UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
September 30, 2010
Commission File No. 001-13458
SCOTT'S LIQUID GOLD-INC.
4880 Havana Street
Denver, CO 80239
Phone: 303-373-4860
Colorado 84-0920811
State of Incorporation I.R.S. Employer
Identification No.
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ](Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
As of November 10, 2010, the Registrant had 10,795,000 of its
$0.10 par value common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Net sales $ 3,494,000 $ 3,423,000 $10,544,200 $10,819,700
Operating costs
and expenses:
Cost of sales 1,946,700 2,023,800 5,649,000 6,272,900
Advertising 78,600 94,900 321,500 245,500
Selling 1,017,700 1,016,200 3,076,800 3,043,900
General and
administrative 609,200 615,200 1,827,100 1,858,200
----------- ----------- ----------- -----------
3,652,200 3,750,100 10,874,400 11,420,500
----------- ----------- ----------- -----------
Loss from operations (158,200) (327,100) (330,200) (600,800)
Interest and
other income 30,600 2,200 97,900 7,200
Interest expense (68,900) (70,300) (207,900) (227,900)
----------- ----------- ----------- -----------
(196,500) (395,200) (440,200) (821,500)
Income tax expense
(benefit) - - - -
----------- ----------- ----------- -----------
Net loss $ (196,500) $ (395,200) $ (440,200) $ (821,500)
=========== =========== =========== ===========
Net loss per
common share (Note 2):
Basic &
Diluted $ (0.02) $ (0.04) $ (0.04) $ (0.08)
=========== =========== =========== ===========
Weighted average
shares outstanding:
Basic &
Diluted 10,795,000 10,795,000 10,795,000 10,774,100
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2010 2009
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 626,000 $ 654,100
Investment securities - 4,300
Trade receivables, net of allowance
of $61,100 and $59,800, respectively,
for doubtful accounts 647,200 314,400
Inventories, net 2,247,400 1,984,600
Prepaid expenses 93,800 142,300
----------- -----------
Total current assets 3,614,400 3,099,700
Property, plant and equipment, net 11,185,800 11,554,100
Other assets 94,400 110,000
----------- -----------
TOTAL ASSETS $14,894,600 $14,763,800
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Obligations collateralized
by receivables $ 444,100 $ -
Accounts payable 1,363,500 1,109,900
Accrued payroll and benefits 667,600 578,900
Other accrued expenses 327,500 370,000
Current maturities of long-term debt 327,600 319,600
----------- -----------
Total current liabilities 3,130,300 2,378,400
Long-term debt, net of current maturities 3,787,700 4,034,300
----------- -----------
Total liabilities 6,918,000 6,412,700
Shareholders' equity:
Common stock; $.10 par value, authorized
50,000,000 shares; issued and
outstanding 10,795,000 shares,
and 10,795,000 shares, respectively 1,079,500 1,079,500
Capital in excess of par 5,330,300 5,264,300
Accumulated comprehensive income - 300
Retained earnings 1,566,800 2,007,000
----------- -----------
Shareholders' equity 7,976,600 8,351,100
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,894,600 $14,763,800
=========== ===========
See accompanying notes to consolidated financial statements.
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
--------------------------
2010 2009
----------- -----------
Cash flows from operating activities:
Net loss $ (440,200) $ (821,500)
----------- -----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 385,500 401,600
Provision for doubtful accounts - 2,500
Stock issued to ESOP - 17,000
Stock-based compensation 66,000 58,100
Gain on sale of securities (300) -
Loss on disposal of assets - 900
Changes in assets and liabilities:
Proceeds from sale of
accounts receivable - 3,838,600
Trade and other receivables, net 10,900 (3,533,100)
Inventories (262,800) 12,600
Prepaid expenses and other assets 48,400 (72,600)
Accounts payable and accrued expenses 463,300 164,000
----------- ----------
Total adjustments to net loss 711,000 889,600
----------- -----------
Net Cash Provided by
Operating Activities 270,800 68,100
----------- -----------
Cash flows from investing activities:
Proceeds from sale of securities 4,300 -
Purchase of plant and equipment (1,500) -
Real estate brokerage costs (41,200) -
----------- -----------
Net Cash Used by
Investing Activities (38,400) -
----------- -----------
Cash flows from financing activities:
Net payments on obligations
collateralized by receivables (21,900) -
Principal payments on long-term borrowings (238,600) (212,700)
----------- -----------
Net Cash Used by
Financing Activities (260,500) (212,700)
----------- -----------
Net Decrease in Cash and
Cash Equivalents (28,100) (144,600)
Cash and Cash Equivalents,
beginning of period 654,100 909,900
----------- -----------
Cash and Cash Equivalents,
end of period $ 626,000 $ 765,300
=========== ===========
Supplemental disclosures:
Cash paid during period for:
Interest $ 208,400 $ 229,000
=========== ===========
See accompanying notes to consolidated financial statements.
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1. 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, "we" or "our") manufacture and market
quality household and skin care products, and we fill, package and
market our Mold Control 500 product. Since the first quarter of 2001,
we have acted as the distributor in the United States for beauty care
products contained in individual sachets and manufactured by Montagne
Jeunesse. In 2006 and 2007, we began the distribution of certain other
products. Our business is comprised of two segments -- household
products and skin care products.
(b) Principles of Consolidation
Our consolidated financial statements include our accounts and
those of our wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
(c) Basis of Preparation of Financial Statements
We have prepared these unaudited interim consolidated financial
statements in accordance with the rules and regulations of the Securities
and Exchange Commission. Such rules and regulations allow the omission
of certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles as long as the statements are not misleading. In
the opinion of management, all adjustments necessary for a fair
presentation of these interim statements have been included and are of
a normal recurring nature. These interim financial statements should
be read in conjunction with our financial statements included in our
2009 Annual Report on Form 10-K. The results of operations for the
interim period may not be indicative of the results to be expected for
the full fiscal year.
(d) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts 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. Actual results could differ from those estimates.
Significant estimates include, but are not limited to, realizability of
deferred tax assets, reserves for slow moving and obsolete inventory,
customer returns and allowances, coupon redemptions, bad debts, and
stock-based compensation.
(e) Cash Equivalents
We consider all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
(f) Investments in Marketable Securities
We follow FASB authoritative guidance as it relates to accounting
for certain investments in debt and equity securities which requires
that we classify investments in marketable securities according to
management's intended use of such investments. These guidelines are
periodically reviewed and modified to take advantage of trends in yields
and interest rates. We consider all investments as available for use in
our current operations and, therefore, classify them as short-term,
available-for-sale investments. Available-for-sale investments are
stated at fair value, with unrealized gains and losses, if any, reported
net of tax, as a separate component of shareholders' equity and
comprehensive income (loss). The cost of the securities sold is based
on the specific identification method. Investments in corporate and
government securities as of December 31, 2009, are scheduled to mature
within one year.
(g) Sale of Accounts Receivable
On November 3, 2008, effective as of October 31, 2008, we
established a $1,200,000 factoring line with an asset-based lender,
Summit Financial Resources ("Lender"), and secured by accounts
receivable, inventory, any lease in which we are a lessor, all
investment property and guarantees by our active subsidiaries. This
facility enables us to sell selected accounts receivable invoices to
the Lender with full recourse against us. During the first nine months
of 2010, we sold approximately $8,116,500 of our accounts receivable
invoices to the Lender under a financing agreement for approximately
$5,681,500. The Company retains an interest equal to 30% of the total
accounts receivable invoice sold to the Lender less a collateral
management fee of 0.28% for each 10-day period that an accounts
receivable invoice is uncollected plus a daily finance fee, based on
Wall Street Journal prime (3.25% at September 30, 2010) plus 1%,
imposed on (a) the net of the outstanding accounts receivable invoices
less (b) retained amounts due to us. At September 30, 2010,
approximately $755,900 of this credit line was available for future
factoring of accounts receivable invoices.
We have adopted the FASB's amended authoritative guidance which
was issued in June 2009 and which became effective January 1, 2010 as
it relates to distinguishing between transfers of financial assets that
are sales from transfers that are secured borrowings. Under this new
guidance as adopted by the Company effective January 1, 2010, the
reporting of the sale of accounts receivable is treated as a secured
borrowing rather than as a sale. As a result, affected accounts
receivable are reported under Current Assets within the Company's
balance sheet as "Trade receivables" subject to reserves for doubtful
accounts, returns and other allowances. Similarly, the net liability
owing to Summit Financial Resources appears as "Obligations
collateralized by receivables" within the Current Liabilities section
of the Company's balance sheet. Net proceeds received from the sale
of accounts receivable appear as cash provided or used by financing
activities within the Company's Consolidated Statements of Cash Flows.
Early adoption of this amended guidance was not permitted. Under the
authoritative guidance in effect prior to the amended guidance noted
above, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.
(h) Inventories
Inventories consist of raw materials and finished goods and are
stated at the lower of cost (first-in, first-out method) or market. We
record a reserve for slow moving and obsolete products and raw
materials. We estimate reserves for slow moving and obsolete products
and raw materials based upon historical and anticipated sales.
Inventories were comprised of the following at:
September 30, 2010 December 31, 2009
------------------ -----------------
Finished goods $ 1,262,300 $ 1,244,700
Raw materials 1,401,400 1,150,500
Inventory reserve
for obsolescence (416,300) (410,600)
----------- -----------
$ 2,247,400 $ 1,984,600
=========== ===========
(i) Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost.
Depreciation is provided using the straight-line method over estimated
useful lives of the assets ranging from three to forty-five years.
Building structures and building improvements are estimated to have
useful lives of 35 to 45 years and 3 to 20 years, respectively.
Production equipment and production support equipment are estimated to
have useful lives of 15 to 20 years and 3 to 10 years, respectively.
Office furniture and office machines are estimated to have useful
lives of 10 to 20 and 3 to 5 years, respectively. Carpet, drapes and
company vehicles are estimated to have useful lives of 5 to 10 years.
Maintenance and repairs are expensed as incurred. Improvements that
extend the useful lives of the assets or provide improved efficiency
are capitalized.
(j) Financial Instruments
Financial instruments which potentially subject us to
concentrations of credit risk include cash and cash equivalents,
investments in marketable securities, and trade receivables. We
maintain our cash balances in the form of bank demand deposits with
financial institutions that management believes are creditworthy.
We establish an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends
and other information. We have no significant financial instruments
with off-balance sheet risk of accounting loss, such as foreign
exchange contracts, option contracts or other foreign currency hedging
arrangements.
The recorded amounts for cash and cash equivalents, receivables,
other current assets, and obligations collateralized by receivables,
accounts payable and accrued expenses approximate fair value due to the
short-term nature of these financial instruments. Our long-term debt
bears interest at a fixed rate that adjusts annually on the anniversary
date to a then prime rate. The carrying value of long-term debt
approximates fair value as of September 30, 2010 and December 31, 2009.
(k) Long-Lived Assets
We follow FASB authoritative guidance as it relates to the proper
accounting treatment for the impairment or disposal of long-lived assets.
This guidance requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
As of December 31, 2009, due to changes in the real estate market
in Denver, Colorado and the continuing economic downturn, we conducted
an evaluation into fair value impairment as regards our property, plant
and equipment with particular attention to our land and buildings
("facilities") which have an original cost of $17,485,800 and a
depreciated book value at December 31, 2009 of approximately
$10,792,700. For the facilities, we performed an evaluation utilizing
an income capitalization model employing rental, vacancy and
capitalization rates obtained from independent market data relative to
our area of the Denver market as well as the actual rental rate in
effect in the current lease of a portion of our office space. This
evaluation returned a range of fair value estimates in excess of
(a) the carrying value of the facilities and (b) the current listing
price for the facilities. We currently have the facilities listed for
sale at the price of $11,500,000 for the improved property plus an
unstated amount for an unimproved, adjacent 5.5 acre parcel of land
with a value estimated by us at $1,200,000. Based upon our
evaluation, we find there to be no impairment in the carrying values of
our long-lived assets at December 31, 2009 and there have been no
events or changes in circumstances that indicate the fair value of the
facilities has declined in the nine months ended September 30, 2010;
however, the valuation of our facilities can be affected by future
events including the commercial real estate market in which our
facilities are located.
(l) Income Taxes
We follow FASB authoritative guidance for the accounting for
income taxes which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of assets
and liabilities and their respective income tax bases. A valuation
allowance is provided 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.
(m) Revenue Recognition
Revenue is recognized when an arrangement exists to sell our
product, we have delivered such product in accordance with that
arrangement, the sales price is determinable, and collectibility is
probable. Reserves for estimated market development support, pricing
allowances and returns are provided in the period of sale as a
reduction of revenue. Reserves for returns and allowances are recorded
as a reduction of revenue, and are maintained at a level that management
believes is appropriate to account for amounts applicable to existing
sales. Reserves for coupons and certain other promotional activities
are recorded as a reduction of revenue at the later of the date at
which the related revenue is recognized or the date at which the sales
incentive is offered. At September 30, 2010 and December 31, 2009
approximately $356,300 and $403,000, respectively, had been reserved
as a reduction of accounts receivable, and approximately $27,000 and
$23,000, respectively, had been reserved as current liabilities.
Co-op advertising, marketing funds, slotting fees and coupons are
deducted from gross sales and totaled $848,300 and $881,600 in the
nine months ended September 30, 2010 and 2009, respectively.
(n) Advertising Costs
Advertising costs are expensed as incurred.
(o) Stock-based Compensation
During the first nine months of 2010, we granted 699,000 options
for shares of our common stock to four officers, four non-employee
directors and twenty-one employees at $0.22 to $0.30 per share. The
options, which vest ratably over forty-eight months, or upon a change
in control, and which expire after five years, were granted at or above
the market value as of the date of grant.
The weighted average fair market value of the options granted in
the first nine months of 2010 and 2009 were estimated on the date of
grant, using a Black-Scholes option pricing model with the following
assumptions:
September 30, 2010 September 30, 2009
------------------ ------------------
Expected life of options
(using the "simplified" method) 4.5 years 4.5 years
Risk-free interest rate 1.5% 2.7%
Expected volatility of stock 87%-121% 88%
Expected dividend rate None None
Compensation cost related to stock options recognized in operating
results (included in general and administrative expenses) under
authoritative guidance issued by the FASB was $66,000 in the nine months
ended September 30, 2010. Approximately $162,200 of total unrecognized
compensation costs related to non-vested stock options is expected to be
recognized over the next forty-four months. In accordance with this
same authoritative guidance, there was no tax benefit from recording
the non-cash expense as it relates to the options granted to employees,
as these were qualified stock options which are not normally tax
deductible. With respect to the non-cash expense associated with the
options granted to the non-employee directors, no tax benefit was
recognized due to the existence of as yet unutilized net operating
losses. At such time as these operating losses have been utilized and
a tax benefit is realized from the issuance of non-qualified stock
options, a corresponding tax benefit may be recognized.
(p) Comprehensive Income (Loss)
We follow FASB authoritative guidance which establishes standards
for reporting and displaying comprehensive income (loss) and its
components. Comprehensive income (loss) includes all changes in equity
during a period from non-owner sources.
The following table is a reconciliation of our net loss to our
total comprehensive loss for the three and nine months ended
September 30, 2010 and 2009:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
2010 2009 2010 2009
---------- ---------- ----------- -----------
Net loss $ (196,500) $ (395,200) $ (440,200) $ (821,500)
Unrealized loss on
on investment
securities - (100) - (200)
---------- ---------- ----------- -----------
Comprehensive loss $ (196,500) $ (395,300) $ (440,200) $ (821,700)
========== ========== =========== ===========
(q) 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, internal transfer costs, repairs,
maintenance and other indirect costs, as well as warehousing and
distribution costs. We classify shipping and handling costs comprised
primarily of freight-out and nominal outside warehousing costs as a
component of selling expense on the accompanying Consolidated Statement
of Operations. Shipping and handling costs totaled $947,600 and
$983,800, for the nine months ended September 30, 2010 and 2009,
respectively.
Selling expenses consist primarily of shipping and handling costs,
wages and benefits for sales and sales support personnel, travel,
brokerage commissions, promotional costs, as well as other indirect
costs.
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.
Note 2. Earnings per Share
Per share data was determined by using the weighted average
number of common shares outstanding. Potentially dilutive securities,
including stock options, are considered only for diluted earnings per
share, unless considered anti-dilutive. The potentially dilutive
securities, which are comprised of outstanding stock options of
1,932,650 and 1,922,900 at September 30, 2010 and 2009, were excluded
from the computation of weighted average shares outstanding due to
their anti-dilutive effect.
A reconciliation of the weighted average number of common shares
outstanding for the three and nine months ended September 30, 2010
and 2009, respectively, follows:
2010
---------------------------
Three Months Nine Months
------------ -----------
Common shares outstanding
beginning of period 10,795,000 10,795,000
Stock issued to ESOP(a) - -
---------- ----------
Weighted average number
of common shares outstanding 10,795,000 10,795,000
Dilutive effect of
common share equivalents - -
---------- ----------
Diluted weighted average
number of common shares
outstanding 10,795,000 10,795,000
========== ==========
2009
---------------------------
Three Months Nine Months
------------ -----------
Common shares outstanding
beginning of period 10,795,000 10,695,000
Stock issued to ESOP (a) - 79,100
---------- ----------
Weighted average number
of common shares outstanding 10,795,000 10,774,100
Dilutive effect of
common share equivalents - -
---------- ----------
Diluted weighted average
number of common shares
outstanding 10,795,000 10,774,100
========== ==========
(a) In February 2009, the Board of Directors authorized and the
Company issued 100,000 shares of common stock to the Employee Stock
Ownership Plan at a price of $0.17 per share.
At September 30, 2010, there were authorized 50,000,000 shares
of our $0.10 par value common stock and 20,000,000 shares of preferred
stock issuable in one or more series. None of the preferred stock was
issued or outstanding at September 30, 2010.
Note 3. Segment Information
We operate in two different segments: household products and skin
care products. Our products are sold nationally and internationally
(primarily Canada), directly and through independent brokers, to mass
merchandisers, drug stores, supermarkets, wholesale distributors and
other retail outlets. Management has chosen to organize our business
around these segments based on differences in the products sold. The
household products segment includes: "Scott's Liquid Gold" wood care
products including a cleaner that preserves as it cleans and a wood
wash product; Mold Control 500, a mold remediation product; "Clean
Screen," a surface cleaner for sensitive electronic televisions and
other devices; and "Touch of Scent" room air fresheners. The skin care
segment includes: "Alpha Hydrox," alpha hydroxy acid cleansers and
lotions; a retinol product; and "Diabetic Skin Care", a healing cream
and moisturizer developed to address skin conditions of diabetics. In
the skin care segment, we also distribute skin care and other sachets of
Montagne Jeunesse and certain other products.
The following provides information on our segments for the three
and nine months ended September 30:
Three Months Ended September 30,
-----------------------------------------------------
2010 2009
------------------------- -------------------------
Household Skin Care Household Skin Care
Products Products Products Products
----------- ----------- ----------- -----------
Net sales to
external customers $ 1,672,600 $ 1,821,400 $ 1,873,000 $ 1,550,000
=========== =========== =========== ===========
Income (loss) before
profit sharing,
bonuses, and
income taxes $ (22,700) $ (173,800) $ 15,700 $ (410,900)
=========== =========== =========== ===========
Identifiable Assets $ 2,755,700 $ 3,989,600 $ 2,877,700 $ 4,181,600
=========== =========== =========== ===========
Nine Months Ended September 30,
-----------------------------------------------------
2010 2009
------------------------- -------------------------
Household Skin Care Household Skin Care
Products Products Products Products
----------- ----------- ---------- -----------
Net sales to
external customers $ 5,415,400 $ 5,128,800 $ 5,377,300 $ 5,442,400
=========== =========== =========== ===========
Income (loss) before
profit sharing,
bonuses and
income taxes $ 100 $ (440,300) $ (160,200) $ (661,300)
=========== =========== =========== ===========
Identifiable Assets $ 2,755,700 $ 3,989,600 $ 2,877,700 $ 4,181,600
=========== =========== =========== ===========
The following is a reconciliation of segment information to
consolidated information for the three and nine months ended
September 30:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Net sales to
external customers $ 3,494,000 $ 3,423,000 $10,544,200 $10,819,700
=========== =========== =========== ===========
Loss before profit
sharing, bonuses
and income taxes $ (196,500) $ (395,200) $ (440,200) $ (821,500)
=========== =========== =========== ===========
Identifiable assets $ 6,745,300 $ 7,059,300 $ 6,745,300 $ 7,059,300
Corporate assets 8,149,300 8,638,300 8,149,300 8,638,300
----------- ----------- ----------- -----------
Consolidated total
assets $14,894,600 $15,697,600 $14,894,600 $15,697,600
=========== =========== =========== ===========
Corporate assets noted above are comprised primarily of our cash
and investments, and property and equipment not directly associated
with the manufacturing, warehousing, shipping and receiving activities.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
During the first nine months of 2010, we experienced an overall
decrease in net sales of $275,500 as compared to the first nine months
of 2009. Our net loss for the first nine of 2010 was $440,200 versus
a net loss of $821,500 in the first nine months of 2009. The decrease
in our net loss for the first nine months of 2010 compared to the first
nine months of 2009 results primarily from improved gross margins as
the 2009 margins reflected a greater volume of discounted products
associated with the discontinuation of a line of air fresheners plus
two lines of distributed products. The 2010 margins were also
negatively impacted by increases in both co-op advertising and selling
expenses which are reflected as a reduction to net sales. Favorably
impacting the net loss in the first nine months of 2010 is the net
rental income received from the leasing of office space as more fully
discussed below.
Summary of Results as a Percentage of Net Sales
Year Ended Nine Months Ended
December 31, September 30,
------------ -------------------
2009 2010 2009
------------ ------- --------
Net sales
Scott's Liquid Gold
household products 50.6% 51.4% 49.7%
Neoteric Cosmetics 49.4% 48.6% 50.3%
------ ------ ------
Total Net Sales 100.0% 100.0% 100.0%
Cost of Sales 58.0% 53.6% 58.0%
------ ------ ------
Gross profit 42.0% 46.4% 42.0%
Other revenue 0.2% .9% 0.1%
------ ------ ------
42.2% 47.3% 42.1%
------ ------ -----
Operating expenses 48.5% 49.5% 47.6%
Interest 2.1% 2.0% 2.1%
------ ------ ------
50.6% 51.5% 49.7%
------ ------ ------
Loss before income taxes (8.4%) (4.2%) (7.6%)
====== ======= ======
Our gross margins may not be comparable to those of other
entities, because some entities include all of the costs related to
their distribution network in cost of sales and others, like us,
exclude a portion of them (freight out to customers and nominal outside
warehouse costs) from gross margin, including them instead in the
selling expense line item. See Note 1(q), Operating Costs and Expenses
Classification, to the unaudited Consolidated Financial Statements in
this Report.
Nine Months Ended September 30, 2010
Compared to Nine Months Ended September 30, 2009
Comparative Net Sales
Nine Months Ended Percentage
September 30, Increase
2010 2009 (Decrease)
----------- ----------- ----------
Scott's Liquid Gold and
other household products $ 5,050,200 $ 4,876,300 3.6%
Touch of Scent 365,200 501,000 (27.1%)
----------- ----------- ------
Total household products 5,415,400 5,377,300 0.7%
----------- ----------- ------
Alpha Hydrox and
other skin care 2,627,000 2,922,300 (10.1%)
Montagne Jeunesse and other
distributed skin care 2,501,800 2,520,100 (0.7%)
----------- ----------- ------
Total skin care products 5,128,800 5,442,400 (5.8%)
----------- ----------- ------
Total net sales $10,544,200 $10,819,700 (2.5%)
=========== =========== ======
Consolidated net sales for the first nine months of the current
year were $10,544,200 versus $10,819,700 for the first nine months of
2009, a decrease of $275,500. Average selling prices for the first nine
months of 2010 were up by $30,500 over the first nine months of 2009.
Average selling prices of household products were down by $35,600, while
average selling prices of skin care products were up by $66,100. This
overall increase in selling prices reflects a decrease in co-op
advertising, marketing funds, slotting fees, and coupons paid to
retailers which are deducted from gross sales, and totaled $848,300 in
the first nine months of 2010 versus $881,600 in the same period in
2009, a decrease of $33,300 or 3.8%. This decrease consisted of an
increase in coupon expense of $32,600, an increase in slotting fee
expenses of $32,800, and a decrease in co-op advertising funds
of $98,700.
From time to time, our customers return product to us. For our
household products, we permit returns only for a limited time, and
generally only if there is a manufacturing defect. With regard to our
skin care products, returns are more frequent under an unwritten
industry standard that permits returns for a variety of reasons. In
the event a skin care customer requests a return of product, the
Company will consider the request, and may grant such request in order
to maintain or enhance relationships with customers, even in the
absence of an enforceable right of the customer to do so. Some
retailers have not returned products to us. Return price credit (used
in exchanges typically, or rarely, refunded in cash) when authorized
is based on the original sale price plus a handling charge of the
retailer that ranges from 8-10%. The handling charge covers costs
associated with the return and shipping of the product. Additions to
our reserves for estimated returns are subtracted from gross sales.
From January 1, 2007 through September 30, 2010, our product
returns (as a percentage of gross revenue) have averaged as follows:
household products 0.5%, Montagne Jeunesse products 2.7%, and our
Alpha Hydrox and other skin care products 3.5%. The level of returns
as a percentage of gross revenue for the household products and
Montagne Jeunesse products have remained fairly constant as a
percentage of sales over that period while the Alpha Hydrox and other
skin care products return levels have fluctuated. More recently, as
our sales of the Alpha Hydrox skin care products have declined we have
seen a decrease in returns of these products as a percentage of gross
revenues. The products returned in the first nine months of 2010
(indicated as a percentage of gross revenues) were: household
products 1.2%, Montagne Jeunesse products 0.6%, and our Alpha Hydrox
and other skin care products 0.3%. We are not aware of any industry
trends, competitive product introductions or advertising campaigns at
this time which would cause returns as a percentage of gross sales to
be materially different for the current fiscal year than for the above
averages. Furthermore, our management is not currently aware of any
changes in customer relationships that we believe would adversely
impact anticipated returns. However, we review our reserve for
returns quarterly and we regularly face the risk that the existing
conditions related to product returns will change.
During the first nine months of 2010, net sales of skin care
products accounted for 48.6% of consolidated net sales compared to
50.3% for the same period of 2009. Net sales of these products for
that period were $5,128,800 in 2010 compared to $5,442,400 in 2009, a
decrease of $313,600 or 5.8%. Our decrease in net sales of skin care
was comprised of a decrease of $18,300 in sales of products for which
we act as a distributor and a decrease of $295,300 in our manufactured
skin care product lines.
Overall, net sales of our line-up of distributed products,
including Montagne Jeunesse, totaled $2,501,800 in the nine months of
2010 as compared to net sales of $2,520,100 in the same period of 2009,
a decrease of $18,300 or 0.7%.
Similarly, net sales of our Alpha Hydrox and other manufactured
skin care products declined $295,300 or 10.1%, from $2,922,300 in the
nine months of 2009 to $2,627,000 for the same period of 2010. This
sales decrease was attributable to the discontinued sale of our Massage
Oils by our largest retail customer.
Sales of household products for the first nine months of 2010
accounted for 51.4% of consolidated net sales compared to 49.7% for
the same period in 2009. These products are comprised of Scott's Liquid
Gold wood care products, Mold Control 500, Clean Screen, and Touch of
Scent. During the nine months ended September 30, 2010 sales of
household products were $5,415,400 as compared to $5,377,300 for the
same period in 2009, an increase of $38,100 or 0.7%. Sales of Scott's
Liquid Gold products increased by $371,800 or 8.1%, in 2010 versus
2009, while Mold Control 500 sales decreased by $197,900 or 64.1%, and
sales of Touch of Scent products decreased $135,800 or 27.1%, in the
same comparative periods. The increase in sales of Scott's Liquid
Gold products is primarily attributable to the introduction of "Clean
Screen," a surface cleaner for sensitive electronics including HDTV
screens, computer monitors and other such devices, coupled with an
increase in sales of wood care products. The decrease in sales of
Mold Control 500 is attributable to the loss of distribution at a
national hardware chain. The decrease in sales of Touch of Scent
products is attributable to the discontinuation of the air freshener
products Cube Scents and Odor Extinguisher in 2008 and 2009 along
with a reduction in sales through our online store.
As sales of a consumer product decline, there is the risk that
retail stores will stop carrying the product. The loss of any
significant customer for any skin care products, "Scott's Liquid Gold"
wood care or mold remediation products could have a significant
adverse impact on our revenues and operating results.
We also believe that the introduction of successful new products,
including line extensions of existing products, such as the wood wash
and our mold remediation product, using the name "Scott's Liquid Gold",
are important in our efforts to maintain or grow our revenue. In the
second quarter of 2009, we introduced, with limited sales to date,
"Clean Screen", a new household product under the Scott's Liquid Gold
brand. Additionally, in the fourth quarter of 2009 we introduced
Batiste dry shampoo for distribution in the United States.
Additionally, we regularly review possible additional products to sell
through distribution agreements or to manufacture ourselves. To the
extent that we manufacture a new product rather than purchase it from
external parties, we are also benefited by the use of existing capacity
in our facilities. The actual introduction of additional products, the
timing of any additional introductions and any revenues realized from
new products is uncertain.
On a consolidated basis, cost of goods sold was $5,649,000 during
the first nine months of 2010 compared to $6,272,900 for the same
period of 2009, a decrease of $623,900 or 9.9%, against a sales
decrease of 2.5%. As a percentage of consolidated net sales, cost of
goods sold was 53.6% in 2010 versus 58.0% in 2009, a decrease of about
7.6%. With respect to our skin care products, the cost of goods
dropped to 56.2% in first nine months of 2010 as compared to 61.5% in
the first nine months of 2009 as a result of our decision in 2009 to
discontinue our business relationship with a retail chain where
excessive retail support in the form of product returns, marketing
co-op funds, coupons and promotion programs and damage claims had made
such business unprofitable. Likewise, household products experienced a
decline in cost of goods sold from 54.4% in 2009 compared to 51.0%
for the same period in 2010. In 2009, cost of goods sold reflected
the sale of discontinued products at below our cost of approximately
$300,000 as well as higher steel can costs which were subsequently
negotiated down in mid-2009 and again in early 2010.
Operating Expenses, Interest Expense and Other Income
Nine Months Ended Percentage
September 30, Increase
2010 2009 (Decrease)
----------- ----------- ----------
Operating Expenses
Advertising $ 321,500 $ 245,500 31.0%
Selling 3,076,800 3,043,900 1.1%
General & Administrative 1,827,100 1,858,200 (1.7%)
----------- ----------- --------
Total operating expenses $ 5,225,400 $ 5,147,600 1.5%
=========== =========== ========
Interest and Other Income $ 97,900 $ 7,200 1,259.7%
=========== =========== ========
Interest Expense $ 207,900 $ 227,900 (8.8%)
=========== =========== ========
Operating expenses comprised primarily of advertising, selling
and general and administrative expenses increased $77,800 in the first
nine months of 2010 when compared to the first nine months of 2009.
The various components of operating expenses are discussed below.
Advertising expenses for the first nine months of 2010 were
$321,500 compared to $245,500 for the comparable period of 2009, an
increase of $76,000 or 31.0%. This increase reflects coupon campaigns
for our household products directed nationwide as well as
retailer-specific programs.
Selling expenses for the first nine months of 2010 were $3,076,800
compared to $3,043,900 for the comparable period of 2009, an increase of
$32,900 or 1.1%. This increase was comprised of a decrease in freight
expenses of $40,500 largely resulting from declining fuel prices and the
utilization of a third-party logistics firm as well as the overall
reduction in sales in the first nine months of 2010 compared to 2009,
offset by an increase in promotional selling expenses of $48,000
related to efforts to support our diabetic products and a net increase
in other selling expenses, none of which by itself is significant,
of $25,400.
General and administrative expenses for the first nine months of
2010 were $1,827,100 compared to $1,858,200 for the comparable period
of 2009, a decrease of $31,100 or 1.7%. That decrease resulted from a
decrease in salaries, fringe benefits and related travel expense of
$63,600 associated with a reduction in personnel and fees paid to
outside directors, partially offset by an increase in professional
fees and reporting costs of $22,700 and a net increase in various
other expense items, none of which by itself is significant, of $9,800.
Interest expense for the first nine months of 2010 was $207,900
and included $75,600 in collateral management fees incurred relative to
the sale of accounts receivable invoices to Summit Financial Resources.
Interest expense for the first nine months of 2009 was $227,900 and
included $53,300 in collateral management fees. The decrease in
interest expense reflects the combined effect of a decrease in the
outstanding mortgage liability from 2009 to 2010 and the reduction
in the interest rate in effect on that mortgage from 5.0% prior to
June 28, 2009 to 3.25% effective after that date.
Interest and other income for the first nine months of 2010 of
$97,900 and included $91,600 of net rental receipts from the rental of
a portion of our headquarters building, which we own, and $6,300 in
interest earned on our cash reserves as compared to $7,200 in interest
earned on our cash reserves in the first nine months of 2009. There
were no rental receipts in the first nine months of 2009.
Three Months Ended September 30, 2010
Compared to Three Months Ended September 30, 2009
Comparative Net Sales
Three Months Ended September 30,
-----------------------------------------
Percentage
Increase
2010 2009 (Decrease)
----------- ----------- ----------
Scott's Liquid Gold and
other household products $ 1,565,500 $ 1,736,400 (9.8%)
Touch of Scent 107,100 136,600 (21.6%)
----------- ----------- ------
Total household products 1,672,600 1,873,000 (10.7%)
----------- ----------- ------
Alpha Hydrox and
other skin care 800,100 1,022,100 (21.7%)
Montagne Jeunesse and other
distributed skin care 1,021,300 527,900 93.5%
----------- ----------- ------
Total skin care products 1,821,400 1,550,000 17.5%
----------- ----------- ------
Total net sales $ 3,494,000 $ 3,423,000 2.1%
=========== =========== ======
Consolidated net sales for the third quarter of the current year
were $3,494,000 versus $3,423,000 for the comparable quarter of 2009,
an increase of $71,000 or 2.1%. Average selling prices for the third
quarter of 2010 were up by $109,000 over those of the comparable
period of 2009, with prices of household products being up by $55,100
and average selling prices of skin care products were up by $53,900.
Co-op advertising, marketing funds, slotting fees and coupon expenses
paid to retailers were subtracted from gross sales in accordance with
current accounting policies totaling $309,300 in the third quarter of
2010 versus $207,500 in the comparable period in 2009, an increase of
$101,800 or 49.1%. This increase consisted of an increase in coupon
expenses of $33,000, an increase in slotting of $91,900, and partially
offset by a decrease in co-op advertising of $23,100.
During the third quarter of 2010, net sales of skin care products
accounted for 52.1% of consolidated net sales compared to 45.3% for the
third quarter of 2009. Net sales of these products for that period
were $1,821,400 in 2010 compared to $1,550,000 for the comparable
period in 2009, an increase of $271,400 or 17.5%. Our increase in net
sales of skin care products was comprised of an increase of $493,400 in
sales of products for which we act as a distributor partially offset by
a decrease of $222,000 in our manufactured skin care product lines.
Overall, net sales of our line-up of distributed products,
including Montagne Jeunesse, totaled $1,021,300 in the third quarter of
2010 as compared to net sales of $527,900 in the comparable period of
2009, an increase of $493,400 or 93.5%. This sales increase is
primarily the result of re-engagement of the Montagne Jeunesse products
with a few of our largest retail customers as well as the growing
distribution of Batiste dry shampoo, which was first introduced in
November 2009. Net sales of other distributed skin care products were
nominal in the third quarter of both 2010 and 2009.
Conversely, net sales of our Alpha Hydrox and other manufactured
skin care products declined $222,000, or 21.7%, from $1,022,100 in the
third quarter of 2009 to $800,100 for the same period of 2010. This
sales decrease was attributable primarily to the loss of a single
distribution point for our diabetic products related to a change in
health care benefits formerly available to a group of mine workers, a
close-out sale in 2009 not replicated in 2010 and to the loss of
distribution for our massage oils at a major retailer.
Sales of household products for the third quarter of 2010
accounted for 47.9% of consolidated net sales compared to 54.7% for
the same period in 2009. These products are comprised of Scott's Liquid
Gold wood care products, Mold Control 500, Clean Screen, and Touch of
Scent. During the quarter ended September 30, 2010, sales of household
products were $1,672,600 as compared to $1,873,000 for the same period
in 2009, a decrease of $200,400, or 10.7%. Sales of Scott's Liquid Gold
products decreased by $82,700, or 5.1%, in the third quarter of 2010
versus the comparable period in 2009, Mold Control 500 sales were down
by $88,200, or 69.2%, and sales of Touch of Scent products declined
$29,500, or 21.6%, in the same comparative periods. The decrease in
sales of Scott's Liquid Gold products in the third quarter of 2010 is
attributable to promotional efforts involving coupons in the prior
quarters of 2010 for which retailers responded with greater purchases
in the earlier periods.
On a consolidated basis, cost of goods sold was $1,946,700 during
the third quarter of 2010 compared to $2,023,800 for the same period
of 2009, a decrease of $77,100 or 3.8%, against a sales increase of
2.1%. As a percentage of consolidated net sales, cost of goods sold
was 55.7% in the third quarter of 2010 versus 59.1% in 2009, a
decrease of about 5.8%. With respect to our skin care products, the
cost of goods declined to 58.4% in third quarter of 2010 as compared
to 70.2% in the third quarter of 2009 as a result of our decision in
2009 to discontinue our business relationship with a retail chain
where excessive retail support in the form of product returns,
marketing co-op funds, coupons and promotion programs and damage
claims had made such business unprofitable. With respect to household
products, the cost of goods sold rose nominally during the third
quarter of 2010 to 52.8% as compared to 50.0% for the third quarter
of 2009 due in part to changing oil prices which were trending down
in 2009 but have reversed course in 2010.
Operating Expenses, Interest Expense and Other Income
Three Months Ended September 30,
---------------------------------------
Percentage
Increase
2010 2009 (Decrease)
----------- ----------- ----------
Operating Expenses
Advertising $ 78,600 $ 94,900 (17.2%)
Selling 1,017,700 1,016,200 0.1%
General & Administrative 609,200 615,200 (1.0%)
----------- ----------- ---------
Total operating expenses $ 1,705,500 $ 1,726,300 (1.2%)
=========== =========== =========
Interest and Other Income $ 30,600 $ 2,200 1,290.9%
Interest Expense $ 68,900 $ 70,300 (2.0%)
Operating expenses comprised primarily of advertising, selling
and general and administrative expenses decreased $20,800 in the third
quarter of 2010 when compared to the same period during 2009. The
various components of operating expenses are discussed below.
Advertising expenses for the third quarter of 2010 were $78,600
compared to $94,900 for the comparable quarter of 2009, a decrease of
$16,300 or 17.2%, resulting primarily from reduced television media
placements.
Selling expenses for the third quarter of 2010 were $1,017,700
compared to $1,016,200 for the comparable quarter of 2009, an increase
of $1,500 or 0.1%.
General and administrative expenses for the third quarter of 2010
were $609,200 compared to $615,200 for the comparable quarter of 2009,
a decrease of $6,000 or 1.0%.
Interest expense for the third quarter of 2010 was $68,900 and
included $25,400 in collateral management fees incurred relative to the
sale of accounts receivable invoices to Summit Financial Resources.
Interest expense for the third quarter of 2009 was $70,300 including
$24,000 in collateral management fees. The resulting decrease in
interest expense reflects the combined effect of a decrease in the
outstanding mortgage liability from 2009 to 2010 and the reduction in
the interest rate in effect on that mortgage from 5.0% prior to
June 28, 2009 to 3.25% effective after that date.
Interest and other income for the third quarter of 2010 of $30,600
included $28,900 of net rental receipts from the rental of a portion of
our headquarters building, which we own, and $1,700 in interest earned
on our cash reserves as compared to $2,200 in interest earned on our
cash reserves in the same period of 2009. There were no rental receipts
in the first nine months of 2009.
Liquidity and Capital Resources
Citywide Loan
On June 28, 2006, we entered into a loan with a fifteen year
amortization with Citywide Banks (the "Bank") for $5,156,600 secured by
the land, building and fixtures at our Denver, Colorado facilities.
Interest on the bank loan (3.25% at September 30, 2010) is at the
prime rate as published in The Wall Street Journal, adjusted annually
each June. This loan requires 180 monthly payments of approximately
$38,200. Monthly payments commenced on July 28, 2006. The loan
agreement contains a number of covenants, including the requirement
for maintaining a current ratio of at least 1:1 and a ratio of
consolidated long-term debt to consolidated net worth of not more
than 1:1, the aforementioned ratios to be calculated in accordance
with U.S. generally accepted accounting principles. We may not declare
any dividends that would result in a violation of either of these
covenants. Affirmative covenants in the loan agreement concern, among
other things, compliance in all material respects with applicable laws
and regulations and compliance with our agreements with other parties
which materially affect our financial condition. Negative covenants
require that we not do any of the following, among other things,
without the consent of the Bank: Sell, lease or grant a security
interest in assets; engage in any business activity substantially
different than those in which we are presently engaged; sell assets
out of the ordinary course of business; or purchase another entity or
an interest in another entity. The foregoing requirements were met at
the end of quarter ending September 30, 2010.
Financing Agreement
On November 3, 2008, effective as of October 31, 2008, we entered
into a financing agreement with an "asset-based" lender for the purpose
of improving working capital. An amendment to this agreement was
executed March 12, 2009 extending the initial anniversary date to
March 12, 2010. The term of the agreement is one year and is
automatically renewed for 12 months unless either party elects to cancel
in writing at least 60 days prior to the anniversary date. Neither
party sent such a notice of non-renewal, and therefore the term of the
financing agreement has automatically been extended to March 12, 2011.
The agreement provides for up to $1,200,000 and is secured primarily
by accounts receivable, inventory, any lease in which we are a lessor,
all investment property and guarantees by our active subsidiaries.
Under the financing agreement, the lender will make loans at our
request and in the lender's discretion (a) based on purchases of our
Accounts by the lender, with recourse against us and an advance rate
of 70% (or such other percentage determined by the lender in its
discretion), and (b) based on Acceptable Inventory not to exceed
certain amounts, including an aggregate maximum of $250,000. Advances
under the agreement bear interest at a rate of 1% over the prime rate
(as published in the Wall Street Journal) for the accounts receivable
portion of the advances and 3% over the prime rate for the inventory
portion of the borrowings. The prime rate (3.25% as of September 30,
2010) adjusts with changes to the rate. In addition there are
collateral management fees of 0.28% for each 10-day period that an
advance on an accounts receivable invoice remains outstanding and a
1.35% collateral management fee on the average monthly loan outstanding
on the inventory portion of any advance. The agreement provides that
no change in control concerning us or any of our active subsidiaries
shall occur except with the prior written consent of the lender.
Events of default include, but are not limited to, the failure to make
a payment when due or a default occurring on any indebtedness of ours.
Liquidity
During the first nine months of 2010, our working capital
decreased by $237,200 resulting in a current ratio (current assets
divided by current liabilities) of 1.2:1 at September 30, 2010,
compared to 1.3:1 at December 31, 2009. The decrease in working
capital is attributable primarily to the principal reduction in our
long-term debt of $238,600.
At September 30, 2010, trade and other receivables were $647,200
versus $314,400 at the end of 2009. As discussed in Note 1(g), on
January 1, 2010 the Company adopted new authoritative guidance which
prospectively modified the presentation of transferred trade
receivables and the related securitized obligation. Had early adoption
been permitted then trade and other receivables at December 31, 2009
would have increased $343,700 to $658,100 along with a corresponding
increase in current liabilities. Accounts payable, accrued payroll
and other accrued expenses increased by $299,800 from the end of 2009
through September of 2010 corresponding with the increase and timing of
purchases of inventory and rise in receivables over that period. At
September 30, 2010 inventories were $262,800 more than at December 31,
2009, due primarily to an increase in anticipated sales of distributed
products. Prepaid expenses decreased from the end of 2009 by $48,500.
We have no significant capital expenditures planned for 2010.
The Summit Financial Resources line of credit is expected to
provide working capital which may be necessary to meet the needs of the
Company over the next 12 months. The Company, in general, has high
quality accounts receivable that may be sold pursuant to the line of
credit. The Summit Financial Resources agreement has a term of one
year which expires March 12, 2011, and is automatically renewed for
12 months unless either party elects to cancel in writing at least
60 days prior to the anniversary date.
As a result of the foregoing, we expect that our available cash,
projected cash flows from operating activities, and borrowing available
under the Summit Financial Resources agreement (assuming no
cancellation of the agreement) will fund the cash requirements for the
twelve months ending September 30, 2011.
In order to improve our liquidity and our operating results, we
will also continue to pursue the following steps: the sale or lease of
all or a portion of our real estate which we have listed with a real
estate firm, efforts to improve revenues, a further reduction in our
fixed operating expense if needed, and potentially the addition of
external financing. In October 2009, we entered into a long-term
lease of the second floor of our five-story office building to an
established subsidiary of an international company. In September 2010
we entered into a two-year lease of just less than half of the first
floor of our office building. Our officers and employees now occupy
three other floors of the office building.
Our dependence on operating cash flow means that risks involved
in our business can significantly affect our liquidity. Any loss of a
significant customer, any further decreases in distribution of our skin
care or household products, any new competitive products affecting
sales levels of our products, or any significant expense not included
in our internal budget could result in the need to raise cash. We have
no arrangements for any additional external financing of debt or equity,
and we are not certain whether any such financing would be available on
acceptable terms. Any external debt financing could require the
cooperation and approval of existing lenders. In order to improve our
operating cash flow, we need to achieve profitability.
Forward-Looking Statements
This report may contain "forward-looking statements" within the
meaning of U.S. federal securities laws. These statements are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Our performance inherently involves
risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited
to: 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; limited consumer acceptance of the Alpha Hydrox
products introduced in 2005 and 2007; uncertainty of consumer
acceptance of Mold Control 500, wood wash products and products
recently introduced or being introduced in 2010; competitive factors;
any decrease in distribution of (i.e., retail stores carrying) our
significant products; continuation of our distributorship agreement with
Montagne Jeunesse; the need for effective advertising of our products;
limited resources available for such advertising; new competitive
products and/or technological changes; dependence upon third party
vendors and upon sales to major customers; changes in the regulation
of our products, including applicable environmental regulations;
additional net losses which could affect our liquidity; the loss of
any executive officer; and other matters discussed in our Annual Report
on Form 10-K for the year ended December 31, 2009 and this Report.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
Not Applicable
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
As of September 30, 2010, we conducted an evaluation, under the
supervision and with the participation of the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective
as of September 30, 2010.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial
reporting during the quarter ended September 30, 2010 that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits
31.1 Rule 13a-14(a) Certification of the Chief Executive
Officer
31.2 Rule 13a-14(a) Certification of the Chief Financial
Officer
32.1 Section 1350 Certification
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.
November 11, 2010 BY: /s/ Mark E. Goldstein
Date --------------------------------------
Mark E. Goldstein
President and Chief Executive Officer
November 11, 2010 BY: /s/ Brian L. Boberick
Date --------------------------------------
Brian L. Boberick
Treasurer and Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Document
31.1 Rule 13a-14(a) Certification of the Chief Executive
Officer
31.2 Rule 13a-14(a) Certification of the Chief Financial
Officer
32.1 Section 1350 Certification