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 to customers. 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.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the world. The full impact of the COVID-19 pandemic is inherently uncertain at the time of this report. The COVID-19 pandemic has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of businesses 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 progresses. The impacts seen to date may continue to create a wider range of outcomes as consumer behaviors and mobility restrictions continue to evolve.

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 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 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 Months Ended December 31, 2021 and 2020

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. Total revenues for the three months ended December 31, 2021, were $121, compared to $55 for the three months ended December 31, 2020, an increase of $66, or approximately 120%. We are not aware of any particular reason for the increase in sales.

Cost of Sales

Cost of sales for the three months ended December 31, 2021 was $13, compared to $5 for the three months ended December 31, 2020, an increase of $8, or approximately 160%. The increase in cost of sales in 2021 is primarily attributed to the increase in revenues discussed above. Cost of sales as a percentage of revenues for the three months ended December 31, 2021 was 11% compared to 9% for the three months ended December 31, 2020. Cost of sales as a percentage of sales did not differ dramatically since we offered only one product for sale and the sales price and manufacturing costs have not changed significantly.

General and Administrative Expenses

General and administrative expenses were $8,695 for the three months ended December 31, 2021, compared to $1,847 for the three months ended December 31, 2020, an increase of $6,848 or approximately 371%. The increase in these expenses is primarily attributable to an increase in our legal and accounting expenses associated with our status as an SEC reporting company in 2021 and the filing of our first annual report on Form 10-K.

Depreciation and Amortization Expense

Depreciation and amortization expenses currently are not material to our business. Depreciation and amortization expense was $103 for the three months ended December 31, 2021 as compared to $291 for the three months ended December 31, 2020.

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 three months ended December 31, 2021 or 2020.

Liquidity and Capital Resources

As of December 31, 2021, we had total current assets of $16,785, including cash of $7,073, and current liabilities of $45,349, resulting in a working capital deficit of $28,564. Our current liabilities include an outstanding balance of $41,544, and $726 in accrued interest, under the short-term revolving loan agreements with our president and another principal stockholder that are due on or before June 30, 2022. As of December 31, 2021, we had an accumulated deficit of $128,184 and a total stockholders’ deficit of $23,667. 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 three months ended December 31, 2021, net cash used by operating activities was $10,389, as a result of a net loss of $8,904, reduced by depreciation and amortization of $103, a decrease in inventory of $14, an increase in accounts payable of $2,665, and an increase in accrued interest of $317, and increased by an increase in prepaid expense of $4,584. By comparison, for the three months ended December 31, 2020 net cash used by operating activities was $12,667, as a result of a net loss of $1,797, reduced by depreciation and amortization of $291, and a decrease in inventory of $5, and increased by an increase in prepaid expense of $11,166.

For the three months ended December 31, 2021 and 2020, we had no cash flows used in or provided by investing activities.

For the three months ended December 31, 2021, we had net cash provided by financing activities of $11,294 consisting of proceeds from the revolving loan agreements. For the three months ended December 31, 2020, we had no cash flows from financing activities.

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 which 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. We received proceeds under the revolving loan agreement of $6,000 during the three months ended December 31, 2021, resulting in balances of $36,250 and $30,250, with accrued interest of $721 and $409, at December 31, 2021 and September 30, 2021, respectively. During December 2021, we also entered into a revolving promissory note agreement with another principal stockholder providing for loans of up to $7,000 at an interest rate of 3.5% per annum, which is repayable on or before June 30, 2022. During December 2021, we borrowed an aggregate principal amount of $5,294 under this second revolving loan agreement resulting in a balance of $5,294 with accrued interest of $5 at December 31, 2021.

We believe we have adequate funds to meet our obligations for the next twelve months from our current cash, the revolving note agreements, and projected 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 expansion of our product line to include the new SLINKOR product. To the extent our cash, cash equivalents, and cash flows from operating activities and the revolving note agreements are insufficient to fund our future activities, we may need to raise additional funds through private equity or debt financing. 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 December 31, 2021 and 2020, we did not have any lease obligations or requirements or other agreements requiring a significant commitment of cash.

Off-Balance Sheet Arrangements

As of December 31, 2021 and 2020, 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.