EX-99.2 5 slgd-ex992_6.htm EX-99.2 slgd-ex992_6.htm

EXHIBIT 99.2

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

 

Unaudited Pro Forma Condensed Combined Financial Statements

On June 25, 2020, SLG Chemicals, Inc., a Colorado corporation (“SLG Chemicals”) and a wholly owned subsidiary of Scott’s Liquid Gold-Inc., a Colorado corporation (the “Company” or “we” or “us”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CR Brands, Inc., a Delaware corporation (“CR Brands”), and Sweep Acquisition Company, a Delaware corporation (“Sweep” and together with CR Brands, “Sellers”), pursuant to which SLG Chemicals agreed to purchase from Sellers substantially all of the assets, properties, rights and interests of Sellers primarily used in the business of designing, formulating, marketing and selling laundry care products to retail and wholesale customers under the Biz® and Dryel® brand names (the “Business”). The transactions contemplated by the Purchase Agreement were consummated on July 1, 2020 (the “Acquisition”).  The total consideration SLG Chemicals paid for the Business was $9.25 million, plus an amount equal to the value of the Business-related inventory (including raw materials, work-in-progress inventory, finished goods and bill of material expense items) as of the closing, up to a maximum of $1.7 million, plus an earnout that will be paid following the second anniversary of the closing, the amount of which is based on average contribution margin of a certain new customer. The value of Business-related inventory acquired on July 1, 2020 was $1.3 million.

The Company financed the Acquisition at closing with $5.0 million of cash on hand and $6.0 million from a term loan and secured credit facility.

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 June 30, 2020 combines the historical balance sheets of the Company and CR Brands as of June 30, 2020 and gives effect to the acquisition as if it occurred on June 30, 2020. The unaudited condensed combined pro forma statements of income for the year ended December 31, 2019 combines the Company’s audited consolidated statements of operations with CR Brands’ audited statements of operations for the year ended December 31, 2019. The unaudited condensed combined pro forma statements of operations for the six months ended June 30, 2020 combines the Company’s condensed unaudited consolidated statements of operations with CR Brands’ unaudited statements of operations for the six months ended June 30, 2020. The unaudited pro forma statements of income for the fiscal year ended 2019 give effect to the acquisition as if it occurred on January 1, 2019.

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 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, 2019 and the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2020.


1

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2020

(in thousands, except par value amounts)

 

 

Scott's Liquid

 

 

CR Brands Acquisition

 

 

Pro Forma

 

 

Pro Forma

 

 

Gold-Inc.

 

 

Brands

 

 

Adjustments

 

 

Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

5,877

 

 

$

145

 

 

$

(5,145

)

(a) (b)

$

877

 

Restricted cash

 

-

 

 

 

3,000

 

 

 

(3,000

)

(b)

 

-

 

Accounts receivable, net

 

2,539

 

 

 

2,091

 

 

 

(2,091

)

(b)

 

2,539

 

Inventories, net

 

4,936

 

 

 

1,939

 

 

 

(660

)

(c)

 

6,215

 

Income taxes receivable

 

383

 

 

 

-

 

 

 

-

 

 

 

383

 

Property and equipment held for sale

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Prepaid expenses

 

429

 

 

 

-

 

 

 

100

 

(d)

 

529

 

Other current assets

 

-

 

 

 

414

 

 

 

(414

)

(b)

 

-

 

Total current assets

 

14,164

 

 

 

7,589

 

 

 

(11,210

)

 

 

10,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

133

 

 

 

95

 

 

 

(95

)

(b)

 

133

 

Deferred tax asset

 

491

 

 

 

-

 

 

 

-

 

 

 

491

 

Goodwill

 

3,230

 

 

 

1,463

 

 

 

587

 

(e)

 

5,280

 

Intangible assets, net

 

8,271

 

 

 

3,907

 

 

 

3,328

 

(e)

 

15,506

 

Operating lease right-of-use assets

 

3,112

 

 

 

-

 

 

 

-

 

 

 

3,112

 

Other assets

 

180

 

 

 

271

 

 

 

(335

)

(b) (f)

 

116

 

Total assets

$

29,581

 

 

$

13,325

 

 

$

(7,725

)

 

$

35,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

$

1,636

 

 

$

2,196

 

 

$

(2,196

)

(b)

$

1,636

 

Accrued expenses

 

745

 

 

 

3,793

 

 

 

(3,793

)

(b)

 

745

 

Operating lease liabilities, current portion

 

116

 

 

 

-

 

 

 

-

 

 

 

116

 

Debt

 

-

 

 

 

13,823

 

 

 

(8,258

)

(a) (b) (f)

 

5,565

 

Related party debt

 

-

 

 

 

4,000

 

 

 

(4,000

)

(b)

 

-

 

Total current liabilities

 

2,497

 

 

 

23,812

 

 

 

(18,247

)

 

 

8,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, net of current

 

3,127

 

 

 

-

 

 

 

-

 

 

 

3,127

 

Other liabilities

 

70

 

 

 

-

 

 

 

35

 

(g)

 

105

 

Total liabilities

 

5,694

 

 

 

23,812

 

 

 

(18,212

)

 

 

11,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, no par value, authorized 20,000 shares; no shares issued and outstanding

 

-

 

 

 

19

 

 

 

(19

)

(h)

 

-

 

Common stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,462 shares

 

1,246

 

 

 

5

 

 

 

(5

)

(h)

 

1,246

 

Capital in excess of par

 

7,321

 

 

 

24,100

 

 

 

(24,100

)

(h)

 

7,321

 

Retained earnings

 

15,320

 

 

 

(34,611

)

 

 

34,611

 

(h)

 

15,320

 

Total shareholders’ equity

 

23,887

 

 

 

(10,487

)

 

 

10,487

 

 

 

23,887

 

Total liabilities and shareholders’ equity

$

29,581

 

 

$

13,325

 

 

$

(7,725

)

 

$

35,181

 

 

 

See accompanying notes to pro forma financial information.

2

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2019

(in thousands, except per share data)

 

Scott's Liquid

 

 

CR Brands Acquisition

 

 

Pro Forma

 

 

Pro Forma

 

 

Gold-Inc.

 

 

Brands

 

 

Adjustments

 

 

Combined

 

Net sales

$

28,450

 

 

$

11,233

 

 

$

(180

)

(i)

$

39,503

 

Cost of sales

 

17,644

 

 

 

6,515

 

 

 

(99

)

(i)

 

24,060

 

Gross Profit

 

10,806

 

 

 

4,718

 

 

 

(81

)

 

 

15,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

792

 

 

 

462

 

 

 

(174

)

(i) (j)

 

1,080

 

Selling

 

5,903

 

 

 

2,817

 

 

 

(990

)

(i) (j)

 

7,730

 

General and administrative

 

5,120

 

 

 

4,270

 

 

 

(3,523

)

(i) (j) (k)

 

5,867

 

Impairment of property and equipment

 

342

 

 

 

-

 

 

 

-

 

 

 

342

 

Total operating expenses

 

12,157

 

 

 

7,549

 

 

 

(4,687

)

 

 

15,019

 

(Loss) Income from operations

 

(1,351

)

 

 

(2,831

)

 

 

4,606

 

 

 

424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

93

 

 

 

-

 

 

 

-

 

 

 

93

 

Interest expense

 

(22

)

 

 

(2,242

)

 

 

2,618

 

(l)

 

354

 

Gain on sale of equipment

 

110

 

 

 

-

 

 

 

-

 

 

 

110

 

Other expense

 

-

 

 

 

(4

)

 

 

4

 

(i)

 

-

 

(Loss) Income before income taxes

 

(1,170

)

 

 

(5,077

)

 

 

7,228

 

 

 

981

 

Income tax benefit (expense)

 

513

 

 

 

(23

)

 

 

(725

)

(m)

 

(235

)

Net (loss) income from continuing operations

$

(657

)

 

$

(5,100

)

 

$

6,502

 

 

$

745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations of discontinued brands

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net gain on disposal of discontinued operations

 

-

 

 

 

5

 

 

 

(5

)

(i)

 

-

 

Net (loss) income

$

(657

)

 

$

(5,095

)

 

$

6,497

 

 

$

745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income from continuing operations per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

(2.39

)

 

 

 

 

 

$

0.06

 

Diluted

$

(0.05

)

 

$

(2.39

)

 

 

 

 

 

$

0.06

 

Net (loss) income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

(2.39

)

 

 

 

 

 

$

0.06

 

Diluted

$

(0.05

)

 

$

(2.39

)

 

 

 

 

 

$

0.06

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

12,442

 

 

 

2,134

 

 

 

 

 

 

 

12,442

 

Diluted

 

12,442

 

 

 

2,134

 

 

 

 

 

 

 

12,558

 

 

 

 

 

 

 

 

 

 

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 Six Months Ended June 30, 2020

(in thousands, except per share data)

 

 

Scott's Liquid

 

 

CR Brands Acquisition

 

 

Pro Forma

 

 

Pro Forma

 

 

Gold-Inc.

 

 

Brands

 

 

Adjustments

 

 

Combined

 

Net sales

$

13,937

 

 

$

8,719

 

 

$

(3,382

)

(i)

$

19,274

 

Cost of sales

 

7,605

 

 

 

4,853

 

 

 

(1,799

)

(i)

 

10,659

 

Gross Profit

 

6,332

 

 

 

3,866

 

 

 

(1,583

)

 

 

8,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

362

 

 

 

313

 

 

 

(174

)

(i) (j)

 

501

 

Selling

 

3,203

 

 

 

1,610

 

 

 

(916

)

(i) (j)

 

3,897

 

General and administrative

 

2,907

 

 

 

2,344

 

 

 

(1,239

)

(i) (j) (k)

 

4,012

 

Total operating expenses

 

6,472

 

 

 

4,267

 

 

 

(2,329

)

 

 

8,410

 

Income (loss) from operations

 

(140

)

 

 

(401

)

 

 

746

 

 

 

205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

3

 

 

 

-

 

 

 

-

 

 

 

3

 

Interest expense

 

(78

)

 

 

(1,053

)

 

 

1,218

 

(l)

 

87

 

Other expense

 

-

 

 

 

(14

)

 

 

14

 

(i)

 

-

 

Income from distribution agreement termination

 

350

 

 

 

-

 

 

 

-

 

 

 

350

 

Income (loss) before income taxes

 

135

 

 

 

(1,468

)

 

 

1,978

 

 

 

295

 

Income tax benefit (expense)

 

64

 

 

 

(10

)

 

 

(125

)

(m)

 

(71

)

Net income (loss)

$

199

 

 

$

(1,478

)

 

$

1,853

 

 

$

224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.02

 

 

$

(0.62

)

 

 

 

 

 

$

0.02

 

Diluted

$

0.02

 

 

$

(0.62

)

 

 

 

 

 

$

0.02

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

12,462

 

 

 

2,400

 

 

 

 

 

 

 

12,462

 

Diluted

 

12,571

 

 

 

2,400

 

 

 

 

 

 

 

12,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to pro forma financial information.


4

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

 

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note 1. Basis of Presentation

The 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.

 

Fair value of consideration transferred:

 

Actual and expected cash payments

$       10,529

Contingent consideration

                 35

 

 

Preliminary purchase price allocation

$       10,564

 

 

Inventories, net

            1,279

Intangible assets

            7,235

Goodwill

            2,050

Total purchase price

$       10,564

 

Note 2. Description of Pro Forma Adjustments

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

 

(a)

To reflect cash and debt in connection with purchase consideration paid.

(b)

To eliminate assets not acquired and liabilities not assumed.

(c)

To reflect the value of inventory acquired on the acquisition date.

(d)

To reflect the total value prepaid for representations and warranties insurance required under the transaction, which was included in the total fair value of consideration transferred.

(e)

To reflect fair value of intangible assets acquired and residual goodwill.

(f)

To reclassify loan costs, from other assets to debt, deferred prior to obtaining debt financing through UMB.

(g)

To reflect contingent consideration.

(h)

To eliminate CR Brands' shareholders' equity.

(i)

To eliminate activity recognized by CR Brands that did not relate to the Biz and Dryel brands we acquired.

(j)

To eliminate corporate expenses, such as salaries, rent, and other back-office activities, that we would not have incurred if the brands were acquired as of the beginning of the earliest period presented.

(k)

To record additional amortization from acquired intangible assets.

(l)

To record incremental interest expense associated with debt incurred in conjunction with the Acquisition.

(m)

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

 

5