SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this report on Form 10-K 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-K 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-K 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-K 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-K 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.
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Item 1. Business
Corporate History
Outdoor Specialty Products, Inc. (the “Company,” “we,” or “us”) was originally incorporated in the state of Utah on January 31, 2014, and changed its domicile to the state of Nevada on February 24, 2021. The Company is and has since its inception 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 license the rights to our “SLINKOR” product pursuant to a license agreement entered into with the inventor in May 2021. We intend to commence manufacturing, marketing, and selling our “SLINKOR” product following completion of our redesign of the product to change the sinking weight to a material other than lead and utilize molds to permit increased production. We have no subsidiaries.
The Reel Guard
The Reel Guard is designed to protect fishing reels from scratching, scuffing, dents, and other damage due to dropping, resting on gravel while servicing the line, being transported with other fishing and outdoor equipment, and general wear and tear. To date, the primary application for the Reel Guard has been fly fishing reels, but we believe the Reel Guard may also be suitable for use with some deep-sea fishing reels. The Reel Guard consists of a thin, rubberized material that is attached to the outer edges of a fishing reel using special adhesive strips that hold the material in place but provide for easy removal with no damage to the reel. The Reel Guard is designed for reels with up to a 4.25-inch diameter that have square to slightly rounded edges, and the custom installation procedure makes the Reel Guard suitable for a variety of different reels. The Reel Guard was invented by Kirk Blosch, the Company’s founder and president, in 2014 to fill a need that he believed was not being met by existing products. We filed for and obtained a provisional patent for the Reel Guard in 2014 under the name “Reel Bumper Guard” and U.S. Patent No. 9,872,485 for the device was issued on January 23, 2018. During 2021, we paid the first (fourth year) maintenance fee for the Reel Guard patent in the amount of $985 to prevent the patent from lapsing. The next maintenance fee will be due on or before July 23, 2025.
The SLINKOR
We entered into a License and Royalty Agreement (the “License Agreement”), dated as of May 4, 2021, with Stephen Smith (the “Licensor”), for another fishing product referred to as the “SLINKOR.” The SLINKOR is a slow sinking fishing sinker comprised of a smooth, egg-shaped piece of pre-molded foam with lead weights compressed into each end using a guide wire that aligns the weights and allows a fishing line to be threaded through the product. The buoyancy of the foam coupled with the calibrated weight of the lead and the movement of the water causes the SLINKOR to sink slowly to the bottom of a lake or river allowing the fisherman to control the desired depth for the bait. The SLINKOR is designed for use with flies, spinners, flatfish, and other types of bait and the weight of the SLINKOR permits the fisherman to make longer casts. The smooth egg shape of the SLINKOR is designed to let it slide along the bottom of the lake or river while resting on top of moss or bouncing over rocks and greatly reducing snags. The device permits a fisherman to run his line through the SLINKOR, attach a swivel, and run 18 to 30 inches of leader from the swivel to the bait based on the current water conditions, the desired depth, and the presence or absence of moss, rocks, and other obstacles. We anticipate that the SLINKOR will be available in two sizes; the large SLINKOR will be 2 inches long and 1 ¼ inches wide and the small SLINKOR will be 1 ¼ inches long by 1 ¼ inches wide.
The License Agreement generally grants us the non-exclusive, world-wide right to use and apply the SLINKOR technology and any intellectual property rights thereto and to make, have made, use, lease, sell, market, or otherwise dispose of the SLINKOR in all markets throughout the world, and the exclusive right to market, sell or otherwise dispose of the SLINKOR in e-commerce markets throughout the world. The License Agreement reserves to the Licensor the non-exclusive right to continue to manufacture and sell the SLINKOR in stores, at trade shows, and in other brick and mortar physical locations and to purchase completed SLINKOR products from us (to the extent available) at our cost plus 10%. In consideration for the rights granted under the License Agreement, we paid the Licensor a one-time license fee in the amount of $500 and agreed to pay the Licensor the following royalties based on our net revenue from sales of the SLINKOR: (i) 20% of net revenue from product sales up to $1 Million, (ii) 15% of net revenue from product sales between $1 Million and $3 Million, and (iii) 10% of net revenue from product sales in excess of $3 Million. We are required to make minimum royalty payments of $1,000 per year to maintain the exclusive nature of the license and prevent it from reverting to a non-exclusive license. During the 2022 year, we paid royalties in the minimum amount of $1,000. This summary description of the License Agreement is qualified in its entirety by reference to the License Agreement, a copy of which is filed as an exhibit to this report.
We have postponed the production of the SLINKOR product while we attempt to redesign it to replace the lead weight incorporated in the pre-molded foam ball with a weight made from a non-lead material and to implement a more automated manufacturing process. Over the past several years, there has been an increasing trend by various states to ban the use of lead weights, split shot, and lead-based lures due to potential lead poisoning and damage to waterfowl, other aquatic animals, soil, and water. We believe that lead fishing products are now banned in New Hampshire, New York, Maine, Massachusetts, Vermont, and Washington and that the trend will continue. Our decision to try and move away from the lead weight is motivated by our desire to be a good public citizen by not manufacturing a product that may be harmful to the environment and our belief that lead shot will be outlawed in more locations over the coming years and that it will continue to become more expensive and more difficult to source. We are investigating the replacement of the lead core with a type of steel or resin that would perform in a substantially equivalent manner to the lead shot. We are also investigating the use of two molded capsules for the product, with one capsule housing the weight material and the second housing the first capsule. The use of molds would allow us to accelerate the manufacturing process, which we anticipate would increase production capacity and reduce costs as compared to the manual manufacturing process currently used by the Licensor. No assurances can be given that we will locate a suitable alternative to the lead weight or that any substitute we select will perform as anticipated. We do not plan to commence the manufacturing of the SLINKOR until the redesign has been completed and additional debt or equity funding has been received.
Manufacturing
We own our custom injection mold for the Reel Guard, and we contract with a third party to manufacture the Reel Guard in minimum lots of 1,000 on an as needed basis. The adhesive strips used to attach the Reel Guard to the reel are manufactured by a national adhesives manufacturing company and custom ordered in pre-cut lengths from a local distributor in minimum lots of 1,000. We contract with another third party to print the Reel Guard product information card and package the Reel Guard product in sale-ready packages. Our Reel Guard inventory consists of both the raw material adhesive strips and the finished, packaged product units. For the years ended September 30, 2022 and 2021, respectively, we had on hand $2,042 and $2,088 in finished goods and $2,596 and $2,596 in raw materials.
As discussed above, the production of the SLINKOR has been postponed pending a redesign of the product, which may change the raw materials utilized and provide for the creation of molds to accelerate the production process. We plan to use our existing printing and packaging contractor to print the SLINKOR product information and package the SLINKOR in sale-ready packages.
We maintain an inventory of products which we believe is sufficient to meet demand. If we should underestimate sales and fail to timely manufacture additional quantities of our products, we could face delays in providing our products to our customers which could have a negative effect on our reputation and result in a decline in our product sales. If we should overestimate sales, we will have invested our capital in products that remain in inventory, which will have a negative effect on our financial condition and results of operations. No assurances can be given that we will be able to accurately predict sales and maintain an optimal level of inventory in our system.
Although we have purchased substantially all inventories from one supplier and have been dependent on this supplier for all inventory purchases since we commenced operations, we believe the raw materials for both the Reel Guard and the SLINKOR are available for purchase from several different sources in the open market. We also believe there are several other manufacturing, printing, and packaging services capable of performing the services provided by our current contractors at competitive prices. Our ability to timely obtain raw materials and finished goods may be affected by events beyond our control, such as the inability of suppliers to timely deliver materials due to work stoppages or slowdowns, or significant weather and health conditions (such as COVID-19). Any adverse change in our supply chain and manufacturing, such as our relationship with our third-party contractors, the financial condition of such contractors, and their ability to provide supplies and services to us on a timely basis could have a material adverse effect on our business, results of operations, and financial condition.
Marketing / Shipping
We currently market and sell the Reel Guard through our website at “outdoorspecialtyproducts.com,” where we also provide access to marketing materials, instructional videos, and installation instructions. We also list the Reel Guard for sale on eBay. To date we have sold the Reel Guard to residents of approximately 25 states and have made one sale outside the U.S. to a resident of Hungary.
When the redesign of the SLINKOR has been completed, we intend to market it on our website and to expand our website to include marketing materials and SLINKOR instructional videos created by the Licensor.
We believe our business is affected by seasonality, which historically has resulted in higher sales volume during the spring and summer months.
We currently only accept PayPal as the method of payment for our products that are sold on our website and eBay’s payment processing for our products that are sold on eBay. Our products are shipped via U.S. Mail promptly following confirmation from PayPal that payment for an order has been received. Shipping is included in the product price and a customer pays no additional shipping charges.
Other Products
We have taken initial steps toward the development of a what we believe to be a unique fishing rod product that involves the ability to attach different upper fly rod portions of varying lengths and weights to a single rod butt handle that results in a light weight, multi-purpose fly rod. We have conducted preliminary research regarding the patentability of the proposed product and believe we may be able to obtain patent protection for the product, although no assurances can be given that the product will be developed or that patent protection will be obtained. We have halted our efforts regarding the development of this new product until such time as we have sufficient capital on hand to proceed with its development.
We were formed with the belief that there is an underserved marketplace in the outdoor sporting goods space which can be exploited from multiple fronts. In addition to the Reel Guard and the SLINKOR, we intend to investigate opportunities to develop additional products and to market third party products in the outdoor sporting goods space on our website.
Intellectual Property
We hold a U.S. patent on our Reel Guard. We do not hold patents on any other products, and we do not currently hold any trademarks. No assurance can be given that our patent will provide sufficient protection against potential competitors and we may be unable to successfully assert our intellectual property rights, or these rights may be invalidated, circumvented, or challenged. Any such inability or a successful intellectual property challenge or infringement proceeding against us, could have a material adverse effect on our business.
Facilities
Our operations are currently conducted from at the residence of our president. Our facilities are furnished to us at no cost and consist of the shared use of approximately 500 square feet of office space and assembly/storage space. In connection with the commencement of manufacturing of the SLINKOR, we may investigate the desirability of leasing a small assembly, storage, and office space from a third party.
Competition
The outdoor specialty products industry is intensely competitive with respect to price, quality, features, and durability, and it is often difficult to entice customers to try a new product. Many of our competitors are well-established companies with name brand recognition and almost all our competitors have substantially greater financial and other resources than do we. Such competitors include many national and regional companies and most of our competitors have been in existence for a substantially longer period than have we and are better established. As such, there can be no assurance that we will be able to compete effectively in our chosen market. In addition, a change in the pricing, marketing, or promotional strategies or product mix of one or more of these competitors could have a material adverse impact on our sales and earnings.
Government Regulation
Our operations are subject to numerous federal, state, and local government regulations. The failure to comply with such requirements or increase in the cost of compliance could adversely affect our operations. We are also subject to federal and state environmental regulations, but these have not had a material effect on our operations to date. Our operations are also subject to federal and state laws governing such matters as wages, working conditions, citizenship requirements, and overtime.