UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Exchange Act.
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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.
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).
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.
Large accelerated filer |
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Emerging growth company |
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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 August 11, 2023, the registrant had
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
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.
TABLE OF CONTENTS
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Item 1. |
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1 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 4. |
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Item 1A. |
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Item 6. |
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PART I
ITEM 1. FINANCIAL STATEMENTS.
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net sales |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Advertising |
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Selling |
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General and administrative |
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Intangible asset amortization |
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Impairment of goodwill and intangible assets |
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- |
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- |
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Total operating expenses |
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Loss from operations |
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Interest expense |
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Loss before income taxes and discontinued operations |
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Income tax expense |
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Loss from continuing operations |
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Income from discontinued operations, net of taxes |
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Net loss |
$ |
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$ |
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$ |
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$ |
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Basic and diluted net income (loss) per common shares: |
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Loss from continuing operations |
$ |
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$ |
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$ |
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$ |
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Income from discontinued operations |
$ |
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$ |
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$ |
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$ |
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Net loss |
$ |
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$ |
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$ |
- |
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$ |
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Weighted average shares outstanding: |
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Basic and diluted |
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1
See accompanying notes to these Condensed Consolidated Financial Statements.
2
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except par value amounts)
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June 30, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash |
$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Income taxes receivable |
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Prepaid expenses |
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Assets held for sale |
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Assets of discontinued operations |
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Total current assets |
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Intangible assets, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued expenses |
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Current portion of long-term debt, net of debt issuance costs |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Operating lease liabilities, net of current |
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Other liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred Stock, |
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Common Stock; $ |
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Capital in excess of par |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
$ |
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$ |
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See accompanying notes to these Condensed Consolidated Financial Statements.
3
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
(in thousands)
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Common Stock |
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Shares |
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Amount |
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Capital in Excess of Par |
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(Accumulated Deficit) Retained Earnings |
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Total |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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Net income |
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- |
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- |
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- |
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Balance, March 31, 2023 (Unaudited) |
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Stock-based compensation |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, June 30, 2023 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Restricted stock unit vesting |
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- |
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Balance, March 31, 2022 (Unaudited) |
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Stock-based compensation |
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Net loss |
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- |
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- |
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- |
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Balance, June 30, 2022 (Unaudited) |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to these Condensed Consolidated Financial Statements.
4
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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Six Months Ended |
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June 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Gain on disposal of discontinued operations |
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- |
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Stock-based compensation |
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Impairment of goodwill and intangible assets |
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- |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other assets |
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Income taxes receivable |
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Accounts payable, accrued expenses, and other liabilities |
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Total adjustments to net loss |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Proceeds from sale of discontinued operations |
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- |
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Purchase of software |
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- |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Proceeds from term loans |
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- |
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Repayments of term loans |
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Proceeds from revolving credit facility |
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Repayments of revolving credit facility |
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( |
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Net cash used in financing activities |
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Net increase (decrease) in cash and restricted cash |
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Cash, beginning of period |
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Cash, end of period |
$ |
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$ |
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Supplemental disclosures: |
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Cash paid during the period for interest |
$ |
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$ |
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See accompanying notes to these Condensed Consolidated Financial Statements.
5
SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except per share data)
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. Our business is comprised of
(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.
Closed in July 2023 and effective June 30, 2023, we entered into a 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 Alpha® Skin Care brand (the "Alpha Purchase Agreement"). The transactions contemplated by the Alpha Purchase Agreement are subject to customary conditions and closing deliveries by both Neoteric and the Alpha Buyer. The assets of Alpha® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. The Alpha product line was previously classified under our health and beauty care products segment. See Note 3 for further information.
Closed in July 2023 and effective June 30, 2023, we entered into a 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 BIZ® brand. The assets of BIZ® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. The BIZ® product line was previously classified under our household products segment. See Note 3 for further information.
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® 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 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 products segment. See Note 3 for further information.
(c) Basis of Presentation
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 June 30, 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 June 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. Certain prior year amounts have been reclassified to conform to the current period presentation.
6
(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, 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, which is generally not material to our financial statements, 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) Assets Held for Sale and Discontinued Operations
Assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated or amortized. Fair value is determined based on the total consideration expected to be received by the Company. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. Disposal groups that meet the discontinued operations criteria by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205-20-45 are classified as discontinued operations and are excluded from continuing operations and segment results for all periods presented.
(g) 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.
(h) Intangible Assets
Intangible assets with finite lives, such as trade names, and formulas, are amortized over their estimated useful lives, generally ranging from
Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by ASC 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the software once the software is ready for its intended use and placed into service. In the second quarter of 2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is
7
(i) 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
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.
(j) 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
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 and six months ended June 30, 2023 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of
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 June 30, 2023, and December 31, 2022.
(k) 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.
8
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 are included in net accounts receivable on the Condensed Consolidated Balance Sheets and were as follows:
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Trade promotions |
$ |
|
|
$ |
|
||
Allowance for doubtful accounts |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
(l) Advertising Costs
We expense advertising costs as incurred.
(m) 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.
9
(n) Operating Costs and Expenses Classification
Cost of sales includes costs associated with manufacturing and distribution including labor, materials, freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for sales and sales support personnel, brokerage commissions, and promotional costs. Freight-out costs included in selling expenses totaled $
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.
(o) Supplier Finance Programs
During 2022, we entered into an agreement with a third-party financial institution and an 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 $
Note 2. Liquidity
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. Absent any other action, the Company previously believed it would require additional liquidity to continue its operations over the next 12 months.
Due to the sales of our BIZ® and Alpha® brands as disclosed in Note 3 to the Condensed Consolidated Financial Statements, which generated $
Note 3. Divestitures
Alpha® Skin Care
Closed in July 2023 and effective June 30, 2023, we entered into a 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 Alpha® Skin Care brand. The transactions contemplated by the Alpha® Purchase Agreement were subject to customary conditions and closing deliveries by both the Company and the buyer and was consummated on July 31, 2023. The Company received payments of $
10
BIZ®
Closed in July 2023 and effective June 30, 2023, we entered into a 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 BIZ® brand. The transactions contemplated by the BIZ® Purchase Agreement were consummated on July 7, 2023. The total consideration paid to us was $
Scott's Liquid Gold Wood® Care and Scott's Liquid Gold® Floor Restore
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 $
Prell®
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 $
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.
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 and six months ended June 30:
|
Three Months Ended June 30, 2023 |
|
|||||||||||||||||
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
|||||
Net sales |
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of sales |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Gross profit |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Selling |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
General and administrative |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Intangible asset amortization |
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Operating income from discontinued operations |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense |
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Income from discontinued operations |
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
11
|
Three Months Ended June 30, 2022 |
|
|||||||||||||||||
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
|||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Selling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intangible asset amortization |
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Operating income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense |
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income from discontinued operations |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Six Months Ended June 30, 2023 |
|
|||||||||||||||||
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
|||||
Net sales |
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Selling |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Intangible asset amortization |
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Operating income from discontinued operations |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense |
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Gain on sale of discontinued operations |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Income from discontinued operations |
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
Six Months Ended June 30, 2022 |
|
|||||||||||||||||
|
Alpha® |
|
|
BIZ® |
|
|
Prell® |
|
|
Scott's Liquid Gold® |
|
|
Total |
|
|||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Selling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intangible asset amortization |
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Operating income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense |
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from discontinued operations |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
There were
12
Reconciliation of Major Classes of Assets of the Discontinued Operations to Amounts Presented Separately in the Consolidated Balance Sheets as of:
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Assets |
|
|
|
|
|
||
Inventories |
$ |
- |
|
|
$ |
|
All assets in the above table are related to the discontinued operations of Scott's Liquid Gold®. There were no assets of discontinued operations related to Prell®, BIZ®, and Alpha® as of June 30, 2023 and December 31, 2022, respectively.
Assets Held for Sale
The following tables set forth the assets held for sale as of:
|
June 30, 2023 |
|
|||||||||
|
BIZ® |
|
|
Alpha® |
|
|
Total |
|
|||
Assets |
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|
|||
Inventories |
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|||
Intangible assets, net |
|
|
|
|
- |
|
|
|
|
||
Assets held for sale |
$ |
|
|
$ |
|
|
$ |
|
|
December 31, 2022 |
|
|||||||||
|
BIZ® |
|
|
Alpha® |
|
|
Total |
|
|||
Assets |
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|
|||
Inventories |
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|||
Intangible assets, net |
|
|
|
|
- |
|
|
|
|
||
Assets held for sale |
$ |
|
|
$ |
|
|
$ |
|
We measured the assets held for sale at the lower of their carrying value or fair value less costs to sell. We did
Note 4. Stock-Based Compensation
On May 11, 2023, we granted
On March 2, 2022, we granted
On January 18, 2022, we granted
Compensation cost related to stock options totaled $
Compensation cost related to RSUs totaled $
13
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 is 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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Common shares outstanding, beginning of the period |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares issued |
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of common share equivalents |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Diluted weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents (in thousands) that have been excluded from the calculation of earnings per share because they would have been anti-dilutive are as follows:
|
Three Months and Six Months Ended June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Stock options |
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
Note 6. Segment Information
We operate in
The following provides information on our segments for the three and six months ended June 30:
|
Three Months Ended June 30, 2023 |
|
|||||||||
|
Household Products |
|
|
Health and Beauty Care Products |
|
|
Total |
|
|||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|||
Loss from operations |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Capital and intangible asset expenditures |
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
|||||||||
|
Household Products |
|
|
Health and Beauty Care Products |
|
|
Total |
|
|||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|||
Loss from operations |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Capital and intangible asset expenditures |
|
|
|
|
- |
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
14
|
Six Months Ended June 30, 2023 |
|
|||||||||
|
Household Products |
|
|
Health and Beauty Care Products |
|
|
Total |
|
|||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|||
Loss from operations |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Capital and intangible asset expenditures |
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
|||||||||
|
Household Products |
|
|
Health and Beauty Care Products |
|
|
Total |
|
|||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|||
Loss from operations |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Capital and intangible asset expenditures |
|
|
|
|
- |
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
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® brand, consisted of the following:
|
As of June 30, 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 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Formulas and batching processes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Internal-use software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-compete agreement |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Amortization expense for the three months ended June 30, 2023 and 2022 was $
Estimated amortization expense for 2023 and subsequent years is as follows:
Remainder of 2023 |
$ |
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
Note 8. Long-Term Debt
UMB Loan Agreement
On July 1, 2020, we entered into a Loan and Security Agreement (as amended, the “UMB Loan Agreement”) with UMB Bank, N.A. Under the UMB Loan Agreement we obtained a $
The UMB Loan Agreement was terminated on
15
La Plata Loan Agreement
On November 9, 2021, we entered into a loan and security agreement (as amended, the “La Plata Loan Agreement”) with La Plata Capital, LLC (“La Plata”). Under the La Plata Loan Agreement, we obtained a $
Unamortized loan costs were $
On July 7, 2023, the La Plata term loans were paid in full and the La Plata Loan Agreement was terminated.
Note 9. Leases
We have entered into a lease for our corporate headquarters with a remaining lease term of
Information related to leases was as follows:
|
Three Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2023 |
|
||
Operating lease information: |
|
|
|
|
||
Operating lease cost |
$ |
|
$ |
|
||
Operating cash flows from operating leases |
|
|
|
|
||
Net assets obtained in exchange for new operating lease liabilities |
|
- |
|
|
- |
|
|
|
|
|
|
||
Weighted average remaining lease term in years |
|
|
|
|
||
Weighted average discount rate |
|
% |
|
% |
|
Three Months Ended June 30, 2022 |
|
Six Months Ended June 30, 2022 |
|
||
Operating lease information: |
|
|
|
|
||
Operating lease cost |
$ |
|
$ |
|
||
Operating cash flows from operating leases |
|
|
|
|
||
Net assets obtained in exchange for new operating lease liabilities |
|
- |
|
|
- |
|
|
|
|
|
|
||
Weighted average remaining lease term in years |
|
|
|
|
||
Weighted average discount rate |
|
% |
|
% |
Future minimum annual lease payments are as follows:
Remainder of 2023 |
$ |
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
Thereafter |
|
|
|
Total minimum lease payments |
$ |
|
|
Less imputed interest |
|
( |
) |
|
|
|
|
Total operating lease liability |
$ |
|
16
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 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.
Executive Overview
Our Business
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.
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 experienced negative cash flows from operations for several reporting periods. In efforts to improve our financial position and liquidity, the Company has pursued asset sales of certain brands where management has determined that the brand(s) are not aligned with our long-term goals for growth and profitability. The Company will continue to consider a wide range of options, including one or more of the following: the sale of additional brands; a sale, merger, or other strategic transaction involving the entire company; acquisitions of other brands or companies; issuance of additional debt or equity; and continuing to operate as a public, independent company.
Divestitures
Closed in July 2023 and effective June 30, 2023, we sold the Alpha® Skin Care product line to a company that markets and distributes skin care products. Closed in July 2023 and effective June 30, 2023, we sold the BIZ® product line to a company that markets and distributes laundry products. The assets of Alpha® and BIZ® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. 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 and Assets Held for Sale” in the Notes to Condensed Consolidated Financial Statements for further information on the sale of these 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.
17
Results of Operations
Three months ended June 30, 2023 compared to three months ended June 30, 2022
|
Three Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
1,538 |
|
|
$ |
1,120 |
|
|
$ |
418 |
|
|
|
37.3 |
% |
Cost of sales |
|
824 |
|
|
|
737 |
|
|
|
87 |
|
|
|
11.8 |
% |
Gross profit |
|
714 |
|
|
|
383 |
|
|
|
331 |
|
|
|
86.4 |
% |
Gross margin |
|
46.4 |
% |
|
|
34.2 |
% |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
120 |
|
|
|
174 |
|
|
|
(54 |
) |
|
|
(31.0 |
%) |
Selling |
|
574 |
|
|
|
867 |
|
|
|
(293 |
) |
|
|
(33.8 |
%) |
General and administrative |
|
638 |
|
|
|
776 |
|
|
|
(138 |
) |
|
|
(17.8 |
%) |
Intangible asset amortization |
|
51 |
|
|
|
103 |
|
|
|
(52 |
) |
|
|
(50.5 |
%) |
Impairment of goodwill and intangible assets |
|
- |
|
|
|
3,589 |
|
|
|
(3,589 |
) |
|
|
(100.0 |
%) |
Total operating expenses |
|
1,383 |
|
|
|
5,509 |
|
|
|
(4,126 |
) |
|
|
(74.9 |
%) |
Loss from operations |
|
(669 |
) |
|
|
(5,126 |
) |
|
|
4,457 |
|
|
|
86.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(6 |
) |
|
|
(18 |
) |
|
|
12 |
|
|
|
66.7 |
% |
Loss before income taxes and discontinued operations |
|
(675 |
) |
|
|
(5,144 |
) |
|
|
4,469 |
|
|
|
86.9 |
% |
Income tax expense |
|
(6 |
) |
|
|
(52 |
) |
|
|
46 |
|
|
|
88.5 |
% |
Loss from continuing operations |
|
(681 |
) |
|
|
(5,196 |
) |
|
|
4,515 |
|
|
|
86.9 |
% |
Income from discontinued operations |
|
228 |
|
|
|
863 |
|
|
|
(635 |
) |
|
|
(73.6 |
%) |
Net loss |
$ |
(453 |
) |
|
$ |
(4,333 |
) |
|
$ |
3,880 |
|
|
|
89.5 |
% |
Our operating results were primarily impacted by the following:
18
Segment Results
Household products
The following table shows comparative net sales, gross margin, gross profit, income or loss from operations, volume, and percentage changes for household products between periods:
|
Three Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
847 |
|
|
$ |
692 |
|
|
$ |
155 |
|
|
|
22.4 |
% |
Gross profit |
$ |
392 |
|
|
$ |
186 |
|
|
$ |
206 |
|
|
|
110.8 |
% |
Gross margin |
|
46.3 |
% |
|
|
26.9 |
% |
|
|
|
|
|
|
||
Loss from operations |
$ |
(527 |
) |
|
$ |
(4,567 |
) |
|
$ |
4,040 |
|
|
|
88.5 |
% |
Health and beauty care products
The following table shows comparative net sales, gross margin, gross profit, income or loss from operations, volume and percentage changes for health and beauty care products between periods:
|
Three Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
691 |
|
|
$ |
428 |
|
|
$ |
263 |
|
|
|
61.4 |
% |
Gross profit |
$ |
322 |
|
|
$ |
197 |
|
|
$ |
125 |
|
|
|
63.6 |
% |
Gross margin |
|
46.7 |
% |
|
|
46.0 |
% |
|
|
|
|
|
|
||
Loss from operations |
$ |
(142 |
) |
|
$ |
(559 |
) |
|
$ |
417 |
|
|
|
74.6 |
% |
19
Six months ended June 30, 2023 compared to six months ended June 30, 2022
|
Six Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
3,268 |
|
|
$ |
2,928 |
|
|
$ |
340 |
|
|
|
11.6 |
% |
Cost of sales |
|
1,826 |
|
|
|
1,599 |
|
|
|
227 |
|
|
|
14.2 |
% |
Gross profit |
|
1,442 |
|
|
|
1,329 |
|
|
|
113 |
|
|
|
8.5 |
% |
Gross margin |
|
44.1 |
% |
|
|
45.4 |
% |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising |
|
275 |
|
|
|
326 |
|
|
|
(51 |
) |
|
|
(15.6 |
%) |
Selling |
|
1,146 |
|
|
|
1,970 |
|
|
|
(824 |
) |
|
|
(41.8 |
%) |
General and administrative |
|
1,255 |
|
|
|
1,561 |
|
|
|
(306 |
) |
|
|
(19.6 |
%) |
Intangible asset amortization |
|
101 |
|
|
|
226 |
|
|
|
(125 |
) |
|
|
(55.3 |
%) |
Impairment of goodwill and intangible assets |
|
- |
|
|
|
3,589 |
|
|
|
(3,589 |
) |
|
|
(100.0 |
%) |
Total operating expenses |
|
2,777 |
|
|
|
7,672 |
|
|
|
(4,895 |
) |
|
|
(63.8 |
%) |
Loss from operations |
|
(1,335 |
) |
|
|
(6,343 |
) |
|
|
5,008 |
|
|
|
79.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(113 |
) |
|
|
(57 |
) |
|
|
(56 |
) |
|
|
(98.2 |
%) |
Loss before income taxes and discontinued operations |
|
(1,448 |
) |
|
|
(6,400 |
) |
|
|
4,952 |
|
|
|
77.4 |
% |
Income tax expense |
|
(2 |
) |
|
|
(52 |
) |
|
|
50 |
|
|
|
96.2 |
% |
Loss from continuing operations |
|
(1,450 |
) |
|
|
(6,452 |
) |
|
|
5,002 |
|
|
|
77.5 |
% |
Income from discontinued operations |
|
1,366 |
|
|
|
1,668 |
|
|
|
(302 |
) |
|
|
(18.1 |
%) |
Net loss |
$ |
(84 |
) |
|
$ |
(4,784 |
) |
|
$ |
4,700 |
|
|
|
98.2 |
% |
Our operating results were primarily impacted by the following:
20
Segment Results
Household products
The following table shows comparative net sales, gross margin, gross profit, income or loss from operations, volume, and percentage changes for household products between periods:
|
Six Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
1,669 |
|
|
$ |
1,619 |
|
|
$ |
50 |
|
|
|
3.1 |
% |
Gross profit |
$ |
728 |
|
|
$ |
624 |
|
|
$ |
104 |
|
|
|
16.7 |
% |
Gross margin |
|
43.6 |
% |
|
|
38.5 |
% |
|
|
|
|
|
|
||
Loss from operations |
$ |
(1,049 |
) |
|
$ |
(5,313 |
) |
|
$ |
4,264 |
|
|
|
80.3 |
% |
Health and beauty care products
The following table shows comparative net sales, gross margin, gross profit, income or loss from operations, volume and percentage changes for health and beauty care products between periods:
|
Six Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Net sales |
$ |
1,599 |
|
|
$ |
1,309 |
|
|
|
290 |
|
|
|
22.1 |
% |
Gross profit |
$ |
714 |
|
|
$ |
705 |
|
|
$ |
9 |
|
|
|
1.2 |
% |
Gross margin |
|
44.6 |
% |
|
|
53.9 |
% |
|
|
|
|
|
|
||
Loss from operations |
$ |
(286 |
) |
|
$ |
(1,030 |
) |
|
$ |
744 |
|
|
|
72.2 |
% |
Liquidity and Capital Resources
Overview
Our primary sources of funds include cash expected to be generated from operations and sale of brands. Our principal uses of cash are to fund planned operating expenditures. Working capital movements are influenced by the sourcing of materials related to the production of products.
Financing Agreements
Please see Note 8 to our Condensed Consolidated Financial Statements for information on our La Plata Loan Agreement, which was terminated in July 2023, and our UMB Loan Agreement, which was terminated in February 2023.
Liquidity and Changes in Cash Flows
At June 30, 2023, we had approximately $608 in cash on hand, an increase of $559 from December 31, 2022.
The following is a summary of cash provided by or (used in) each of the indicated types of activities:
21
|
Six Months Ended June 30, (in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|||||||
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Operating activities |
$ |
907 |
|
|
$ |
466 |
|
|
$ |
441 |
|
|
|
94.6 |
% |
Investing activities |
|
1,936 |
|
|
|
(142 |
) |
|
|
2,078 |
|
|
|
1,463.4 |
% |
Financing activities |
|
(2,284 |
) |
|
|
(1,278 |
) |
|
|
(1,006 |
) |
|
|
(78.7 |
%) |
The cash received from the sales of our BIZ® and Alpha® Skin Care brands in July and August 2023 was $3,700 and was partially used to pay off and terminate our La Plata Loan Agreement. While we believe that our current cash reserves represent sufficient cash flows to fund our operations, our liquidity has been affected by inflationary pressures at our customers which have caused sales decreases and higher costs on materials, logistics, and other purchases. We expect that our current cash reserves will be sufficient to meet operational cash needs during the next twelve months, but further economic impacts to our sales to customers or supply chain disruptions in the short-term could impact our liquidity.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of June 30, 2023, we conducted an evaluation, under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-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 were not effective as of June 30, 2023 due to a material weakness in our internal controls resulting from our finance department not being able to process and account for complex, non-routine transactions in accordance with GAAP. Management concluded that we lack a sufficient number of trained professionals with technical accounting expertise to process and account for complex and non-routine transactions.
Remediation Plan
We are committed to maintaining a strong internal control environment and we are developing a remediation plan designed to help ensure that this material weakness is remediated as soon as possible, by establishing internal control(s) to identify complex, non-routine accounting transactions and engaging the assistance of accounting expert(s) as needed to assist in the accounting and reporting of these transactions.
The material weakness will not be considered remediated until a sustained period of time has passed to allow management to test the design and operational effectiveness of the corrective actions. Until the material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our Condensed Consolidated Financial Statements are prepared in accordance with GAAP.
Notwithstanding such material weakness in internal control over financial reporting, our President and Chief Financial Officer have concluded that the Condensed Consolidated Financial Statements in Part I, Item 1 of this report, present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with GAAP.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the three months ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
22
PART II
ITEM 1A. RISK FACTORS
We have identified a material weakness in our internal control over financial reporting.
We are a public reporting company subject to the rules and regulations established from time to time by the SEC. As a public company we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting.
As disclosed in Part I, Item 4, “Disclosure Controls and Procedures,” we have identified a material weakness in our controls related to our finance department lacking a sufficient number of trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP as of June 30, 2023.
This material weakness did not result in any restatements to our Condensed Consolidated Financial Statements. Our management is committed to remediating this material weakness and is in the process of developing a remediation plan to address the material weakness.
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.
ITEM 6. EXHIBITS
Exhibit Number |
|
Document |
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
31.1 |
|
|
31.2 |
|
Rule 13a-14(a) Certification of the Chief Financial Officer. |
32.1* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags 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. |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Furnished, not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SCOTT’S LIQUID GOLD-INC. |
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By: |
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/s/ Tisha Pedrazzini |
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Tisha Pedrazzini, President |
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(Principal Executive Officer) |
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By: |
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/s/ David M. Arndt |
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David M. Arndt, Chief Financial Officer |
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(Principal Financial and Chief Accounting Officer) |
Date: August 14, 2023
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EXHIBIT 10.1
SCOTT’S LIQUID GOLD-INC.
2015 EQUITY AND INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
(DIRECTOR)
This Restricted Stock Award Agreement (the “Agreement’) is made and entered into as of the Grant Date specified below between Scott’s Liquid Gold-Inc. (the “Company”) and the Participant named below (“Participant”), an officer of the Company or an Affiliate thereof.
Participant: Daniel Roller
Grant Date: May 11, 2023
Number of shares of Common Stock: 100,000
The Company hereby grants to the Participant the number of shares of Common Stock referenced above (the “Shares”). The Shares are being granted pursuant to the terms of the Company’s 2015 Equity and Incentive Plan (the “Plan”). The Shares and this Agreement are subject to and shall be construed in accordance with the terms and conditions of the Plan, as now or hereinafter in effect. Any terms which are used in this Agreement without being defined and which are defined in the Plan shall have the meaning specified in the Plan. In the event of any conflict between this Agreement and the Plan, the terms of the Plan will govern and prevail.
The Shares are not subject to any requirement to perform services for a designated period, and are not conditioned on the attainment of specified performance goals. As permitted by Section 6.2 of the Plan, the Shares are immediately vested on the Grant Date.
The Participant agrees to satisfy any federal, state, and local withholding tax requirements resulting from transfer of the Shares by permitting the Company to withhold from compensation otherwise payable to Participant, and in the event such compensation is insufficient to satisfy the withholding obligation, by tendering a cash payment.
The Company will issue the shares of Common Stock registered in the name of the Participant, the Participant's authorized assignee, or the Participant's legal representative, and evidenced by stock certificates representing the shares with the appropriate legends affixed thereto, by appropriate entry on the books of the Company or of a duly authorized transfer agent, or by other appropriate means as determined by the Company.
Neither the Plan nor this Agreement confers upon the Participant any right to be retained in any position, as an Employee, Consultant or Director of the Company. The Participant has no rights as a shareholder with respect to any shares of Common Stock unless and until certificates representing the shares have been issued by the Company to the holder of such shares, or the shares have otherwise been recorded on the books of the Company or of a duly authorized transfer agent as owned by such holder.
The transfer of the Shares will constitute special incentive compensation that will not be taken into account as “salary” or “compensation” or “bonus” in determining the amount of any payment under any pension, retirement, profit sharing or other remuneration plan, except to the extent required by the terms of such plan.
The interpretations and constructions of any provision of and determinations on any question arising under the Plan or this Agreement shall be made by the Committee, and all such interpretations, constructions and determinations shall be final and conclusive as to all parties.
By entering into this Agreement, Participant acknowledges: (i) that he or she has received and read a copy of the Plan; and (ii) that this Agreement is subject to and shall be construed in accordance with the terms and conditions of the Plan, as now or hereinafter in effect.
This Agreement shall be construed and shall take effect in accordance with the laws of the State of Colorado, without regard to the conflicts of laws rules of such State.
Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Participant's responsibility and the Company (a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, vesting, or transfer of the Shares; and (b) does not commit to structure the transfer of the Shares to reduce or eliminate the Participant's liability for Tax-Related Items.
The issuance and transfer of the Shares are subject to compliance by the Company and the Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's shares of Common
Stock may be listed. No shares of Common Stock will be issued pursuant to this Agreement unless and until any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. The Participant understands that the Company is under no obligation to register the any shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance.
This Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto. If any provision of this Agreement, or the application thereof, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto. All notices or other communications which are required to be given or may be given to either party pursuant to the terms of this Agreement shall be in writing and shall be delivered personally or by registered or certified mail, postage prepaid, to the address of the parties as set forth following the signature of such party. Notice shall be deemed given on the date of delivery in the case of personal delivery or on the delivery or refusal date as specified on the return receipt in the case of registered or certified mail. Either party may change its address for such communications by giving notice thereof to the other party in conformity with this paragraph.
IN WITNESS WHEREOF, the Company by a duly authorized officer of the Company and Participant have executed this Agreement effective as of the Grant Date.
SCOTT’S LIQUID GOLD-INC.
By: /s/ David Arndt David Arndt, CFO
Date: 5/15/23
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PARTICIPANT /s/ Daniel Roller Daniel Roller, Participant Date: 5/15/23 |
EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this “Agreement”), dated as of June 30, 2023, is by and among Commercial Brands LLC, a limited liability company organized and existing under the laws of the State of Texas (“Buyer”), SLG Chemicals, Inc., a corporation organized and existing under the laws of the State of Colorado (“SLG Chemicals”), and Scott’s Liquid Gold-Inc., a corporation organized and existing under the laws of the State of Colorado (“SLG,” and collectively with SLG Chemicals, “Seller”). Buyer and Seller shall be collectively referred to herein as the “Parties” and, each, individually, a “Party.”
RECITALS
NOW, THEREFORE, in consideration of the foregoing recitals, which are hereby incorporated in this Agreement, the mutual promises made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties, intending to be legally bound hereby, agree as follows.
AGREEMENT
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If to Seller: |
Scott’s Liquid Gold-Inc. or SLG Chemicals, Inc. 8400 E. Crescent Parkway, Suite 450 Greenwood Village, CO 80111 E-mail: darndt@slginc.com Attention: Chief Financial Officer
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with a copy to: |
Holland & Hart LLP 555 17th Street Denver, CO 80202 E-mail: abowler@hollandhart.com Attention: Amy L. Bowler
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If to Buyer: |
Commercial Brands, LLC 1103 E. Airtex Dr. Houston, Texas 77073 email: constantine@commercialbrands.com Attention: Constantine Zotos
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with a copy to: |
J. Scott Douglass Attorney at Law 1811 Bering Dr., Suite 420 Houston, Texas 77057 |
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For purposes of this definition, (a) “control” (including “controlling,” “controlled by,” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and shall be construed as such term is used in the rules promulgated under the Securities Act of 1933, as amended; (b) the “Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii) any other natural person who is related to the individual or the individual’s spouse within the second degree, and (iv) any other natural person who resides with such individual; and (c) “Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act of 1934 as amended) of voting securities or other voting interests representing at least ten percent (10%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person.
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IN WITNESS WHEREOF, the Parties hereto have caused this Asset Purchase Agreement to be executed as of the Effective Date by their respective officers thereunto duly authorized.
“SELLER”
Scott’s Liquid Gold-Inc.
/s/ David Arndt
Printed Name: David Arndt
Title: CFO
SLG Chemicals, Inc.
/s/ David Arndt
Printed Name: David Arndt
Title: CFO
“BUYER”
Commercial Brands LLC
/s/ Constantine Zotos
Printed Name: Constantine Zotos
Title: CEO
[Signature Page to Asset Purchase Agreement]
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EXHIBIT 10.3
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this “Agreement”), dated as of June 30, 2023 (the “Effective Date”), is by and among Alpha Skin LLC, a New York limited liability company (“Buyer”), Neoteric Cosmetics, Inc., a corporation organized and existing under the laws of the State of Colorado (“Seller” or a “Seller Group Member”), and for the limited purposes stated herein, Scott’s Liquid Gold-Inc., a Colorado corporation (“SLG” or a “Seller Group Member”). Buyer and Seller (and for the limited purposes stated herein, SLG) shall be collectively referred to herein as the “Parties” and, each, individually, a “Party.”
RECITALS
NOW, THEREFORE, in consideration of the promises and for other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties, intending to be legally bound hereby, agree as follows.
AGREEMENT
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If to Seller or SLG: |
Scott’s Liquid Gold-Inc. 8400 E. Crescent Parkway, Suite 450 Greenwood Village, CO 80111 Attention: Chief Financial Officer E-mail: darndt@slginc.com
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with a copy (which shall not be deemed notice) to: |
Holland & Hart LLP 555 17th Street Denver, CO 80202 Attention: Amy L. Bowler, Esq. E-mail: abowler@hollandhart.com
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If to Buyer: |
Alpha Skin LLC 15 Holt Drive Stony Point, NY 10980 Attention: Joe Indig, CEO Email: joe@silberequity.com
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with a copy (which shall not be deemed notice) to: |
Krieger & Prager, LLP 39 Broadway, Suite 920 New York, NY 10006 Attention: Samuel Krieger, Esq. Email: skrieger@kplawfirm.com
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IN WITNESS WHEREOF, the Parties hereto have caused this Asset Purchase Agreement to be executed as of the Effective Date by their respective officers thereunto duly authorized.
“SELLER”
Neoteric Cosmetics, Inc.
By: /s/ Tisha Pedrazzini
Printed Name: Tisha Pedrazzini
Title: President
“SLG”
Scott’s Liquid Gold-Inc.
By: /s/ Tisha Pedrazzini
Printed Name: Tisha Pedrazzini
Title: President
“BUYER”
ALPHA SKIN LLC
By: /s/ Joseph Indig
Printed Name: Joseph Indig
Title: CEO
Signature Page to Asset Purchase Agreement
EXHIBIT 31.1
CERTIFICATION
I, Tisha Pedrazzini, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Scott’s Liquid Gold-Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 14, 2023 |
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/s/ Tisha Pedrazzini |
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Tisha Pedrazzini |
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President |
EXHIBIT 31.2
CERTIFICATION
I, David M. Arndt, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Scott’s Liquid Gold-Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 14, 2023 |
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/s/ David M. Arndt |
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David M. Arndt |
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Chief Financial Officer
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EXHIBIT 32.1
CERTIFICATION OF ANNUAL REPORT ON FORM 10-Q OF
SCOTT’S LIQUID GOLD-INC.
FOR THE QUARTER ENDED JUNE 30, 2023
Each of the undersigned hereby certifies, for the purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his or her capacity as an officer of Scott’s Liquid Gold-Inc. (“Scott’s Liquid Gold”), that to his or her knowledge:
1. This Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Scott’s Liquid Gold.
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Quarterly Report on Form 10-Q. A signed original of this statement has been provided to Scott’s Liquid Gold and will be retained by Scott’s Liquid Gold and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is executed as of August 14, 2023.
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/s/ Tisha Pedrazzini |
Tisha Pedrazzini |
President |
/s/ David M Arndt |
David M. Arndt |
Chief Financial Officer |
Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
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Income Statement [Abstract] | ||||
Net sales | $ 1,538 | $ 1,120 | $ 3,268 | $ 2,928 |
Cost of sales | 824 | 737 | 1,826 | 1,599 |
Gross profit | 714 | 383 | 1,442 | 1,329 |
Operating expenses: | ||||
Advertising | 120 | 174 | 275 | 326 |
Selling | 574 | 867 | 1,146 | 1,970 |
General and administrative | 638 | 776 | 1,255 | 1,561 |
Intangible asset amortization | 51 | 103 | 101 | 226 |
Impairment of goodwill and intangible assets | 3,589 | 3,589 | ||
Total operating expenses | 1,383 | 5,509 | 2,777 | 7,672 |
Loss from operations | (669) | (5,126) | (1,335) | (6,343) |
Interest expense | (6) | (18) | (113) | (57) |
Loss before income taxes and discontinued operations | (675) | (5,144) | (1,448) | (6,400) |
Income tax expense | (6) | (52) | (2) | (52) |
Loss from continuing operations | (681) | (5,196) | (1,450) | (6,452) |
Income from discontinued operations, net of taxes | 228 | 863 | 1,366 | 1,668 |
Net loss | $ (453) | $ (4,333) | $ (84) | $ (4,784) |
Basic net income (loss) per common shares: | ||||
Loss from continuing operations | $ (0.05) | $ (0.41) | $ (0.11) | $ (0.51) |
Income from discontinued operations | 0.02 | 0.07 | 0.11 | 0.13 |
Net loss | (0.03) | (0.34) | (0.38) | |
Diluted net income (loss) per common shares: | ||||
Loss from continuing operations | (0.05) | (0.41) | (0.11) | (0.51) |
Income from discontinued operations | 0.02 | 0.07 | $ 0.11 | 0.13 |
Net loss | $ (0.03) | $ (0.34) | $ (0.38) | |
Weighted average shares outstanding: | ||||
Basic | 12,908 | 12,749 | 12,853 | 12,745 |
Diluted | 12,908 | 12,749 | 12,853 | 12,745 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
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Statement of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0 | $ 0 |
Preferred stock, shares authorized | 20,000,000 | 20,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock par value | $ 0.1 | $ 0.1 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 12,997,000 | 12,797,000 |
Common stock, shares outstanding | 12,997,000 | 12,797,000 |
Organization and Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Organization and Summary of Significant Accounting Policies | 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. Our business is comprised of 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. Closed in July 2023 and effective June 30, 2023, we entered into a 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 Alpha® Skin Care brand (the "Alpha Purchase Agreement"). The transactions contemplated by the Alpha Purchase Agreement are subject to customary conditions and closing deliveries by both Neoteric and the Alpha Buyer. The assets of Alpha® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. The Alpha product line was previously classified under our health and beauty care products segment. See Note 3 for further information. Closed in July 2023 and effective June 30, 2023, we entered into a 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 BIZ® brand. The assets of BIZ® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. The BIZ® product line was previously classified under our household products segment. See Note 3 for further information. 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® 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 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 products segment. See Note 3 for further information. (c) Basis of Presentation 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 June 30, 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 June 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. Certain prior year amounts have been reclassified to conform to the current period presentation. (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, 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, which is generally not material to our financial statements, 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) Assets Held for Sale and Discontinued Operations Assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated or amortized. Fair value is determined based on the total consideration expected to be received by the Company. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. Disposal groups that meet the discontinued operations criteria by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205-20-45 are classified as discontinued operations and are excluded from continuing operations and segment results for all periods presented. (g) 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. (h) Intangible Assets Intangible assets with finite lives, such as trade names, and formulas, are amortized over their estimated useful lives, generally ranging from 10 to 15 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 ASC 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the software once the software is ready for its intended use and placed into service. In the second quarter of 2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is five years and will be periodically reassessed based on considerations for obsolescence, technology, competition, and other economic factors. (i) 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. (j) 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 and six months ended June 30, 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 six months ended June 30, 2023 and 2022 was 0.1% 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 June 30, 2023, and December 31, 2022. (k) 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 are included in net accounts receivable on the Condensed Consolidated Balance Sheets and were as follows:
(l) Advertising Costs We expense advertising costs as incurred. (m) 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. (n) Operating Costs and Expenses Classification Cost of sales includes costs associated with manufacturing and distribution including labor, materials, freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for sales and sales support personnel, brokerage commissions, and promotional costs. Freight-out costs included in selling expenses totaled $112 and $158 for the three months ended June 30, 2023 and 2022, respectively, and totaled $199 and $461 for the six months ended June 30, 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. (o) Supplier Finance Programs During 2022, we entered into an agreement with a third-party financial institution and an 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 $73 and $218 as of June 30, 2023 and December 31, 2022, respectively, which will be recognized on the Condensed Consolidated Financial Statements as payments are due. |
Liquidity |
6 Months Ended |
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Jun. 30, 2023 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Liquidity | Note 2. Liquidity 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. Absent any other action, the Company previously believed it would require additional liquidity to continue its operations over the next 12 months. Due to the sales of our BIZ® and Alpha® brands as disclosed in Note 3 to the Condensed Consolidated Financial Statements, which generated $3,700 of cash in July and August 2023, we have fully repaid all long-term debt as of July 2023. While, absent any other actions, our operating activities are still expected to result in negative cash flows, we now expect to have enough liquidity to finance operations for the next 12 months. Management has recently implemented actions to reduce the Company’s operating expenses through asset sales, consolidation of vendors, and personnel reductions. To further reduce operating losses, the Company 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 long-term liquidity needs and pursue its business plan. The Company expects that these strategic actions will further reduce expenses and provide required liquidity for ongoing operations. |
Divestitures |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Divestitures | Note 3. Divestitures Alpha® Skin Care Closed in July 2023 and effective June 30, 2023, we entered into a 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 Alpha® Skin Care brand. The transactions contemplated by the Alpha® Purchase Agreement were subject to customary conditions and closing deliveries by both the Company and the buyer and was consummated on July 31, 2023. The Company received payments of $2,500 and $200 in July 2023 and August 2023, respectively, representing total consideration for the sale of the Alpha Skin Care brand in the amount of $2,700 and an estimated gain on the sale of assets of $1,585 that will be recognized in the third quarter of 2023. The assets of Alpha® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. BIZ® Closed in July 2023 and effective June 30, 2023, we entered into a 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 BIZ® brand. The transactions contemplated by the BIZ® Purchase Agreement were consummated on July 7, 2023. The total consideration paid to us was $1,000, plus an amount equal to the value of the BIZ® inventory, valued at $946 as of the effective date of the agreement, subject to post-close adjustment. The estimated gain on the sale of assets is $787 and will be recognized in the third quarter of 2023. The assets of BIZ® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. Scott's Liquid Gold Wood® Care and Scott's Liquid Gold® Floor Restore 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. We have reflected the operations of the Scott's Liquid Gold® product lines as discontinued operations. Prell® 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 six months ended June 30, 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 Prell® product line 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 and six months ended June 30:
There were no capital expenditures or significant operating and investing noncash items related to discontinued operations during the six months ended June 30, 2023 and 2022, respectively. Reconciliation of Major Classes of Assets of the Discontinued Operations to Amounts Presented Separately in the Consolidated Balance Sheets as of:
All assets in the above table are related to the discontinued operations of Scott's Liquid Gold®. There were no assets of discontinued operations related to Prell®, BIZ®, and Alpha® as of June 30, 2023 and December 31, 2022, respectively. Assets Held for Sale The following tables set forth the assets held for sale as of:
We measured the assets held for sale at the lower of their carrying value or fair value less costs to sell. We did not record any impairment charges in the second quarter of 2023. |
Stock-Based Compensation |
6 Months Ended |
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Jun. 30, 2023 | |
Share-Based Payment Arrangement [Abstract] | |
Stock-Based Compensation | Note 4. Stock-Based Compensation On May 11, 2023, we granted 200 shares of restricted stock to two directors all of which vested on the grant date with a fair value of $40. On March 2, 2022, we granted 15 shares of restricted stock to one executive all of which vested on the grant date with a fair value of $18. On January 18, 2022, we granted 25 RSUs to an employee (the “2022 Individual Employee Grant”) with a grant date fair value of $10. The 2022 Individual Employee Grant vested one-third on the initial grant date, and the remaining two-thirds will vest on each anniversary of the grant date. Compensation cost related to stock options totaled $0 and $10 in the six months ended June 30, 2023 and 2022, respectively. The stock options were fully vested in the second quarter of 2022. There was no tax benefit from recording the non-cash expense as it relates to the options granted to employees, as these were qualified stock options which are not normally tax deductible. Compensation cost related to RSUs totaled $57 and $76 for the six months ended June 30, 2023 and 2022, respectively. Approximately $54 of total unrecognized compensation costs related to non-vested RSUs is expected to be recognized over the next three years. |
Earnings Per Share |
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Earnings Per Share | 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 is 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.
Common stock equivalents (in thousands) that have been excluded from the calculation of earnings per share because they would have been anti-dilutive are as follows:
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | 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 and six months ended June 30:
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Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | 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® brand, consisted of the following:
Amortization expense for the three months ended June 30, 2023 and 2022 was $51 and $103, respectively. Amortization expense for the six months ended June 30, 2023 and 2022 was $101 and $226, respectively. Estimated amortization expense for 2023 and subsequent years is as follows:
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Long-Term Debt |
6 Months Ended |
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Jun. 30, 2023 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | Note 8. Long-Term Debt UMB Loan Agreement On July 1, 2020, we entered into a Loan and Security Agreement (as amended, the “UMB Loan Agreement”) with UMB Bank, N.A. Under the UMB Loan Agreement we obtained a $3,000 term loan, with equal monthly payments fully amortized over three years which was repaid in full in the second quarter of 2022, and a revolving credit facility, with a maximum commitment of $4,000 bearing interest at the one-month term SOFR rate + 6.83% with a floor of 7.75%. The UMB Loan Agreement was terminated on February 27, 2023 and the revolving credit facility was paid in full on February 28, 2023. The loans were secured by all of the assets of the Company and its subsidiaries. Unamortized loan costs were $0 and $100 as of June 30, 2023 and December 31, 2022, respectively. Amortization of loan costs for the six months ended June 30, 2023 was $100, including $83 that were expensed as a result of the termination of the UMB Loan Agreement. Amortization of loan costs for the six months ended June 30, 2022 was $99. La Plata Loan Agreement On November 9, 2021, we entered into a loan and security agreement (as amended, the “La Plata Loan Agreement”) with La Plata Capital, LLC (“La Plata”). Under the La Plata Loan Agreement, we obtained a $2,000 term loan that bears interest at 14% and a $250 term loan that bears interest at 15%. We repaid $1,000 of principal against the La Plata Loan Agreement during the first quarter of 2022. Unamortized loan costs were $9 and $20 as of June 30, 2023 and December 31, 2022, respectively. Amortization of loan costs for the six months ended June 30, 2023 and 2022 were $11, respectively. On July 7, 2023, the La Plata term loans were paid in full and the La Plata Loan Agreement was terminated. |
Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Note 9. Leases We have entered into a lease for our corporate headquarters with a remaining lease term of 7 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:
Future minimum annual lease payments are as follows:
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Organization and Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation | (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. Closed in July 2023 and effective June 30, 2023, we entered into a 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 Alpha® Skin Care brand (the "Alpha Purchase Agreement"). The transactions contemplated by the Alpha Purchase Agreement are subject to customary conditions and closing deliveries by both Neoteric and the Alpha Buyer. The assets of Alpha® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. The Alpha product line was previously classified under our health and beauty care products segment. See Note 3 for further information. Closed in July 2023 and effective June 30, 2023, we entered into a 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 BIZ® brand. The assets of BIZ® are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented. The BIZ® product line was previously classified under our household products segment. See Note 3 for further information. 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® 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 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 products segment. See Note 3 for further information. |
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Basis of Presentation | (c) Basis of Presentation 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 June 30, 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 June 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. Certain prior year amounts have been reclassified to conform to the current period presentation. |
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Use of Estimates | (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, operating lease right-of-use assets and operating lease liabilities, and stock-based compensation. Actual results could differ from our estimates. |
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Inventories Valuation and Reserves | (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, which is generally not material to our financial statements, 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. |
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Assets Held for Sale and Discontinued Operations | (f) Assets Held for Sale and Discontinued Operations Assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated or amortized. Fair value is determined based on the total consideration expected to be received by the Company. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. Disposal groups that meet the discontinued operations criteria by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205-20-45 are classified as discontinued operations and are excluded from continuing operations and segment results for all periods presented. |
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Leases | (g) 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. |
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Intangible Assets | (h) Intangible Assets Intangible assets with finite lives, such as trade names, and formulas, are amortized over their estimated useful lives, generally ranging from 10 to 15 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 ASC 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the software once the software is ready for its intended use and placed into service. In the second quarter of 2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is five years and will be periodically reassessed based on considerations for obsolescence, technology, competition, and other economic factors. |
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Financial Instruments | (i) 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. |
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Income Taxes | (j) 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 and six months ended June 30, 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 six months ended June 30, 2023 and 2022 was 0.1% 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 June 30, 2023, and December 31, 2022. |
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Revenue Recognition | (k) 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 are included in net accounts receivable on the Condensed Consolidated Balance Sheets and were as follows:
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Advertising Costs | (l) Advertising Costs We expense advertising costs as incurred. |
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Stock-based Compensation | (m) 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. |
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Operating Costs and Expenses Classification | (n) Operating Costs and Expenses Classification Cost of sales includes costs associated with manufacturing and distribution including labor, materials, freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for sales and sales support personnel, brokerage commissions, and promotional costs. Freight-out costs included in selling expenses totaled $112 and $158 for the three months ended June 30, 2023 and 2022, respectively, and totaled $199 and $461 for the six months ended June 30, 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. |
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Supplier Finance Programs | (o) Supplier Finance Programs During 2022, we entered into an agreement with a third-party financial institution and an 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 $73 and $218 as of June 30, 2023 and December 31, 2022, respectively, which will be recognized on the Condensed Consolidated Financial Statements as payments are due. |
Organization and Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Summary of Customer Allowances for Trade Promotions and Allowance for Doubtful Accounts | Customer allowances for trade promotions and allowance for doubtful accounts are included in net accounts receivable on the Condensed Consolidated Balance Sheets and were as follows:
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Divestitures (Tables) |
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Financial Information Related to 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 and six months ended June 30:
There were no capital expenditures or significant operating and investing noncash items related to discontinued operations during the six months ended June 30, 2023 and 2022, respectively. Reconciliation of Major Classes of Assets of the Discontinued Operations to Amounts Presented Separately in the Consolidated Balance Sheets as of:
All assets in the above table are related to the discontinued operations of Scott's Liquid Gold®. There were no assets of discontinued operations related to Prell®, BIZ®, and Alpha® as of June 30, 2023 and December 31, 2022, respectively. |
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Summary of Assets Held for Sale | The following tables set forth the assets held for sale as of:
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Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of the Weighted Average Number of Common Shares Outstanding | A reconciliation of the weighted average number of common shares outstanding (in thousands) is as follows. The dilutive effect of stock options and RSUs is 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.
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Common Stock Equivalents Excluded From the Calculation of Earnings Per Share | Common stock equivalents (in thousands) that have been excluded from the calculation of earnings per share because they would have been anti-dilutive are as follows:
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information on Segments | The following provides information on our segments for the three and six months ended June 30:
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Intangible Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of 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® brand, consisted of the following:
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Schedule of Estimated Amortization Expense | Estimated amortization expense for 2023 and subsequent years is as follows:
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Information Related to Leases | Information related to leases was as follows:
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Schedule of Future Minimum Annual Lease Payments | Future minimum annual lease payments are as follows:
|
Organization and Summary of Significant Accounting Policies - Additional Information (Details) |
6 Months Ended |
---|---|
Jun. 30, 2023
Segment
| |
Accounting Policies [Abstract] | |
Number of business segment | 2 |
Organization and Summary of Significant Accounting Policies - Summary of Customer Allowances for Trade Promotions and Allowance for Doubtful Accounts (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Accounting Policies [Abstract] | ||
Trade promotions | $ 141 | $ 361 |
Allowance for doubtful accounts | 36 | 59 |
Trade promotions and allowance for doubtful accounts | $ 177 | $ 420 |
Organization and Summary of Significant Accounting Policies - Additional Information 2 (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
Schedule Of Organization And Presentation Of Financial Statements [Line Items] | |||||
Payment for obligation outstanding amount | $ 73 | $ 73 | $ 218 | ||
Selling Expenses | |||||
Schedule Of Organization And Presentation Of Financial Statements [Line Items] | |||||
Freight-out costs | $ 112 | $ 158 | $ 199 | $ 461 |
Liquidity - Additional Information (Details) $ in Thousands |
2 Months Ended |
---|---|
Aug. 31, 2023
USD ($)
| |
Forecast | Disposal of Product Line | BIZ and Alpha | |
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
Proceeds from sales of interest in certain assets | $ 3,700 |
Divestitures - Summary of Financial Information Constituting Major Classes of Assets of Discontinued Operations (Details) $ in Thousands |
Dec. 31, 2022
USD ($)
|
---|---|
Disposal of Product Line | |
Assets | |
Inventories | $ 1,235 |
Earnings Per Share - Reconciliation of the Weighted Average Number of Common Shares Outstanding (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Earnings Per Share [Abstract] | ||||
Beginning Balance, Shares | 12,797 | 12,749 | 12,797 | 12,727 |
Weighted average common shares issued | 111 | 56 | 18 | |
Weighted average number of common shares outstanding | 12,908 | 12,749 | 12,853 | 12,745 |
Diluted weighted average number of common shares outstanding | 12,908 | 12,749 | 12,853 | 12,745 |
Earnings Per Share - Common Stock Equivalents Excluded From the Calculation of Earnings Per Share (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||||
Anti-dilutive securities excluded from calculation of earnings per share | 60 | 213 | 60 | 213 |
Restricted Stock Units | ||||
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||||
Anti-dilutive securities excluded from calculation of earnings per share | 31 | 104 | 31 | 104 |
Segment Information - Additional Information (Details) |
6 Months Ended |
---|---|
Jun. 30, 2023
Segment
| |
Segment Reporting [Abstract] | |
Number of business segment | 2 |
Segment Information - Information on Segments (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Segment Reporting Information [Line Items] | ||||
Net sales | $ 1,538 | $ 1,120 | $ 3,268 | $ 2,928 |
Loss from operations | (669) | (5,126) | (1,335) | (6,343) |
Capital and intangible asset expenditures | 43 | 142 | ||
Depreciation and amortization | 62 | 175 | 224 | 339 |
Household Products | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 847 | 692 | 1,669 | 1,619 |
Loss from operations | (527) | (4,567) | (1,049) | (5,313) |
Capital and intangible asset expenditures | 43 | 142 | ||
Depreciation and amortization | 56 | 148 | 213 | 287 |
Health and Beauty Care Products | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 691 | 428 | 1,599 | 1,309 |
Loss from operations | (142) | (559) | (286) | (1,030) |
Depreciation and amortization | $ 6 | $ 27 | $ 11 | $ 52 |
Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Jun. 30, 2022 |
---|---|---|
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 1,420 | $ 1,420 |
Accumulated Amortization | 615 | 514 |
Net Carrying Value | 805 | 906 |
Trade Names | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 159 | 159 |
Accumulated Amortization | 100 | 97 |
Net Carrying Value | 59 | 62 |
Formulas and Batching Processes | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 333 | 333 |
Accumulated Amortization | 290 | 282 |
Net Carrying Value | 43 | 51 |
Internal-use Software | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 898 | 898 |
Accumulated Amortization | 195 | 105 |
Net Carrying Value | 703 | 793 |
Non-compete Agreement | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 30 | 30 |
Accumulated Amortization | $ 30 | $ 30 |
Intangible Assets - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization expense of intangible assets | $ 51 | $ 103 | $ 101 | $ 226 |
Intangible Assets - Schedule of Estimated Amortization Expense (Details) $ in Thousands |
Jun. 30, 2023
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
Remainder of 2023 | $ 100 |
2024 | 201 |
2025 | 201 |
2026 | 192 |
2027 | 81 |
Thereafter | 30 |
Total | $ 805 |
Leases - Additional Information (Details) |
Jun. 30, 2023 |
---|---|
Maximum | |
Lessee Lease Description [Line Items] | |
Remaining lease terms | 7 years |
Leases - Schedule of Information Related to Leases (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
Operating lease information: | ||||
Operating lease cost | $ 101 | $ 100 | $ 203 | $ 200 |
Operating cash flows from operating leases | $ 101 | $ 100 | $ 203 | $ 200 |
Weighted average remaining lease term in years | 7 years 5 months 1 day | 8 years 5 months 1 day | 7 years 5 months 1 day | 8 years 5 months 1 day |
Weighted average discount rate | 5.10% | 5.10% | 5.10% | 5.10% |
Leases - Schedule of Future Minimum Annual Lease Payments (Details) $ in Thousands |
Jun. 30, 2023
USD ($)
|
---|---|
Leases [Abstract] | |
Remainder of 2023 | $ 203 |
2024 | 413 |
2025 | 420 |
2026 | 427 |
2027 | 434 |
Thereafter | 1,305 |
Total minimum lease payments | 3,202 |
Less imputed interest | (553) |
Total operating lease liability | $ 2,649 |
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