenses   1,841     2,743  
(Increase) in Other Current Assets   (13,320 )   (1,091 )
Increase in Bank Overdraft   11,055      
Increase in Accounts Payable   365,649     344,175  
Increase in Accrued Expenses   266,873     483,031  
Operating Lease Liability Payments   (121,917 )   (121,917 )
Increase (Decrease) in Customer Deposits   342,515     188,385  
Increase (Decrease) in Deferred Revenue   (22,623 )   687,766  
CASH FLOWS (USED IN) OPERATING ACTIVITIES   (6,340,468 )   (859,821 )
             
CASH FLOWS FROM INVESTING ACTIVITIES            
Purchase of Property and Equipment   (43,628 )    
Disposal of Property and Equipment   25,060     9,750  
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES   (18,568 )   9,750  
             
CASH FLOWS FROM FINANCING ACTIVITIES            
Proceeds from Issuances of Common Shares, net of Issuance Costs   3,039,925     250,000  
Proceeds from Short Term Debt   1,968,472     635,000  
Payments on Short Term Debt   (547,821 )   (471,920 )
Proceeds on PPP Loan       209,447  
Payments on Long Term Debt   (21,582 )   (3,837 )
Proceeds on Shareholder Loans Payable   119,476      
Payments on Accrued Expenses -Related Party   (60,000 )   (19,500 )
Legal Costs of Reg A Subscription       (32,000 )
Proceeds from Convertible Notes Payable   2,865,525     432,750  
Payments on Convertible Notes Payable   (1,205,125 )   (34,329 )
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   6,158,870     965,611  
             
NET INCREASE IN CASH   (200,166 )   115,540  
             
CASH AT BEGINNING OF PERIOD   277,664     162,124  
             
CASH AT END OF PERIOD $ 77,498   $ 277,664  
             
Supplemental Disclosure of Cash Flows Information:            
Cash Paid for Interest $ 649,234   $ 74,244  
Derivative Debt Discount $ 1,933,343   $ 264,487  
Convertible Notes Interest and Derivatives Converted to Common Stock $ 237,085   $ 64,921  
Issuance of Warrants to Deferred Offering Costs $ 600,000   $  
Deferred Offering Costs Against Share Proceeds $ 530,370   $  
Fixed Assets financed through vehicle loans $ 152,950   $  
Stock Issued to Related Party in Payment of Accrued Expenses $   $ 30,077  
Issuance of Common Shares for Subscription Receivable $   $ 100,000  
Original Issue Discount $ 20,000   $ 52,000  
Allocated Value of Common Shares Issued As Fees for Loans $   $ 35,060  
Operating Lease Asset to Operating Lease Liability $   $ 39,494  

 

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

 

F-8


 

AUTO PARTS 4LESS GROUP, INC.

FORMERLY THE 4LESS GROUP, INC.

Notes to Consolidated Financial Statements

January 31, 2021 and 2020

 

Note 1 – Description of Business and Summary of Significant Accounting Policies

 

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

 

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

 

4LESS was formed as Vegas Suspension & Offroad, LLC on October 24, 2013 as a Nevada limited liability company and converted to a Nevada corporation with the same name on May 8, 2017. On April 2, 2018, the Company changed its name to The 4LESS Corp. The Corporation had S Corporation status. The Corporation operates as an e-commerce auto and truck parts sales company. As a result of the share exchange, the Company is now a holding company operating through 4LESS and offers products including exhaust systems, suspension systems, wheels, tires, stereo systems, truck bed covers, and shocks. On December 30, 2019 4LESS changed its name to Auto Parts 4Less, Inc. On April 28, 2022 The 4Less Group , Inc changed its name to Auto Parts 4less Group, Inc.

 

The financial statements have been adjusted to reflect a 10-1 reverse stock split effective April 28, 2022.

 

Significant Accounting Policies

 

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

 

Basis of Presentation

 

The Company prepares its financial statements on the accrual basis of accounting in conformity with U.S. GAAP.

 

Principles of Consolidation

 

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

 

Use of Estimates

 

In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.  The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to estimate deferred revenue and customer deposits and value derivative liabilities, options and warrants.

 

F-9


 

Reclassifications

 

Certain amounts in the Company’s consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents.  At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.  The carrying amount of cash and cash equivalents approximates fair market value.

 

Inventory Valuation

 

Inventories are stated at the lower of cost or net realizable value. Inventories are valued on a first-in, first-out (FIFO) basis. Inventory is comprised of finished goods.

 

Concentrations

 

Cost of Goods Sold

 

For the year ended January 31, 2022 the Company purchased approximately 54% of its inventory and items available for sale from third parties from three vendors. As of January 31, 2021, the net amount due to the vendors included in accounts payable was $349,839.  For the year ended January 31, 2021 the Company purchased approximately 57% of its inventory and items available for sale from third parties from three vendors. As of January 31, 2021, the net amount due to the vendors included in accounts payable was $599,072.   The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.

 

Leases

 

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

 

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

 

Income Taxes

 

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

 

Fair Value of Financial Instruments

 

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

 

F-10


 

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

 

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

 

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

 

Level 3 Inputs – Instruments with primarily unobservable value drivers.

 

As of January 31, 2022 and 2021, the Company’s derivative liabilities were measured at fair value using Level 3 inputs.  See Note 10.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of January 31, 2022 and January 31, 2021:

 

    January 31, 2022   Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:                          
Derivative Liabilities – embedded redemption feature   $ 1,263,442   $   $   $ 1,263,442  
Totals   $ 1,263,442   $   $   $ 1,263,442  

 

 

    January 31, 2021   Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:                          
Derivative Liabilities – embedded redemption feature   $ 213,741   $   $   $ 213,741  
Totals   $ 213,741   $   $   $ 213,741  

 

 

Related Party Transactions

 

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

 

Derivative Liability

 

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

 

F-11


 

The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company’s common stock.  However, because the historical volatility of the Company’s common stock is so high (see Note 10), the sensitivity required to change the liability by 1% as of January 31, 2022 is greater than 25% change in historical volatility as of that date.  The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

 

Revenue Recognition

 

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

 

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

 

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

 

Disaggregation of Revenue: Channel Revenue

 

The following table shows revenue split between proprietary and third party website revenue for the years ended January 31, 2022 and 2021:

 

            Change  
    2022   2021   $   %  
Proprietary website revenue   $ 7,576,068   $ 4,200,624   $ 3,375,444   80%  
Third party website revenue     3,442,683     3,970,731     (528,048 ) (13% )
Total Revenue   $ 11,018,751   $ 8,171,355   $ 2,847,396   35%  

 

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

 

Revenue is recorded net of provisions for discounts and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to customers. The Company recognizes these discounts and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The customer pays the Company by credit card prior to delivery.

 

The Company offers a 30 day satisfaction guaranteed return policy however the customer must pay for the return shipment. The return must be previously authorized, cannot be either damaged or previously installed and must be in saleable condition. In the Company’s experience this amount is immaterial and therefore no provision has been recorded on the Company’s books. Any defective merchandise falls under the manufacturer’s limited warranty and is subject to the manufacturer’s inspection. The manufacturer has the option to repair or replace the item.

 

F-12


 

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

 

 In December 2019, the Financial Accounting Standards Board (FASB) issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intra-period tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.

 

In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.

 

In August 2020, the FASB issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments. The amended guidance is effective for interim and annual periods in 2022. The application of the amendments in the new guidance are to be applied either on a modified retrospective or a retrospective basis. We are currently assessing the effect that the adoption of this standard will have on the Company’s consolidated financial statements upon adoption.

 

F-13


 

Recently Issued Accounting Standards Not Yet Adopted

 

In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

 

In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively. Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements for prior acquisitions; however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.

 

In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to the company’s financial statements. The guidance is effective for annual periods beginning in 2022 and is to be applied on either a prospective or retrospective basis. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

 

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

 

 

NOTE 2 – GOING CONCERN AND FINANCIAL POSITION

 

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $28,451,733 as of January 31, 2022 and has a working capital deficit at January 31, 2022 of $8,325,847. As of January 31, 2022, the Company only had cash and cash equivalents of $77,498 and approximately $571,000 of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. While the Company has continued to grow its revenues, at this time, our current liquidity position raises substantial doubt about the Company’s ability to continue as a going concern.

 

Management’s plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues can sustain the Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 3 – PROPERTY

 

The Company capitalizes all property purchases over $1,000 and depreciates the assets on a straight-line basis over their useful lives of 3 years for computers and 7 years for all other assets. Property consists of the following at January 31, 2022 and 2021:

 

    2022   2021  
Office furniture, fixtures and equipment   $ 94,041   $ 85,413  
Shop equipment     43,004     43,004  
Vehicles     206,760     40,433  
Sub-total     343,805     168,850  
Less: Accumulated depreciation     (122,469 )   (88,823 )
Total Property   $ 221,336   $ 80,027  

 

Additions to fixed assets for the year ended January 31, 2022 were $196,578 with $35,000 paid in cash and $152,950 financed through vehicle loans for vehicles and an additional $8,628 acquired in equipment. Additions to fixed assets were $0 for the year ended January 31, 2021.

 

F-14


 

For the year ended January 31, 2022, vehicles having a cost of $20,000 and a net book value of $4,715 was disposed of. Proceeds received of $25,060 and a gain on sale of property and equipment of $20,345 were recorded. Office equipment having a cost of $9,750 and a net book value of $9,286 was disposed of during the year ended January 31, 2021. Proceeds received of $9,750 and a gain on sale of property and equipment of $464 were recorded.

 

Depreciation expense was $48,931 and $25,196 for the twelve months ended January 31, 2022 and January 2021, respectively.

 

NOTE 4 – LEASES

 

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

 

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

 

Below is a summary of our lease assets and liabilities at January 31, 2022 and January 31, 2021.

 

Leases   Classification   January 31, 2022   January 31, 2021  
Assets                  
Operating   Operating Lease Assets   $ 242,583   $ 344,413  
Liabilities                  
Current                  
Operating   Current Operating Lease Liability   $ 100,001   $ 90,286  
Noncurrent                  
Operating   Noncurrent Operating Lease Liabilities     138,551     244,049  
Total lease liabilities       $ 238,552   $ 334,335  

 

Note: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate of 8% based on the information available at commencement date in determining the present value of lease payments. We compare against loans we obtain to acquire physical assets and not loans we obtain for financing. The loans we obtain for financing are generally at significantly higher rates and we believe that physical space or vehicle rental agreements are in line with physical asset financing agreements. CAM charges were not included in operating lease expense and were expensed in general and administrative expenses as incurred.

 

Effective February 29 ,2020 the Company and landlord terminated the September 2019 lease with an annual rent of $15,480, a 3 year term an 1 year renewal. There were no costs associated with the termination. The Company eliminated the operating lease asset and operating lease liability at termination which was $45,032. (see Note 13)

 

Operating lease cost was $121,917 and $121,917 for both the twelve months ended January 31, 2022 and January 31, 2021, respectively.

 

NOTE 5 – CUSTOMER DEPOSITS

 

The Company receives payments from customers on orders prior to shipment. At January 31, 2022 the Company had received $530,900 (January 31, 2021- $188,385) in customer deposits for orders that were unfulfilled at January 31, 2022 and either canceled subsequent to year end or still awaiting shipment. The deposits on cancelled orders were either returned to the customers subsequent to January 31, 2022 or will remain as deposits until the item is either delivered and recorded as revenue or cancelled and refunded.

 

NOTE 6 – DEFERRED REVENUE

 

The Company receives payments from customers on orders prior to shipment. At January 31, 2022 the Company had received $665,143 (January 31, 2021- $687,766) in customer payments for orders that were unfulfilled at January 31, 2022 and delivered subsequent to year end. The orders were unfulfilled at January 31, 2022 because of both normal order processing and fulfillment requirements, and back orders.

 

F-15


 

NOTE 7 – PPP LOAN

 

On May 2, 2020 the Company entered into a Paycheck Protection Promissory (PPP) Note Agreement whereby the lender would advance proceeds of $209,447 at a fixed rate of 1% per annum and a May 2, 2022 maturity. The loan was repayable in monthly installments of $8,818 commencing September 2, 2021 and continuing on the second day of every month thereafter until maturity when any remaining principal and interest are due and payable. On September 22, 2021 the loan was forgiven and $209,447 was recorded as a gain and is included in operating expenses.

 

NOTE 8 – SHORT-TERM AND LONG-TERM DEBT

 

The components of the Company’s short-term and long term debt as of January 31, 2022 and 2021 were as follows:

 

    January 31, 2022   January 31, 2021  
Loan dated October 8, 2019, and revised February 29, 2020 and November 10, 2020 repayable June 30, 2022 with an additional interest payment of $20,000(3)   $ 97,340 * $ 102,168  
SFS Funding Loan, original loan of $389,980 January 8, 2020, 24% interest, weekly payments of $6,006, maturing July 28, 2021(2), fully repaid         161,227  
Forklift Note Payable, original note of $20,433 Sept 26, 2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023(1)     8,183 #   12,269  
Vehicle loan original loan of $93,239 February 16, 2021, 2.90 % interest. 72 monthly payments of $1,414 beginning on April 2, 2021 and ending on March 2, 2027. Secured by vehicle having net book value of $94,316.     81,346 #      
Vehicle loan original loan of $59,711 March 20,2021, 7.89% interest. 72 monthly payments of $1,048 beginning on May 4 , 2021 and ending on April 4, 2027 . Secured by vehicle having net book value of $76,164.     54,108 #      
Working Capital Note Payable - $700,000, dated October 29, 2021, repayment of $17,904 per week until Oct 29, 2022, interest rate of approximately 31%(2,4,7)     635,831 *      
Working Capital Note Payable - $650,000, dated October 25, 2021, repayment of $15,875  per week until October 25, 2022, interest rate of approximately 26%(2,4,8)     596,047 *      
Demand loan - $5,000 dated February 1, 2020, 15% interest, 5% fee on outstanding balance     5,000 *   5,000  
Demand loan - $2,500, dated March 8, 2019, 25% interest, 5% fee on outstanding balance     2,500 *   2,500  
Demand loan - $65,500 dated February 27, 2019, 25% interest, 5% fee on outstanding balance, Secured by the general assets of the Company     12,415 *   12,415  
Promissory note - $60,000 dated September 18, 2020 maturing April 30, 2022(10), including $5,000 original issue discount, 15% compounded interest payable monthly     60,000 *   60,000  
Promissory note - $425,000 dated August 28, 2020, including $50,000 original issue discount, 15% compounded interest payable monthly. This note matures when the Company receives proceeds through a financing event of $825,000 plus accrued interest on the note. (5)     425,000 *   425,000  
Promissory note - $1,200,000 dated August 28, 2020, maturing August 28, 2022, 12%  interest payable monthly with the first six months interest deferred until the 6th month and added to principal .(6)     1,200,000 *   1,200,000  
Promissory note - $420,000 dated December 27, 2021, including $20,000 original issue discount, maturing January 27, 2022, non-interest bearing (9)     420,000 *      
Promissory note - $50,000 dated August 31, 2020, maturing February 28, 2021, 10%  interest payable accrued monthly payable at maturity Fully repaid at April 30, 2021         50,000  
Total   $ 3,597,770   $ 2,030,579  

 

 

    January 31, 2022   January 31, 2021  
Short-Term Debt   $ 3,454,133   $ 716,142  
Current Portion of Long-Term Debt     27,737     424,064  
Long-Term Debt     115,900     890,373  
Total   $ 3,597,770   $ 2,030,579  

 

F-16


__________

In default
* Short-term loans
# Long-term loans of  $8,183 including current portion of $4,325
                                   $54,108 including current portion $8,632
                                   $81,346 including current portion $14,780
(1) Secured by equipment having a net book value of $10,242
(2) The amounts due under the note are personally guaranteed by an officer or a director of the Company.
(3) On November 10, 2020 the Company amended the agreement extending the maturity to June 30, 2022 from April 8, 2021 and changing monthly payments to $0 from $5,705 and interest rate from 13% to a $20,000 lump sum payable at maturity.
(4) The Company has pledged a security interest on all accounts receivable and banks accounts of the Company.
(5) Financing event would be a sale or issuance of assets, debt, shares or any means of raising capital. As the Company has entered into such a transaction the loan has reached maturity and is treated as current. An extension was granted on December 13, 2021 amending the maturity date to April 30, 2022. The April 30, 2022 payment has not been made and the Company is working on another extension with the lender.
(6) Secured by all assets of the Company. Loan payable in 2 instalments, $445,200 payable August 28, 2021 and $826,800 payable August 28, 2022. On December 13, 2021 the parties amended the maturity date for the first instalment to be April 30, 2022 with ethe second instalment date unchanged. The April 30, 2022 payment has not been made and the Company is working on another extension with the lender.
(7) This loan replaces $500,000 loan dated June 4, 2021, $422,009 proceeds were used to repay this loan , net cash received was $253,491 after payment of $26,500 in fees.
(8) This loan replaces $500,000 loan dated June 4, 2021, $359,919 proceeds were used to repay this loan , net cash received was  $267,606 after payment of $22,475 in fees.
(9) Penalty of 10% of principal amount and 30,000 3 year warrants with an exercise price of $15.00 on initial default and 2% of principal amount and 15,000 3 year warrants with an exercise price of $15.00 for every 30 day default period thereafter. Initial default has been recorded at January 31, 2022 with an interest charge of $42,000 and another $276,000 which was the fair value of the warrants (see Note 11).  The Company has defaulted on the March 2, 2022, April 1, 2022 and will issue an additional 15,000 warrants for each of those defaults.
(10) The April 30, 2022 payment has not been made and the Company is working on another extension with the lender.

 

The following are the minimum amounts due on the notes as of January 31, 2022:

 

Year Ended   Amount  
January 31, 2023   $ 3,481,870  
January 31, 2024     28,427  
January 31, 2025     25,798  
January 31, 2026     27,107  
January 31, 2027     28,498  
January 31, 2028     6,070  
Total   $ 3,597,770  

 

 

 

NOTE 9 – SHORT-TERM CONVERTIBLE DEBT

 

The components of the Company’s convertible debt as of January 31, 2022 and 2021 were as follows:

 

  Interest Default Interest Conversion Outstanding Principal at  
Maturity Date Rate Rate Price January 31, 2022   January 31, 2021  
Nov 4, 2013* 12% 12% $1,800,000 $ 100,000   $ 100,000  
Jan 31, 2014* 12% 18% $2,400,000   16,000     16,000  
July 31, 2013* 12% 12% $1,440,000   5,000     5,000  
Jan 31, 2014* 12% 12% $2,400,000   30,000     30,000  
Oct. 12, 2021 12% 16% (3)       230,000  
Nov. 16, 2021 12% 16% (3)       100,000  
Nov. 23, 2021 12% 16% (3)       165,000  
Nov 12, 2022 8% 12% (1)   2,400,000      
Jan. 13, 2023 12% 22% (2)   228,000      
Sub-total         2,779,000     646,000  
Debt Discount         (2,131,034 )   (309,317 )
        $ 647,966   $ 336,683  

 

F-17


__________

* In default
(1) lesser of $ 1.25 or 75 % of offering price if there is an uplisting to a national securities exchange.
(2) 75% of closing bid price on day preceding conversion date in event of default
(3) closing bid price on the day preceding the conversion date in the event of default

 

The Company had accrued interest payable of $231,412 and $240,713 on the notes at January 31, 2022 and January 31, 2021, respectively.

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that certain features in some instruments should be classified as liabilities due to there being a variable number of shares to be delivered upon settlement of the above conversion options. The derivative features are measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the embedded conversion option and attached warrants resulted in a discount to the note on the debt modification date. For the years ended January 31, 2022 and 2021, the Company recorded amortization expense of $918,463 and $335,004, respectively. See more information in Note 8.

 

During the years ended January 31, 2022 and 2021 the Company added $28,000 and $3,394 in penalty interest to the loans, respectively.

 

On July 7, 2021 the Company entered into a convertible note for $231,000 with a one year maturity, interest rate of 12%, the Company received $199,500 in cash proceeds, recorded an original issue discount of $21,000, a derivative discount of $39,261 related to a conversion feature, and transaction fees of $10,500. As part of the loan the Company issued 3.096 shares as a commitment fee and recognized $31,005 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan. The loan has been fully repaid.

 

On July 12, 2021 the Company entered into a convertible note for $355,000 with a one year maturity, interest rate of 12%, the Company received $300,025 in cash proceeds, recorded an original issue discount of $35,500, a derivative discount of $171,250 related to a conversion feature, and transaction fees of $19,475. As part of the loan the Company issued 6,085 shares as a commitment fee and recognized $28,795 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan. The loan has been fully repaid.

 

On July 20, 2021 the Company entered into a new convertible note for $224,125 with a one year maturity, interest rate of 10%, the Company received $200,000 in cash proceeds, recorded an original issue discount of $20,375, a derivative discount of $106,364 related to a conversion feature, and transaction fees of $3,750. The discount is amortized over the term of the loan.The loan has been fully repaid.

 

On November 12, 2021 the Company entered into a new convertible note for $2,400,000 with a one year maturity, interest rate of 8%, with a warrant (Warrant 1) to purchase 90,000 common shares with a five year maturity and an exercise price of $15.00, and an additional warrant (Warrant 2) to purchase 90,000 common shares with a five year maturity and an exercise price of $15.00 to be cancelled and extinguished if the note is repaid on or prior to maturity. The Company received $1,966,000 in cash proceeds, recorded an original issue discount of $240,000, a derivative discount of $1,589,617 for the conversion feature, recognized $174,436 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $194,000. The discount is amortized over the term of the loan. The note is repayable in six monthly instalments of $432,000 commencing on June 10, 2022. This note is senior to all existing and future indebtedness of the Company. The Company has pledged a security interest on all the assets of the Company. The note has certain default provisions such as failure to pay any principal or interest when due, failure to uplist to a national stock exchange by May 12, 2022, and failure to issue shares upon conversion. In the event of these or any other default provisions, the note becomes due and payable at 125% and Warrant 2 is no longer cancellable for any circumstance.

 

On January 13, 2021 the Company entered into an unsecured convertible note for $228,000 with a one year maturity, interest rate of 12%, the Company received $200,000 in cash proceeds, recorded an original issue discount of $24,250 and a derivative discount of $26,843, and transaction fees of $3,750. The discount is amortized over the term of the loan. The note is repayable in 10 monthly instalments of $25,536 commencing March 1, 2022. The March, April and May instalments have been paid. The note has certain default provisions such as failure to pay any principal or interest when due, and if the Company is in default of any of its other agreements. In the event of these or any other default provisions, the note becomes due and payable at 150%.

 

During the year ended January 31, 2022, the Company converted a total of $125,000 of the convertible notes, $27,691 of accrued interest and $8,750 of fees into 89,771 common shares.

 

F-18


 

As of January 31, 2022, the Company had $151,000 of aggregate debt in default. The agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company continues to accrue interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.

 

NOTE 10 – DERIVATIVE LIABILITIES

 

As of January 31, 2022 and January 31, 2021, the Company had derivative liabilities of $1,263,442 and $213,741, respectively. During the years ended January 31, 2022 and 2021 the Company recorded a gain of $235,703 and a loss of $828,614 from the change in the fair value of derivative liabilities, respectively.

 

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

 

The following table presents changes in Level 3 liabilities measured at fair value for the years ended January 31, 2022 and January 31, 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).

 

    Level 3
    Derivatives
Balance, January 31, 2020   $ 2,611,125  
Changes due to Issuance of New Convertible Notes     264,487  
Reduction of derivative due to extinguishment or repayment     (3,470,300 )
Changes due to Conversion of Notes Payable     (20,185 )
Mark to Market Change in Derivatives     828,614  
         
Balance, January 31, 2021     213,741  
Changes due to Issuance of New Convertible Notes     1,933,343  
Reduction of derivative due to extinguishment or repayment     (556,661 )
Reinstatement of Derivative to Equity     (15,134 )
Changes due to Conversion of Notes Payable     (76,144 )
Mark to Market Change in Derivatives     (235,703 )
Balance, January 31, 2022   $ 1,263,442  

 

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

 

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

 

The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s embedded conversion features that are categorized within Level 3 of the fair value hierarchy as of January 31, 2022 is as follows:

 

    Embedded  
    Derivative Liability  
    As of
January 31, 2022
 
Strike price     $9.00 - $17.80  
Contractual term (years)     0.24 - 1.0 years  
Volatility (annual)     99.70% - 126.9%  
High yield cash rate     17.3% - 27.63%  
Underlying fair market value     0.85  
Risk-free rate     0.41% - 0.72%  
Dividend yield (per share)     0%  

 

 

F-19


 

NOTE 11 – STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

The Company is authorized to issue 20,000,000 shares of Preferred Stock, having a par value of $0.001 per share.

 

Series A Preferred Stock

 

The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of both January 31, 2022, and January 31, 2021 the Company had 0 shares of Series A Preferred issued and outstanding and 330,000 authorized with a par value of $0.001 per share.

 

At both January 31, 2022 and January 31, 2021, respectively, there were 20,000 and