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
JUNE 30, 1997
Commission File No. 0-5128
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 (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.
YES _X_ NO ____
The Registrant had 10,080,900 common shares, $0.10 par value, its only
class of common stock, issued and outstanding on July 25, 1997.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Scott's Liquid Gold-Inc. & Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Revenues:
Net sales $11,853,800 $9,809,400 $26,178,600 $22,566,100
Other income 144,200 51,900 253,800 117,600
_____________________________________________________
11,998,000 9,861,300 26,432,400 22,683,700
Costs and Expenses:
Cost of sales 3,364,200 3,325,300 7,202,400 7,588,100
Advertising 4,677,000 3,922,900 9,768,500 9,272,200
Selling 1,914,900 1,814,100 4,004,700 3,874,100
General and
Administrative 1,457,200 1,152,600 3,258,300 2,572,000
Interest 330,500 303,900 662,600 576,400
_____________________________________________________
11,743,800 10,518,800 24,896,500 23,882,800
_____________________________________________________
Income (loss) from
Operations 254,200 (657,500) 1,535,900 (1,199,100)
Other: Lawsuit
Settlement 58,500 333,500 23,500 434,000
_____________________________________________________
Income (loss) from
continuing operations
before income taxes 195,700 (991,000) 1,512,400 (1,633,100)
Income tax
expense (benefit) 59,200 (408,700) 559,500 (408,700)
_____________________________________________________
Income (loss) from
continuing operations 136,500 (582,300) 952,900 (1,224,400)
Discontinued operations:
Income from
operations,net
of income taxes - 13,900 - 16,800
_____________________________________________________
Net income (loss) $ 136,500 $ (568,400) $ 952,900 $(1,207,600)
_____________________________________________________
Net income (loss)
per common share
(Note 2) $ .01 $ (.06) $ .09 $ (.12)
_____________________________________________________
Weighted average
number of common
shares
outstanding 10,177,600 10,030,900 10,131,000 10,030,900
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 952,900 $ (1,207,600)
___________________________________
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 559,100 544,600
Provision for doubtful
accounts receivable 69,000 135,500
Compensation expense of
employee stock plans 81,300 -
Change in assets and liabilities:
Accounts and other
Receivables (400,900) (811,100)
Inventories 56,100 1,133,300
Prepaid expenses 154,000 (44,300)
Other assets - 371,000
Accounts payable and
accrued expenses 1,263,400 (455,200)
___________________________________
Total adjustments to
net income (loss) 1,782,000 873,800
___________________________________
Net Cash Provided (Used)
by Operating Activities 2,734,900 (333,800)
___________________________________
Cash flows from investing
activities:
Purchase of property, plant
and equipment (148,800) (813,500)
Proceeds from sale
of discontinued operations 100,000 -
Net change in assets of
discontinued operations (14,000) (8,000)
___________________________________
Net Cash Used by
Investing Activities (62,800) (821,500)
Cash flows from financing
activities:
___________________________________ ___________________________________
Proceeds from short-term
Borrowings 135,300 150,700
Principal payments on
short-term borrowings (81,200) (90,000)
Proceeds from long-term
Borrowings - 7,400
Principal payments on
long-term borrowings (23,100) (15,700)
Increase in bond sinking
Fund (576,500) (438,800)
___________________________________
Net Cash Used by Financing
Activities (545,500) (386,400)
___________________________________
Net Increase (Decrease) in
Cash and Cash
Equivalents 2,126,600 (1,541,700)
Cash and Cash Equivalents,
beginning of period 4,749,200 4,720,200
___________________________________
Cash and Cash Equivalents,
end of period $ 6,875,800 $ 3,178,500
___________________________________
Supplemental disclosures:
Cash paid during the period for:
Interest (net of $30,300
capitalized in 1996) $ 613,100 $ 554,300
Interest paid by
discontinued operations $ 20,400 $ 22,400
Income taxes $ 159,800 $ 713,200
</TABLE>
See Notes to Consolidated Financial Statements
Scott's Liquid Gold-Inc. & Subsidiaries Consolidated Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996
<TABLE>
ASSETS
<S> <C> <C> <C>
1997 1996
Current assets:
Cash and cash equivalents $ 6,875,800 $4,749,200
Trade receivables (Note 3) 4,122,200 3,362,100
Other receivables 253,600 681,800
Inventories:
Finished goods 1,892,200 2,244,900
Raw materials 2,180,900 1,884,300
Prepaid expenses 111,700 265,700
Deferred tax assets 761,400 761,400
___________________________________
Total current assets 16,197,800 13,949,400
Property, plant
and equipment
at cost 26,999,700 26,850,900
Less accumulated depreciation 7,505,000 6,989,100
___________________________________
19,494,700 19,861,800
Other assets 234,700 277,900
Net assets of
discontinued operations 288,800 374,800
___________________________________
$ 36,216,000 $34,463,900
LIABILITIES & SHAREHOLDERS' EQUITY
1997 1996
Current liabilities:
Notes payable $ 54,100 $ -
Accounts payable 4,717,200 3,723,600
Accrued expenses 3,008,600 2,738,800
Current maturities of
long-term debt 1,289,600 1,289,600
___________________________________
Total current liabilities 9,069,500 7,752,000
Long-term debt 10,177,100 10,776,700
Deferred income taxes 237,100 237,100
19,483,700 18,765,800
___________________________________
Shareholders' equity (Note 2):
Common stock 1,008,100 1,003,100
Capital in excess of par 4,795,300 4,719,000
Retained earnings 10,928,900 9,976,000
___________________________________
Shareholders' equity 16,732,300 15,698,100
___________________________________
$ 36,216,000 $34,463,900
</TABLE>
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1
In the opinion of management, the financial information in this report reflects
all adjustments necessary for a fair presentation of the results for the
interim periods.
NOTE 2
Per share data for 1997 was determined by using the weighted average number of
common and common equivalent shares outstanding, using the treasury stock
method.
Per share data for 1996 was determined by using the weighted average number of
common shares outstanding during the period. Common equivalent shares were not
considered because their inclusion would have been anti-dilutive.
Average shares outstanding used in the above computations were 10,177,600 and
10,131,000 respectively for the three and six months ended June 30, 1997, and
10,030,900 for the three and six months ended June 30, 1996.
At June 30, 1997 there were authorized 50,000,000 shares of the Company's $.10
par value common stock and 20,000,000 shares of preferred stock issuable in one
or more series.
NOTE 3
Allowances for doubtful accounts at June 30, 1997 and December 31, 1996 were
$652,100 and $580,400 respectively.
Market Information
The high and low prices of Scott's Liquid Gold-Inc. common stock as traded on
the New York Stock Exchange were as follows:
High Low
Three Months Ended Bid Bid
September 30, 1995 4-3/4 3-1/4
December 31, 1995 3-5/8 2-1/2
March 31, 1996 3 2-1/2
June 30, 1996 3 1-3/4
September 30, 1996 2-1/8 1-1/2
December 31, 1996 1-7/8 1-1/4
March 31, 1997 2-7/8 1-3/8
June 30, 1997 2-7/8 1-1/2
NYSE Symbol: SGD
Current stock quotes, SEC filings, quarterly earnings and press releases can be
found at: http://www.businesswire.com/cnn/sgd.htm
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company manufactures and markets household chemical and skin care
products; and, until September of 1996, also produced and marketed cigarette
filters through a wholly-owned subsidiary. In early 1992, the Company entered
into the cosmetics business, introducing a line of skin care products, Alpha
Hydrox, which is sold throughout the United States and Canada. During the
second quarter of 1997, the Company made its first shipment of its skin care
products to Argentina, the Company's first effort to market its goods in South
America. Sales of the cosmetics line were $15.8 million in 1993, $30.6 million
in 1994 and $31.6 million in 1995; but, for a variety of reasons which are set
forth in the Company's most recent Annual Report, sales of the Company's skin
care products decreased to $26.6 million in 1996. Largely as a result of the
Company's entry into the skin care business, net income (excluding income from
discontinued operations), increased from approximately $288,000 in 1992 to
$2,841,000 in 1993, and to $5,818,000 in 1994. However, in 1995, net income
declined to about $2,784,000 due to heavy advertising of cosmetics products and
a decline of 12.3% in sales of the Company's household chemical products; and,
in 1996, the Company posted a net loss (after a charge of $3,588,000
attributable to the settlement of an environmental lawsuit) of $934,000. During
the first half of 1997, the Company's net sales were $26,178,600 compared to
$22,566,100 for the first half of 1996, an increase of 16.0%; and its net income
was $952,900 compared to a loss (excluding income from discontinued operations)
for the same six months of 1996 of $1,224,400.
Results of Operations
Summary of Results as a
Percentage of Net Sales
<TABLE>
(Audited)
Year Six
Ended Months
Dec. Ended
31, June 30,
1996 1997 1996
<S> <C> <C> <C>
Net sales
Scott's Liquid Gold 39.9% 31.9% 38.0%
household products
Neoteric Cosmetics 60.1% 68.1% 62.0%
____________________________
Total net sales 100.0% 100.0% 100.0%
Cost of sales 32.1% 27.5% 33.6%
____________________________
Gross profit 67.9% 72.5% 66.4%
Other revenue 0.7% 1.0% 0.5%
____________________________
68.6% 73.5% 66.9%
____________________________
Operating expenses 61.1% 65.1% 69.6%
Interest 2.7% 2.5% 2.6%
____________________________
63.8% 67.6% 72.2%
____________________________
Income (loss) before income taxes 4.8% 5.9% (5.3%)
</TABLE>
Six Months Ended June 30, 1997
Compared to Six Months Ended June 30, 1996
Consolidated net sales for the first six months of 1997 were $26,178,600
vs. $22,566,100 for the first half of 1996, an increase of $3,612,500 or about
16.0%. Average selling prices for the first six months of 1997 were higher
than those of the first half of 1996 by $992,400, prices of household chemical
products being up by $1,054,000 (all of which related to Touch of Scent), while
average selling prices of cosmetics products decreased by $61,600.
During the first six months of 1997, net sales of cosmetics products
accounted for 68.1% of consolidated net sales compared to 62.0% for the first
half of 1996. Net sales of these products for those periods were $17,835,300 in
1997 compared to $13,990,000 in 1996, an increase of $3,845,300 or 27.5%. Most
of that increase pertained to increases in sales of the Company's basic
products, alpha hydroxy acid cremes, lotions, and face wash. The Company
attributes the increase in sales of Alpha Hydrox products to effective
advertising, including the airing of several new television commercials which,
apparently, have been well received by the viewing public; and the fact that
sales of Alpha Hydrox products were not affected in 1997 (as they were in 1996)
by the need last year to discontinue an unsuccessful product. Competition
continues to be keen in the skin care category in which the Company participates
and is expected to remain so for the foreseeable future. While the Company is
pleased with its Alpha Hydrox sales results for the first six months of 1997, no
assurance can be given that such results will continue into the future, even for
the short run.
Sales of household chemical products for the first half of 1997 accounted
for 31.9% of consolidated net sales compared to 38.0% for the same period of
1996. 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 six months ended June 30, 1996, sales of household
chemical products were $8,576,100 compared to $8,343,300 for the first half of
1997, a decrease of $232,800 or 2.7%. Sales of "Scott's Liquid Gold" for wood
were down by $477,800, a decrease of 9.6%, while sales of "Touch of Scent" were
up by $245,000 or 6.8%. The Company believes that the sales decrease for
Scott's Liquid Gold was, in large measure, attributable to a substantial
decrease ($539,700) in advertising dollars spent on that product in 1997 vs.
1996. As was reported previously, Touch of Scent sales had declined over an
extended period of time and, therefore, in an effort to increase sales of its
air fresheners, in December of 1996, the Company introduced a new line of highly
decorative fixtures to dispense new, concentrated formulae now contained in its
refill units. The Company has not had sufficient experience with its new line of
fixtures to judge whether or not they will be the catalyst to revitalize the
Company's line of air fresheners. While dollar sales of Touch of Scent
increased by about 6.8% during the first half of 1997 compared to 1996, case
sales decreased by about 24.0%. (See pricing in first paragraph above.)
On a consolidated basis, cost of goods sold was $7,202,400 during the first
half of 1997 compared to $7,588,100 for the same period of 1996, a decrease of
$385,700 or about 5.1% (on an increase in sales of 16.0%). As a percentage of
consolidated net sales, cost of goods sold was 27.5% in 1997 vs. 33.6% in 1996,
a decrease of 18.2%. Overall, standard costs per unit remained substantially
the same in 1997 as they were in 1996, but manufacturing variances (differences
between standard and actual costs) were about $440,000 lower, which, of course,
enhanced the consolidated gross profit. Further, the mix of products sold
changed substantially between the first half of 1996 and the first half of 1997.
Case sales of Scott's Liquid Gold for wood during the first half of 1997
(compared to 1996) decreased by about 9.4% (about equal to the dollar sales
decrease), but case sales of Touch of Scent decreased by 24.0% whereas sales of
Touch of Scent increased by 6.8%, largely due to unit price increases which
averaged about 39%; and case sales of Alpha Hydrox increased by 26.1% on a
dollar sales increase of 27.5%.
Advertising expenses for the first six months of 1997 were $9,768,500
compared to $9,272,200 for the comparable six months of 1996, an increase of
$496,300 or 5.4%. Advertising expenses applicable to household chemicals
increased during the first half of 1997 compared to the first six months of 1996
by $1,815,600, an increase of 102.8%. Advertising expenses for Liquid Gold
decreased by $539,700, whereas expenses to advertise Touch of Scent increased by
$2,355,300. Advertising expenses for Alpha Hydrox were $1,319,300 lower during
the first half of 1997 than in the comparable first half of 1996. During the
remainder of 1997, the Company intends to spend less to advertise its products
than was spent in the first half of the year. For years, the Company has,
however, made clear that, as a matter of sound business judgment, it must
continue to advertise aggressively whenever it is fiscally responsible to do so,
because (i) the market for skin care products is highly competitive and,
accordingly, the Alpha Hydrox name needs to be kept in front of current
consumers; and (ii) advertising is essential to maintain or increase sales
levels of both the Company's cosmetics and household chemical products.
Sustaining the Company's advertising program is highly dependent upon sales of
its skin care products.
Selling expenses for the first half of 1997 were $4,004,700 compared to
$3,874,100 for the comparable period of 1996, an increase of $130,600 or 3.4%.
Administrative expenses were higher in the first six months of 1997 than those
of the first half of 1996 by $686,300, an increase of 26.7%. Of that increase,
$179,100 relates to accruals for bonus and profit sharing plans (there were no
such accruals during the first half of 1996), and $554,500 pertains to an
increase in legal and professional expenses, offset by minor increases and
decreases in other administrative expenses aggregating $47,300. The increase in
legal and professional fees was primarily the result of the reclassification in
1996 of professional fees which pertained to an environmental lawsuit which was
settled in the second half of last year.
Interest expense for the first half of 1997 was greater than that of the
comparable six months of 1996 by $86,200, an increase of 15.0%, which was due to
increased debt and the capitalization of approximately $30,000 of interest
expense during the first quarter of 1996, the final quarter of the Company's
construction period. (See Liquidity and Capital Resources below.) Other income
increased by $136,200 during the six months ended June 30, 1997 compared to the
same period of 1996 due to an increase in interest rates applicable to cash
reserves and an increase in the cash reserves themselves.
During the first six months of both 1997 and 1996, expenditures for
research and development were not material (under 1% of revenues).
Three Months Ended June 30, 1997
Compared to Three Months Ended June 30, 1996
Consolidated net sales for the second quarter of 1997 were $11,853,800 vs.
$9,809,400 for the three months ended June 30, 1996, an increase of $2,044,400
or about 20.8%. Average selling prices for the second quarter of 1997 were
lower than those of the second quarter of 1996 by $156,500, prices of household
chemical products being up by $161,000 (all of which related to Touch of Scent),
while average selling prices of cosmetics products were down by $317,500.
During the second quarter of 1997, net sales of cosmetics products
accounted for 66.8% of consolidated net sales compared to 61.8% for the second
quarter of 1996. Net sales of these products for those periods were $7,917,800
in 1997 compared to $6,058,300 in 1996, an increase of $1,859,500 or 30.7%.
Most of that increase pertained to increases in sales of the Company's basic
products, alpha hydroxy acid cremes, lotions, and face wash. Reasons for the
increase in sales of Alpha Hydrox products are set forth in the discussion for
the six months ended June 30, 1997 and 1996.
Sales of household chemical products for the second quarter of 1997
accounted for 33.2% of consolidated net sales compared to 38.2% for the same
quarter of 1996. 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 three months ended June 30, 1997, sales of household
chemical products were $3,936,000 compared to $3,751,100 for the second quarter
of 1996, an increase of $184,900 or 4.9%. Sales of "Scott's Liquid Gold" for
wood were down by $33,000, a decrease of 1.4%, while sales of "Touch of Scent"
were up by $217,900 or 16.2%. The Company believes that the sales decrease for
Scott's Liquid Gold was, in large measure, attributable to a substantial
decrease in advertising dollars spent on that product in 1997 vs. 1996. As was
reported in the Company's most recent Annual Report, Touch of Scent sales had
decreased substantially over the last two years and, therefore, in an effort to
increase sales of its air fresheners, the Company, in December of 1996,
introduced a new line of highly decorative fixtures to dispense new,
concentrated formulae now contained in its refill units.
On a consolidated basis, cost of goods sold was $3,364,200 during the
second quarter of 1997 compared to $3,325,300 for the same quarter of 1996, an
increase of $38,900 or about 1.2% (on an increase in sales of 20.8%). As a
percentage of consolidated net sales, cost of goods sold was 28.4% for the
second quarter of 1997 vs. 33.9% in 1996, a decrease of 16.2%. Overall,
standard costs per unit remained substantially the same in the second quarter of
1997 as they were in the second quarter of 1996, but manufacturing variances
were lower by $360,000, an obvious help to gross profit for the quarter.
Further, the mix of products sold changed substantially between the second
quarter of 1996 and the second quarter of 1997. Case sales of Scott's Liquid
Gold for wood during the second quarter of 1997 compared to the second quarter
of 1996 were in line with Liquid Gold's sales decrease for those quarters; but,
case sales of Touch of Scent increased by only 7.4% whereas sales of Touch of
Scent increased by 16.2%; and case sales of Alpha Hydrox increased by 30.4% on a
dollar sales increase of 30.7%.
Advertising expenses for the three months ended June 30, 1997 were
$4,677,000 compared to $3,922,900 for the comparable three months of 1996, an
increase of $754,100 or 19.2%. Advertising expenses applicable to household
chemicals increased during the second quarter of 1997 compared to the same
quarter of 1996 by $273,500, an increase of 26.8%. Advertising expenses for
Liquid Gold decreased by $85,300, whereas expenses to advertise Touch of Scent
increased by $358,800. Advertising expenses for Alpha Hydrox were $480,600
higher during the quarter ended June 30, 1997 than in the comparable quarter of
1996, an increase of 16.6%. See discussion of the six months ended June 30,
1997 and 1996 for the Company's philosophy regarding advertising.
Selling expenses for the second quarter of 1997 were $1,914,900 compared to
$1,814,100 for the comparable quarter of 1996, an increase of $100,800 or 5.6%.
That increase resulted from a increase of $93,300 in couponing and slotting
costs, an increase of $26,000 in freight and brokerage expenses (which vary with
sales volume), an increase in field salaries and fringe benefits of $19,100, and
an increase in miscellaneous selling expenses of $29,400; all offset by a
decrease of $67,000 in promotion expenses.
Administrative expenses were higher in the second quarter of 1997 than
those of the comparable quarter of 1996 by $304,600, an increase of 26.4%. Of
that increase, $393,800 pertains to an increase in legal expenses which resulted
primarily from the reclassification of l996 expenses in connection with an
environmental lawsuit, offset by an amount of $89,200 which related to a variety
of other administrative expenses, none of which, by itself, was material.
Interest expense for the second quarter of 1997 was greater than that of
the comparable quarter of 1996 by $26,600, an increase of 8.8%, which was due to
increased debt. Other income increased by $92,300 during the quarter ended June
30, 1997 compared to the same quarter of 1996 due to an increase in interest
rates applicable to cash reserves and an increase in the cash reserves
themselves.
During the second quarter of both 1997 and 1996, expenditures for research
and development were not material (under 1% of revenues).
Liquidity and Capital Resources
On July 29, 1994, the Company consummated a $12 million bond issuance to
finance the expansion of the Company's Denver facilities. This expansion,
prompted by the growth in sales of the Company's Alpha Hydrox skin care
products, had an aggregate cost of approximately $13.65 million. Construction
of the project began in August of 1994 and was completed in January of 1996.
Interest on the $12 million bond issue is payable semi-annually at the rate
of 10% per annum. (The July 1, 1997 interest payment was made in a timely
manner. There is no reason to believe that the interest payment due on January
1, 1998 will not be made as is required by the Bond Indenture.) A sinking fund
payment of $1 million is required annually. Sinking fund payments for 1995 and
1996 were made as required. Currently, the Company is voluntarily paying
$183,300 each month to the Trustee to cover future interest and sinking fund
payments. The Trustee, at the Company's request, holds such moneys in accounts
to which the Company has no access.
Among other things, the Bond Indenture requires that the Company maintain a
current ratio of at least 1.0:1 while the bonds are outstanding, and further
requires that the Company maintain a ratio of consolidated funded debt (reduced
by any amount held in the bond sinking fund) to consolidated net worth of not
more than 1.5:1. Both of the foregoing requirements were met at June 30, 1997.
The Bond Indenture also states that the Company may not declare or pay any
dividend or distribution on its equity securities, purchase or otherwise
acquire securities of the Company, or incur any additional consolidated funded
debt if, after giving effect to the action, the ratio of consolidated funded
debt (reduced by amounts held in the bond sinking fund) to consolidated net
worth would exceed 1.25 to 1 on January 1, 1996 and thereafter. That provision
continued to be satisfied at June 30, 1997. The bonds are secured by a first
deed of trust on the Company's Denver land and buildings, including new
structures financed by the bond issue. The bonds are callable, in whole or in
part, at the Company's option, beginning July 1, 1997. The Company has not
reached any decision at this time as to whether it will redeem any of its
outstanding bonds.
During the first half of 1997, the Company's working capital increased by
$930,900, but the Company's current ratio (current assets divided by current
liabilities) remained about the same as it was at year end, 1.79:1 at June 30,
1997. This increase in working capital is attributable to a net profit in the
first six months of $952,900, contributions of corporate stock to the Company
ESOP of $81,300, depreciation in excess of capital additions of $367,100, and a
decrease in other assets of $43,200 and in net assets of discontinued operations
of $86,000; all offset by a reduction in long-term debt of $599,600. At June
30, 1997, the ratio of consolidated funded debt to consolidated net worth was
.63:1.
During the first half of 1997, trade accounts receivable increased by
$760,100 primarily because sales in June of 1997 sales exceeded those of
December of 1996. The Company's average collection period remained at under 30
days. Other receivables decreased during the first half of the year by
$428,200, essentially due to the collection of a December 31, 1996 receivable of
$600,000 from an insurance carrier which had insured the Company during a
portion of the time involved in the Company's environmental lawsuit with the
United States Army; offset by approximately $130,000 for an amount collectible
under a stop loss, health insurance contract, plus certain miscellaneous items.
Accounts payable at June 30, 1997 were $993,600 greater than those at December
31, 1996, primarily due to an increase in advertising payables.
Other
As previously reported, the Company had been a defendant in an
environmental lawsuit brought by the United States Justice Department at the
request of the United States Army, alleging contribution by the Company to
contamination in a groundwater aquifer underlying a portion of the Rocky
Mountain Arsenal. In October of 1996, the Company and the United States, on
behalf of the Department of the Army, negotiated a settlement of this dispute
and submitted a Settlement Agreement and Order to the United States District
Court for the District of Colorado. The Agreement, which admits no wrong doing
by the Company and which was approved by the Court on November 6, 1996, requires
the payment to the United States of $6 million, of which $3 million was paid by
the Company's insurers and $1 million was paid by the Company. The additional
$2 million is to be paid by the Company in equal annual installments of $250,000
over eight years, beginning on October 1, 1997, together with interest
approximating the Treasury Bill rate. The Company has filed a lawsuit against
three insurers (which did not participate in the settlement) to recover at least
the $3 million paid and/or payable by the Company, plus punitive damages and
attorneys' fees. In July of 1997, the Company agreed in principle to a
settlement with one insurance company for approximately $420,000.
The Company's 1996 Annual Report describes a patent infringement suit which
was filed against Neoteric Cosmetics, Inc., the Company's wholly-owned
subsidiary which manufactures and sells skin care products under the name Alpha
Hydrox. There has been no change in the status of that suit from the date of
the Company's 1996 Annual Report to the date of the issuance of this report.
In June, 1997, the Company was served in a lawsuit brought by Leslee
Brooks, her husband and a related corporation. Other defendants include the
Company's wholly-owned subsidiary, Neoteric Cosmetics, Inc., Jerome J.
Goldstein, and the Goldstein Family Limited partnership. Leslee Brooks is a
daughter of Mr. and Mrs. Jerome J. Goldstein and a sister of Mark E. Goldstein.
The Goldstein Family Limited Partnership was established by Mr. and Mrs. Jerome
J. Goldstein in November, 1996 and received common stock of the Company
previously held by Mr. and Mrs. Goldstein. The plaintiffs claim that their
disclosure to the Company in 1991 of the concept of an alpha hydroxy acid based
product, as well as their assistance in developing the Company's Alpha Hydrox,
entitles the plaintiffs under a doctrine of unjust enrichment to compensation in
an amount equal to at least one-third of the income from the product since its
inception. The plaintiffs also request punitive damages. In related claims
against Jerome J. Goldstein individually, the plaintiffs allege a breach of a
fiduciary duty, fraudulent inducement to disclose the product concept and assist
the Company, and resulting damages at least equal to one-third of the income
from the product. The plaintiffs further claim that there should be a
"constructive trust" imposed on the stock transferred to the Goldstein Family
Limited Partnership.
The Company believes unequivocally that there was no agreement, either
written or oral, to provide any compensation to the plaintiffs beyond consulting
fees paid by the Company to Dr. Brooks, that there was no expectation of such
compensation, and that the compensation already paid to Dr. Brooks for
consulting services was fair and reasonable. The Company views the lawsuit as
groundless and is defending itself vigorously.
The Company has entered into an agreement for the sale of a building in
Fort Lauderdale, Florida, owned and previously used by Aquafilter Corporation.
The sales price for this building, which is carried on the Company's balance
sheet at approximately $712,900, is $2.1 million (before expenses of the sale).
The sale of the Aquafilter building is subject to a number of conditions but is
expected to be completed in 1997.
PART II. OTHER INFORMATION
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders
On May 7, 1997, the company held its 1997 Annual
Meeting of Shareholders. At that meeting, the
seven existing directors were nominated and re-
elected as directors of the Company. These seven
persons constitute all members of the Board of
Directors of the Company. These directors and the
votes for and withheld for each of them were as
follows:
For Withheld
Jerome J. Goldstein 8,361,780 400,093
Mark E. Goldstein 8,384,456 377,401
Carolyn J. Anderson 8,389,252 372,605
Barry Shepard 8,400,002 361,855
Dennis H. Field 8,403,302 358,555
James F. Keane 8,403,302 358,555
Michael J. Sheets 8,399,702 362,155
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits to this Report
(b) The following reports were filed by the Company on Form
8-K for the Second Quarter of 1997:
A Current Report on Form 8-K concerning an
event occurring on June 5, 1997 and reported
under Item 6, Other Events.
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.
August 5, 1997 BY: /s/ Mark E. Goldstein
Date Mark E. Goldstein, President
August 5, 1997 BY: /s/ Barry Shepard
Date Barry Shepard, Treasurer
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Scott's
Liquid Gold-Inc. 1997 Second Quarter 10-Q and is qualified in its entirety by
reference to such 10-Q filing.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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0
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