Form 10-Q Outdoor Specialty Produc For: Dec 31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___________ to __________

Commission File No. 000-56301

OUTDOOR SPECIALTY PRODUCTS, INC.

(Exact name of registrant as specified in charter)

(801) 560-5184

Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any news or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each of the issuer’s classes of common stock as of January 31, 2023, is 5,284,318.

OUTSIDE SPECIALTY PRODUCTS, INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and information in this report on Form 10-Q may constitute forward-looking statements. The words believe, may, potentially, estimate, continue, anticipate, intend, could, would, project, plan, expect and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions, and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements. Moreover, we operate in a competitive and changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this Report on Form 10-Q and the documents that we have filed with the SEC as exhibits hereto with the understanding that our actual future results and circumstances may be materially different from what we expect.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Index to Financial Statements

OUTDOOR SPECIALTY PRODUCTS, INC.

Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

OUTDOOR SPECIALTY PRODUCTS, INC.

Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

OUTDOOR SPECIALTY PRODUCTS, INC.

Statements of Changes in Stockholders’ Deficit

For the three months ended December 31, 2022, and 2021

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

OUTDOOR SPECIALTY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

OUTDOOR SPECIALTY PRODUCTS, INC.

Notes to the Unaudited Condensed Financial Statements

Three Months Ended December 31, 2022

OUTDOOR SPECIALTY PRODUCTS, INC.

Notes to the Unaudited Condensed Financial Statements

Three Months Ended December 31, 2022

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. We have postponed the production of our SLINKOR product pending completion of a design change in the composition of the weighting component from lead to another material and the use of molded product components.

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. The extent to which the COVID-19 pandemic will impact our business and financial condition in the future will depend on a number of evolving factors that we cannot predict, including the duration and scope of the pandemic; any resurgence of the pandemic; the availability and distribution of effective treatments and vaccines; governmental, business and individual actions that may be taken in response to the pandemic; the impact of the pandemic on national and global economic activity and financial markets, including the possibility of a national or global recession; and the ability of consumers to pay for products. 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 able 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 seek additional funding through debt or equity offerings and additional stockholder loans.  We also intend to increase our sales through the addition of our SLINKOR product upon the completion of its redesign. There is no assurance that we will be successful in raising additional funds or that the SLINKOR product will result in an increase in sales.

Results of Operations for the Three Months Ended December 31, 2022 and 2021

Revenue

From our inception in 2014 through the present, our revenue has resulted solely from sales of our proprietary Reel Guard product and our cost 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 make a purchase. Total revenue for the three months ended December 31, 2022, was $130, compared to $121 for the three months ended December 31, 2021, an increase of $9, or approximately 7%.

Cost of Sales

Cost of sales for the three months ended December 31, 2022 and December 31, 2021 was $13. Cost of sales as a percentage of revenue for the three months ended December 31, 2022 was approximately 10% compared to approximately 11% for the three months ended December 31, 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 $10,053 for the three months ended December 31, 2022, compared to $8,695 for the three months ended December 31, 2021, an increase of $1,358 or approximately 16%. General and administrative expenses consist primarily of legal, accounting, and Edgar filing expenses.

Depreciation and Amortization Expense

Depreciation and amortization expenses currently are not material to our business. Depreciation and amortization expense was $102 for the three months ended December 31, 2022 as compared to $103 for the three months ended December 31, 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 three months ended December 31, 2022 or 2021.

Liquidity and Capital Resources

As of December 31, 2022, we had total current assets of $10,450, including cash of $1,228, and current liabilities of $77,418, resulting in a working capital deficit of $66,968. Our current liabilities include an outstanding principal balance of $74,715, and $2,703 in accrued interest, under the short-term revolving loan agreements with our president and another principal stockholder for which the due dates have been extended to December 31, 2023. As of December 31, 2022, we had an accumulated deficit of $166,996 and a total stockholders’ deficit of $62,479. 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, 2022, net cash used by operating activities was $13,959, as a result of a net loss of $10,550, which was (i) reduced by depreciation and amortization of $102, a decrease in inventory of $13, and an increase in accrued interest of $615, and (ii) increased by an increase in prepaid expense of $4,126 and an increase in accounts receivable of $13. By comparison, 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, which was (i) 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 (ii) increased by an increase in prepaid expense of $4,584.

For the three months ended December 31, 2022 and 2021, we had no cash flows used in or provided by investing activities.

For the three months ended December 31, 2022, we had net cash provided by financing activities of $13,946 consisting of proceeds from the revolving loan agreements. For the three months ended December 31, 2021, we had net cash provided by financing activities of $11,294, also consisting of proceeds from the revolving loan agreements.

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 November 2022, we further amended the agreement to increase the maximum principal indebtedness to $75,000 and extend the maturity date to December 31, 2023. 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 the agreement to increase the maximum principal indebtedness to $9,750 and extend the maturity date to December 31, 2022. During November 2022, we further amended the agreement to increase the maximum principal indebtedness to $13,240 and extend the maturity date to December 31, 2023. We received proceeds under the revolving loan agreements of $13,946 during the three months ended December 31, 2022, resulting in a principal balance of $74,715, with accrued interest of $2,703 at December 31, 2022.

We believe 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, the expansion of our product line to include the new SLINKOR product, and the costs of redesigning the 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 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 effect 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, these containment measures, and recent increases in the rate of inflation 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, 2022 and September 30, 2022, 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, 2022 and September 30, 2022, we did not have any off-balance sheet financing arrangements.

Significant Accounting Policies

There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable. The Company is a “smaller reporting company.”

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our President/Treasurer who serves as our principal executive and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”) as of December 31, 2022, the end of the period covered by this report. Based upon that evaluation, our President/Treasurer, concluded that our disclosure controls and procedures as of December 31, 2022 were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President/Treasurer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in internal controls over financial reporting.

There was no change in our internal control over financial reporting during the three months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material pending legal proceedings.

Item 1A. Risk Factors

Not Applicable. The Company is a “smaller reporting company.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6: Exhibits

The following are included as exhibits to this report:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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