AUTO PARTS 4LESS GROUP, INC. Results of Operations For the Year Ended
The following table shows our results of operations for the years endedJanuary 31, 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$ 8,171,355 $ 8,186,214 $ (14,859 ) 0% Gross Profit 1,460,628 1,911,025 (450,397 ) (24% ) Total Operating Expenses 3,602,462 3,764,289 (161,827 ) (4% ) Total Other Income (Expense) 3,329,010 (2,026,582 ) 5,355,592 264% Net Income (Loss)$ 1,187,176 $ (3,879,846 ) $ 5,067,022 131% Revenue
The following table shows revenue split between proprietary and third party
website revenue for the years ended
Change
2021 2020 $ %
Proprietary website revenue $ 4,200,624 $ 3,246,351 $ 954,273 29%
Third party website revenue 3,970,731 4,939,863 (969,132 ) (20% )
Total Revenue $ 8,171,355 $ 8,186,214 $ (14,859 ) 0%
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-------------------------------------------------------------------------------- We had total revenue of$8,171,355 for the year endedJanuary 31, 2021 , compared to$8,186,214 for the year endedJanuary 31, 2020 . Sales decreased by$14,859 . The decrease was due to orders received and paid for at year end that were unfulfilled due to supply chain issues because of supplier back-orders as a result of the Covid-19 pandemic. The Company atJanuary 31, 2021 had$687,786 of deferred revenue which represents orders received beforeJanuary 31, 2021 but delivered after. This will be revenue that the Company recognizes in the first quarter endedApril 30, 2021 . Also, the Company had$188,385 in customer deposits which represents orders received beforeJanuary 31, 2021 but cancelled after. Again the cancellation were due to supplier back order issues. The impact of the supply chain issues represents approximately$876,000 in lost revenue to the Company this fiscal year. We do continue to grow our proprietary website revenues which increased by 29% offset by a reduction in third party website revenue by 20%. Gross Profit We had gross profit of$1,460,628 for the year endedJanuary 31, 2021 , compared to gross profit of$1,911,025 for the year endedJanuary 31, 2020 . Gross profit decreased by$450,397 because cost of revenue was higher 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. This was caused by the supply chain issues mentioned in the previous paragraph.
Operating Expenses
The following table shows our operating expenses for the years endedJanuary 31, 2021 and 2020. Operating expenses decreased to$3,602,462 for the year endedJanuary 31, 2021 from$3,764,289 for the year endedJanuary 31, 2020 : Change 2021 2020 $ % Operating expenses Depreciation$ 25,196 $ 34,832 $ (9,636 ) (28% ) Postage, Shipping and Freight 498,370 453,088 45,282 10% Marketing and Advertising 112,531 204,945 (92,414 ) (45% ) E Commerce Services, Commissions and Fees 887,274 763,182 124,092 16% Operating Lease Cost 121,917 117,841 4,076 3% Personnel Costs 1,128,652 1,274,894 (146,242 ) (11% ) General and Administrative 828,522 915,507 (86,985 ) (10% ) Total Operating Expenses$ 3,602,462 $ 3,764,289 $ (161,827 ) (4% )
• Depreciation decreased by
• Postage shipping and freight increased by$45,282 due to higher sales.
• Marketing and advertising decreased by
• E Commerce Services, Commissions and Fees increased by
• Operating Lease Cost increased slightly by
• Personnel Costs decreased by
• General and Administrative decreased by$86,985 mainly due cost reductions during the pandemic. Large reductions in travel and general office expenses were offset by increases in professional fees, investor relations and marketing. - 20 - --------------------------------------------------------------------------------
Other Income (Expense)
The following table shows our other income and expenses for the years endedJanuary 31, 2021 and 2020: Change 2021 2020 $ % Other Income (Expense) Gain (Loss) on Sale of Property and Equipment$ 464 $ 16,295 $ (15,831 ) (97% ) Gain (Loss) on Derivatives (828,614 ) (180,552 ) (648,062 ) 359% Gain on Settlement of Debt 5,060,704 67,623 4,993,081 7384% Amortization of Debt Discount (335,004 ) (800,159 ) 465,155 (58% ) Interest Expense (568,541 ) (1,129,789 ) 561,248 (50% ) Total Other Income (Expense)$ 3,329,010 $ (2,026,582 ) $
5,355,592 264%
The results of the year ended
There were debt settlements and exchanges which resulted in the increase in gain on settlement of debt and lower interest expense. Fair value of derivatives was largely affected by the increase in the market price of our common stock during the current period as well as the significant reduction in convertible debt. We had net income of$1,187,176 for the year endedJanuary 31, 2021 , compared to a net loss of$3,879,846 for the year endedJanuary 31, 2020 due mainly to the gain on debt settlement and other factors mentioned above.
Liquidity and Capital Resources
As of
Net cash (used in) operations for the year ended
Net cash provided from investing activities for the year ended
Cash provided by financing activities for the year endedJanuary 31, 2021 was$965,611 compared to$1,147,954 for the year endedJanuary 31, 2020 . In both years the cash provided from financing activities was from the net proceeds of notes payable and short term debt and in 2021 additionally the proceeds from the issuance of common shares and PPP loan.
Subsequent to year end, through the date of filing of this Form 10-K, then
company issued 993,750 common shares for proceeds of
We borrowed funds and/or sold stock for working capital. These transactions are
detailed in the section "Recent Sales of
Currently, we don't have sufficient cash reserves to meet its contractual obligations and its ongoing monthly expenses, which we anticipate totaling approximately$4,000,000 over the next 12 months. Historically, revenues have not been sufficient to cover operating costs that would permit us to continue as a going concern. These conditions raise substantial doubt about our ability to continue as a going concern. We have been able to continue operating to date largely from loans made by its shareholders, other debt financings and sale of common stock. We are currently looking at both short-term and more permanent financing opportunities, including debt or equity funding, bridge or short-term loans, and/or traditional bank funding, but we have not decided on any specific path moving forward. Until we have raised sufficient funding to pay our ongoing expenses associated with being a public company, and we have sufficient funds to support our planned operations, we can provide no assurances that it will be able to meet its short and long-term liquidity needs, until necessary financing is secured. We do not currently have any additional formal commitments or identified sources of additional capital from third parties or from our officers, director or significant shareholders. We can provide no assurance that additional financing will be available on favorable terms, if at all. If we are not able to raise the capital necessary to continue our business operations, we may be forced to abandon or curtail our business plan. - 21 - -------------------------------------------------------------------------------- In the future, we may be required to seek additional capital by selling additional debt or equity securities, selling assets, if any, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
Critical Accounting Policies
Revenue Recognition
The Company recognizes revenue under ASC 606, "Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue when control is transferred over the promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
Because the Company's sales agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.
Disaggregation of Revenue: Channel Revenue
The following table shows revenue split between proprietary and third party
website revenue for the years ended
Change
2021 2020 $ %
Proprietary website revenue $ 4,200,624 $ 3,246,351 $ 954,273 29%
Third party website revenue 3,970,731 4,939,863 (969,132 ) (20% )
Total Revenue $ 8,171,355 $ 8,186,214 $ (14,859 ) 0%
The Company's performance obligations are satisfied at the point in time when
products are received by the customer, which is when the customer has title and
obtained the significant risks and rewards of ownership. Therefore, the
Company's contracts have a single performance obligation (shipment of product).
The Company primarily receives fixed consideration for sales of product.
Shipping and handling amounts paid by customers are primarily for online orders
and are included in revenue. Sales tax and other similar taxes are excluded from
revenue.
Revenue is recorded net of provisions for discounts and promotion allowances,
which are typically agreed to upfront with the customer and do not represent
variable consideration. Discounts and promotional allowances vary the
consideration the Company is entitled to in exchange for the sale of products to
customers. The Company recognizes these discounts and promotional allowances in
the same period that the revenue is recognized for products sales to customers.
The amount of revenue recognized represents the amount that will not be subject
to a significant future reversal of revenue. The customer pays the Company by
credit card prior to delivery.
The Company offers a 30 day satisfaction guaranteed return policy however the
customer must pay for the return shipment. The return must be previously
authorized, cannot be either damaged or previously installed and must be in
saleable condition. In the Company's experience this amount is immaterial and
therefore no provision has been recorded on the Company's books. Any defective
merchandise falls under the manufacturer's limited warranty and is subject to
the manufacturer's inspection. The manufacturer has the option to repair or
replace the item.
All sales to customers are generally final. However, the Company accepts
returned product due to quality or issues relating to product description or
incorrect product orders and in such instances the Company would replace the
product or refund the customers funds The Company's customers generally pre-pay
for the products.
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Use of Estimates
In order to prepare financial statements in conformity with accounting principles generally accepted inthe 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.
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.
As of
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
Quoted Prices in Significant
Active Markets Other Significant
For Identical Observable Unobservable
Assets Inputs Inputs
January 31, 2021 (Level 1) (Level 2) (Level 3)
Liabilities:
Derivative
Liabilities -
embedded redemption
feature $ 213,741 $ - $ - $ 213,741
Totals $ 213,741 $ - $ - $ 213,741
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 January 31, 2021 , warrants to
purchase 0 common shares (583 shares before the reverse split of 2/25/2020
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.
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The fair value of the derivative liability is determined using a lattice model, is re-measured on the Company's reporting dates, and is affected by changes in inputs to that model including our stock price, historical stock price volatility, the expected term, and both high risk and the risk-free interest rate. The most sensitive inputs to the model are for expected time for the holder to convert or be repaid and the estimated historical volatility of the Company's common stock. However, because the historical volatility of the Company's common stock is so high, the sensitivity required to change the liability by 1% as ofJanuary 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.
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