ODRS Outdoor Specialty Products Inc (PK)

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

You should read the following discussion in conjunction with our financial statements, which are included elsewhere in this report.

Overview

We are and have since our inception in 2014 been engaged in the business of developing, selling, and marketing products in niche markets within the specialty outdoor products marketplace. We introduced our proprietary “Reel Guard” product in 2014 and continue to offer it for sale on our website and on eBay. We intend to commence manufacturing, marketing, and selling our new “SLINKOR” product in the near future, pursuant to a license agreement entered into with the inventor in May 2021.

The COVID-19 pandemic has had, and continues to have, a significant impact around the world. The COVID-19 pandemic has resulted in restrictions on travel and business operations, temporary closures of businesses, quarantine and shelter-in-place orders, and greater uncertainty in global financial markets. As a result of COVID-19 mobility restrictions globally, there have been changes in consumer behavior. We expect these changes in behavior to continue to evolve as the pandemic ebbs and flows. The full impact of the COVID-19 pandemic on the Company remains inherently uncertain at the time of this report.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  We did not generate sufficient revenue to generate net income, we have negative working capital, and we have a limited operating history. These factors, among others, may indicate that there is substantial doubt that we will be unable to continue as a going concern for a reasonable period of time. Our financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.  Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability.  We intend to increase our sales through the addition of our SLINKOR product and, if required, to seek additional funding through debt or equity offerings and additional stockholder loans to fund our business plan.  There is no assurance that the SLINKOR product will result in an increase in sales or that we will be successful in raising additional funds.

Results of Operations for the Three and Nine Months Ended June 30, 2022 and 2021

Revenues

From our inception in 2014 through the present, our revenues have resulted solely from sales of our proprietary Reel Guard product and our costs of sales also relate solely to that product. Our Reel Guard product is offered for sale on our website and on eBay and sales vary from quarter to quarter based on the number of customers that become aware of the product and decide to purchase it. Total revenues for the three months ended June 30, 2022, were $117, compared to $42 for the three months ended June 30, 2021, an increase of $75, or approximately 179%. Total revenues for the nine months ended June 30, 2022, were $264, compared to $193 for the nine months ended June 30, 2021, an increase of $71, or approximately 37%.

Cost of Sales

Cost of sales for the three months ended June 30, 2022 was $12, compared to $4 for the three months ended June 30, 2021, an increase of $8, or approximately 200%. Cost of sales for the nine months ended June 30, 2022 was $27, compared to $17 for the nine months ended June 30, 2021, an increase of $10, or approximately 59%. Cost of sales as a percentage of revenue for the nine months ended June 30, 2022 was approximately 10% compared to approximately 9% for the nine months ended June 30, 2021. Our cost of sales as a percentage of revenue did not differ significantly from 2021 to 2022 since we offered only one product for sale and there have been no material change in the sales price or manufacturing cost of our product.

General and Administrative Expenses

General and administrative expenses were $6,854 for the three months ended June 30, 2022, compared to $10,025 for the three months ended June 30, 2021, a decrease of $3,171 or approximately 32%. General and administrative expenses were $28,483 for the nine months ended June 30, 2022, compared to $27,270 for the nine months ended June 30, 2021, an increase of $1,213 or approximately 4%. General and administrative expenses consist primarily of legal, accounting, and Edgar filing expenses and have generally increased as a result of our becoming an SEC reporting company in 2021.

Depreciation and Amortization Expense

Depreciation and amortization expenses currently are not material to our business. Depreciation and amortization expense was $307 for the nine months ended June 30, 2022 as compared to $874 for the nine months ended June 30, 2021.

Research and Development Expenses

Research and development expenses are not currently material to our business. We did not incur research and development expenses in the nine months ended June 30, 2022 or 2021.

Liquidity and Capital Resources

As of June 30, 2022, we had total current assets of $6,844, including cash of $355, and current liabilities of $55,706, resulting in a working capital deficit of $48,862. Our current liabilities include an outstanding principal balance of $54,137, and $1,569 in accrued interest, under the short-term revolving loan agreements with our president and another principal stockholder that are due on or before December 31, 2022. As of June 30, 2022, we had an accumulated deficit of $148,686 and a total stockholders’ deficit of $44,169. We have financed our operations to date from sales of our Reel Guard product, proceeds from our 2014 private placement, and proceeds from the short-term revolving loan agreements.

For the nine months ended June 30, 2022, net cash used by operating activities was $29,700, as a result of a net loss of $29,406, which was (i) reduced by depreciation and amortization of $307, a decrease in inventory of $28, and an increase in accrued interest of $1,160, and (ii) increased by an increase in prepaid expense of $1,375 and a decrease in accounts payable of $414. By comparison, for the nine months ended June 30, 2021, net cash used by operating activities was $24,883, as a result of a net loss of $27,301, which was (i) reduced by depreciation and amortization of $874, a decrease in inventory of $17, an increase in accounts payable of $2,736, and an increase in accrued interest of $207, and (ii) increased by an increase in prepaid expense of $1,416.

For the nine months ended June 30, 2022 and 2021, we had no cash flows used in or provided by investing activities.

For the nine months ended June 30, 2022, we had net cash provided by financing activities of $23,887 consisting of proceeds from the revolving loan agreements. For the nine months ended June 30, 2021, we had net cash provided by financing activities of $12,750, also consisting of proceeds from the revolving loan agreements, reduced by $500 for the repurchase of common shares upon a shareholder’s exercise of dissenters’ rights.

Following our incorporation in 2014, we completed the private placement of 285,714 shares of our common stock to accredited investors in a private placement at a price of $0.35 per share for total proceeds of $100,011. The proceeds from the private placement together with our limited product sales were sufficient to fund our operations through our fiscal year ended September 30, 2020. On January 4, 2021, we entered into a revolving promissory note agreement with our president and principal stockholder that provided for total loans of up to $40,000 at an interest rate 3.5% per annum, which was repayable on or before December 31, 2021. During December 2021, we amended the revolving promissory note agreement to extend the maturity date to June 30, 2022, and during June 2022, we further amended the agreement to increase the maximum principal indebtedness to $55,200 and extend the maturity date to December 31, 2022. During December 2021, we entered into a revolving promissory note agreement with another principal stockholder which provided for loans of up to $7,000 at an interest rate of 3.5% per annum, which was repayable on or before June 30, 2022. During June 2022, we amended this agreement to increase the maximum principal indebtedness to $9,750 and extend the maturity date to December 31, 2022. We received proceeds under the revolving loan agreements of $23,887 during the nine months ended June 30, 2022, resulting in a principal balance of $54,137, with accrued interest of $1,569, at June 30, 2022.

We believe we will be able to extend the term of the revolving loan agreements with our president and another principal stockholder and that if we do so, we will have adequate funds to meet our obligations for the next twelve months from our current cash, the revolving note agreements, and cash flows from operations. Cash flow from operations has not historically been sufficient to sustain our operations without the additional sources of capital described above. Our future working capital requirements will depend on many factors, including the extension of the revolving loan agreements and the expansion of our product line to include the new SLINKOR product. If we are unable to extend the term of the revolving loan agreements or if our cash, cash equivalents, and cash flows from operating activities and the revolving note agreements are insufficient to fund our future activities, we will need to raise additional funds through private equity or debt financing or additional stockholder loans. We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies, or products. If additional funding is required, we may not be able to affect an equity or debt financing on terms acceptable to us or at all.

In addition, COVID-19 and related measures to contain its impact have caused material disruptions in both national and global financial markets and economies. The future impact of COVID-19 and these containment measures cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and no assurance can be given that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.

Cash Requirements

As of June 30, 2022 and September 30, 2021, we did not have any lease obligations or requirements or other agreements requiring a significant commitment of cash.

Off-Balance Sheet Arrangements

As of June 30, 2022 and September 30, 2021, we did not have any off-balance sheet financing arrangements.

Significant Accounting Policies

There have been no material changes to our significant accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.