8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 1, 2019

SCOTT’S LIQUID GOLD-INC.

(Exact name of Registrant as specified in its charter)

Colorado	001-13458	84-0920811
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

4880 Havana Street, Denver, CO	80239
(Address of principal executive offices)	(Zip Code)

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

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

Item 2.01 Completion of Acquisition or Disposition of Assets.

This Amendment No.1 on Form 8-K/A (“Form 8-K/A”) amends the Current Report on Form 8-K filed by Scott’s Liquid Gold-Inc. (the “Company”) with the Securities and Exchange Commission (“SEC”) on October 2, 2019 (the “October Form 8-K”). The October Form 8-K reported under Item 2.01 that the Company, through its wholly owned subsidiary SLG Chemicals, Inc. (the “Buyer”), entered into an asset purchase agreement (the “Purchase Agreement”) with Paramount Chemical Specialties, Inc. (the “Seller”) on October 1, 2019. Pursuant to the Purchase Agreement, the Buyer purchased all intangible assets of the Seller, all finished goods inventory owned by the Seller, and all assets used in connection with the manufacture, sale and distribution of the Kids N Pets, Kids N Pets No No No! and Messy Pet brands.

The description of the Purchase Agreement found in this Form 8-K/A is not intended to be complete and is qualified in its entirety by reference to the agreements attached to the October Form 8-K.

This Form 8-K/A provides the financial statements and the pro forma financial information as required by Item 9.01 of Form 8-K. No other modification to the October Form 8-K is being made by this Form 8-K/A. The information previously reported in or filed with the October Form 8-K is hereby incorporated by reference into this Form 8-K/A.

Item 9.01 Financial Statements and Exhibits.

(a)(1)  Financial Statements of Businesses Acquired.

The audited financial statements of the Seller as of and for the year ended December 31, 2018, and the unaudited condensed consolidated financial statements of the Seller as of as of September 30, 2019, and for the nine months ended September 30, 2019 and 2018, respectively, and accompanying notes, are attached hereto as Exhibit 99.1 and are incorporated herein by reference.

(b)(1)  Pro Forma Financial Information.

The unaudited pro forma condensed combined statements of income of the Company for the year ended December 31, 2018 and for the nine months ended September 30, 2019, unaudited pro forma combined balance sheet as of September 30, 2019, and accompanying notes, are attached hereto as Exhibit 99.2 and are incorporated herein by reference.

(d)  Exhibits.

Exhibit No.	Description
23.1	Consent of EKS&H, LLLP Independent Auditors for the Acquired Brands of Paramount Specialty Chemicals, Inc. as of and for the year ended December 31, 2018.
99.1	Audited financial statements of the Acquired Brands of Paramount Chemical Specialties, Inc. as of and for the year ended December 31, 2018, and the accompanying notes thereto, and unaudited financial statements of the Acquired Brands of Paramount Chemical Specialties, Inc. as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018, respectively, and the accompanying notes thereto.
99.2	Unaudited pro forma condensed combined financial statements of Scott’s Liquid Gold-Inc. as of and for the year ended December 31, 2018 and for the nine months ended September 30, 2019, and the accompanying notes thereto.

SIGNATURE

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 hereunto duly authorized.

	SCOTT’S LIQUID GOLD-INC.
Date: December 10, 2019	/s/ Kevin A. Paprzycki
	Kevin A. Paprzycki Chief Financial Officer

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion of our report dated December 9, 2019 on the financial statements of the Acquired Brands of Paramount Chemical Specialties, Inc. for the year ended December 31, 2018 in the Amended Current Report on the Form 8-K/A of Scott’s Liquid Gold-Inc. (Commission File No. 001-13458) dated December 10, 2019, related to its acquisition of Acquired Brands of Paramount Chemical Specialties, Inc.

/s/ Plante & Moran, PLLC

Denver, CO

December 9, 2019

EX-99.1

EXHIBIT 99.1

Acquired Brands of Paramount Chemical Specialties, Inc.

Financial Statements

and

Independent Auditors’ Report

As of and for the Year Ended December 31, 2018

and

Unaudited Financial Statements

As of September 30, 2019

and for the Nine Months Ended September 30, 2019 and 2018

TABLE OF CONTENTS

	Page
Independent Auditors’ Report	1
Financial Statements
Statements of Income	2
Balance Sheets	3
Statement of Changes in Parent Company Investment	4
Statements of Cash Flows	5
Notes to Financial Statements	6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Scott’s Liquid Gold-Inc.

We have audited the accompanying financial statements of Acquired Brands of Paramount Chemical Specialties, Inc. (the “Company”), which comprise the balance sheet as of December 31, 2018 and the related statements of income, changes in parent company investment, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Acquired Brands of Paramount Chemical Specialties, Inc. as of December 31, 2018 and the respective changes in its financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Plante & Moran, PLLC

Denver, Colorado

December 9, 2019

1

Acquired Brands of Paramount Chemical Specialties, Inc.

Statements of Income

	Nine Months Ended				For the Year Ended
	September 30,				December 31,
	2019		2018		2018
	(Unaudited)		(Unaudited)
Net sales	$	2,384,402	$	2,170,970	$	2,860,327
Cost of sales		904,995		890,160		1,122,644
Gross Profit		1,479,407		1,280,810		1,737,683
Operating expenses:
Advertising		84,551		72,084		96,257
Selling		576,585		520,432		686,950
General and administrative		318,059		204,843		381,277
Total operating expenses		979,195		797,359		1,164,484
Net income	$	500,212	$	483,451	$	573,199

See accompanying notes to these Financial Statements.

2

Acquired Brands of Paramount Chemical Specialties, Inc.

Balance Sheets

	September 30,		December 31,
	2019		2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	44,161	$	340,993
Accounts receivable, net		350,808		272,782
Inventories, net		306,121		273,538
Other current assets		4,132		14,621
Total current assets		705,222		901,934
Total assets	$	705,222	$	901,934
Liabilities and Parent Company Investment
Current liabilities:
Accounts payable	$	62,908	$	62,421
Accrued expenses		20,932		28,343
Total current liabilities		83,840		90,764
Total liabilities		83,840		90,764
Parent company investment:
Parent company net investment in Acquired Brands of Paramount Chemical Specialties, Inc.		621,382		811,170
Total parent company investment		621,382		811,170
Total liabilities and parent company investment	$	705,222	$	901,934

See accompanying notes to these Financial Statements.

3

Acquired Brands of Paramount Chemical Specialties, Inc.

Statement of Changes in Parent Company Investment

	Parent Company Investment in Acquired Brands of Paramount Chemical Specialties, Inc.
Balance, December 31, 2017	$	527,971
Net distribution to parent company		(290,000	)
Net income		573,199
Balance, December 31, 2018		811,170
Net distribution to parent company (Unaudited)		(690,000	)
Net income (Unaudited)		500,212
Balance, September 30, 2019 (Unaudited)	$	621,382

See accompanying notes to these Financial Statements.

4

Acquired Brands of Paramount Chemical Specialties, Inc.

Statements of Cash Flows  

	Nine Months Ended September 30,			For the Year Ended December 31,
	2019			2018
	(Unaudited)
Cash flows from operating activities:
Net income	$	500,212		$	573,199
Change in operating assets and liabilities:
Accounts receivable		(78,026	)		(71,202	)
Inventories		(32,583	)		94,919
Other assets		10,489			519
Accounts payable and accrued expenses		(6,924	)		(30,527	)
Total adjustments to net income		(107,044	)		(6,291	)
Net cash provided by operating activities		393,168			566,908
Cash flows from financing activities:
Net distribution to parent		(690,000	)		(290,000	)
Net cash used in financing activities		(690,000	)		(290,000	)
Net (decrease) increase in cash and cash equivalents		(296,832	)		276,908
Cash and cash equivalents, beginning of period		340,993			64,085
Cash and cash equivalents, end of period	$	44,161		$	340,993

See accompanying notes to these Financial Statements.

5

Acquired Brands of Paramount Chemical Specialties, Inc.

Notes to Financial Statements  

(Information as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018 is unaudited)

Note  1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Paramount Chemical Specialties, Inc. (“Paramount”) offers deodorizers and dander removers, carpet cleaners, and laundry stain and odor removers, which are used in on carpets, carpet pads, furniture, clothing, and mattresses. Paramount operates in the State of Washington.

Basis of Presentation

The accompanying financial statements are for the portion of the business of Paramount related to the assets acquired on October 1, 2019 by SLG Chemicals, Inc. (“SLG”), a wholly owned subsidiary of Scott’s Liquid Gold-Inc. (the “Company”).  SLG acquired from Paramount all intangible assets, finished goods inventory, and all assets used in connection with the manufacture, sale and distribution of the Kids N Pets, Kids N Pets No No No! and Messy Pet brands (the “Acquired Brands”). These financial statements for the Acquired Brands of Paramount represent substantially all of Paramount’s historical operations prior to the effect of the transaction noted above.

The accompanying financial statements present the statements of financial position of the Acquired Brands of Paramount, and the statements of income and cash flows of the Acquired Brands of Paramount were prepared solely for inclusion in a Form 8-K/A of the Company for purposes of complying with the rules and regulations of the Securities and Exchange Commission. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Transactions between Paramount and the Acquired Brands of Paramount are reflected in the accompanying financial statements as a net contribution or distribution to/from parent as a component of parent company investment.

Use of Estimates

Preparing the financial statements of the Acquired Brands of Paramount in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs, and expenses that are reported in the financial statements and accompanying disclosures. As a result, actual results could differ from these estimates.

Cash Equivalents

All highly liquid investments with an initial maturity of three months or less are considered to be cash equivalents.

Inventories Valuation and Reserves

Inventories consists of finished goodsand 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. A reserve is established for any specific products deemed obsolete, damaged and expired. As of September 30, 2019 and December 31, 2018, respectively, there was no reserve established for finished goods inventories.

Financial Instruments

Financial instruments which are potentially subject to concentrations of credit risk include cash equivalents and accounts receivable. As of September 30, 2019, and periodically throughout the year, balances in various operating accounts exceeded federally insured limits. There are 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, accounts payable, and accrued expenses approximate fair value due to the short-term nature of the financial instruments.

Revenue Recognition

Revenue contracts are identified when purchase orders are received and accepted from customers and represent a single performance obligation to sell products to a customer. Net sales reflect the transaction prices for contracts and are reduced by

6

estimated and actual costs incurred related to customer allowances. Sales are recorded based on the assessment of control indicators and are generally recognized when products are delivered to customers.

Customer allowances primarily include early payment incentives, reserves for trade promotions of products to customers, and reserves for returned or damaged products. The costs of customer allowances are estimated using all reasonably available information, including our historical experience and current expectations. Customer allowances 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.

An allowance for doubtful accounts is based on an assessment of the credit risk of specific customers and historical trends. As of September 30, 2019 and December 31, 2018, respectively, there was no allowance for doubtful accounts recorded on the balance sheets.

Trade promotions to our customers deducted from gross sales totaled $112,420 and $103,992 for the periods from January 1 through September 30, 2019 and 2018, respectively, and totaled $141,675 for the year ended December 31, 2018.

Operating Costs and Expenses Classification

Cost of sales includes costs associated with purchasing finished goods from third party manufacturers. Freight-out and warehousing costs are classified as selling expenses. Other selling expenses consist primarily of brokerage commissions and other promotional costs. Freight-out and warehousing costs included in selling expenses totaled $380,932 and $339,792 for the periods from January 1 through September 30, 2019 and 2018, respectively, and totaled $452,559 for the year ended December 31, 2018.

General and administrative expenses consist primarily of wages and benefits associated with management and administrative support, business insurance costs, office facility related expenses, and other general support costs.

Advertising Costs

Advertising costs are expensed as they are incurred.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). This guidance, as amended by subsequent ASUs on the topic, outlines a comprehensive model for determining revenue recognition for contracts with customers, which replaces numerous industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. This guidance implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts and customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The new guidance is effective for reporting periods beginning after December 15, 2018, and early adoption is permitted. Entities can transition to the new guidance either retrospectively or as a cumulative-effect adjustment as of the date of the adoption. Effective January 1, 2019, Paramount adopted the new guidance on a “full retrospective” basis, which did not have a material impact on the financial statements. As such, prior period financial statements were not recast.

Note 2. Concentrations of Credit Risk

Paramount provides credit in the normal course of business to customers. Paramount performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses, which, when realized, have been within the range of management’s expectations. Paramount does not require collateral with regard to extending credit to customers.

During the periods from January 1 through September 30, 2019 and 2018, respectively, and during the year ended December 31, 2018, two customers were significant to Paramount. Net sales to significant customers represented the following percentages of total net sales for each of the following periods:

	Nine Months Ended						For the Year Ended
	September 30,						December 31,
	2019			2018			2018
Significant customers		88.5	%		84.9	%		86.1	%

7

Outstanding accounts receivable from significant customers represented the following percentages of total accounts receivable as of September 30, 2019 and December 31, 2018, respectively:

	September 30,			December 31,
	2019			2018
Significant customers		85.9	%		89.8	%

During the period from January 1 through September 30, 2019 and the year ended December 31, 2018, respectively, Paramount utilized one vendor to manufacture all finished goods inventories and one vendor to provide all warehousing, consolidation, and transportation services. Paramount has good relationships with both vendors. The loss of either vendor would not be significant to Paramount, as there are many other providers who would be able to provide similar services.

Note 3. Commitments and Contingencies

Operating Leases

Paramount has a lease agreement for an office facility with a term of three years. Future minimum annual lease payments are as follows:

2019 (remaining)	$	6,984
2020		28,636
2021		4,796
	$	40,416

Note 4. Subsequent Events

All subsequent events have been evaluated through the auditors' report date, which is the date the financial statements were available for issuance. With the exception of those of those matters discussed in Note 1, there were no material subsequent events that required recognition or additional disclosure in these financial statements.

8

EX-99.2

EXHIBIT 99.2

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements

On October 1, 2019, SLG Chemicals, Inc. (“SLG”), a wholly-owned subsidiary of Scott’s Liquid Gold-Inc. (the “Company” or “we”),  entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Paramount Chemical Specialties, Inc. (“Paramount”) and consummated the transaction, pursuant to which SLG purchased from Paramount all intangible assets, finished goods inventory, and all assets used in connection with the manufacture, sale and distribution of the Kids N Pets, Kids N Pets No No No! and Messy Pet brands (the “Acquired Brands”). The total consideration SLG paid initially for the Acquired Brands was $5.5 million, plus or minus any inventory adjustment based on the value of the inventory of finished goods as of the closing compared to the target inventory of $223,000. The Purchase Agreement also includes a $1.5 million maximum contingent consideration wherein we would pay Paramount 20% of brand-specific revenue, in conformity with generally accepted accounting principles in the United States, in excess of $3.5 million for each of calendar years 2021, 2022, 2023, and 2024 (the “Paramount Acquisition”).

The Company financed the Paramount Acquisition at closing with $4.5 million of cash on hand and $1.0 million from a revolving line-of-credit. The subsequent adjustment to inventory resulted in an additional payment of $83,000 to Paramount.

The following unaudited condensed combined pro forma financial information is presented to illustrate the estimated effects of the acquisition and the financing transactions.

The unaudited condensed combined pro forma balance sheet as of September 30, 2019 combines the historical balance sheets of the Company and Paramount as of September 30, 2019 and gives effect to the acquisition as if it occurred on September 30, 2019. The unaudited condensed combined pro forma statements of income for the year ended December 31, 2018 combines the Company’s audited consolidated statements of income with Paramount’s audited statements of income statement for the year ended December 31, 2018. The unaudited condensed combined pro forma statements of income for the nine months ended September 30, 2019 combines the Company’s condensed unaudited consolidated statements of income with Paramount’s unaudited statements of income for the nine months ended September 30, 2019. The unaudited pro forma statements of income for the fiscal year ended 2018 give effect to the acquisition as if it occurred on January 1, 2018.

The unaudited condensed combined pro forma financial information is presented for illustrative purposes only and should not be considered indicative of the actual financial position or results that would have been achieved had the Paramount Acquisition been consummated on the dates indicated and do not purport to indicate balance sheet data or results of operations as of any future date or any future period. In applying the acquisition method of accounting for the transaction, the tangible and intangible assets acquired and the liabilities assumed will be recognized at their respective fair values at the time the transaction is consummated based on preliminary appraisal estimates and certain assumptions that management believes are reasonable. The actual allocation is subject to finalization of the appraisal and the determination of any adjustment to inventory, and the actual allocation of the purchase cost and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein.  The estimated adjustments are described in the accompanying footnotes.

The unaudited condensed combined pro forma financial statements and accompanying notes thereto should be read in conjunction with the Company’s historical financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019.

1

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2019

(in thousands, except par value amounts)

	Scott's Liquid		Paramount Acquisition		Pro Forma				Pro Forma
	Gold-Inc.		Brands		Adjustments				Combined
Assets
Current assets:
Cash and cash equivalents	$	7,110	$	44	$	(4,627	)	(a) (b)	$	2,527
Accounts receivable, net		2,711		351		(351	)	(b)		2,711
Inventories, net		7,030		306		-				7,336
Income taxes receivable		507		-		-				507
Prepaid expenses and other current assets		350		4		(4	)	(b)		350
Total current assets		17,708		705		(4,982	)			13,431
Property and equipment, net		986		-		-				986
Deferred tax asset		384		-		-				384
Goodwill		1,521		-		1,709		(c)		3,230
Intangible assets, net		5,348		-		3,595		(c)		8,943
Operating lease right-of-use assets		2,299		-		-				2,299
Other assets		71		-		-				71
Total assets	$	28,317	$	705	$	322			$	29,344
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,943	$	63	$	(63	)	(b)	$	1,943
Accrued expenses		470		21		6		(b) (d)		497
Operating lease liabilities, current portion		946		-		-				946
Total current liabilities		3,359		84		(57	)			3,386
Operating lease liabilities, net of current		1,373		-		-				1,373
Line-of-credit		-		-		1,000		(a)		1,000
Total liabilities		4,732		84		943				5,759
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 12,462 shares (2019) and 12,408 shares (2018)		1,246		-		-				1,246
Capital in excess of par		7,220		-		-				7,220
Retained earnings		15,119		621		(621	)	(e)		15,119
Total shareholders’ equity		23,585		621		(621	)			23,585
Total liabilities and shareholders’ equity	$	28,317	$	705	$	322			$	29,344

See accompanying notes to pro forma financial information.

2

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Statement of Income

For the Year Ended December 31, 2018

(in thousands, except per share data)

	Scott's Liquid			Paramount Acquisition		Pro Forma				Pro Forma
	Gold-Inc.			Brands		Adjustments				Combined
Net sales	$	37,058		$	2,860	$	-			$	39,918
Cost of sales		20,847			1,123		36		(f)		22,006
Gross Profit		16,211			1,737		(36	)			17,912
Operating expenses:
Advertising		1,479			96		-				1,575
Selling		7,357			687		-				8,044
General and administrative		4,464			381		240		(f)		5,085
Total operating expenses		13,300			1,164		240				14,704
Income (loss) from operations		2,911			573		(276	)			3,208
Interest income		17			-		-				17
Interest expense		(82	)		-		(42	)	(g)		(124	)
Income (loss) before income taxes		2,846			573		(318	)			3,101
Income tax benefit (expense)		(619	)		-		(63	)	(h)		(682	)
Net income (loss)	$	2,227		$	573	$	(381	)		$	2,419
Net income (loss) per common share
Basic	$	0.18								$	0.20
Diluted	$	0.18								$	0.19
Weighted average shares outstanding
Basic		12,132									12,132
Diluted		12,581									12,581

See accompanying notes to pro forma financial information.

3

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Statement of Income

For the Nine Months Ended September 30, 2019

(in thousands, except per share data)

	Scott's Liquid			Paramount Acquisition		Pro Forma				Pro Forma
	Gold-Inc.			Brands		Adjustments				Combined
Net sales	$	20,365		$	2,384	$	-			$	22,749
Cost of sales		12,877			905		27		(f)		13,809
Gross Profit		7,488			1,479		(27	)			8,940
Operating expenses:
Advertising		491			84		-				575
Selling		4,381			577		-				4,958
General and administrative		3,604			318		104		(f) (i)		4,026
Total operating expenses		8,476			979		104				9,559
(Loss) income from operations		(988	)		500		(131	)			(619	)
Interest income		89			-		-				89
Interest expense		(14	)		-		(32	)	(g)		(46	)
Gain on sale of equipment		110			-		-				110
(Loss) income before income taxes		(803	)		500		(163	)			(466	)
Income tax benefit (expense)		144			-		(40	)	(h)		104
Net (loss) income	$	(659	)	$	500	$	(203	)		$	(362	)
Net (loss) income per common share
Basic	$	(0.05	)							$	(0.03	)
Diluted	$	(0.05	)							$	(0.03	)
Weighted average shares outstanding
Basic		12,435									12,435
Diluted		12,582									12,582

See accompanying notes to pro forma financial information.

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SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note 1. Basis of Presentation

The Paramount Acquisition has been accounted for using the acquisition method of accounting for the transaction, where tangible and intangible assets acquired and the liabilities assumed will be recognized at their respective fair values at the time the transaction is consummated based upon preliminary appraisal estimates and certain assumptions that management believes are reasonable. The excess of the estimated purchase cost over the net assets acquired is recognized as goodwill.

The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date. The allocation of the purchase price is still preliminary as the Company is in the process of finalizing valuations currently in process. Any post-closing true-up adjustments will have a corresponding purchase price adjustment. Based on preliminary figures of Paramount’s finished goods inventory, the Company estimates the finished goods inventory adjustment to be an additional $83,000, which has been included in the preliminary estimated allocation of the fair values as follows (amounts in thousands):

Fair value of consideration transferred:
Actual and expected cash payments	$	5,583
Contingent consideration		27
Preliminary purchase price allocation	$	5,610
Inventories, net		306
Intangible assets		3,595
Goodwill		1,709
Total purchase price	$	5,610

Note 2. Description of Pro Forma Adjustments

Adjustments included in the column under the heading “Pro Forma Adjustments” relate to the following:

(a) To record cash and line-of-credit in connection with the purchase consideration paid.

(b) To eliminate assets not acquired and liabilities not assumed.

(c) To record the estimated fair value of intangible assets and residual goodwill.

(d) To record the estimated fair value of the contingent consideration assumed.

(e) To eliminate historical owner’s net investment in Paramount.

(f) To record additional amortization expense from acquired intangible assets.

(g) To record incremental interest expense from debt incurred in conjunction with the Paramount Acquisition.

(h) To reflect income tax impact of acquired business results and pro forma adjustments.

(i) To eliminate transaction costs incurred by Paramount

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