Scott's Liquid Gold - Inc. [SLGD] Filings

10-Q 1 slgd-20220930.htm 10-Q 10-Q

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 September 30, 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 Number: 001-13458

SCOTT’S LIQUID GOLD-INC.

(Exact name of registrant as specified in its charter)


Colorado		84-0920811
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
8400 E. Crescent Parkway, Suite 450, Greenwood Village, CO		80111
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (303) 373-4860

Securities registered pursuant to Section 12(b) of the Exchange Act.


Title of each class	Trading Symbol	Name of exchange on which registered
None	None	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, 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.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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 new 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 ☒

As of, November 13, 2022 the registrant had 12,805,663 shares of its common stock, $0.10 par value per share, outstanding.

CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, in addition to historical information. All statements, other than statements of historical facts, included in this Report that address activities, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. You can typically identify forward-looking statements by the use of words, such as “may,” “could,” “should,” “assume,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” and other similar words. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements contained in this Report are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Forward-looking statements and our performance inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to:

•

the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees;

•

disruptions or inefficiencies in the supply chain, including any impact of the COVID-19 pandemic;

•

dependence on third-party vendors and on sales to major customers;

•

regulations, economic conditions, and tariffs in the People’s Republic of China (“PRC”), as well as the transition from our exclusive distributor in the PRC to market and sell our products there;

•

a continued shift in the retail market from food and drug stores to mass merchandisers, club stores, dollar stores, e-commerce retailers, and subscription services;

•

competition from large consumer products companies in the United States;

•

competitive factors, including any decrease in distribution of (i.e., retail stores carrying) our significant products;

•

new competitive products and/or technological changes;

•

the need for effective advertising of our products and limited resources available for such advertising;

•

unfavorable economic conditions;

•

changing consumer preferences and the continued acceptance of each of our significant products in the marketplace;

•

the degree of success of any new product or product line introduction by us;

•

the degree of success of the integration of product lines or businesses we may acquire;

•

the degree of success of our conversion to outsourced manufacturing and dependence on third-party manufacturers;

•

changes in the regulation of our products, including applicable environmental, U.S. and international Food and Drug Administration regulations and process-audit compliance;

•

the loss of any executive officer or other personnel;

•

future losses which could affect our liquidity;

•

the risk that we may not be able to remediate the existing material weakness related to the impairment assessment of goodwill and develop and maintain effective internal controls over financial reporting;

•

other matters discussed in this Report, including the risks described in the Risk Factors section of this Report and in our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequent Quarterly Reports on Form 10-Q.

We caution you that forward-looking statements are not guarantees of future performance and that actual results or performance may be materially different from those expressed or implied in the forward-looking statements. The forward-looking statements in this Report speak as of the filing date of this Report. Although we may from time to time voluntarily update our prior forward-looking statements, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Report.

TABLE OF CONTENTS


		Page
PART I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 4.	Controls and Procedures	22
PART II
Item 1A.	Risk Factors	23
Item 6.	Exhibits	23

PART I

ITEM 1. FINANCIAL STATEMENTS.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net sales	$	4,277		$	7,970		$	15,449		$	24,583
Cost of sales		2,358			5,100			8,337			14,624
Gross profit		1,919			2,870			7,112			9,959

Operating expenses:
Advertising		166			144			492			506
Selling		1,691			2,542			5,752			7,388
General and administrative		578			836			2,020			3,782
Intangible asset amortization		87			278			313			834
Impairment of goodwill and intangible assets		-			-			3,589			-
Total operating expenses		2,522			3,800			12,166			12,510
Loss from operations		(603	)		(930	)		(5,054	)		(2,551	)

Interest expense		(139	)		(109	)		(419	)		(219	)
Loss before income taxes and discontinued operations		(742	)		(1,039	)		(5,473	)		(2,770	)
Income tax expense		(2	)		(1,224	)		(55	)		(798	)
Loss from continuing operations		(744	)		(2,263	)		(5,528	)		(3,568	)
Loss from discontinued operations, net of taxes		-			(205	)		-			(246	)
Net loss	$	(744	)	$	(2,468	)	$	(5,528	)	$	(3,814	)

Basic and diluted net loss per common shares:
Loss from continuing operations	$	(0.06	)	$	(0.18	)	$	(0.43	)	$	(0.28	)
Loss from discontinued operations	$	-		$	(0.02	)	$	-		$	(0.02	)
Net loss	$	(0.06	)	$	(0.20	)	$	(0.43	)	$	(0.30	)

Weighted average shares outstanding:
Basic and diluted		12,749			12,642			12,747			12,628

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value amounts)


	September 30,			December 31,
	2022			2021
Assets
Current assets:
Cash	$	14		$	770
Restricted cash		125			500
Accounts receivable, net		1,791			3,516
Inventories		6,289			5,677
Income taxes receivable		247			320
Prepaid expenses		214			436
Total current assets		8,680			11,219

Property and equipment, net		3			7
Goodwill		838			1,710
Intangible assets, net		2,272			5,160
Operating lease right-of-use assets		2,553			2,735
Other assets		38			38
Total assets	$	14,384		$	20,869

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,750		$	2,647
Accrued expenses		397			747
Current portion of long-term debt		2,684			1,000
Operating lease liabilities, current portion		264			251
Total current liabilities		5,095			4,645

Long-term debt, net of current portion and debt issuance costs		555			1,876
Operating lease liabilities, net of current		2,581			2,780
Other liabilities		27			27
Total liabilities		8,258			9,328

Shareholders’ equity:
Preferred Stock, no par value, authorized 20,000 shares; no shares issued and outstanding		-			-
Common Stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,749 shares (2022) and 12,727 shares (2021)		1,275			1,273
Capital in excess of par		7,900			7,789
(Accumulated deficit) retained earnings		(3,049	)		2,479
Total shareholders’ equity		6,126			11,541
Total liabilities and shareholders’ equity	$	14,384		$	20,869

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands)


	Common Stock
	Shares		Amount		Capital in Excess of Par			(Accumulated Deficit) Retained Earnings			Total
Balance, December 31, 2021		12,727	$	1,273	$	7,789		$	2,479		$	11,541
Stock-based compensation		-		-		35			-			35
Net loss		-		-		-			(451	)		(451	)
Restricted stock unit vesting		22		2		26			-			28
Balance, March 31, 2022 (Unaudited)		12,749		1,275		7,850			2,028			11,153
Stock-based compensation		-		-		22			-			22
Net loss		-		-		-			(4,333	)		(4,333	)
Balance, June 30, 2022 (Unaudited)		12,749		1,275		7,872			(2,305	)		6,842
Stock-based compensation		-		-		28			-			28
Net loss		-		-		-			(744	)		(744	)
Balance, September 30, 2022 (Unaudited)		12,749	$	1,275	$	7,900		$	(3,049	)	$	6,126

Balance, December 31, 2020		12,618	$	1,262	$	7,633		$	13,570		$	22,465
Stock-based compensation		-		-		69			-			69
Net loss		-		-		-			(280	)		(280	)
Balance, March 31, 2021 (Unaudited)		12,618		1,262		7,702			13,290			22,254
Stock-based compensation		-		-		33			-			33
Net loss		-		-		-			(1,066	)		(1,066	)
Balance, June 30, 2021 (Unaudited)		12,618		1,262		7,735			12,224			21,221
Stock-based compensation		-		-		(3	)		-			(3	)
Stock options exercised		45		4		53			-			57
Restricted stock unit vesting		3		-		-			-			-
Net loss		-		-		-			(2,468	)		(2,468	)
Balance, September 30, 2021 (Unaudited)		12,666	$	1,266	$	7,785		$	9,756		$	18,807

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(5,528	)	$	(3,568	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		480			1,357
Stock-based compensation		113			99
Deferred income taxes		-			784
Impairment of goodwill and intangible assets		3,589			-
Change in operating assets and liabilities:
Accounts receivable		1,725			228
Inventories		(612	)		(2,651	)
Prepaid expenses and other assets		222			175
Income taxes receivable		73			192
Accounts payable, accrued expenses, and other liabilities		(1,251	)		1,990
Total adjustments to net loss		4,339			2,174
Net cash used in operating activities		(1,189	)		(1,394	)

Cash flows from investing activities:
Purchase of software		(142	)		(262	)
Net cash used in investing activities		(142	)		(262	)

Cash flows from financing activities:
Repayments on term loans		(2,000	)		(750	)
Proceeds from revolving credit facility		20,763			29,824
Repayments of revolving credit facility		(18,563	)		(27,222	)
Proceeds from exercise of stock options		-			57
Net cash provided by financing activities		200			1,909

Net (decrease) increase in cash and restricted cash		(1,131	)		253

Cash and restricted cash, beginning of period		1,270			5
Cash and restricted cash, end of period	$	139		$	258

Supplemental disclosures:
Cash paid during the period for interest	$	256		$	372

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except per share data)

Note 1. Organization and Summary of Significant Accounting Policies

(a) Company Background

Scott’s Liquid Gold-Inc., a Colorado corporation was incorporated on February 15, 1954. Scott’s Liquid Gold-Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” or “us”) develop, market and sell high quality products in two segments: household products and health and beauty care products.

(b) Principles of Consolidation

Our Condensed Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

On December 23, 2021, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell to all of our right, title and interest in and to certain assets of the Dryel® product line. We have reflected the operations of the Dryel® product line as discontinued operations for all periods presented, which were previously classified under our household products segment. See Note 3 for further information.

The unaudited Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, and Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at September 30, 2022 and results of operations and cash flows for all periods have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year and are unaudited.

(d) Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in our financial statements of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, the realization of deferred tax assets, reserves for slow moving and obsolete inventory, customer returns and allowances, intangible asset useful lives and amortization method, fair value of assets acquired in business combinations, operating lease right-of-use assets and operating lease liabilities, and stock-based compensation. Actual results could differ from our estimates.

(e) Cash and Restricted Cash

Cash and restricted cash consist of the following:


	September 30, 2022		December 31, 2021
Cash	$	14	$	770
Restricted Cash		125		500
	$	139	$	1,270

(f) Inventories Valuation and Reserves

Inventories consist of raw materials and finished goods and are stated at the lower of cost (first-in, first-out method) or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We estimate an inventory reserve, which is generally not material to our financial statements, for slow moving and obsolete products and raw materials based upon, among other things, an assessment of historical and anticipated sales of our products. In the event that actual results differ from our estimates, the results of future periods may be impacted.

Inventories were comprised of the following at:


	September 30, 2022		December 31, 2021
Finished goods		5,986	$	5,499
Raw materials		303		178
	$	6,289	$	5,677