8-K: Auto Parts 4Less Group Secures $39,111 Convertible Note from Cavalry Fund I, LP

Auto Parts 4Less Group, Inc. has entered into a convertible promissory note agreement with Cavalry Fund I, LP, securing $35,200.08 in cash for a principal amount of $39,111.00.

Summary

• Auto Parts 4Less Group, Inc. issued a promissory note to Cavalry Fund I, LP for $35,200.08 in cash, with a principal amount of $39,111.00 due on October 31, 2024.
• The note includes an original issue discount (OID) of $3,911.12.
• The note is convertible into common stock at a price of $0.01 per share, starting 180 days from the issue date, following an Event of Default, and ending on the date of payment of the Default Amount.
• The investor's beneficial ownership of the company's common stock cannot exceed 4.99% upon conversion, although this can be increased to 9.99% with notice.
• The note accrues interest at 12% per annum, payable on the maturity date, upon an uplist or next capital raise, or upon acceleration or prepayment.
• Default interest is set at the lesser of 18% per annum or the maximum amount permitted by law.
• The company is required to reserve at least five times the number of shares issuable upon full conversion of the note.

Sentiment

Score: 4

Explanation: The document indicates a need for capital, which is a negative sign. The terms of the note are not particularly favorable to the company, with a high interest rate and potential for significant dilution. The company is also subject to various events of default that could trigger immediate repayment of the note.

Positives

• The company has secured immediate funding of $35,200.08.
• The conversion price of $0.01 per share could be beneficial to the investor if the stock price increases.
• The note includes a mechanism for the investor to increase their ownership stake up to 9.99%.

Negatives

• The company is obligated to repay the principal amount of $39,111.00 plus interest by October 31, 2024.
• The note includes a high default interest rate of 18% per annum.
• The company is subject to various covenants and restrictions while the note is outstanding.
• The conversion of the note could dilute existing shareholders' equity.
• The company is required to maintain a large reserve of shares for potential conversion.

Risks

• The company may face challenges in repaying the note by the maturity date.
• Failure to comply with the covenants could trigger an Event of Default.
• The conversion of the note could significantly dilute existing shareholders.
• The company's stock price may be negatively impacted by the potential for increased share supply.
• The company is subject to various events of default that could trigger immediate repayment of the note.

Future Outlook

The company's future financial obligations include repaying the principal and interest on the note by October 31, 2024, or earlier if an uplist or capital raise occurs. The company may also need to issue shares upon conversion of the note.

Management Comments

• The document includes a signature from Christopher Davenport, Chief Executive Officer of Auto Parts 4Less Group, Inc.

Industry Context

This type of financing is common for small companies seeking capital, particularly those that may not have access to traditional bank loans. The convertible note structure allows the investor to potentially benefit from the company's growth through equity conversion.

Comparison to Industry Standards

• Convertible notes are a common financing tool for small-cap and micro-cap companies, similar to those used by companies like FuelCell Energy and Amyris in their early stages.
• The 12% interest rate is relatively high, reflecting the higher risk associated with investing in a small company, similar to rates seen in other high-risk debt instruments.
• The conversion price of $0.01 per share is typical for companies with low share prices, similar to the terms seen in other micro-cap financings.
• The 4.99% beneficial ownership limitation is a common clause to prevent hostile takeovers and is similar to those used by other companies in similar situations.

Stakeholder Impact

• Shareholders may experience dilution if the note is converted into equity.
• Creditors may be impacted by the company's increased debt obligations.
• Employees may be affected by the company's financial performance and ability to operate.

Next Steps

• The company needs to manage its cash flow to ensure repayment of the note by the maturity date.
• The company needs to monitor its stock price and trading volume to avoid triggering events of default.
• The company needs to comply with all covenants and restrictions outlined in the note agreement.
• The company needs to prepare and file a registration statement covering the resale of the conversion shares within 90 days.

Key Dates

Keywords

promissory note, convertible note, financing, capital raise, equity, conversion, default, interest rate, dilution, share reserve