-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VXZGAW73fcnkxfxWxeio7/TZeXOZo83gNOcrlnt6OLq9aM+jNoGf80XOjW/Z7L0g Po2MDvV/X3/Zo1PtOdcmtQ== 0000088000-00-000008.txt : 20000510 0000088000-00-000008.hdr.sgml : 20000510 ACCESSION NUMBER: 0000088000-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTTS LIQUID GOLD INC CENTRAL INDEX KEY: 0000088000 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 840920811 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13458 FILM NUMBER: 623352 BUSINESS ADDRESS: STREET 1: 4880 HAVANA ST CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033734860 MAIL ADDRESS: STREET 1: PO BOX 39S CITY: DENVER STATE: CO ZIP: 80219-0019 10-Q 1 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 March 31, 2000 Commission File No. 0-5128 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 (i) 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 (ii) has been subject to such filing requirements for the past 90 days. YES _X_ NO ____ The Registrant had 10,103,100 common shares, $0.10 par value, its only class of common stock, issued and outstanding on April 26, 2000. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations (Unaudited) Ended March 31, 2000 1999 Revenues : Net sales $7,628,900 $10,089,100 Other income 268,400 203,700 ----------- ----------- 7,897,300 10,292,800 Costs and Expenses: Cost of sales 2,670,700 3,400,700 Advertising 3,330,200 4,707,100 Selling 1,815,800 1,943,300 General and administrative 1,578,500 1,259,900 Interest 306,300 301,100 ----------- ----------- 9,701,500 11,612,100 ----------- ----------- Loss before income taxes (1,804,200) (1,319,300) Income tax expense (benefit) (613,500) (488,100) ----------- ----------- Net loss $(1,190,700) $(831,200) =========== =========== Net loss per common share (Note 3) $(0.12) $(0.08) ========== =========== Diluted net loss per common share (Note 3) Basic and diluted $(0.12) $(0.08) =========== =========== Weighted average number of common shares outstanding 10,103,100 10,103,100 Diluted weighted average number of common shares outstanding 10,103,100 10,103,100
See Notes to Consolidated Financial Statements Consolidated Balance Sheets (Unaudited) March 31, 2000 and December 31,1999 ASSETS 2000 1999 --------- --------- Current assets: Cash and cash equivalents $4,709,500 $5,008,600 Trade receivables (Note 2) 2,335,400 2,212,700 Other receivables 988,900 408,300 Inventories: Finished goods 1,607,600 1,404,300 Raw materials 1,503,400 1,362,000 Prepaid expenses 171,100 216,000 Deferred tax asset 713,700 713,700 ---------- ---------- Total current assets 12,029,600 11,325,600 Property, plant and equipment at cost 27,116,300 27,108,100 Less accumulated depreciation 9,692,000 9,477,300 ---------- ---------- 17,424,300 17,630,800 Other assets 1,900 18,700 ---------- ---------- $29,455,800 $28,975,100 ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 --------- --------- Current liabilities: Accounts payable $3,038,500 $1,420,600 Accrued expenses 2,169,100 1,924,600 Current maturities of long-term debt 1,000,000 1,000,000 ---------- ---------- Total current liabilities 6,207,600 4,345,200 Long-term debt 5,674,900 5,865,900 Deferred income taxes 1,154,500 1,154,500 ---------- ---------- 13,037,000 11,365,600 ---------- ---------- Shareholders' equity (Note 3): Common stock 1,010,300 1,010,300 Capital in excess of par 4,829,500 4,829,500 Retained earnings 10,579,000 11,769,700 ---------- ---------- Shareholders' equity 16,418,800 17,609,500 ---------- ---------- $29,455,800 $28,975,100 ========== ==========
See Notes to Consolidated Financial Statements Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2000 1999 Cash flows from operating activities: Net loss $(1,190,700) $(831,200) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 231,500 356,200 Provision for doubtful accounts receivable 39,000 43,900 Change in assets and liabilities: Accounts and other receivables (742,300) (1,185,300) Inventory (344,700) (193,800) Prepaid expenses 44,900 (54,800) Accounts payable and accrued expenses 1,862,400 372,200 ------------- ------------- Total adjustments to net loss 1,090,800 (661,600) ------------- ------------- Net Cash Provided (Used) by Operating Activities (99,900) (1,492,800) ------------- ------------- Cash flows from investing activities: Purchase of property,plant & equipment (8,200) (102,800) ------------- ------------- Net Cash Used by Investing Activities (8,200) (102,800) ------------- ------------- Cash flows from financing activities: Proceeds from short-term borrowings - 110,500 Principal payments on short-term borrowings - (41,200) Increase in bond sinking fund (191,000) (245,100) ------------- ------------- Net Cash Used by Financing Activities (191,000) (175,800) ------------- ------------- Net Decrease in Cash and Cash Equivalents (299,100) (1,771,400) Cash and Cash Equivalents, beginning of period 5,008,600 5,421,400 ------------- ------------- Cash and Cash Equivalents, end of period $4,709,500 $3,650,000 ============= ============ Supplemental disclosures: Cash paid during the period for: Interest $309,800 $289,300 Income taxes $11,900 $200
See Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements (Unaudited) Note 1. In the opinion of management, the financial information in this report reflects all adjustments necessary for a fair presentation of the results for the interim periods. In December 1999, the SEC Staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This Bulletin summarizes certain of the Staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company will adopt this Bulletin in the quarter ended June 30, 2000. The Company is in the process of determining what impact, if any, this guidance will have on its revenue recognition. Note 2. Allowance for doubtful accounts at March 31,2000 and December 31, 1999 were $683,800 and $645,500 respectively. Note 3. Per share data was 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 (as in 2000 and 1999). As of March 31, 2000 and 1999, the Company had 835,400 and 925,500 stock options outstanding respectively. A reconciliation of the weighted average number of common shares outstanding follows: 2000 1999 Common shares outstanding, beginning of the year 10,103,100 10,103,100 Stock options exercised - - ---------- ---------- Weighted average number of common shares outstanding 10,103,100 10,103,100 ========= ========= Diluted weighted average number of common shares outstanding 10,103,100 10,103,100 ========= =========
At March 31, 2000,there were authorized 50,000,000 shares of the Company's $.10 par value common stock and 20,000,000 shares of preferred stock issuable in one or more series. Note 4. The following provides information on the Company's segments for the three months ended March 31, 2000 and 1999. 2000 1999 Household Skin Care Household Skin Care Products Products Products Products Net sales to external customers $3,035,300 $4,593,600 $3,321,200 $6,767,900 Income (loss) before profit sharing, bonuses and income taxes $(244,700) $(1,559,500) $623,800 $(1,943,100) The following is a reconciliation of segment information to consolidated information for the three months ended 2000 and 1999:
2000 1999 Net sales to external customers $7,628,900 $10,089,100 Other income 268,400 203,700 --------- ----------- Consolidated revenues $7,897,300 $10,292,800 ========= ========= Loss before profit sharing, bonuses and income taxes for reportable segments $(1,804,200) $(1,319,300) Corporate activities - - ----------- ----------- Consolidated loss before income taxes $(1,804,200) $(1,319,300) ========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Results of Operations Summary of Results as a Percentage of Net Sales Year Ended December 31, Three Months Ended 1999 March 31, (Audited) 2000 1999 Net sales Scott's Liquid Gold household products 37.0% 39.8% 32.9% Neoteric Cosmetics 63.0% 60.2% 67.1% Total net sales 100.0% 100.0% 100.0% Cost of sales 34.2% 35.0% 33.7% Gross profit 65.8% 65.0% 66.3% Other revenue 1.8% 3.5% 2.0% 67.6% 68.5% 68.3% Operating expenses 66.3% 88.1% 78.4% Interest 3.5% 4.0% 3.0% 69.8% 92.1% 81.4% Income (loss) before income taxes (2.2%) (23.6%) (13.1%)
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,1999 Consolidated net sales for the first quarter of the current year were $7,628,900 vs. $10,089,100 for the first three months of 1999, a decrease of $2,460,200 or about 24.4%. Average selling prices for the first three months of the year 2000 were up by $338,800 over those of the comparable period of 1999, prices of household products being up by $239,000 (about 78% of which related to Liquid Gold), while average selling prices of skin care products were up by $99,800. During the first quarter of the new year, net sales of skin care products accounted for 60.2% of consolidated net sales compared to 67.1% for the same quarter of 1999. Net sales of these products for those periods were $4,593,600 in 2000 compared to $6,767,900 in 1999, a decrease of $2,174,300 or 32.1%. Almost all of that sales decrease resulted from reduced unit sales of the Company's line of alpha hydroxy acid products and its other skin care products, including certain items introduced to the marketplace during the most recent two years. The Company believes that its skin care sales were adversely affected by the Company's emphasis on retinol products in allocating its advertising dollars during 1999, and by intense competition from producers of similar or alternative products, many of whom are considerably larger than Neoteric Cosmetics, Inc., the Company's skin care subsidiary. In the year 2000, the Company implemented a revised approach to its television advertising, emphasizing short advertising spots on various television channels. Some brands of alpha hydroxy acid skin care products have experienced recent increases in sales of such products, contrary to the Company's experience. The Company continues to address the decrease in sales of products in the alpha hydroxy acid category of skin care products through the introduction of new products which target "niche" market opportunities. However, sales of such new products have not been sufficient to offset declining shipments of alpha hydroxy acid-based products. During the second half of 1998, the Company's skin care subsidiary introduced two new lines of skin care products. The Belleza Latina line was designed for the Hispanic market and Alpha Hydrox Retinol Night ResQ is a microsponge- entrapped retinol product (developed and produced by another company) which softens fine lines and wrinkles. During the first quarter of 1999, the Company introduced Neoteric Diabetic Skin Care, a healing creme and a therapeutic moisturizer developed by the Company to address skin conditions of diabetics which is caused by poor blood circulation. More recently, the Company announced its development of Alpha Hydrox Fade Creme, which was designed to lighten age spots and skin discoloration caused by sun exposure and other factors, and Alpha Hydrox Oxygenated Moisturizer, the Company's second skin care product based upon a patented oxygenated oil technology. Sales of these two new products and of the diabetic products have been satisfactory. The Company is considering the near-term future discontinuance of the Belleza Latina product line. Sales of household products for the first quarter of this year accounted for 39.8% of consolidated net sales compared to 32.9% for the same period of 1999. These products are comprised of "Scott's Liquid Gold" for wood, a wood cleaner which preserves as it cleans, and "Touch of Scent", a room air freshener. During the quarter ended March 31, 2000, sales of household products were $3,035,300, as compared to sales of $3,321,200 for the same quarter of 1999. Sales of "Scott's Liquid Gold" for wood were down by $292,000, a decrease of 12.6%. We believe this sales decrease to be the carryover effect of reduced advertising of this product line during 1999. Sales of "Touch of Scent" were up by $6,100 or 1%. As noted in previous reports to shareholders, efforts in recent years to revitalize Touch of Scent have produced less than satisfactory results. Although the Company continues to seek products to replace or augment Touch of Scent, particularly products which would increase the utilization of the Company's manufacturing facilities, it believes that a consolidation of purchasing activities by certain customers may help to improve Touch of Scent sales during 2000. On a consolidated basis, cost of goods sold was $2,670,700 during the first three months of 2000 compared to $3,400,700 for the same period of 1999, a decrease of $730,000 (21.5%, on a sales decrease of 24.4%). As a percentage of consolidated net sales for the first quarter of 2000, cost of goods sold was 35.0% compared to 33.7% in 1999, an increase of 3.9% which was essentially due a change in product mix and to spreading on-going (fixed) manufacturing costs over lower unit production in the first quarter of 2000 than in 1999. Operating expenses, comprised primarily of advertising, selling and administrative expenses, increased 9.7% as a percentage of sales in the first quarter of 2000, when compared to first quarter of 1999, largely because of the decline in sales. The various components of operating expenses are discussed below. Advertising expenses for the first three months of 2000 were $3,330,200 compared to $4,707,100 for the comparable quarter of 1999, a decrease of $1,376,900 or 29.3%. Advertising expenses applicable to household products increased by $97,000 (21.8%) during the first quarter of 2000, whereas, advertising expenses for Alpha Hydrox products decreased for the comparative three month period by $1,473,900 (34.6%). With respect to advertising expenses for household products, the amount expended to advertise Scott's Liquid Gold for wood increased by $308,400, while expenditures to advertise Touch of Scent decreased by $211,400. Advertising expenses during the second quarter of 2000 are expected to decrease from those of the first quarter. Irrespective of year to year changes in expenditures to advertise its products, the Company recognizes that, whenever it is fiscally responsible to do so, it must continue to advertise aggressively because the markets for skin care products, furniture polish, and air fresheners are highly competitive and, accordingly, the Company's brand names need to be kept in front of current and potential consumers. Sustaining the Company's advertising program is highly dependent upon sales of its skin care products. Selling expenses for the first quarter of 2000 were $1,815,800 compared to $1,943,300 for the comparable three months of 1999, a decrease of $127,500 or 6.6%. That decrease was comprised of a decrease of $125,200 in brokerage commissions and freight (which vary with sales volume), a decrease in depreciation and amortization of $114,400, all of which pertained to a license agreement regarding the Company's retinol product which expired in August 1999, and a net decrease in a variety of other expenses, none of which, by itself, was material, of $4,200; all offset by an increase in promotion expenses of $52,500, and a increase in couponing costs and slotting allowances of $63,800. Administrative expenses for the first three months of 2000 were $1,578,500 compared to $1,259,900 for the comparable period of 1999, an increase of $318,600 or 25.3%. Such increase was attributable to the recovery in 1999, through insurance, of $550,000 in legal and professional fees which were expensed in prior periods, offset by a decrease in salary and fringe benefits cost of $190,000 and a net decrease in other administrative expenses, none of which, by itself, was material, of $41,400. Interest expense for the first quarter of 2000 was $306,300, approximately equal to that of $301,100 for the comparable quarter of 1999. Other income for the three months ended March 31, 2000 was $268,400 compared to $203,700 for the same period of 1999, an increase of 31.8%. Other income essentially consists of interest earned on the Company's cash reserves and cash deposits into its bond sinking fund. During the first quarter of 2000 and of 1999, expenditures for research and development were not material (under 2% of revenues). Liquidity and Capital Resources On July 29, 1994, the Company consummated a $12 million bond issuance to finance the expansion of the Company's Denver facilities. Interest on the $12 million bond issue is payable semi-annually beginning on January 1, 1995 at the rate of 10% per annum. The January 1, 2000 interest payment was made in a timely manner, as were all other required payments. There is no reason to believe that the interest payment due on July 1, 2000 will not be made in conformity with the Bond Indenture. A sinking fund payment of $1 million is required annually. Sinking fund payments for 1995 through 1999 were made as required. Currently, the Company is voluntarily paying $183,300 each month to the Trustee to cover future interest and sinking fund payments. The Trustee, at the Company's request, holds such moneys in accounts to which the Company has no access. The entire debt is due July 1, 2001, and will need to be refinanced at that time. During the first quarter of 2000, the Company's working capital decreased by $1,158,400, and concomitantly, its current ratio (current assets divided by current liabilities) decreased from 2.6:1 at December 31, 1999 to 1.9:1 at March 31, 2000. This decrease in working capital is attributable to a net loss in the first three months of 2000 of $1,190,700, and a reduction in long-term debt of $191,000, both offset by depreciation in excess of capital additions of $206,500 and a decrease in other assets of $16,800. The Company has cash and cash equivalents of $4.7 million at March 31, 2000. Cash used by operating activities for the three months ended March 31, 2000 amounted to $99,900 and the Company spent $8,200 on new equipment. The Company does not anticipate any significant capital expenditures during the remainder of the year. At March 31, 2000, the ratio of consolidated funded debt to consolidated net worth was .35:1. At March 31, 2000, trade accounts receivable were $122,700 greater than at year end, largely because sales in March of 2000 were greater than those of December of 1999. At March 31, 2000, other receivables were $580,600 greater than at December 31, 1999, because of an income tax refund receivable of approximately $613,500. Accounts payable increased from the end of 1999 through March of 2000 by $1,617,900 primarily due to the existence of advertising payables at the end of the quarter whereas none existed at the end of last year. Legal Proceedings The Company's Annual Reports from 1996 forward describe a patent infringement suit filed against Neoteric Cosmetics, Inc. (and others) in May of 1996 in the United States District Court for the District of Delaware by TriStrata Technology, Inc. Neoteric Cosmetics is a wholly owned subsidiary of the Company which manufactures and sells skin care products under the name Alpha Hydrox. The plaintiff in the lawsuit, among other things, alleges that Neoteric Cosmetics contributes to and/or induces infringement of patents owned by the plaintiff by promoting and selling Neoteric skin care products for the purpose of visibly reducing a human skin wrinkle and/or fine lines. In 1995, after the issuance of one of the patents involved in the lawsuit, the Company changed its advertising and packaging to remove references to wrinkles and fine lines. Certain defendants in this lawsuit, including the Company, are cooperating with one another in matters of common interest to defend against this action. The Company continues to mount a vigorous defense in this case. The Company cannot predict the potential outcome of this lawsuit or the ultimate impact on the Company's financial position or results of operations. Market Risks Market risk represents the risk of loss due to adverse changes in financial and commodity market prices and rates. The Company is not materially exposed to market risks regarding interest rates because the Company's outstanding bonds have a fixed interest rate. Further, the Company does not use foreign currencies in its business. Currently, it receives payments for sales to parties in foreign countries through letters of credit in U.S. dollars. Additionally, the Company does not use derivative instruments or engage in hedging activities. As a result, the Company does not believe that near-term changes in market risks will have a material effect on its results of operations, financial position or cash flows of the Company. Year 2000 ("Y2K") Issues The Company has previously reported on its progress in implementing a corporate- wide program to address Year 2000 (also referred to as "Y2K") issues. The Company experienced little or no difficulties with the advent of Year 2000, either in its internal operations or in dealings with outside third parties. While nothing is certain, the Company does not anticipate any significant problems, and only minimal costs, in the coming year resulting from Y2K- related issues. 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. Forward- looking statements and the Company's 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, continued acceptance of the Company's products in the marketplace; the degree of success of any new product or product line introduction by the Company; competitive factors; the need for effective advertising of the Company's 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 the Company's products, including applicable environmental regulations; adverse developments in pending litigation; the loss of any executive officer; and other matters discussed in the Company's periodic filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk Please see "Market Risks" in Item 2 of Part I of this Report which information is incorporated herein by this reference. PART II OTHER INFORMATION Item 1. Legal Proceedings Please see "Legal Proceedings" in Item 2 of Part I of this Report which information is incorporated herein by this reference. The legal proceeding described in that Item have been previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Item 2. Not Applicable Item 3. Not Applicable Item 4. Not Applicable Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K There were no Reports were filed by the Company on Form 8-K during the First Quarter of 2000. 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. May 9, 2000 BY: _________________________________ Date Mark E. Goldstein President and Chief Executive Officer May 9, 2000 BY: _________________________________ Date Barry Shepard, Treasurer and Principal Financial Officer EX-27 2
5 3-MOS DEC-31-2000 MAR-31-2000 4,709,500 0 4,008,100 863,800 3,111,000 12,029,600 27,116,300 9,692,000 29,455,800 6,207,600 12,000,000 0 0 1,010,300 15,408,500 29,455,800 7,628,900 7,897,300 2,670,700 9,395,200 0 0 306,300 (1,804,200) (613,500) (1,190,700) 0 0 0 (1,190,700) (0.12) (0.12)
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