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, 1998
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 ___ NO ____
The Registrant had 10,103,100 common shares, $0.10 par value, its only
class of common stock, issued and outstanding on October 30,1998.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Scott's Liquid Gold-Inc. & Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 9,240,200 $12,821,700 $31,816,300 $39,000,300
Other income 197,800 144,400 544,100 368,200
9,438,000 12,936,100 32,360,400 39,368,500
Costs and Expenses:
Cost of sales 3,292,000 3,365,300 10,426,100 10,837,700
Advertising 2,662,500 3,643,000 13,511,900 13,411,500
Selling 1,871,300 1,962,000 6,363,700 5,966,700
General and
Administrative 1,855,900 1,430,700 5,455,600 4,712,500
Interest 300,200 332,200 900,900 994,800
9,981,900 11,003,200 36,658,200 35,923,200
Income (loss) before
income taxes (543,900) 1,932,900 (4,297,800) 3,445,300
Income tax
expense (benefit) (201,300) 715,200 (1,590,300) 1,274,700
Net income (loss) $ (342,600) $1,217,700 $(2,707,500) 2,170,600
Net income (loss)
per common share
(Note 3) $ (0.03) $ 0.12 $ (0.27) $ 0.22
Diluted net income
(loss) per common
share (Note 3) $ (0.03) $ 0.12 $ (0.27) $ 0.21
Weighted average number
of common shares
outstanding 10,103,100 10,084,400 10,103,100 10,084,400
Diluted weighted average
number of
common shares
outstanding 10,103,100 10,244,200 10,103,100 10,244,200
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Scott's Liquid Gold-Inc. & Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months
Ended September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,707,500) $ 2,170,600
Adjustments to reconcile net income
(loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 891,600 849,800
Provision for doubtful accounts receivable 131,600 118,500
Compensation expense of employee stock plans - 81,300
Change in assets and liabilities,
net of discontinued operations:
Receivables 237,900 (1,686,700)
Inventories 10,100 36,400
Prepaid expenses 136,900 1,100
Accounts payable and accrued expenses 321,100 1,590,000
Total adjustments to net income (loss) 1,729,200 990,400
Net Cash Provided (Used) by Operating Activities (978,300) 3,161,000
Cash flows from investing activities:
Purchase of property, plant and equipment (179,200) (194,600)
Net change in assets of discontinued operations - 31,300
Net Cash Used by Investing Activities (179,200) (163,300)
Cash flows from financing activities:
Proceeds from exercise of stock options 22,700 5,400
Proceeds from short-term borrowings - 135,200
Principal payments on short-term borrowings - (121,700)
Principal payments on long-term borrowings (31,000) (33,000)
Increase in bond sinking fund (884,300) (909,700)
Dividends paid (1,009,200) -
Net Cash Used by Financing Activities (1,901,800) (923,800)
Net Increase (Decrease) in Cash
and Cash Equivalents (3,059,300) 2,073,900
Cash and Cash Equivalents, beginning of period 8,201,900 4,749,200
Cash and Cash Equivalents, end of period $5,142,600 $6,823,100
Supplemental disclosures:
Cash paid during the period for:
Interest $ 911,200 $ 919,300
Interest paid by discontinued operations $ - $ 30,200
Income taxes $1,719,600 $ 859,800
See Notes to Consolidated Financial Statements
</TABLE>
Scott's Liquid Gold-Inc. & Subsidiaries
Consolidated Balance Sheets
September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
ASSETS
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,142,600 $ 8,201,900
Trade receivables (Note 2) 3,194,800 2,610,100
Other receivables 1,650,700 2,604,900
Inventories:
Finished goods 1,643,500 1,828,700
Raw materials 2,179,300 2,004,200
Prepaid expenses 400,600 537,500
Deferred tax assets 540,400 540,400
Total current assets 14,751,900 18,327,700
Property, plant and
equipment at cost 27,184,200 27,005,000
Less accumulated
Depreciation 8,758,800 7,932,000
18,425,400 19,073,000
Other assets 126,700 191,500
$33,304,000 $37,592,200
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
LIABILITIES & SHAREHOLDERS' EQUITY
1998 1997
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,257,600 $ 1,681,100
Accrued expenses 1,720,000 3,975,400
Current maturities of
long-term debt 1,009,200 1,040,200
Total current liabilities 6,986,800 6,696,700
Long-term debt 7,093,500 7,977,800
Deferred income taxes 1,043,100 1,043,100
15,123,400 15,717,600
Shareholders' equity (Note 3):
Common stock 1,010,300 1,008,900
Capital in excess of par 4,829,500 4,808,200
Retained earnings 12,340,800 16,057,500
Shareholders' equity 18,180,600 21,874,600
$33,304,000 $37,592,200
</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 Allowance for doubtful accounts at September 30, 1998
and December 31, 1997 were $768,100 and $635,700 respectively.
Note 3 Per share data was determined by using the weighted
average number of common shares outstanding. Common equivalent
shares are considered for diluted earnings per share only, unless
they are anti-dilutive (as in 1998). 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.
At September 30, 1998 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.
A reconciliation of the weighted average number of common shares
outstanding follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Common shares outstanding,
beginning of the period 10,097,400 10,080,900 10,089,400 10,030,900
ESOP shares contributed - - - 50,000
Stock options exercised 5,700 3,500 13,700 3,500
Weighted average number of
common shares outstanding 10,103,100 10,084,400 10,103,100 10,084,400
Incremental common
equivalent shares - 159,800 - 159,800
Diluted weighted
average number
of common shares
outstanding 10,103,100 10,244,200 10,103,100 10,244,200
</TABLE>
Item 2. Scott's Liquid Gold-Inc. & Subsidiaries
Management Discussion and Analysis
Results of Operations
Summary of Results as a Percentage of Net Sales
<TABLE>
(Audited) Nine Months
Year Ended
Ended September 30,
31-Dec-97 1998 1997
<S> <C> <C> <C>
Net sales
Scott's Liquid Gold
household products 31.1% 35.8% 30.0%
Neoteric Cosmetics 68.9% 64.2% 70.0%
Total net sales 100.0% 100.0% 100.0%
Cost of sales 28.2% 32.8% 27.8%
Gross profit 71.8% 67.2% 72.2%
Other revenue 0.9% 1.7% 1.0%
72.7% 68.9% 73.2%
Operating expenses 53.1% 79.6% 62.5%
Interest 2.6% 2.8% 2.6%
55.7% 82.4% 65.1%
Income (loss)
before income taxes 17.0% (13.5%) 8.1%
</TABLE>
Nine Months Ended September 30, 1998
Compared to Nine Months Ended September 30, 1997
Consolidated net sales for the first three quarters of 1998 were $31,816,300 vs.
$39,000,300 for the first nine months of 1997, a decrease of $7,184,000 or about
18.4%. Average selling prices for the first nine months of 1998 were lower than
those of the comparable period of 1997 by $2,368,000, prices of household
chemical products being down by $1,287,500 (almost all of which related to Touch
of Scent), while average selling prices of cosmetics products were down by
$1,080,500.
During the first nine months of 1998, net sales of cosmetics products accounted
for 64.2% of consolidated net sales compared to 70% for the same three quarters
of 1997. Net sales of these products for those periods were $20,435,500 in 1998
compared to $27,285,900 in 1997, a decrease of $6,850,400 or 25.1%. About 16.6%
of the sales decrease resulted from reduced average selling prices attributable
to promotions and product mix), and the balance (83.4%) was the result of a
decrease in the number of units sold. Over 95% of the $6,850,400 decrease in the
Company's net sales was attributable to a reduction in sales of skincare
products. Information available to the Company indicates that most producers of
alpha hydroxy acid skincare products have experienced decreases during 1998 in
sales of those products. On average, however, the industry-wide decrease appears
to be more moderate than that experienced by the Company. During the third
quarter of 1998, the Company's subsidiary, Neoteric Cosmetics, Inc., introduced
two new lines of skincare products. One, the Belleza Latina line, is designed
for the Hispanic market, and the second, Alpha Hydrox Retinol Night ResQ, is a
retinol-based product manufactured for Neoteric Cosmetics by a third party. The
foregoing are the only new products introduced thus far during 1998. The planned
introduction of a line of products designed to aid persons with diabetes to cope
with cuts, bruises and dry skin problems is now scheduled to occur in late 1998
with delivery promised not earlier than February of 1999.
Sales of household chemical products for the first three quarters of 1998
accounted for 35.8% of consolidated net sales compared to 30% for the same
period of 1997. 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, 1998, sales of household
chemical products were $11,380,800 compared to $11,714,400 for the same nine
months of 1997, a decrease of only $333,600. However, sales of "Scott's Liquid
Gold" for wood were up by $1,225,500, an increase of just over 19%, a result of
increased television advertising during the first half of 1998 compared to 1997,
while sales of "Touch of Scent" were down by $1,559,100 (29%), almost entirely
due to reduced average selling prices. As noted in previous reports to
shareholders, the result of efforts to revitalize Touch of Scent during 1997
through the introduction of a new line of highly decorative fixtures was less
than satisfactory and, despite the Company's more recent offers of price
incentives for its Touch of Scent products, the downtrend in dollar sales of
this product line has continued in 1998. Nonetheless, due to the aforementioned
price incentives, case sales of Touch of Scent for the first nine months of 1998
decreased by only 6% compared to those of the same period last year.
On a consolidated basis, cost of goods sold was $10,426,100 during the first
nine months of 1998 compared to $10,837,700 for the same period of 1997, a
decrease of $411,600 (less than 4.0%, but on a decrease in sales of 18.4%). As a
percentage of consolidated net sales for the first three quarters of 1998, cost
of goods sold was 32.8% compared to 27.8% in 1997. But for the decrease in
average selling prices, consolidated cost of goods sold for the first nine
months of 1998 would have been 30.5% instead of 32.8%. The balance of the cost
increase was essentially due to changes in the mix of products sold, household
chemical products being more costly to produce relative to their selling prices
than the Company's skincare products; and to the need to allocate on-going
(fixed) manufacturing costs to lower unit production in 1998 than in 1997.
Advertising expenses for the first nine months of 1998 were slightly higher than
those for the comparable three quarters of 1997, $13,511,900 compared to
$13,411,500. However, there were differences. Advertising expenses applicable to
household chemicals decreased by $1,124,400 (23.9%) during the first nine months
of 1998, whereas, advertising expenses for Alpha Hydrox products increased for
the comparative nine month periods by $1,224,800 (14.1%). With respect to
advertising expenses for household chemicals, the amount expended to advertise
Scott's Liquid Gold for wood increased by $1,437,400, while expenditures to
advertise Touch of Scent decreased by $2,561,800. During the last quarter of
1998, the Company intends to hold advertising expenditures to a minimum.
Regardless of year to year or quarter to quarter changes in such expenditures,
the Company has made clear in previous reports 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 markets for skincare products,
furniture polish, and air fresheners are highly competitive and, accordingly,
the Company's brand names, particularly Alpha Hydrox and Scott's Liquid Gold,
need to be kept in front of the consuming public; and (ii) television
advertising currently is the best option available to the Company in its on-
going attempt to increase the sales levels of its cosmetic and household
chemical products. Sustaining the Company's advertising program is highly
dependent upon sales of its skincare products.
Selling expenses for the first three quarters of 1998 were $6,363,700 compared
to $5,966,700 for the comparable nine months of 1997, an increase of $397,000 or
6.7%. That increase was comprised of increases in the cost of promotional
merchandise (up $210,300), in couponing costs and slotting allowances (up
$184,200), and in salaries and fringe benefits (up $144,300); and by various
other net increases, none of which, by itself, was material, of $181,100; all
offset by a decrease in brokerage commissions and freight out of $322,900.
Administrative expenses for the first nine months of 1998 were $5,455,600
compared to $4,712,500 for the comparable period of 1997, an increase of
$743,100 or 15.8%. Such increase was attributable to litigation which caused
legal and professional fees to increase by $845,300, plus net increases of
$45,500 in various other expenses, none of which, standing alone was
significant; both offset by a decrease in salaries, wages and fringe benefits
aggregating $147,700. Legal and professional fees amounted to almost $1.1
million for the first nine months of 1998.
Interest expense for the first nine months of 1998 was lower than that of the
comparable nine months of 1997 ($900,900 vs. $994,800) by $93,900, a decrease of
9.4%, which essentially was due to an indebtedness at September 30, 1997 of $2
million to the U.S. Army which was repaid at the end of 1997. Other income
increased by $175,900 during the nine months ended September 30, 1998 compared
to the same period of 1997, an increase of 47.8%, due to interest earned on the
Company's cash reserves and a sinking fund for the Company's outstanding bonds.
During the first nine months of 1998 and 1997, expenditures for research and
development were not material (respectively, under 2% and 1% of revenues).
Three Months Ended September 30, 1998
Compared to Three Months Ended September 30, 1997
Consolidated net sales for the quarter ended September 30, 1998 were $9,240,200
vs. $12,821,700 for the three months ended September 30, 1997, a decrease of
$3,581,500 or about 28%. Average selling prices for the third quarter of 1998
were lower than those of the same quarter of 1997 by $582,900, prices of
household chemical products being down by $289,900 (all of which related to
Touch of Scent), while average selling prices of cosmetics products were down by
$293,000.
During the third quarter of 1998, net sales of cosmetics products accounted for
64.6% of consolidated net sales compared to 73.7% for the third quarter of 1997.
Net sales of these products for those periods were $5,972,800 in 1998 (of which
about 20% derived from sales of Alpha Hydrox Retinol Night ResQ, the Company's
new retinol product) compared to $9,450,600 in 1997, a decrease of $3,477,800 or
36.8%. A small portion (8.7%) of the sales decrease resulted from reduced
average selling prices, primarily attributable to promotions and close-outs, and
the balance (91.3%) was the result of a decrease in the number of units sold,
largely with regard to the Company's basic skincare products, alpha hydroxy acid
creams, lotions and face wash. The Company notes that the foregoing comparisons
pit a mediocre third quarter in 1998 against an exceptional third quarter for
skincare products in 1997.
Sales of household chemical products for the third quarter of 1998 accounted for
35.4% of consolidated net sales compared to 26.3% for the same quarter of 1997.
These products are comprised of "Scott's Liquid Gold" for wood, and "Touch of
Scent." During the three months ended September 30, 1998, sales of household
chemical products were $3,267,400 compared to $3,371,100 for the third quarter
of 1997, a decrease of $103,700 or 3.1%. Sales of "Scott's Liquid Gold" for wood
were up by $97,600, an increase of 5.3%, a result of increased television
advertising, while sales of "Touch of Scent" were down by $201,300 (13.2%),
principally due to reduced average selling prices. See discussion of the nine
months ended September 30, 1998 and 1997 for discussions of declines in Touch of
Scent sales.
On a consolidated basis, cost of goods sold was $3,292,000 during the third
quarter of 1998 compared to $3,635,300 for the same quarter of 1997, a decrease
of $343,300 (9.4%) on a decrease in sales of 27.9%. As a percentage of
consolidated net sales for the third quarter of 1998, cost of goods sold was
35.6% compared to 28.4% in 1997, an increase of about 25%. But for the decrease
in average selling prices, cost of goods sold for the third quarter of 1998
would have been 33.5% instead of 35.6%. The balance of the cost increase was
essentially due to changes in the mix of products sold, household chemical
products being more costly to produce relative to their selling prices than the
Company's skincare products and to on-going (fixed) manufacturing costs.
Advertising expenses for the third quarter of 1998 were $2,662,500 (including
introductory advertising of the Company's new retinol product) compared to
$3,643,000 for the comparable three months of 1997, a decrease of $980,500 or
26.9%. Advertising expenses applicable to household chemicals decreased during
the third quarter of 1998 compared to the third quarter of 1997 by $1,017,800,
or 90.3%. Advertising expenses for Liquid Gold were down by $828,500 and
expenses to advertise Touch of Scent were lower by $189,300. Advertising
expenses for Alpha Hydrox were $37,300 greater during the quarter ended
September 30, 1998 than during the comparable quarter of 1997. See discussion of
the nine months ended September 30, 1998 and 1997 for the Company's philosophy
regarding advertising.
Selling expenses for the third quarter of 1998 were $1,871,300 compared to
$1,962,000 for the comparable quarter of 1997, a decrease of $90,700 or 4.6%.
Administrative expenses for the third quarter of 1998 were $1,855,900 compared
to $1,430,700 for the third quarter of 1997, an increase of $425,200 or 29.7%.
That increase resulted from an increase in legal and professional fees of
$622,700, an increase in miscellaneous expenses of $11,800 and a decrease of
$209,300 in salaries and fringe benefits.
Interest expense for the third quarter of 1998 was lower than that of the
comparable quarter of 1997 by $32,000 ($300,200 vs. $332,200), a decrease of
9.6%, which essentially was due to a debt of $2 million then owed to the U.S.
Army which was not repaid until the end of 1997. Other income increased by
$83,400 during the quarter ended September 30, 1998 compared to the same quarter
of 1997, an increase of 72.9%, due to interest earned on the Company's cash
reserves and sinking fund.
During the third quarter of 1998 and 1997, expenditures for research and
development were not material (respectively, under 2% and 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. Interest on the $12 million
bond issue is payable semi-annually beginning on January 1, 1995 at the rate of
10% per annum. (The January 1 and July 1, 1998 interest payments were made in a
timely manner, as were all other required payments. There is no reason to
believe that the interest payment due on January 1, 1999 will not be made in
conformity with the Bond Indenture.) A sinking fund payment of $1 million is
required annually. Sinking fund payments for 1995 through 1997 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.
During the first three quarters of 1998, the Company's working capital decreased
by $3,865,900, and concomitantly, its current ratio (current assets divided by
current liabilities) decreased from 2.7:1 at December 31, 1997 to 2.1:1 at
September 30, 1998. This decrease in working capital is attributable to a net
loss in the first nine months of $2,707,500, a reduction in long-term debt of
$884,300, and a dividend payment, based upon the Company's 1997 performance, of
$1,009,200 (equal to $0.10 a share, paid in March, 1998); all offset by
depreciation in excess of capital additions of $647,600, a decrease in other
assets of $64,800 and exercises of stock options of $22,700. At September 30,
1998, the ratio of consolidated funded debt to consolidated net worth was .39:1.
At September 30, 1998, trade accounts receivable were $584,700 greater than at
year end, partially because sales in September of 1998 were greater than those
of December of 1997 and partially because of an elongation during 1998 of the
Company's collection period. The Company's average collection period had
remained at under 30 days for a long time, but has now crept up to slightly over
32 days. The Company believes that an increased number of customers have begun
to treat the date of their receipt of goods as if it were the Company's invoice
date, whereas the Company has always invoiced its customers on the date of
shipment.
Over 95% of the decrease of $954,200 in other receivables during the nine months
ended September 30, 1998 relates to a previous settlement of the Company's
environmental lawsuit with the United States Army, offset by refundable income
taxes based upon the Company's net loss during the same period. Accounts payable
increased during the nine months ended September 30, 1998 by $2,576,500 largely
due to unpaid advertising at the end of the period whereas there was no unpaid
advertising at the end of last year. Accrued liabilities decreased by $2,255,400
during the nine months ended September 30, 1998 primarily due to the payment of
1997 income taxes and accrued profit sharing and bonus expenses.
Legal Proceedings
The Company's 1997 Annual Report describes a patent infringement suit which was
filed in May of 1996 in the United States District Court for the District of
Delaware against Neoteric Cosmetics, Inc. (and others) by TriStrata Technology,
Inc. Neoteric Cosmetics is the Company's wholly owned subsidiary which
manufactures and sells skincare products under the name Alpha Hydrox. Certain
defendants in this lawsuit, including the Company, are cooperating with one
another in matters of common interest to defend against this action. The Company
expects that, in or about the fourth quarter of this year, the Court will
determine whether to adopt the defendants' interpretations or those of the
plaintiff regarding the scope of the claims of the patents involved in the case.
On July 24, 1998, a jury unanimously found in favor of Scott's Liquid Gold-Inc.,
Neoteric Cosmetics, Inc., and the Company's Chairman, Jerome J. Goldstein, in a
lawsuit filed in the United States District Court for the District of Colorado
by Leslee Brooks (a daughter of Mr. Goldstein), her husband, Dr. Norman Brooks
(a California dermatologist), and a related corporation. The jury found that
there was no liability as to each claim of the plaintiffs. The plaintiffs asked
the jury to award $21 million at the trial. The plaintiffs have filed an appeal
in this case. As described in the Company's 1997 Annual Report, this lawsuit
involves a claim for compensation by the Brooks relating to Alpha Hydrox
products.
Year 2000 ("Y2K") Issues
The Company has in process a corporate-wide program to address Year 2000 (also
known as "Y2K") issues.
With respect to its central computer, changes to the Company's programs over the
last several years have fully prepared the Company and its subsidiaries to
process data in the forthcoming millenium. With regard to PC's (personal
computers) used throughout the Company for various purposes, the Company's
central computer is armed with emulation software so that a PC used to enter any
information into that computer is treated as if it were a "dumb" terminal.
Accordingly, whether or not the PC is Y2K compliant is moot.
The Company presently utilizes software for its UPS/RPS systems which is not Y2K
compliant but which must be made so by October of 1999. This software, which
enables UPS/RPS shipments to interface with the Company's central computer (as
other shipments do through the use of scan guns), is vital to the production of
manifests, labels, and the assignment of tracking numbers. In that compliance
will basically involve the installation of purchased software, the Company
anticipates no problems in meeting the compliance deadline. With regard to
operating systems of non-computer related equipment, the Company believes that
no such system which may not be Y2K compliant will have a material effect on the
Company's operations.
Accordingly, any Y2K issues which may affect the Company will be caused either
(1) by a lack of preparedness on the part of companies with whom the Company
does business, including customers, or (2) by some unforeseen circumstance which
prevents the Company from completing, prior to January 1, 2000, its part of
Electronic Data Interchange ("EDI") re-documentation as is necessary to maintain
existing connections with customers and to establish future EDI connections with
other customers. Approximately 80% of dollar sales volume derives from orders
sent to the Company via EDI. The Company considers this scenario set forth in
(2) above to be unlikely in that the Company already has on hand the additional
manpower capable of performing the necessary documentation functions. The
Company expects the cooperation of its customers in completing all required re-
documentation.
With respect to non-compliance referred to in (1) above, the Company has
developed software to convert a non-compliant EDI version submitted by a
customer after 1/1/2000 by re-mapping it to comply with the new (4010) version,
and, thereafter, supplying whatever special documentation may be required by the
Company's customer.
It is possible that a customer's accounts payable records may become disordered,
date-wise, if the customer has not readied itself for the year 2000. This could
result in late payments to the Company and, although not expected, affect cash
flow.
In addition to EDI customers, the Company has contacted third parties with whom
it does business to request assurances that they are or will be prepared for
Y2K. Such third parties includes about 200 vendors (all of whom have been
contacted) from whom the Company purchases raw materials, supplies, equipment,
and repair parts. To date, approximately half of these vendors have responded,
the great preponderance in the affirmative. It is not known whether all vendors
contacted by the Company will respond, or, if they do, whether they will offer
assurances of being prepared for Y2K. The Company does not consider vendor
invoicing a problem for the Company even if such invoicing does not recognize
the year 2000. However, the Company is concerned that non-compliance with Y2K by
the Company's suppliers and by their suppliers may result in late or non-
deliveries to the Company which, in turn, would result in late or non-deliveries
to the Company's customers. Because the supply chain may be long, the Company
cannot be certain that Y2K will pose no problem for the Company.
The Company has also contacted its service suppliers - banks, Transfer Agent,
insurance brokers and carriers, 401K advisors, administrator, and stock brokers,
etc., as well as public utilities, communications suppliers, etc. - with regard
to their readiness in respect of the forthcoming millenium. The Company has not
completed its survey in this area, but is confident that the year 2000 will pose
no special problems for these service providers.
Excluding an upgrade of the Company's central computer which would have taken
place as a matter of routine, the Company's incremental costs for handling Y2K
issues have been approximately $80,000 in 1998 and will probably exceed that
amount in 1999, especially if the services of other EDP personnel are required
to address such issues next year.
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; 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 pending litigation; the loss of any
executive officer; and other matters discussed in the Company's periodic filings
with the Securities and Exchange Commission.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Please see "Legal Proceedings" in Item 2 of Part I of this Report which
information is incorporated herein by this reference. These two legal
proceedings have been previously reported in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 and in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998
and June 30, 1998.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
The following Reports were filed by the Company on Form 8-K
during the Third Quarter of 1998:
a. A current report on Form 8-K dated July 15, 1998 reporting an
event under Item 5, Other Events.
b. A current report on Form 8-K dated September 14, 1998 reporting
an event under Item 5, 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.
November 5, 1998 BY: /s/ Mark E. Goldstein, President
Date
November 5, 1998 BY: /s/ Barry Shepard, Treasurer
Date Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Scott's
Liquid Gold-Inc. 1998 Third Quarter 10-Q and is qualified in its entirety by
reference to such 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,142,600
<SECURITIES> 0
<RECEIVABLES> 5,613,600
<ALLOWANCES> 768,100
<INVENTORY> 3,822,800
<CURRENT-ASSETS> 14,751,900
<PP&E> 27,184,200
<DEPRECIATION> 8,758,800
<TOTAL-ASSETS> 33,304,000
<CURRENT-LIABILITIES> 6,986,800
<BONDS> 12,000,000
0
0
<COMMON> 1,010,300
<OTHER-SE> 17,170,300
<TOTAL-LIABILITY-AND-EQUITY> 33,304,000
<SALES> 9,240,200
<TOTAL-REVENUES> 9,438,000
<CGS> 3,292,000
<TOTAL-COSTS> 9,681,700
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 300,200
<INCOME-PRETAX> (543,900)
<INCOME-TAX> (201,300)
<INCOME-CONTINUING> (342,600)
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<EXTRAORDINARY> 0
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<NET-INCOME> (342,600)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
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