UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended~~September~~June 30, ~~2022~~2023

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

For the transition period from to

Commission File Number: 001-13458

SCOTT’S LIQUID GOLD-INC.

(Exact name of registrant as specified in its charter)


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

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

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


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

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

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

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


Large accelerated filer	☐	Accelerated filer		☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☐

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

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 ~~November 13, 2022~~August 11, 2023, the registrant had ~~12,805,663~~12,997,423 shares of its common stock, $0.10 par value per share, outstanding.

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:

•

the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees;

•

disruptions or inefficiencies in the supply ~~chain, including any impact of the COVID-19 pandemic;~~chain;

•

dependence on third-party vendors and on sales to major customers;

•

regulations, economic conditions, and tariffs in the People’s Republic of China (“PRC”), as well as the transition from our exclusive distributor in the PRC to market and sell our products there;

•

a continued shift in the retail market from food and drug stores to mass merchandisers, club stores, dollar stores, e-commerce retailers, and subscription services;

•

competition from large consumer products companies in the United States;

•

competitive factors, including any decrease in distribution of (i.e., retail stores carrying) our significant products;

•

new competitive products and/or technological changes;

•

the need for effective advertising of our products and limited resources available for such advertising;

•

unfavorable economic conditions;

•

changing consumer preferences and the continued acceptance of each of our significant products in the marketplace;

•

the degree of success of any new product or product line introduction by us;

•

the degree of success of the integration of product lines or businesses we may acquire;

•

~~the degree of success of our conversion to outsourced manufacturing and dependence on third-party manufacturers;~~

•

changes in the regulation of our products, including applicable environmental, U.S. and international Food and Drug Administration regulations and process-audit compliance;

•

the loss of any executive officer or other personnel;

•

future losses which could affect our liquidity;

•

the risk that we may not be able to remediate the existing material weakness related to ~~the impairment assessment~~our finance department lacking a sufficient number of ~~goodwill~~trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP and develop and maintain effective internal controls over financial reporting;

•

other matters discussed in this Report, including the risks described in the Risk Factors section of this Report and in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and subsequent Quarterly Reports on Form 10-Q.

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


		Page
PART I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1617
Item 4.	Controls and Procedures	22
PART II
Item 1A.	Risk Factors	23
Item 6.	Exhibits	23

PART I

ITEM 1. FINANCIAL STATEMENTS.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Net sales	$	4,277		$	7,970		$	15,449		$	24,583		$	1,538		$	1,120		$	3,268		$	2,928
Cost of sales		2,358			5,100			8,337			14,624			824			737			1,826			1,599
Gross profit		1,919			2,870			7,112			9,959			714			383			1,442			1,329

Operating expenses:
Advertising		166			144			492			506			120			174			275			326
Selling		1,691			2,542			5,752			7,388			574			867			1,146			1,970
General and administrative		578			836			2,020			3,782			638			776			1,255			1,561
Intangible asset amortization		87			278			313			834			51			103			101			226
Impairment of goodwill and intangible assets		-			-			3,589			-			-			3,589			-			3,589
Total operating expenses		2,522			3,800			12,166			12,510			1,383			5,509			2,777			7,672
Loss from operations		(603	)		(930	)		(5,054	)		(2,551	)		(669	)		(5,126	)		(1,335	)		(6,343	)

Interest expense		(139	)		(109	)		(419	)		(219	)		(6	)		(18	)		(113	)		(57	)
Loss before income taxes and discontinued operations		(742	)		(1,039	)		(5,473	)		(2,770	)		(675	)		(5,144	)		(1,448	)		(6,400	)
Income tax expense		(2	)		(1,224	)		(55	)		(798	)		(6	)		(52	)		(2	)		(52	)
Loss from continuing operations		(744	)		(2,263	)		(5,528	)		(3,568	)		(681	)		(5,196	)		(1,450	)		(6,452	)
Loss from discontinued operations, net of taxes		-			(205	)		-			(246	)
Income from discontinued operations, net of taxes														228			863			1,366			1,668
Net loss	$	(744	)	$	(2,468	)	$	(5,528	)	$	(3,814	)	$	(453	)	$	(4,333	)	$	(84	)	$	(4,784	)

Basic and diluted net loss per common shares:
Basic and diluted net income (loss) per common shares:
Loss from continuing operations	$	(0.06	)	$	(0.18	)	$	(0.43	)	$	(0.28	)	$	(0.05	)	$	(0.41	)	$	(0.11	)	$	(0.51	)
Loss from discontinued operations	$	-		$	(0.02	)	$	-		$	(0.02	)
Income from discontinued operations													$	0.02		$	0.07		$	0.11		$	0.13
Net loss	$	(0.06	)	$	(0.20	)	$	(0.43	)	$	(0.30	)	$	(0.03	)	$	(0.34	)	$	-		$	(0.38	)

Weighted average shares outstanding:
Basic and diluted		12,749			12,642			12,747			12,628			12,908			12,749			12,853			12,745

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value amounts)


	September 30,			December 31,		June 30,			December 31,
	2022			2021		2023			2022
Assets
Current assets:
Cash	$	14		$	770	$	608		$	49
Restricted cash		125			500
Accounts receivable, net		1,791			3,516		1,182			1,833
Inventories		6,289			5,677		523			1,097
Income taxes receivable		247			320		-			239
Prepaid expenses		214			436		304			243
Assets held for sale							2,280			2,591
Assets of discontinued operations							-			1,235
Total current assets		8,680			11,219		4,897			7,287

Property and equipment, net		3			7
Goodwill		838			1,710
Intangible assets, net		2,272			5,160		805			906
Operating lease right-of-use assets		2,553			2,735		2,364			2,491
Other assets		38			38		45			47
Total assets	$	14,384		$	20,869	$	8,111		$	10,731

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,750		$	2,647	$	1,325		$	1,407
Accrued expenses		397			747		107			311
Current portion of long-term debt		2,684			1,000
Current portion of long-term debt, net of debt issuance costs							1,210			3,384
Operating lease liabilities, current portion		264			251		280			270
Total current liabilities		5,095			4,645		2,922			5,372

Long-term debt, net of current portion and debt issuance costs		555			1,876
Operating lease liabilities, net of current		2,581			2,780		2,369			2,512
Other liabilities		27			27		27			27
Total liabilities		8,258			9,328		5,318			7,911

Shareholders’ equity:
Preferred Stock, no par value, authorized 20,000 shares; no shares issued and outstanding		-			-		-			-
Common Stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,749 shares (2022) and 12,727 shares (2021)		1,275			1,273
Common Stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,997 shares (2023) and 12,797 shares (2022)							1,300			1,280
Capital in excess of par		7,900			7,789		7,949			7,912
(Accumulated deficit) retained earnings		(3,049	)		2,479
Accumulated deficit							(6,456	)		(6,372	)
Total shareholders’ equity		6,126			11,541		2,793			2,820
Total liabilities and shareholders’ equity	$	14,384		$	20,869	$	8,111		$	10,731

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands)


	Common Stock													Common Stock
														Shares		Amount		Capital in Excess of Par		(Accumulated Deficit) Retained Earnings			Total
Balance, December 31, 2022															12,797	$	1,280	$	7,912	$	(6,372	)	$	2,820
Stock-based compensation															-		-		7		-			7
Net income															-		-		-		369			369
Balance, March 31, 2023 (Unaudited)															12,797		1,280		7,919		(6,003	)		3,196
Stock-based compensation															200		20		30		-			50
Net loss															-		-		-		(453	)		(453	)
Balance, June 30, 2023 (Unaudited)															12,997	$	1,300	$	7,949	$	(6,456	)	$	2,793
	Shares		Amount		Capital in Excess of Par			(Accumulated Deficit) Retained Earnings			Total
Balance, December 31, 2021		12,727	$	1,273	$	7,789		$	2,479		$	11,541			12,727	$	1,273	$	7,789	$	2,479		$	11,541
Stock-based compensation		-		-		35			-			35			-		-		35		-			35
Net loss		-		-		-			(451	)		(451	)		-		-		-		(451	)		(451	)
Restricted stock unit vesting		22		2		26			-			28			22		2		26		-			28
Balance, March 31, 2022 (Unaudited)		12,749		1,275		7,850			2,028			11,153			12,749		1,275		7,850		2,028			11,153
Stock-based compensation		-		-		22			-			22			-		-		22		-			22
Net loss		-		-		-			(4,333	)		(4,333	)		-		-		-		(4,333	)		(4,333	)
Balance, June 30, 2022 (Unaudited)		12,749		1,275		7,872			(2,305	)		6,842			12,749	$	1,275	$	7,872	$	(2,305	)	$	6,842
Stock-based compensation		-		-		28			-			28
Net loss		-		-		-			(744	)		(744	)
Balance, September 30, 2022 (Unaudited)		12,749	$	1,275	$	7,900		$	(3,049	)	$	6,126

Balance, December 31, 2020		12,618	$	1,262	$	7,633		$	13,570		$	22,465
Stock-based compensation		-		-		69			-			69
Net loss		-		-		-			(280	)		(280	)
Balance, March 31, 2021 (Unaudited)		12,618		1,262		7,702			13,290			22,254
Stock-based compensation		-		-		33			-			33
Net loss		-		-		-			(1,066	)		(1,066	)
Balance, June 30, 2021 (Unaudited)		12,618		1,262		7,735			12,224			21,221
Stock-based compensation		-		-		(3	)		-			(3	)
Stock options exercised		45		4		53			-			57
Restricted stock unit vesting		3		-		-			-			-
Net loss		-		-		-			(2,468	)		(2,468	)
Balance, September 30, 2021 (Unaudited)		12,666	$	1,266	$	7,785		$	9,756		$	18,807

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2022			2021			2023			2022
Cash flows from operating activities:
Net loss	$	(5,528	)	$	(3,568	)	$	(84	)	$	(4,784	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		480			1,357			224			339
Gain on disposal of discontinued operations								(787	)		-
Stock-based compensation		113			99			57			85
Deferred income taxes		-			784
Impairment of goodwill and intangible assets		3,589			-			-			3,589
Change in operating assets and liabilities:
Accounts receivable		1,725			228			651			1,823
Inventories		(612	)		(2,651	)		958			(165	)
Prepaid expenses and other assets		222			175			(59	)		143
Income taxes receivable		73			192			239			45
Accounts payable, accrued expenses, and other liabilities		(1,251	)		1,990			(292	)		(609	)
Total adjustments to net loss		4,339			2,174			991			5,250
Net cash used in operating activities		(1,189	)		(1,394	)
Net cash provided by operating activities								907			466

Cash flows from investing activities:
Proceeds from sale of discontinued operations								1,936			-
Purchase of software		(142	)		(262	)		-			(142	)
Net cash used in investing activities		(142	)		(262	)
Net cash provided by (used in) investing activities								1,936			(142	)

Cash flows from financing activities:
Repayments on term loans		(2,000	)		(750	)
Proceeds from term loans								250			-
Repayments of term loans								(30	)		(2,000	)
Proceeds from revolving credit facility		20,763			29,824			2,795			14,737
Repayments of revolving credit facility		(18,563	)		(27,222	)		(5,299	)		(14,015	)
Proceeds from exercise of stock options		-			57
Net cash provided by financing activities		200			1,909
Net cash used in financing activities								(2,284	)		(1,278	)

Net (decrease) increase in cash and restricted cash		(1,131	)		253
Net increase (decrease) in cash and restricted cash								559			(954	)

Cash and restricted cash, beginning of period		1,270			5
Cash and restricted cash, end of period	$	139		$	258
Cash, beginning of period								49			1,270
Cash, end of period							$	608		$	316

Supplemental disclosures:
Cash paid during the period for interest	$	256		$	372		$	109		$	170

See accompanying notes to these Condensed Consolidated Financial Statements.

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 in~~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 ~~December~~January 23, ~~2021,~~2023, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell to all of our right, title and interest in and to certain assets of the ~~Dryel~~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 ~~Dryel~~Prell® product line as discontinued operations for all periods presented, which ~~were~~was previously classified under our ~~household~~health and beauty care products segment. See Note 3 for further information.

The unaudited Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, and Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at ~~September~~June 30, ~~2022~~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, ~~2021.~~2022. The results of operations for the period ended ~~September~~June 30, ~~2022~~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, ~~fair value of assets acquired in business combinations,~~ operating lease right-of-use assets and operating lease liabilities, and stock-based compensation. Actual results could differ from our estimates.

(e)~~Cash and Restricted Cash~~

~~Cash and restricted cash consist of the following:~~

September 30, 2022

December 31, 2021

Cash
$
14

$
770

Restricted Cash

125

500

$
139

$
1,270

~~(f)~~ 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.

~~Inventories were comprised of the following at:~~

September 30, 2022

December 31, 2021

Finished goods

5,986

$
5,499

Raw materials

303

178

$
6,289

$
5,677

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

~~(g)~~(f) ~~Property~~Assets Held for Sale and ~~Equipment~~Discontinued Operations

~~Property~~Assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell and ~~equipment~~ are ~~recorded at historical cost. Depreciation~~not depreciated or amortized. Fair value is ~~provided using~~determined based on the ~~straight-line method over~~total consideration expected to be received by the ~~estimated useful lives~~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 ~~assets ranging from~~ ~~three~~disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to ~~20 years. Office furniture and office machines are estimated to have useful lives of~~ 10 to 20 ~~years and~~ ~~three~~ to ~~five years, respectively. Maintenance and repairs are expensed as incurred. Improvements~~the extent that ~~extend~~it does not increase the ~~useful lives~~value of the ~~asset or provide improved efficiency~~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 ~~capitalized.~~classified as discontinued operations and are excluded from continuing operations and segment results for all periods presented.

~~(h)~~(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.

The Company evaluates reimbursable leasehold improvements based on whether improvements are indicative of a lessor or lessee asset. The Company concluded that all of its reimbursable leasehold improvement payments have qualified as lessor assets and, as such, have accounted for leasehold improvement payments as prepaid rent included in prepaid expenses on the Condensed Consolidated Balance Sheets.

~~(i)~~(h) Intangible Assets ~~and Goodwill~~

~~Goodwill is subject to impairment tests at least annually or when events or changes in circumstances indicate that an asset may be impaired. Other intangible~~Intangible assets with finite lives, such as ~~customer relationships,~~ trade names, and formulas, are amortized over their estimated useful lives, generally ranging from 510 to ~~20 years~~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 ~~the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)~~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.

~~(j)~~(i) Financial Instruments

Financial instruments which potentially subject us to concentrations of credit risk include ~~cash, restricted~~ 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, ~~restricted cash,~~ receivables, other current assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these financial instruments.

~~(k)~~(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 ~~Income~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was ~~0.0~~0.1% and ~~21.6~~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 ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021.~~2022.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund. The tax impact of the carryback of the 2020 loss was recorded in the first quarter 2021 income tax provision. We elected to defer our portion of social security tax payments, and we paid this liability in the third quarter of 2021.

~~(l)~~(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:


	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
Trade promotions	$	379	$	1,242	$	141	$	361
Allowance for doubtful accounts		44		14		36		59
	$	423	$	1,256	$	177	$	420

~~(m)~~(l) Advertising Costs

We expense advertising costs as incurred.

~~(n)~~(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.

~~(o)~~(n) Operating Costs and Expenses Classification

Cost of sales includes costs associated with ~~the purchase of goods from our third-party~~ manufacturing ~~partners, which include~~and distribution including labor, materials, ~~and other expenses associated with the manufacturing of our products,~~ freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for ~~warehousing and distribution,~~ sales and sales support personnel, brokerage commissions, ~~customer compliance fines,~~ and promotional costs. Freight-out costs included in selling expenses totaled $~~429~~112 and $~~624~~158 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and totaled $~~1,725~~199 and $~~2,163~~461 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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.

~~On April 29, 2021,~~(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 ~~announced that Mark E. Goldstein,~~at any time with 10 days’ notice. The financial institution may cancel this agreement after providing 10 days’ notice if the ~~President and Chief Executive Officer~~Company does not pay any installment payment according to the terms of the ~~Company and a member~~agreement. We do not provide any forms of ~~the Board~~guarantees under these agreements. Payments of ~~Directors, retired effective as of~~ ~~April 26, 2021. In connection with Mr. Goldstein’s retirement, the Company and Mr. Goldstein entered into a Separation Agreement, Waiver and Release (the “Separation Agreement”),~~ ~~pursuant to which the Company will pay Mr. Goldstein $720~~ ~~in severance payments (equal to 18 months base salary) over a period of 30 months and reimbursement for the costs of continuing health benefits for a period of 18 months. Severance costs of $805~~ ~~were recognized in the second quarter of 2021 and~~our obligations are included in ~~general~~cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. Outstanding confirmed amounts are $73 and ~~administrative expenses. Accrued severance costs are included in accrued expenses~~$218 as of June 30, 2023 and December 31, 2022, respectively, which will be recognized on the Condensed Consolidated ~~Balance Sheets~~.Financial Statements as payments are due.

~~(p)~~ ~~Recently Adopted Accounting Standards~~

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance primarily provides temporary optional expedients which simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply amendments prospectively through December 31, 2022. The Company ~~adopted~~ ~~ASU 2020-04 effective~~ ~~July 1, 2022. The adoption of this standard did~~ no~~t have a material impact on our financial statements.~~

~~(q)~~ ~~Recently Issued Accounting Standards~~

In September 2022, the FASB issued ASU No. 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. We are currently assessing the impact of this guidance on our financial statements.

Note 2. ~~Going Concern~~Liquidity

~~The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern.~~

~~The Company had cash and restricted cash of $139~~ ~~and $944~~ ~~of available borrowing capacity under our revolving credit facility as of September 30, 2022.~~ 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 ~~used net cash~~has sustained significant losses from operations in ~~operating activities of $1,189~~ ~~during the nine months ended September 30, 2022. The Company’s debt agreements with UMB Bank, N.A. and La Plata Capital, LLC mature on~~ ~~July 1, 2023~~ ~~and~~ ~~November 9, 2023, respectively. Management’s assessment of cash flow forecasts indicate that, absent~~several reporting periods since 2019. Absent any other action, the Company ~~likely will~~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 ~~has approved a plan to extend and restructure debt facilities. Management~~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 outstanding debt balances~~ and provide required liquidity for ongoing operations. ~~If these plans aren't successfully implemented there could be substantial doubt about the Company's ability to continue as a going concern.~~

Note 3. ~~Discontinued Operations~~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 ~~December~~January 23, ~~2021,~~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 ~~Dryel~~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 $~~4,850~~150, plus an amount equal to the value of the ~~Dryel~~Prell® inventory of $~~440~~330, subject to post-close adjustment. Additionally, the buyer will pay a royalty equal to ~~At closing, $~~3~~500~~% of ~~the total consideration was held in escrow~~collections on net sales for ~~a twelve-month period following~~four years after the closing date ~~to be released ratably in four installments in 2022.~~ ~~We received the first~~ ~~three~~ installment payments during the first nine months ended September 30, 2022. This consideration is reflected as Restricted Cash on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. Dryel(the “Prell® ~~generated approximately $2,800~~ ~~of net sales in the trailing twelve-month period ending December 31, 2021.~~

~~Under ASC 360, a long-lived asset group should be classified as held for sale if all of the established criteria are met.~~Royalty”). The ~~sale of Dryel~~Prell® ~~did not meet these criteria~~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 ~~year ending December 31, 2021, because we had not established an active program~~assessment of the Prell® Royalty, which will continue to ~~locate a buyer and because~~be recognized as received from the ~~brand was not being marketed for sale. All efforts between~~buyer. The constraint on the buyer and the Company occurred during the fourth quarter of 2021. As a result, there was no adjustment to fair value under ASC 360 guidance related to held for sale assets, and the difference between thevariable consideration ~~paid to us and the carrying amount of all assets is reflected in the loss on sale of discontinued operations.~~

will be reassessed at each subsequent reporting period. We have reflected the operations of the ~~Dryel~~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. ~~As of the three and nine months ended September 30, 2022, there were~~ no ~~operating results from discontinued operations included in the Condensed Consolidated Statements of Operations. As of September 30, 2022 and December 31, 2021, respectively, there were~~ no ~~assets and liabilities relating to discontinued operations presented separately in the Condensed Consolidated Balance Sheets. There were~~ no ~~capital expenditures or significant operating and investing noncash items related to discontinued operations during the nine months ended September 30, 2022 and 2021, respectively.~~ 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 ~~nine~~six months ended ~~September~~June 30:

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Net sales
$
585

$
1,856

Cost of sales

313

1,013

Gross profit

272

843

Operating expenses:

Selling

144

367

Intangible asset amortization

123

369

Interest expense

99

298

Loss from discontinued operations, before tax

(94
)

(191
)

Income tax expense

(111
)

(55
)
Loss from discontinued operations, net of tax
$
(205
)

$
(246
)


	Three Months Ended June 30, 2023
	Alpha®		BIZ®			Prell®		Scott's Liquid Gold®		Total
Net sales	$	514	$	1,011		$	-	$	-	$	1,525
Cost of sales		209		732			-		-		941
Gross profit		305		279			-		-		584

Operating expenses:
Selling		80		204			-		-		284
General and administrative		10		12			-		-		22
Intangible asset amortization		-		6			-		-		6
Operating income from discontinued operations		215		57			-		-		272

Interest expense		-		(44	)		-		-		(44	)
Income from discontinued operations	$	215	$	13		$	-	$	-	$	228


	Three Months Ended June 30, 2022
	Alpha®		BIZ®			Prell®			Scott's Liquid Gold®			Total
Net sales	$	1,057	$	1,363		$	753		$	1,090		$	4,263
Cost of sales		401		952			470			548			2,371
Gross profit		656		411			283			542			1,892

Operating expenses:
Selling		169		328			202			200			899
Intangible asset amortization		-		6			12			-			18
Operating income from discontinued operations		487		77			69			342			975

Interest expense		-		(44	)		(14	)		(54	)		(112	)
Income from discontinued operations	$	487	$	33		$	55		$	288		$	863


	Six Months Ended June 30, 2023
	Alpha®		BIZ®			Prell®		Scott's Liquid Gold®			Total
Net sales	$	879	$	2,164		$	-	$	187		$	3,230
Cost of sales		278		1,510			-		95			1,883
Gross profit		601		654			-		92			1,347

Operating expenses:
Selling		141		437			-		28			606
General and administrative		10		12			-		22			44
Intangible asset amortization		-		12			-		-			12
Operating income from discontinued operations		450		193			-		42			685

Interest expense		-		(88	)		-		(18	)		(106	)
Gain on sale of discontinued operations		-		-			-		787			787
Income from discontinued operations	$	450	$	105		$	-	$	811		$	1,366


	Six Months Ended June 30, 2022
	Alpha®		BIZ®			Prell®			Scott's Liquid Gold®			Total
Net sales	$	1,917	$	2,423		$	1,591		$	2,313		$	8,244
Cost of sales		684		1,707			966			1,022			4,379
Gross profit		1,233		716			625			1,291			3,865

Operating expenses:
Selling		280		677			492			489			1,938
Intangible asset amortization		-		12			24			-			36
Operating income from discontinued operations		953		27			109			802			1,891

Interest expense		-		(88	)		(27	)		(108	)		(223	)
Income (loss) from discontinued operations	$	953	$	(61	)	$	82		$	694		$	1,668

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:


	June 30, 2023		December 31, 2022
Assets
Inventories	$	-	$	1,235

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	$	946	$	1,115	$	2,061

Intangible assets, net		219		-		219
Assets held for sale	$	1,165	$	1,115	$	2,280


	December 31, 2022
	BIZ®		Alpha®		Total
Assets
Current assets:
Inventories	$	1,092	$	1,268	$	2,360

Intangible assets, net		231		-		231
Assets held for sale	$	1,323	$	1,268	$	2,591

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.

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.

~~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.

Compensation cost related to stock options totaled $100 and $4410 in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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 $~~103~~57 and $5576 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Approximately $~~170~~54 of total unrecognized compensation costs related to non-vested RSUs is expected to be recognized over the next three years.

Note 5. Earnings per Share

Per share data is determined by using the weighted average number of common shares outstanding. Common equivalent shares are considered only for diluted earnings per share, unless considered anti-dilutive. Common equivalent shares, determined using the treasury stock method, result from stock options with exercise prices that are below the average market price of the common stock.

Basic earnings per share include no dilution and are computed by dividing income available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in our earnings.

A reconciliation of the weighted average number of common shares outstanding (in thousands) is as follows. The dilutive effect of stock options and RSUs ~~are~~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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Common shares outstanding, beginning of the period		12,749		12,618		12,727		12,618		12,797		12,749		12,797		12,727
Weighted average common shares issued		-		24		20		10		111		-		56		18
Weighted average number of common shares outstanding		12,749		12,642		12,747		12,628		12,908		12,749		12,853		12,745
Dilutive effect of common share equivalents		-		-		-		-		-		-		-		-
Diluted weighted average number of common shares outstanding		12,749		12,642		12,747		12,628		12,908		12,749		12,853		12,745

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

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Stock options

153

15

153

15


	Three Months and Six Months Ended June 30,
	2023		2022
Stock options		60		213
Restricted stock units		31		104

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 ~~nine~~six months ended ~~September~~June 30:


	Three Months Ended September 30, 2022									Three Months Ended June 30, 2023
	Household Products			Health and Beauty Care Products			Total			Household Products			Health and Beauty Care Products			Total
Net sales	$	2,748		$	1,529		$	4,277		$	847		$	691		$	1,538
Loss from operations		(371	)		(232	)		(603	)		(527	)		(142	)		(669	)
Capital and intangible asset expenditures		-			-			-			-			-			-
Depreciation and amortization		99			41			140			56			6			62


	Three Months Ended September 30, 2021									Three Months Ended June 30, 2022
	Household Products			Health and Beauty Care Products			Total			Household Products			Health and Beauty Care Products			Total
Net sales	$	3,846		$	4,124		$	7,970		$	692		$	428		$	1,120
Loss from operations		(382	)		(548	)		(930	)		(4,567	)		(559	)		(5,126	)
Capital and intangible asset expenditures		113			-			113			43			-			43
Depreciation and amortization		297			155			452			148			27			175

Nine Months Ended September 30, 2022

Household Products

Health and Beauty Care Products

Total

Net sales
$
9,103

$
6,346

$
15,449

Loss from operations

(4,854
)

(200
)

(5,054
)
Capital and intangible asset expenditures

142

-

142

Depreciation and amortization

386

93

480

Nine Months Ended September 30, 2021

Household Products

Health and Beauty Care Products

Total

Net sales
$
10,762

$
13,821

$
24,583

Loss from operations

(1,960
)

(591
)

(2,551
)
Capital and intangible asset expenditures

262

-

262

Depreciation and amortization

893

464

1,357


	Six Months Ended June 30, 2023
	Household Products			Health and Beauty Care Products			Total
Net sales	$	1,669		$	1,599		$	3,268
Loss from operations		(1,049	)		(286	)		(1,335	)
Capital and intangible asset expenditures		-			-			-
Depreciation and amortization		213			11			224


	Six Months Ended June 30, 2022
	Household Products			Health and Beauty Care Products			Total
Net sales	$	1,619		$	1,309		$	2,928
Loss from operations		(5,313	)		(1,030	)		(6,343	)
Capital and intangible asset expenditures		142			-			142
Depreciation and amortization		287			52			339

Note 7. ~~Goodwill and~~ Intangible Assets

~~There was~~ no ~~impairment in the three months ended September 30, 2022 and 2021, respectively.~~

~~During the second quarter of 2022,~~ we experienced a significant decline in our stock price and market capitalization and revised internal forecasts relating to all reporting units due to inflationary related pressures at our customers which have caused sales decreases. We concluded that the changes in circumstances in these reporting units triggered the need for a quantitative review of the carrying values of goodwill and certain intangible assets and resulted in impairment charges to our All-Purpose reporting unit during the nine months ended September 30, 2022 and resulted in the following impairment charges:

Intangible Assets

Goodwill

Total

All-Purpose

2,717

872

3,589

~~There was~~ no ~~impairment in the nine months ended September 30, 2021.~~

~~The changes in the carrying amount of goodwill by reporting unit for the nine months ended September 30, 2022 and 2021 were as follows:~~

Detergent

Shampoo

All-Purpose

Total

Balance, January 1, 2022
$
-

$
-

$
1,710

$
1,710

Additions

-

-

-

-

Impairment

-

-

(872
)

(872
)

Balance, September 30, 2022
$
-

$
-

$
838

$
838

Balance, January 1, 2021
$
593

$
1,520

$
1,710

$
3,823

Additions

-

-

-

-

Impairment

-

-

-

-

Balance, September 30, 2021
$
593

$
1,520

$
1,710

$
3,823

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


	As of September 30, 2022						As of December 31, 2021						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		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets:
Customer relationships	$	-	$	-	$	-	$	2,103	$	329	$	1,774
Trade names		970		99		871		1,850		151		1,699	$	159	$	100	$	59	$	159	$	97	$	62
Formulas and batching processes		1,000		441		559		1,370		452		918		333		290		43		333		282		51
Internal-use software		898		60		838		756		-		756		898		195		703		898		105		793
Non-compete agreement		33		29		4		48		35		13		30		30		-		30		30		-
	$	2,901	$	629	$	2,272	$	6,127	$	967	$	5,160	$	1,420	$	615	$	805	$	1,420	$	514	$	906

The change in the net carrying amounts of intangible assets during 2022 was due to capitalization of costs related to our internal-use software, the impact of impairment charges related to intangible assets in our All-Purpose reporting unit, and amortization expense. Amortization expense for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $8751 and $~~278~~103, respectively. Amortization expense for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $~~313~~101 and $~~433~~226, respectively.

Estimated amortization expense for ~~2022~~2023 and subsequent years is as follows:


Remainder of 2022	$	86
2023		344
Remainder of 2023			$	100
2024		344		201
2025		343		201
2026		342		192
2027				81
Thereafter		813		30
Total	$	2,272	$	805

Note 8. Long-Term Debt ~~and Line-of-Credit~~

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. ~~(“UMB”).~~ Under the UMB Loan Agreement we obtained a $3,000 term loan, with equal monthly payments fully amortized over three years~~, and interest at~~ which was repaid in full in the ~~LIBOR Rate +~~ ~~4.50% with a floor~~second quarter of ~~5.50~~%,2022, and a revolving credit facility, with a maximum commitment of $~~7,000~~ ~~with interest at the LIBOR Rate +~~ ~~3.75%, with a floor of~~ ~~4.75%. On August 10, 2022, the revolving credit facility was reduced to a maximum commitment of $~~4,000 ~~with~~bearing interest at the ~~one month~~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 ~~will terminate~~was paid in full on ~~July 1, 2023, unless terminated earlier pursuant to the terms of the UMB Loan Agreement.~~February 28, 2023. The loans ~~are~~were secured by all of the assets of the Company and ~~all~~its subsidiaries. Unamortized loan costs were $0 and $100 as of ~~its subsidiaries.~~

~~The UMB Loan Agreement requires compliance with affirmative, negative,~~June 30, 2023 and ~~financial covenants,~~December 31, 2022, respectively. Amortization of loan costs for the six months ended June 30, 2023 was $100, including $83 that were expensed as ~~determined on~~ a ~~monthly basis. The UMB Loan Agreement also contains covenants typical~~result of ~~transactions~~the termination of this type, including among others, limitations on our ability to: create, incur or assume any indebtedness or lien on our assets; pay dividends or make other distributions; redeem, retire or acquire outstanding common stock, options, warrants or other rights; make fundamental changes to our corporate structure or business; make investments or sell assets; or engage in certain other activities as set forth in the UMB Loan Agreement. ~~The Company~~Amortization of loan costs for the six months ended June 30, 2022 was ~~in compliance with the UMB Loan Agreement financial covenants as of September 30, 2022.~~$99.

~~As of September 30, 2022, our UMB revolving credit facility and UMB term loan had an outstanding balance of $~~15~~2,414~~

~~and $~~

0~~, respectively, with an all-in interest rate of~~ ~~9.87% and~~ ~~9.13%, respectively. Unamortized loan costs were as $149~~ ~~of September 30, 2022.~~La Plata Loan Agreement

On November 9, 2021,, we entered into a loan and security agreement ~~(the~~(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 ~~maturity date~~$250 term loan that bears interest at 15%. We repaid $1,000 of ~~November 9, 2023.~~ ~~Interest-only payments are required on a monthly basis beginning in January 2022 and ending on December 1, 2022. Beginning on January 1, 2023, monthly~~ principal ~~payments of $~~30 ~~are required in addition to accrued and unpaid interest. All remaining unpaid principal and interest are fully due on November 9, 2023~~.

The La Plata Loan Agreement requires compliance with affirmative, negative, and financial covenants, as determined on a monthly basis beginning in July 2022. The La Plata Loan Agreement is secured by all of the assets of the Company and all of its subsidiaries, subordinate to the security of the UMB Loan Agreement. In conjunction with this agreement, we also entered into an intercreditor and subordination agreement with UMB and La Plata, effective November 9, 2021. The Company was in compliance withagainst the La Plata Loan Agreement asduring the first quarter of ~~September 30,~~ 2022.

~~As of September 30, 2022, our La Plata term loan had an outstanding balance of $1,000. La Plata unamortized~~Unamortized loan costs were $269 and $20 as of ~~September~~June 30, ~~2022.~~

As2023 and December 31, 2022, respectively. Amortization of ~~September~~loan costs for the six months ended June 30, 2023 and 2022 ~~the total principal payments due on our outstanding debt~~ were ~~as follows:~~$11, respectively.

On July 7, 2023, the La Plata term loans were paid in full and the La Plata Loan Agreement was terminated.

Revolving Credit Facility

Term Loan

Total

Remainder of 2022
$
-

-

-

2023

2,414

1,000

3,414

Total minimum principal payments
$
2,414

$
1,000

$
3,414

Note 9. Leases

We have entered into a lease for our corporate headquarters with a remaining lease term of 97 years. This lease includes both lease and nonlease components, which are accounted for as a single lease component as we have elected the practical expedient to combine these components for all leases. As this lease does not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

Information related to leases was as follows:

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Operating lease information:

Operating lease cost
$
100

$
300

Operating cash flows from operating leases

100

300

Net assets obtained in exchange for new operating lease liabilities

-

-

Weighted average remaining lease term in years

8.17

8.17

Weighted average discount rate

5.1
%

5.1
%


	Three Months Ended June 30, 2023			Six Months Ended June 30, 2023
Operating lease information:
Operating lease cost	$	101		$	203
Operating cash flows from operating leases		101			203
Net assets obtained in exchange for new operating lease liabilities		-			-

Weighted average remaining lease term in years		7.42			7.42
Weighted average discount rate		5.1	%		5.1	%


	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
Operating lease information:
Operating lease cost	$	100		$	200
Operating cash flows from operating leases		100			200
Net assets obtained in exchange for new operating lease liabilities		-			-

Weighted average remaining lease term in years		8.42			8.42
Weighted average discount rate		5.1	%		5.1	%

Future minimum annual lease payments are as follows:


Remainder of 2022	$	99
2023		406
Remainder of 2023				$	203
2024		413			413
2025		420			420
2026		427			427
2027					434
Thereafter		1,739			1,305
Total minimum lease payments	$	3,504		$	3,202
Less imputed interest		(659	)		(553	)

Total operating lease liability	$	2,845		$	2,649

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, ~~2021.~~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, ~~2021~~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.

~~COVID-19 Pandemic~~

~~For our fiscal quarter ended September 30, 2022, the coronavirus (COVID-19) pandemic continued~~Primarily due to ~~cause economic and social disruptions that led to ongoing uncertainties. During the first quarter of 2020, the global economy began experiencing~~ a ~~downturn related to the impacts of the COVID-19 global pandemic. Such impacts have included significant volatility~~decline in ~~the global stock markets, and uncertainty in the costs and performance~~net sales, disruption of our ~~supply chain~~international sales to China, and ~~logistics partners. We expect~~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 ~~see continued volatility in these areas, which could impact~~improve our ~~operating results in future periods.~~

~~Supply Chain~~financial position and ~~Outsourcing Partners~~

~~As a result of COVID-19, we have encountered, and expect to continue to experience, various supply chain disruptions impacting~~liquidity, the ~~availability and lead times~~Company has pursued asset sales of certain ~~raw materials~~brands where management has determined that the brand(s) are not aligned with our long-term goals for our finished goods products. We have been proactively identifying alternative sources for raw materials to mitigate the impacts of these disruptions. All of our outsourcing partners, including contract manufacturing plantsgrowth and ~~third-party logistics warehouses, have remained open during the entirety of COVID-19, however, they have had difficulties with staffing their workforce to keep production lines running.~~

~~Inflation~~

Inflationary trends in certain markets and global supply chain challenges have, and are expected to continue to, negatively affect our sales and operating performance. We experienced the impact of greater inflation on material, logistical and other costs during the third quarter. We are aiming to offset these inflationary costs through a combination of pricing and cost savings strategies. We currently anticipate the impact of inflation in certain markets will be increasingly significant continuing into the fourth quarter and fiscal 2023. Weprofitability. The Company will continue to ~~implement mitigation strategies~~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 ~~price increases~~continuing to ~~offset these trends; however, such measures may not fully offset the impact to our operating performance.~~operate as a public, independent company.

~~Distribution Agreement with Church & Dwight~~Divestitures

~~Our distribution agreement with Church & Dwight Co., Inc. (“Church & Dwight”)~~Closed in July 2023 and ~~our subsidiary, Neoteric Cosmetics, Inc., was not extended beyond~~effective June 30, 2023, we sold the Expiration Date of December 31, 2021. As a result, the distribution agreement expired on its own terms as of the Expiration Date and the Company ceased to distribute Batiste Dry Shampoo products. Unless offset by increased sales of our other products, the conclusion of this distribution agreement is expected to have a material impact on our net sales and result of operations. Net sales of Batiste were $4,704 for the nine months ended September 30, 2021.

~~Sale of Dryel~~Alpha® ~~Brand~~

~~On December 23, 2021,~~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 ~~Dryel~~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 ~~household cleaning~~natural hair and skincare products. We have reflected the operations of ~~Dryel~~Scott's Liquid Gold® and Prell®as discontinued operations for all periods presented. ~~These results are excluded from our segment results of household products, which previously included Dryel~~®

~~operating results.~~ See Note 3 - “Discontinued ~~Operations”~~Operations and Assets Held for Sale” in the Notes to Condensed Consolidated Financial Statements for further ~~information.~~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.

Results of Operations

Three months ended ~~September~~June 30, ~~2022~~2023 compared to three months ended ~~September~~June 30, ~~2021~~2022


	Three Months Ended September 30, (in thousands)												Three Months Ended June 30, (in thousands)
							Increase / (Decrease)												Increase / (Decrease)
	2022			2021			$			%			2023			2022			$			%
Net sales	$	4,277		$	7,970		$	(3,693	)		(46.3	%)	$	1,538		$	1,120		$	418			37.3	%
Cost of sales		2,358			5,100			(2,742	)		(53.8	%)		824			737			87			11.8	%
Gross profit		1,919			2,870			(951	)		(33.1	%)		714			383			331			86.4	%
Gross margin		44.9	%		36.0	%								46.4	%		34.2	%

Operating expenses:
Advertising		166			144			22			15.3	%		120			174			(54	)		(31.0	%)
Selling		1,691			2,542			(851	)		(33.5	%)		574			867			(293	)		(33.8	%)
General and administrative		578			836			(258	)		(30.9	%)		638			776			(138	)		(17.8	%)
Intangible asset amortization		87			278			(191	)		(68.7	%)		51			103			(52	)		(50.5	%)
Impairment of goodwill and intangible assets														-			3,589			(3,589	)		(100.0	%)
Total operating expenses		2,522			3,800			(1,278	)		(33.6	%)		1,383			5,509			(4,126	)		(74.9	%)
Loss from operations		(603	)		(930	)		327			35.2	%		(669	)		(5,126	)		4,457			86.9	%

Interest expense		(139	)		(109	)		(30	)		(27.5	%)		(6	)		(18	)		12			66.7	%
Loss before income taxes and discontinued operations		(742	)		(1,039	)		297			28.6	%		(675	)		(5,144	)		4,469			86.9	%
Income tax expense		(2	)		(1,224	)		1,222			99.8	%		(6	)		(52	)		46			88.5	%
Loss from continuing operations		(744	)		(2,263	)		1,519			67.1	%		(681	)		(5,196	)		4,515			86.9	%
Loss from discontinued operations		-			(205	)		205			100.0	%
Income from discontinued operations														228			863			(635	)		(73.6	%)
Net loss	$	(744	)	$	(2,468	)	$	1,724			69.9	%	$	(453	)	$	(4,333	)	$	3,880			89.5	%

~~Change in net loss was~~Our operating results were primarily ~~due to~~impacted by the following:

•

~~Lower~~Increases in net sales, cost of sales, and gross ~~profits from the conclusion~~profit are due to increased distribution of our ~~distribution agreement with Church & Dwight for Batiste~~ products ~~as well as reduced sales~~sold at existing and ~~gross profits from various product lines due to changes in our customers’ purchasing strategies related to inventory and inflationary pressures.~~

•

Gross margin increased due to product sales mix including the elimination of our Church and Dwight distribution agreement, as distributed products required higher promotional activity with customers which reduced our margins.certain new customers.

•

Decrease in selling expenses ~~was a result of~~is primarily due to lower logistics and warehousing costs from ~~lower sales as well as~~a consolidation of our third-party logistics partners, and a reduction in personnel costs related to asset divestitures.

•

Decreased general and administrative costs primarily due to a reduction in legal and professional fees, lower bank charges from the termination of our UMB Loan Agreement, and reduced personnel costs.

•

~~Decrease~~Decreased intangible asset amortization from reduced carrying amounts related to impairments recognized in ~~general and administrative costs due to changes in personnel and related costs.~~2022.

•

~~Decrease~~Results from discontinued operations, which are disclosed in ~~income tax expense as a valuation allowance on our deferred tax asset was established during~~Note 3 to the ~~third quarter of 2021.~~Condensed Consolidated Financial Statements.

1718

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 September 30, (in thousands)												Three Months Ended June 30, (in thousands)
							Increase / (Decrease)												Increase / (Decrease)
	2022			2021			$			%			2023			2022			$		%
Net sales	$	2,748		$	3,846		$	(1,098	)		(28.5	%)	$	847		$	692		$	155		22.4	%
Gross profit	$	1,084		$	1,514		$	(430	)		(28.4	%)	$	392		$	186		$	206		110.8	%
Gross margin		39.4	%		39.4	%								46.3	%		26.9	%
Loss from operations	$	(371	)	$	(382	)	$	11			2.9	%	$	(527	)	$	(4,567	)	$	4,040		88.5	%

•

Net sales and gross ~~profits decreased~~profit increased due to changes in our customers’ purchasing strategies related to inventory and inflationary pressures. In addition, supply chain affected in-stock levels of certain products. Due to low inventory levels in the third quarter of 2022,additional sales of ~~BIZ powder~~Kids N Pets® and Messy Pet® products ~~decreased compared~~ to ~~the same period in the prior year.~~existing customers.

•

Loss from operations ~~was offset~~improved primarily due to ~~decreases in~~decreased selling expenses from the consolidation of our third-party logistics partners. Our loss from operations in the second quarter of 2022 was impacted by the impairment of goodwill and ~~general and administrative costs.~~intangible assets associated with our All-Purpose reporting unit.

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 September 30, (in thousands)

Increase / (Decrease)

2022

2021

$

%

Net sales - distributed products
$
-

$
1,535

$
(1,535
)

(100.0
%)
Net sales - manufactured products

1,529

2,589

(1,060
)

(40.9
%)
Total health and beauty net sales
$
1,529

$
4,124

$
(2,595
)

(62.9
%)

Gross profit
$
835

$
1,356

$
(521
)

(38.4
%)
Gross margin

54.6
%

32.9
%

Loss from operations
$
(232
)

$
(548
)

$
316

57.7
%

•

~~Net sales of distributed health and beauty care products decreased due to the termination of our Batiste distribution agreement with Church & Dwight in December 2021.~~


	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	%

•

Net sales and gross profits ~~from manufactured products decreased~~increased due to ~~the elimination of sales to our exclusive China distributor of Alpha~~® ~~Skin Care products. During the first quarter of 2022 we also eliminated~~additional sales of ~~our Prell~~® ~~and~~ Denorex® ~~brands~~to existing customers as well as sales growth to certain ~~customers with minimal profitability.~~new customers.

•

~~Gross margins increased due to~~Income from operations resulted from decreased selling expenses from the ~~elimination~~consolidation of our ~~Church & Dwight distribution agreement and elimination of sales of our shampoo products to certain customers, as these sales required higher promotional activity which reduced our margins.~~

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021~~

Nine Months Ended September 30, (in thousands)

Increase / (Decrease)

2022

2021

$

%

Net sales
$
15,449

$
24,583

$
(9,134
)

(37.2
%)
Cost of sales

8,337

14,624

(6,287
)

(43.0
%)
Gross profit

7,112

9,959

(2,847
)

(28.6
%)
Gross margin

46.0
%

40.5
%

Operating expenses:

Advertising

492

506

(14
)

(2.8
%)
Selling

5,752

7,388

(1,636
)

(22.1
%)
General and administrative

2,020

3,782

(1,762
)

(46.6
%)
Intangible asset amortization

313

834

(521
)

(62.5
%)
Impairment of goodwill and intangible assets

3,589

-

3,589

100.0
%
Total operating expenses

12,166

12,510

(344
)

(2.7
%)
Loss from operations

(5,054
)

(2,551
)

(2,503
)

(98.1
%)

Interest expense

(419
)

(219
)

(200
)

(91.3
%)
Loss before income taxes and discontinued operations

(5,473
)

(2,770
)

(2,703
)

(97.6
%)
Income tax expense

(55
)

(798
)

743

93.1
%
Loss from continuing operations

(5,528
)

(3,568
)

(1,960
)

(54.9
%)
Loss from discontinued operations

-

(246
)

246

100.0
%
Net loss
$
(5,528
)

$
(3,814
)

$
(1,714
)

(44.9
%)

~~Change in net loss was primarily due to the following:~~

•

Lower sales and gross profits from the conclusion of our distribution agreement with Church & Dwight for Batiste products, as well as reduced sales and gross profits from various product lines due to changes in our customers’ purchasing strategies related to inventory and inflationary pressures. In addition, supply chain affected in-stock levels of certain products and impacted our sales to customers.

•

~~Decrease in selling expenses caused by lower~~third-party logistics ~~and warehousing costs from lower sales~~partners as well as a reduction in personnel costs.

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:

•

Increases in net sales, cost of sales, and gross profit are due to increased distribution of our products sold at existing and certain new customers.

•

Decrease in selling expenses is primarily due to lower logistics and warehousing costs from a consolidation of our third-party logistics partners, and a reduction in personnel costs related to asset divestitures.

•

Decreased general and administrative costs primarily due to ~~changes~~a reduction in legal and professional fees, lower bank charges from the termination of our UMB Loan Agreement, and reduced personnel ~~and related costs as well as reductions in restructuring costs associated with separation of employees during 2021.~~costs.

•

Decreased intangible asset amortization ~~is primarily~~ from reduced carrying amounts related to impairments recognized in ~~the fourth quarter of 2021.~~2022.

•

~~Impairment of goodwill and intangible assets associated with our All-Purpose reporting unit.~~Results from discontinued operations, which are disclosed in Note 3 to the Condensed Consolidated Financial Statements.

1920

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:


	Nine Months Ended September 30, (in thousands)												Six Months Ended June 30, (in thousands)
							Increase / (Decrease)												Increase / (Decrease)
	2022			2021			$			%			2023			2022			$		%
Net sales	$	9,103		$	10,762		$	(1,659	)		(15.4	%)	$	1,669		$	1,619		$	50		3.1	%
Gross profit	$	3,714		$	4,213		$	(499	)		(11.8	%)	$	728		$	624		$	104		16.7	%
Gross margin		40.8	%		39.1	%								43.6	%		38.5	%
Loss from operations	$	(4,854	)	$	(1,960	)	$	(2,894	)		(147.7	%)	$	(1,049	)	$	(5,313	)	$	4,264		80.3	%

•

Net sales and gross profit ~~decreased~~increased due to ~~changes in our customers’ purchasing strategies related~~additional sales of Kids N Pets® and Messy Pet® products to ~~inventory and inflationary pressures as well as supply chain disruptions.~~existing customers. Gross margins improved due to impairments of inventories that occurred during the second quarter of 2022.

•

Loss from operations improved primarily due to decreased selling expenses from the consolidation of our third-party logistics partners. Our loss from operations in the second quarter of 2022 was impacted by the impairment of goodwill and intangible assets associated with our All-Purpose reporting ~~unit and partially offset by reductions in selling and general and administrative costs.~~unit.

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:

Nine Months Ended September 30, (in thousands)

Increase / (Decrease)

2022

2021

$

%

Net sales- distributed products
$
-

$
4,704

$
(4,704
)

(100.0
%)
Net sales- manufactured products

6,346

9,117

(2,771
)

(30.4
%)
Total healthcare and beauty net sales
$
6,346

$
13,821

$
(7,475
)

(54.1
%)

Gross profit
$
3,398

$
5,746

$
(2,348
)

(40.9
%)
Gross margin

53.5
%

41.6
%

Loss from operations
$
(200
)

$
(591
)

$
391

66.2
%

•

~~Net sales of distributed health and beauty care products decreased due to the termination of our Batiste distribution agreement with Church & Dwight in December 2021.~~


	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	%

•

Net sales ~~and gross profits from manufactured products~~increased due to additional sales of Denorex® to existing customers as well as sales growth to certain new customers. Gross margin decreased due to rising costs of products, inventory impairments, and the ~~elimination~~sales mix of ~~sales to our exclusive China distributor of Alpha~~® ~~Skin Care products. During the first quarter of 2022 we also eliminated sales of our Prell~~® ~~and Denorex~~® ~~brands~~products sold to certain ~~customers with minimal profitability.~~customers.

•

~~Gross margins increased due to~~Loss from operations resulted from decreased selling expenses from the ~~elimination~~consolidation of our ~~Church & Dwight distribution agreement and elimination of sales of our shampoo products to certain customers,~~third-party logistics partners as ~~these sales required higher promotional activity which reduced our margins.~~well as a reduction in personnel costs.

Liquidity and Capital Resources

Overview

Our primary sources of funds include cash expected to be generated from operations and ~~borrowings from our line~~sale of ~~credit.~~brands. Our principal uses of cash are to fund planned operating ~~expenditures, interest payments, and any principal payments on our line of credit.~~expenditures. Working capital movements are influenced by the sourcing of ~~finished goods inventories.~~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, ~~and La Plata Loan Agreement.~~which was terminated in February 2023.

Liquidity and Changes in Cash Flows

At ~~September~~June 30, ~~2022,~~2023, we had ~~$944 available on our revolving credit facility with UMB, and $139~~approximately $608 in cash on hand, ~~a decrease~~an increase of ~~$1,131 when compared to the balance as of~~$559 from December 31, ~~2021 as this cash was utilized to reduce long-term debt balances.~~2022.

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

Nine Months Ended September 30, (in thousands)

Increase / (Decrease)

2022

2021

$

%

Operating activities
$
(1,189
)

$
(1,394
)

$
205

14.7
%
Investing activities

(142
)

(262
)

120

45.8
%
Financing activities

200

1,909

(1,709
)

(89.5
%)


	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	%)

•

Net cash ~~used in~~provided by operating activities was primarily related to conversion of working capital from accounts receivable and ~~offset~~inventories.

•

Net cash provided by ~~investments in finished goods inventories.~~investing activities was due to the sale of our Scott's Liquid Gold® brand.

•

Net cash used in ~~investing activities was due to purchases relating to our internal-use software.~~

•

~~Net cash provided by~~ financing activities was from ~~proceeds~~repayments and termination of our ~~various debt facilities which is used for working capital.~~UMB Loan Agreement and offset by proceeds from our La Plata Loan Agreement.

The ~~uncertainty related~~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 ~~the COVID-19 outbreak has impacted~~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, ~~and could affect~~ our ~~future results. 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.

~~Primarily due~~ We expect that our current cash reserves will be sufficient to ~~a decline in net sales and increases in costs associated with the manufacture and distribution of our products, the Company used net~~meet operational cash ~~in operating activities of $1,189~~needs during the ~~nine~~next twelve months, ended September 30, 2022. The Company’s debt agreements with UMB Bank, N.A. and La Plata Capital, LLC mature on July 1, 2023 and November 9, 2023, respectively. Management’s assessment of cash flow forecasts indicate that, absent any other action,but further economic impacts to our sales to customers or supply chain disruptions in the ~~Company likely will require additional liquidity to continue its operations over the next 12 months.~~short-term could impact our liquidity.

Management has implemented actions to reduce the Company’s operating expenses and has approved a plan to extend and restructure debt facilities. Management is considering additional various strategic actions including asset sales, workforce reduction, deferring or eliminating certain capital expenditures, and further reduction of other operating expenses to ensure alignment with customer demand in order to address liquidity needs and pursue its business plan. The Company expects that these strategic actions will reduce expenses and outstanding debt balances and provide required liquidity for ongoing operations. If these plans aren't successfully implemented there could be substantial doubt about the Company's ability to continue as a going concern.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

AnAs of June 30, 2023, we conducted an evaluation, ~~was performed as of September 30, 2022,~~ 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 ~~the previously disclosed~~a material weakness ~~relating~~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 ~~operating~~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 review of the impairment assessment of goodwill prepared by a third-party firm. We believe the actions described in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2022 will be sufficient to remediate the identified material weakness and related disclosure controls and procedures. However, we do not believe that the new and enhanced controls and procedures have been implemented for a sufficient amount of time for management to conclude thatcorrective 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 ~~the Company’s~~accordance with GAAP.

Notwithstanding such material weakness in internal ~~controls~~control over financial reporting, our President and ~~effectiveness~~Chief Financial Officer have concluded that the Condensed Consolidated Financial Statements in Part I, Item 1 of ~~related disclosure controls~~this report, present fairly, in all material respects, our financial position, results of operations, and ~~procedures has been fully remediated, and we are still~~cash flows for the periods presented in the process of improving those controls and procedures. We will continue to improve and monitor the effectiveness of these controls and will make any further changes that management determines to be appropriate.conformity with GAAP.

Changes in Internal Control over Financial Reporting

~~In June 2022,~~ ~~we implemented an enterprise resource planning (“ERP”) software system on a company-wide basis. Despite this transition in software, there has not been a significant~~There was no change in internal controls over financial reporting. Over the remainder of 2022, certain internal controls over financial reporting will be automated, modified, or implemented to address the new control environment associated with the ERP system. Additionally, the Company completed pre-implementation and post-implementation internal control monitoring associated with the launch. While we believe that this new system will enhance its internal control over financial reporting, there are inherent risks in implementing any new system, and we will continue to monitor and evaluate these control changes as part of our assessment of the control design and effectiveness throughout 2022.

~~There have been no other changes~~ in our internal control over financial reporting ~~that occurred~~ during the ~~third quarter of 2022~~three months ended June 30, 2023 that has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

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 ~~the operating effectiveness~~our finance department lacking a sufficient number of ~~the review of the impairment assessment of goodwill prepared by a third-party firm~~trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP as of June 30, ~~2022. We did not maintain effective controls to sufficiently review the completeness and accuracy of the impairment assessment.~~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, ~~2021~~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		Restricted Stock Award Agreement, dated May 15, 2023, between Scott's Liquid Gold-Inc. and Daniel Roller
10.2		Asset Purchase Agreement, by and among the Company, SLG Chemicals, Inc. and Commercial Brands LLC, dated June 30, 2023
10.3		Asset Purchase Agreement, by and among the Company, Neoteric Cosmetics, Inc. and Alpha Skin LLC dated June 30, 2023
31.1		Rule 13a-14(a) Certification of the President.
31.2		Rule 13a-14(a) Certification of the Chief Financial Officer.
32.1*		Section 1350 Certification.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because ~~XBRLtags~~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.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Furnished, not filed.

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.
By:		/s/ Tisha Pedrazzini
		Tisha Pedrazzini, President
		(Principal Executive Officer)

By:		/s/ David M. Arndt
		David M. Arndt, Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)

Date: ~~November~~August 14, ~~2022~~2023


	September 30, 2022		December 31, 2021
Finished goods		5,986	$	5,499
Raw materials		303		178
	$	6,289	$	5,677


	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Net sales	$	585		$	1,856
Cost of sales		313			1,013
Gross profit		272			843

Operating expenses:
Selling		144			367
Intangible asset amortization		123			369
Interest expense		99			298
Loss from discontinued operations, before tax		(94	)		(191	)


Income tax expense		(111	)		(55	)
Loss from discontinued operations, net of tax	$	(205	)	$	(246	)


	Nine Months Ended September 30, 2022
	Household Products			Health and Beauty Care Products			Total
Net sales	$	9,103		$	6,346		$	15,449
Loss from operations		(4,854	)		(200	)		(5,054	)
Capital and intangible asset expenditures		142			-			142
Depreciation and amortization		386			93			480


	Detergent		Shampoo		All-Purpose			Total
Balance, January 1, 2022	$	-	$	-	$	1,710		$	1,710
Additions		-		-		-			-
Impairment		-		-		(872	)		(872	)
Balance, September 30, 2022	$	-	$	-	$	838		$	838

Balance, January 1, 2021	$	593	$	1,520	$	1,710		$	3,823
Additions		-		-		-			-
Impairment		-		-		-			-
Balance, September 30, 2021	$	593	$	1,520	$	1,710		$	3,823


	Revolving Credit Facility		Term Loan		Total
Remainder of 2022	$	-		-		-
2023		2,414		1,000		3,414
Total minimum principal payments	$	2,414	$	1,000	$	3,414