UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
September 30, 2004
Commission File No. 001-13458
SCOTT'S LIQUID GOLD-INC.
4880 Havana Street
Denver, CO 80239
Phone: 303-373-4860
Colorado 84-0920811
State of Incorporation I.R.S. Employer Identification No.
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 [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
As of September 30, 2004, the Registrant had 10,411,000 shares of its
$0.10 par value common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales $ 5,116,700 $ 6,023,600 $15,633,600 $17,367,300
Operating costs
and expenses:
Cost Of Sales 3,129,000 3,302,200 8,849,600 9,223,500
Advertising 101,000 171,100 738,100 1,671,700
Selling 1,381,200 1,402,900 4,162,600 4,410,300
General and
administrative 835,700 875,400 2,772,400 2,875,100
----------- ----------- ----------- -----------
5,446,900 5,751,600 16,522,700 18,180,600
----------- ----------- ----------- -----------
Income (loss)from
operations (330,200) 272,000 (889,100) (813,300)
Interest income 10,400 12,100 30,900 46,600
Interest expense (40,000) (53,000) (128,300) (165,000)
----------- ----------- ----------- -----------
(359,800) 231,100 (986,500) (931,700)
Income tax expense
(benefit) - - - -
----------- ----------- ----------- -----------
Net income (loss) $ (359,800) $ 231,100 $ (986,500) $ (931,700)
=========== =========== =========== ===========
Net income (loss) per
common share (Note 3):
Basic $ (.03) $ .02 $ (.10) $ (.09)
=========== =========== =========== ===========
Diluted $ (.03) $ .02 $ (.10) $ (.09)
=========== =========== =========== ===========
Weighted average
shares outstanding:
Basic 10,387,900 10,187,100 10,368,600 10,164,400
=========== =========== =========== ===========
Diluted 10,387,900 10,203,500 10,368,600 10,164,400
=========== =========== =========== ===========
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2004 2003
------------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,936,500 $ 3,498,600
Investment securities 54,600 305,300
Trade receivables, net of allowance
for doubtful accounts of $89,000
and $82,000, respectively 1,330,200 1,108,600
Other receivables 56,700 35,400
Inventories 3,354,200 3,122,600
Prepaid expenses 308,000 256,400
Deferred tax assets 483,000 525,000
----------- -----------
Total current assets 8,523,200 8,851,900
Property, plant and equipment, net 14,472,900 14,909,300
Deferred tax assets 653,000 658,000
Other assets 25,300 33,400
----------- -----------
TOTAL ASSETS $23,674,400 $24,452,600
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 200,000 $ -
Accounts payable 2,210,100 1,256,900
Accrued payroll and benefits 951,600 1,106,300
Other accrued expenses 432,900 552,500
Current maturities of
long-term debt 908,000 878,000
----------- -----------
Total current liabilities 4,702,600 3,793,700
Long-term debt, net of current
maturities 2,124,800 2,807,300
Deferred tax liabilities 1,136,000 1,183,000
----------- -----------
Total liabilities 7,963,400 7,784,000
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock; $.10 par value, authorized
50,000,000 shares; issued and
outstanding 10,411,000 and
10,356,000 shares, respectively 1,041,100 1,035,600
Capital in excess of par 4,951,600 4,927,200
Accumulated comprehensive income 4,600 5,600
Retained earnings 9,713,700 10,700,200
----------- -----------
Shareholders' equity 15,711,000 16,668,600
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $23,674,400 $24,452,600
=========== ===========
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
--------------------------
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss $ (986,500) $ (931,700)
----------- -----------
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities:
Depreciation and amortization 554,000 564,500
Stock issued to ESOP and for services 30,000 -
Changes in assets and liabilities:
Trade and other receivables, net (242,900) 327,900
Inventories (231,700) (558,200)
Prepaid expenses (51,000) 31,900
Accounts payable and accrued expenses 678,900 390,800
----------- ----------
Total adjustments to net loss 736,700 756,900
----------- -----------
Net Cash Used by
Operating Activities (249,800) (174,800)
----------- -----------
Cash flows from investing activities:
Purchase of investment securities - (495,600)
Proceeds from sale or maturity
of investment securities 250,000 1,550,000
Purchase of property, plant & equipment (109,800) (15,100)
----------- -----------
Net Cash Provided by
Investing Activities 140,200 1,039,300
----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings 200,000 -
Principal payments on long-term borrowings (652,500) (618,200)
----------- -----------
Net Cash Used by Financing Activities (452,500) (618,200)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (562,100) 246,300
Cash and Cash Equivalents, beginning of period 3,498,600 2,786,400
----------- -----------
Cash and Cash Equivalents, end of period $ 2,936,500 $ 3,032,700
=========== ===========
Supplemental disclosures:
Cash paid during period for:
Interest $ 129,200 $ 166,100
=========== ===========
Income taxes $ - $ 400
=========== ===========
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies
(a) Company Background
Scott's Liquid Gold-Inc. (a Colorado corporation) was incorporated on
February 15, 1954. Scott's Liquid Gold-Inc. and its wholly owned
subsidiaries (collectively, the "Company") manufacture and market quality
household and skin care products. In the first quarter of 2001, the Company
began acting as a distributor in the United States of beauty care products
contained in individual sachets and manufactured by Montagne Jeunesse. The
Company's business is comprised of two segments, household products and skin
care products.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and 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. Actual results could differ from
those estimates. Significant estimates include, but are not limited to,
realizability of deferred tax assets, reserves for slow moving and obsolete
inventory, customer returns and allowances, and bad debts.
(d) Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of nine months or less at the date of acquisition to be cash
equivalents.
(e) Investments in Marketable Securities
The Company accounts for investments in marketable securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities", which
requires that the Company classify investments in marketable securities
according to management's intended use of such investments. The Company
invests its excess cash and has established guidelines relative to
diversification and maturities in an effort to maintain safety and liquidity.
These guidelines are periodically reviewed and modified to take advantage of
trends in yields and interest rates. The Company considers all investments
as available for use in its current operations and, therefore, classifies
them as short-term, available-for-sale investments. Available-for-sale
investments are stated at fair value, with unrealized gains and losses, if
any, reported net of tax, as a separate component of shareholders' equity and
comprehensive income (loss). The cost of the securities sold is based on the
specific identification method. Investments in corporate and government
securities as of September 30, 2004, are scheduled to mature within one year.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market. At September 30, 2004, net inventory was comprised of
$2,439,700 of finished goods and $1,284,300 of raw materials, offset by a
reserve for slow moving and obsolete products and raw materials of $369,800.
(g) Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost.
Depreciation is provided using the straight-line method over estimated useful
lives of the assets ranging from three to forty-five years. Maintenance and
repairs are expensed as incurred. Improvements that extend the useful lives
of the assets or provide improved efficiency are capitalized.
(h) Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk include cash and cash equivalents, investments
in marketable securities, and trade receivables. The Company maintains its
cash balances in the form of bank demand deposits with financial institutions
that management believes are creditworthy. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information. The
Company has no financial instruments with off-balance sheet risk of
accounting loss.
The recorded amounts for cash and cash equivalents, receivables, other
current assets, and accounts payable and accrued expenses approximate fair
value due to the short-term nature of these financial instruments. The fair
value of investments in marketable securities is based upon quoted market
value. The Company's long-term debt bears interest at a variable rate, the
lender's base rate, which approximates the prime rate. The carrying value of
long-term debt approximates fair value as of September 30, 2004 and December
31, 2003.
(i) Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(j) Income Taxes
The Company accounts for income taxes in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax basis. 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.
(k) Revenue Recognition
Revenue is recognized upon delivery of products to customers, which is
when title passes. Reserves for estimated market development support,
pricing allowances and returns are provided in the period of sale as a
reduction of revenue. Reserves for estimated returns and allowances are
recorded as a reduction of revenue, and are maintained at a level that
management believes is appropriate to account for amounts applicable to
existing sales. Reserves for coupons and certain other promotional
activities are recorded as a reduction of revenue at the later of the date at
which the related revenue is recognized or the date at which the sales
incentive is offered. At September 30, 2004 and December 31, 2003
approximately $782,300 and $873,400, respectively, had been reserved as a
reduction of accounts receivable, and approximately $95,000 and $175,000,
respectively, had been reserved as current liabilities. Co-op advertising,
marketing funds, slotting fees and coupons are deducted from gross sales and
total $1,380,600 and $1,422,100 for the nine months ended September 30, 2004
and September 30, 2003, respectively.
(l) Advertising Costs
The Company expenses advertising costs as incurred.
(m) Stock-based Compensation
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its employee stock options. Under APB No.
25, employee stock options are accounted for based upon the intrinsic value,
which is the difference between the exercise price and fair value of the
underlying common stock. Generally, if the exercise price of employee stock
options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recorded. The Company has adopted the
disclosure only provisions of SFAS No. 123, "Accounting for Stock-based
Compensation".
The Company granted 5,000 options for shares of the Company's common
stock during the third quarter of 2004 with an exercise price equal to $0.53
and 35,000 options for shares of the Company's common stock were granted in
the first quarter of 2004 with an exercise price of $0.76. Had compensation
cost been recorded based on the fair value of options granted by the Company,
the Company's pro-forma net loss and net loss per share would have been as
follows:
Three Months Ended September 30,
------------------------------------------------------
2004 2003
-------------------------- --------------------------
As Reported Pro Forma As Reported Pro-Forma
------------ ------------ ------------ ------------
Net income (loss) $ (359,800) $ (360,600) $ 231,100 $ 231,100
Basic income (loss)
per share $ (.03) $ (.03) $ .02 $ .02
Diluted income
(loss) per share $ (.03) $ (.03) $ .02 $ .02
Nine Months Ended September 30,
------------------------------------------------------
2004 2003
-------------------------- --------------------------
As Reported Pro Forma As Reported Pro-Forma
------------ ------------ ------------ ------------
Net loss $ (986,500) $(1,003,900) $ (931,700) $ (978,200)
Basic loss
per share $ (.10) $ (.10) $ (.09) $ (.10)
Diluted loss
per share $ (.10) $ (.10) $ (.09) $ (.10)
The fair value of options granted has been estimated as of the date of
grant using the following assumptions as of:
Three Months Ended Nine Months Ended
September 30 September 30,
---------------------- ----------------------
2004 2003 2004 2003
--------- ----------- --------- -----------
Dividend rate $ - $ - $ - $ -
Expected volatility 72% 170% 153% 170%
Risk-free interest rate 3.10% 3.06% 3.10% 3.06%
Expected life (in years) 4.5 4.5 4.5 4.5
(n) Comprehensive Income
The Company follows SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and displaying comprehensive income
and its components. Comprehensive income includes all changes in equity
during a period from non-owner sources.
The following table is a reconciliation of the Company's net loss to
its total comprehensive loss for the three months and nine months ended
September 30, 2004 and 2003:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net income (loss) $ (359,800) $ 231,100 $ (986,500) $ (931,700)
Unrealized gain
(loss) on investment
securities 1,500 (2,100) (1,000) (1,300)
----------- ----------- ----------- -----------
Comprehensive income
(loss) $ (358,300) $ 229,000 $ (987,500) $ (933,000)
=========== =========== =========== ===========
(o) Shipping and Handling
The Company classifies amounts billed to a customer in a sale
transaction related to shipping and handling as revenue and classifies
shipping and handling costs as a component of selling expense on the
accompanying Consolidated Statement of Operations. Shipping and handling
costs totaled $1,073,700 and $1,106,100 for the nine months ended September
30, 2004 and 2003, respectively. For the three months ended September 30,
2004 and 2003, shipping and handling costs totaled $383,200 and $364,300,
respectively.
Note 2. Basis of Preparation of Financial Statements
These unaudited interim consolidated financial statements of Scott's
Liquid Gold-Inc. and subsidiaries (collectively, the "Company") have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Such rules and regulations allow the omission of
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles as long as the statements are not misleading. In the opinion of
management, all adjustments necessary for a fair presentation of these
interim statements have been included and are of a normal recurring nature.
These interim financial statements should be read in conjunction with the
financial statements of the Company included in its 2003 Annual Report on
Form 10-K.
Note 3. Earnings per Share
Per share data was determined by using the weighted average number of
common shares outstanding. Potentially dilutive securities, including stock
options, are considered only for diluted earnings per share, unless
considered anti-dilutive. The potentially dilutive securities, which are
comprised of outstanding stock options of 1,120,000 and 1,121,100 at
September 30, 2004 and 2003, were excluded from the computation of weighted
average shares outstanding due to the anti-dilutive effect.
A reconciliation of the weighted average number of common shares
outstanding for the three and nine months ended September 30, 2004 follows:
Total
Three Months Nine Months Shares
------------ ----------- ----------
Common shares outstanding
beginning of period 10,376,000 10,356,000 10,356,000
Stock issued to ESOP* 9,800 11,900 50,000
Stock issued* 2,100 700 5,000
Stock options exercised - - -
---------- ---------- ----------
Weighted average number
of common shares
outstanding 10,387,900 10,368,600 10,411,000
Dilutive effect of
common share equivalents - - -
---------- ---------- ----------
Diluted weighted average
number of common shares
outstanding 10,387,900 10,368,600 10,411,000
========== ========== ==========
* For the three and nine months ended September 30, 2004, the stock issued
to the ESOP and other stock issued is a weighted average.
The Company has authorized 20,000,000 shares of preferred stock
issuable in one or more series, none of which is issued or outstanding as of
September 30, 2004.
Note 4. Segment Information
The Company operates in two different segments: household products and
skin care products. The Company's products are sold in the United States and
internationally (primarily Canada), directly and through independent brokers,
to mass marketers, drug stores, supermarkets, wholesale distributors and
other retail outlets. Management has chosen to organize the Company around
these segments based on differences in the products sold. The household
products segment includes "Scott's Liquid Gold" for wood, a wood cleaner
which preserves as it cleans, and "Touch of Scent," a room air freshener. The
skin care segment includes "Alpha Hydrox," alpha hydroxy acid cleansers and
lotions, a retinol product, "Diabetic Skin Care," a healing cream and
moisturizer developed to address skin conditions of diabetics, and skin care
and other sachets of Montagne Jeunesse distributed by the Company.
The following provides information on the Company's segments as of and
for the three and nine months ended September 30, 2004 and 2003:
Three Months Ended September 30,
-----------------------------------------------------
2004 2003
------------------------- -------------------------
Household Skin Care Household Skin Care
Products Products Products Products
----------- ----------- ----------- -----------
Net sales to
external customers $ 2,059,800 $ 3,056,900 $ 2,293,900 $ 3,729,700
=========== =========== =========== ===========
Income (loss) before
profit sharing,
bonuses, and
income taxes $ (121,100) $ (238,700) $ 154,000 $ 77,100
=========== =========== =========== ===========
Identifiable Assets $ 3,476,600 $ 6,830,900 $ 3,503,000 $ 7,123,000
=========== =========== =========== ===========
Nine Months Ended September 30,
-----------------------------------------------------
2004 2003
------------------------- ------------------------
Household Skin Care Household Skin Care
Products Products Products Products
----------- ----------- ---------- -----------
Net sales to
external customers $ 6,815,100 $ 8,818,500 $ 6,610,900 $10,756,400
=========== =========== =========== ===========
Loss before profit
sharing, bonuses
and income taxes $ (555,500) $ (431,000) $ (329,800) $ (601,900)
=========== =========== =========== ===========
Identifiable Assets $ 3,476,600 $ 6,830,900 $ 3,503,000 $ 7,123,000
=========== =========== =========== ===========
The following is a reconciliation of segment information to
consolidated information as of and for the three and nine months ended
September 30, 2004 and 2003:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales to
external customers $ 5,116,700 $ 6,023,600 $15,633,600 $17,367,300
=========== =========== =========== ===========
Income (loss) before
profit sharing,
bonuses and income
taxes $ (359,800) $ 231,100 $ (986,500) $ (931,700)
=========== =========== =========== ===========
Identifiable assets $10,307,500 $10,626,000 $10,307,500 $10,626,000
Corporate assets 13,366,900 14,257,200 13,366,900 14,257,200
----------- ----------- ----------- -----------
Consolidated total
assets $23,674,400 $24,883,200 $23,674,400 $24,883,200
=========== =========== =========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation (Unaudited)
Results of Operations
During the first nine months of 2004 the Company experienced a small
increase in sales of household chemical products. The Company has commenced
the introduction of an additional wood care product during this period;
however, sales have been minimal so far. During the first nine months of
2004 the Company experienced a decrease in sales of its skin care products
including the Montagne Jeunesse line of products; however, the Company is
expecting an increase in sales of Montagne Jeunesse products in the fourth
quarter of 2004, compared to the third quarter of 2004, due to holiday sales.
The Company's net loss for the first nine months of 2004 was $986,500 versus
a loss of $931,700 in the same period of 2003. The loss for 2004 was
primarily due to slower sales of skin care products, including Montagne
Jeunesse products, as explained below.
Summary of Results as a Percentage of Net Sales
Year Ended Nine Months Ended
December 31, September 30,
2003 2004 2003
------------- ----------- -----------
(Audited) (Unaudited) (Unaudited)
Net sales
Scott's Liquid Gold
household products 36.8% 43.6% 38.1%
Neoteric Cosmetics 63.2% 56.4% 61.9%
------- ------- -------
Total Net Sales 100.0% 100.0% 100.0%
Cost of Sales 52.6% 56.6% 53.1%
------- ------- -------
Gross profit 47.4% 43.4% 46.9%
Other revenue 0.2% 0.2% 0.3%
------- ------- ------
47.6% 43.6% 47.2%
------- ------- -------
Operating expenses 47.5% 49.1% 51.6%
Interest expense 0.9% 0.8% 1.0%
------- ------- -------
48.4% 49.9% 52.6%
------- ------- -------
Loss before
income taxes (0.8%) (6.3%) (5.4%)
======== ======= =======
Comparative Net Sales
Nine Months Ended Percentage
September 30, Increase
2004 2003 (Decrease)
----------- ----------- ----------
Scott's Liquid Gold $ 4,908,800 $ 4,852,700 1.2%
Touch of Scent 1,906,300 1,758,200 8.4%
----------- ----------- ------
Total household
chemical products 6,815,100 6,610,900 3.1%
----------- ----------- ------
Alpha Hydrox and
other skin care 2,698,300 3,175,000 (15.0%)
Montagne Jeunesse skin care 6,120,200 7,581,400 (19.3%)
----------- ----------- ------
Total skin care product 8,818,500 10,756,400 (18.0%)
----------- ----------- ------
Total Net Sales $15,633,600 $17,367,300 (10.0%)
=========== =========== ======
Nine Months Ended September 30, 2004
Compared to Nine Months Ended September 30, 2003
Consolidated net sales for the first nine months of the current year
were $15,633,600 versus $17,367,300 for the first nine months of 2003, a
decrease of $1,733,700 or about 10.0%. Average selling prices for the first
nine months of the year 2004 were up by $32,900 over those of the comparable
period of 2003. Co-op advertising, marketing funds, slotting fees and coupon
expenses (promotional allowances) paid to retailers were subtracted from
gross sales in accordance with current accounting policies totaling
$1,380,600 in the first nine of 2004 versus $1,422,100 in the same period in
2003, a decrease of $41,500 or 2.9%.
During the first nine months of the year, net sales of skin care
products accounted for 56.4% of consolidated net sales compared to 61.9% for
the first nine months of 2003. Net sales of these products for those periods
were $8,818,500 in 2004 compared to $10,756,400 in 2003, a decrease of
$1,937,900 or 18.0%. The Company has continued to experience a drop in unit
sales of the Company's earlier-established alpha hydroxy acid products due at
least in part to maturing in the market for alpha hydroxy acid-based skin
care products and intense competition from producers of similar or
alternative products, many of which are considerably larger than Neoteric
Cosmetics, Inc. Sales of the Company's Alpha Hydrox products (with and
without alpha hydroxy acid) decreased during 2003 and the first nine months
of 2004, due to slower sales at retail and reduced distribution of those
products at retail stores, including the Company's largest and other
customers having reduced in prior quarters the number of types of those
products carried on their shelves and discontinuation in 2003 of these
products at certain retail chains. In addition, increased television
advertising for Alpha Hydrox products in the first half of 2003 was not cost
effective in terms of the impact on sales. In the second quarter of 2003,
the Company's largest customer (which accounted for 23.6% of sales of Alpha
Hydrox skin care products in 2002) decreased significantly the number of
stores carrying Alpha Hydrox products of the Company. This change has
resulted, and is likely to result in the future, in lower sales of those
products. For the first nine months of 2004, the sales of the Company's
Alpha Hydrox products accounted for 19.5% of net sales of skin care products
and 11.0% of total net sales, compared to 20.2% of net sales of skin care
products and 10.1% of total net sales in the first nine months of 2003.
For 2004, sales of Montagne Jeunesse products comprised a majority of
net sales of the Company's skin care products. Net sales of Montagne
Jeunesse were approximately $6,120,200 in 2004 compared to $7,581,400 in
2003. The Company believes that this decrease in sales of Montagne Jeunesse
is attributable primarily to a decrease in the number of display promotions
at retailers in the first half of 2004 versus 2003 and to 2003 products that
had not sold through the retail stores until 2004 thus resulting in fewer re-
sales in the first nine months.
As part of its sales efforts in the first nine months of 2003, the
Company used direct response television (infomercial) commercials for the
sale of its Alpha Hydrox products. These efforts were not repeated in 2004.
The Company has not used television advertisements for the Montagne Jeunesse
products. The Company did not introduce new skin care products during the
first nine months of 2004, except different items in Montagne Jeunesse
sachets.
Sales of household products for the first nine months of this year
accounted for 43.6% of consolidated net sales compared to 38.1% for the same
period of 2003. These products are comprised of "Scott's Liquid Gold" for
wood, a wood cleaner which preserves as it cleans, and "Touch of Scent", a
room air freshener. During the nine months ended September 30, 2004, sales
of household products were $6,815,100, as compared to sales of $6,610,900 for
the same nine months of 2003. Sales of "Scott's Liquid Gold" for wood were up
by $56,100, an increase of 1.2%. This increase was due to increased
distribution at retail stores offset by introduction of new competing
products and limited advertising of the Company's products. Sales of "Touch
of Scent" were up by $148,100 or 8.4%, primarily due to an increase in
distribution which commenced in late 2003 and is continuing in 2004.
As sales of a consumer product decline, there is the risk that retail
stores will stop carrying the product. The loss of any significant customer
for any skin care products, "Scott's Liquid Gold" for wood or "Touch of
Scent", could have a significant adverse impact on the Company's revenues and
operating results. The Company believes that its future success is highly
dependent on favorable acceptance in the marketplace of Montagne Jeunesse
products and the sales of its Alpha Hydrox products and "Scott's Liquid Gold"
for wood.
On a consolidated basis, cost of goods sold was $8,849,600 during the
first nine months of 2004 compared to $9,223,500 for the same period of 2003,
a decrease of $373,900 (4.1% on a sales decrease of 10.0%). As a percentage
of consolidated net sales for the first nine months of 2004, cost of goods
sold was 56.6% compared to 53.1% in 2003, an increase of 6.6%, which was
essentially due to a greater percentage of promotional allowances in 2004
versus 2003, and spreading the ongoing manufacturing costs over the lower
aggregate number of units sold.
Operating Expenses, Interest Expense and Other Income
Percentage
2004 2003 Decrease
----------- ----------- ----------
Operating Expenses
Advertising $ 738,100 $ 1,671,700 (55.8%)
Selling 4,162,600 4,410,300 (5.6%)
General & Administrative 2,772,400 2,875,100 (3.6%)
----------- ----------- ------
Total operating expenses $ 7,673,100 $ 8,957,100 (14.3%)
=========== =========== ======
Interest Income $ 30,900 $ 46,600 (33.7%)
Interest Expense $ 128,300 $ 165,000 (22.2%)
Operating expenses, comprised primarily of advertising, selling and
general and administrative expenses, decreased by $1,284,000 or 14.3% in the
first nine months of 2004, when compared to the first nine months of 2003,
largely because of the decrease in advertising expenses. The various
components of operating expenses are discussed below.
Advertising expenses for the first nine months of 2004 were $738,100
compared to $1,671,700 for the comparable nine months of 2003, a decrease of
$933,600 or 55.8%. Advertising expenses applicable to household products
decreased by $259,400 (34.3%) during the first nine months of 2004, and
advertising expenses for Alpha Hydrox products decreased for the comparative
nine-month period by $674,200 (73.7%).
Selling expenses for the first nine months of 2004 were $4,162,600
compared to $4,410,300 for the comparable nine months of 2003, a decrease of
$247,700 or 5.6%. That decrease was comprised of a decrease in promotional
costs of $227,700 primarily because there were fewer sales promotions in 2004
versus 2003, a decrease in internet and direct television sales expense of
$103,400 primarily because of a decrease in direct television sales
advertising in 2004 versus 2003, a decrease in depreciation and royalty
expense of $94,300, offset by an increase in salaries and fringe benefits and
related travel expense of $163,200 primarily because of an increase in
personnel in 2004 versus 2003, and a net increase in other selling expenses,
none of which by itself is significant, of $14,500.
General and administrative expenses for the first nine months of 2004
were $2,772,400 compared to $2,875,100 for the comparable nine months of
2003, a decrease of $102,700 or 3.6%. That decrease is made up of a decrease
in professional fees of $138,700 primarily because of a decrease in audit
fees in 2004 versus 2003, and a net decrease in other administrative
expenses, none of which, by itself was material, of $51,100, offset by an
increase in salary and fringe benefits of $87,100 primarily because of a
general increase in these expenses during the first nine months of 2004.
Interest expense for the first nine months of 2004 was $128,300 versus
$165,000 for the comparable period of 2003. Interest expense decreased
because of the reduced principal of the Company's bank loan. Interest income
for the nine months ended September 30, 2004 was $30,900 compared to $46,600
for the same period of 2003, which consists of interest earned on the
Company's cash reserves in 2004 and 2003. Interest expense will increase in
the next few quarters as the Company borrows under the line of credit
described in the Liquidity and Capital Resources section.
During the third quarter of 2004 and of 2003, expenditures for research
and development were not material (under 2% of revenues).
Three Months Ended September 30, 2004
Compared to Three Months Ended September 30, 2003
Consolidated net sales for the third quarter of the current year were
$5,116,700 versus $6,023,600 for the comparable quarter of 2003, a decrease
of $906,900 or about 15.1%. Average selling prices for the third quarter of
2004 were up by $237,100 over those of the comparable period of 2003. Average
selling prices of skin care products accounted for this increase, which was
primarily due to a decrease in price promotions in the third quarter. Co-op
advertising, marketing funds, slotting fees and coupon expenses (promotional
allowances) paid to retailers were subtracted from gross sales in accordance
with current accounting policies totaling $458,800 in the third quarter of
2004 versus $485,500 in the same period in 2003, a decrease of $26,700 or
5.5%.
During the third quarter of 2004, net sales of skin care products
accounted for 59.7% of consolidated net sales compared to 61.9%% for the
third quarter of 2003. Net sales of these products for those periods were
$3,056,900 in 2004 compared to $3,729,700 in 2003, a decrease of $672,800 or
18.0%. Net sales of Montagne Jeunesse were approximately $2,509,500 in the
third quarter of 2004 compared to $2,914,300 in the third quarter of 2003.
Please see the discussion above for the first nine months of 2004 for
additional information regarding sales of skin care products, which is also
applicable to sales of skin care products in the third quarter.
Sales of household products for the third quarter of this year
accounted for 40.3% of consolidated net sales compared to 38.1% for the same
period of 2003. These products are comprised of "Scott's Liquid Gold" for
wood, a wood cleaner which preserves as it cleans, and "Touch of Scent", a
room air freshener. During the third quarter of 2004, sales of household
products were $2,059,800, as compared to sales of $2,293,900 for the same
three months of 2003. Sales of "Scott's Liquid Gold" for wood were down by
$225,600, a decrease of 13.1%, primarily we believe because of the
introduction of new competing products and limited advertising of our
products in the third quarter. Sales of "Touch of Scent" were down by $8,500
or 1.5%.
On a consolidated basis, cost of goods sold was $3,129,000 during the
third quarter of 2004 compared to $3,302,200 for the same period of 2003, a
decrease of $173,200 (5.2%, on a sales decrease of 18%). As a percentage of
consolidated net sales for the third quarter of 2004, cost of goods sold was
61.2% compared to 54.8% in 2003, an increase of 11.5%, which was essentially
due to a greater percentage of promotional allowances in 2004 versus 2003 and
to spreading on-going (fixed) manufacturing costs over lower unit production
in the third quarter of 2004 than in 2003.
Operating expenses, comprised primarily of advertising, selling and
general and administrative expenses, decreased by $131,500 or 5.4% in the
third quarter of 2004, when compared to the same period during 2003, largely
because of the decrease in advertising expenses, and general and
administrative expenses. The various components of operating expenses are
discussed below.
Advertising expenses for the third quarter of 2004 were $101,000
compared to $171,100 for the comparable quarter of 2003, a decrease of
$70,100 or 41.0%. Advertising expenses applicable to household products
decreased by $84,000 (67.5%), while advertising expenses for Alpha Hydrox
products increased by $13,900 (29.8%).
Selling expenses for the three months ended September 30, 2004 were
$1,381,200 compared to $1,402,900 for the comparable three months of 2003, a
decrease of $21,700 or 1.5%. That decrease was comprised of a decrease in
promotional expenses of $66,700 and a decrease in depreciation and royalty
expense of $31,300 offset by a net increase in salary and fringe benefits and
travel of $61,600, primarily because of an increase in personnel in 2004
versus 2003, and an increase in other selling expenses, none of which by
itself is significant, of $14,700.
General and administrative expenses for the third quarter of 2004 were
$835,700 compared to $875,400 for the comparable period of 2003, a decrease
of $39,700 or 4.5%. Such decrease was attributable to a decrease in
professional fees of $22,600 primarily because of a decrease in audit fees in
2004 versus 2003, and a net decrease in other administrative expenses, none
of which, by itself was material, of $17,100.
Interest expense for the third quarter of 2004 was $40,000 versus
$53,000 for the comparable period of 2003. Interest expense decreased because
of the reduced principal of the Company's bank loan. Interest income for the
three months ended September 30, 2004 was $10,400 compared to $12,100 for the
same period of 2003.
During the third quarter of 2004 and of 2003, expenditures for research
and development were not material (under 2% of revenues).
Liquidity and Capital Resources
On August 10, 2004 the Company obtained a $1,500,000 line of credit
from a bank to finance additional inventory and accounts receivable
associated with upcoming holiday sales. The line of credit bears interest at
a rate of .5% over the bank's base rate (4.75% at September 30, 2004) and
matures on August 10, 2005. The line of credit is secured by inventory and
accounts receivable. The covenants are the same as the bank loan described
below. At September 30, 2004, the amount borrowed under this line of credit
was $200,000; and as of the date of this Report, the Company had borrowed
$750,000 under this line of credit.
The Company has a bank loan for approximately $3.0 million at the
bank's base rate, adjustable yearly (4.75% at September 30, 2004), secured by
the Company's land and buildings, with principal and interest payable monthly
through November 2007. The loan agreement contains a number of covenants,
including the requirement for maintaining a current ratio of at least 1:1 and
a ratio of consolidated long-term debt to consolidated net worth of not more
than 1:1. The Company may not declare any dividends that would result in a
violation of either of these covenants. The foregoing requirements were met
at the end of the third quarter of 2004.
During the first nine months of 2004, the Company's working capital
decreased by $1,237,600, and concomitantly, its current ratio (current assets
divided by current liabilities) decreased from 2.3:1 at December 31, 2003 to
1.8:1 at September 30, 2004. This decrease in working capital is attributable
to a net loss in the first nine months of 2004 of $986,500, and a reduction
in long-term debt of $682,500, a decrease in deferred tax liabilities of
$47,000, a decrease in accumulated comprehensive income of $1,000, offset by
depreciation in excess of capital additions of $436,400, a decrease in non-
current deferred tax assets of $5,000, a decrease in other assets of $8,100
and an increase in common stock and capital in excess of par of $29,900.
At September 30, 2004, trade accounts receivable were $1,330,200 versus
$1,108,600 at year-end, largely because sales in September of 2004 were
greater than those of December of 2003. Accounts payable increased from the
end of 2003 through September of 2004 by $953,200, primarily due to an
increase in sales promotion as well as trade suppliers payables related to
inventory purchases at quarter end. At September 30, 2004 inventories were
$231,600 more than at December 31, 2003, primarily to support additional
Montagne Jeunesse sales expected in the fourth quarter of 2004. Accrued
payroll and benefits decreased $154,700 from December 31, 2003 to September
30, 2004 primarily because of the decrease in accrued payroll, due to a
decrease in the number of days of accrued payroll at September 30, 2004,
versus December 31, 2003. Other accrued liabilities decreased by $119,600
primarily because of a decrease in accrued property taxes and a decrease in
accrued coupon expense.
The Company has no significant capital expenditures planned for 2004.
The Company expects that its available cash and cash flows from operating
activities will fund its cash requirements through at least September 30,
2005.
The Company's dependence on operating cash flow means that risks
involved in its business can significantly affect its liquidity. Any loss of
a significant customer, any further decreases in distribution of its skin
care or household chemical products, any new competitive products affecting
sales levels of the Company's products, or any significant expense not
included in the Company's internal budget could result in the need to raise
cash, such as through a bank financing. Except for the short-term line of
credit described above, the Company has no arrangements for an external
financing of debt or equity, and the Company is not certain whether any such
financing would be available on acceptable terms. Please also see other
risks summarized in "Forward Looking Statements" below.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss due to adverse changes in
financial and commodity market prices and rates. The Company is not
materially exposed to market risks regarding interest rates because the
interest on the Company's outstanding debt is at the lender's base rate,
which approximates the prime rate, adjustable yearly. The Company's
investments in debt and equity securities are short-term and not subject to
significant fluctuations in fair value. If interest rates were to rise 10%
from year-end levels, the fair value of the Company's debt and equity
securities would have decreased less than $1,000. Further, the Company does
not use foreign currencies in its business. Currently, it receives payments
for sales to parties in foreign countries in U.S. dollars. Additionally, the
Company does not use derivative instruments or engage in hedging activities.
As a result, the Company does not believe that near-term changes in market
risks will have a material effect on results of operations, financial
position or cash flows of the Company.
Forward-Looking Statements
This report may contain "forward-looking statements" within the meaning
of U.S. federal securities laws. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements and the Company's performance inherently
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Factors that would cause or
contribute to such differences include, but are not limited to, continued
acceptance of the Company's products in the marketplace; the degree of
success of any new product or product line introduction by the Company;
competitive factors; any decrease in distribution of (i.e., retail stores
carrying) the Company's significant products; continuation of the Company's
distributorship agreement with Montagne Jeunesse; the need for effective
advertising of the Company's products; limited resources available for such
advertising; new competitive products and/or technological changes;
dependence upon third party vendors and upon sales to major customers;
changes in the regulation of the Company's products, including applicable
environmental regulations; adverse developments in any pending litigation;
the loss of any executive officer; and other matters discussed in the
Company's periodic filings with the Securities and Exchange Commission. The
Company undertakes no obligation to revise any forward-looking statements in
order to reflect events or circumstances that may arise after the date of
this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Please see "Market Risks" in Item 2 of Part I of this
Report which information is incorporated herein by this
reference.
Item 4. Controls and Procedures
As of September 30, 2004, the Company conducted an
evaluation, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports
that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and
forms as of September 30, 2004. There was no change in our
internal control over financial reporting during the quarter
ended September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II OTHER INFORMATION
Item 1. Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On September 2, 2004, the Company contributed 30,000 shares
of its common stock to its Employee Stock Ownership Plan (the
"Plan"). On June 4, 2004, the Company contributed 20,000 shares
of its common stock to the Plan. No consideration was paid by
the Plan for these contributions. The Company believes that
these contributions were not subject to the securities
registration requirements of the Securities Act of 1933 because
they did not involve a sale. The contributions of the shares to
the Plan may also be exempt from such securities registration as
a non-public offering under Section 4(2) of the Securities Act of
1933.
On August 24, 2004, the Company granted 5,000 shares of its
common stock to Daniel H. Jones, sales manager of the Company.
Mr. Jones did not pay any consideration for these shares. There
were also no underwriting discounts or commissions in connection
with the grant. The grant was part of an understanding relating
to Mr. Jones' employment with the Company. The Company believes
that the grant of these shares was not subject to the securities
registration requirements of the Securities Act of 1933 because
the grant did not involve a sale of the shares. In addition, the
Company believes that the grant was also exempt from such
securities registration as a non-public offering under Section
4(2) of the Securities Act of 1933.
Please see Item 2 of Part I, Management's Discussion and
Analysis of Financial Condition and Results of Operation, for
information in the first two paragraphs under "Liquidity and
Capital Resources" regarding a bank line of credit established in
August, 2004. Such information is incorporated by reference.
The bank line of credit includes covenants on maintaining a
current ratio and limitations on the payment of dividends.
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The following reports were filed by the Company on Form 8-K
during the third quarter of 2004: A report filed on August
11, 2004 regarding Item 12, Results of Operations and
Financial Condition.
(b) Exhibits
31.1 Rule 13(a)-14(a) Certification of the Chief Executive
Officer
31.2 Rule 13(a)-14(a) Certification of the Chief Financial
Officer
32.1 Section 1350 Certifications
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCOTT'S LIQUID GOLD-INC.
November 4, 2004 BY: /s/ Mark E. Goldstein
Date Mark E. Goldstein
President and Chief Executive Officer
November 4, 2004 BY: /s/ Jeffry B. Johnson
Date Jeffry B. Johnson
Treasurer and Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Document
31.1 Rule 13(a)-14(a) Certification of the Chief Executive
Officer
31.2 Rule 13(a)-14(a) Certification of the Chief Financial
Officer
32.1 Section 1350 Certification
EXHIBIT 31.1
CERTIFICATION
I, Mark E. Goldstein, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended September 30, 2004 of Scott's Liquid Gold-Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and;
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
DATE: November 4, 2004
/s/ Mark E. Goldstein
----------------------------------
Mark E. Goldstein
President, Chief Executive Officer,
And Chairman of the Board
Principal Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Jeffry B. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended September 30, 2004 of Scott's Liquid Gold-Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and;
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
DATE: November 4, 2004
/s/ Jeffry B. Johnson
-------------------------------------
Jeffry B. Johnson
Treasurer and Chief Financial Officer
Principal Financial Officer
EXHIBIT 32.1
CERTIFICATION OF 10-Q REPORT
OF
SCOTT'S LIQUID GOLD-INC.
FOR THE QUARTER SEPTEMBER 30, 2004
1. The undersigned are the Chief Executive Officer and the Chief Financial
Officer of Scott's Liquid Gold-Inc. ("Scott's Liquid Gold"). This
Certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. This Certification accompanies the 10-Q Report of Scott's Liquid Gold
for the quarter ended September 30, 2004.
2. We certify that such 10-Q Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the
information contained in such 10-Q Report fairly presents, in all material
respects, the financial condition and results of operations of Scott's Liquid
Gold.
This Certification is executed as of November 4, 2004.
/s/ Mark E. Goldstein
- -----------------------------------
Mark E. Goldstein
President, Chief Executive Officer
and Chairman of the Board
Principal Executive Officer
/s/ Jeffry B. Johnson
- -----------------------------------
Jeffry B. Johnson
Treasurer and Chief Financial Officer
Principal Financial Officer