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 ~~June~~September 30, 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 ~~August 11,~~November 6, 2023, the registrant had ~~12,997,423~~12,999,790 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;

•

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

•

~~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;

•

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 our finance department lacking a sufficient number of trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP 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, 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	17
Item 4.	Controls and Procedures	2220
PART II
Item 1A.	Risk Factors	2321
Item 6.	Exhibits	2321

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						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
Net sales	$	1,538		$	1,120		$	3,268		$	2,928		$	907		$	733		$	2,623		$	2,315
Cost of sales		824			737			1,826			1,599			552			319			1,564			1,255
Gross profit		714			383			1,442			1,329			355			414			1,059			1,060

Operating expenses:
Advertising		120			174			275			326			89			166			363			492
Selling		574			867			1,146			1,970			382			606			1,276			2,326
General and administrative		638			776			1,255			1,561			811			655			2,069			2,164
Intangible asset amortization		51			103			101			226			45			65			135			313
Impairment of goodwill and intangible assets		-			3,589			-			3,589			-			-			-			3,589
Total operating expenses		1,383			5,509			2,777			7,672			1,327			1,492			3,843			8,884
Loss from operations		(669	)		(5,126	)		(1,335	)		(6,343	)		(972	)		(1,078	)		(2,784	)		(7,824	)

Interest expense		(6	)		(18	)		(113	)		(57	)		(32	)		(27	)		(145	)		(83	)
Interest income														16			-			16			-
Loss before income taxes and discontinued operations		(675	)		(5,144	)		(1,448	)		(6,400	)		(988	)		(1,105	)		(2,913	)		(7,907	)
Income tax expense		(6	)		(52	)		(2	)		(52	)		(4	)		(2	)		(6	)		(55	)
Loss from continuing operations		(681	)		(5,196	)		(1,450	)		(6,452	)		(992	)		(1,107	)		(2,919	)		(7,962	)
Income from discontinued operations, net of taxes		228			863			1,366			1,668			3,987			363			5,830			2,434
Net loss	$	(453	)	$	(4,333	)	$	(84	)	$	(4,784	)
Net income (loss)													$	2,995		$	(744	)	$	2,911		$	(5,528	)

Basic and diluted net income (loss) per common shares:
Loss from continuing operations	$	(0.05	)	$	(0.41	)	$	(0.11	)	$	(0.51	)	$	(0.08	)	$	(0.09	)	$	(0.23	)	$	(0.62	)
Income from discontinued operations	$	0.02		$	0.07		$	0.11		$	0.13		$	0.31		$	0.03		$	0.45		$	0.19
Net loss	$	(0.03	)	$	(0.34	)	$	-		$	(0.38	)
Net income (loss) per common share													$	0.23		$	(0.06	)	$	0.22		$	(0.43	)

Weighted average shares outstanding:
Basic and diluted		12,908			12,749			12,853			12,745			12,997			12,749			12,901			12,747

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)


	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022
Assets
Current assets:
Cash	$	608		$	49
Cash and cash equivalents							$	4,415		$	49
Restricted cash								250			-
Accounts receivable, net		1,182			1,833			1,083			1,833
Inventories		523			1,097			370			775
Income taxes receivable		-			239			-			239
Prepaid expenses		304			243			168			243
Assets held for sale		2,280			2,591
Assets of discontinued operations		-			1,235			-			4,261
Total current assets		4,897			7,287			6,286			7,400

Intangible assets, net		805			906			658			793
Operating lease right-of-use assets		2,364			2,491			2,299			2,491
Other assets		45			47			39			47
Total assets	$	8,111		$	10,731		$	9,282		$	10,731

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,325		$	1,407		$	753		$	1,407
Accrued expenses		107			311			132			311
Current portion of long-term debt, net of debt issuance costs		1,210			3,384			-			3,384
Operating lease liabilities, current portion		280			270			285			270
Total current liabilities		2,922			5,372			1,170			5,372

Operating lease liabilities, net of current		2,369			2,512			2,296			2,512
Other liabilities		27			27			27			27
Total liabilities		5,318			7,911			3,493			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 12,997 shares (2023) and 12,797 shares (2022)		1,300			1,280			1,300			1,280
Capital in excess of par		7,949			7,912			7,950			7,912
Accumulated deficit		(6,456	)		(6,372	)		(3,461	)		(6,372	)
Total shareholders’ equity		2,793			2,820			5,789			2,820
Total liabilities and shareholders’ equity	$	8,111		$	10,731		$	9,282		$	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			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			12,797	$	1,280	$	7,912	$	(6,372	)	$	2,820
Stock-based compensation		-		-		7		-			7			-		-		7		-			7
Net income		-		-		-		369			369			-		-		-		369			369
Balance, March 31, 2023 (Unaudited)		12,797		1,280		7,919		(6,003	)		3,196			12,797		1,280		7,919		(6,003	)		3,196
Stock-based compensation		200		20		30		-			50			200		20		30		-			50
Net loss		-		-		-		(453	)		(453	)		-		-		-		(453	)		(453	)
Balance, June 30, 2023 (Unaudited)		12,997	$	1,300	$	7,949	$	(6,456	)	$	2,793			12,997	$	1,300	$	7,949	$	(6,456	)	$	2,793
Stock-based compensation														-		-		1		-			1
Net income														-		-		-		2,995			2,995
Balance, September 30, 2023 (Unaudited)														12,997	$	1,300	$	7,950	$	(3,461	)	$	5,789

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

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
	September 30,
	2023			2022
Cash flows from operating activities:
Net income (loss)	$	2,911		$	(5,528	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization		281			480
Gain on disposal of discontinued operations		(4,654	)		-
Stock-based compensation		58			113
Impairment of goodwill and intangible assets		-			3,589
Change in operating assets and liabilities:
Accounts receivable		915			1,725
Inventories		961			(612	)
Prepaid expenses and other assets		84			222
Income taxes receivable		239			73
Accounts payable, accrued expenses, and other liabilities		(842	)		(1,251	)
Total adjustments to net income (loss)		(2,958	)		4,339
Net cash used in operating activities		(47	)		(1,189	)

Cash flows from investing activities:
Proceeds from sale of discontinued operations		8,167			-
Purchase of software		-			(142	)
Net cash provided by (used in) investing activities		8,167			(142	)

Cash flows from financing activities:
Proceeds from term loans		250			-
Repayments of term loans		(1,250	)		(2,000	)
Proceeds from revolving credit facility		2,795			20,763
Repayments of revolving credit facility		(5,299	)		(18,563	)
Net cash (used in) provided by financing activities		(3,504	)		200

Net increase (decrease) in cash, cash equivalents, and restricted cash		4,616			(1,131	)

Cash, cash equivalents, and restricted cash, beginning of period		49			1,270
Cash, cash equivalents, and restricted cash, end of period	$	4,665		$	139

Supplemental disclosures:
Cash paid during the period for interest	$	132		$	256

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~

~~(in thousands)~~

Six Months Ended

June 30,

2023

2022

Cash flows from operating activities:

Net loss
$
(84
)

$
(4,784
)
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

224

339

Gain on disposal of discontinued operations

(787
)

-

Stock-based compensation

57

85

Impairment of goodwill and intangible assets

-

3,589

Change in operating assets and liabilities:

Accounts receivable

651

1,823

Inventories

958

(165
)
Prepaid expenses and other assets

(59
)

143

Income taxes receivable

239

45

Accounts payable, accrued expenses, and other liabilities

(292
)

(609
)
Total adjustments to net loss

991

5,250

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
)
Net cash provided by (used in) investing activities

1,936

(142
)

Cash flows from financing activities:

Proceeds from term loans

250

-

Repayments of term loans

(30
)

(2,000
)
Proceeds from revolving credit facility

2,795

14,737

Repayments of revolving credit facility

(5,299
)

(14,015
)
Net cash used in financing activities

(2,284
)

(1,278
)

Net increase (decrease) in cash and restricted cash

559

(954
)

Cash, beginning of period

49

1,270

Cash, end of period
$
608

$
316

Supplemental disclosures:

Cash paid during the period for interest
$
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. Our business is comprised of ~~two~~ ~~segments:~~one segment, 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~~On September 15, 2023, we entered into and ~~effective~~consummated a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Neoteric Beauty Holdings, LLC, a Delaware limited liability company (the “Neoteric Buyer”), pursuant to which the Company agreed to sell 100% of the outstanding stock of Neoteric Cosmetics, Inc. (“Neoteric”) to the Neoteric Buyer. Neoteric owned and operated the Denorex®, Zincon®, and Neoteric Diabetic Skin Care® brands. We have reflected the operations of the Neoteric brands as discontinued operations for all periods presented. The Neoteric brands were previously classified under our health and beauty care products segment. See Note 3 for further information.

Effective June 30, 2023, we entered into, and in July 2023 we closed, 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~~We have reflected the ~~Alpha Purchase Agreement are subject to customary conditions and closing deliveries by both Neoteric and~~operations of the ~~Alpha Buyer. The assets of~~ Alpha® ~~are classified~~Skin Care brand 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~~Effective July 2023 we entered into, and in July 2023 ~~and effective June 30, 2023, we entered into~~closed, 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~~We have reflected the operations of the BIZ® ~~are classified~~brand as ~~assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from~~ discontinued operations for all periods presented. The BIZ® product line was previously classified under our household products segment. See Note 3 for further information.

On January 23, 2023, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Scott's Liquid Gold® brand, including the Wood Care and Floor Restore products. We have reflected the operations of the Scott's Liquid Gold® brand as discontinued operations for all periods presented, which was previously classified under our household products segment. See Note 3 for further information.

On December 15, 2022, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Prell® product line. We have reflected the operations of the Prell® product line as discontinued operations for all periods presented, which was previously classified under our health and beauty care products segment. See Note 3 for further information.

The unaudited Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, and Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at ~~June~~September 30, 2023 and results of operations and cash flows for all periods have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the period ended ~~June~~September 30, 2023 are not necessarily indicative of the operating results for the full year and are unaudited. Certain prior year amounts have been reclassified to conform to the current period presentation.

(d) Use of Estimates

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

(e) Cash andCash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less at the date of acquisition to be cash equivalents.


	September 30, 2023		December 31, 2022
Cash	$	4,415	$	49
Restricted Cash		250		-
	$	4,665	$	49

(f) Inventories Valuation and Reserves

Inventories can consist of raw materials and finished goods and are stated at the lower of cost (first-in, first-out method) or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We estimate an inventory reserve, which is generally not material to our financial statements, for slow moving and obsolete products and raw materials based upon, among other things, an assessment of historical and anticipated sales of our products. In the event that actual results differ from our estimates, the results of future periods may be impacted.

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

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

Assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated or amortized. Fair value is determined based on the total consideration expected to be received by the Company. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. Disposal groups that meet the discontinued operations criteria by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205-20-45 are classified as discontinued operations and are excluded from continuing operations and segment results for all periods presented.

~~(g)~~(h) Leases

Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

Certain nonlease components, such as maintenance and other services provided by the lessor, are included in the valuation of the lease. Leases with an initial term of 12 months or less, which are not material to our financial statements, are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Lease agreements with lease and nonlease components are combined as a single lease component.

~~(h)~~(i) Intangible Assets

~~Intangible assets with finite lives, such as trade names, and formulas, are amortized over their estimated useful lives, generally ranging from~~ 10 to 15 ~~years. Amortization expense related to intangible assets is included in Operating Expenses on the Condensed Consolidated Statement of Operations.~~

Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by ASC 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the software once the software is ready for its intended use and placed into service. In the second quarter of 2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is five years and will be periodically reassessed based on considerations for obsolescence, technology, competition, and other economic factors.

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

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

~~(j)~~(k) Income Taxes

Income taxes reflect the tax effects of transactions reported in the Condensed Consolidated Financial Statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. A valuation allowance is established when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which related temporary differences become deductible. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Taxes are reported based on tax positions that meet a more-likely-than-not standard and that are measured at the amount that is more-likely-than-not to be realized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits or expense. We classify penalty and interest expense related to income tax liabilities as an income tax expense. There are no significant interest and penalties recognized in the Condensed Consolidated Statements of Operations or accrued on the Condensed Consolidated Balance Sheets.

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the three and ~~six~~nine months ended ~~June~~September 30, 2023 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax income primarily due to valuation allowance. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was ~~0.1~~0.2% and ~~0.0~~0.7% 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~~more-likely-than-not threshold for realizability. Accordingly, a valuation allowance has been recorded against the Company’s net deferred tax assets as of ~~June~~September 30, 2023 and December 31, 2022.

~~(k)~~(l) 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:


	June 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Trade promotions	$	141	$	361	$	94	$	361
Allowance for doubtful accounts		36		59		14		59
	$	177	$	420	$	108	$	420

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

We expense advertising costs as incurred.

~~(m)~~(n) Stock-Based Compensation

We account for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. We determine the estimated grant-date fair value of stock options with only service conditions using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield, and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. We recognize compensation costs ratably over the vesting period using the straight-line method, which approximates the service period.

The Company issues restricted stock unit ("RSUs") awards with restrictions that lapse upon the passage of time (service vesting) and satisfaction of market conditions targeted to our Company’s stock price. For those RSU awards with only service vesting, the Company recognizes compensation cost on a straight-line basis over the service period. For awards with both market and service conditions, the Company starts recognizing compensation cost over the requisite service period, with the effect of the market conditions reflected in the calculation of the award's fair value at grant date. The Company values awards with only service vesting requirements based on the grant date share price. The Company values awards with market and service conditions using a Monte Carlo simulation. The Company determines the requisite service period for awards with both market and service conditions based on the longer of the explicit service period and the derived service period. Stock awards that contain market vesting conditions are included in the computations of diluted EPS reflecting the average number of shares that would be issued based on the highest 30-day average market price during the reporting periods, if their effect is dilutive. If the condition is based on an average of market prices over some period of time, the corresponding average for the period is used.

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

Cost of sales includes costs associated with manufacturing and distribution including labor, materials, freight-in, purchasing and receiving, quality control, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify freight-out as selling expenses. Other selling expenses consist primarily of costs for sales and sales support personnel, brokerage commissions, and promotional costs. Freight-out costs included in selling expenses totaled $~~112~~75 and $~~158~~64 for the three months ended ~~June~~September 30, 2023 and 2022, respectively, and totaled $~~199~~157 and $~~461~~443 for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

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

~~(o)~~(p) Supplier Finance Programs

In September 2022, the FASB issued ASU No. 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” This ASU requires a buyer that uses supplier finance programs to make annual disclosures about the programs’ key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated roll-forward information. The guidance was effective for the Company beginning on January 1, 2023, except for the roll-forward information, which is effective beginning on January 1, 2024. This guidance has not had and is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.

During 2022, we entered into an agreement with a third-party financial institution and an agreement with an insurance agency which allows us to obtain extended payment terms for our insurance policies. The insurance policies can be canceled by the Company at any time with 10 days’ notice. The financial institution may cancel this agreement after providing 10 days’ notice if the Company does not pay any installment payment according to the terms of the agreement. We do not provide any forms of guarantees under these agreements. Payments of our obligations are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. Outstanding confirmed amounts are $730 and $218 as of ~~June~~September 30, 2023 and December 31, 2022, respectively, which will be recognized on the Condensed Consolidated Financial Statements as payments are due.

(q) Recently Issued Accounting Standards

In October 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-06, “Disclosure Improvements-Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. This guidance is effective for the Company no later than June 30, 2027 and is not expected to have a material impact on the Company’s Consolidated Financial Statements.

Note 2. Liquidity

Primarily due to a decline in net sales, disruption of our international sales to China, and increases in costs associated with the manufacture and distribution of our products, the Company has sustained significant losses from operations in several reporting periods since 2019. Absent any other action, the Company previously believed it would require additional liquidity to continue its operations over the next 12 months.

Due to the sales of our ~~BIZ~~® ~~and Alpha~~®various brands as disclosed in Note 3 to the Condensed Consolidated Financial Statements, which generated $~~3,700~~6,396 of cash in ~~July and August~~the third quarter of 2023, we have fully repaid all long-term debt as of July 2023. While, absent any other actions, our operating activities are still expected to result in negative cash flows, we now expect to have enough liquidity to finance operations for the next 12 months. Management has recently implemented actions to reduce the Company’s operating expenses through asset sales, consolidation of vendors, and personnel reductions. To further reduce operating losses, the Company is considering additional various strategic actions including asset sales, obtaining additional debt or equity financing (potentially in conjunction with mergers or acquisitions), workforce reduction, deferring or eliminating certain capital expenditures, and further reduction of other operating expenses to ensure alignment with customer demand in order to address long-term liquidity needs and pursue its business plan. The Company expects that these strategic actions will further reduce expenses and provide required liquidity for ongoing operations.

Note 3. Divestitures

Neoteric Cosmetics, Inc.

On September 15, 2023, we entered into and consummated a Stock Purchase Agreement with Neoteric Beauty Holdings, LLC, a Delaware limited liability company, pursuant to which the Company agreed to sell 100% of the outstanding stock of Neoteric Cosmetics, Inc to the Neoteric Buyer. Neoteric owned and operated the Denorex®, Zincon®, and Neoteric Diabetic Skin Care® brands. The closing consideration paid to the Company was $1,750, with an initial deposit of $175 paid on September 5, 2023. The operations of the Neoteric brands have been classified as income from discontinued operations for all periods presented. As part of the Stock Purchase Agreement, we agreed to maintain at least $250 in accounts at our primary bank for a period of nine months following closing which is designated as restricted cash on the Condensed Consolidated Balance Sheets. Concurrent with the entry into the Stock Purchase Agreement, the Company entered into a transition services agreement with the Neoteric Buyer where both parties would perform certain identified services related to the operations of the brands contemplated in the Stock Purchase Agreement. This transition services agreement has a term of 90 days which can be extended by the Neoteric Buyer for up to three additional 30 day periods or extended as consented by both parties.

Alpha® Skin Care

~~Closed in July 2023 and effective~~Effective June 30, 2023, we entered into, and in July 2023 we closed, 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~~operations 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. Concurrent with the entry into the Alpha

10®

Purchase Agreement, the Company entered into a transition services agreement with the buyer where both parties would perform certain identified services related to the operations of the brands contemplated in the Alpha® Purchase Agreement. This transition services agreement has a term of 90 days which can be extended by the buyer for up to three additional 30 day periods or extended as consented by both parties.

BIZ®

~~Closed in July 2023 and effective~~Effective June 30, 2023, we entered into, and in July 2023 we closed, 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~~operations 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. Concurrent with the entry into the BIZ® Purchase Agreement, the Company entered into a transition services agreement with the buyer where both parties would perform certain identified services related to the operations of the brands contemplated in the BIZ® Purchase Agreement. This transition services agreement has a term of 90 days which can be extended by the buyer for up to three additional 30 day periods or extended as consented by both parties.

Scott's Liquid Gold ~~Wood~~® Wood Care and Scott's Liquid Gold® Floor Restore

On January 23, 2023, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore product lines. The total consideration paid to us was $800, plus an amount equal to the value of the Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore inventory of $1,136, subject to post-close adjustment. The Company may continue to use the name “Scott’s Liquid Gold” and “SLG” in a manner consistent with all past and current practices for a period of 1 year following the closing date of the asset purchase agreement, at which point the Company may only use the aforementioned names in connection with retaining records and other historical documentation. Concurrent with the entry into the asset purchase agreement, the Company entered into a transition services agreement with the buyer where both parties would perform certain identified services related to the operations of the brands contemplated in the asset purchase agreement. This transition services agreement concluded in accordance with the end of its term on July 22, 2023.

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~~was initially fully constrained and no amount iswas included in the results from discontinued operations. ~~Consideration~~During the three months ended September 30, 2023, we assessed the variable consideration and concluded that the volatility of external factors continue to exist and, as a result, consideration for the Scott's Liquid Gold®Royalty iscontinues to be recognized as received from the buyer. The constraint on the variable consideration will be reassessed at each subsequent reporting period. We have reflected the operations of the Scott's Liquid Gold® product lines as discontinued operations.

Prell®

On December 15, 2022, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell to all of our right, title and interest in and to certain assets of the Prell® product line. The total consideration paid to us was $150, plus an amount equal to the value of the Prell® inventory of $330, subject to post-close adjustment. Additionally, the buyer will pay a royalty equal to 3% of collections on net sales for four years after the closing date (the “Prell® Royalty”). The Prell® Royalty resulted in recognition of a gain upon the sale of assets. ~~For the six months ended June 30, 2023 there were no changes in the assessment of~~Because the Prell® Royalty ~~which will~~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 Prell® Royalty was initially fully constrained and no amount was included in the results from discontinued operations. During the three months ended September 30, 2023, we assessed the variable consideration and concluded that the volatility of external factors continue to exist and, as a result, consideration continues to be recognized as received from the buyer. The constraint on the variable consideration will be reassessed at each subsequent reporting period. We have reflected the operations of the Prell® product line as discontinued operations. Concurrent with the entry into the asset purchase agreement, the Company entered into a transition services agreement with the buyer where both parties would perform certain identified services related to the operations of the brands contemplated in the asset purchase agreement. This transition services agreement concluded in accordance with the end of its term on June 15, 2023.

Our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations report discontinued operations separate from continuing operations. Our Condensed Consolidated Statements of Equity and Statements of Cash Flows combine the results of continuing and discontinued operations. A summary of financial information related to our discontinued operations is as follows:

Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Loss from Discontinued Operations in the Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30:


	Three Months Ended June 30, 2023												Three Months Ended September 30, 2023
	Alpha®		BIZ®			Prell®		Scott's Liquid Gold®		Total			Neoteric		Alpha®			BIZ®		Prell®		Scott's Liquid Gold®		Total
Net sales	$	514	$	1,011		$	-	$	-	$	1,525		$	592	$	-		$	-	$	-	$	-	$	592
Cost of sales		209		732			-		-		941			318		-			-		-		-		318
Gross profit		305		279			-		-		584			274		-			-		-		-		274

Operating expenses:
Selling		80		204			-		-		284			90		-			-		-		-		90
General and administrative		10		12			-		-		22			47		13			-		-		-		60
Intangible asset amortization		-		6			-		-		6			4		-			-		-		-		4
Operating income from discontinued operations		215		57			-		-		272

Operating income (loss) from discontinued operations														133		(13	)		-		-		-		120
Gain on sale of discontinued operations														1,501		1,585			781						3,867
Interest expense		-		(44	)		-		-		(44	)		-		-			-		-		-		-
Income from discontinued operations	$	215	$	13		$	-	$	-	$	228		$	1,634	$	1,572		$	781	$	-	$	-	$	3,987


	Three Months Ended September 30, 2022
	Neoteric		Alpha®			BIZ®			Prell®			Scott's Liquid Gold®			Total
Net sales	$	494	$	131		$	1,179		$	903		$	837		$	3,544
Cost of sales		172		(18	)		958			540			387			2,039
Gross profit		322		149			221			363			450			1,505

Operating expenses:
Selling		108		63			384			261			192			1,008
Intangible asset amortization		4		-			6			12			-			22
Operating income (loss) from discontinued operations		210		86			(169	)		90			258			475

Interest expense		-		-			(44	)		(14	)		(54	)		(112	)
Income (loss) from discontinued operations	$	210	$	86		$	(213	)	$	76		$	204		$	363


	Nine Months Ended September 30, 2023
	Neoteric		Alpha®		BIZ®			Prell®		Scott's Liquid Gold®			Total
Net sales	$	2,144	$	879	$	2,164		$	-	$	187		$	5,374
Cost of sales		1,132		278		1,510			-		95			3,015
Gross profit		1,012		601		654			-		92			2,359

Operating expenses:
Selling		342		141		437			-		28			948
General and administrative		47		22		12			-		22			103
Intangible asset amortization		14		-		12			-		-			26
Operating income from discontinued operations		609		438		193			-		42			1,282

Interest expense		-		-		(88	)		-		(18	)		(106	)
Gain on sale of discontinued operations		1,501		1,585		781			-		787			4,654
Income from discontinued operations	$	2,110	$	2,023	$	886		$	-	$	811		$	5,830

1112

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														Nine Months Ended September 30, 2022
	Alpha®		BIZ®			Prell®			Scott's Liquid Gold®			Total			Neoteric		Alpha®		BIZ®			Prell®			Scott's Liquid Gold®			Total
Net sales	$	1,917	$	2,423		$	1,591		$	2,313		$	8,244		$	1,906	$	1,982	$	3,602		$	2,494		$	3,150		$	13,134
Cost of sales		684		1,707			966			1,022			4,379			843		659		2,665			1,506			1,409			7,082
Gross profit		1,233		716			625			1,291			3,865			1,063		1,323		937			988			1,741			6,052

Operating expenses:
Selling		280		677			492			489			1,938			374		344		1,061			753			681			3,213
Intangible asset amortization		-		12			24			-			36			15		-		18			36			-			69
Operating income from discontinued operations		953		27			109			802			1,891
Operating income (loss) from discontinued operations																674		979		(142	)		199			1,060			2,770

Interest expense		-		(88	)		(27	)		(108	)		(223	)		-		-		(132	)		(42	)		(162	)		(336	)
Income (loss) from discontinued operations	$	953	$	(61	)	$	82		$	694		$	1,668		$	674	$	979	$	(274	)	$	157		$	898		$	2,434

There were no capital expenditures or significant operating and investing noncash items related to discontinued operations during the ~~six~~nine months ended ~~June~~September 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:


					December 31, 2022
	June 30, 2023		December 31, 2022		Neoteric®		Alpha®		BIZ®		Scott's Liquid Gold®		Total
Assets
Current assets:
Inventories	$	-	$	1,235	$	322	$	1,268	$	1,092	$	1,235	$	3,917

Intangible assets, net						113		-		231		-	$	344
Assets of discontinued operations					$	435	$	1,268	$	1,323	$	1,235	$	4,261

~~All~~There were no assets of discontinued operations related to Prell® in the above ~~table are related to the discontinued operations of Scott's Liquid Gold~~®.table. There were no assets of discontinued operations related to Prell®, Scott's Liquid Gold®, BIZ®, Alpha®, and Neoteric as of September 30, 2023.

The following summarizes the carrying values of assets and the resulting in the gain on sale of discontinued operations associated with Neoteric, Alpha®, BIZ®, and ~~Alpha~~Scott's Liquid Gold® asat the date 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:~~disposition:

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


	Neoteric		Alpha®		BIZ®		Scott's Liquid Gold®		Total
Inventories	$	150	$	1,115	$	946	$	1,149	$	3,360

Trade names		59		-		145		-		204
Formulas		40		-		71		-		111
Non-compete agreement		-		-		3		-		3
Intangible assets, net		99		-		219		-		318

Proceeds from sale		1,750		2,700		1,946		1,936		8,332
Gain on sale of discontinued operations	$	1,501	$	1,585	$	781	$	787	$	4,654

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~~ no~~t record any impairment charges in the second quarter of 2023.~~

Note 4. Stock-Based Compensation

On May 11, 2023, we granted ~~200~~200,000 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 1515,000 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 2525,000 RSUs to an employee (the “2022 Individual Employee Grant”) with a grant date fair value of $10. The 2022 Individual Employee Grant vested one-third on the initial grant date, and the remaining two-thirds will vest on each anniversary of the grant date.

Compensation cost related to stock options totaled $0 and $10 in the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. The stock options were fully vested in the second quarter of 2022. There was no tax benefit from recording the non-cash expense as it relates to the options granted to employees, as these were qualified stock options which are not normally tax deductible.

Compensation cost related to RSUs totaled $5758 and $76103 for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. Approximately $5438 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 is excluded for periods in which the impact is anti-dilutive and when the Company has a net loss because the impact is also anti-dilutive.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Common shares outstanding, beginning of the period		12,797		12,749		12,797		12,727		12,997		12,749		12,797		12,727
Weighted average common shares issued		111		-		56		18		-		-		104		20
Weighted average number of common shares outstanding		12,908		12,749		12,853		12,745		12,997		12,749		12,901		12,747
Dilutive effect of common share equivalents		-		-		-		-		-		-		-		-
Diluted weighted average number of common shares outstanding		12,908		12,749		12,853		12,745		12,997		12,749		12,901		12,747

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


	Three Months and Six Months Ended June 30,				Three Months and Nine Months Ended September 30,
	2023		2022		2023		2022
Stock options		60		213		56		153
Restricted stock units		31		104		20		88

Note 6. Segment Information

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

~~The following provides information on our segments for~~In the ~~three and six months ended June 30:~~third quarter of 2023, in conjunction with the divestitures brands, the Company determined it has one reportable segment. These divestitures are described in Note 3.

Three Months Ended June 30, 2023

Household Products

Health and Beauty Care Products

Total

Net sales
$
847

$
691

$
1,538

Loss from operations

(527
)

(142
)

(669
)
Capital and intangible asset expenditures

-

-

-

Depreciation and amortization

56

6

62

Three Months Ended June 30, 2022

Household Products

Health and Beauty Care Products

Total

Net sales
$
692

$
428

$
1,120

Loss from operations

(4,567
)

(559
)

(5,126
)
Capital and intangible asset expenditures

43

-

43

Depreciation and amortization

148

27

175

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. Intangible Assets

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

As of June 30, 2023

As of December 31, 2022

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Intangible assets:

Trade names
$
159

$
100

$
59

$
159

$
97

$
62

Formulas and batching processes

333

290

43

333

282

51

Internal-use software

898

195

703

898

105

793

Non-compete agreement

30

30

-

30

30

-

$
1,420

$
615

$
805

$
1,420

$
514

$
906


	As of September 30, 2023						As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Internal-use software		898		240		658		898		105		793

Amortization expense for the three months ended ~~June~~September 30, 2023 and 2022 was $5145 and $~~103~~65, respectively. Amortization expense for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was $~~101~~135 and $~~226~~313, respectively.

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


Remainder of 2023	$	100	$	45
2024		201		180
2025		201		180
2026		192		180
2027		81		73
Thereafter		30
Total	$	805	$	658

Note 8. Long-Term Debt

UMB Loan Agreement

On July 1, 2020, we entered into a Loan and Security Agreement (as amended, the “UMB Loan Agreement”) with UMB Bank, N.A. Under the UMB Loan Agreement we obtained a $3,000 term loan, with equal monthly payments fully amortized over three years which was repaid in full in the second quarter of 2022, and a revolving credit facility, with a maximum commitment of $4,000 bearing interest at the one-month term SOFR rate + 6.83% with a floor of 7.75%.

The UMB Loan Agreement was terminated on February 27, 2023 and the revolving credit facility was paid in full on February 28, 2023. The loans were secured by all of the assets of the Company and its subsidiaries. Unamortized loan costs were $0 and $100 as of ~~June~~September 30, 2023 and December 31, 2022, respectively. Amortization of loan costs for the ~~six~~nine months ended ~~June~~September 30, 2023 was $100, including $83 that were expensed as a result of the termination of the UMB Loan Agreement. Amortization of loan costs for the ~~six~~nine months ended ~~June~~September 30, 2022 was $99.

La Plata Loan Agreement

On November 9, 2021, we entered into a loan and security agreement (as amended, the “La Plata Loan Agreement”) with La Plata Capital, LLC (“La Plata”). Under the La Plata Loan Agreement, we obtained a $2,000 term loan that bears interest at 14% and a $250 term loan that bears interest at 15%. We repaid $1,000 of principal against the La Plata Loan Agreement during the first quarter of 2022.

Unamortized loan costs were $90 and $20 as of ~~June~~September 30, 2023 and December 31, 2022, respectively. Amortization of loan costs for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were $1120 and $26, respectively.

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

Note 9. Leases

We have entered into a lease for our corporate headquarters with a remaining lease term of 7 years. This lease includes both lease and nonlease components, which are accounted for as a single lease component as we have elected the practical expedient to combine these components for all leases. As this lease does not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

Information related to leases was as follows:


	Three Months Ended June 30, 2023			Six Months Ended June 30, 2023			Three Months Ended September 30, 2023			Nine Months Ended September 30, 2023
Operating lease information:
Operating lease cost	$	101		$	203		$	101		$	304
Operating cash flows from operating leases		101			203			101			304
Net assets obtained in exchange for new operating lease liabilities		-			-			-			-

Weighted average remaining lease term in years		7.42			7.42			7.17			7.17
Weighted average discount rate		5.1	%		5.1	%		5.1	%		5.1	%


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

Weighted average remaining lease term in years		8.42			8.42			8.17			8.17
Weighted average discount rate		5.1	%		5.1	%		5.1	%		5.1	%

Future minimum annual lease payments are as follows:


Remainder of 2023	$	203		$	102
2024		413			413
2025		420			420
2026		427			427
2027		434			434
Thereafter		1,305			1,305
Total minimum lease payments	$	3,202		$	3,101
Less imputed interest		(553	)		(520	)

Total operating lease liability	$	2,649		$	2,581

Note 10. Subsequent Events

Related Party Transactions

In October 2023, the Company agreed to reimburse Maran Capital Management, LLC ("Maran") $200 for certain legal and other expenses incurred by Maran related to the Company between February 2021 and September 2023 and in consideration of the significant support received by the Company from Maran in sourcing, structuring, and negotiating the various asset divestitures aforementioned in Note 3 to the Condensed Consolidated Financial Statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022. This Item 2 contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. Please refer to "Item 1A. Risk Factors" in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the uncertainties, risks and assumptions associated with these statements.

Executive Overview

Our Business

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

Primarily due to ~~a decline in net sales, disruption of our international sales to China, and~~ increases in costs associated with the manufacture and distribution of our products, the Company has experienced negative cash flows from operations for several reporting periods. In efforts to improve our financial position and liquidity, the Company has pursued asset sales of certain brands where management has determined that the brand(s) are not aligned with our long-term goals for growth and profitability.

The Company ~~will continue to consider~~is considering a wide range of options, including one or more of the following: the sale of additional brands; a sale, merger, or other strategic transaction involving the entire company; acquisitions of other brands or companies; issuance of additional debt or equity; and continuing to operate as a public, independent company. We continue to operate our pet care brands, which is a product category we believe to have potential for organic or inorganic future growth opportunities.

Divestitures

~~Closed~~On September 15, 2023, we entered into and consummated a Stock Purchase Agreement with a buyer to sell 100% of the outstanding stock of Neoteric. Effective June 30, 2023, and closed in July ~~2023 and effective June 30,~~ 2023, we sold the Alpha® Skin Care product line to a company that markets and distributes skin care products. ~~Closed~~Effective June 30, 2023, and closed in July ~~2023 and effective June 30,~~ 2023, we sold the BIZ® product line to a company that markets and distributes laundry products. ~~The assets of Alpha~~® ~~and BIZ~~® ~~are classified as assets held for sale as of June 30, 2023 and December 31, 2022, and their operations have been classified as income from discontinued operations for all periods presented.~~ On January 23, 2023, we sold the Scott's Liquid Gold® Wood Care and Scott's Liquid Gold® Floor Restore product lines to a company that markets and distributes wood care products. On December 15, 2022, we sold the Prell® brand to a company that markets and distributes natural hair and skincare products. We have reflected the operations of Alpha® Skin Care, BIZ®, Scott's Liquid Gold® and Prell® as discontinued operations for all periods presented.

See Note 3 - “Discontinued Operations and Assets Held for Sale” in the Notes to Condensed Consolidated Financial Statements for further information on the sale of these brands.

In conjunction with the sale of the Scott’s Liquid Gold® brand, as discussed below, the Company may continue to use names “Scott’s Liquid Gold” and “SLG” for up to one year following the closing date of the agreement on January 23, 2023. Following this transitional name period, the Company will only be able to use the aforementioned names in connection with retaining records and other historical or archived documents and any use required by or permitted as a fair use or otherwise under applicable law.

Results of Operations

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


	Three Months Ended June 30, (in thousands)												Three Months Ended September 30, (in thousands)
							Increase / (Decrease)												Increase / (Decrease)
	2023			2022			$			%			2023			2022			$			%
Net sales	$	1,538		$	1,120		$	418			37.3	%	$	907		$	733		$	174			23.7	%
Cost of sales		824			737			87			11.8	%		552			319			233			73.0	%
Gross profit		714			383			331			86.4	%		355			414			(59	)		(14.3	%)
Gross margin		46.4	%		34.2	%								39.1	%		56.5	%

Operating expenses:
Advertising		120			174			(54	)		(31.0	%)		89			166			(77	)		(46.4	%)
Selling		574			867			(293	)		(33.8	%)		382			606			(224	)		(37.0	%)
General and administrative		638			776			(138	)		(17.8	%)		811			655			156			23.8	%
Intangible asset amortization		51			103			(52	)		(50.5	%)		45			65			(20	)		(30.8	%)
Impairment of goodwill and intangible assets		-			3,589			(3,589	)		(100.0	%)
Total operating expenses		1,383			5,509			(4,126	)		(74.9	%)		1,327			1,492			(165	)		(11.1	%)
Loss from operations		(669	)		(5,126	)		4,457			86.9	%		(972	)		(1,078	)		106			9.8	%

Interest expense		(6	)		(18	)		12			66.7	%		(32	)		(27	)		(5	)		(18.5	%)
Interest income														16			-			16			100.0	%
Loss before income taxes and discontinued operations		(675	)		(5,144	)		4,469			86.9	%		(988	)		(1,105	)		117			10.6	%
Income tax expense		(6	)		(52	)		46			88.5	%		(4	)		(2	)		(2	)		(100.0	%)
Loss from continuing operations		(681	)		(5,196	)		4,515			86.9	%		(992	)		(1,107	)		115			10.4	%
Income from discontinued operations		228			863			(635	)		(73.6	%)		3,987			363			3,624			998.3	%
Net loss	$	(453	)	$	(4,333	)	$	3,880			89.5	%
Net income (loss)													$	2,995		$	(744	)	$	3,739			502.6	%

Our operating results were primarily impacted by the following:

•

Increases in net sales and cost of sales ~~and gross profit~~ are due to increased distribution of our products sold at existing and certain new customers. The decrease in gross profit and gross margin are primarily due to higher costs from our manufacturers and a change in the mix of our product sales to customers.

•

Decrease in advertising expenses is primarily due to a reduction in personnel costs related to the creation of advertising materials due to asset divestitures.

•

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.

•

Increased general and administrative costs primarily due to increase in performance-related incentives for personnel and professional expenses related to strategic initiatives.

•

Decreased intangible asset amortization from reduced carrying amounts related to impairments recognized in 2022.

•

Results from discontinued operations, which are disclosed in Note 3 to the Condensed Consolidated Financial Statements.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022


	Nine Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2023			2022			$			%
Net sales	$	2,623		$	2,315		$	308			13.3	%
Cost of sales		1,564			1,255			309			24.6	%
Gross profit		1,059			1,060			(1	)		(0.1	%)
Gross margin		40.4	%		45.8	%

Operating expenses:
Advertising		363			492			(129	)		(26.2	%)
Selling		1,276			2,326			(1,050	)		(45.1	%)
General and administrative		2,069			2,164			(95	)		(4.4	%)
Intangible asset amortization		135			313			(178	)		(56.9	%)
Impairment of goodwill and intangible assets		-			3,589			(3,589	)		(100.0	%)
Total operating expenses		3,843			8,884			(5,041	)		(56.7	%)
Loss from operations		(2,784	)		(7,824	)		5,040			64.4	%
Interest expense		(145	)		(83	)		(62	)		(74.7	%)
Interest income		16			-			16			100.0	%
Loss before income taxes and discontinued operations		(2,913	)		(7,907	)		4,994			63.2	%
Income tax expense		(6	)		(55	)		49			89.1	%
Loss from continuing operations		(2,919	)		(7,962	)		5,043			63.3	%
Income from discontinued operations		5,830			2,434			3,396			139.5	%
Net income (loss)	$	2,911		$	(5,528	)	$	8,439			152.7	%

Our operating results were primarily impacted by the following:

•

Increases in net sales and cost of sales are due to increased distribution of our products sold at existing and certain new customers. The decrease in gross profit and gross margin are primarily due to higher costs from our manufacturers and a change in the mix of our product sales to customers.

•

Decrease in advertising expenses is primarily due to a reduction in personnel costs related to the creation of advertising materials due 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.~~costs, which are offset by performance-related incentives for personnel and professional expenses related to strategic initiatives.

•

Decreased intangible asset amortization from reduced carrying amounts related to impairments recognized in 2022.

•

Results from discontinued operations, which are disclosed in Note 3 to the Condensed Consolidated Financial Statements.

~~Segment Results~~

~~Household products~~

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

Three Months Ended June 30, (in thousands)

Increase / (Decrease)

2023

2022

$

%

Net sales
$
847

$
692

$
155

22.4
%
Gross profit
$
392

$
186

$
206

110.8
%
Gross margin

46.3
%

26.9
%

Loss from operations
$
(527
)

$
(4,567
)

$
4,040

88.5
%

•

~~Net sales and gross profit increased due to additional sales of Kids N Pets~~® ~~and Messy Pet~~® ~~products to existing customers.~~

•

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.

~~Health and beauty care products~~

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

Three Months Ended June 30, (in thousands)

Increase / (Decrease)

2023

2022

$

%

Net sales
$
691

$
428

$
263

61.4
%
Gross profit
$
322

$
197

$
125

63.6
%
Gross margin

46.7
%

46.0
%

Loss from operations
$
(142
)

$
(559
)

$
417

74.6
%

•

~~Net sales and gross profits increased due to additional sales of Denorex~~® ~~to existing customers as well as sales growth to certain new customers.~~

•

~~Income from operations resulted from decreased selling expenses from the consolidation of our third-party logistics 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.~~

•

~~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.~~

•

~~Decreased intangible asset amortization from reduced carrying amounts related to impairments recognized in 2022.~~

•

~~Results from discontinued operations, which are disclosed in Note 3 to the Condensed Consolidated Financial Statements.~~

~~Segment Results~~

~~Household products~~

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

Six Months Ended June 30, (in thousands)

Increase / (Decrease)

2023

2022

$

%

Net sales
$
1,669

$
1,619

$
50

3.1
%
Gross profit
$
728

$
624

$
104

16.7
%
Gross margin

43.6
%

38.5
%

Loss from operations
$
(1,049
)

$
(5,313
)

$
4,264

80.3
%

•

~~Net sales and gross profit increased due to additional sales of Kids N Pets~~® ~~and Messy Pet~~® ~~products to existing customers. Gross margins improved due to impairments of inventories that occurred during the second quarter of 2022.~~

•

~~Health and beauty care products~~

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

Six Months Ended June 30, (in thousands)

Increase / (Decrease)

2023

2022

$

%

Net sales
$
1,599

$
1,309

290

22.1
%
Gross profit
$
714

$
705

$
9

1.2
%
Gross margin

44.6
%

53.9
%

Loss from operations
$
(286
)

$
(1,030
)

$
744

72.2
%

•

~~Net sales 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 sales mix of products sold to certain customers.

•

~~Loss from operations resulted from decreased selling expenses from the consolidation of our third-party logistics partners as 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~~the sales of assets and ~~sale of brands.~~cash from operating activities. Our principal uses of cash are to fund planned operating ~~expenditures.~~expenditures as well as historical debt paydown. Working capital movements are influenced by the sourcing of materials related to the production of products.

Financing Agreements

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

Liquidity and Changes in Cash Flows

At ~~June~~September 30, 2023, we had approximately ~~$608~~$4,665 in cash on hand, an increase of ~~$559~~$4,616 from December 31, 2022.

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


	Six Months Ended June 30, (in thousands)												Nine Months Ended September 30, (in thousands)
							Increase / (Decrease)												Increase / (Decrease)
	2023			2022			$			%			2023			2022			$			%
Operating activities	$	907		$	466		$	441			94.6	%	$	(47	)	$	(1,189	)	$	1,142			96.0	%
Investing activities		1,936			(142	)		2,078			1,463.4	%		8,167			(142	)		8,309			5,851.4	%
Financing activities		(2,284	)		(1,278	)		(1,006	)		(78.7	%)		(3,504	)		200			(3,704	)		(1,852.0	%)

•

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

•

Net cash provided by investing activities was due to the sale of our Scott's Liquid Gold® ~~brand.~~, Biz®, Alpha® Skin Care and Neoteric brands.

•

Net cash used in financing activities was from repayments and termination of our UMB ~~Loan Agreement~~ and ~~offset by proceeds from our~~ La Plata Loan ~~Agreement.~~Agreements.

The cash received from the sales of our BIZ®and Alpha® Skin Care brands in July ~~and August~~ 2023 was $3,700 and was partially used to pay off and terminate our La Plata Loan Agreement. Cash proceeds from the sale of Neoteric will be used to fund operations as we seek to grow our existing business or pursue other strategic transactions. While we believe that our current cash reserves represent sufficient cash ~~flows~~ to fund our operations, our liquidity has been affected by inflationary pressures at our customers which have caused sales decreases and higher costs on materials, logistics, and other purchases. We expect that our current cash reserves will be sufficient to meet operational cash needs during the next twelve months, but further economic impacts to our sales to customers or supply chain disruptions in the short-term could impact our liquidity.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

AsAn evaluation was performed as of ~~June~~September 30, 2023, ~~we conducted an evaluation,~~ under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective ~~as of June 30, 2023~~ due to athe previously disclosed material weakness in our internal controls resulting from our finance department not being able to process and account for complex, non-routine transactions in accordance with GAAP. Management concluded that we lack a sufficient number of trained professionals with technical accounting expertise to process and account for complex and non-routine transactions.

~~Remediation Plan~~

We ~~are committed~~believe the actions described in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2023 will be sufficient to ~~maintaining~~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 ~~strong~~sufficient amount of time for management to conclude that the material weakness in the Company’s internal ~~control environment~~controls over financial reporting and effectiveness of related disclosure controls and procedures has been fully remediated, and we are developing a remediation plan designed to help ensure that this material weakness is remediated as soon as possible, by establishing internal control(s) to identify complex, non-routine accounting transactions and engaging the assistance of accounting expert(s) as needed to assiststill in the ~~accounting~~process of improving those controls and ~~reporting~~procedures. We will continue to improve and monitor the effectiveness of these ~~transactions.~~

~~The material weakness~~controls and will ~~not~~make any further changes that management determines to be considered remediated until a sustained period of time has passed to allow management to test the design and operational effectiveness of the corrective actions. Until the material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our Condensed Consolidated Financial Statements are prepared in accordance with GAAP.

Notwithstanding such material weakness in internal control over financial reporting, our President and Chief Financial Officer have concluded that the Condensed Consolidated Financial Statements in Part I, Item 1 of this report, present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with GAAP.appropriate.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the three months ended ~~June~~September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2220

PART II

ITEM 1A. RISK FACTORS

We have identified a material weakness in our internal control over financial reporting.

We are a public reporting company subject to the rules and regulations established from time to time by the SEC. As a public company we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting.

As disclosed in Part I, Item 4, “Disclosure Controls and Procedures,” we have identified a material weakness in our controls related to our finance department lacking a sufficient number of trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP as of June 30, 2023.

This material weakness did not result in any restatements to our Condensed Consolidated Financial Statements. Our management is committed to remediating this material weakness and is in the process of developing a remediation plan to address the material weakness.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent quarterly reports on Form 10-Q, which could materially affect our business, financial condition, or future results.

ITEM 6. EXHIBITS


Exhibit Number		Document
10.1		~~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~~Neoteric Beauty Holdings, LLC dated ~~June 30,~~September 15, 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 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.

2321

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: ~~August 14,~~November 7, 2023

2422


	Three Months Ended June 30, 2023
	Household Products			Health and Beauty Care Products			Total
Net sales	$	847		$	691		$	1,538
Loss from operations		(527	)		(142	)		(669	)
Capital and intangible asset expenditures		-			-			-
Depreciation and amortization		56			6			62


	As of June 30, 2023						As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets:
Trade names	$	159	$	100	$	59	$	159	$	97	$	62
Formulas and batching processes		333		290		43		333		282		51
Internal-use software		898		195		703		898		105		793
Non-compete agreement		30		30		-		30		30		-
	$	1,420	$	615	$	805	$	1,420	$	514	$	906