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 July 31, 2020

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

From the transition period ___________ to ____________.

Commission File Number 333-152444

THE 4LESS GROUP, INC.

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


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

106 W. Mayflower, Las Vegas, NV 89030

(Address of principal executive offices)

(702) 267-6100

(Issuer’s telephone number)

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

Yes [X] No [_]

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

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

Large Accelerated Filer [_] Accelerated Filer [_]

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

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

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

Yes [_] No [X].

As of August 26, 2020, there were 904,972 shares of Common Stock of the issuer outstanding.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	3

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

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

ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	29

ITEM 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	30

ITEM 1.	Legal Proceedings	30

ITEM 1A.	Risk Factors	30

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

ITEM 3.	Default Upon Senior Securities	30

ITEM 4.	Mine Safety Disclosures	30

ITEM 5.	Other Information	30

ITEM 6.	Exhibits	30

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PART 1: FINANCIAL INFORMATION

ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE 4LESS GROUP, INC.

Condensed Consolidated Balance Sheets


	July 31, 2020			January 31, 2020
	Unaudited			(*)
Assets
Current Assets
Cash and Cash Equivalents	$	121,290		$	162,124
Inventory		290,574			371,896
Prepaid Expenses		12,936			8,106
Other Current Assets		1,810			1,059
Total Current Assets		426,610			543,185
Operating Lease Assets		430,391			483,193
Property and Equipment, net of accumulated depreciation of $76,225, and $64,091		92,625			114,509

Total Assets	$	949,626		$	1,140,887

Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts Payable	$	410,342		$	534,442
Accrued Expenses		1,741,754			1,709,797
Accrued Expenses – Related Party		155,750			155,750
Short-Term Debt		329,515			609,491
Current Operating Lease Liability		100,792			101,984
Short-Term Convertible Debt, net of debt discount of $62,365 and $689,176		1,837,764			2,286,896
Derivative Liabilities		1,366,523			2,611,125
PPP Loan-current portion		86,760			—
Current Portion – Long-Term Debt		50,763			4,166
Total Current Liabilities		6,079,963			8,013,651

Non-Current Lease Liability		316,498			365,085
PPP Loan -long term portion		122,687			—
Long-Term Debt		58,062			11,940

Total Liabilities		6,577,210			8,390,676

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, 7,000 and 6,750 shares issued and outstanding		7			7
Common Stock, $0.000001 par value, 1,000,000,000 shares authorized, 904,972 and 538,464 shares issued, issuable and outstanding		1			1
Additional Paid In Capital		13,489,681			13,449,336
Accumulated Deficit		(19,987,293	)		(21,569,153	)
Total Stockholders’ Deficit		(6,497,584	)		(8,119,789	)

Total Liabilities and Stockholders’ Deficit	$	949,626		$	1,140,887

__________

* Derived from audited information

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Operations

For the Six Month and Three Months Ended July 31, 2020 and 2019

(Unaudited)


	Three Months Ended						Six Months Ended
	July 31, 2020			July 31, 2019			July 31, 2020			July 31, 2019

Revenue	$	2,927,209		$	2,059,700		$	4,927,280		$	4,327,925

Cost of Revenue		2,001,592			1,557,617			3,429,896			3,150,080

Gross Profit		925,617			502,083			1,497,384			1,177,845

Operating Expenses:
Depreciation		5,951			8,749			12,598			18,989
Postage, Shipping and Freight		151,755			119,753			264,893			231,985
Marketing and Advertising		5,782			74,766			23,850			121,379
E Commerce Services, Commissions and Fees		252,848			189,422			419,267			388,941
Operating lease cost		34,079			26,701			68,158			53,402
Personnel Costs		232,869			302,116			499,604			650,669
General and Administrative		159,223			240,373			334,865			494,531
Total Operating Expenses		842,507			961,880			1,623,235			1,959,896

Net Operating Income (Loss)		83,110			(459,797	)		(125,851	)		(782,051	)

Other Income (Expense)
Gain (Loss) on Sale of Property and Equipment		464			(6,947)			464			(6,947	)
Change in Fair Value on Derivative Liability		506,979			998,792			432,199			88,350
Gain on Settlement of Debt		—			—			2,172,646			67,622
Amortization of Debt Discount		(47,898	)		(170,684	)		(626,811	)		(473,050	)
Interest Expense		(147,693	)		(114,785	)		(270,787	)		(460,422	)
Total Other Income (Expense)		311,852			706,376			1,707,711			(784,447	)

Net Income (Loss)	$	394,962		$	246,579		$	1,581,860		$	(1,566,498	)

Basic Weighted Average Shares Outstanding		763,214			1,658			660,668			970
Basic (Loss) per Share	$	0.52		$	148.72		$	2.39		$	(1,614.95	)
Diluted Weighted Average Shares Outstanding		51,179,725			160,982			51,077,179			970
Diluted Income (Loss) per Share	$	0.00		$	(3.07	)	$	0.00		$	(1,614.95	)

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Six Months Ended July 31, 2019

(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, 2019	—	$	—	20,000	$	20	6,750		$	7	151	$	—	$	11,694,325		$	(17,689,307	)	$	(5,994,955	)

Conversion of Notes Payable and Accrued Interest to Common Stock	—		—	—		—	—			—	303		—		258,594			—			258,594

Derivative Liability Reclassified as Equity Upon Conversion of notes	—		—	—		—		—		—	—		—		237,500			—			237,500

Common Stock Adjustments for Reverse Splits	—		—	—		—	—			—	1		—		11,115			—			11,115

Net Income (Loss)	—		—	—		—	—			—	—		—		—			(1,813,076	)		(1,813,076	)

April 30, 2019	—	$	—	20,000	$	20	6,750		$	7	455	$	—	$	12,201,534		$	(19,502,383	)	$	(7,300,822	)

Conversion of Notes Payable and Accrued Interest to Common Stock	—		—	—		—	—			—	4,027		—		357,419			—			357,419

Derivative Liability Reclassified as Equity Upon Conversion of notes	—		—	—		—		—		—	—		—		281,621			—			281,621

Common Stock Adjustments for Reverse Splits	—		—	—		—	—			—	—		—		(11,419	)		—			(11,419	)

Net Income (Loss)	—		—	—		—	—			—	—		—		—			246,579			246,579

July 31, 2019	—	$	—	20,000	$	20	6,750		$	7	4,482	$	—	$	12,829,155		$	(19,255,804	)	$	(6,426,622	)

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Six Months Ended July 31, 2020

(Unaudited)


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

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

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

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

Exchange of debt	—		—	—		—	250			—	—		—		9,105		—			9,105

Net Income (Loss)	—		—	—		—	—			—	—		—		—		1,186,898			1,186,898

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

Conversion of Notes Payable and Accrued Interest to Common Stock	—		—	—		—	—			—	284,147		—		7,656		—			7,656

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

Net Income (Loss)	—		—	—		—	—			—	—		—		—		394,962			394,962

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

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

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THE 4LESS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended July 31, 2020 and 2019

(Unaudited)


	2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	1,581,860		$	(1,566,498	)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation		12,598			18,989
Change in Fair Value on Derivative Liabilities		(432,199	)		(88,350	)
Amortization of Debt Discount		626,811			473,050
Interest Expense related to Derivative Liability in Excess of Fair Value		—			84,940
Loan Penalties Capitalized to Loan Included in Interest Expense		3,394			75,599
(Gain) Loss on Sale of Property and Equipment		(464	)		6,947
Gain on Settlement of Debt		(2,172,646	)		(67,622	)
Change in Operating Assets and Liabilities:
Decrease (Increase) in Inventory		81,322			(144,216	)
(Increase) Decrease in Prepaid Expenses		20,870			32,318
(Increase) Decrease in Other Current Assets		2,271			3,659
Increase (Decrease) in Accounts Payable		(115,251	)		207,448
Increase in Accrued Expenses		231,207			431,627
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES		(160,227	)		(532,109	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Disposal of Property and Equipment		9,750			55,650
CASH FLOWS USED IN INVESTING ACTIVITIES		9,750			55,650

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Short Term Debt		205,000			741,500
Payments on Short Term Debt		(302,913	)		(828,913	)
Proceeds from PPP Loan		209,447			—
Payments on Long Term Debt		(1,891	)		(6,388	)
Due to/from Officer		—			(9,250	)
Proceeds from Convertible Notes Payable		—			573,250
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES		109,643			470,199

NET INCREASE (DECREASE) IN CASH		(40,834	)		(6,260	)

CASH AT BEGINNING OF PERIOD		162,124			59,401

CASH AT END OF PERIOD	$	121,290		$	53,141

Supplemental Disclosure of Cash Flows Information:
Cash Paid for Interest	$	29,538		$	26,609
Cash Paid for Income Taxes	$	—		$	—
Convertible Notes Interest and Derivatives Converted to Common Stock	$	31,240		$	616,013
Derivative Debt Discount	$	—		$	706,975
Short Term Debt and Interest Extinguished Through Issuance of Series C Preferred Stock	$	144,076		$	—
Convertible Notes and Interest Extinguished Through Issuance of Series C Preferred Stock	$	1,245,456		$	—

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

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THE 4LESS GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Business:

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

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

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

Significant Accounting Policies:

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

Basis of Presentation:

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

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim unaudited consolidated financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended January 31, 2020 and notes thereto contained in the Company’s Annual Report on Form 10-K filed on May 6, 2020.

Principles of Consolidation:

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

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Use of Estimates:

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

Reclassifications

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

Cash and Cash Equivalents:

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

Inventory Valuation

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

Concentrations

Cost of Goods Sold

For the six months ended July 31, 2020 the Company purchased approximately 55% of its inventory and items available for sale from third parties from three vendors. As of July 31, 2020, the net amount due to those vendors included in accounts payable was $171,928. For the six months ended July 31, 2019, the Company purchased from three vendors approximately 54% of its inventory and items available for sale from third parties. As of July 31, 2019, the net amount due to those vendors included in accounts payable was $86,441. The Company believes there are numerous other suppliers that could be substituted should a supplier become unavailable or non-competitive.

Leases

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

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

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

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Income Taxes

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

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending January 31, 2020, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements.

On November 29, 2018, the Company completed a reverse merger with The 4 Less Corp. At such time that there was a change in control, all net operating losses for tax purposes of the parent were no longer available for carry-forward and the parent started to accumulate profits or losses from that point forward.

Fair Value of Financial Instruments:

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

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

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

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

Level 3 Inputs – Instruments with primarily unobservable value drivers.

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of July 31, 2020:


	July 31, 2020		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	$	1,366,523	$	—	$	—	$	1,366,523
Totals	$	1,366,523	$	—	$	—	$	1,366,523

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Related Party Transactions:

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

Derivative Liability

The derivative liabilities are valued as a level 3 input under the fair value hierarchy for valuing financial instruments. The derivatives arise from convertible debt where the debt and accrued interest is convertible into common stock at variable conversion prices and reclassification of equity instrument to liability due to insufficient shares for issuance. As the price of the common stock varies, it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date. When evaluating the effect of the issuance of new equity-linked or equity-settled instruments on previously issued instruments, the Company uses first-in, first-out method (“FIFO”) where authorized and unused shares would first be used to satisfy the earliest issued equity-linked instruments. As of July 31, 2020, warrants to purchase 0 common shares (583 shares before the reverse split of 2/25/2020 referred to in Note 6) issued in July 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, 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 7), the sensitivity required to change the liability by 1% as of July 31, 2020 is greater than 25% change in historical volatility as of that date. The other inputs, such as risk free rate, high yield cash rate and stock price all have a sensitivity for a 1% change in the input variable results in a significantly less than 1% change in the calculated derivative liability.

Revenue Recognition

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

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

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

Disaggregation of Revenue: Channel Revenue

The following table shows revenue split between proprietary and third party website revenue for the six months ended July 31, 2020 and 2019:


					Change
	2020		2019		$			%
Proprietary website revenue	$	2,403,120	$	1,658,063	$	745,057		45%
Third party website revenue		2,524,160		2,669,862		(145,702	)	(5%	)
Total Revenue	$	4,927,280	$	4,327,925	$	599,355		14%

- 11 -

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

Stock-Based Compensation:

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

Earnings (Loss) Per Common Share:

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

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

Recently Issued Accounting Standards:

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

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

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

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

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

- 12 -

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 $19,987,293 as of July 31, 2020 and has a working capital deficit at July 31, 2020 of $5,653,353. As of July 31, 2020, the Company only had cash and cash equivalents of $121,290 and a significant amount of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. While the Company has continued to grow its revenues, at this time, the three months ended July 31, 2020 was the first quarter the Company was able to achieve profitability from operations prior to interest and other expenses. While the Company believes it will continue to build on the results achieved in this quarter, our current liquidity position raises substantial doubt about the Company’s ability to continue as a going concern.

Management’s plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues are able to sustain the Company. To date, the main source of funding has been through the issuance of convertible notes with provisions that allow the holder to convert the debt and accrued and unpaid interest at substantial discounts to the trading the price of our common stock and through factored promissory notes secured by substantially all of the assets of our operating subsidiary. The effect of the conversions for the six months ended July 31, 2020 and 2019, respectively, for the convertible notes has been to substantially dilute existing holders of common stock of our Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – PROPERTY

The Company capitalizes all property purchases over $1,000 and depreciates the assets on a straight-line basis over their useful lives of 3 years for computers and 7 years for all other assets. Property consists of the following at July 31, 2020 and January 31, 2020:


	July 31, 2020			January 31, 2020
Office furniture, fixtures and equipment	$	85,413		$	95,163
Shop equipment		43,004			43,004
Vehicles		40,433			40,433
Sub-total		168,850			178,600
Less: Accumulated depreciation		(76,225	)		(64,091	)
Total Property	$	92,625		$	114,509

Additions to fixed assets were nil for both the three months and six months ended July 31, 2020 and July 31, 2019.

Office equipment having a cost of $9,750 and a net book value of $9,286 was disposed of during the quarter ended July 31, 2020. Proceeds received of $9,750 and a gain on sale of property and equipment of $464 were recorded.

Vehicles having a cost of $62,048 and a net book value of $49,401 was disposed of during the quarter ended July 31, 2019. Proceeds received of $55,650 and a loss on sale of property and equipment of $6,947 were recorded.

Depreciation expense was $5,951 and $8,749 for the three months ended July 31, 2020 and July 31, 2019, respectively.

Depreciation expense was $12,598 and $18,989 for the sic months ended July 31, 2020 and July 31, 2019, respectively.

- 13 -

NOTE 4 – LEASES

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

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

Below is a summary of our lease assets and liabilities at April 30, 2020 and January 31, 2020.


Leases	Classification	July 31, 2020		January 31, 2020
Assets
Operating	Operating Lease Assets	$	430,391	$	483,193
Liabilities
Current
Operating	Current Operating Lease Liability	$	100,792	$	101,984
Noncurrent
Operating	Noncurrent Operating Lease Liabilities		316,498		365,085
Total lease liabilities		$	417,290	$	467,069

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

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

Operating lease cost was $34,079 and $26,701 for the three months ended July 31, 2020 and July 31, 2019, respectively.

Operating lease cost was $68,158 and $54,402 for the six months ended July 31, 2020 and July 31, 2019, respectively.

NOTE 5 – PPP LOAN

On May 2, 2020 the Company entered into a Paycheck Protection Promissory (PPP) Note Agreement whereby the lender would advance proceeds of $209,447 at a fixed rate of 1% per annum and a May 2, 2022 maturity. The loan is repayable in monthly instalments of $8,818 commencing October 31, 2020 and continuing on the second day of every month thereafter until maturity when any remaining principal and interest are due and payable. At July 31, 2020 the loan is classified as $86,760 current and $122,697 long-term.

- 14 -

NOTE 6 – SHORT-TERM AND LONG-TERM DEBT

The components of the Company’s debt as of July 31, 2020 and January 31, 2020 were as follows:


	July 31, 2020			January 31, 2020
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⁾, repaid in full February 5, 2020	$	—		$	6,978
Loan dated October 8, 2019, and revised February 29, 2020 repayable at $5,704 per month commencing on July 1, 2020, maturing June 1, 2022, interest at 13% per annum⁽²⁾		94,610	#		63,635
Loan dated October 14, 2019, repayable in average monthly installments of $11,200, maturing April 14, 2020, interest and fees $7,200, effective interest 35.50% per annum⁽⁴⁾⁽⁵⁾ repaid in full at maturity		—			30,000
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 - $200,000, dated March 5, 2020, repayment of 10% of all eBay sales proceeds until paid in full, minimum payments of $20,695 per quarter until paid, interest rate of 7%⁽³⁾		—			—
SFS Funding Loan, original loan of $389,980 January 8, 2020, 24% interest, weekly payments of $6,006, maturing April 7, 2021⁽⁵⁾		309,600	*		371,963
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⁾		14,215	#		16,106
Demand loan - $122,000 dated August 19, 2019 25% interest, 5% fee on outstanding balance⁽⁴⁾⁽⁶⁾		—			122,000
Demand loan - $5,000 dated February 1, 2020, 15% interest, 5% fee on outstanding balance		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
Total	$	438,340		$	625,597


	July 31, 2020		January 31, 2020
Short-Term Debt	$	329,515	$	609,491
Current Portion Of Long-Term Debt		50,763		4,166
Long-Term Debt		58,062		11,940
	$	438,340	$	625,597

__________


*	Short-term loans
#	Long-term loans of $ 14,215 including current portion of $3,899 and $94,610 including current portion of $46,864*
⁽¹⁾	Secured by equipment having a net book value of $18,243
⁽²⁾	On February 29, 2020 the Company amended the agreement extending the maturity to June 1, 2022 from April 8, 2021 and changing monthly payments to $5,705 from $4,679 and interest rate from 15% to 13%.In addition prepaid rent and interest of $27,500 and $8,005 were added to the loan’s principal amount and the 1st monthly payment commence July 1, 2020.
⁽³⁾	The Company has pledged a security interest on all accounts receivable and banks accounts of the Company.
⁽⁴⁾	The Company has pledged a security interest on all assets of the Company.
⁽⁵⁾	The amounts due under the note are personally guaranteed by an officer or a director of the Company.
⁽⁶⁾	On February 26, 2020 the lender exchanged the $122,000 note along with $22,076 for 26 Class C preferred shares as part of a larger debt exchange transaction as described in Note 7.

The Company had accrued interest payable of $0 and $0 interest on the notes at July 31, 2020 and January 31, 2020, respectively.

- 15 -

NOTE 7 – SHORT-TERM CONVERTIBLE DEBT

The components of the Company’s debt as of July 31, 2020 and January 31, 2020 were as follows:


	Interest	Default Interest	Conversion	Outstanding Principal at
Maturity Date	Rate	Rate	Price	July 31, 2020			January 31, 2020
Nov 4, 2013*	12%	12%	$1,800,000	$	100,000		$	100,000
Jan 31, 2014*	12%	18%	$2,400,000		16,000			16,000
Apr 24, 2020*⁽ⁱⁱ⁾	12%	24%	(3)		69,730			69,730
July 31, 2013*	12%	12%	$1,440,000		5,000			5,000
Jan 31, 2014*	12%	12%	$2,400,000		30,000			30,000
Dec 24, 2015*^(v)	8%	24%	(1)		5,000			5,000
Feb 3, 2017*^(ii)(iv)	8%	24%	(4)		2,500			2,500
Mar 3, 2017*^(ii)(iv)	8%	24%	(5)		—			—
Mar 3, 2017*^(ii)(iv)	8%	24%	(5)		33,000			33,000
Mar 24, 2017*^(ii)(iv)	8%	24%	(5)		27,500			27,500
Apr 24, 2020*^(ii)(iv)(vi)	12%	24%	(3)		521,181			517,787
July 8, 2015*^(v)	8%	24%	(1)		5,500			5,500
Apr 24, 2020^{(ii)(iv)(vi)X}	8%	24%	(3)		—			4,500
Apr 24, 2020^X	8%	24%	(3)		—			23,297
Apr 24, 2020^X	8%	24%	(3)		—			7,703
Apr 24, 2020^X	8%	24%	(3)		—			26,500
July 19, 2016*^(v)	8%	24%	(1)		5,000			5,000
Mar 23, 2019*^{(ii)(iv)(vi)X}	15%	24%	(3)		—			4,444
Feb 20, 2019*^(ix)X	10%	10%	(6)		—			343,047
Jun 6, 2019*^(viii)X	12%	18%	(7)		—			43,577
Oct 24, 2019*^(ii)(iv)	8%	24%	(5)		37,400			45,595
Nov 14, 2019*^(ii)(iv)	8%	24%	(5)		86,625			86,625
Dec 14, 2019*^(ii)(iv)	8%	24%	(5)		143,000			143,000
Dec 28, 2019*^(i)(iv)(vi)	12%	18%	(6)		133,333			133,333
Jan 9, 2020*^(ii)(iv)	8%	24%	(2)		68,750			68,750
March 1, 2020*^(x)	10%	15%	(8)		40,939			40,939
March 14, 2020^(iv)(vi)X	15%	24%	(9)		—			44,967
April 3, 2020*^(iv)	8%	24%	(2)		172,148			172,148
April 12, 2020*^(xi)	10%	24%	(3)		184,023			185,130
May 13, 2020^(iv)(vi)X	15%	24%	(9)		—			55,000
May 14, 2020*^(iv)(vi)	8%	24%	(2)		52,500			52,500
May 24, 2020^(iv)(vi)X	15%	24%	(9)		—			40,000
June 11, 2020^(iv)(vi)X	15%	24%	(9)		—			85,000
June 26, 2020*^(iv)(vi)	15%	24%	(9)		76,000			76,000
July 11, 2020^(iv)(vii)X	15%	24%	(9)		—			60,000
Aug 29, 2020^(iv)(vii)X	15%	24%	(9)		—			45,000
Sep 16, 2020^(iv)(vii)X	15%	24%	(9)		—			34,000
Sep 27, 2020^(iv)(vii)X	15%	24%	(9)		—			34,000
Oct 24, 2020^(iv)(vii)X	15%	24%	(9)		—			122,000
Nov 7, 2020^(iv)(vii)X	15%	24%	(10)		—			42,000
Nov 22, 2020^(ii)(iv)(vi)	8%	24%	(2)		55,000			55,000
Dec 10, 2020^(iv)(vii)X	15%	24%	(9)		—			55,000
Dec 23, 2020^(ii)(iv)(vi)	8%	24%	(2)		30,000			30,000
Sub-total					1,900,129			2,976,072
Debt Discount					(62,365	)		(689,176	)
				$	1,837,764		$	2,286,896

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__________


(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 fifteen trading days prior to conversion day, but not higher than $0.001.
(5)	50% of the lowest trading price for the fifteen trading days prior to conversion day, but not higher than $0.005.
(6)	60% of the lowest trading price for the twenty trading days prior to conversion day.
(7)	52% of the lowest trading price for the twenty trading days prior to conversion day.
(8)	55% of the lowest trading price for the twenty-five trading days prior to conversion day.
(9)	50% of the lowest bid price for the twenty-five trading days prior to conversion day.
(10)	45% of the lowest bid price for the fifteen trading days prior to conversion day

* In default.

X On February 26, 2020 the company exchanged convertible and short term notes and accrued interest for 250 Class C shares (transaction described further below).

(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 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.

(iv) If the Company becomes delinquent or continues its delinquency in its periodic filings with the SEC after the 6-months anniversary of the note, then the holder is entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion.

(v) In the event the Company experiences a DTC ” Chill” on its shares, the conversion price shall be decreased to 42% instead of 52% while that “Chill” is in effect.

(vi) 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%.

(vii) If the Company fails to maintain the share reserve at the 3x discount of the note 60 days after the issuance of the note, the conversion discount shall be increased by 10%.

(viii) If at any time while this Note is outstanding, an event of default 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). If at any time while this Note is outstanding, the Borrower’s Common Stock are not deliverable via DWAC, an additional 10% discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding.

(ix) If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the effective Conversion Price is less than $0.01 at any time, the Principal Amount of the Note shall increase by ten thousand dollars ($10,000). In addition, the Conversion price shall be permanently redefined to equal the lesser of (a) $0.001 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.

- 17 -

(x) In the event that shares of the Borrower’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional ten percent (10%) discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 55% assuming no other adjustments are triggered hereunder). Additionally, if the Borrower fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Borrower subsequently cures such delinquency) at any time while after the Issue Date, and/or the Borrower shall cease to be subject to the reporting requirements of the exchange Act, an additional fifteen percent (15%) discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 60% assuming no other adjustments are triggered hereunder).

(xi) If the Borrower’s Common stock is chilled for deposit at DTC, becomes chilled at any point while this Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or if the closing price at any time falls below $0.01 (as appropriately and equitably adjusted for stock splits, stock dividends, stock contributions and similar events), then an additional 15% discount will be attributed to the Conversion Price for any and all Conversions submitted thereafter.

The Company had accrued interest payable of $741,875 and $703,270 on the notes at July 31, 2020 and January 31, 2020, respectively.

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that some instruments should be classified as liabilities due to there being a variable number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the embedded conversion option resulted in a discount to the note on the debt modification date. For the three months ended July 31, 2020 and 2019, the Company recorded amortization of debt discount expense of $47,898 and $170,684, respectively. For the six months ended July 31, 2020 and 2019, the Company recorded amortization of debt discount expense of $626,811 and $473,050, respectively See more information in Note 8.

During the three months ended July 31, 2020 the Company also added $3,394 in penalty interest to the loan.

On February 26, 2020 a lender exchanged $1,070,035 in convertible notes and $175,421 in accrued interest (as denoted by X in the above schedule) as well as $122,000 in short-term debt and $22,076 in accrued interest (as described in Note 6), and the associated derivative liability of $792,218 all totaling $2,181,750 in exchange for 250 Class C shares having a fair-value of $9,105. A gain of $2,172,646 was recorded.

During the six months ended July 31, 2020, the Company converted a total of $9,303 of the convertible notes and $1,752 accrued interest into 366,508 common shares.

As of July 31, 2020, the Company had $1,815,129 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 8 – DERIVATIVE LIABILITIES

As of July 31, 2020 and January 31, 2020, the Company had derivative liabilities of $1,366,523 and $2,611,125, respectively. During the three months ended July 31, 2020 and 2019, the Company recorded a gain of $506,979 and $998,792 from the change in the fair value of derivative liabilities, respectively. During the six months ended July 31, 2020 and 2019, the Company recorded a gain of $432,199 and $88,350 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 following table presents changes in Level 3 liabilities measured at fair value for the six months ended July 31, 2020. 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.

- 18 -


	Level 3
	Derivatives
Balance, January 31, 2020	$	2,611,125
Change due to Settlement of Debt		(792,218	)
Changes due to Conversion of Notes Payable		(20,185	)
Mark to Market Change in Derivatives		(432,199	)
Balance, July 31, 2020	$	1,366,523

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

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

The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of July 31, 2020 is as follows:


	Embedded
	Derivative Liability
	As of July 31, 2020
Strike price	$	0.08 - 0.198
Contractual term (years)		0.08 - 0.25 years
Volatility (annual)		551.1% - 558.5%
High yield cash rate		39.17% - 43.23%
Underlying fair market value		$0.11
Risk-free rate		0.07% - 0.08%
Dividend yield (per share)		0%

NOTE 9 – STOCKHOLDERS’ DEFICIT

Preferred Stock:

The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of both July 31, 2020, and January 31, 2020 the Company had 0 shares of Series A Preferred issued and outstanding and 330,000 authorized with a par value of $0.001 per share.

At both July 31, 2020 and January 31, 2020, there were 20,000 and 20,000 Series B preferred shares outstanding, respectively. The Series B Preferred Stock have voting rights equal to 51% of the total voting rights at any time. There are no conversion rights granted holders of Series B Preferred shares, they are not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 20,000 Series B preferred shares authorized and issued of the Series B Preferred Stock with a par-value of $0.001 per share.

At both July 31, 2020 and January 31, 2020, there were 7,000 and 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 7,250 Series C preferred shares authorized and 7,000 shares issued with a par-value of $0.001 per share. On February 26, 2020, the Company issued 250 Class C preferred shares in a debt exchange transaction described in Note 6.

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At both July 31, 2020 and January 31, 2020, there were 870 Series D preferred shares authorized and outstanding, respectively which with a par value $.001. All shares of Series D Preferred Stock will rank subordinate and junior to all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any of the Corporation’s preferred stock hereafter created as to distributions of assets upon dissolution or winding up of the Corporation, whether voluntary or involuntary. These shares are non-voting, do not receive dividends and are redeemable according to the terms set out as follows:

OPTIONAL REDEMPTION.

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

(2) Should the Corporation exercise the right of Optional Redemption it shall provide each holder of Preferred Stock with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption Notice”). Any optional redemption pursuant to this Section VI shall be made 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.

Neither the Company nor any Series D preferred stockholders has given notice to exercise the redemption as of July 31, 2020 on the date of the financial statements.

Because the holders of the Series D preferred stock have the right to demand cash redemption, the cumulative amount of the redemption feature is included in Temporary Equity as of July 31, 2020 and January 31, 2020.

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Common Stock

The Company is authorized to issue 1,000,000,000 common shares at a par value of $0.000001 per share (see Note 12). These shares have full voting rights. On June 4, 2020 the Company amended its articles decreasing authorized common shares from 20,000,000,000 to 1,000,000,000. On March 29, 2019 the Company undertook a 6000:1 reverse stock. On February 25, 2020, the Company undertook a 4000:1 reverse stock split. The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At July 31, 2020 and January 31, 2020 there were 904,972 and 538,464 shares outstanding, respectively. No dividends were paid in the three months ended April 30, 2020 or 2019. The Company’s articles of incorporation include a provision that the Company is not allowed to issue fractional shares. As a result, as part of the reverse split described above, the Company issued an additional 1,699 shares in March 2020 and these shares were included in the shares outstanding as of January 31, 2020 as issuable.

The Company issued the following shares of common stock in the six months ended July 31, 2020:

Conversion of $9,303 Notes Payable and $1,752 Interest to 366,508 shares of Common Stock.

Options and Warrants:

The Company recorded option and warrant expense of $0 and $0 for the three months ended July 31, 2020 and 2019, respectively.

The Company issued no warrants for the three months ended July 31, 2020.

The Company had the following options and warrants outstanding at July 31, 2020:


Issued To	# Warrants	Dated	Expire	Strike Price	Expired	Exercised
Lender	1.4	01/08/2018	01/08/2021	$1,800 per share	N	N


	Options	Weighted Average Exercise Price		Warrants	Weighted Average Exercise Price
Outstanding at January 31, 2020	—	$	—	1.4	$	225,520
Granted	—		—	—		—
Exercised	—		—	—		—
Forfeited and canceled	—		—	—		—
Outstanding at July 31, 2020	—	$	—	1.4	$	225,520

NOTE 10 – RELATED PARTY TRANSACTIONS

As of both July 31, 2020 and January 31, 2020, the Company had $155,750 of related party accrued expenses related to accrued compensation for employees and consultants.

In February 2020, a shareholder and landlord of 4Less, agreed to renegotiate a loan (as described in Note 5) by providing $25,700 in rent concessions over a 4 month period which increased the loan and prepaid rent by that amount. As of both July 31, 2020, and January 31, 2020 the balance of prepaid rent totaled $0.

NOTE 11 – 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 9 – 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.

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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.


Maturity of Lease Liabilities	Operating Leases
July 31 2021	$	136,317
July 31, 2022		136,317
July 31, 2023		121,100
July 31, 2024		31,203
July 31, 2025		30,003
After July 31, 2025		40,005
Total lease payments		494,945
Less: Interest		(77,655	)
Present value of lease liabilities	$	417,290

The Company had total operating lease and rent expense of $34,079 and $26,701 for the three months ended July 31, 2020 and 2019 respectively. The Company had total operating lease and rent expense of $68,158 and $53,402 for the six months ended July 31, 2020 and 2019 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 12- EARNINGS (LOSS) PER SHARE

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


	For the Three Months Ended
	July 31,
	2020			2019
Numerator:
Net income (loss) available to common shareholders	$	394,962		$	246,579

Effect of common stock equivalents
Add: interest expense on convertible debt		132,142			87,924
Add: amortization of debt discount		47,898			170,684
(Less): gain on change of derivative liabilities		(506,979	)		(998,972	)
Net income (loss) adjusted for common stock equivalents		68,023			(493,605	)

Denominator:
Weighted average shares – basic		763,214			1,658

Net income (loss) per share – basic	$	0.52		$	148.72

Dilutive effect of common stock equivalents:
Convertible notes and accrued interest		48,036,434			147,537
Convertible Class C Preferred shares		2,380,076			11,786
Warrants		1			1

Denominator:
Weighted average shares – diluted		51,179,725			160.982

Net income (loss) per share – diluted	$	0.00		$	(3.07	)

- 22 -


	For the Six Months Ended
	July 31,
	2020			2019
Numerator:
Net income (loss) available to common shareholders	$	1,581,860		$	(1,566,498	)

Effect of common stock equivalents
Add: interest expense on convertible debt		235,682			241,450
Add: amortization of debt discount		626,811			473,050
Less : gain on settlement of convertible debt		(1,947,372	)		(67,622	)
Less: gain on change of derivative liabilities		(432,199	)		(88,350	)
Net income (loss) adjusted for common stock equivalents		64,782			(1,007,970	)

Denominator:
Weighted average shares – basic		660,668			970

Net income (loss) per share – basic	$	2.39		$	(1,614.95	)

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

Denominator:
Weighted average shares – diluted		51,077,179			970

Net income (loss) per share – diluted	$	0.00		$	(1,614.95	)

The anti-dilutive shares of common stock equivalents for the six months ended July 31, 2020 and July 31, 2019 were as follows:


	For the Six Months Ended
	July 31,
	2020		2019
Convertible notes and accrued interest		—		147,537
Convertible Class C Preferred shares		—		11,786
Warrants		—		1
Total		—		159,324

NOTE 13 – SUBSEQUENT EVENTS

On August 25, 2020 the Company entered into a debt settlement agreement where the Company paid $14,329 on August 31, 2020 in full settlement of the principal balance $40,239 and associated derivative liability of $36,495. A balance of approximately $7,000 of accrued interest remains.

On August 28, 2020 the Company entered into a Settlement Agreement with a lender whereby this lender acquired, through a series of note purchase agreements an aggregate of $1,859,982 in principal on convertible notes and $733,770 in accrued interest for a total of $2,593,752 in total debt (“Debt”) of the Company as well as associated derivative liabilities totaling $1,111,917 and now this lender has agreed to settle all of this Debt in exchange for the following:

- A non-convertible promissory note (the “Note”) for $1,200,000 maturing August 28, 2022 and bearing interest at 12% per annum payable monthly, save for the first six months interest which shall be payable at maturity. The Company must repay $445,200 on August 28, 2021 and $826,800 plus any accrued interest on August 28, 2022. This Note shall be secured by any and all assets of the Company which shall be recorded on a duly filed Form UCC 1 in the state of Nevada.

- 150 Class C preferred shares shall be exchanged on the principal.

- 950,000 warrants with an exercise price of $0.40 per share, a three year maturity and a fair market value of $351,500 has been exchanged for the accrued interest amount.

- 23 -

On August 28, 2020 the Company entered into a secured promissory note with a lender for $425,000 with cash proceeds of $375,000 and original issue discount of $50,000, interest payable monthly at 15% per annum with a maturity date occurring in the event Company receives “financing” equal to $850,000 plus accrued interest owed on this note. Financing means any amounts received through the issuance of equity , debt , sale of assets or any other means of raising capital. This note shall be secured by any and all assets of the Company which shall be recorded on a duly filed Form UCC 1 in the state of Nevada. This note and accrued shall be payable in full should any event of default occur.

On August 31, 2020, Timothy Armes, Chairman and CEO of The 4Less Group, Inc. purchased 45,000 shares of The 4Less Group, Inc. common stock at $0.42 per share for a total amount of $18,900. As a result of purchase price related party accrued expenses related to accrued compensation for employees as referred to on Note 10 was reduced by same amount.

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

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Like many small businesses Auto Parts 4Less (“4LESS” previously named The 4less Corp., the wholly owned subsidiary of The 4Less Group, Inc.) was born from humble beginnings; in 2013 Christopher Davenport, the founder of 4LESS, began selling auto parts on eBay and shipping those items out of his garage. But, 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 outsourced much of their operations to 3^rd party companies to list their auto parts in the different marketplaces such as Amazon, eBay, Walmart and Jet. However, using these 3^rd party companies was inefficient, cumbersome, slow and very expensive.

Since 2016 the company has invested heavily to become their own listing platform that allows their auto parts to be direct listed across marketplace and social media sites. We have completed multiple technical achievements including CRM system, warehouse integration API, warehouse inventory software to name a few.

Presently, 4LESS operates 3 branded websites: LiftKits4LESS.com, Bumpers4LESS.com and TruckBedCovers4LESS.com. In total, these sites represent products from over approximately 250 manufacturers.

In 2019, with technology upgrades in place, 4Less began successfully moving majority of sales from third party marketplaces direct to their proprietary web sites. By doing so the company saves 8%-10% in fees charged by the market place as well as further building the 4less brand as a leading marketplace for auto parts.

On November 19, 2019 The 4Less Group acquired the URL Autoparts4Less.com and changed the name of their wholly owned subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc. With the acquisition of the URL AutoParts4Less.com, 4Less is focusing all of their efforts and resources on building out a flagship automotive E-tailing site with the potential to list and sell literally millions of parts that will include automotive specialty equipment parts and accessories, targeted “niche” web sites and potentially a used auto parts exchange one day as well.

Our niche web sites are unique in the market place and currently we do not see any other competitors managing multiple web sites in the aftermarket auto parts. We directly compete for buyers to use our web sites over current e-commerce giants that we sell through such as Amazon and eBay. However, our web sites offer substantial value-added content including installation guides, install videos, high impact photos, order customization and live chat with a technical expert. We believe all these value-adds give our web sites significant advantages over large “all things to all people” online market places. While there are several other small ecommerce sellers in the marketplace, their sites presently do not offer the technical flexibility to sell across all marketplaces seamlessly. Presently we do not see them as a significant threat to market share. 4Less management believes that the 4Less proprietary web sites 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 expect all of these decisions to help The 4Less Corp achieve growth goals for 2021.

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 2021.

Results of Operations For the Six Months Ended July 31, 2020 compared to the six months ended July 31, 2019

The following table shows our results of operations for the six months ended July 31, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


						Change
	2020		2019			$			%
Total Revenues	$	4,927,280	$	4,327,925		$	599,355		14%
Gross Profit		1,497,384		1,177,845			319,539		27%
Total Operating Expenses		1,623,235		1,959,896			(336,661	)	(17%	)
Total Other Income (Expense)		1,707,711		(784,447	)		2,492,158		318%
Net Income (Loss)	$	1,581,860	$	(1,566,498	)	$	3,148,358		201%

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Revenue

The following table shows revenue split between proprietary and third party website revenue for the six months ended July 31, 2020 and 2019:


					Change
	2020		2019		$			%
Proprietary website revenue	$	2,403,120	$	1,658,063	$	745,057		45%
Third party website revenue		2,524,160		2,669,862		(145,702	)	(5%	)
Total Revenue	$	4,927,280	$	4,327,925	$	599,355		14%

We had total revenue of $4,927,280 for the six months ended July 31, 2020, compared to $4,327,925 for the six months ended July 31, 2019. Sales increased by $599,355 due to strong second quarter sales where consumer purchases shifted towards online consumption as a result of the economic shutdown and social distancing measures due to the recent Cobid-19 pandemic. The Company’s focus continues in growing its proprietary website revenues and the Company was successful in that, increasing its proprietary website revenue by 45%. The company believes this strategy will lead to higher revenues and lower overall costs in the future.

Gross Profit

We had gross profit of $1,497,384 for the six months ended July 31, 2020, compared to gross profit of $1,177,845 for the six months ended July 31, 2019. Gross profit increased by $319,539 as a result of the increased revenues explained above and partly offset by an increase in cost of revenue due to a change in product mix.

Operating Expenses

The following table shows our operating expenses for the six months ended July 31, 2020 and 2019:


					Change
Operating Expenses	2020		2019		$			%
Depreciation	$	12,598	$	18,989	$	(6,391	)	(34%	)
Postage, Shipping and Freight		264,893		231,985		32,908		14%
Marketing and Advertising		23,850		121,379		(97,529	)	(80%	)
E Commerce Services, Commissions and Fees		419,267		388,941		30,326		8%
Operating lease cost		68,158		53,402		14,756		28%
Personnel Costs		499,604		650,669		(151,065	)	(23%	)
General and Administrative		334,865		494,531		(159,666	)	(32%	)
Total Operating Expenses	$	1,623,235	$	1,959,896	$	(336,661	)	(17%	)

• Depreciation decreased by $6,392 due to asset disposals in fiscal 2020, thus a lower asset value is being depreciated.

• Postage shipping and freight increased slightly by $32,908 due to higher sales.

• Marketing and advertising decreased by $97,529 due to greater promotional efforts in 2019 to drive sales to our proprietary websites. The Company also made efforts to curtail spending this quarter on non-essential expenditures as a result of the economic uncertainty presented by the global Covid-19 pandemic.

• E Commerce Services, Commissions and Fees increased by $30,326 due to higher sales.

• Operating Lease Cost increased by $14,756 due to two new operating leases.

• Personnel Costs decreased by $151,065 due to a temporary layoffs commencing in March 2020 as a result of the Covid-19 pandemic.

• General and Administrative decreased by $159,666 mainly due lower professional fees and a tightening on expenditures as a result of the Covid-19 pandemic.

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Other Income (Expense)

The following table shows our other income and expenses for the six months ended July 31, 2020 and 2019:


							Change
Other Income (Expense)	2020			2019			$			%
Gain (Loss) on Sale of Property and Equipment	$	464		$	(6,947	)	$	7,411		107%
Change in Fair Value on Derivative Liability		432,199			88,350			343,849		389%
Gain on Settlement of Debt		2,172,646			67,622			2,105,024		3,113%
Amortization of Debt Discount		(626,811	)		(473,050	)		(153,761	)	33%
Interest Expense		(270,787	)		(460,422	)		189,635		(41%	)
Total Other Income (Expense)	$	1,707,711		$	(784,447	)	$	2,492,158		318%

As a result of the debt exchange for Class C preferred shares described in Note 7 of the financial statements, this resulted in the gain on settlement of debt and reductions in amortization expense and interest expense due to the lower debt. The lower gain on derivatives is a function of the lower debt as well as the market factors in the valuation of the derivative liability described in Note 8.

We had net income of $1,581,860 for the six months ended July 31, 2020, compared to a net loss of $784,447 for the six months ended July 31, 2019. The increase in net income was mainly due to the sales increase and the gain on settlement of debt as explained in the discussion above.

Results of Operations For the Three Months Ended July 31, 2020 compared to the three months ended July 31, 2019

The following table shows our results of operations for the three months ended July 31, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


					Change
	2020		2019		$			%
Total Revenues	$	2,927,209	$	2,059,700	$	867,509		42%
Gross Profit		925,617		502,083		423,534		84%
Total Operating Expenses		842,507		961,880		(119,373	)	(12%	)
Total Other Income (Expense)		311,852		706,376		(394,524	)	(56%	)
Net Income (Loss)	$	394,962	$	246,579	$	148,383		60%

Revenue

The following table shows revenue split between proprietary and third party website revenue for the three months ended July 31, 2020 and 2019:


					Change
	2020		2019		$		%
Proprietary website revenue	$	1,294,014	$	864,414	$	429,600	50%
Third party website revenue		1,633,195		1,195,286		437,909	37%
Total Revenue	$	2,927,209	$	2,059,700	$	867,509	42%

We had total revenue of $2,927,209 for the three months ended July 31, 2020, compared to $2,059,700 for the three months ended July 31, 2019. Sales increased by $867,509 due to strong sales where consumer purchases shifted towards online consumption as a result of the economic shutdown and social distancing measures due to the recent Cobid-19 pandemic. This quarter’s increase represents a 42% growth over the prior tear’s quarter. The Company’s focus continues in growing its proprietary website revenues and the Company was successful in that, increasing its proprietary website revenue by 50%. The company believes this strategy will lead to higher revenues and lower overall costs in the future.

Gross Profit

We had gross profit of $925,617 for the three months ended July 31, 2020, compared to gross profit of $502,083 for the three months ended July 31, 2019. Gross profit increased by $423,534 as a result of the increased revenues explained above and partly offset by an increase in cost of revenue due to a change in product mix.

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The following table shows our operating expenses for the three months ended July 31, 2020 and 2019:


					Change
Operating Expenses	2020		2019		$			%
Depreciation	$	5,951	$	8,749	$	(2,798	)	(32%	)
Postage, Shipping and Freight		151,755		119,753		32,002		27%
Marketing and Advertising		5,782		74,766		(68,984	)	(92%	)
E Commerce Services, Commissions and Fees		252,848		189,422		63,426		33%
Operating lease cost		34,079		26,701		7,378		28%
Personnel Costs		232,869		302,116		(69,247	)	(23%	)
General and Administrative		159,223		240,373		(81,150	)	(34%	)
Total Operating Expenses	$	842,507	$	961,880	$	(119,373	)	(12%	)

• Depreciation decreased by $2,798 due to asset disposals in fiscal 2020, thus a lower asset value is being depreciated.

• Postage shipping and freight increased slightly by $32,002 due to higher sales this quarter.

• Marketing and advertising decreased by $69,984 due to greater promotional efforts in 2019 to drive sales to our proprietary websites. The Company also made efforts to curtail spending this quarter on non-essential expenditures as a result of the economic uncertainty presented by the global Covid-19 pandemic.

• E Commerce Services, Commissions and Fees increased by $63,426 duee to higher sales.

• Operating Lease Cost increased by $7,378 due to two new operating leases.

• Personnel Costs decreased by $69,247 due to a temporary layoffs commencing in March 2020 as a result of the Covid-19 pandemic.

• General and Administrative decreased by $81,150 mainly due lower professional fees and a tightening on expenditures as a result of the Covid-19 pandemic.

Other Income (Expense)

The following table shows our other income and expenses for the three months ended July 31, 2020 and 2019:


							Change
Other Income (Expense)	2020			2019			$			%
Gain (Loss) on Sale of Property and Equipment	$	464		$	(6,947	)	$	7,411		107%
Change in Fair Value on Derivative Liability		506,979			998,792			(491,813	)	(49%	)
Amortization of Debt Discount		(47,898	)		(170,684	)		122,786		(72%	)
Interest Expense		(147,693	)		(114,785	)		(32,908	)	29%
Total Other Income (Expense)	$	311,852		$	706,376		$	(394,524	)	(56%	)

The $394,524 decrease in total other income was due to a lower change in fair value on the derivative liability during the period. As a result of the debt exchange for Class C preferred shares described in Note 7 of the financial statements this resulted in reductions in amortization expense and interest expense due to the lower debt. The lower gain on derivatives is a function of the lower debt as well as the market factors in the valuation of the derivative liability described in Note 8.

We had net income of $394,962 for the three months ended July 31, 2020, compared to net income of $246,579 for the three months ended July 31, 2019. The increase in net income was mainly due to the sales increase and the change in fair value on the derivative liability as explained in the discussion above.

- 28 -

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 six months ended July 31, 2020, we have generated revenue and are working to achieve positive cash flows from operations.

As of July 31, 2020, we had a cash balance of $121,290, inventory of $290,574 and $6,079,963 in current liabilities. At the current cash consumption rate, we may 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:


	July 31, 2020			January 31, 2020
Current assets	$	426,610		$	543,185
Current liabilities		6,079,963			8,013,651
Working capital (deficits)	$	(5,653,353	)	$	(7,470,466	)

Net cash used in operations for the six months ended July 31, 2020 was $160,227 as compared to net cash used in operations of $532,109 for the six months ended July 31, 2019. Net cash provided by investing activities for the six months ended July 31, 2020 was $9,750 as compared to $55,650 for the same period in 2019. Net cash provided by financing activities for the six months ended July 31, 2020 was $109,643 as compared to $28,878 for the six months ended July 31, 2019.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.

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

ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Moving forward, we hope that our Chief Executive Officer and Principal Financial Officer will be able to devote the additional time and effort required so that our disclosure controls and procedures can become effective. Notwithstanding the assessment that our internal controls and procedures were not effective, we believe that our financial statements contained in this Quarterly Report for the quarter ended July 31, 2020 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.

- 29 -

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

Recent Sales of Unregistered Securities

None.

Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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

- 30 -

SIGNATURES

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

The 4Less Group, Inc.

By: /s/ Timothy Armes

Timothy Armes

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

Date: September 14, 2020

EXHIBIT INDEX


Exhibit Number		Description of Exhibit

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

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

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

__________

* Filed herewith.

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

- 31 -

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