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
March 31, 2000
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 10,103,100 common shares, $0.10 par value, its only
class of common stock, issued and outstanding on April 26, 2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
<TABLE>
Ended March 31,
2000 1999
<S> <C> <C>
Revenues :
Net sales $7,628,900 $10,089,100
Other income 268,400 203,700
----------- -----------
7,897,300 10,292,800
Costs and Expenses:
Cost of sales 2,670,700 3,400,700
Advertising 3,330,200 4,707,100
Selling 1,815,800 1,943,300
General and administrative 1,578,500 1,259,900
Interest 306,300 301,100
----------- -----------
9,701,500 11,612,100
----------- -----------
Loss before income taxes (1,804,200) (1,319,300)
Income tax expense (benefit) (613,500) (488,100)
----------- -----------
Net loss $(1,190,700) $(831,200)
=========== ===========
Net loss per common
share (Note 3) $(0.12) $(0.08)
========== ===========
Diluted net loss per common share (Note 3)
Basic and diluted $(0.12) $(0.08)
=========== ===========
Weighted average number of
common shares outstanding 10,103,100 10,103,100
Diluted weighted average number of
common shares outstanding 10,103,100 10,103,100
</TABLE>
See Notes to Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31,1999
<TABLE>
ASSETS
2000 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,709,500 $5,008,600
Trade receivables (Note 2) 2,335,400 2,212,700
Other receivables 988,900 408,300
Inventories:
Finished goods 1,607,600 1,404,300
Raw materials 1,503,400 1,362,000
Prepaid expenses 171,100 216,000
Deferred tax asset 713,700 713,700
---------- ----------
Total current assets 12,029,600 11,325,600
Property, plant and equipment
at cost 27,116,300 27,108,100
Less accumulated
depreciation 9,692,000 9,477,300
---------- ----------
17,424,300 17,630,800
Other assets 1,900 18,700
---------- ----------
$29,455,800 $28,975,100
========== ===========
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
--------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable $3,038,500 $1,420,600
Accrued expenses 2,169,100 1,924,600
Current maturities of
long-term debt 1,000,000 1,000,000
---------- ----------
Total current liabilities 6,207,600 4,345,200
Long-term debt 5,674,900 5,865,900
Deferred income taxes 1,154,500 1,154,500
---------- ----------
13,037,000 11,365,600
---------- ----------
Shareholders' equity (Note 3):
Common stock 1,010,300 1,010,300
Capital in excess of par 4,829,500 4,829,500
Retained earnings 10,579,000 11,769,700
---------- ----------
Shareholders' equity 16,418,800 17,609,500
---------- ----------
$29,455,800 $28,975,100
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,190,700) $(831,200)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 231,500 356,200
Provision for doubtful accounts receivable 39,000 43,900
Change in assets and liabilities:
Accounts and other receivables (742,300) (1,185,300)
Inventory (344,700) (193,800)
Prepaid expenses 44,900 (54,800)
Accounts payable and accrued expenses 1,862,400 372,200
------------- -------------
Total adjustments to net loss 1,090,800 (661,600)
------------- -------------
Net Cash Provided (Used) by
Operating Activities (99,900) (1,492,800)
------------- -------------
Cash flows from investing activities:
Purchase of property,plant & equipment (8,200) (102,800)
------------- -------------
Net Cash Used by Investing Activities (8,200) (102,800)
------------- -------------
Cash flows from financing activities:
Proceeds from short-term borrowings - 110,500
Principal payments on short-term borrowings - (41,200)
Increase in bond sinking fund (191,000) (245,100)
------------- -------------
Net Cash Used by Financing Activities (191,000) (175,800)
------------- -------------
Net Decrease in Cash and Cash Equivalents (299,100) (1,771,400)
Cash and Cash Equivalents, beginning of period 5,008,600 5,421,400
------------- -------------
Cash and Cash Equivalents, end of period $4,709,500 $3,650,000
============= ============
Supplemental disclosures:
Cash paid during the period for:
Interest $309,800 $289,300
Income taxes $11,900 $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.
In December 1999, the SEC Staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." This Bulletin summarizes
certain of the Staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. The Company will adopt
this Bulletin in the quarter ended June 30, 2000. The Company is in the
process of determining what impact, if any, this guidance will have on its
revenue recognition.
Note 2.
Allowance for doubtful accounts at March 31,2000 and December 31, 1999
were $683,800 and $645,500 respectively.
Note 3.
Per share data was determined by using the weighted average number of common
shares outstanding. Common equivalent shares are considered only for diluted
earnings per share, unless considered anti-dilutive (as in 2000 and 1999). As
of March 31, 2000 and 1999, the Company had 835,400 and 925,500 stock options
outstanding respectively.
A reconciliation of the weighted average number of common shares outstanding
follows:
<TABLE>
<S> <C> <C>
2000 1999
Common shares outstanding, beginning of the year 10,103,100 10,103,100
Stock options exercised - -
---------- ----------
Weighted average number of common shares outstanding 10,103,100 10,103,100
========= =========
Diluted weighted average number of common
shares outstanding 10,103,100 10,103,100
========= =========
</TABLE>
At March 31, 2000,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 4.
The following provides information on the Company's segments for the three
months ended March 31, 2000 and 1999.
<TABLE>
2000 1999
Household Skin Care Household Skin Care
Products Products Products Products
<S> <C> <C> <C> <C>
Net sales to external customers $3,035,300 $4,593,600 $3,321,200 $6,767,900
Income (loss) before profit
sharing, bonuses and
income taxes $(244,700) $(1,559,500) $623,800 $(1,943,100)
The following is a reconciliation of segment information to consolidated
information for the three months ended 2000 and 1999:
</TABLE>
<TABLE>
2000 1999
<S> <C> <C>
Net sales to external customers $7,628,900 $10,089,100
Other income 268,400 203,700
--------- -----------
Consolidated revenues $7,897,300 $10,292,800
========= =========
Loss before profit sharing, bonuses
and income taxes for reportable
segments $(1,804,200) $(1,319,300)
Corporate activities - -
----------- -----------
Consolidated loss before
income taxes $(1,804,200) $(1,319,300)
========= =========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Results of Operations
Summary of Results as a Percentage of Net Sales
Year Ended
December 31, Three Months Ended
1999 March 31,
(Audited) 2000 1999
<TABLE>
<S> <C> <C> <C>
Net sales
Scott's Liquid Gold
household products 37.0% 39.8% 32.9%
Neoteric Cosmetics 63.0% 60.2% 67.1%
Total net sales 100.0% 100.0% 100.0%
Cost of sales 34.2% 35.0% 33.7%
Gross profit 65.8% 65.0% 66.3%
Other revenue 1.8% 3.5% 2.0%
67.6% 68.5% 68.3%
Operating expenses 66.3% 88.1% 78.4%
Interest 3.5% 4.0% 3.0%
69.8% 92.1% 81.4%
Income (loss) before
income taxes (2.2%) (23.6%) (13.1%)
</TABLE>
Three Months Ended March 31, 2000
Compared to Three Months Ended March 31,1999
Consolidated net sales for the first quarter of the current year were $7,628,900
vs. $10,089,100 for the first three months of 1999, a decrease of $2,460,200 or
about 24.4%. Average selling prices for the first three months of the year 2000
were up by $338,800 over those of the comparable period of 1999, prices of
household products being up by $239,000 (about 78% of which related to Liquid
Gold), while average selling prices of skin care products were up by $99,800.
During the first quarter of the new year, net sales of skin care products
accounted for 60.2% of consolidated net sales compared to 67.1% for the same
quarter of 1999. Net sales of these products for those periods were $4,593,600
in 2000 compared to $6,767,900 in 1999, a decrease of $2,174,300 or 32.1%.
Almost all of that sales decrease resulted from reduced unit sales of the
Company's line of alpha hydroxy acid products and its other skin care products,
including certain items introduced to the marketplace during the most recent two
years. The Company believes that its skin care sales were adversely affected by
the Company's emphasis on retinol products in allocating its advertising dollars
during 1999, and by intense competition from producers of similar or alternative
products, many of whom are considerably larger than Neoteric Cosmetics, Inc.,
the Company's skin care subsidiary. In the year 2000, the Company implemented a
revised approach to its television advertising, emphasizing short advertising
spots on various television channels. Some brands of alpha hydroxy acid skin
care products have experienced recent increases in sales of such products,
contrary to the Company's experience. The Company continues to address the
decrease in sales of products in the alpha hydroxy acid category of skin care
products through the introduction of new products which target "niche" market
opportunities. However, sales of such new products have not been sufficient to
offset declining shipments of alpha hydroxy acid-based products.
During the second half of 1998, the Company's skin care subsidiary introduced
two new lines of skin care products. The Belleza Latina line was designed for
the Hispanic market and Alpha Hydrox Retinol Night ResQ is a microsponge-
entrapped retinol product (developed and produced by another company) which
softens fine lines and wrinkles. During the first quarter of 1999, the Company
introduced Neoteric Diabetic Skin Care, a healing creme and a therapeutic
moisturizer developed by the Company to address skin conditions of diabetics
which is caused by poor blood circulation. More recently, the Company announced
its development of Alpha Hydrox Fade Creme, which was designed to lighten age
spots and skin discoloration caused by sun exposure and other factors, and Alpha
Hydrox Oxygenated Moisturizer, the Company's second skin care product based upon
a patented oxygenated oil technology. Sales of these two new products and of
the diabetic products have been satisfactory. The Company is considering the
near-term future discontinuance of the Belleza Latina product line.
Sales of household products for the first quarter of this year accounted for
39.8% of consolidated net sales compared to 32.9% for the same period of 1999.
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 quarter ended March 31, 2000, sales of household products were $3,035,300,
as compared to sales of $3,321,200 for the same quarter of 1999. Sales of
"Scott's Liquid Gold" for wood were down by $292,000, a decrease of 12.6%. We
believe this sales decrease to be the carryover effect of reduced advertising
of this product line during 1999. Sales of "Touch of Scent" were up by $6,100 or
1%. As noted in previous reports to shareholders, efforts in recent years to
revitalize Touch of Scent have produced less than satisfactory results.
Although the Company continues to seek products to replace or augment Touch of
Scent, particularly products which would increase the utilization of the
Company's manufacturing facilities, it believes that a consolidation of
purchasing activities by certain customers may help to improve Touch of Scent
sales during 2000.
On a consolidated basis, cost of goods sold was $2,670,700 during the first
three months of 2000 compared to $3,400,700 for the same period of 1999, a
decrease of $730,000 (21.5%, on a sales decrease of 24.4%). As a percentage of
consolidated net sales for the first quarter of 2000, cost of goods sold was
35.0% compared to 33.7% in 1999, an increase of 3.9% which was essentially due a
change in product mix and to spreading on-going (fixed) manufacturing costs over
lower unit production in the first quarter of 2000 than in 1999.
Operating expenses, comprised primarily of advertising, selling and
administrative expenses, increased 9.7% as a percentage of sales in the first
quarter of 2000, when compared to first quarter of 1999, largely because of the
decline in sales. The various components of operating expenses are discussed
below.
Advertising expenses for the first three months of 2000 were $3,330,200 compared
to $4,707,100 for the comparable quarter of 1999, a decrease of $1,376,900 or
29.3%. Advertising expenses applicable to household products increased by
$97,000 (21.8%) during the first quarter of 2000, whereas, advertising expenses
for Alpha Hydrox products decreased for the comparative three month period by
$1,473,900 (34.6%). With respect to advertising expenses for household
products, the amount expended to advertise Scott's Liquid Gold for wood
increased by $308,400, while expenditures to advertise Touch of Scent decreased
by $211,400. Advertising expenses during the second quarter of 2000 are expected
to decrease from those of the first quarter.
Irrespective of year to year changes in expenditures to advertise its products,
the Company recognizes that, whenever it is fiscally responsible to do so, it
must continue to advertise aggressively because the markets for skin care
products, furniture polish, and air fresheners are highly competitive and,
accordingly, the Company's brand names need to be kept in front of current and
potential consumers. Sustaining the Company's advertising program is highly
dependent upon sales of its skin care products.
Selling expenses for the first quarter of 2000 were $1,815,800 compared to
$1,943,300 for the comparable three months of 1999, a decrease of $127,500 or
6.6%. That decrease was comprised of a decrease of $125,200 in brokerage
commissions and freight (which vary with sales volume), a decrease in
depreciation and amortization of $114,400, all of which pertained to a license
agreement regarding the Company's retinol product which expired in August 1999,
and a net decrease in a variety of other expenses, none of which, by itself, was
material, of $4,200; all offset by an increase in promotion expenses of $52,500,
and a increase in couponing costs and slotting allowances of $63,800.
Administrative expenses for the first three months of 2000 were $1,578,500
compared to $1,259,900 for the comparable period of 1999, an increase of
$318,600 or 25.3%. Such increase was attributable to the recovery in 1999,
through insurance, of $550,000 in legal and professional fees which were
expensed in prior periods, offset by a decrease in salary and fringe benefits
cost of $190,000 and a net decrease in other administrative expenses, none of
which, by itself, was material, of $41,400.
Interest expense for the first quarter of 2000 was $306,300, approximately equal
to that of $301,100 for the comparable quarter of 1999. Other income for the
three months ended March 31, 2000 was $268,400 compared to $203,700 for the same
period of 1999, an increase of 31.8%. Other income essentially consists of
interest earned on the Company's cash reserves and cash deposits into its bond
sinking fund.
During the first quarter of 2000 and of 1999, expenditures for research and
development were not material (under 2% 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, 2000 interest payment was made in a timely
manner, as were all other required payments. There is no reason to believe that
the interest payment due on July 1, 2000 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 1999 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. The
entire debt is due July 1, 2001, and will need to be refinanced at that time.
During the first quarter of 2000, the Company's working capital decreased by
$1,158,400, and concomitantly, its current ratio (current assets divided by
current liabilities) decreased from 2.6:1 at December 31, 1999 to 1.9:1 at March
31, 2000. This decrease in working capital is attributable to a net loss in the
first three months of 2000 of $1,190,700, and a reduction in long-term debt of
$191,000, both offset by depreciation in excess of capital additions of $206,500
and a decrease in other assets of $16,800. The Company has cash and cash
equivalents of $4.7 million at March 31, 2000. Cash used by operating
activities for the three months ended March 31, 2000 amounted to $99,900 and the
Company spent $8,200 on new equipment. The Company does not anticipate any
significant capital expenditures during the remainder of the year. At March 31,
2000, the ratio of consolidated funded debt to consolidated net worth was .35:1.
At March 31, 2000, trade accounts receivable were $122,700 greater than at year
end, largely because sales in March of 2000 were greater than those of December
of 1999. At March 31, 2000, other receivables were $580,600 greater than at
December 31, 1999, because of an income tax refund receivable of approximately
$613,500. Accounts payable increased from the end of 1999 through March of 2000
by $1,617,900 primarily due to the existence of advertising payables at the end
of the quarter whereas none existed at the end of last year.
Legal Proceedings
The Company's Annual Reports from 1996 forward describe a patent infringement
suit filed against Neoteric Cosmetics, Inc. (and others) in May of 1996 in the
United States District Court for the District of Delaware by TriStrata
Technology, Inc. Neoteric Cosmetics is a wholly owned subsidiary of the Company
which manufactures and sells skin care products under the name Alpha Hydrox. The
plaintiff in the lawsuit, among other things, alleges that Neoteric Cosmetics
contributes to and/or induces infringement of patents owned by the plaintiff by
promoting and selling Neoteric skin care products for the purpose of visibly
reducing a human skin wrinkle and/or fine lines. In 1995, after the issuance of
one of the patents involved in the lawsuit, the Company changed its advertising
and packaging to remove references to wrinkles and fine lines. 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 continues to mount a vigorous defense in this case. The Company cannot
predict the potential outcome of this lawsuit or the ultimate impact on the
Company's financial position or results of operations.
Market Risks
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 Company's outstanding bonds
have a fixed interest rate. Further, the Company does not use foreign
currencies in its business. Currently, it receives payments for sales to
parties in foreign countries through letters of credit 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 its results of
operations, financial position or cash flows of the Company.
Year 2000 ("Y2K") Issues
The Company has previously reported on its progress in implementing a corporate-
wide program to address Year 2000 (also referred to as "Y2K") issues. The
Company experienced little or no difficulties with the advent of Year 2000,
either in its internal operations or in dealings with outside third parties.
While nothing is certain, the Company does not anticipate any significant
problems, and only minimal costs, in the coming year resulting from Y2K-
related issues.
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.
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.
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. The legal proceeding
described in that Item have been previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
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
There were no Reports were filed by the Company on Form 8-K
during the First Quarter of 2000.
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.
May 9, 2000 BY: _________________________________
Date Mark E. Goldstein
President and Chief Executive Officer
May 9, 2000 BY: _________________________________
Date Barry Shepard,
Treasurer and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,709,500
<SECURITIES> 0
<RECEIVABLES> 4,008,100
<ALLOWANCES> 863,800
<INVENTORY> 3,111,000
<CURRENT-ASSETS> 12,029,600
<PP&E> 27,116,300
<DEPRECIATION> 9,692,000
<TOTAL-ASSETS> 29,455,800
<CURRENT-LIABILITIES> 6,207,600
<BONDS> 12,000,000
0
0
<COMMON> 1,010,300
<OTHER-SE> 15,408,500
<TOTAL-LIABILITY-AND-EQUITY> 29,455,800
<SALES> 7,628,900
<TOTAL-REVENUES> 7,897,300
<CGS> 2,670,700
<TOTAL-COSTS> 9,395,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306,300
<INCOME-PRETAX> (1,804,200)
<INCOME-TAX> (613,500)
<INCOME-CONTINUING> (1,190,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,190,700)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
