10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 OPEN May 7, 2023 the registrant had OPEN 12,797,423 shares of its common stock, $0.10 par value per share, outstanding.

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.

Note 1. Organization and Summary of Significant Accounting Policies

(a) Company Background

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

(b) Principles of Consolidation

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

On January 23, 2023, 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 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 to 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 segment. See Note 3 for further information.

The unaudited Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, and Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at March 31, 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 March 31, 2023 are not necessarily indicative of the operating results for the full year and are unaudited.

(d) Use of Estimates

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

(e) Inventories Valuation and Reserves

Inventories consist of raw materials and finished goods and are stated at the lower of cost (first-in, first-out method) or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We estimate an inventory reserve 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.

Our remaining raw materials balance is to be sold to contract manufacturing partners based on production demand.

(f) 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.

(g) Intangible Assets

Intangible assets with finite lives, such as customer relationships, trade names, and formulas, are amortized over their estimated useful lives, generally ranging from 5 to 20 years. Amortization expense related to intangible assets is included in Operating Expenses on the Condensed Consolidated Statement of Operations.

Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. In the second quarter of 2022, our internal-use software was implemented for its intended use with an estimated useful life of five years. Amortization expense is recorded on a straight-line basis and is included in general and administrative expenses on the Condensed Consolidated Statements of Operations.

(h) Financial Instruments

Financial instruments which potentially subject us to concentrations of credit risk include cash, and accounts receivable. We maintain our cash balances in the form of bank demand 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 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, receivables, other current assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these financial instruments.

(i) 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 no significant interest and penalties recognized in the Condensed Consolidated Statements of Operations or accrued on the Condensed Consolidated Balance Sheets.

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 months ended March 31, 2023 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax income primarily due to valuation allowance. The effective tax rate for the three months ended March 31, 2023 and 2022 was -0.9% and 0.0% respectively.

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 March 31, 2023, and December 31, 2022.

(j) 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.

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 were as follows:


	March 31, 2023		December 31, 2022
Trade promotions	$	259	$	361
Allowance for doubtful accounts		59		59
	$	318	$	420

(k) Advertising Costs

We expense advertising costs as incurred.

(l) 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.

(m) Operating Costs and Expenses Classification

Cost of sales includes costs associated with the purchase of goods from our third-party manufacturing partners, which include labor, materials, and other expenses associated with the manufacturing of our products, freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for warehousing and distribution, sales and sales support personnel, brokerage commissions, customer compliance fines, and promotional costs. Freight-out costs included in selling expenses totaled $425 and $527 for the three months ended March 31, 2023 and 2022, respectively.

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.

(n) Supplier Finance Programs

During 2022, we entered into an agreement with a third-party financial institution and and 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 $145 and $217 as of March 31, 2023 and December 31, 2022, respectively, which will be recognized on the Condensed Consolidated Financial Statements as payments are due.

(o) Recently Issued Accounting Standards

In September 2022, the FASB issued Accounting Standards Update ("ASU)" No. 2022-04, "Liabilities-Supplier Finance Programs (Subtopic 405-50), Disclosure of Supplier Finance Program Obligations." This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. We adopted this ASU as of January 1, 2023 on a prospective basis. As the guidance requires only additional disclosures, there were no effects of this standard on our financial position, results of operations and cash flows. See disclosure contained in Note 1(n).

Note 3. Discontinued Operations

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 $800, plus an amount equal to the value of the Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore inventory of $1,136, subject to post-close adjustment. Additionally, the buyer will pay a royalty equal to 2% of gross sales for two years after the closing date (the "Scott's Liquid Gold® Royalty"). The Scott's Liquid Gold® Royalty resulted in recognition of a gain upon the sale of assets. Because the Scott's Liquid Gold® Royalty is variable consideration and is contingent on the outcome of future events that are largely outside of the Company’s control, the variable consideration from the Scott's Liquid Gold® Royalty has been fully constrained and no amount is included in the results from discontinued operations. Consideration for the Scott's Liquid Gold® Royalty is to be recognized as received from the buyer. The constraint on the variable consideration will be reassessed at each subsequent reporting period.

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 $150, plus an amount equal to the value of the Prell® inventory of $330, subject to post-close adjustment. Additionally, the buyer will pay a royalty equal to 3% of collections on net sales for four years after the closing date (the “Prell® Royalty”). The Prell® Royalty resulted in recognition of a gain upon the sale of assets. For the three months ended March 31, 2023, there were no changes in the assessment of the Prell® Royalty, which will continue to be recognized as received from the buyer. The constraint on the variable consideration will be reassessed at each subsequent reporting period.

We have reflected the operations of the Scott's Liquid Gold® and Prell® product lines as discontinued operations. 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. A summary of financial information related to our discontinued operations is as follows:

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 months ended March 31:


	Three Months Ended March 31, 2023
	Prell®		Scott's Liquid Gold®			Total
Net sales	$	-	$	187		$	187
Cost of sales		-		95		$	95
Gross profit		-		92			92

Operating expenses:
Selling		-		28			28
General and administrative		-		22			22
Operating income from discontinued operations		-		42			42

Interest expense		-		(18	)		(18	)
Gain on sale of discontinued operations		-		787			787
Income from discontinued operations	$	-	$	811		$	811


	Three Months Ended March 31, 2022
	Prell®			Scott's Liquid Gold®			Total
Net sales	$	838		$	1,223		$	2,061
Cost of sales		496			474		$	970
Gross profit		342			749			1,091

Operating expenses:
Selling		290			289			579
Intangible asset amortization		12			-			12
Operating income from discontinued operations		40			460			500

Interest expense		(14	)		(54	)		(68	)
Income from discontinued operations	$	26		$	406		$	432

There were no capital expenditures or significant operating and investing noncash items related to discontinued operations during the years ended December 31, 2022 and 2021, respectively.

Reconciliation of the Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Condensed Consolidated Balance Sheets as of:


	March 31, 2023		December 31, 2022
Assets
Current assets:
Inventories	$	-	$	1,235
Total assets	$	-	$	1,235

All assets in the above table are related to the discontinued operations of Scott's Liquid Gold®. There were no assets related to Prell® as of March 31, 2023 and December 31, 2022, respectively.

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 are 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 March 31,
	2023		2022
Common shares outstanding, beginning of the period		12,797		12,727
Weighted average common shares issued		-		12
Weighted average number of common shares outstanding		12,797		12,739
Dilutive effect of common share equivalents		-		-
Diluted weighted average number of common shares outstanding		12,797		12,739

Common stock equivalents (in thousands) that have been excluded from the calculation of earnings per share because they would have been anti-dilutive:


	Three Months Ended March 31,
	2023		2022
Stock options		138		213
Restricted stock units		38		63

Note 6. Segment Information

We operate in two different segments: household products and health and beauty care products. We have chosen to organize our business around these segments based on differences in the products sold. Accounting policies for our segments are the same as those described in Note 1. We evaluate segment performance based on segment income or loss from operations.

The following provides information on our segments for the three months ended March 31:


	Three Months Ended March 31, 2023
	Household Products			Health and Beauty Care Products		Total
Net sales	$	1,975		$	1,273	$	3,248
(Loss) income from operations		(386	)		92		(294	)
Depreciation and amortization		130			47		177


	Three Months Ended March 31, 2022
	Household Products			Health and Beauty Care Products			Total
Net sales	$	1,987		$	1,742		$	3,729
Loss from operations		(793	)		(8	)		(801	)
Capital and intangible asset expenditures		113			-			113
Depreciation and amortization		297			155			452

Note 7. Intangible Assets

Intangible assets, which are comprised of our capitalized costs of software obtained for internal-use or are related to our acquisition of our Denorex®, Zincon®, and BIZ® brands, consisted of the following:


	As of March 31, 2023						As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets:
Trade names	$	309	$	101	$	208	$	309	$	97	$	212
Formulas and batching processes		412		290		122		412		283		129
Internal-use software		898		150		748		898		105		793
Non-compete agreement		33		30		3		33		30		3
	$	1,652	$	571	$	1,081	$	1,652	$	515	$	1,137

Amortization expense for the three months ended March 31, 2023 and 2022 was $56 and $83, respectively.

Estimated amortization expense for 2023 and subsequent years is as follows:


Remainder of 2023	$	169
2024		225
2025		224
2026		215
2027		104
Thereafter		144
Total	$	1,081

Note 9. Leases

We have entered into a lease for our corporate headquarters with a remaining lease term of 8 years. This lease includes both lease and nonlease components, which are accounted for as a single lease component as we have elected the practical expedient to combine these components for all leases. As this lease does not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

Information related to leases was as follows:


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Operating lease information:
Operating lease cost	$	101		$	100
Operating cash flows from operating leases		100			100
Net assets obtained in exchange for new operating lease liabilities		-			-

Weighted average remaining lease term in years		7.67			8.67
Weighted average discount rate		5.1	%		5.1	%

Future minimum annual lease payments are as follows:


Remainder of 2023	$	305
2024		413
2025		420
2026		427
2027		434
Thereafter		1,305
Total minimum lease payments	$	3,304
Less imputed interest		(588	)

Total operating lease liability	$	2,716

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 Condensed 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.

Scott’s Liquid Gold-Inc. exists to positively impact consumers’ lives in the markets we serve while creating shareholder value. We develop, market, and sell high-quality, high-value household and health and beauty care products nationally and internationally to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, other retail outlets, and to wholesale distributors.

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 Scott's Liquid Gold® and Prell® as discontinued operations for all periods presented.

See Note 3 - “Discontinued Operations” in the Notes to Condensed Consolidated Financial Statements for further information on the sale of both 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.

The following table shows comparative net sales, gross margin, gross profit, loss from operations, volume, and percentage changes for household products between periods:

The following table shows comparative net sales, gross margin, gross profit, loss from operations, volume and percentage changes for health and beauty care products between periods:

Our primary sources of funds include cash expected to be generated from operations. Our principal uses of cash are to fund planned operating expenditures, interest payments, and principal payments on our debt. Management’s assessment of cash flow forecasts indicate that, absent any other action, the Company likely will require additional liquidity to continue its operations over the next 12 months. Working capital movements are influenced by the sourcing of finished goods inventories.

Please see Note 8 to our Condensed Consolidated Financial Statements for information on our La Plata Loan Agreement and UMB Loan Agreement, which was terminated in February 2023.

At March 31, 2023, we had approximately $457 in cash on hand, an increase of $408 from December 31, 2022.

The following is a summary of cash provided by or (used in) each of the indicated types of activities:

The accompanying Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists.

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. All proceeds from the sale of our Scott's Liquid Gold brand in January 2023 were used to reduce outstanding debt. In February 2023, the Company terminated its Loan and Security Agreement with UMB Bank, N.A, and repaid its revolving credit facility in full. The Company’s debt agreement with La Plata Capital, LLC matures on November 9, 2023. Management’s assessment of cash flow forecasts indicate that, absent any other action, the Company likely will require additional liquidity to continue its operations over the next 12 months.

Management has implemented actions to reduce the Company’s operating expenses and has restructured debt facilities through the adjustments to the timing of required principal payments and covenant compliance periods. Management is considering additional various strategic actions including asset sales, obtaining additional debt or equity financing (potentially in conjunction with acquisitions), workforce reduction, deferring or eliminating certain capital expenditures, and further reduction of other operating expenses to ensure alignment with customer demand in order to address liquidity needs and pursue its business plan. The Company expects that these strategic actions will reduce expenses and outstanding debt balances and provide required liquidity for ongoing operations. However, given the impact of the economic downturn on the U.S., the Company may be unable to sell assets or access further equity or debt financing when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all.

The Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

As of March 31, 2023, we conducted an evaluation, under the supervision and with the participation of our President and Chief Financial Officers of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-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 are effective as of March 31, 2023.

There was no change in our internal control over financial reporting during the three months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

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.


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


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


		Page
PART I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4.	Controls and Procedures	18
PART II
Item 1A.	Risk Factors	19
Item 6.	Exhibits	19


	Three Months Ended
	March 31,
	2023			2022
Net sales	$	3,248		$	3,729
Cost of sales		1,849			1,886
Gross profit		1,399			1,843

Operating expenses:
Advertising		154			135
Selling		865			1,625
General and administrative		618			791
Intangible asset amortization		56			93
Total operating expenses		1,693			2,644
Loss from operations		(294	)		(801	)

Interest expense		(152	)		(82	)
Loss before income taxes and discontinued operations		(446	)		(883	)
Income tax benefit		4			-
Loss from continuing operations		(442	)		(883	)
Income from discontinued operations		811			432
Net income (loss)	$	369		$	(451	)

Basic and diluted net income (loss) per common shares:
Loss from continuing operations	$	(0.03	)	$	(0.07	)
Income from discontinued operations	$	0.06		$	0.03
Net income (loss)	$	0.03		$	(0.04	)

Weighted average shares outstanding:
Basic and diluted		12,797			12,739


	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash	$	457		$	49
Accounts receivable, net		975			1,833
Inventories		2,940			3,457
Income taxes receivable		-			239
Prepaid expenses		462			243
Total current assets		4,834			5,821

Intangible assets, net		1,081			1,137
Operating lease right-of-use assets		2,428			2,491
Other assets		46			47
Assets of discontinued operations		-			1,235
Total assets	$	8,389		$	10,731

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,030		$	1,407
Accrued expenses		215			311
Current portion of long-term debt, net of debt issuance costs		1,205			3,384
Operating lease liabilities, current portion		275			270
Total current liabilities		2,725			5,372

Operating lease liabilities, net of current		2,441			2,512
Other liabilities		27			27
Total liabilities		5,193			7,911

Shareholders’ equity:
Preferred Stock, no par value, authorized 20,000 shares; no shares issued and outstanding		-			-
Common Stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,797 shares (2023) and 12,797 shares (2022)		1,280			1,280
Capital in excess of par		7,919			7,912
Accumulated deficit		(6,003	)		(6,372	)
Total shareholders’ equity		3,196			2,820
Total liabilities and shareholders’ equity	$	8,389		$	10,731


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


	Common Stock
	Shares		Amount		Capital in Excess of Par		(Accumulated Deficit) Retained Earnings			Total
Balance, December 31, 2022		12,797	$	1,280	$	7,912	$	(6,372	)	$	2,820
Stock-based compensation		-		-		7		-			7
Net income		-		-		-		369			369
Balance, March 31, 2023 (Unaudited)		12,797	$	1,280	$	7,919	$	(6,003	)	$	3,196

Balance, December 31, 2021		12,727	$	1,273	$	7,789	$	2,479		$	11,541
Stock-based compensation		-		-		35		-			35
Net loss		-		-		-		(451	)		(451	)
Restricted stock unit vesting		22		2		26		-			28
Balance, March 31, 2022 (Unaudited)		12,749	$	1,275	$	7,850	$	2,028		$	11,153


	Three Months Ended March 31, (in thousands)
							Increase / (Decrease)
	2023			2022			$			%
Net sales	$	3,248		$	3,729		$	(481	)		(12.9	%)
Cost of sales		1,849			1,886			(37	)		(2.0	%)
Gross profit		1,399			1,843			(444	)		(24.1	%)
		43.1	%		49.4	%
Operating expenses:
Advertising		154			135			19			14.1	%
Selling		865			1,625			(760	)		(46.8	%)
General and administrative		618			791			(173	)		(21.8	%)
Intangible asset amortization		56			93			(37	)		(39.8	%)
Total operating expenses		1,693			2,644			(951	)		(36.0	%)
Loss from operations		(294	)		(801	)		507			63.3	%

Interest expense		(152	)		(82	)		(70	)		(85.4	%)
Loss before income taxes and discontinued operations		(446	)		(883	)		437			49.5	%
Income tax benefit		4			-			4			100.0	%
Loss from continuing operations		(442	)		(883	)		441			49.9	%
Gain from discontinued operations, net of taxes		811			432			379			87.7	%
Net income (loss)	$	369		$	(451	)	$	820			181.9	%


Exhibit Number		Document
31.1		Rule 13a-14(a) Certification of the President.
31.2		Rule 13a-14(a) Certification of the Chief Financial Officer.
32.1*		Section 1350 Certification.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRLtags 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)


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)