FORWARD-LOOKING STATEMENTS

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

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





Company

The 4LESS Group Inc. ("FLES", the "Company", "we" or "us"), the Company described herein, was incorporated under the laws of the State of Nevada on December 5, 2007, with offices located at 106 W Mayflower, Las Vegas, Nevada 89030. Our phone number is (702) 267-7100.

Nature of Business - The 4LESS Group, Inc., formerly known as MedCareers Group, Inc. (the "Company", "MCGI"), was incorporated under the laws of the State of Nevada on December 5, 2007.

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

On November 19, 2019 The 4Less Group acquired the URL Autoparts4Less.com and changed the name of their wholly owned subsidiary from the 4Less Corp. to Auto Parts 4Less, Inc.





Our Business

Along with our website currently under development, autoparts4less.com (as described below), that we are developing into our flagship website, we operate 3 niche websites through which we sell auto parts that are direct listed across marketplace and social media sites, including marketing products through online marketplaces and social media platforms, such as Facebook, Instagram, YouTube and Google:





  • LiftKits4LESS.com*
  • Bumpers4LESS.com*
  • TruckBedCovers4LESS.com*




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

Our LiftKit4Less.com web site, represents:





  • Approximately 179,000 Parts
  • From 46 Manufacturers




Can Search Products Listed



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




Select Parts for Over



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

AutoParts4Less.com Launch Expected Timeline

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





  • Development Team
    March 2020 India Development Team is hired.

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




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

  • Data Input
    Manufacturers start loading their parts info 1st quarter 2021

Auto Parts 4less Marketplace Functionality for Manufacturers

Our Auto Parts 4less website will have the following elements:





  • Manufacturers create an account allowing easy onboarding of products.
  • Offer premium placement in search results.
  • Ratings and reviews can be responded to.
  • Ability to answer basic questions from purchasers.
  • How-to video galleries.
  • Keyword advertising.
  • Promote discounts on products.
  • 4Less can push product lines to other marketplaces such as eBay and Amazon.




Distribution

Our distribution is accomplished as follows:





  • Direct drop ship from manufacturers to consumers - Approximately 80%
  • Direct drop ship from Warehouse Inventory Companies to consumers -
    Approximately 15%
  • Consumer Purchases directly through our own warehouses - Approximately 5%




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Sales

Our sales are derived from the following:

• Proprietary websites. 57% of our sales are currently generated through our

own websites. We intend to build and launch additional niche websites

• Third Party Websites (such as eBay and Walmart)- We sell our products on


   third party websites and pay fees to these websites in connection with each
   sale.




Business Strategies



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

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





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



                                                                       Change
                                  2021            2020              $             %
Total Revenues                   3,728,784       2,000,071        1,728,713         86 %
Gross Profit                       962,206         571,767          390,439         68 %

Total Operating Expenses 2,204,564 780,728 1,423,836 182 % Total Other Income (Expense) 674,801 1,395,859 (721,058 ) (52 %) Net Income (Loss)

                 (567,557 )     1,186,898       (1,754,455 )     (148 %)




Revenue

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





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

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

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





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Gross Profit

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





Operating Expenses

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





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

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





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

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

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

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

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

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





Other Income (Expense)

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





                                                                       Change
Other Income (Expense)             2021           2020              $             %
Gain (Loss) on Derivatives           4,187         (74,780 )         78,967       (106 %)

Gain on Settlement of Debt 914,049 2,172,646 (1,258,597 ) (58 %) Amortization of Debt Discount (128,528 ) (578,913 ) 450,385 (78 %) Interest Expense

                  (114,907 )      (123,094 )          8,187         (7 %)

Total Other Income (Expense) 674,801 1,395,859 (721,058 ) (52 %)






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

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

Liquidity and Capital Resources

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

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

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





Capital Resources

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




                              April 30, 2021     January 31, 2021
Current assets               $      1,761,100   $          715,083
Current liabilities                 4,461,893            5,059,138

Working capital (deficits) $ (2,700,783 ) $ (4,344,055 )

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

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