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~~

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

For the quarterly period ended ~~September 30, 2017~~ March 31, 2024

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

☐ 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.)
~~4880 Havana Street, Suite 400,~~720 S. Colorado Blvd., PH N, Denver, CO		~~80239~~80246
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~(303)~~ (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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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		☒
~~Non-accelerated filer~~	☐ ~~(Do not check if a smaller reporting company)~~		~~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.~~Act). Yes ☐ No ☒

As of ~~November 13, 2017,~~May 7, 2024 the ~~Registrant~~registrant had ~~11,885,839~~13,006,162shares 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 ~~U.S. federal securities laws.~~the Private Securities Litigation Reform Act of 1995, in addition to historical information. All statements, other than statements of historical ~~fact,~~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 ~~risk~~risks and ~~uncertainty~~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:

•

disruptions or inefficiencies in the supply chain, including any impact of availability or costs of materials and components;

•

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

•

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;

•

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

~~continuation of our distributorship agreements for Montagne Jeunesse skin care products and Batiste Dry Shampoos;~~

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

~~new competitive products and/or technological changes;~~

~~dependence upon third party vendors and upon sales to major customers;~~

~~the availability of necessary raw materials and potential increases in the prices of these raw materials;~~

~~changes in the regulation of our products, including applicable environmental and U.S. Food and Drug Administration (“FDA”) regulations;~~

~~the continuing availability of financing on terms and conditions that are acceptable to 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 and U.S. regulations;

•

the loss of any executive officer or other personnel;

•

future losses which could affect our liquidity;

•

ineffective internal controls over financial reporting caused by the ~~loss of any executive officer;~~existing material weakness; and

•

other matters discussed in this Report, including the risks described in the Risk Factors section of this ~~Report.~~

Report and in our Annual Report on Form 10-K for the year ended December 31, 2023 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.	~~Condensed Consolidated~~ Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.4.	~~Quantitative~~Controls and ~~Qualitative Disclosures About Market Risk~~Procedures	1915
~~Item 4.~~			~~Controls and Procedures~~PART II	19
Item 1A.	~~PART II~~Risk Factors	17
Item ~~1A.~~6.	~~Risk Factors~~Exhibits	20
~~Item 6.~~	~~Exhibits~~	2017

PART I

P~~ART I~~

~~ITEM 1.~~

~~FINANCIAL STATEMENTS.~~

ITEM 1. FINANCIAL STATEMENTS.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of ~~Income~~Operations (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net sales
$
10,340,600

$
9,936,900

$
30,657,000

$
24,274,800

Operating costs and expenses:

Cost of sales

5,420,000

5,830,600

16,649,000

13,454,600

Advertising

109,800

91,700

531,100

1,426,600

Selling

1,583,400

1,717,300

4,878,600

4,184,300

General and administrative

1,062,700

1,218,800

3,166,300

3,433,000

Total operating costs and expenses

8,175,900

8,858,400

25,225,000

22,498,500

Income from operations

2,164,700

1,078,500

5,432,000

1,776,300

Other income

-

1,000

-

12,600

Interest expense

(26,400
)

(60,400
)

(101,500
)

(77,500
)
Income before income taxes

2,138,300

1,019,100

5,330,500

1,711,400

Income tax expense

(663,500
)

(415,500
)

(1,899,300
)

(697,900
)
Net income
$
1,474,800

$
603,600

$
3,431,200

$
1,013,500

Net income per common share

Basic
$
0.12

$
0.05

$
0.29

$
0.09

Diluted
$
0.12

$
0.05

$
0.28

$
0.08

Weighted average shares outstanding:

Basic

11,885,839

11,747,612

11,840,957

11,730,759

Diluted

12,360,079

12,027,956

12,217,890

11,969,167


	Three Months Ended
	March 31,
	2024			2023
Net sales	$	859		$	852
Cost of sales		501			487
Gross profit		358			365

Operating expenses:
Advertising		17			109
Selling		188			406
General and administrative		674			622
Intangible asset amortization		-			45
Total operating expenses		879			1,182
Loss from operations		(521	)		(817	)

Interest income		29			-
Interest expense		-			(152	)
Loss before income taxes and discontinued operations		(492	)		(969	)
Income tax benefit		-			4
Loss from continuing operations		(492	)		(965	)
Income from discontinued operations		-			1,334
Net (loss) income	$	(492	)	$	369

Basic and diluted net loss per common shares:
Loss from continuing operations	$	(0.04	)	$	(0.08	)
Income from discontinued operations	$	-		$	0.11
Net (loss) income	$	(0.04	)	$	0.03

Weighted average shares outstanding:
Basic and diluted		13,006			12,797

See accompanying notes to these Condensed Consolidated Financial ~~Statements (Unaudited).~~Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands, except par value amounts)


	September 30,		December 31,		March 31,			December 31,
	2017		2016		2024			2023
	(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,389,000	$	2,097,300
Cash					$	3,027		$	3,677
Restricted cash						250			250
Accounts receivable, net		3,152,200		3,456,400		357			307
Inventories, net		9,483,900		5,641,300
Income taxes receivable		-		7,000
Due from buyers						145			145
Inventories						428			365
Prepaid expenses		396,800		319,600		143			207
Total current assets		15,421,900		11,521,600		4,350			4,951

Property and equipment, net		823,900		578,400
Deferred tax asset		563,400		1,392,600
Goodwill		1,520,600		1,520,600
Intangible assets, net		6,303,600		6,769,100
Operating lease right-of-use assets						1,326			1,376
Other assets		49,100		51,000		36			40
Total assets	$	24,682,500	$	21,833,300	$	5,712		$	6,367

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,376,900	$	1,939,400	$	323		$	544
Accrued expenses		860,900		964,800		5			19
Income taxes payable		197,300		-
Current maturities of long-term debt		800,000		800,000
Due to buyers						92			-
Operating lease liabilities, current portion						296			291
Total current liabilities		4,235,100		3,704,200		716			854

Line-of-credit		-		750,000
Long-term debt, net of current maturities and debt issuance costs		556,100		1,137,300
Operating lease liabilities, net of current						2,144			2,221
Other liabilities						74			27
Total liabilities		4,791,200		5,591,500		2,934			3,102

Shareholders’ equity:
Preferred stock, no par value, authorized 20,000,000 shares; no shares issued and outstanding		-		-
Common stock; $0.10 par value, authorized 50,000,000 shares; issued and outstanding 11,885,839 shares (2017) and 11,749,589 shares (2016)		1,188,600		1,175,000
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 13,006 shares (2024) and (2023)						1,301			1,301
Capital in excess of par		6,382,500		6,177,800		7,961			7,956
Retained earnings		12,320,200		8,889,000
Accumulated deficit						(6,484	)		(5,992	)
Total shareholders’ equity		19,891,300		16,241,800		2,778			3,265
Total liabilities and shareholders’ equity	$	24,682,500	$	21,833,300	$	5,712		$	6,367

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
	Shares		Amount		Capital in Excess of Par		(Accumulated Deficit) Retained Earnings			Total
Balance, December 31, 2023		13,006	$	1,301	$	7,956	$	(5,992	)	$	3,265
Stock-based compensation		-		-		5		-			5
Net loss		-		-		-		(492	)		(492	)
Balance, March 31, 2024 (unaudited)		13,006	$	1,301	$	7,961	$	(6,484	)	$	2,778

Balance, December 31, 2022		12,797	$	1,280	$	7,912	$	(6,372	)	$	2,820
Stock-based compensation		-		-		7		-			7
Net income		-		-		-		369			369
Balance, March 31, 2023 (unaudited)		12,797	$	1,280	$	7,919	$	(6,003	)	$	3,196

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands)

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net income
$
3,431,200

$
1,013,500

Adjustment to reconcile net income to net cash provided (used) by operating activities:

Depreciation and amortization

591,400

264,900

Stock-based compensation

183,500

189,500

Deferred income taxes

829,200

649,600

Change in operating assets and liabilities:

Accounts receivable

304,200

(2,774,700
)
Inventories

(3,842,600
)

(305,500
)
Prepaid expenses and other assets

(75,300
)

(54,200
)
Income taxes payable (receivable)

204,300

(13,400
)
Accounts payable and accrued expenses

333,600

906,300

Total adjustments to net income

(1,471,700
)

(1,137,500
)
Net cash provided (used) by operating activities

1,959,500

(124,000
)

Cash flows from investing activities:

Cash paid for Acquisition

-

(9,000,000
)
Purchase of property and equipment

(352,600
)

(223,600
)
Net cash used by investing activities:

(352,600
)

(9,223,600
)

Cash flows from financing activities:

Borrowing under line-of-credit

-

3,694,100

Repayments under line-of-credit

(750,000
)

(1,794,100
)
Proceeds from issuance of long-term debt

-

2,400,000

Repayments of long-term debt

(600,000
)

(200,000
)
Debt issuance costs

-

(75,200
)
Proceeds from exercise of stock options

34,800

30,500

Net cash (used) provided by financing activities:

(1,315,200
)

4,055,300

Net increase (decrease) in cash and cash equivalents

291,700

(5,292,300
)

Cash and cash equivalents, beginning of period

2,097,300

7,165,100

Cash and cash equivalents, end of period
$
2,389,000

$
1,872,800

Supplemental disclosures:

Cash paid during the period for interest
$
101,500

$
77,500

Cash paid during the period for income taxes
$
865,700

$
-


	Three Months Ended
	March 31,
	2024			2023
Cash flows from operating activities:
Net (loss) income	$	(492	)	$	369
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Depreciation and amortization		-			162
Gain on disposal of discontinued operations		-			(787	)
Stock-based compensation		5			7
Change in operating assets and liabilities:
Accounts receivable		(50	)		858
Inventories		(63	)		603
Prepaid expenses and other assets		68			(218	)
Income taxes receivable		-			239
Accounts payable, accrued expenses, and other liabilities		(118	)		(477	)
Total adjustments to net (loss) income		(158	)		387
Net cash (used in) provided by operating activities		(650	)		756

Cash flows from investing activities:
Proceeds from sale of discontinued operations		-			1,936
Net cash provided by investing activities		-			1,936

Cash flows from financing activities:
Proceeds from term loans		-			250
Repayments on term loans		-			(30	)
Proceeds from revolving credit facility		-			2,795
Repayments of revolving credit facility		-			(5,299	)
Net cash used in financing activities		-			(2,284	)

Net (decrease) increase in cash and restricted cash		(650	)		408

Cash and restricted cash, beginning of period		3,927			49
Cash and restricted cash, end of period	$	3,277		$	457

Supplemental disclosures:
Cash paid during the period for interest	$	-		$	47

~~Supplemental disclosure of non-cash activity:~~

In connection with the Company’s Acquisition (defined in Note 5) during the nine months ended September 30, 2016, the Company acquired $400,000 of inventory, intangible assets of $7,079,400, and goodwill of $1,520,600 for a total of $9,000,000.

See accompanying notes to these Condensed Consolidated Financial ~~Statements (Unaudited).~~Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands, except per share data)

~~Note 1.~~

~~Organization and Summary of Significant Accounting Policies~~

~~(a)~~

~~Company Background~~

Note 1. Organization and Summary of Significant Accounting Policies

(a) Company Background

Scott’s Liquid Gold-Inc. (a, a Colorado ~~corporation)~~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, ~~manufacture,~~ market and sell high quality ~~household and skin and hair care~~ products. ~~We are also a distributor in the United States of Montagne Jeunesse skin sachets and Batiste Dry Shampoo manufactured by two other companies.~~ Our business is comprised of ~~two segments,~~one household products segment.

On December 19, 2023, Scott’s Liquid Gold-Inc. (the “Company”), Horizon Kinetics LLC (“Horizon Kinetics”) and ~~skin~~HKNY ONE, LLC, a wholly-owned subsidiary of the Company (“Merger Sub”) entered into an Agreement and ~~hair care products.~~Plan of Merger (the “Merger Agreement”), providing for the acquisition of Horizon Kinetics by the Company. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, upon obtaining the requisite shareholder approval, (i) the Company will convert from a Colorado to a Delaware corporation, increase its authorized shares of common stock and change its name and (ii) Merger Sub will be merged with and into Horizon Kinetics, with Horizon Kinetics being the surviving entity (collectively, the "Merger").

~~(b)~~

~~Principles of Consolidation~~

(b) Principles of Consolidation

Our Condensed Consolidated Financial Statements ~~(Unaudited)~~ include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

~~(c)~~

~~Basis of Presentation~~

The unaudited Condensed Consolidated Statements of ~~Income,~~Operations, Condensed Consolidated Balance Sheets, and ~~the~~ Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at ~~September 30, 2017~~March 31, 2024 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 ~~(Unaudited)~~ 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, ~~2016.~~2023. The results of operations for the period ended ~~September 30, 2017~~March 31, 2024 are not necessarily indicative of the operating results for the full ~~year.~~year and are unaudited.

~~(d)~~

~~Use of Estimates~~

(d) Useof Estimates

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

(e) Cash and Restricted Cash

~~(e)~~

~~Cash Equivalents~~

Cash and restricted cash consist of the following:


	March 31, 2024		December 31, 2023
Cash	$	3,027	$	3,677
Restricted Cash		250		250
	$	3,277	$	3,927

~~We consider all highly liquid investments with an original maturity~~

As part of ~~three months or less at~~ the ~~date of acquisition to be cash equivalents.~~

~~(f)~~

~~Sale of Accounts Receivable~~

~~On March 16, 2011, we entered into a financing agreement with Wells Fargo Bank, National Association (“Wells Fargo”) for the purpose of lowering the cost of borrowing associated~~Stock Purchase Agreement with the ~~financing of~~Neoteric Buyer, we agreed to maintain at least $250 in accounts at our accounts receivable. Pursuant to this agreement, we were able to sell accounts receivable from Wal-Mart Stores, Inc. (“Wal-Mart”) at a discount to Wells Fargo. On January 29, 2016 we terminated our agreement with Wells Fargo due to Wal-Mart changing its accounts payable policy.

~~During the nine months ended September 30, 2017 and 2016, we sold approximately $0 and $306,800, respectively, of our relevant accounts receivable to Wells Fargo~~primary bank for approximately $0 and $305,200, respectively. The difference between the invoiced amount of the receivable and the cash that we received from Wells Fargo is a cost to us. This cost is in lieu of any cash discount our customer would have been allowed and, thus, is treated in a manner consistent with standard trade discounts granted to our customers.

The reporting of the sale of accounts receivable to Wells Fargo is treated as a sale rather than as a secured borrowing. As a result, affected accounts receivable are relieved from the Company’s financial statements upon receipt of the cash proceeds.

~~(g)~~

~~Inventories Valuation and Reserves~~

Inventories consist of raw materials and finished goods and are stated at the lower of cost (first-in, first-out method) or market. We record a reserve for slow moving and obsolete products and raw materials. We estimate this reserve based upon historical and anticipated sales.

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

September 30, 2017

December 31, 2016

Finished goods
$
7,364,900

$
2,668,700

Raw materials

2,133,600

3,035,000

Inventory reserve for obsolescence

(14,600
)

(62,400
)

$
9,483,900

$
5,641,300

~~(h)~~

~~Property and Equipment~~

Property and equipment are recorded at historical cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three to 20 years. Production equipment and production support equipment are estimated to have useful lives of 15 to 20 years and three to 10 years, respectively. Office furniture and office machines are estimated to have useful lives of 10 to 20 years and three to five years, respectively. Maintenance and repairs are expensed as incurred. Improvements that extend the useful lives of the asset or provide improved efficiency are capitalized.

~~(i)~~

~~Intangible Assets~~

Intangible assets consist of customer relationships, trade names, formulas and batching processes and a non-compete agreement. The fair value of the intangible assets is amortized over their estimated useful lives and range from a period of ~~five to 15 years~~nine months following closing.

(f) Discontinued Operations

As discussed in Note 3, during 2023 the Company disposed of several brands that represented reporting units. 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 ~~reviewed~~excluded from continuing operations and segment results for ~~impairment when changes in market circumstances occur and written down to fair value if impaired.~~all periods presented.

~~(j)~~

~~Goodwill~~

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the Acquisition discussed in Notes 5 and 6. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests, and in certain circumstances these assets are written down to fair value if impaired.(g) Financial Instruments

~~(k)~~

~~Financial Instruments~~

Financial instruments which potentially subject us to concentrations of credit risk include cash and cash equivalents and accounts receivable. We maintain our cash balances in the form of bank demand deposits with financial institutions that we believe are creditworthy. ~~During the nine months ended September 30, 2017, 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 ~~and current maturities of long-term debt~~ approximate fair value due to the short-term nature of these financial instruments. The recorded amount of long-term debt approximates fair value and is estimated primarily based on current market rates for debt with similar terms and remaining maturities. At September 30, 2017, we had long-term debt of $1,400,000 and no outstanding balance on our line-of-credit. At December 31, 2016 we had long-term debt of $2,000,000 and a $750,000 outstanding balance on our line-of-credit.

(h) Revenue Recognition

~~(l)~~

~~Income Taxes~~

Income taxes reflect the tax effects of transactions reported in the 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 provided when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which related temporary differences become deductible. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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

The effective tax rate for the nine months ended September 30, 2017 and 2016 was 35.6% and 40.8% respectively, which differs from the statutory income tax rate due to permanent book to tax differences.

~~(m)~~

~~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. ~~In our case,~~When consideration is received in advance of the ~~criteria generally~~delivery of goods or services, a contract liability is recorded. Our revenue contracts are ~~met when: (i) we have an arrangement~~identified when purchase orders are received and accepted from customers and represent a single performance obligation to sell our products to a ~~product; (ii) we have delivered~~customer.

Net sales reflect the ~~product in accordance with that arrangement; (iii) 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 ~~price~~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 ~~the product is determinable; and (iv) we believe that we will be paid for the sale.~~

~~We establish~~customer allowances. Customer allowances primarily include reserves for ~~customer returns~~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 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. ~~We estimate these reserves~~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 ~~upon,~~on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These ~~reserves~~estimates are established in the period of sale and reduce our revenue in that period.

Our reserve for customer allowances includes primarily reserves for trade promotions to support price features, displays, slotting fees and other merchandising of our products to our customers. The actual level of returns and customer allowances is influenced by several factors, includingSales are recorded at the ~~promotional efforts of our customers, changes in mix of our customers, changes in the mix~~time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we ~~sell~~consider several indicators, including significant risks and rewards of products, our right to payment, and the ~~maturity~~legal title of the ~~product. We may change our estimates based~~products. Based on ~~actual results and consideration of other factors that cause returns and allowances. In~~ the ~~event that actual results differ from our estimates, the results of future periods may be impacted.~~

~~We also establish reserves for coupons, rebates and certain other promotional programs for consumers. We estimate these reserves based upon, among other things, an~~ assessment of ~~historical trends and current~~control indicators, sales ~~activity. These reserves~~ are ~~recorded as a reduction of revenue at the later of the date at which the revenue is~~generally recognized ~~or the date at which the sale incentive is offered.~~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 were as follows:

At September 30, 2017 and December 31, 2016 approximately $831,400 and $1,184,700, respectively, had been reserved as a reduction of accounts receivable. Trade promotions to our customers and incentives such as coupons to our consumers are deducted from gross sales and totaled $1,854,100 and $1,584,500 for the nine months ended September 30, 2017 and 2016, respectively, and totaled $522,300 and $616,300 for the three months ended September 30, 2017 and 2016, respectively.


	March 31, 2024		December 31, 2023
Trade promotions	$	32	$	41
Allowance for doubtful accounts		8		9
	$	40	$	50

~~(n)~~

~~Advertising Costs~~

(i) Advertising Costs

We expense advertising costs ~~are expensed~~ as incurred.

~~(o)~~

~~Stock-based Compensation~~

~~The Company accounts~~(j)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. ~~The Company determines~~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. ~~The Company recognizes~~We recognize compensation costs ratably over the vesting period using the straight-line ~~method.~~method, which approximates the service period.

~~(p)~~

~~Operating Costs and Expenses Classification~~

~~Cost~~The Company issues restricted stock unit ("RSUs") awards with restrictions that lapse upon the passage of ~~sales includes costs associated~~time (service vesting) and satisfaction of market conditions targeted to our Company’s stock price. For those RSU awards with ~~manufacturing~~only service vesting, the Company recognizes compensation cost on a straight-line basis over the service period. For awards with both market and ~~distribution including labor, materials, freight-in, purchasing~~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 ~~receiving, quality control, internal transfer costs, repairs, maintenance~~service conditions using a Monte Carlo simulation. The Company determines the requisite service period for awards with both market and ~~other indirect costs, as well as warehousing~~service conditions based on the longer of the explicit service period and ~~distribution costs. We classify shipping and handling costs comprised primarily~~the derived service period. Stock awards that contain market vesting conditions are included in the computations of ~~freight-out as selling expenses. Other selling expenses consist primarily~~diluted earnings per share reflecting the average number of wages and benefits for sales and sales support personnel, travel, brokerage commissions and promotional costs, as well as certain other indirect costs. Shipping and handling costs totaled $1,864,400 and $1,149,600shares that would be issued based on the highest 30-day average market price at the end 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 ~~nine months ended September 30, 2017~~period is used.

(p) Recently Issued Accounting Standards

Other recent accounting pronouncements and ~~2016, respectively,~~guidance issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and ~~totaled $611,200~~the Securities and ~~$439,000 for the three months ended September 30, 2017 and 2016, respectively.~~

~~General and administrative expenses consist primarily of wages and benefits associated with~~Exchange Commission did not or are not believed by management ~~and administrative support departments, business insurance costs, professional fees, office facility related expenses, and other general support costs.~~

~~(q)~~

~~Recently Issued Accounting Standards~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~“Revenue from Contracts with Customers (Topic 606)”~~ (“ASU 2014-09”). This guidance, as amended by subsequent ASUs on the topic, outlines a comprehensive model for determining revenue recognition for contracts with customers, which replaces numerous industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. This guidance implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts and customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The new guidance is effective for reporting periods beginning after December 15, 2017, and early adoption is permitted. Entities can transition to the new guidance either retrospectively or as a cumulative-effect adjustment as of the date of the adoption. We have substantially completed our assessment of the new guidance and continue to make progress on its implementation. We plan to adopt the new guidance on January 1, 2018, on a “full retrospective” basis. Currently, we believe that the new guidance is not expected to have a material impact on ~~our~~the Company's present or future financial ~~statements and we are currently assessing~~statements.

Note 2. Liquidity

The accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the ~~need for expanded financial disclosures, if any.~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~“Statement of Cash Flows: Classification of Certain Cash Receipts and Payments”~~ (“ASU 2016-15”), which provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. Application of ASU 2016-15, which should be applied prospectively, is required for the annual and interim periods beginning after December 15, 2017. Early adoption is permitted. ASU 2016-15 is not expected to have a material impact on our financial statements.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~“Business Combinations (Topic 805): Clarifying the Definition of a Business”~~ ~~(“ASU 2017-01”), which provides a more defined framework to use in determining when a set~~realization of assets and the settlement of liabilities and commitments in the normal course of business.

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 sustained significant losses from operations in several reporting periods since 2019, had experienced cash used in operations in excess of its current cash position, and had an accumulated deficit as of December 31, 2022. As such, the Company previously believed at December 31, 2022 that it would require additional liquidity to continue its operations over the next 12 months.

As a result of the sales of our various brands as disclosed in Note 3 to the Condensed Consolidated Financial Statements, we fully repaid all long-term debt during 2023. As of March 31, 2024, have a cash balance of $3,277, working capital of $3,634, and shareholders’ equity of $2,778. While, absent any other actions, our operating activities is a business. ASU 2017-01 also provides greater consistency in applying the guidance, making the definition of a business more operable. ASU 2017-01 is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017. ASU 2017-01 is notare 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 implemented actions to reduce the Company’s operating expenses through asset sales, consolidation of vendors, personnel reductions, and will continue to pursue additional actions to further reduce operating losses. In addition, the Company has entered into the Merger Agreement with Horizon Kinetics, which is expected to significantly change the nature of our operations.

The ability to continue as a ~~material impact~~going concern is dependent on the Company attaining and maintaining profitable operations in the future or raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our ~~financial statements.~~operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing, or grant unfavorable terms in licensing future licensing agreements.

Note 3. Discontinued Operations

~~In May 2017,~~

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 ~~FASB issued ASU 2017-09,~~ ~~“Compensation–Stock Compensation (Topic 718): Scope~~Company agreed to sell 100% of ~~Modification Accounting”~~ ~~(“ASU 2017-09”), clarifying when a change~~the outstanding stock of Neoteric Cosmetics, Inc to the ~~terms or conditions~~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 ~~a share-based payment award must be accounted for as a modification.~~$175 paid on September 5, 2023. The ~~new guidance requires modification accounting if the fair value, vesting condition or the classification~~operations of the ~~award~~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 ~~not~~designated as restricted cash on the ~~same immediately before and after~~Condensed Consolidated Balance Sheets. Concurrent with the entry into the Stock Purchase Agreement, the Company entered into a ~~change~~transition services agreement with the Neoteric Buyer where both parties would perform certain identified services related to the ~~terms and conditions~~operations of the ~~award. ASU 2017-09 is~~brands contemplated in the Stock Purchase Agreement. This transition services agreement originally had a term of 90 days which could be extended by the Neoteric Buyer for up to an additional 90 days. Both parties have consented to an extension in 2024.

Alpha® Skin Care

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 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. The operations of Alpha® have been classified as income from discontinued operations for all periods presented. Concurrent with the entry into the Alpha® 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 had a term of 90 days which could be extended by the buyer for up to three additional 30 day periods or extended as consented by both parties. This transition services agreement concluded in accordance with the end of its term with all open transactions being settled during the first quarter of 2024.

BIZ®

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 operations of BIZ® have been classified as income from discontinued operations for ~~public companies~~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 had a term of 90 days which could be extended by the buyer for ~~annual~~up to three additional 30 day periods ~~including interim periods, beginning after~~or extended as consented by both parties. This transition services agreement concluded in accordance with the end of its term on December ~~15, 2017,~~31, 2023 with ~~early adoption permitted. ASU 2017-09 is not~~remaining minimal open transactions expected to ~~have~~settle throughout 2024.

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

On January 23, 2023, we entered into an asset purchase agreement with a ~~material impact on~~buyer, pursuant to which we agreed to sell all of our ~~financial statements.~~

~~In February 2016,~~right, title and interest in and to certain assets of the ~~FASB issued ASU No. 2016-02,~~ ~~“Leases (Topic 842)”~~ ~~(“ASU 2016-02”)~~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 eighteen months following the closing date of the asset purchase agreement, at which ~~requires~~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 ~~lessee~~transition services agreement with the buyer where both parties would perform certain identified services related to ~~record a right-of-use asset and a lease liability on~~ the ~~balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting~~operations of the ~~pattern of expense recognition~~brands contemplated in the ~~income statement. ASU 2016-02 is effective~~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 ~~fiscal~~two years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after the ~~beginning of the earliest comparative period presented in the financial statements. We anticipate that most of our operating leases will result~~closing date (the "Scott's Liquid Gold® Royalty"). The Scott's Liquid Gold® Royalty resulted in recognition of ~~additional assets~~a gain upon the sale of assets. Because the Scott's Liquid Gold® Royalty is variable consideration and ~~the corresponding liabilities~~is contingent on the ~~Consolidated Balance Sheets.~~outcome of future events that are largely outside of the Company’s control, the variable consideration from the Scott's Liquid Gold® Royalty was initially fully constrained and no amount was included in the results from discontinued operations. During the three months ended March 31, 2024, 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 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 ~~not determined~~reflected the ~~amount~~operations of ~~these transactions or~~ the ~~final impact to our earnings~~Scott's Liquid Gold® product lines as ~~the actual impact will depend on the Company’s lease portfolio at the time of adoption.~~discontinued operations.

~~In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”~~ ~~(“ASU 2016-13”)~~. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after

Prell®

On December 15, ~~2019 (i.e., January 1, 2020, for calendar year entities). ASU 2016-13 is not expected~~2022, we entered into an asset purchase agreement with a buyer, pursuant to ~~have a material impact on~~which we agreed to sell to all of our ~~financial statements.~~

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~“Simplifying the Test for Goodwill Impairment”~~ ~~(“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by elimination~~right, title and interest in and to certain assets of the ~~Step 2 requirement~~Prell® product line. The total consideration paid to ~~calculate the implied fair value of goodwill. Instead, if a reporting unit’s carrying~~us was $150, plus an amount ~~exceeds its fair value, an impairment charge will be recorded based on that difference. The impairment charge will be limited~~equal to the amount of goodwill allocated to that reporting unit. ASU 2017-04 will be applied prospectively and is effective for impairment tests performed after December 15, 2019, with early adoption permitted. ASU 2017-04 is not expected to have a material impact on our financial statements.

~~Note 2.~~

~~Stock-Based Compensation~~

During the nine months ended September 30, 2017, we granted: (i) options to acquire 16,560 shares of our common stock to employees at prices ranging between $1.80 and $2.25 per share; and (ii) options to acquire 30,000 shares of our common stock to a non-employee board member at a price of $2.25 per share. During the nine months ended September 30, 2016, we granted options to acquire 3,000 shares of our common stock to an employee at a price of $1.20 per share.

~~The weighted average fair market~~ value of the ~~options granted~~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. Because the Prell® 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 Prell® Royalty was initially fully constrained and no amount was included in the ~~nine~~results from discontinued operations. During the three months ended ~~September 30, 2017~~March 31, 2024, we assessed the variable consideration and ~~2016 was estimated~~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 ~~date~~variable consideration will be reassessed at each subsequent reporting period. We have reflected the operations of ~~grant, using a Black-Scholes option pricing model~~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 months ended March 31:


	2023
	Neoteric		Alpha®		BIZ®		Scott's Liquid Gold®			Prell®			Total
Net sales	$	900	$	365	$	1,154	$	173		$	(8	)	$	2,584
Cost of sales		529		87		907		114			63			1,700
Gross profit		371		278		247		59			(71	)		884

Operating expenses:
Advertising		-		45		-		-			-			45
Selling		79		43		104		18			-			244
General and administrative		-		-		-		22			-			22
Intangible asset amortization		2		-		6		-			-			8
Income (loss) from discontinued operations		290		190		137		19			(71	)		565
Gain on sale of discontinued operations		-		-		-		787			-			787
Interest expense		-		-		-		(18	)		-			(18	)
Income (loss) from discontinued operations	$	290	$	190	$	137	$	788		$	(71	)	$	1,334

There was no activity constituting pretax loss from discontinued operations to the after-tax loss from discontinued operations in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2024.

The following ~~assumptions:~~table presents the cash flows from discontinued operations for the three months ended March 31:

September 30, 2017

September 30, 2016
Expected life of options (using the “simplified” method)
4 years

6 years
Average risk-free interest rate

1.44%

1.50%
Average expected volatility of stock

78%

134%
Expected dividend rate
None

None
Fair value of options granted
$55,100

$3,488


	2024		2023
Net cash provided by operating activities - discontinued operations	$	-	$	977
Net cash provided by investing activities - discontinued operations	$	-	$	1,936

There were no capital expenditures or significant operating and investing noncash items related to discontinued operations during the three months ended March 31, 2024 and 2023, respectively.

There were no major classes of assets and liabilities of the discontinued operations as of March 31, 2024 or December 31, 2023.

Note 4. Stock-Based Compensation

No RSUs or stock options were granted during the three months ended March 31, 2024 or 2023, respectively.

Compensation cost related to ~~stock options recognized in operating results (included in general~~RSUs vesting during the period totaled $5 and ~~administrative expenses) totaled $183,500 and $189,500 in the nine months ended September 30, 2017 and 2016, respectively, and totaled $71,500 and $61,600 in~~$7 for the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. Approximately ~~$495,000~~$13 of total unrecognized compensation costs related to ~~non-vested stock options~~un-vested RSUs is expected to be recognized ~~over~~throughout the ~~next 12-60 months, depending on the vesting provisions~~balance of the ~~options. 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.~~year.

Note 5. Earnings per Share

In 2005, we adopted a stock option plan for our employees, officers and directors (the “2005 Plan”). In 2015, we adopted a stock option plan for our employees, officers and directors (the “2015 Plan”) to replace the 2005 Plan, which expired on March 31, 2015.

~~Activity under our two stock option plans is as follows:~~

Number of Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

2005 Plan

Outstanding, December 31, 2016

628,313

$
0.63

3.8 years

$
510,000

Granted

-

Exercised

(136,250
)

Cancelled/Expired

-

Outstanding, September 30, 2017

492,063

$
0.73

4.0 years

$
865,300

Exercisable, September 30, 2017

378,158

$
0.69

3.3 years

$
679,000

2015 Plan

Outstanding, December 31, 2016

787,615

$
1.27

7.2 years

$
136,000

Granted

46,560

Exercised

-

Cancelled/Expired

(49,491
)

Outstanding, September 30, 2017

784,684

$
1.32

6.6 years

$
916,500

Exercisable, September 30, 2017

380,205

$
1.31

6.2 years

$
449,200

~~Note 3.~~

~~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:~~follows. The dilutive effect of stock options and RSUs are 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 March 31,
	2024		2023
Common shares outstanding, beginning of the period		13,006		12,797
Weighted average common shares issued		-		-
Weighted average number of common shares outstanding		13,006		12,797
Dilutive effect of common share equivalents		-		-
Diluted weighted average number of common shares outstanding		13,006		12,797

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Common shares outstanding, beginning of the period

11,885,839

11,742,329

11,749,589

11,710,745

Weighted average common shares issued

-

5,283

91,368

20,014

Weighted average number of common shares outstanding

11,885,839

11,747,612

11,840,957

11,730,759

Dilutive effect of common share equivalents

474,240

280,344

376,933

238,408

Diluted weighted average number of common shares outstanding

12,360,079

12,027,956

12,217,890

11,969,167

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


	Three Months Ended March 31,
	2024		2023
Stock options		8		138
Restricted stock units		12		38

Note 6. Segment Information

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Stock options

46,600

579,500

89,100

659,000

~~Note 4.~~

~~Segment Information~~

We ~~operate~~previously operated in two different segments: household products and ~~skin~~health and ~~hair~~beauty care products. Our products are sold nationally and internationally (primarily Canada), directly through our sales force and indirectly through independent brokers and manufacturer’s representatives, to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, and other retail outlets and to wholesale distributors. 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 ~~before income taxes.~~from operations.

~~The following provides information~~In the 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. All balances and results of operations related to our health and beauty care segment have been reclassified as discontinued operations for all periods presented in the Condensed Consolidated Financial Statements.

Note 7. Intangible Assets

There were no carrying amounts of intangibles as of March 31, 2024 and December 31, 2023. During 2023, we continued to experience a significant decline in our stock price and market capitalization and revised internal forecasts relating to all reporting units due to sales of brands, which resulted in an impairment charge to our internal use software in our Corporate reporting unit through our annual assessments conducted on ~~our segments~~December 31, 2023, we concluded that the changes in circumstances in this reporting unit triggered the need for a quantitative review of the ~~three and nine months ended September 30:~~

Three Months Ended September 30,

2017

2016

Household Products

Skin and Hair Care Products

Household Products

Skin and Hair Care Products

Net sales
$
1,409,000

$
8,931,600

$
1,453,400

$
8,483,500

Operating costs and expenses:

Cost of sales

661,600

4,758,400

690,000

5,140,600

Advertising expenses

37,700

72,100

10,300

81,400

Selling expenses

332,000

1,251,400

276,800

1,440,500

General and administrative expenses

367,200

695,500

328,900

889,900

Total operating costs and expenses

1,398,500

6,777,400

1,306,000

7,552,400

Income from operations

10,500

2,154,200

147,400

931,100

Other (expense) income

-

-

(1,100
)

2,100

Interest expense

-

(26,400
)

-

(60,400
)
Income before income taxes
$
10,500

$
2,127,800

$
146,300

$
872,800

Nine Months Ended September 30,

2017

2016

Household Products

Skin and Hair Care Products

Household Products

Skin and Hair Care Products

Net sales
$
4,189,400

$
26,467,600

$
4,490,300

$
19,784,500

Operating costs and expenses:

Cost of sales

2,010,600

14,638,400

2,148,500

11,306,100

Advertising expenses

353,900

177,200

889,100

537,500

Selling expenses

977,000

3,901,600

1,118,400

3,065,900

General and administrative expenses

1,046,400

2,119,900

1,136,900

2,296,100

Total operating costs and expenses

4,387,900

20,837,100

5,292,900

17,205,600

(Loss) income from operations

(198,500
)

5,630,500

(802,600
)

2,578,900

Other income

-

-

2,300

10,300

Interest expense

-

(101,500
)

(3,500
)

(74,000
)
(Loss) income before income taxes
$
(198,500
)

$
5,529,000

$
(803,800
)

$
2,515,200

~~The following is a reconciliation~~carrying values of ~~segment information to consolidated information:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net sales
$
10,340,600

$
9,936,900

$
30,657,000

$
24,274,800

Consolidated income before income taxes
$
2,138,300

$
1,019,100

$
5,330,500

$
1,711,400

September 30, 2017

December 31, 2016

Assets:

Household Products
$
2,133,600

$
1,850,000

Skin and Haircare Products

21,883,700

18,371,500

Corporate

665,200

1,611,800

Consolidated
$
24,682,500

$
21,833,300

~~Corporate assets noted above are comprised primarily of our deferred tax~~the intangible assets and ~~property and equipment not directly associated with~~resulted in impairment charges to our ~~manufacturing, warehousing, shipping and receiving activities.~~Corporate reporting unit.

~~Note 5.~~

~~Acquisition~~

On June 30, 2016, Neoteric Cosmetics, Inc. (“Neoteric”), a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Ultimark Products, Inc. (“Ultimark”) and consummated the transaction contemplated thereby (the “Acquisition”), pursuant to which Neoteric purchased from Ultimark all intellectual property assets and certain related assets owned by Ultimark as well as inventory of finished goods owned by Ultimark and used in connection with the manufacture, sale and distribution of the Prell^®~~, Denorex~~^®~~, and Zincon~~^® brands of hair and scalp care products (collectively, the “Brands”). The total consideration Neoteric paid for the Brands was approximately $9.0 million, plus the assumption by Neoteric of certain specific liabilities of Ultimark related to the performance of certain purchase orders and contracts following June 30, 2016.

~~Note 6.~~

~~Goodwill and Intangible Assets~~

~~Intangible assets consisted of the following:~~

As of September 30, 2017

As of December 31, 2016

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Intangible assets:

Customer relationships
$
4,022,100

$
502,800

$
3,519,300

$
4,022,100

$
201,100

$
3,821,000

Trade names

2,362,400

196,800

2,165,600

2,362,400

78,700

2,283,700

Formulas and batching processes

668,600

69,800

598,800

668,600

27,900

640,700

Non-compete agreement

26,300

6,400

19,900

26,300

2,600

23,700

7,079,400

775,800

6,303,600

7,079,400

310,300

6,769,100

Goodwill

1,520,600

1,520,600

Total intangible assets

$
7,824,200

$
8,289,700

~~The amortization expense for the three and nine months ended September 30, 2017 was $155,100 and $465,500, respectively.~~ Amortization expense for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2024 and 2023 was ~~$155,200.~~$0 and $56, respectively.

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

~~Estimated amortization expense for 2017 and subsequent years is as follows:~~UMB Loan Agreement

2017 (remaining)
$
155,200

2018

620,700

2019

620,700

2020

620,700

2021

617,600

Thereafter

3,668,700

Total
$
6,303,600

~~Note 7.~~

~~Long-Term Debt and Line-of-Credit~~

On ~~June 30, 2016, Neoteric and the Company, as borrowers,~~July 1, 2020, we entered into a Loan and Security Agreement (as amended, the ~~Credit Agreement (the “Credit~~“UMB Loan Agreement”) with ~~JPMorgan Chase~~UMB Bank, N.A. ~~(“Chase”), as lender, pursuant to which Chase provided~~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, ~~that was used to finance~~with a ~~portion~~maximum commitment of $4,000 bearing interest at the ~~Acquisition and for the Company’s general corporate purposes and working capital. The~~one-month term ~~loan amount is $2.4 million with quarterly payments fully amortized over three years and interest of: (i) the LIBO Rate~~SOFR rate + ~~3.75%; or (ii) the Prime Rate + 1.00%,~~6.83% with a floor of ~~the one month LIBO Rate + 2.5%~~7.75%. ~~At September 30, 2017, our rate~~

The UMB Loan Agreement was ~~4.98%. The~~terminated on February 27, 2023 and the revolving credit facility ~~amount is $4 million with interest of: (i) the LIBO Rate + 3.00%; or (ii) the Prime Rate + 0.25%, with a floor of the one month LIBO Rate + 2.5%. At September 30, 2017, our rate~~ was ~~4.23%. The revolving credit facility will terminate~~paid in full on June 30, 2019 or any earlier date on which the revolving commitment is otherwise terminated pursuant to the Credit Agreement. Under the Credit Agreement we are obligated to pay quarterly an unused commitment fee equal to 0.5% per annum on the daily amount of the undrawn portion of the revolving line-of-credit.February 28, 2023. The loans ~~are collateralized~~were secured by all of the assets of the Company and ~~all of~~ its subsidiaries.

The Credit Agreement requires, among other things, that beginning on December 31, 2016 and subsequently on a quarterly basis, the Company maintain a Debt Service Coverage Ratio of no less than 1.25 to 1.0 and a Funded Indebtedness to Adjusted EBITDA Ratio of no greater than 3.0 to 1.0. The Credit Agreement also contains covenants typical of transactions of this type, including among others, limitations on the Company’s ability to: create, incur or assume any indebtedness or lien on Company assets; pay dividends or make other distributions; redeem, retire or acquire the Company’s outstanding common stock, options, warrants or other rights; make fundamental changes to the Company’s corporate structure or business; make investments or asset sales; or engage in certain other activities as set forth in the Credit Agreement. The Company was in compliance with the covenants in the Credit Agreement Unamortized loan costs were $0 as of ~~September 30, 2017~~March 31, 2024 and ~~December~~March 31, ~~2016. Capitalized terms used but not defined shall have the meanings provided in the Credit Agreement.~~

~~Maturities~~2023, respectively. There was no amortization of ~~long-term debt are as follows as of September 30, 2017:~~

2017 (remaining)
$
200,000

2018

800,000

2019

400,000

1,400,000

Less unamortized debt issuance costs

(43,900
)
Total
$
1,356,100

~~Debt issuance~~loan costs recognized as a component of interest expense for the three and nine months ended September 30, 2017 were $6,300 and $18,800, respectively. Debt issuance costs recognized as a component of interest expense for the three and nine months ended September 30, 2016 were $6,200. These costs are amortized using the effective interest method over the term of the loan.

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Results of Operations~~

Our consolidated net sales for the first nine months ended September 30, 2017 were $30,657,000 versus $24,274,800 for the first nine months ended September 30, 2016, an increase of $6,382,200 or 26.3%. We saw a 76.5% increase in net sales of our own lines of skin and hair care products and a 17.4% increase in net sales of the skin and hair care products that we distribute for other companies. We saw a 6.7% decrease in net sales of our household products. The reasons for the foregoing changes in net sales are described below.

~~Our consolidated net sales~~ for the three months ended ~~September 30, 2017 were $10,340,600 versus $9,936,900~~March 31, 2024. Amortization of loan costs for the three months ended ~~September 30, 2016, an increase of $403,700 or 4.1%. We saw a 37.5% increase in net sales of our own line of skin care products and an 11.0% decrease in net sales of the skin and hair care products~~March 31, 2023 was $100, including $83 that ~~we distribute for other companies. We saw a 3.1% decrease in net sales of our household products. The reasons for the foregoing changes in net sales are described below.~~

Our net income for the first nine months ended September 30, 2017 was $3,431,200 versus net income of $1,013,500 in the first nine months ended September 30, 2016. Our net income for the third quarter of 2017 was $1,474,800 versus net income of $603,600 in the third quarter of 2016. The increase in net income for the first nine months ended September 30, 2017 compared to the net income for the same period in 2016 resulted primarily from: (1) increased saleswere expensed as a result of the ~~Acquisition and further growth~~termination of the ~~skin~~UMB Loan Agreement.

La Plata Loan Agreement

On November 9, 2021, we entered into a loan and ~~hair care~~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 bearing interest at 14% and a $250 term loan bearing 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 $0 and $15 for the three months ended March 31, 2024 and 2023, respectively. Amortization of loan costs for the three months ended March 31, 2024 and 2023 were $0 and $5, 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 non-lease 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 the 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.

As part of our continued cost savings initiative in response to negative future recurring cash flows, on November 29, 2023, the Company entered into a sublease agreement with a third party, effective April 1, 2024 through March 31, 2027, with an option to extend through the remainder of the lease term to November 2030. The sublease calls for annual base rent of $280 for the first year with increases of approximately 2.5% each year thereafter. This action caused us to assess the carrying value of our operating lease right-of-use asset compared to the undiscounted cash flows of the sublease and resulted in recording an impairment expense during the fourth quarter of 2023 in the amount of $858. The operating lease impairment charges reduce the carrying value of the associated right of use asset to the estimated fair value.

Information related to leases was as follows:


	Three Months Ended March 31,
	2024			2023
Operating lease information:
Operating lease cost	$	103		$	101
Operating cash flows from operating leases		103			100
Net assets obtained in exchange for new operating lease liabilities		-			-

Weighted average remaining lease term in years		6.67			7.67
Weighted average discount rate		5.1	%		5.1	%

Future

Future minimum annual lease payments are as follows:

Future


Remainder of 2024	$	310
2025		420
2026		427
2027		434
2028		441
Thereafter		864
Total minimum lease payments	$	2,896
Less imputed interest		(456	)

Total operating lease liability	$	2,440

Note 10. Subsequent Events

One May 2, 2024, the Company filed a Preliminary Proxy Statement that provides additional information regarding the Merger and a special meeting of shareholders to vote on the following proposals; a reverse stock split, a reincorporation of the Company in the state of Delaware, and to approve an adjournment of the special meeting if necessary to solicit additional proxies. While it was previously announced that the Company expected the Merger to close during the second quarter of 2024, management now believes that the Merger will close during the third quarter, pending the outcome of the shareholder vote and the satisfaction of the closing conditions of the Merger.

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 Condensed Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023. 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, 2023 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 have developed, marketed, and sold high-quality, high-value household products nationally and internationally to mass merchandisers, supermarkets, hardware stores, e-commerce retailers, other retail outlets, and to wholesale distributors.

Primarily due to 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.

Looking forward, we are focused on both short- and long-term strategies that we ~~distribute; (2) an increase~~believe will enhance our financial health and deliver shareholder value. The Company entered into the Merger Agreement with the purpose of creating meaningful shareholder value for all shareholders of the combined entity and to alleviate negative operating trends.

Divestitures

On September 15, 2023, we entered into and consummated a Stock Purchase Agreement with a buyer to sell 100% of the outstanding stock of our wholly owned subsidiary Neoteric Cosmetics, Inc. ("Neoteric). Effective June 30, 2023, and closed in July 2023, we sold the Alpha® Skin Care product line to a company that markets and distributes skin care products. Effective June 30, 2023, and closed in July 2023, we sold the BIZ® product line to a company that markets and distributes laundry products. 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 Neoteric, Alpha® Skin Care, BIZ®, Scott's Liquid Gold® and Prell® as discontinued operations for all periods presented.

See Note 3 - “Discontinued Operations” 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 eighteen months 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 March 31, 2024 compared to three months ended March 31, 2023


	Three Months Ended March 31, (in thousands)
							Increase / (Decrease)
	2024			2023			$			%
Net sales	$	859		$	852		$	7			0.8	%
Cost of sales		501			487			14			2.9	%
Gross profit		358			365			(7	)		(1.9	%)
Gross margin		41.7	%		42.8	%

Operating expenses:
Advertising		17			109			(92	)		(84.4	%)
Selling		188			406			(218	)		(53.7	%)
General and administrative		674			622			52			8.4	%
Intangible asset amortization		-			45			(45	)		(100.0	%)
Total operating expenses		879			1,182			(303	)		(25.6	%)
Loss from operations		(521	)		(817	)		296			36.2	%

Interest income		29			-			29			100.0	%
Interest expense		-			(152	)		152			100.0	%
Loss before income taxes and discontinued operations		(492	)		(969	)		477			49.2	%
Income tax benefit		-			4			(4	)		(100.0	%)
Loss from continuing operations		(492	)		(965	)		473			49.0	%
Income from discontinued operations		-			1,334			(1,334	)		(100.0	%)
Net (loss) income	$	(492	)	$	369		$	(861	)		(233.3	%)

Our operating results were primarily impacted by the following:

•

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 personnel costs related to asset divestitures.

•

Increase in general and administrative due to professional related costs related to the Merger Agreement.

•

Decreased intangible asset amortization from reduced carrying amounts related to impairment of internal-use software during the year ended December 31, 2023.

•

Increase in interest income from investment of proceeds from asset divestitures into cash equivalents.

•

Decrease in interest expense due to the termination of the La Plata loan in July 2023 and from the termination of our credit facility with UMB in February 2023.

•

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

Liquidity and Capital Resources

Overview

Our primary sources of funds include cash from the sales of ~~Alpha~~^®~~Skin Care products;~~assets and ~~(3)~~cash from operating activities. Our principal uses of cash are to maintain inventories and fund planned operating expenditures. Working capital movements are influenced by the ~~incurrence~~sourcing of ~~professional fees in the first nine months of 2016~~materials related to the ~~Acquisition. These increases were offset in part by an increase in income tax expense and the amortization~~production of the acquired intangible assets. Our income tax expense for the first nine months ended September 30, 2017 was $1,899,300 versus an income tax expense of $697,900 in the first nine months ended September 30, 2016. Our income tax expense in the third quarter of 2017 was $663,500 versus an income tax expense of $415,500 in the third quarter of 2016.products.

Financing Agreements

~~Summary of Results as a Percentage of Net Sales~~

Year Ended December 31,

Nine Months Ended September 30,

2016

2017

2016

Net sales

Household products

17.0
%

13.7
%

18.5
%
Skin and hair care products

83.0
%

86.3
%

81.5
%
Total net sales

100.0
%

100.0
%

100.0
%
Cost of sales

56.9
%

54.3
%

55.4
%
Gross profit

43.1
%

45.7
%

44.6
%
Other revenue

0.0
%

0.0
%

0.1
%

43.1
%

45.7
%

44.7
%
Operating expenses

34.0
%

28.0
%

37.3
%
Interest expense

0.4
%

0.3
%

0.3
%

34.4
%

28.3
%

37.6
%
Income before income taxes

8.7
%

17.4
%

7.1
%

Our gross margins may not be comparable to those of companies who include all of the costs related to their distribution network in cost of sales because we, like some other companies, exclude a portion of these costs (i.e., freight out to customers) from gross margin. Instead, we include them as part of selling expenses. SeePlease see Note ~~1(p), “Operating Costs and Expenses Classification~~,”8 to our Condensed Consolidated Financial Statements ~~(Unaudited) in Item 1.~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Comparative Net Sales~~

Nine Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Total household products
$
4,189,400

$
4,490,300

(6.7
%)
Total skin and hair care products

26,467,600

19,784,500

33.8
%
Total net sales
$
30,657,000

$
24,274,800

26.3
%

Sales of household products for the first nine months of 2017 accounted for 13.7% of consolidated net sales compared to 18.5% for the same period in 2016. The net sales of these products were $4,189,400 in the first nine months of 2017 compared to $4,490,300 for the same period in 2016, a decrease of $300,900 or 6.7%. This decrease is primarily attributable to: (1) lower sales of our Scott’s Liquid Gold^® Floor Restore product due to the first nine months of 2016 including sales at one of our customers who discontinued the product in the second quarter of 2016; and (2) lower sales of our other household products.

Sales of skin and hair care products for the first nine months of 2017 accounted for 86.3% of consolidated net sales compared to 81.5% for the same period in 2016. The net sales of these products were $26,467,600 in the first nine months ended September 30, 2017 compared to $19,784,500 for the same period in 2016, an increase of $6,683,100 or 33.8%, primarily as a result of the addition of the net sales of Prell^®~~, Denorex~~^®~~, and Zincon~~^®~~, which we acquired in the Acquisition on June 30, 2016, and increases in the sales of Alpha~~^®Skin Care products and Montagne Jeunesse face masque sachets, and offset by a decrease in the sales of Batiste Dry Shampoo due to changes in our distribution agreement with Church & Dwight Co., Inc. (“Church & Dwight”), as previously disclosed in two Form 8-K filings dated July 17, 2017 and September 7, 2016.

The net sales of our own skin and hair care products were $9,694,800 in the first nine months of 2017 compared to $5,492,800 for the same period in 2016, an increase of $4,202,000 or 76.5%. This increase is primarily attributable to: (1) an increase in the sales of Alpha^®~~Skin Care products; and (2) the addition of the net sales of Prell~~^®~~, Denorex~~^®~~, and Zincon~~^®~~. The net sales of Prell~~^®~~, Denorex~~^®~~, and Zincon~~^®~~were $4,709,800 in the first nine months ended September 30, 2017.~~

The net sales of Montagne Jeunesse and Batiste Dry Shampoo were $16,772,800 in the first nine months of 2017 compared to $14,291,700 for the same period in 2016, an increase of $2,481,100 or 17.4%. This increase is primarily attributable to increased sales of Montagne Jeunesse face masque sachets.

We paid our customers a total of $1,854,100 in the first nine months of 2017 for trade promotions to support price features, displays, slotting fees and other merchandising of our products compared to $1,584,500 for the same period in 2016, an increase of $269,600 or 17.0%. This increase is primarily attributable to the addition of the sales of Prell^®~~, Denorex~~^®~~, and Zincon~~^® ~~as well as increased sales of Montagne Jeunesse face masque sachets.~~

From time to time, our customers return products to us. For our household products, we permit returns only for a limited time. With regard to our skin and hair care products, returns are more frequent under an unwritten industry standard that permits returns for a variety of reasons. In the event a skin and hair care customer requests a return of a product, we will consider the request, and may grant such request in order to maintain or enhance our relationship with the customer, even in the absence of an enforceable right of the customer to do so. Typically, customers that return products to us take a credit on our invoice equal to the original sales price plus a handling charge ranging from 8-10% of the original sales price. Our product returns (as a percentage of net sales) were 0.2% for the first nine months of 2017 and 0.1% for the same period in 2016.

On a consolidated basis, cost of sales was $16,649,000 during the first nine months of 2017 compared to $13,454,600 for the same period in 2016, an increase of $3,194,400 or 23.7%, on a net sales increase of 26.3%. As a percentage of consolidated net sales, cost of sales was 54.3% in the first nine months of 2017 compared to 55.4% for the same period in 2016.

~~As a percentage of net sales of our household products, the costs of sales for our household products increased to 48.0% in the first nine months of 2017 compared to 47.8% for the same period in 2016.~~

As a percentage of net sales of our skin and hair care products, the cost of sales for our skin and hair care products decreased to 55.3% in the first nine months of 2017 compared to 57.1% for the same period in 2016. This change varies from period to period based on product mix and trade promotions of the products we make versus the products we distribute for other companies, which have higher costs and higher trade promotions. The underlying costs of the products did not significantly change in the first nine months of 2017 compared to the same period in 2016, except for an increase in certain overhead costs incurred from leasing additional warehouse space starting in the second quarter of 2016.

~~Operating Expenses, Interest Expense and Other Income~~

Nine Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Operating expenses

Advertising
$
531,100

$
1,426,600

(62.8
%)
Selling

4,878,600

4,184,300

16.6
%
General and administrative

3,166,300

3,433,000

(7.8
%)
Total operating expenses
$
8,576,000

$
9,043,900

(5.2
%)
Other income
$
-

$
12,600

(100.0
%)
Interest expense
$
101,500

$
77,500

31.0
%

Our operating expenses for the first nine months of 2017 were $8,576,000 compared to $9,043,900 for the same period in 2016, a decrease of $467,900 or 5.2%. These expenses consist primarily of advertising, selling, and general and administrative expenses.

Advertising expenses for the first nine months of 2017 were $531,100 compared to $1,426,600 for the same period in 2016, a decrease of $895,500 or 62.8%. This decrease is primarily due to: (1) the one-time expenses we incurred during the first nine months of 2016 relating to the repositioning of our Alpha^®~~Skin Care products and Scott’s Liquid Gold~~^® household products in the marketplace, which were not repeated in 2017; and (2) spending less on a national television campaign in the first nine months of 2017 compared to the same period in 2016 on our Scott’s Liquid Gold^® ~~Wood Care product~~.

Selling expenses for the first nine months of 2017 were $4,878,600 compared to $4,184,300 for the same period in 2016, an increase of $694,300 or 16.6%. This increase is primarily attributable to: (1) an increase in the commissions that we paid our sales brokers and an increase in our costs of freight-out to our customers due to higher sales volume; and (2) an increase in the accrual of probable bonus payments to personnel within our sales and marketing organization compared to the first nine months of 2016. This increase was offset primarily by a reduction in certain marketing and promotional activities compared to the first nine months of 2016.

General and administrative expenses for the first nine months of 2017 were $3,166,300 compared to $3,433,000 for the same period of 2016, a decrease of $266,700 or 7.8%. This decrease is due primarily to a decrease in professional fees in the first nine months of 2017 compared to higher fees in the same period of 2016 related to the Acquisition. This decrease was offset primarily by: (1) an increase in the accrual of probable bonus payments to our management and administrative personnel, compared to the first nine months of 2016; and (2) amortization of the acquired intangible assets.

~~Other income from interest earned on our cash reserves for the first nine months ended September 30, 2017 and 2016 was $0 and $12,600, respectively.~~

Interest expense for the first nine months of 2017 was $101,500 compared to $77,500 for the same period in 2016, an increase of $24,000 or 31.0%. The increase is due to borrowings under the Credit Agreement entered into on June 30, 2016 to help fund the Acquisition.

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

~~Comparative Net Sales~~

Three Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Total household products
$
1,409,000

$
1,453,400

(3.1
%)
Total skin and hair care products

8,931,600

8,483,500

5.3
%
Total net sales
$
10,340,600

$
9,936,900

4.1
%

Sales of household products for the third quarter of 2017 accounted for 13.6% of consolidated net sales compared to 14.6% for the same period in 2016. The net sales of these products were $1,409,000 in the third quarter of 2017 compared to $1,453,400 for the same period in 2016, a decrease of $44,400 or 3.1%. This decrease is primarily attributable to lower sales of certain household products, which were partially offset by a slight increase in sales of our Scott’s Liquid Gold^® ~~Wood Care product~~.

Sales of skin and hair care products for the third quarter of 2017 accounted for 86.4% of consolidated net sales compared to 85.4% for the same period in 2016. The net sales of these products were $8,931,600 in the third quarter of 2017 compared to $8,483,500 for the same period in 2016, an increase of $448,100 or 5.3%, primarily as a result of increases in the sales of Alpha^®~~Skin Care products and Montagne Jeunesse face masque sachets, and offset by a decrease in the sales of Batiste Dry Shampoo due to changes in our distribution agreement with Church & Dwight.~~

The net sales of our own skin and hair care products were $3,919,800 in the third quarter of 2017 compared to $2,849,900 for the same period in 2016, an increase of $1,069,900 or 37.5%. This increase is primarily attributable to an increase in the sales of Alpha^®~~Skin Care products.~~

The net sales of Montagne Jeunesse and Batiste Dry Shampoo were $5,011,800 in the third quarter of 2017 compared to $5,633,600 for the same period in 2016, a decrease of $621,800 or 11.0%. This decrease is primarily attributable to changes in our distribution agreement with Church & Dwight for Batiste Dry Shampoo, and was partially offset by an increase in sales of Montagne Jeunesse face masque sachets.

We paid our customers a total of $522,300 in the third quarter of 2017 for trade promotions to support price features, displays, slotting fees and other merchandising of our products compared to $616,300 for the same period in 2016, a decrease of $94,000 or 15.3%. This decrease is primarily attributable to: (1) changes in our distribution agreement with Church & Dwight; and (2) a reduction in trade promotions related to Batiste Dry Shampoo.

From time to time, our customers return products to us. For our household products, we permit returns only for a limited time. With regard to our skin and hair care products, returns are more frequent under an unwritten industry standard that permits returns for a variety of reasons. In the event a skin and hair care customer requests a return of a product, we will consider the request, and may grant such request in order to maintain or enhance our relationship with the customer, even in the absence of an enforceable right of the customer to do so. Typically, customers that return products to us take a credit on our invoice equal to the original sales price plus a handling charge ranging from 8-10% of the original sales price. Our product returns (as a percentage of net sales) were 0.3% for the third quarter of 2017 and 0.1% for the same period in 2016.

On a consolidated basis, cost of sales was $5,420,000 during the third quarter of 2017 compared to $5,830,600 for the same period in 2016, a decrease of $410,600 or 7.0%, on a net sales increase of 4.1%. As a percentage of consolidated net sales, cost of sales was 52.4% in the third quarter of 2017 compared to 58.7% for the same period in 2016.

~~As a percentage of net sales of our household products, the costs of sales for our household products decreased to 47.0% in the third quarter of 2017 compared to 47.5% for the same period in 2016.~~

As a percentage of net sales of our skin and hair care products, the cost of sales for our skin and hair care products decreased to 53.3% in the third quarter of 2017 compared to 60.6% for the same period in 2016. This change varies from period to period based on product mix and trade promotions of the products we make versus the products we distribute for other companies, which have higher costs and higher trade promotions. The underlying costs of the products did not significantly change in the third quarter of 2017 compared to the same period in 2016.

~~Operating Expenses, Interest Expense and Other Income~~

Three Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Operating expenses

Advertising
$
109,800

$
91,700

19.7
%
Selling

1,583,400

1,717,300

(7.8
%)
General and administrative

1,062,700

1,218,800

(12.8
%)
Total operating expenses
$
2,755,900

$
3,027,800

(9.0
%)
Other income
$
-

$
1,000

(100.0
%)
Interest expense
$
26,400

$
60,400

(56.3
%)

Our operating expenses for the third quarter of 2017 were $2,755,900 compared to $3,027,800 for the same period in 2016, a decrease of $271,900 or 9.0%. These expenses consist primarily of advertising, selling, and general and administrative expenses.

~~Advertising expenses for the third quarter of 2017 were $109,800 compared to $91,700 for the same period in 2016, an increase of $18,100 or 19.7%.~~

Selling expenses for the third quarter of 2017 were $1,583,400 compared to $1,717,300 for the same period in 2016, a decrease of $133,900 or 7.8%. This decrease is primarily attributable to: (1) a reduction in certain marketing and promotional activities; and (2) a decrease in the accrual of probable bonus payments to personnel within our sales and marketing organization compared to the third quarter of 2016. This decrease was offset primarily by an increase in our costs of freight-out to our customers due to higher sales volume.

General and administrative expenses for the third quarter of 2017 were $1,062,700 compared to $1,218,800 for the same period of 2016, a decrease of $156,100 or 12.8%. This decrease is due primarily to: (1) a decrease in professional fees in the third quarter of 2017 compared to higher fees in the same period of 2016 related to the Acquisition; and (2) a decrease in the accrual of probable bonus payments to our management and administrative personnel compared to the third quarter of 2016.

~~Other income from interest earned on our cash reserves for the third quarter of 2017 and 2016 was $0 and $1,000, respectively.~~

Interest expense for the third quarter of 2017 was $26,400 compared to $60,400 for the same period in 2016, a decrease of $34,000 or 56.3%. The decrease is due to a lower balance on the term loan and no outstanding balance on the line-of-credit as of September 30, 2017. Both borrowings under the Credit Agreement had higher balances as of September 30, 2016 to help fund the Acquisition.

~~Liquidity and Capital Resources~~

~~Financing Agreements~~

~~Please see Note 7 to our Condensed Consolidated Financial Statements (Unaudited)~~ for information on our ~~Credit~~La Plata Loan Agreement, ~~with Chase. Please see Note 1(f) to our Condensed Consolidated Financial Statements (Unaudited) for information on our financing agreement with Wells Fargo,~~ which was satisfied and terminated ~~during 2016.~~in July 2023, and our UMB Loan Agreement, which was satisfied and terminated in February 2023.

Liquidity and Changes in Cash Flows

At ~~September 30, 2017,~~March 31, 2024, we had approximately ~~$2.4 million~~$3,277 in cash on hand, ~~which was $291,700 more compared to~~a decrease of $650 from December 31, ~~2016, primarily due to~~2023.

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


	Three Months Ended March 31, (in thousands)
							Increase / (Decrease)
	2024			2023			$			%
Operating activities	$	(650	)	$	756		$	(1,406	)		(186.0	%)
Investing activities		-			1,936			(1,936	)		(100.0	%)
Financing activities		-			(2,284	)		2,284			100.0	%

•

Net cash used in operating activities and offset by: (1) our use of cash to reduce the outstanding balance on our line-of-credit to zero; (2) repayments of long-term debt; (3) payment of income taxes; and (4) the payment of performance bonuses in the first nine months of 2017was primarily related to our ~~management, sales, administrative support~~loss from continuing operations and ~~operations personnel that were accrued for~~investment in ~~2016. For the first nine months ended September 30, 2017, the primary components~~finished goods inventories and partially offset by conversion of working capital ~~that significantly affected operating~~from accounts receivable.

•

Net cash ~~flows were~~provided by investing activities in the ~~following: (1) net accounts receivable were $304,200 less at September 30, 2017 than at December 31, 2016~~prior period was due ~~primarily to receivables related~~ to the ~~timing~~sale of ~~receiving payment; (2) inventory at September 30, 2017~~our Scott's Liquid Gold® brand.

•

Net cash used by financing activities in the prior period was ~~$3,842,600 more than at December 31, 2016 due primarily to higher sales volume~~from repayments and ~~the timing~~termination of ~~receiving certain inventory~~our UMB Loan Agreement and offset by proceeds from our ~~vendors~~La Plata Loan Agreement.

The cash received from the sales of our various brands in 2023 and ~~shipping~~2022 was used to satisfy and terminate debt agreements and will be used to fund operations as we seek to grow our ~~products to our customers; and (3) accounts payable and accrued expenses at September 30, 2017 were $333,600 more than at December 31, 2016 due primarily to bonuses paid to certain employees and~~existing business while closing the ~~timing of payments on our inventory.~~

~~We anticipate~~Merger. While we believe that our ~~existing~~current cash reserves represent sufficient cash to fund our operations, our liquidity has been affected by inflationary pressures at our customers which have caused sales decreases and ~~our cash flow from operations, together with~~higher costs on materials, logistics, and other purchases. We expect that our current ~~Credit Agreement with Chase,~~cash reserves will be sufficient to meet operational cash needs during the next twelve months, but further economic impacts to our ~~cash requirements for~~sales to customers or supply chain disruptions in the ~~12 months following the filing date of this Report. During the first nine months of 2017, we spent $352,600 to purchase production and warehouse equipment to improve~~short-term could impact our manufacturing capabilities and efficiencies and on additional production and warehouse equipment that is primarily related to the Acquisition, and paid an additional $100,000 in deposits for future production and warehouse equipment to be received and placed in service in 2017. We expect to make additional capital expenditures of approximately $90,000 in 2017 on additional production and warehouse equipment that is primarily related to the Acquisition.liquidity.

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~Not applicable.~~ITEM 4. CONTROLS AND PROCEDURES

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

Disclosure Controls and Procedures

As of ~~September 30, 2017,~~March 31, 2024, we conducted an evaluation, under the supervision and with the participation of our ~~Chief Executive Officer~~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).~~procedures. Based on that evaluation, our ~~Chief Executive Officer~~President and Chief Financial Officer concluded that our disclosure controls and procedures ~~are~~were not effective as of ~~September~~March 31, 2024 due to the material weakness in our internal controls over financial reporting described below.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including our President and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2024, based on the criteria for effective internal control described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that the Company's internal control over financial reporting was not effective as of March 31, 2024 because there is a material weakness in our internal control over financial reporting. The material weakness identified, as described below, did not result in the restatement of any previously reported financial statements or any related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.

This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Report.

Management’s report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Material Weakness

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s financial statements will not be prevented or detected on a timely basis. The material weakness that we previously reported was identified as of June 30, ~~2017.~~2023 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. The deficiencies in internal control over financial reporting were detailed in Item 4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

The Company is continuing the process of remediating its control deficiencies. However, the material weakness in internal control over financial reporting that has been identified will not be remediated until we are able to add a sufficient number of trained professionals to our finance department, who have technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP, our control is implemented and operates for a period of time, is tested, and the Company is able to conclude that such internal controls are operating effectively. The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future. Management plans, as capital becomes available to the Company, to increase the accounting and financial reporting staff and provide future investments in the continuing education and public company accounting training of our accounting and financial professionals.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1A. RISK FACTORS

P~~ART II~~

~~ITEM 1A.~~

~~RISK FACTORS~~

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, ~~2016~~2023 and subsequent quarterly reports on Form 10-Q, which could materially affect our business, financial condition, or future results.

ITEM 6. EXHIBITS


~~ITEM 6.~~Exhibit Number	~~EXHIBITS~~

~~Exhibit Number~~		Document
~~10.1~~31.1		~~Amendment to the Exclusive Distribution Agreement, dated April 1, 2015, between Montagne Jeunesse International Limited and Neoteric Cosmetics, Inc.~~
~~10.2~~		~~Second Amendment to the Exclusive Distribution Agreement, dated September 5, 2017, between Montagne Jeunesse International Limited and Neoteric Cosmetics, Inc.~~
~~10.3~~		Second Amendment to the Customer Agreement, dated as of July 17, 2017, between Church & Dwight Co., Inc. and Neoteric Cosmetics, Inc. incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2017.
~~31.1~~		Rule 13a-14(a) Certification of the President and Chief ~~Executive~~Financial Officer.
~~31.2~~32.1*		~~Rule 13a-14(a) Certification of the Chief Financial Officer~~Section 1350 Certification..
32.1*101.INS		~~Section 1350 Certification~~.Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRLtags are embedded within the Inline XBRL document.
~~101.INS~~101.SCH		~~XBRL Instance Document.~~
~~101.SCH~~		Inline XBRL Taxonomy Extension Schema ~~Document.~~With Embedded Linkbase Documents.
~~101.CAL~~104		Cover Page Interactive Data File (embedded within the Inline XBRL ~~Taxonomy Extension Calculation Linkbase Document.~~document)


~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document.~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~

* Furnished, not filed.

*	~~Furnished, not filed.~~

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~Report~~report to be signed on its behalf by the undersigned thereunto duly authorized.


SCOTT’S LIQUID GOLD-INC., a Colorado corporation
By:		/s/ ~~Mark E. Goldstein~~David M. Arndt
		~~Mark E. Goldstein~~David M. Arndt, President, Principal Executive Officer, and Chief Financial Officer
		~~President and Chief Executive Officer~~
		~~(Principal Executive Officer)~~
~~By:~~		~~/s/ Barry J. Levine~~
		~~Barry J. Levine~~
		~~Treasurer, Chief Financial Officer and Chief Operating Officer~~
		(Principal Financial and Chief Accounting Officer)

Date: ~~November 14, 2017~~May 8, 2024

2118

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net sales	$	10,340,600		$	9,936,900		$	30,657,000		$	24,274,800
Operating costs and expenses:
Cost of sales		5,420,000			5,830,600			16,649,000			13,454,600
Advertising		109,800			91,700			531,100			1,426,600
Selling		1,583,400			1,717,300			4,878,600			4,184,300
General and administrative		1,062,700			1,218,800			3,166,300			3,433,000
Total operating costs and expenses		8,175,900			8,858,400			25,225,000			22,498,500
Income from operations		2,164,700			1,078,500			5,432,000			1,776,300
Other income		-			1,000			-			12,600
Interest expense		(26,400	)		(60,400	)		(101,500	)		(77,500	)
Income before income taxes		2,138,300			1,019,100			5,330,500			1,711,400
Income tax expense		(663,500	)		(415,500	)		(1,899,300	)		(697,900	)
Net income	$	1,474,800		$	603,600		$	3,431,200		$	1,013,500

Net income per common share
Basic	$	0.12		$	0.05		$	0.29		$	0.09
Diluted	$	0.12		$	0.05		$	0.28		$	0.08
Weighted average shares outstanding:
Basic		11,885,839			11,747,612			11,840,957			11,730,759
Diluted		12,360,079			12,027,956			12,217,890			11,969,167

	September 30, 2017			December 31, 2016
Finished goods	$	7,364,900		$	2,668,700
Raw materials		2,133,600			3,035,000
Inventory reserve for obsolescence		(14,600	)		(62,400	)
	$	9,483,900		$	5,641,300

	September 30, 2017		September 30, 2016
Expected life of options (using the “simplified” method)	4 years		6 years
Average risk-free interest rate		1.44%	1.50%
Average expected volatility of stock		78%	134%
Expected dividend rate	None		None
Fair value of options granted	$55,100		$3,488

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
2005 Plan
Outstanding, December 31, 2016		628,313		$	0.63	3.8 years	$	510,000
Granted		-
Exercised		(136,250	)
Cancelled/Expired		-
Outstanding, September 30, 2017		492,063		$	0.73	4.0 years	$	865,300
Exercisable, September 30, 2017		378,158		$	0.69	3.3 years	$	679,000

2015 Plan
Outstanding, December 31, 2016		787,615		$	1.27	7.2 years	$	136,000
Granted		46,560
Exercised		-
Cancelled/Expired		(49,491	)
Outstanding, September 30, 2017		784,684		$	1.32	6.6 years	$	916,500
Exercisable, September 30, 2017		380,205		$	1.31	6.2 years	$	449,200

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Common shares outstanding, beginning of the period		11,885,839		11,742,329		11,749,589		11,710,745
Weighted average common shares issued		-		5,283		91,368		20,014
Weighted average number of common shares outstanding		11,885,839		11,747,612		11,840,957		11,730,759
Dilutive effect of common share equivalents		474,240		280,344		376,933		238,408
Diluted weighted average number of common shares outstanding		12,360,079		12,027,956		12,217,890		11,969,167

	September 30, 2017		December 31, 2016
Assets:
Household Products	$	2,133,600	$	1,850,000
Skin and Haircare Products		21,883,700		18,371,500
Corporate		665,200		1,611,800
Consolidated	$	24,682,500	$	21,833,300

	As of September 30, 2017						As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets:
Customer relationships	$	4,022,100	$	502,800	$	3,519,300	$	4,022,100	$	201,100	$	3,821,000
Trade names		2,362,400		196,800		2,165,600		2,362,400		78,700		2,283,700
Formulas and batching processes		668,600		69,800		598,800		668,600		27,900		640,700
Non-compete agreement		26,300		6,400		19,900		26,300		2,600		23,700
		7,079,400		775,800		6,303,600		7,079,400		310,300		6,769,100
Goodwill						1,520,600						1,520,600
Total intangible assets					$	7,824,200					$	8,289,700

2017 (remaining)	$	155,200
2018		620,700
2019		620,700
2020		620,700
2021		617,600
Thereafter		3,668,700
Total	$	6,303,600

2017 (remaining)	$	200,000
2018		800,000
2019		400,000
		1,400,000
Less unamortized debt issuance costs		(43,900	)
Total	$	1,356,100

	Year Ended December 31,			Nine Months Ended September 30,
	2016			2017			2016
Net sales
Household products		17.0	%		13.7	%		18.5	%
Skin and hair care products		83.0	%		86.3	%		81.5	%
Total net sales		100.0	%		100.0	%		100.0	%
Cost of sales		56.9	%		54.3	%		55.4	%
Gross profit		43.1	%		45.7	%		44.6	%
Other revenue		0.0	%		0.0	%		0.1	%
		43.1	%		45.7	%		44.7	%
Operating expenses		34.0	%		28.0	%		37.3	%
Interest expense		0.4	%		0.3	%		0.3	%
		34.4	%		28.3	%		37.6	%
Income before income taxes		8.7	%		17.4	%		7.1	%

	Nine Months Ended September 30,				Percentage Increase
	2017		2016		(Decrease)
Total household products	$	4,189,400	$	4,490,300		(6.7	%)
Total skin and hair care products		26,467,600		19,784,500		33.8	%
Total net sales	$	30,657,000	$	24,274,800		26.3	%