Quarterly Report (10-q)

Date : 12/18/2019 @ 9:24PM
Source : Edgar (US Regulatory)
Stock : 4 Less Group Inc (PK) (FLESD)
Quote : 0.18  0.075 (71.43%) @ 8:58PM
4 Less (PK) share price Chart

Quarterly Report (10-q)


United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended October 31, 2019

 

OR

 

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

 

From the transition period ___________ to ____________.

 

Commission File Number 333-152444

 

THE 4LESS GROUP, INC.

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

 

Nevada

7389

90-1494749

(State or jurisdiction of
incorporation or organization) 

(Primary Standard Industrial
Classification Code Number)

(IRS Employer
Identification No.) 

 

4580 N Rancho Dr #130, Las Vegas, NV 89130

(Address of principal executive offices)

 

(662) 510-5866

(Issuer’s telephone number)

 

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

Yes [X]   No [_]

 

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

 

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

 

Large Accelerated Filer  [_]      Accelerated Filer  [_]

 

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

 

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

 

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

 

Yes [_]   No [X].

 

As of December 12, 2019, there were 1,324,796,785 shares of Common Stock of the issuer outstanding.

 



TABLE OF CONTENTS

 

PART I.

FINANCIAL STATEMENTS (Unaudited)

3

 

 

 

ITEM 1.

Condensed Consolidated Financial Statements (Unaudited)

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

ITEM 2.

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

20

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosure About Market Risk

22

 

 

 

ITEM 4.

Controls and Procedures

23

 

 

 

PART II.

OTHER INFORMATION

23

 

 

 

ITEM 1.

Legal Proceedings

23

 

 

 

ITEM 1A.

Risk Factors

23

 

 

 

ITEM 2.

Unregistered Sales of Securities and Use of Proceeds

23

 

 

 

ITEM 3.

Default Upon Senior Securities

23

 

 

 

ITEM 4.

Mine Safety Disclosures

23

 

 

 

ITEM 5.

Other Information

23

 

 

 

ITEM 6.

Exhibits

23

 

- 2 -



PART 1: FINANCIAL INFORMATION


ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS


THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets


 

 

October 31, 2019

 

January 31, 2019

 

 

 

(Unaudited)

 

(*)

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

128,028

 

$

59,401

 

Inventory

 

 

350,108

 

 

293,382

 

Prepaid Expenses

 

 

43,609

 

 

97,500

 

Other Current Assets

 

 

4,062

 

 

3,659

 

Total Current Assets

 

 

525,807

 

 

453,942

 

Operating Lease Assets

 

 

508,155

 

 

454,087

 

Property and Equipment, net of accumulated depreciation of $67,139 and $64,394

 

 

98,667

 

 

242,126

 

 

 

 

 

 

 

 

 

Total Assets

 

$

1,132,629

 

$

1,150,155

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts Payable

 

$

264,363

 

$

216,455

 

Accrued Expenses

 

 

1,598,100

 

 

1,045,255

 

Accrued Expenses – Related Party

 

 

155,750

 

 

180,000

 

Short-Term Debt

 

 

469,338

 

 

381,512

 

Current Operating Lease Liability

 

 

93,640

 

 

74,179

 

Short-Term Convertible Debt, net of debt discount of $845,160 and $309,021

 

 

1,866,400

 

 

1,900,160

 

Derivative Liabilities

 

 

2,441,386

 

 

2,041,260

 

Current Portion – Long-Term Debt

 

 

4,734

 

 

11,697

 

Total Current Liabilities

 

 

6,893,711

 

 

5,850,518

 

 

 

 

 

 

 

 

 

Non-Current Lease Liability

 

 

396,879

 

 

379,908

 

Long-Term Debt

 

 

11,177

 

 

44,684

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

7,301,767

 

 

6,275,110

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Series -D Preferred Stock, $0.001 par value, 870 shares authorized, 870 and 870 shares issued and outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 6,750 shares authorized, 6,750 and 6,750 shares issued and outstanding

 

 

7

 

 

7

 

Common Stock, $0.001 par value, 20,000,000,000 shares authorized, 265,385,734 and 604,301 shares issued and outstanding

 

 

265,386

 

 

604

 

Additional Paid In Capital

 

 

13,809,266

 

 

12,563,721

 

Accumulated Deficit

 

 

(20,243,817

)

 

(17,689,307

)

Total Stockholders’ Deficit

 

 

(6,169,138

)

 

(5,124,955

)

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$

1,132,629

 

$

1,150,155

 

__________

* Derived from audited information


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


- 3 -



THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended October 31, 2019 and 2018

(Unaudited)


 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 31, 2019

 

October 31, 2018

 

October 31, 2019

 

October 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,890,461

 

$

2,046,256

 

$

6,218,386

 

$

6,488,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue

 

 

1,542,836

 

 

1,537,140

 

 

4,692,915

 

 

4,719,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

347,625

 

 

509,116

 

 

1,525,471

 

 

1,768,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

7,033

 

 

11,422

 

 

26,021

 

 

26,159

 

Postage, Shipping and Freight

 

 

110,385

 

 

86,018

 

 

342,370

 

 

297,309

 

Marketing and Advertising

 

 

23,827

 

 

68,145

 

 

145,206

 

 

150,042

 

E Commerce Services, Commissions and Fees

 

 

163,002

 

 

224,521

 

 

551,943

 

 

724,862

 

Operating lease cost

 

 

30,360

 

 

26,701

 

 

83,762

 

 

48,102

 

Personnel Costs

 

 

251,923

 

 

319,603

 

 

902,592

 

 

816,369

 

General and Administrative

 

 

230,583

 

 

51,524

 

 

725,116

 

 

207,899

 

Total Operating Expenses

 

 

817,113

 

 

787,934

 

 

2,777,010

 

 

2,270,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Operating Loss

 

 

(469,488

)

 

(278,818

)

 

(1,251,539

)

 

(502,004

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) on Sale of Property and Equipment

 

 

4,436

 

 

 

 

4,436

 

 

(13,322

)

Gain (Loss) on Derivatives

 

 

(196,303)

 

 

 

 

(107,953)

 

 

 

Gain on Settlement of Debt

 

 

 

 

 

 

67,623

 

 

 

Amortization of Debt Discount

 

 

(212,004

)

 

 

 

(462,175

)

 

 

Interest Expense

 

 

(121,601

)

 

(5,686

)

 

(804,902

)

 

(7,181

)

Total Other Income (Expense)

 

 

(525,472

)

 

(5,686

)

 

(1,302,971

)

 

(20,503

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(994,960

)

$

(284,504

)

$

(2,554,510

)

$

(522,507

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding; (1)

 

 

82,730,951

 

 

466,672

 

 

30,452,402

 

 

466,672

 

Basic and Diluted Income (Loss) per Share

 

$

(0.01

)

$

(0.61

)

$

(0.08

)

$

(1.12

)

__________

(1) The weighted average number of common shares outstanding at October 31, 2018 was computed by multiplying the number of the Company’s common shares outstanding as of October 31, 2018 by 2.63 based on the terms listed for the Company’s Series C Convertible Preferred Stock


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


- 4 -



THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Six Months Ended October 31, 2019 and 2018

(Unaudited)


 

Preferred Series A

 

Preferred Series B

 

Preferred Series C

 

Common Stock

 

Paid in

 

Retained

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2018

 

$

 

19,000

 

$

19

 

6,750

 

$

7

 

 

$

 

$

215,305

 

$

(335,902

)

$

(120,571

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in Capital by Shareholder

 

 

 

 

 

 

 

 

 

 

 

 

 

244,311

 

 

 

 

244,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(522,507

)

 

(522,507

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2018

 

$

 

19,000

 

$

19

 

6,750

 

$

7

 

 

$

 

$

459,616

 

$

(858,409

)

$

(398,767

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2019

 

$

 

20,000

 

$

20

 

6,750

 

$

7

 

604,301

 

$

604

 

$

12,563,721

 

$

(17,689,307

)

$

(5,124,955

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Notes Payable and Accrued Interest to Common Stock

 

 

 

 

 

 

 

 

 

264,778,439

 

 

264,779

 

 

596,731

 

 

 

 

861,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability Reclassified as Equity Upon Conversion of notes

 

 

 

 

 

 

 

 

 

 

 

 

 

669,352

 

 

 

 

669,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Adjustment for 6000:1 Reverse Split

 

 

 

 

 

 

 

 

 

2,994

 

 

3

 

 

(20,538

)

 

 

 

(20,535

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,554,510

)

 

(2,554,510

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2019

 

$

 

20,000

 

$

20

 

6,750

 

$

7

 

265,385,734

 

$

265,386

 

$

13,809,266

 

$

(20,243,817

)

$

(6,169,138

)


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


- 5 -



THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended October 31, 2019 and 2018

(Unaudited)


 

2019

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Income (Loss)

$

(2,554,510

)

$

(522,507

)

Adjustments to reconcile net loss to cash used by operating activities:

 

 

 

 

 

 

Depreciation

 

26,021

 

 

26,159

 

Change in Fair Value of Derivative Liabilities

 

107,953

 

 

 

Amortization of Debt Discount

 

462,175

 

 

 

Interest Expense Related to Derivative Liability in Excess of Face Value of Debt

 

84,940

 

 

 

Loan Penalties Capitalized to the Loan Included in Interest Expense

 

298,478

 

 

 

(Gain) Loss on Sale of Property and Equipment

 

(4,436

)

 

13,322

 

Gain on Settlement of Debt

 

(67,623

)

 

 

Change in Operating Assets and Liabilities:

 

 

 

 

 

 

(Increase) Decrease in Prepaid Expenses

 

53,891

 

 

(9,742

)

(Increase) in Inventory

 

(56,727

)

 

(124,766

)

(Increase) Decrease in Other Current Assets

 

(403

)

 

 

Increase (Decrease) in Accounts Payable

 

(17,167

)

 

104,665

 

Increase (Decrease) in Accrued Expenses

 

811,287

 

 

(1,097

)

CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

(856,121

)

 

(513,966

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of Property and Equipment

 

(3,948

)

 

(135,456

)

Proceeds from Disposal of Property and Equipment

 

137,035

 

 

30,602

 

CASH FLOWS PROVIDED BY INVESTING ACTIVITIES

 

133,087

 

 

(104,854

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Due to/from Officer

 

(24,250

)

 

 

Paid In Capital by Officer / Shareholder

 

 

 

244,311

 

Proceeds on Short-Term Debt

 

1,160,000

 

 

809,920

 

Payments on Short-Term Debt

 

(1,090,869

)

 

(409,917

)

Proceeds on Long-Term Debt

 

 

 

20,433

 

Payments on Long-Term Debt

 

(40,470

)

 

(7,859

)

Payments on Notes Payable

 

 

 

 

Payments on Notes Payable – Related Party

 

 

 

 

Proceeds from Short-Term Convertible Debt

 

787,250

 

 

 

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

791,661

 

 

656,888

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

68,627

 

 

38,068

 

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

59,401

 

 

384,157

 

 

 

 

 

 

 

 

CASH AT END OF PERIOD

$

128,028

 

$

422,225

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flows Information:

 

 

 

 

 

 

Cash Paid for Interest

$

51,294

 

$

7,181

 

Income Taxes

$

 

$

 

Convertible Notes, Interest and Derivatives Related to Converted Notes

$

1,530,862

 

$

 

Operating Lease Liability to Operating Lease Asset

$

89,942

 

$

317,742

 

Derivative debt discount

$

990,358

 

$

 


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


- 6 -



THE 4LESS GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES


Business:


The 4LESS Group, Inc, was incorporated under the laws of the State of Nevada on December 5, 2007.


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


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.


Significant Accounting Policies:


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


Basis of Presentation:


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


The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim unaudited consolidated financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented except for the recapitalization transaction described in Note 1 above. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended January 31, 2019 and notes thereto contained in the Company’s Annual Report on Form 10-K filed on August 21, 2019.


Principles of Consolidation:


The financial statements include the accounts of The 4LESS Group, Inc. as well as 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.


- 7 -



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. Some significant estimates include the valuation of derivative liabilities, the imputed rate for leases, returns and allowances, and inventory.


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.


Leases


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


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


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


Income Taxes


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


On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carry-forward and valuation allowance.


- 8 -



On November 29, 2018, the Company completed a merger with The 4Less Corp., in which the Company issued shares to acquire the outstanding shares of The 4Less Corp., which resulted in a more than 50% change in control of the Company.  While the Company has not yet performed the required analysis, the Company is of the belief that the requirements governing its net operating loss carryforwards under section 382 of the Internal Revenue Code of the United States have been met.  The result of this is that going forward, the Company expects that it will be limited, which will not be known until its completion of the required analysis, in its utilization in any given year of those net operating loss carryforwards prior to their expiration.


Fair Value of Financial Instruments:


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


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


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


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


Level 3 Inputs – Instruments with primarily unobservable value drivers.


The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of October 31, 2019:


 

 

October 31, 2019

 

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

 

$

2,441,386

 

$

 

$

 

$

2,441,386

 

Totals

 

$

2,441,386

 

$

 

$

 

$

2,441,386

 


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.


- 9 -



Derivative Liability


The derivative liabilities are valued as a level 3 input for valuing financial instruments. The derivatives arise from convertible debt where the debt is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments. As of October 31, 2019, warrants to purchase 583 common shares issued in October 2014 were not classified as derivative liability while the remaining warrants outstanding were classified as derivative liability based on the FIFO method.


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, expected stock price volatility, the expected term, and the risk-free interest rate.


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 transfered 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.


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.


- 10 -



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.


Loss Per Common Share:


The weighted average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per common share are computed using the weighted average number of common shares and potentially dilutive common shares outstanding. Potentially dilutive common shares are additional common shares assumed to be exercised. Potentially dilutive common shares are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss, as their effect would be considered anti-dilutive.


The Company had 5,667 warrants and 6,750 shares of Series C Preferred Stock outstanding at October 31, 2019 which were potentially dilutive common stock equivalents but would be antidilutive and are not included. As the Company incurred net losses during the three months and nine months ended October 31, 2019, the basic and diluted loss per common share is the same amount, as any common stock equivalents would be considered anti-dilutive. Excluded from this calculation are convertible notes of $2,711,560 and $2,209,180 at October 31, 2019 and January 31, 2019, respectively, since the impact would be antidilutive thus not included. The warrants and Series C Preferred Stock could be converted into 697,970,147 common shares as of October 31, 2019 and could convert into 2,913,972,040 common shares at December 10, 2019.


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 Company is currently evaluating the impact of Topic 350 on its consolidated financial statements and related disclosures, which is effective for fiscal years, including interim periods, beginning after December 15, 2019.


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 is not expected to have a material impact on our consolidated financial statements.


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


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


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


- 11 -



NOTE 2 – GOING CONCERN AND FINANCIAL POSITION


The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred cumulative losses through October 31, 2019 of $20,243,817 and has a working capital deficit at October 31, 2019 of $6,367,904. As of October 31, 2019, the Company only had cash and cash equivalents of $128,028 and had 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date that the financial statements were issued.


The potential proceeds from the sale of common stock and other contemplated debt and equity financing, and increases in operating revenues from new development and business acquisitions might enable the Company to continue as a going concern. However, revenues have not been sufficient to cover operating costs that would permit the Company to continue as a going concern historically and there can be no assurance that the Company can or will be able to complete any debt or equity financing, or develop or acquire one or more business interests under favorable terms. The Company plans to grow revenues through the funding provided by investors through the issuance of debt and equity as well as strategic leveraging of its online brands. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


NOTE 3 – LEASES


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


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


Below is a summary of our lease assets and liabilities at October 31, 2019 and January 31, 2019.


Leases

 

Classification

 

October 31, 2019

 

January 31, 2019

 

Assets

 

 

 

 

 

 

 

 

 

Operating

 

Operating Lease Assets

 

$

508,155

 

$

454,087

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Operating

 

Current Operating Lease Liability

 

$

93,640

 

$

74,179

 

Noncurrent

 

 

 

 

 

 

 

 

 

Operating

 

Noncurrent Operating Lease Liabilities

 

 

396,879

 

 

379,908

 

Total lease liabilities

 

 

 

$

490,519

 

$

454,087

 


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


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


Operating lease cost was $30,360 and $13,901 for both the three months ended October 31, 2019 and October 31,2018, respectively and $83,762 and $21,402 for both the nine months ended October 31, 2019 and October 31,2018, respectively.


In September 2019 the Company entered into an operating lease for premises with an annual rent of $15,480, a three year term commencing September 1, 2019 to August 31, 2022 and a one year renewal option.


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

$1,259 per month.


- 12 -



NOTE 4 – SHORT-TERM AND LONG-TERM DEBT


The components of the Company’s debt as of October 31, 2019 and January 31 ,2019 were as follows:


 

October 31, 2019

 

January 31, 2019

 

Vehicle Note Payable - $49,494, dated April 19, 2017, 7.24% interest, 72 payments of $851 starting May 29, 2017 and ending April 2023 (2), repaid in full on August 13, 2019

$

 

$

38,690

 

Working Capital Note Payable - $175,000, dated March 16, 2019, repayment of 10% of all eBay sales until paid in full, minimum payments of $17,769 per quarter until paid, fees of $2,696 repaid in full on May 9, 2019

 

 

 

 

Working Capital Note Payable-$ 200,000 dated May 12, 2019, repayment of 10% of all eBay sales proceeds until paid in full, minimum payment of $20,341 per quarter, repaid in full on July 11, 2019, fees of $3,418

 

 

 

 

Working Capital Note Payable-$ 200,000 dated October 25, 2019, repayment of 10% of all eBay sales proceeds until paid in full, minimum payment of $20,417, fees of $4,173 effective interest rate of 7% (4), maturing January 25, 2020(4)

 

197,423

*

 

 

Loan dated October 8, 2019, repayable at $4,678.86 per month commencing on November 8, 2019, maturing April 8, 2021, interest at 15% per annum  

 

75,000

*

 

 

Loan dated October 14, 2019, repayable in average monthly instalments od $11,200, maturing April 14, 2020, interest and fees $ 7,200, effective interest 35.50% per annum(5)

 

60,000

*

 

 

Working Capital Note Payable-$ 200,000 dated July 19, 2019, repayment of 10% of all eBay sales proceeds until paid in full, minimum payment of $20,334, fees of $3,343 effective interest rate of 7% (4), repaid in full on October 22, 2019

 

 

 

 

Working Capital Note Payable - $175,000, dated January 15, 2019, repayment of 10% of all eBay sales until paid in full, minimum payments of $12,695 per quarter until paid

 

 

 

153,057

 

Amazon working capital note, original loan of $94,000 Sept 6, 2018, 9.22% interest, monthly payments of $16,091 paid in full March 5, 2019

 

 

 

31,814

 

SFS Funding Loan, original loan of $298,400 October 5, 2018, 24% interest, weekly payments of $7581, maturing and repaid in full October 9, 2019 (3)

 

 

 

194,642

 

Forklift Note Payable, original note of $20,432.59 Sept 26,2018, 6.23% interest, 60 monthly payments of $394.54 ending August 2023 (1)

 

15,911

 

 

19,690

 

Loan dated July 31, 2019, $61,200 including $1,200 fee due and repaid August 6, 2019

 

 

 

 

Demand loan -$122,000 dated August 19, 2019 25% interest, 5% fee on outstanding balance

 

122,000

*

 

 

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

 

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

*

 

 

Total

$

485,249

 

$

437,893

 

__________

* Short -term notes of $ 469,338

(1) Secured by equipment having a net book value of $18.243

(2) Secured by equipment having a net book value of $61,744

(3) The Company has pledged a security interest on all accounts receivable and banks accounts of the Company. Obligation under personal guaranty by controlling shareholder of the Company.

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

(5) The Company has pledged a security interest on all assets of the Company.


The Company had accrued interest payable of $20,640 and $0 interest on the notes at October 31, 2019 and January 31, 2019, respectively.


The following are the minimum amounts due on the long-term notes:


Year Ended

 

Amount

 

October 31, 2020

 

$

4,734

 

October 31, 2021

 

 

4.740

 

October 31, 2022

 

 

4.740

 

October 31, 2023

 

 

1,697

 

Total

 

$

15,911

 


- 13 -



NOTE 5 – SHORT-TERM CONVERTIBLE DEBT


The components of the Company’s short term convertible debt (iii) as of October 31, 2019 and January 31, 2019 were as follows:


 

Interest

Default Interest

Conversion

Outstanding Principal at

 

Maturity Date

Rate

Rate

Price

October 31, 2019

 

January 31, 2019

 

Nov 4, 2013*

12%

12%

$0.075

$

100,000

 

$

100,000

 

Jan 31, 2014*

12%

18%

$0.10

 

16,000

 

 

16,000

 

Apr 24, 2020

12%

24%

$0.10

 

69,730

 

 

69,730

 

July 31, 2013*

12%

12%

$0.06

 

5,000

 

 

5,000

 

Jan 31, 2014*

12%

12%

$0.10

 

30,000

 

 

30,000

 

Dec 24, 2015*

8%

24%

(1)

 

5,000

 

 

5,000

 

Sep 10, 2017

8%

24%

(2)

 

 

 

37,958

 

Sep 10, 2017*

8%

24%

(2)

 

2,375

 

 

2,375

 

Sep 10, 2017

8%

24%

(2)

 

 

 

16,600

 

Sep 10, 2017

8%

24%

(2)

 

 

 

38,677

 

Dec 4, 2017*

8%

24%

(2)

 

22,388

 

 

25,000

 

Feb 3, 2017*

8%

24%

(5)

 

25,000

 

 

25,000

 

Mar 3, 2017*

8%

24%

(5)

 

300

 

 

30,000

 

Mar 3, 2017*

8%

24%

(5)

 

20,100

 

 

30,000

 

Mar 24, 2017

8%

24%

(6)

 

 

 

10,950

 

Apr 24, 2020

12%

24%

(6)

 

529,092

 

 

738,896

 

July 8, 2015*

8%

24%

(1)

 

5,500

 

 

5,500

 

Apr 24, 2020

8%

24%

(1)

 

4,500

 

 

4,500

 

Apr 24, 2020

8%

24%

(1)

 

23,297

 

 

23,297

 

Apr 24, 2020

8%

24%

(1)

 

7,703

 

 

7,703

 

Apr 24, 2020

8%

24%

(1)

 

26,500

 

 

26,500

 

July 19, 2016*

8%

24%

(1)

 

5,000

 

 

5,000

 

March 24, 2017*

8%

24%

(6)

 

4,100

 

 

25,000

 

Dec 27, 2018

15%

24%

(4)

 

 

 

56,925

 

Dec 27, 2018

15%

24%

(4)

 

 

 

1,202

 

Jan 5, 2019*

15%

24%

(4)

 

4,444

 

 

18,325

 

Feb 20, 2019*

10%

10%

(7)

 

343,047

 

 

274,438

 

Mar 23, 2019

15%

24%

(3)

 

 

 

12,355

 

Jun 6, 2019*

12%

18%

(8)

 

43,577

 

 

123,750

 

Oct 24, 2019*

8%

24%

(5)

 

47,250

 

 

47,250

 

Nov 14, 2019

8%

24%

(5)

 

78,750

 

 

78,750

 

Dec 14, 2019

8%

24%

(5)

 

130,000

 

 

130,000

 

Dec 28, 2019

12%

18%

(3)

 

133,333

 

 

125,000

 

Jan 9, 2020

8%

24%

(5)

 

62,500

 

 

62,500

 

March 1, 2020

10%

15%

(9)

 

61,425

 

 

 

March 14, 2020(i)

15%

24%

(11)

 

55,000

 

 

 

April 3, 2020(ii)

8%

24%

(2)

 

172,149

 

 

 

April 12, 2020(ii)

10%

24%

(10)

 

75,000

 

 

 

May 13, 2020(i)

15%

24%

(11)

 

55,000

 

 

 

May 14, 2020(ii)

8%

24%

(2)

 

52,500

 

 

 

May 24, 2020(i)

15%

24%

(11)

 

40,000

 

 

 

June 11, 2020(i)

15%

24%

(11)

 

85,000

 

 

 

June 26, 2020(i)

15%

24%

(11)

 

76,000

 

 

 

July 11, 2020(i)

15%

24%

(11)

 

60,000

 

 

 

Aug 29, 2020(i)

15%

24%

(11)

 

45,000

 

 

 

Sep 16, 2020(i)

15%

24%

(11)

 

34,000

 

 

 

Sep 27, 2020(i)

15%

24%

(11)

 

34,000

 

 

 

Oct 24, 2020(i)

15%

24%

(11)

 

122,000

 

 

 

Sub-total

 

 

 

 

2,711,560

 

 

2,209,181

 

Debt Discount

 

 

 

 

(845,160

)

 

(309,021

)

 

 

 

 

$

1,866,400

 

$

1,900,160

 


- 14 -



__________

(1)

52% of the lowest trading price for the fifteen trading days prior to conversion day.

(2)

50% of the lowest trading price for the fifteen trading days prior to conversion day.

(3)

50% of the lowest trading price for the twenty trading days prior to conversion day.

(4)

50% of the lowest trading price for the forty trading days prior to conversion day, but not higher than $0.000075.

(5)

50% of the lowest trading price for the fifteen trading days prior to conversion day, but not higher than $0.001.

(6)

50% of the lowest trading price for the fifteen trading days prior to conversion day, but not higher than $0.005.

(7)

60% of the lowest trading price for the fifteen trading days prior to conversion day.

(8)

52% of the lowest trading price for the twenty trading days prior to conversion day.

(9)

55% of the lowest trading price for the twenty trading days prior to conversion day.

(10)

50% of the lowest trading price for the twenty-five trading days prior to conversion day.

(11)

50% of the lowest bid price for the twenty-five trading days prior to conversion day.

*

In default


(i) If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the effective Conversion Price as calculated in Section 4(a) is less than $0.0001 at any time (regardless of whether or not a Conversion Notice has been submitted to the Company), the Principal Amount of the Note shall increase by ten thousand dollars ($10,000) (under Holder’s and Company’s expectation that any Principal Amount increase will tack back to the Issuance Date). In addition, the Conversion Price shall be permanently redefined to equal the lesser of (a) $0.00001 or (b) 50% of the lowest traded price during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note. If the Company fails to maintain the share reserve at the 4x discount of the note 60 days after the issuance of the note, the conversion discount shall be increased by 10%. If at any time while this Note is outstanding, an Event of Default (as defined herein) occurs, then an additional discount of 15% shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 65% assuming no other adjustments are triggered hereunder). These above contingencies have not occurred.


(ii) In the event the Company experiences a DTC ” Chill” on its shares, the conversion price shall be decreased to 40% instead of 50% while that “Chill” is in effect. If the Company fails to maintain the share reserve at the 4x discount of the note 60 days after the issuance of the note, the conversion discount shall be increased by 10%.


(iii) The share purchase agreements ancillary to the convertible note agreements do not allow the lender to engage in short sales.


The Company had accrued interest payable of $618,181 and $463,839 on the notes at October 31, 2019 and January 31, 2019, respectively.


The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that some instruments should be classified as liabilities due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the embedded conversion option resulted in a discount to the note on the debt modification date. For the nine months ended October 31, 2019 and 2018, the Company recorded amortization expense of $462,175 and $0, respectively. See more information in Note 6.


During the nine months ended October 31, 2019 the Company entered into new convertible notes totaling $967,074 with one year maturities, interest rates ranging from 8%-15%, the Company received $787,250 in cash proceeds, recorded original issue discounts of $62,675 and loan and interest of $117,149 was transferred from existing notes of the same lender.


During the nine months ended October 31, 2019, the Company converted a total of $650,690 of the convertible notes, $205,320 accrued interest and $5,500 in fees into 264,778,439 common shares and the Company released the associated derivative liability of $669,352 referred to in Note 6. Also, $252,795 in loan penalties were added to various note balances with $75,599 recorded as interest expense and $177,196 recorded as part of the amortization of debt discount.


As of October 31, 2019, the Company had $674,637 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.


- 15 -



NOTE 6 – DERIVATIVE LIABILITIES


As of October 31, 2019 and January 31, 2019, the Company had derivative liabilities of $2,441,386 and $2,041,260, respectively. During the three months ended October 31, 2019 and 2018, the Company recorded a loss of $196,303 and $0, from the change in the fair value of derivative liabilities, respectively During the nine months ended October 31, 2019 and 2018, the Company recorded a loss of $107,953 and $0, from the change in the fair value of derivative liabilities, respectively. Any liabilities resulting from the warrants outstanding are immaterial.


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


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. In our calculation at October 31, 2019, stock price range from $0.0011-$0.011 volatility ranged from 294.8% to 461.3%, the term ranged from 0.04 to 4.00 years, and the risk free interest rate was from 0.89% to 2.64%.


 

 

Level 3

 

 

 

Derivatives

 

Balance, January 31, 2019

 

$

2,041,260

 

Changes due to Issuance of New Convertible Notes

 

 

990,358

 

Reduction of derivative due to extinguishment

 

 

(28,833

)

Changes due to Conversion of Notes Payable

 

 

(669,352

)

Mark to Market Change in Derivatives

 

 

107,953

 

Balance, October 31, 2019

 

$

2,441,386

 


NOTE 7 – STOCKHOLDERS’ DEFICIT


Preferred Stock:


The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of both October 31, 2019, and January 31, 2019 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 October 31, 2019 and January 31, 2019, respectively, there were 20,000 and 20,000 Series B preferred shares outstanding. The Series B Preferred Stock have voting rights equal to 51% of the total voting rights at any time. There are no conversion rights granted holders of Series B Preferred shares, they are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 20,000 Series B preferred shares authorized and issued of the Series B Preferred Stock with a par-value of $0.001 per share.


At both October 31, 2019 and January 31, 2019, there were 6,750 Series C preferred shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 6,750 Series C preferred shares authorized and 6,750 shares issued with a par-value of $0.001 per share.


At both October 31, 2019 and January 31, 2019, there were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $.001. All shares of Series D Preferred Stock will rank subordinate and junior to all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any of the Corporation’s preferred stock hereafter created as to distributions of assets upon dissolution or winding up of the Corporation, whether voluntary or involuntary. These shares are non-voting, do not receive dividends and are redeemable according to the terms set out below:


- 16 -



OPTIONAL REDEMPTION.


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


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


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


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


Common Stock:


The Company is authorized to issue 20,000,000,000 common shares at a par value of $0.001 per share. These shares have full voting rights. At October 31, 2019 and January 31, 2019, there were 265,385,734 and 604,301 shares outstanding, respectively. No dividends were paid in either the nine months ended October 31, 2019 or 2018.


The Company issued the following shares of common stock in the nine months ended October 31, 2019:


Conversion of $650,690 Notes Payable and $205,320 Interest, $5,500 in Fees and $669,352 of derivative liability to 264,778,439 shares of Common Stock.


- 17 -



Options and Warrants:


The Company recorded option and warrant expense of $0 and $0 for the nine months ended October 31, 2019 and 2018, respectively.


The Company issued no options or warrants in the nine months ended October 31, 2019.


The Company had the following options and warrants outstanding at October 31, 2019:


Issued To

# Warrants

Dated

Expire

Strike Price

Expired

Exercised

Lender

583

07/02/2015

07/01/2019

$600.00 per share

N

N

Lender

5,667

01/08/2018

01/08/2021

$0.45 per share

N

N



 

 

Options

 

Weighted Average
Exercise Price

 

Warrants

 

Weighted Average
Exercise Price

 

Outstanding at January 31, 2019

 

 

$

 

6,250

 

$

56.38

 

Granted

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

Forfeited and canceled

 

 

 

 

 

 

 

 

Outstanding at October 31, 2019

 

 

$

 

6,250

 

$

56.38

 


NOTE 8 – RELATED PARTY TRANSACTIONS


As of October 31, 2019 and January 31, 2019, the Company had $155,750 and $ 180,000, respectively, of accrued expenses- related party.


In April 2018, the Company’s landlord entered into an agreement with controlling shareholder of the Company, which was amended in November 2019, such that the Company obtained a rent abatement of approximately $150,000 over a 20 month period of the terms of the two leases. As of October 31, 2019 and January 31, 2019, the balance of prepaid rent totaled $30,000 and $97,500, respectively.


NOTE 9 – COMMITMENTS AND CONTINGENCIES


On June 1, 2015, the Company entered into a 36-month lease agreement for its 2,590 sf office facility with a minimum base rent of $2,720 per month. The Company paid base rent and their share of maintenance expense of $43,200 and $43,200 related to this lease for the periods ended January 31, 2019 and 2018, respectively. The lease is currently on a month to month basis since the lease has not been renewed and the Company records the payments as rent expense. This lease was with a shareholder – See Note 8 – Related Party Transactions.


On August 30, 2016, the Company entered into a 60-month lease agreement for its 3,554 sf warehouse facility starting in December 2016 with a minimum base rent of $2,132 and estimated monthly CAM charges of $1,017 per month. This lease is with a shareholder – See Note 8 – Related Party Transactions.


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


In September 2019 the Company entered into an operating lease for premises with an annual rent of $15,480, a three year term commencing September 1, 2019 to August 31, 2022 and a one year renewal option.


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

$1,259 per month.


- 18 -



Maturity of Lease Liabilities

Operating
Leases

 

October 31, 2020

$

136,318

 

October 31, 2021

 

136,318

 

October 31, 2022

 

135,057

 

October 31, 2023

 

93,204

 

October 31, 2024

 

30,004

 

After October 31, 2024

 

62,502

 

Total lease payments

 

593,403

 

Less: Interest

 

(102,884

)

Present value of lease liabilities

$

490,519

 


The Company had total rent expense and operating lease cost of $33,602 and $38,477 for the three months ended October 31, 2019 and 2018 respectively.


The Company had total rent expense and operating lease cost of $114,188 and $85,389 for the nine months ended October 31, 2019 and 2018 respectively.


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


NOTE 10 – SUBSEQUENT EVENTS


Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the financial statements were issued and has determined that no material subsequent events exist other then the following:


Conversion of notes


Subsequent to the balance sheet date through to December 12, 2019 , 1,059,411,041 shares were issued for the conversion of $64,452 principal, and $31,312 of interest and $ 16,350 of fees totaling $117,114 of convertible notes that had a conversion price at 50% of the lowest market price during the period the Company fails to make all periodic filings with the SEC.


Issuance of convertible notes


On November 7, 2019, the Company issued a convertible note with principal of $42,000 and net proceeds of $40,000. The note bears interest at 15% per annum and mature in twelve months from the issuance date. The note can be converted at a price equal to 45% of the lowest bid price of common stock reported on the National Quotations Bureau OTC Markets for the 25 days prior to the conversion.


On November 22, 2019, the Company issued a convertible note with principal and net proceeds of $55,000. The note bears interest at 8% per annum and mature in twelve months from the issuance date. The note can be converted at a price equal to 50% of the lowest trading price of common stock reported on the National Quotations Bureau OTC Markets for the 15 days prior to the conversion.


- 19 -



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


FORWARD-LOOKING STATEMENTS


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


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


Company


The 4LESS Group Inc. (“FLES”, the “Company”, “we” or “us”), the Company described herein, was incorporated under the laws of the State of Nevada on December 5, 2007, with offices located at 4850 N Rancho Dr # 130, Las Vegas NV 89130. It can be reached by phone at (662) 510-5866.


Nature of Business –


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. The prior period results up until the transaction date would include the results of operations of only 4LESS.


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.


In 2018 The 4Less Corp (“4Less”) invested heavily in technologies to support our current and future growth initiatives. These technologies included customer relations management software (CRM) linking all marketplaces together seamlessly and inventory API data feeds linking hundreds of thousands of auto parts inventory levels for availability to be sold. Opening our first warehouse/distribution center here in Las Vegas with our proprietary warehouse software in April of 2018 has further positioned 4Less to capitalize on the multi-billion dollar aftermarket auto parts sector. Additionally, we launched a small manufacturing partnership program which will allow small manufactures to utilize the company’s platform to push their products in front of millions of potential buyers across the globe.


- 20 -



4Less management believes that the 4Less proprietary web sites, which includes order customization, live chat, install videos, directions and installation services, offer the best buying experience for consumers interested in purchasing aftermarket auto parts on the internet today.


As a result of these many upgrades, the complexity of many of our products and the ability to drive more traffic to our proprietary websites where margins are greater, we felt it was in the best interest of the company to terminate its relationship with Amazon. We expect all of these decisions to help The 4Less Corp achieve growth goals for 2020.


Results of Operations for the Three Months Ended October 31, 2019 Compared to the Three Months Ended October 31, 2018


We had revenue of $1,890,461 for the three months ended October 31, 2019, compared to $2,046,256 for the three months ended October 31, 2018. We had total cost of revenues of $1,542,836 for the three months ended October 31, 2019, compared to cost of revenues of $1,537,140 for the three months ended October 31, 2018. For the three months ended October 31, 2019 and 2018 gross profit was $347,625 and $509,116, respectively. Sales decreased by $155,795 due to discontinued sales on Amazon.com which were partially offset by lower e-commerce service, commissions and fees costs explained below. Cost of revenues increased due to a change in product mix and fewer drop shipments to customers which increased our shipping cost to our warehouse.


We had total operating expenses of $817,113 for the three months ended October 31, 2019, consisting of $7,033 of depreciation, $110,385 postage, shipping and freight, $23,827 of marketing and advertising, $163,022 of e-commerce expenses, commissions and fees, $30,360 of operating lease cost, $251,923 of personnel costs and $230,583 of general and administrative expenses. For the three months ended October 31, 2018, we had total operating expenses of $787,934, consisting of $11,422 of depreciation, $86,018 postage, shipping and freight, $68,145 of marketing and advertising expenses, $224,521 of e-commerce expenses, commissions, and fees, $26,701 of operating lease cost, $319,603 of personnel costs and $51,524 of general and administrative expenses. Operating expenses for the three months ended October 31, 2019 were generally higher because they were the combined operations of the 4 Less Group Inc. whereas the prior period consisted only of the results of The 4 Less Corp. In comparing the three months ended October 31, 2019 and October 31, 2018: postage, shipping and freight increased by $24,367 due to fewer drop shipments in 2019 thus higher shipping costs, due to an expanding product line there were new items that needed to be warehoused and shipped. Marketing and advertising decreased by $44,318 because in 2019 Company reduced expenses to improve cash-flow. The decrease in e-commerce expenses, commissions, and fees of $61,508 which represents the fees paid on the discontinued Amazon sales mentioned above. Personnel costs decreased by $67,680 because the Company reduced expenses this quarter to improve cash -flow. General and admin increased due to the inclusion of the 4 Less Group Inc. in 2019 as mentioned above as well as a new warehouse added in October 2018 and health insurance added in 2019.


We had total other income (expense) of $(525,472) for the three months ended October 31, 2019, consisting of interest expense of $(121,601), loss on derivatives of $(196,303), and amortization of debt discount of $(212,004).There was also a gain on sale of property and equipment of $4,436. We had total other income (expense) of $(5,686) for three months ended October 31, 2018, consisting only of interest expense. Again the results of the three months ended October 31, 2019 were generally higher because they were the combined operations of The 4 Less Group Inc. which contained the interest, discount and derivatives derived from the convertible debt whereas the prior period consisted of the results of The 4 Less Corp. only which had none.


We had a net loss of $994,960 for the three months ended October 31, 2019, compared to a net loss of $284,504 for the three months ended October 31, 2018 explained in the reasons given above.


Results of Operations for the Nine Months Ended October 31, 2019 Compared to the Nine Months Ended October 31, 2018


We had revenue of $6,218,836 for the nine months ended October 31, 2019, compared to $6,448,098 for the nine months ended October 31, 2018. We had total cost of revenues of $4,692,915 for the nine months ended October 31, 2019, compared to cost of revenues of $4,719,360 for the nine months ended October 31, 2018. For the nine months ended October 31, 2019 and 2018 gross profit was $1,525,471 and $1,768,738, respectively. Sales decreased due to discontinuing sales on certain websites because of higher commission expenses. Cost of revenues and gross profit decreased as sales decreased, however, the Company’s overall profitability remained steady after taking into consideration the lower e-commerce expenses, commissions, and fees explained below.


We had total operating expenses of $2,777,010 for the nine months ended October 31, 2019, consisting of $26,021 of depreciation, $342,370 postage, shipping and freight, $145,206 of marketing and advertising, $551,943 of e-commerce expenses, commissions and fees, $83,762 of operating lease cost, $902,592 of personnel costs and $725,116 of general and administrative expenses. For the nine months ended October 31, 2018, we had total operating expenses of $2,270,402, consisting of $26,159 of depreciation, $297,309 postage, shipping and freight, $150,042 of marketing and advertising expenses, $724,862 of e-commerce expenses commissions and fees, $48,102 of operating lease cost, $816,369 of personnel costs and $207,899 of general and administrative expenses.


- 21 -



Operating expenses for the nine months ended October 31, 2019 were generally higher because they were the combined operations of the 4 Less Group Inc. whereas the prior period consisted of the results of The 4 Less Corp. only. In comparing the nine months ended October 31, 2019 and October 31, 2018 : postage, shipping and freight increased by $45,061 due to fewer drop shipments in 2019 thus higher shipping costs , due to an expanding product line there were new items that needed to be warehoused and shipped, e-commerce expenses, commissions, and fees decreased by $172,919 which represents the fees paid on the discontinued Amazon sales mentioned above. Personnel costs increased by $86,223 as we invested heavily to make sure we had great customer service and support, both in the office and with customers, as we grow our business. General and admin increased due to the inclusion of the 4 Less Group Inc. in 2019 as mentioned above as well as a new warehouse added in October 2018 and health insurance added in 2019.


We had total other income (expense) of $(1,302,971) for the nine months ended October 31, 2019, consisting of interest expense of $(804,902), loss on derivatives of $(107,953), gain on settlement of debt of $67,623, gain on sale of property and equipment of $4,436 and amortization of debt discount of $(462,175). We had total other income (expense) of $(20,503) for nine months ended October 31, 2018, consisting of interest expense of $(7,181) and loss on sale of property and equipment of $(13,322). Again the results of the nine months ended October 31, 2019 were generally higher because they were the combined operations of The 4 Less Group Inc. which contained the interest, discount and derivatives derived from the convertible debt whereas the prior period consisted of the results of The 4 Less Corp. only which had none.


We had a net loss of $2,554,510 for the nine months ended October 31, 2019, compared to a net loss of $522,507 for the nine months ended October 31, 2018 explained in the reasons given above.


Liquidity and Capital Resources


Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the three months ended October 31, 2019, we have generated revenue and are trying to achieve positive cash flows from operations.


As of October 31, 2019, we had a cash balance of $128,028, inventory of $350,108 and $6,893,711 in current liabilities. Given our poor working capital position, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.


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


Capital Resources


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


 

 

October 31 2019

 

January 31, 2019

 

Current assets

 

$

525,807

 

$

453,942

 

Current liabilities

 

 

6,893,711

 

 

5,850,518

 

Working capital (deficits)

 

$

(6,367,904

)

$

(5,396,576

)


Net cash used in operations for the nine months ended October 31, 2019 was $856,121 as compared to net cash used in operations of $513,966 for the nine months ended October 31, 2018. The biggest changes in cash flows from operating activities were the cash changes in derivative and discount which were not applicable to the previous period. Net cash provided from investing activities was $133,087 for the nine months ended October 31, 2019 compared to cash used by investing activities of $104,854 for the nine months ended October 31, 2018. In the nine months ended October 31, 2019 assets were sold where in the nine months ended October 31, 2018 assets were acquired. Net cash provided by financing activities for the nine months ended October 31, 2019 was $791,661 as compared to $656,888 for the same period in 2018. This increase mainly comes from the convertible debt proceeds in 2019 that did not exist in the prior year.


ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.


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


- 22 -



ITEM 4. Controls and Procedures


(a)           Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Moving forward, we hope that our Chief Executive Officer and Principal Financial Officer will be able to devote the additional time and effort required so that our disclosure controls and procedures are once again effective. Notwithstanding the assessment that our internal controls and procedures were not effective, we believe that our financial statements contained in this Quarterly Report for the quarter ended October 31, 2019 fairly present our financial position, results of operations and cash flows for the years and months covered thereby in all material respects.


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


PART II OTHER INFORMATION


Item 1. Legal Proceedings


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


Item 1A. Risk Factors


There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended January 31, 2019, filed with the Commission on August 21, 2019 and investors are encouraged to review such risk factors below and in the Form 10-K, prior to making an investment in the Company.


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


Recent Sales of Unregistered Securities


None.


Item 3. Default Upon Senior Securities


None.


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information


None.


Item 6. Exhibits


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


- 23 -



SIGNATURES


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


The 4Less Group, Inc.


By:  /s/ Timothy Armes

Timothy Armes

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


Date: December 18, 2019



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.


- 24 -


4 Less (PK) (USOTC:FLESD)
Historical Stock Chart

1 Year : From Feb 2019 to Feb 2020

Click Here for more 4 Less (PK) Charts.

4 Less (PK) (USOTC:FLESD)
Intraday Stock Chart

Today : Thursday 27 February 2020

Click Here for more 4 Less (PK) Charts.

Latest FLESD Messages

{{bbMessage.M_Alias}} {{bbMessage.MSG_Date}} {{bbMessage.HowLongAgo}} {{bbMessage.MSG_ID}} {{bbMessage.MSG_Subject}}

Loading Messages....


No posts yet, be the first! No {{symbol}} Message Board. Create One! See More Posts on {{symbol}} Message Board See More Message Board Posts
Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.

NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V:us D:20200227 06:14:28