HKHC 10-Q
Horizon Kinetics Holding Corp (HKHC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Exchange Act.
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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.
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).
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 |
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Emerging growth company |
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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 6, 2023, the registrant had
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:
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
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Item 1. |
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1 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 4. |
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Item 1A. |
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Item 6. |
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21 |
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PART I
ITEM 1. FINANCIAL STATEMENTS.
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net sales |
$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Advertising |
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Selling |
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General and administrative |
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Intangible asset amortization |
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Impairment of goodwill and intangible assets |
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- |
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- |
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- |
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Total operating expenses |
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Loss from operations |
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Interest expense |
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Interest income |
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- |
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- |
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Loss before income taxes and discontinued operations |
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Income tax expense |
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Loss from continuing operations |
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Income from discontinued operations, net of taxes |
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Net income (loss) |
$ |
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$ |
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$ |
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$ |
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Basic and diluted net income (loss) per common shares: |
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Loss from continuing operations |
$ |
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$ |
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$ |
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$ |
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Income from discontinued operations |
$ |
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$ |
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$ |
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$ |
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Net income (loss) per common share |
$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic and diluted |
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See accompanying notes to these Condensed Consolidated Financial Statements.
1
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except par value amounts)
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September 30, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash |
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- |
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Accounts receivable, net |
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Inventories |
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Income taxes receivable |
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- |
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Prepaid expenses |
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Assets of discontinued operations |
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- |
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Total current assets |
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Intangible assets, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued expenses |
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Current portion of long-term debt, net of debt issuance costs |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Operating lease liabilities, net of current |
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Other liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred Stock, |
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Common Stock; $ |
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Capital in excess of par |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
$ |
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$ |
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See accompanying notes to these Condensed Consolidated Financial Statements.
2
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
(in thousands)
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Common Stock |
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Shares |
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Amount |
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Capital in Excess of Par |
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(Accumulated Deficit) Retained Earnings |
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Total |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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Net income |
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- |
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- |
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- |
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Balance, March 31, 2023 (Unaudited) |
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Stock-based compensation |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, June 30, 2023 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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Net income |
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- |
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- |
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- |
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Balance, September 30, 2023 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Restricted stock unit vesting |
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- |
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Balance, March 31, 2022 (Unaudited) |
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Stock-based compensation |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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( |
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Balance, June 30, 2022 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, September 30, 2022 (Unaudited) |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to these Condensed Consolidated Financial Statements.
3
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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Nine Months Ended |
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September 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net income (loss) |
$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash used by operating activities: |
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Depreciation and amortization |
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Gain on disposal of discontinued operations |
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- |
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Stock-based compensation |
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Impairment of goodwill and intangible assets |
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- |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other assets |
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Income taxes receivable |
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Accounts payable, accrued expenses, and other liabilities |
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( |
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( |
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Total adjustments to net income (loss) |
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( |
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Net cash used in operating activities |
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( |
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Cash flows from investing activities: |
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Proceeds from sale of discontinued operations |
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- |
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Purchase of software |
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- |
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Net cash provided by (used in) investing activities |
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( |
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Cash flows from financing activities: |
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Proceeds from term loans |
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- |
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Repayments of term loans |
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( |
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Proceeds from revolving credit facility |
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Repayments of revolving credit facility |
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( |
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Net cash (used in) provided by financing activities |
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Net increase (decrease) in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
$ |
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$ |
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Supplemental disclosures: |
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Cash paid during the period for interest |
$ |
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$ |
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See accompanying notes to these Condensed Consolidated Financial Statements.
4
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. Our business is comprised of one segment, household 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 September 15, 2023, we entered into and consummated a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Neoteric Beauty Holdings, LLC, a Delaware limited liability company (the “Neoteric Buyer”), pursuant to which the Company agreed to sell
Effective June 30, 2023, we entered into, and in July 2023 we closed, a purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Alpha® Skin Care brand (the "Alpha Purchase Agreement"). We have reflected the operations of the Alpha® Skin Care brand as discontinued operations for all periods presented. The Alpha product line was previously classified under our health and beauty care products segment. See Note 3 for further information.
Effective July 2023 we entered into, and in July 2023 closed, a purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the BIZ® brand. We have reflected the operations of the BIZ® brand as discontinued operations for all periods presented. The BIZ® product line was previously classified under our household products segment. See Note 3 for further information.
On January 23, 2023, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Scott's Liquid Gold® brand, including the Wood Care and Floor Restore products. We have reflected the operations of the Scott's Liquid Gold® brand as discontinued operations for all periods presented, which was previously classified under our household products segment. See Note 3 for further information.
On December 15, 2022, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Prell® product line. We have reflected the operations of the Prell® product line as discontinued operations for all periods presented, which was previously classified under our health and beauty care products segment. See Note 3 for further information.
(c) Basis of Presentation
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, 2023 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, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. Certain prior year amounts have been reclassified to conform to the current period presentation.
5
(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, operating lease right-of-use assets and operating lease liabilities, and stock-based compensation. Actual results could differ from our estimates.
(e) Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less at the date of acquisition to be cash equivalents.
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September 30, 2023 |
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December 31, 2022 |
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Cash |
$ |
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$ |
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Restricted Cash |
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- |
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$ |
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$ |
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(f) Inventories Valuation and Reserves
Inventories can 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. Raw materials balance are sold to contract manufacturing partners based on production demand.
(g) Discontinued Operations
Disposal groups that meet the discontinued operations criteria by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205-20-45 are classified as discontinued operations and are excluded from continuing operations and segment results for all periods presented.
(h) Leases
Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
Certain nonlease components, such as maintenance and other services provided by the lessor, are included in the valuation of the lease. Leases with an initial term of 12 months or less, which are not material to our financial statements, are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Lease agreements with lease and nonlease components are combined as a single lease component.
(i) Intangible Assets
Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by ASC 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the software once the software is ready for its intended use and placed into service. In the second quarter of 2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is
6
(j) Financial Instruments
Financial instruments which potentially subject us to concentrations of credit risk include cash and cash equivalents, restricted cash, and accounts receivable. We maintain our cash balances in the form of money market deposits with financial institutions that we believe are creditworthy. Historically, we have maintained balances in various operating accounts in excess of federally insured limits. We establish an allowance for doubtful accounts, which is generally not material to our financial statements, based upon factors surrounding the credit risk of specific customers, historical trends and other information. We have
The recorded amounts for cash and cash equivalents, restricted cash, receivables, other current assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these financial instruments.
(k) Income Taxes
Income taxes reflect the tax effects of transactions reported in the Condensed Consolidated Financial Statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. A valuation allowance is established when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which related temporary differences become deductible. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Taxes are reported based on tax positions that meet a more-likely-than-not standard and that are measured at the amount that is more-likely-than-not to be realized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits or expense. We classify penalty and interest expense related to income tax liabilities as an income tax expense. There are
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the three and nine months ended September 30, 2023 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more-likely-than-not threshold for realizability. Accordingly, a valuation allowance has been recorded against the Company’s net deferred tax assets as of September 30, 2023 and December 31, 2022.
(l) Revenue Recognition
Our revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until it is met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Our revenue contracts are identified when purchase orders are received and accepted from customers and represent a single performance obligation to sell our products to a customer.
Net sales reflect the transaction prices for contracts, which include products shipped at selling list prices reduced by variable consideration. Variable consideration includes estimates for expected customer allowances, promotional programs for consumers, and sales returns. Based on our customer-by-customer history, our variable consideration estimates are generally accurate and subsequent adjustments are generally immaterial.
7
Variable consideration is primarily comprised of customer allowances. Customer allowances primarily include reserves for trade promotions to support price features, displays, slotting fees, and other merchandising of our products to our customers. Promotional programs for consumers primarily include coupons, rebates, and certain other promotional programs, and do not represent a significant portion of variable consideration. The costs of both customer allowances and promotional programs for consumers are estimated using either the expected value or most likely amount approach, depending on the nature of the allowance, using all reasonably available information, including our historical experience and current expectations. Customer allowances and promotional programs for consumers are reflected in the transaction price when sales are recorded. We may adjust our estimates based on actual results and consideration of other factors that cause allowances. In the event that actual results differ from our estimates, the results of future periods may be impacted.
Sales returns are generally not material to our financial statements, and do not comprise a significant portion of variable consideration. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce our revenue in that period.
Sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.
We have also established an allowance for doubtful accounts. We estimate this allowance based upon, among other things, an assessment of the credit risk of specific customers and historical trends. We believe our allowance for doubtful accounts is adequate to absorb any losses which may arise. In the event that actual losses differ from our estimates, the results of future periods may be impacted.
Customer allowances for trade promotions and allowance for doubtful accounts are included in net accounts receivable on the Condensed Consolidated Balance Sheets and were as follows:
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Trade promotions |
$ |
|
|
$ |
|
||
Allowance for doubtful accounts |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
(m) Advertising Costs
We expense advertising costs as incurred.
(n) Stock-Based Compensation
We account for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. We determine the estimated grant-date fair value of stock options with only service conditions using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield, and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. We recognize compensation costs ratably over the vesting period using the straight-line method, which approximates the service period.
The Company issues restricted stock unit ("RSUs") awards with restrictions that lapse upon the passage of time (service vesting) and satisfaction of market conditions targeted to our Company’s stock price. For those RSU awards with only service vesting, the Company recognizes compensation cost on a straight-line basis over the service period. For awards with both market and service conditions, the Company starts recognizing compensation cost over the requisite service period, with the effect of the market conditions reflected in the calculation of the award's fair value at grant date. The Company values awards with only service vesting requirements based on the grant date share price. The Company values awards with market and service conditions using a Monte Carlo simulation. The Company determines the requisite service period for awards with both market and service conditions based on the longer of the explicit service period and the derived service period. Stock awards that contain market vesting conditions are included in the computations of diluted EPS reflecting the average number of shares that would be issued based on the highest 30-day average market price during the reporting periods, if their effect is dilutive. If the condition is based on an average of market prices over some period of time, the corresponding average for the period is used.
8
(o) Operating Costs and Expenses Classification
Cost of sales includes costs associated with manufacturing and distribution including labor, materials, freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for sales and sales support personnel, brokerage commissions, and promotional costs. Freight-out costs included in selling expenses totaled $
General and administrative expenses consist primarily of wages and benefits associated with management and administrative support departments, business insurance costs, professional fees, office facility related expenses, and other general support costs.
(p) Supplier Finance Programs
In September 2022, the FASB issued ASU No. 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” This ASU requires a buyer that uses supplier finance programs to make annual disclosures about the programs’ key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated roll-forward information. The guidance was effective for the Company beginning on January 1, 2023, except for the roll-forward information, which is effective beginning on January 1, 2024. This guidance has not had and is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.
During 2022, we entered into an agreement with a third-party financial institution and an agreement with an insurance agency which allows us to obtain extended payment terms for our insurance policies. The insurance policies can be canceled by the Company at any time with 10 days’ notice. The financial institution may cancel this agreement after providing 10 days’ notice if the Company does not pay any installment payment according to the terms of the agreement. We do not provide any forms of guarantees under these agreements. Payments of our obligations are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. Outstanding confirmed amounts are $
(q) Recently Issued Accounting Standards
In October 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-06, “Disclosure Improvements-Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. This guidance is effective for the Company no later than June 30, 2027 and is not expected to have a material impact on the Company’s Consolidated Financial Statements.
Note 2. Liquidity
Primarily due to a decline in net sales, disruption of our international sales to China, and increases in costs associated with the manufacture and distribution of our products, the Company has sustained significant losses from operations in several reporting periods since 2019. Absent any other action, the Company previously believed it would require additional liquidity to continue its operations over the next 12 months.
Due to the sales of our various brands as disclosed in Note 3 to the Condensed Consolidated Financial Statements, which generated $
9
Note 3. Divestitures
Neoteric Cosmetics, Inc.
On September 15, 2023, we entered into and consummated a Stock Purchase Agreement with Neoteric Beauty Holdings, LLC, a Delaware limited liability company, pursuant to which the Company agreed to sell
Alpha® Skin Care
Effective June 30, 2023, we entered into, and in July 2023 we closed, a purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Alpha® Skin Care brand. The Company received payments of $
BIZ®
Effective June 30, 2023, we entered into, and in July 2023 we closed, a purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the BIZ® brand. The transactions contemplated by the BIZ® Purchase Agreement were consummated on July 7, 2023. The total consideration paid to us was $
Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore
On January 23, 2023, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore product lines. The total consideration paid to us was $
10
Additionally, the buyer will pay a royalty equal to
Prell®
On December 15, 2022, 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 Prell® product line. The total consideration paid to us was $
Our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations report discontinued operations separate from continuing operations. Our Condensed Consolidated Statements of Equity and Statements of Cash Flows combine the results of continuing and discontinued operations.
11
Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30:
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||||||
|
Neoteric |
|
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
||||||
Net sales |
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Cost of sales |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Gross profit |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Intangible asset amortization |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Operating income (loss) from discontinued operations |
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Gain on sale of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income from discontinued operations |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||||
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||||||
|
Neoteric |
|
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Cost of sales |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Intangible asset amortization |
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Operating income (loss) from discontinued operations |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from discontinued operations |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||
|
Neoteric |
|
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
Intangible asset amortization |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Operating income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Gain on sale of discontinued operations |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
Income from discontinued operations |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||||
12
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||
|
Neoteric |
|
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Intangible asset amortization |
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Operating income (loss) from discontinued operations |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from discontinued operations |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
There were
Reconciliation of Major Classes of Assets of the Discontinued Operations to Amounts Presented Separately in the Consolidated Balance Sheets as of:
|
December 31, 2022 |
|
|||||||||||||||||
|
Neoteric® |
|
|
Alpha® |
|
|
BIZ® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Inventories |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intangible assets, net |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
$ |
|
|||
Assets of discontinued operations |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
There were
The following summarizes the carrying values of assets and the resulting in the gain on sale of discontinued operations associated with Neoteric, Alpha®, BIZ®, and Scott's Liquid Gold® at the date of disposition:
|
Neoteric |
|
|
Alpha® |
|
|
BIZ® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
|||||
Inventories |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Trade names |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Formulas |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Non-compete agreement |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Intangible assets, net |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Proceeds from sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gain on sale of discontinued operations |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Note 4. Stock-Based Compensation
On May 11, 2023, we granted
On March 2, 2022, we granted
13
On January 18, 2022, we granted
Compensation cost related to stock options totaled $
Compensation cost related to RSUs totaled $
Note 5. Earnings per Share
Per share data is determined by using the weighted average number of common shares outstanding. Common equivalent shares are considered only for diluted earnings per share, unless considered anti-dilutive. Common equivalent shares, determined using the treasury stock method, result from stock options with exercise prices that are below the average market price of the common stock.
Basic earnings per share include no dilution and are computed by dividing income available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in our earnings.
A reconciliation of the weighted average number of common shares outstanding (in thousands) is as follows. The dilutive effect of stock options and RSUs is excluded for periods in which the impact is anti-dilutive and when the Company has a net loss because the impact is also anti-dilutive.
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Common shares outstanding, beginning of the period |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares issued |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of common share equivalents |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Diluted weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock equivalents (in thousands) that have been excluded from the calculation of earnings per share because they would have been anti-dilutive are as follows:
|
Three Months and Nine Months Ended September 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Stock options |
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
||
Note 6. Segment Information
We previously operated in
In the third quarter of 2023, in conjunction with the divestitures brands, the Company determined it has
14
Note 7. Intangible Assets
Intangible assets, which are comprised of our capitalized costs of software obtained for internal-use, consisted of the following:
|
As of September 30, 2023 |
|
|
As of December 31, 2022 |
|
||||||||||||||||||
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||||
Internal-use software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization expense for the three months ended September 30, 2023 and 2022 was $
Estimated amortization expense for 2023 and subsequent years is as follows:
Remainder of 2023 |
$ |
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
Total |
$ |
|
Note 8. Long-Term Debt
UMB Loan Agreement
On July 1, 2020, we entered into a Loan and Security Agreement (as amended, the “UMB Loan Agreement”) with UMB Bank, N.A. Under the UMB Loan Agreement we obtained a $
The UMB Loan Agreement was terminated on
La Plata Loan Agreement
On November 9, 2021, we entered into a loan and security agreement (as amended, the “La Plata Loan Agreement”) with La Plata Capital, LLC (“La Plata”). Under the La Plata Loan Agreement, we obtained a $
Unamortized loan costs were $
On July 7, 2023, the La Plata term loans were paid in full and the La Plata Loan Agreement was terminated.
Note 9. Leases
We have entered into a lease for our corporate headquarters with a remaining lease term of
15
Information related to leases was as follows:
|
Three Months Ended September 30, 2023 |
|
Nine Months Ended September 30, 2023 |
|
||
Operating lease information: |
|
|
|
|
||
Operating lease cost |
$ |
|
$ |
|
||
Operating cash flows from operating leases |
|
|
|
|
||
Net assets obtained in exchange for new operating lease liabilities |
|
- |
|
|
- |
|
|
|
|
|
|
||
Weighted average remaining lease term in years |
|
|
|
|
||
Weighted average discount rate |
|
% |
|
% |
||
|
Three Months Ended September 30, 2022 |
|
Nine Months Ended September 30, 2022 |
|
||
Operating lease information: |
|
|
|
|
||
Operating lease cost |
$ |
|
$ |
|
||
Operating cash flows from operating leases |
|
|
|
|
||
Net assets obtained in exchange for new operating lease liabilities |
|
- |
|
|
- |
|
|
|
|
|
|
||
Weighted average remaining lease term in years |
|
|
|
|
||
Weighted average discount rate |
|
% |
|
% |
||
Future minimum annual lease payments are as follows:
Remainder of 2023 |
$ |
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
Thereafter |
|
|
|
Total minimum lease payments |
$ |
|
|
Less imputed interest |
|
( |
) |
|
|
|
|
Total operating lease liability |
$ |
|
|
Note 10. Subsequent Events
Related Party Transactions
In October 2023, the Company agreed to reimburse Maran Capital Management, LLC ("Maran") $
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022. This Item 2 contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. Please refer to "Item 1A. Risk Factors" in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the uncertainties, risks and assumptions associated with these statements.
Executive Overview
Our Business
Scott’s Liquid Gold-Inc. exists to positively impact consumers’ lives in the markets we serve while creating shareholder value. We have developed, marketed, and sold high-quality, high-value household products nationally and internationally to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, other retail outlets, and to wholesale distributors.
Primarily due to increases in costs associated with the manufacture and distribution of our products, the Company has experienced negative cash flows from operations for several reporting periods. In efforts to improve our financial position and liquidity, the Company has pursued asset sales of certain brands where management has determined that the brand(s) are not aligned with our long-term goals for growth and profitability.
The Company is considering a wide range of options, including one or more of the following: the sale of additional brands; a sale, merger, or other strategic transaction involving the entire company; acquisitions of other brands or companies; issuance of additional debt or equity; and continuing to operate as a public, independent company. We continue to operate our pet care brands, which is a product category we believe to have potential for organic or inorganic future growth opportunities.
Divestitures
On September 15, 2023, we entered into and consummated a Stock Purchase Agreement with a buyer to sell 100% of the outstanding stock of Neoteric. Effective June 30, 2023, and closed in July 2023, we sold the Alpha® Skin Care product line to a company that markets and distributes skin care products. Effective June 30, 2023, and closed in July 2023, we sold the BIZ® product line to a company that markets and distributes laundry products. On January 23, 2023, we sold the Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore product lines to a company that markets and distributes wood care products. On December 15, 2022, we sold the Prell® brand to a company that markets and distributes natural hair and skincare products. We have reflected the operations of Alpha® Skin Care, BIZ®, Scott's Liquid Gold® and Prell® as discontinued operations for all periods presented.
See Note 3 - “Discontinued Operations and Assets Held for Sale” in the Notes to Condensed Consolidated Financial Statements for further information on the sale of these brands.
In conjunction with the sale of the Scott’s Liquid Gold® brand, as discussed below, the Company may continue to use names “Scott’s Liquid Gold” and “SLG” for up to one year following the closing date of the agreement on January 23, 2023. Following this transitional name period, the Company will only be able to use the aforementioned names in connection with retaining records and other historical or archived documents and any use required by or permitted as a fair use or otherwise under applicable law.
17
Results of Operations
Three months ended September 30, 2023 compared to three months ended September 30, 2022
|
Three Months Ended September 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
907 |
|
|
$ |
733 |
|
|
$ |
174 |
|
|
|
23.7 |
% |
Cost of sales |
|
552 |
|
|
|
319 |
|
|
|
233 |
|
|
|
73.0 |
% |
Gross profit |
|
355 |
|
|
|
414 |
|
|
|
(59 |
) |
|
|
(14.3 |
%) |
Gross margin |
|
39.1 |
% |
|
|
56.5 |
% |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
89 |
|
|
|
166 |
|
|
|
(77 |
) |
|
|
(46.4 |
%) |
Selling |
|
382 |
|
|
|
606 |
|
|
|
(224 |
) |
|
|
(37.0 |
%) |
General and administrative |
|
811 |
|
|
|
655 |
|
|
|
156 |
|
|
|
23.8 |
% |
Intangible asset amortization |
|
45 |
|
|
|
65 |
|
|
|
(20 |
) |
|
|
(30.8 |
%) |
Total operating expenses |
|
1,327 |
|
|
|
1,492 |
|
|
|
(165 |
) |
|
|
(11.1 |
%) |
Loss from operations |
|
(972 |
) |
|
|
(1,078 |
) |
|
|
106 |
|
|
|
9.8 |
% |
Interest expense |
|
(32 |
) |
|
|
(27 |
) |
|
|
(5 |
) |
|
|
(18.5 |
%) |
Interest income |
|
16 |
|
|
|
- |
|
|
|
16 |
|
|
|
100.0 |
% |
Loss before income taxes and discontinued operations |
|
(988 |
) |
|
|
(1,105 |
) |
|
|
117 |
|
|
|
10.6 |
% |
Income tax expense |
|
(4 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(100.0 |
%) |
Loss from continuing operations |
|
(992 |
) |
|
|
(1,107 |
) |
|
|
115 |
|
|
|
10.4 |
% |
Income from discontinued operations |
|
3,987 |
|
|
|
363 |
|
|
|
3,624 |
|
|
|
998.3 |
% |
Net income (loss) |
$ |
2,995 |
|
|
$ |
(744 |
) |
|
$ |
3,739 |
|
|
|
502.6 |
% |
Our operating results were primarily impacted by the following:
18
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
|
Nine Months Ended September 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
2,623 |
|
|
$ |
2,315 |
|
|
$ |
308 |
|
|
|
13.3 |
% |
Cost of sales |
|
1,564 |
|
|
|
1,255 |
|
|
|
309 |
|
|
|
24.6 |
% |
Gross profit |
|
1,059 |
|
|
|
1,060 |
|
|
|
(1 |
) |
|
|
(0.1 |
%) |
Gross margin |
|
40.4 |
% |
|
|
45.8 |
% |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
363 |
|
|
|
492 |
|
|
|
(129 |
) |
|
|
(26.2 |
%) |
Selling |
|
1,276 |
|
|
|
2,326 |
|
|
|
(1,050 |
) |
|
|
(45.1 |
%) |
General and administrative |
|
2,069 |
|
|
|
2,164 |
|
|
|
(95 |
) |
|
|
(4.4 |
%) |
Intangible asset amortization |
|
135 |
|
|
|
313 |
|
|
|
(178 |
) |
|
|
(56.9 |
%) |
Impairment of goodwill and intangible assets |
|
- |
|
|
|
3,589 |
|
|
|
(3,589 |
) |
|
|
(100.0 |
%) |
Total operating expenses |
|
3,843 |
|
|
|
8,884 |
|
|
|
(5,041 |
) |
|
|
(56.7 |
%) |
Loss from operations |
|
(2,784 |
) |
|
|
(7,824 |
) |
|
|
5,040 |
|
|
|
64.4 |
% |
Interest expense |
|
(145 |
) |
|
|
(83 |
) |
|
|
(62 |
) |
|
|
(74.7 |
%) |
Interest income |
|
16 |
|
|
|
- |
|
|
|
16 |
|
|
|
100.0 |
% |
Loss before income taxes and discontinued operations |
|
(2,913 |
) |
|
|
(7,907 |
) |
|
|
4,994 |
|
|
|
63.2 |
% |
Income tax expense |
|
(6 |
) |
|
|
(55 |
) |
|
|
49 |
|
|
|
89.1 |
% |
Loss from continuing operations |
|
(2,919 |
) |
|
|
(7,962 |
) |
|
|
5,043 |
|
|
|
63.3 |
% |
Income from discontinued operations |
|
5,830 |
|
|
|
2,434 |
|
|
|
3,396 |
|
|
|
139.5 |
% |
Net income (loss) |
$ |
2,911 |
|
|
$ |
(5,528 |
) |
|
$ |
8,439 |
|
|
|
152.7 |
% |
Our operating results were primarily impacted by the following:
Liquidity and Capital Resources
Overview
Our primary sources of funds include cash from the sales of assets and cash from operating activities. Our principal uses of cash are to fund planned operating expenditures as well as historical debt paydown. Working capital movements are influenced by the sourcing of materials related to the production of products.
Financing Agreements
Please see Note 8 to our Condensed Consolidated Financial Statements for information on our La Plata Loan Agreement, which was satisfied and terminated in July 2023, and our UMB Loan Agreement, which was satisfied and terminated in February 2023.
19
Liquidity and Changes in Cash Flows
At September 30, 2023, we had approximately $4,665 in cash on hand, an increase of $4,616 from December 31, 2022.
The following is a summary of cash provided by or (used in) each of the indicated types of activities:
|
Nine Months Ended September 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Operating activities |
$ |
(47 |
) |
|
$ |
(1,189 |
) |
|
$ |
1,142 |
|
|
|
96.0 |
% |
Investing activities |
|
8,167 |
|
|
|
(142 |
) |
|
|
8,309 |
|
|
|
5,851.4 |
% |
Financing activities |
|
(3,504 |
) |
|
|
200 |
|
|
|
(3,704 |
) |
|
|
(1,852.0 |
%) |
The cash received from the sales of our BIZ® and Alpha® Skin Care brands in July 2023 was $3,700 and was partially used to pay off and terminate our La Plata Loan Agreement. Cash proceeds from the sale of Neoteric will be used to fund operations as we seek to grow our existing business or pursue other strategic transactions. While we believe that our current cash reserves represent sufficient cash to fund our operations, our liquidity has been affected by inflationary pressures at our customers which have caused sales decreases and higher costs on materials, logistics, and other purchases. We expect that our current cash reserves will be sufficient to meet operational cash needs during the next twelve months, but further economic impacts to our sales to customers or supply chain disruptions in the short-term could impact our liquidity.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation was performed as of September 30, 2023, under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the previously disclosed material weakness in our internal controls resulting from our finance department not being able to process and account for complex, non-routine transactions in accordance with GAAP. Management concluded that we lack a sufficient number of trained professionals with technical accounting expertise to process and account for complex and non-routine transactions. We believe the actions described in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2023 will be sufficient to remediate the identified material weakness and related disclosure controls and procedures. However, we do not believe that the new and enhanced controls and procedures have been implemented for a sufficient amount of time for management to conclude that the material weakness in the Company’s internal controls over financial reporting and effectiveness of related disclosure controls and procedures has been fully remediated, and we are still in the process of improving those controls and procedures. We will continue to improve and monitor the effectiveness of these controls and will make any further changes that management determines to be appropriate.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
20
PART II
ITEM 1A. RISK FACTORS
We have identified a material weakness in our internal control over financial reporting.
We are a public reporting company subject to the rules and regulations established from time to time by the SEC. As a public company we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting.
As disclosed in Part I, Item 4, “Disclosure Controls and Procedures,” we have identified a material weakness in our controls related to our finance department lacking a sufficient number of trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP as of June 30, 2023.
This material weakness did not result in any restatements to our Condensed Consolidated Financial Statements. Our management is committed to remediating this material weakness and is in the process of developing a remediation plan to address the material weakness.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent quarterly reports on Form 10-Q, which could materially affect our business, financial condition, or future results.
ITEM 6. EXHIBITS
Exhibit Number |
|
Document |
10.1 |
|
|
31.1 |
|
|
31.2 |
|
Rule 13a-14(a) Certification of the Chief Financial Officer. |
32.1* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
* Furnished, not filed.
21
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.
SCOTT’S LIQUID GOLD-INC. |
||
By: |
|
/s/ Tisha Pedrazzini |
|
|
Tisha Pedrazzini, President |
|
|
(Principal Executive Officer) |
|
|
|
By: |
|
/s/ David M. Arndt |
|
|
David M. Arndt, Chief Financial Officer |
|
|
(Principal Financial and Chief Accounting Officer) |
Date: November 7, 2023
22