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
June 30, 2006
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 check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in
Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12-B-2 of the Exchange Act.
Yes [ ] No [X]
As of June 30, 2006, the Registrant had 10,503,000 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 Ended Six Months Ended
------------------------- -------------------------
June 30, June 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $ 4,133,300 $ 5,724,800 $ 8,289,100 $11,247,300
Operating costs
and expenses:
Cost of sales 2,567,400 3,131,400 4,810,900 6,238,900
Advertising 107,600 202,000 701,300 478,500
Selling 1,410,200 1,491,000 2,835,700 2,966,300
General and
administrative 863,200 999,200 1,775,300 2,022,000
----------- ----------- ----------- -----------
4,948,400 5,823,600 10,123,200 11,705,700
----------- ----------- ----------- -----------
Loss from operations (815,100) (98,800) (1,834,100) (458,400)
Interest income 14,300 7,800 26,900 20,400
Interest expense (59,100) (47,500) (100,400) (95,400)
----------- ----------- ----------- -----------
(859,900) (138,500) (1,907,600) (533,400)
Income tax expense
(benefit) - - - -
----------- ----------- ----------- -----------
Net loss $ (859,900) $ (138,500) $(1,907,600) $ (533,400)
=========== =========== =========== ===========
Net loss per common
share (Note 3):
Basic and Diluted $ (0.08) $ (0.01) $ (0.18) $ (0.05)
=========== =========== =========== ===========
Weighted average shares
outstanding:
Basic and Diluted 10,503,000 10,471,000 10,503,000 10,471,000
=========== =========== =========== ===========
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2006 2005
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,980,000 $ 2,260,700
Investment securities 50,700 51,900
Trade receivables, net of allowance
for doubtful accounts of $62,000 940,500 1,633,100
Other receivables 56,900 55,300
Inventories 3,706,200 3,184,600
Prepaid expenses 622,300 326,900
----------- -----------
Total current assets 9,356,600 7,512,500
Property, plant and equipment, net 13,451,700 13,725,200
Other assets 61,800 11,800
----------- -----------
TOTAL ASSETS $22,870,100 $21,249,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 420,000 $ 570,000
Accounts payable 2,077,700 1,745,700
Accrued payroll and benefits 1,095,900 939,400
Other accrued expenses 383,300 454,600
Current maturities of long-term debt 184,000 956,000
----------- -----------
Total current liabilities 4,160,900 4,665,700
Long-term debt, net of current maturities 4,972,600 938,400
----------- -----------
9,133,500 5,604,100
Commitments and contingencies
Shareholders' equity:
Common stock; $.10 par value, authorized
50,000,000 shares; issued and
outstanding 10,503,000 shares 1,050,300 1,050,300
Capital in excess of par 4,994,200 4,994,200
Accumulated comprehensive income 700 1,900
Retained earnings 7,691,400 9,599,000
----------- -----------
Shareholders' equity 13,736,600 15,645,400
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $22,870,100 $21,249,500
=========== ===========
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
--------------------------
2006 2005
----------- -----------
Cash flows from operating activities:
Net loss $(1,907,600) $ (533,400)
----------- -----------
Adjustments to reconcile net loss to net
cash provided(used) by operating activities:
Depreciation and amortization 353,300 371,300
Stock issued to ESOP 48,700 -
Gain on disposal of assets (8,800) -
Changes in assets and liabilities:
Trade and other receivables, net 691,100 755,900
Inventories (521,600) (3,039,100)
Prepaid expenses and other assets (292,500) 58,800
Accounts payable and
accrued expenses 417,200 1,065,800
----------- -----------
Total adjustments to net loss 687,400 (787,300)
----------- -----------
Net Cash Used by
Operating Activities (1,220,200) (1,320,700)
----------- -----------
Cash flows from investing activities:
Purchase of investment securities - (248,400)
Proceeds from sale or maturity of
investment securities - 250,000
Proceeds from disposal of assets 8,800 -
Purchase of property, plant & equipment (68,200) (15,000)
----------- -----------
Net Cash Used by Investing Activities (59,400) (13,400)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowings 5,156,600 -
Short-term borrowings (payments), net (150,000) 70,000
Purchase of stock for contribution to ESOP (48,700) -
Principal payments on long-term borrowings (1,894,400) (452,800)
Loan origination fees and other costs (64,600) -
----------- -----------
Net Cash Provided (Used) by
Financing Activities 2,998,900 (382,800)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,719,300 (1,716,900)
Cash and Cash Equivalents, beginning of period 2,260,700 3,354,600
----------- -----------
Cash and Cash Equivalents, end of period $ 3,980,000 $ 1,637,700
=========== ===========
Supplemental disclosures:
Cash paid during period for:
Interest $ 101,500 $ 93,000
=========== ===========
Income taxes $ 1,100 $ 600
=========== ===========
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, "we" or "our") manufacture and market quality
household and skin care products. Since the first quarter of 2001, we
have acted as a distributor in the United States of beauty care products
contained in individual sachets and manufactured by Montagne Jeunesse.
Our business is comprised of two segments, household products and skin
care products.
(b) Principles of Consolidation
Our consolidated financial statements include our accounts and
those of our 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, the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
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
We consider all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
(e) Investments in Marketable Securities
We account 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 we classify investments in marketable securities
according to management's intended use of such investments. We invest
our excess cash and have 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. We consider all
investments as available for use in our current operations and, therefore,
classify 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 June 30, 2006, are scheduled
to mature within one year.
(f) Inventories
Inventories consist of raw materials and finished goods and are
stated at the lower of cost (first-in, first-out method) or market. We
record a reserve for slow moving and obsolete products and raw materials.
We estimate reserves for slow moving and obsolete products and raw materials
based upon historical and anticipated sales.
Inventories were comprised of the following at:
June 30, 2006 December 31, 2005
------------- -----------------
Finished goods $ 2,533,700 $ 2,149,100
Raw materials 1,481,500 1,344,500
Inventory valuation (309,000) (309,000)
----------- -----------
$ 3,706,200 $ 3,184,600
=========== ===========
(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.
Building structures and building improvements are estimated to have useful
lives of 35 to 45 years and 3 to 20 years, respectively. Production
equipment and production support equipment are estimated to have useful
lives of 15 to 20 years and 3 to 10 years, respectively. Office furniture
and office machines are estimated to have useful lives 10 to 20 and 3 to 5
years, respectively. Carpeting, drapes and company vehicles are estimated
to have useful lives of 5 to 10 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 us to concentrations
of credit risk include cash and cash equivalents, investments in marketable
securities, and trade receivables. We maintain our cash balances in the
form of bank demand deposits with financial institutions that management
believes are creditworthy. We establish an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information. We have no significant financial
instruments with off-balance sheet risk of accounting loss, such as
foreign exchange contracts, option contracts or other foreign currency
hedging arrangements.
The recorded amounts for cash and cash equivalents, 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. Our long-term debt bears interest at a fixed rate that
adjusts annually on the anniversary date to the then prime rate. The
carrying value of long-term debt approximates fair value as of June 30,
2006 and December 31, 2005.
(i) Long-Lived Assets
We account 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
We account 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 income tax
bases. A valuation allowance is provided when it is more likely than not
that some portion or all of a deferred tax asset will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the period in which related temporary
differences become deductible. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
(k) Revenue Recognition
Revenue is generally 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 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 June 30, 2006 and December 31,
2005 approximately $844,000 and $794,000, respectively, had been reserved
as a reduction of accounts receivable, and approximately $50,000 and
$35,000, respectively, had been reserved as current liabilities. Co-op
advertising, marketing funds, slotting fees and coupons are deducted
from gross sales and total $1,152,700 and $855,500 for the six months
ended June 30, 2006 and June 30, 2005, respectively.
(l) Advertising Costs
We expense advertising costs as incurred.
(m) Stock-based Compensation
At June 30, 2006, we had four stock-based employee compensation
plans. During the first quarter of fiscal 2006, we adopted the provisions
of, and account for stock-based compensation in accordance with, the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards No. 123-revised 2004 ("SFAS 123R"), "Share-Based
Payment" which replaced Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation" and supersedes APB
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
Under the fair value recognition provisions of this statement, stock-based
compensation cost is measured at the grant date based on the fair value
of the award and is recognized as expense on a straight-line basis over
the requisite service period, which is the vesting period. We elected
the modified-prospective method, under which prior periods are not
revised for comparative purposes. The valuation provisions of SFAS 123R
apply to new grants and to grants that were outstanding as of the
effective date and are subsequently modified. No grants have occurred
subsequent to the adoption of SFAS 123R and all outstanding options
were fully vested as of December 31, 2005.
Prior to January 1, 2006, we accounted for the plans described above
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
No stock-based employee compensation cost is reflected in net income, as
all options granted under those plans had an exercise price not less than
the market value of the underlying common stock on the date of grant.
The effect on net income and earnings per share if we had applied the fair
value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation for the
three to six months ended June 30, 2005 was as follows:
We granted 455,000 options for shares of our common stock during
the six months ended June 30, 2005 with an average exercise price equal
to $0.55. Had compensation cost been recorded based on the fair value of
options granted by us, our pro-forma net loss and net loss per share would
have been as follows:
Three Months Ended Six Months Ended
June 30, 2005 June 30,2005
------------------------ ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ------------ ----------
Net loss $ (138,500) $ (227,600) $ (533,400) $ (624,500)
Basic loss per share $ (0.01) $ (0.02) $ (0.05) $ (0.06)
Diluted loss per share $ (0.01) $ (0.02) $ (0.05) $ (0.06)
The fair value of options granted has been estimated as of the date of
grant using the following assumptions as of:
Three Months Ended Six Months Ended
June 30, 2005 June 30,2005
------------------------ ------------------------
Dividend rate $ - $ -
Expected volatility 65% 65%
Risk-free interest rate 3.80% 3.80%
Expected life (in years) 4.5 4.5
(n) Comprehensive Income
We follow 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 our net loss to its total
comprehensive loss for the three months and six months ended June 30, 2006
and 2005:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
2006 2005 2006 2005
----------- ----------- ------------ -----------
Net loss $ (859,900) $ (138,500) $(1,907,600) $ (533,400)
Unrealized gain
(loss) on investment
securities (700) 700 (1,200) (800)
----------- ----------- ------------ -----------
Comprehensive loss $ (860,600) $(137,800) $(1,908,800) $ (534,200)
=========== =========== ============ ===========
(o) Operating Costs and Expenses Classification
Cost of sales includes costs associated with manufacturing and
distribution including labor, materials, freight-in, purchasing and
receiving, quality control, internal transfer costs, repairs, maintenance
and other indirect costs, as well as warehousing and distribution costs.
We classify shipping and handling costs comprised primarily of freight-out
and nominal outside warehousing costs as a component of selling expense on
the accompanying Consolidated Statement of Operations. Shipping and
handling costs totaled $737,500 and $760,100 for the six months ended
June 30, 2006 and 2005, respectively.
Selling expenses consist primarily of shipping and handling costs,
wages and benefits for sales and sales support personnel, travel,
brokerage commissions, promotional costs, as well as other indirect costs.
General and administrative expenses consist primarily of wages
and benefits associated with management and administrative support
departments, business insurance costs, professional fees, office
facility related expenses, and other general support costs.
(p) Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statements
of Financial Accounting Standards No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140"
and SFAS No. 156, "Accounting for Servicing of Financial Assets-an
amendment of FASB Statement No. 140" but they will not have a relationship
to the operations of the Company. Therefore a description and its impact
for each on the Company's operations and financial position have not been
disclosed.
In May 2005, the FASB issued Statement of Financial Accounting
Standard No. 154, "Accounting Changes and Error Corrections
(SFAS No. 154)." This statement replaces APB Opinion No. 20, "Accounting
Changes", and FASB Statement No. 3, "Reporting Accounting Changes in
Interim Financial Statements", and changes the requirements for the
accounting for and reporting of a change in accounting principle.
SFAS No. 154 applies to all voluntary changes in accounting principle.
Opinion No. 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income for the
period of the change the cumulative effect of changing to the new
accounting principle. SFAS No. 154 requires retrospective application
to prior periods' financial statements of a change in accounting
principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change.
When it is impracticable to determine the cumulative effect of applying
a change in accounting principle to all prior periods, SFAS No. 154
requires that the new accounting principle be applied as if it were
adopted prospectively from the earliest date practicable. SFAS No. 154
also requires that a change in depreciation, amortization, or depletion
method for long-lived, nonfinancial assets be accounted for as a change
in accounting estimate affected by a change in accounting principle.
SFAS No. 154 is effective in fiscal years beginning after December 15,
2005. Adoption of this statement did not have a material impact our
results of operations or financial position.
In November 2004, the FASB issued Statement of Financial Accounting
Standards No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4"
(SFAS No. 151). The provisions of SFAS No. 151 are intended to eliminate
narrow differences between the existing accounting standards of the FASB
and the International Accounting Standards Board (IASB) related to
inventory costs, in particular, the treatment of abnormal idle facility
expense, freight, handling costs, and spoilage. SFAS No. 151 requires
that theses costs be recognized as current period charges regardless of
the extent to which they are considered abnormal. The provisions of
SFAS No. 151 are effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. The adoption of SFAS No. 151 did
not have a material impact on our operations, financial position or
liquidity.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29" ("SFAS No. 153"). This Statement amends APB Opinion
No. 29 to permit the exchange of nonmonetary assets to be recorded on a
carryover basis when the nonmonetary assets do not have commercial
substance. This is an exception to the basic measurement principal of
measuring a nonmonetary asset exchange at fair value. A nonmonetary asset
exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. We have not entered into
exchanges of nonmonetary assets in the past and do not expect to enter
into any nonmonetary assets exchanges in the foreseeable future; however,
if we enter into significant nonmonetary asset exchanges in the future,
SFAS No. 153 could have a material effect on our consolidated financial
position, results of operations or cash flows.
(q) Reclassifications
Certain reclassifications have been made to the 2005 financial
statements to conform to the current period presentation.
Note 2. Basis of Preparation of Financial Statements
We have prepared these unaudited interim consolidated financial
statements 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 our financial statements included in our
2005 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 1,680,600 and 1,134,000 at
June 30, 2006 and 2005, respectively, 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 six months ended June 30, 2006 follows:
Total
Three Months Six Months Shares
------------ ------------ ------------
Common shares outstanding,
beginning of the period 10,503,000 10,503,000 10,503,000
Stock options exercised - - -
---------- ---------- ----------
Weighted average number
of common shares
outstanding 10,503,000 10,503,000 10,503,000
Dilutive effect of common
share equivalents - - -
---------- ---------- ----------
Diluted weighted average
number of common shares
outstanding 10,503,000 10,503,000 10,503,000
========== ========== ==========
At June 30, 2006, there were authorized 50,000,000 shares of our
$0.10 par value common stock and 20,000,000 shares of preferred stock
issuable in one or more series. None of the preferred stock was issued or
outstanding at June 30, 2006.
Note 4. Segment Information
We operate in two different segments: household products and skin
care products. Our products are sold in the United States and
internationally (primarily Canada), directly and through independent
brokers, to mass merchandisers, drug stores, supermarkets, wholesale
distributors and other retail outlets. Our Management has chosen to
organize our business 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; a wood
wash; "Mold Control 500", a mold remediation product; 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 us.
The following provides information on our segments for the three
and six months ended June 30:
Three Months ended June 30,
----------------------------------------------------
2006 2005
------------------------ -------------------------
Household Skin Care Household Skin Care
Products Products Products Products
---------- ----------- ----------- -----------
Net sales to
external customers $2,561,000 $ 1,572,300 $ 2,061,300 $ 3,663,500
=========== =========== =========== ===========
Income(loss) before
profit sharing,
bonuses and
income taxes $ (46,700) $ (813,200) $ (333,300) $ 194,800
=========== =========== =========== ===========
Identifiable assets $4,025,600 $ 5,995,800 $ 3,802,200 $ 8,417,200
=========== =========== =========== ===========
Six Months ended June 30,
----------------------------------------------------
2006 2005
------------------------ -------------------------
Household Skin Care Household Skin Care
Products Products Products Products
---------- ----------- ----------- -----------
Net sales to
external customers $4,626,000 $ 3,663,100 $ 4,153,500 $ 7,093,800
========== =========== =========== ===========
Income(loss) before
profit sharing,
bonuses and
income taxes $ (373,800) $(1,533,800) $ (754,600) $ 221,200
========== =========== ========== ===========
Identifiable assets $4,025,600 $ 5,995,800 $ 3,802,200 $ 8,417,200
========== =========== ========== ===========
The following is a reconciliation of segment information to
consolidated information for the three and six months ended June 30:
Three Months ended June 30, Six Months ended June 30,
--------------------------- -------------------------
2006 2005 2006 2005
----------- ------------ ----------- ------------
Net sales to
external customers $ 4,133,300 $ 5,724,800 $ 8,289,100 $11,247,300
=========== ============ =========== ===========
Loss before
profit sharing,
bonuses and
income taxes $ (859,900) $ (138,500) $(1,907,600) $ (533,400)
=========== ============ =========== ===========
Identifiable
assets $10,021,400 $12,219,400 $10,021,400 $12,219,400
Corporate
assets 12,848,700 10,934,300 12,848,700 10,934,300
----------- ------------ ----------- -----------
Consolidated
total
assets $22,870,100 $23,153,700 $22,870,100 $23,153,700
=========== =========== =========== ===========
Corporate assets noted above are comprised primarily of our cash and
investments, deferred income tax assets and property and equipment not
directly associated with the manufacturing, warehousing, shipping and
receiving activities.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
During the first half of 2006, we experienced an increase in sales
of our household chemical products primarily because of our introduction
of our new mold control product Mold Control 500, while experiencing a
decrease in sales of our Montagne Jeunesse line of skin care products and
a decrease in sales of our Alpha Hydrox skin care products. Our net
loss for the first half of 2006 was $1,907,600 versus a loss of $533,400
in the first half of 2005. The loss for 2006 was primarily due to lower
sales of the Montagne Jeunesse product line and reduced sales of our Alpha
Hydrox skin care line.
Summary of Results as a Percentage of Net Sales
Year Ended Six Months Ended
December 31, June 30,
------------ -------------------
2005 2006 2005
------------ ------- --------
Net sales
Scott's Liquid Gold
household products 34.8% 55.8% 36.9%
Neoteric Cosmetics 65.2% 44.2% 63.1%
------ ------ ------
Total Net Sales 100.0% 100.0% 100.0%
Cost of Sales 56.1% 58.0% 55.5%
------ ------ ------
Gross profit 43.9% 42.0% 44.5%
Other revenue 0.2% 0.3% 0.2%
------ ------ ------
44.1% 42.3% 44.7%
------ ------ ------
Operating expenses 44.2% 64.1% 48.6%
Interest 0.8% 1.2% 0.8%
------ ------ ------
45.0% 65.3% 49.4%
------ ------ ------
Loss before income taxes (0.9%) (23.0%) (4.7%)
====== ======= ======
Our gross margins may not be comparable to those of other entities,
since some entities include all of the costs related to their distribution
network in cost of sales while others, like us, exclude a portion of them
(freight out to customers and nominal outside warehouse costs) from gross
margin, including them instead in the selling expense line item.
See Note 1(o), Operating Costs and Expenses Classification, to the
Consolidated Financial Statements in this Report.
Comparative Net Sales
Six Months Ended June 30,
-----------------------------------------
Percentage
Increase
2006 2005 (Decrease)
----------- ----------- ----------
Scott's Liquid Gold $ 3,930,800 $ 3,248,600 21.0%
Touch of Scent 695,200 904,900 (23.2%)
----------- ----------- ------
Total household
products 4,626,000 4,153,500 11.4%
----------- ----------- ------
Alpha Hydrox and
other skin care 1,681,100 2,400,800 (30.0%)
Montagne Jeunesse
skin care 1,982,000 4,693,000 (57.8%)
----------- ----------- ------
Total skin care
products 3,663,100 7,093,800 (48.4%)
----------- ----------- ------
Total Net Sales $ 8,289,100 $11,247,300 (26.3%)
=========== =========== ======
Recent Developments
On April 4, 2006, we and our subsidiary, SLG Chemicals, Inc., entered
into a Product Development, Production and Marketing Agreement with Modec,
Inc. Under the Agreement, we purchase a product for the treatment of mold.
This Agreement was described in our Form 8-K Report filed on April 7, 2006.
We commenced sales and shipments of resulting products in the second
quarter of 2006.
In June, 2006, we entered into a new loan with Citywide Banks for
$5,156,600, secured by the land, buildings and fixtures at our Denver,
Colorado facilities. This new bank loan is discussed below.
We have previously reported in a Form 8-K Report filed on March 31,
2006 the entry into the following agreements with Keltec Dispensing
Systems USA: An Asset Purchase and Sale Agreement for the sale of a
portion of our plastic molding equipment and related machinery to Keltec;
a Lease Agreement for space that is located in our Denver facility and
has been used for the operations of the plastics equipment, with the lease
to begin upon the closing of the Asset Purchase and Sale Agreement; and a
Supply Agreement with Keltec pursuant to which Keltec will manufacture and
supply to us certain plastic components used in our product containers.
In July, 2006, we completed the sale of the plastic molding equipment and
related machinery to Keltec as set forth in the agreement. The term of the
lease of space to Keltec commenced on July 1, 2006.
Six Months Ended June 30, 2006
Compared to Six Months Ended June 30, 2005
Consolidated net sales for the first half of the current year were
$8,289,100 versus $11,247,300 for the first half of 2005, a decrease of
$2,958,200. Average selling prices of household products were up by
$247,400. This increase in average selling prices was primarily due to
improved pricing on our Scott's Liquid Gold wood wash products and a
decrease in couponing on our household products. The average selling
prices of our skin care products were down by $314,100 as a result of
greater price promotions and increased couponing in the first quarter of
2006 versus 2005. Co-op advertising, marketing funds, slotting fees and
coupon expenses paid to retailers were deducted from gross sales, and
totaled $1,152,700 in the first half of 2006 versus $855,500 in the same
half of 2005, an increase of $297,200 or 34.7%. This increase consisted
of an increase in coupon expense of $192,5000, an increase in co-op
marketing funds of $167,500, and a decrease in slotting fee expenses
of $62,800.
During the first half of 2006, net sales of skin care products
accounted for 44.2% of consolidated net sales compared to 63.1% for the
same period of 2005. Net sales of these products for that period were
$3,663,100 in 2006 compared to $7,093,800 in 2005, a decrease of
$3,430,700 or 48.4%. During the second quarter of 2005 we began
introduction of four new items in our Alpha Hydrox line of cosmetic
products. The new items accounted for approximately 27.5% of our sales
of Alpha Hydrox and other skin care sales in the first half of 2006
versus 13.9% in the first half 2005, which represents a slight increase
in sales of the new items in the first six months of 2006 compared to
the first half of 2005. These new items accounted for approximately
24.0%, of our net sales of Alpha Hydrox and other skin care sales in the
second quarter of 2006 versus 26.7%, in the second quarter of 2005, which
represents a decrease in the sale of the new items in the second quarter
of 2006 when compared to the first quarter of 2006 or the second quarter
of 2005. Net sales of the new Alpha Hydrox products declined in the
second quarter of 2006 primarily as a result of returns from one
retailer, the filling of store shelves with the introduction of the
product in 2005, and higher coupons, cooperative advertising and other
sales promotions that are deducted from gross sales. It is still too
early to tell the consumer acceptance of these products which is
necessary for reorders of these products and expanding the distribution
of these products.
We have continued to experience a drop in unit sales of our earlier-
established alpha hydroxy acid-based products due primarily to maturing
in the market for alpha hydroxy acid-based skin care products, intense
competition from producers of similar or alternative products, many of
which are considerably larger than Neoteric Cosmetics, Inc. and reduced
distribution of these products at retail stores in current and prior
periods. For the first half of 2006, the sales of our Alpha Hydrox
products accounted for 30.7% of net sales of skin care products and
13.6% of total net sales, compared to 23.3% of net sales of skin care
products and 14.7% of total net sales in 2005.
Net sales of Montagne Jeunesse products were $1,982,000 in the
first half of 2006 versus $4,693,000 for the comparable period of
2005, a decrease of $2,711,000 or 57.8%. The decrease reflects changes in
product positioning at several key retailers in 2006 as they have revised
the amount of shelf and floor space allocated to these types of products,
including the elimination at approximately 1,500 Wal-Mart Stores of the
department where Montagne Jeunesse products were previously displayed.
Sales of household products for the first half of this year accounted
for 55.8% of consolidated net sales compared to 36.9% for the same period
in 2005. These products are comprised of Scott's Liquid Gold wood care
products (Scott's Liquid Gold for wood, a wood wash and wood wipes), mold
remediation products and Touch of Scent. During the six months ended
June 30, 2006 sales of household products were $4,626,000 as compared to
$4,153,500 for the same period in 2005, an increase of $472,500, or 11.4%.
Sales of Scott's Liquid Gold wood care products increased from $3,248,600
in 2005 to $3,498,000 in 2006 an increase of $292,900 or 9.0%. This
increase in sales is primarily due to somewhat higher net sales of our
Scott's Liquid Gold for wood and our wood wash products, plus sales during
the second quarter of 2006 of a promotional combination package of Scott's
Liquid Gold for wood and either the wood wash or wood wipes, offset by a
decrease in the sale of wood wipes. The primary reason for the increase
in wood care sales is increased distribution of the wood wash product.
In the second quarter of 2005 we began introducing a wood wash under the
Scott's Liquid Gold product line. It is too early to determine if the
wood wash product introduction will be successful. During the second
quarter of 2006 we began the introduction of our mold remediation product
"Mold Control 500" with sales of $432,800 during this period. It is too
early to determine if this introduction will be successful. Sales of
"Touch of Scent" were down by $253,200 or 28.0%, primarily due to a
decrease in distribution.
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" wood care or
mold remediation products or "Touch of Scent", could have a significant
adverse impact on our revenues and operating results. We believe that
our future success is highly dependent on favorable acceptance in the
marketplace of Montagne Jeunesse products, the sales of our new Alpha
Hydrox products and our "Scott's Liquid Gold" wood care and mold
remediation products.
We also believe that the introduction of successful new products,
including line extensions of existing products, such as the wood wash
and our new mold remediation product, using the name "Scott's Liquid
Gold", are important in our efforts to maintain or grow our revenue. We
currently plan to make one to two additional product introductions during
2006. To the extent that we manufacture a new product rather than
purchase it from external parties, we are also benefited by the use of
existing capacity in our facilities. We are using our facilities to fill
and package the mold control products. The actual introduction of
additional products, the timing of any additional introductions and any
revenues realized from new products is uncertain.
On a consolidated basis, cost of goods sold was $4,810,000 during
the first half of 2006 compared to $6,238,900 for the same period of
2005, a decrease of $1,428,000 or 22.9%, on a sales decrease of 26.3%.
As a percentage of consolidated net sales, cost of goods sold was 58.0%
in 2006 versus 55.5% in 2005, an increase of about 2.5%, which reflects
the increase in sales promotion expenses which lowered our revenues and
thus affected our margins particularly in the skin care line of products.
Operating Expenses, Interest Expense and Other Income
Percentage
Increase
2006 2005 (Decrease)
----------- ----------- ----------
Operating Expenses
Advertising $ 701,300 $ 478,500 46.6%
Selling 2,835,700 2,966,300 (4.4%)
General & Administrative 1,775,300 2,022,000 (12.2%)
----------- ----------- ------
Total operating expenses $ 5,312,300 $ 5,466,800 (2.8%)
=========== =========== ======
Interest Income $ 26,900 $ 20,400 31.9%
Interest Expense $ 100,400 $ 95,400 5.2%
Operating expenses, comprised primarily of advertising, selling and
general and administrative expenses, decreased $154,500 in the first half
of 2006, when compared to the first half of 2005. The various components
of operating expenses are discussed below. We are initiating limited cost
reductions in third and fourth quarters of 2006.
Advertising expenses for the first six months of 2006 were $701,300
compared to $478,500 for the comparable period of 2005, an increase of
$222,800 or 46.6%. A majority of that increase was due to an increase
in television advertising expenses applicable to our Alpha Hydrox skin
care products during the first quarter of 2006.
Selling expenses for the first half of 2006 were $2,835,700
compared to $2,966,300 for the comparable six months of 2005, a decrease
of $130,600 or 4.4%. That decrease was comprised of a decrease in
salaries, fringe benefits and related travel expense of $176,600 primarily
because of a decrease in personnel in 2006 versus 2005, offset by a net
increase in other selling expenses, none of which by itself is significant,
of $46,000.
General and administrative expenses for the first six months of 2006
were $1,775,300 compared to $2,022,000 for the comparable period of 2005, a
decrease of $246,700 or 12.2%. That decrease was primarily attributable
to a decrease in salaries and fringe benefits resulting from a reduction in
both personnel and net health care costs of 146,800, a decrease in bad
debt expense of $57,700, and a net decrease in other general and
administrative expenses of $42,200.
Interest expense for the first half of 2006 was $100,400 versus
$95,400 for the comparable period of 2005. Interest income for the six
months ended June 30, 2006 was $26,900 compared to $20,900 for the same
period of 2005, which consists of interest earned on our cash reserves
in 2006 and 2005.
During the first half of 2006 and of 2005, expenditures for
research and development were not material (under 2% of revenues).
Three Months Ended June 30, 2006
Compared to Three Months Ended June 30, 2005
Comparative Net Sales
Three Months Ended June 30,
-----------------------------------------
Percentage
Increase
2006 2005 (Decrease)
----------- ----------- ----------
Scott's Liquid Gold $ 2,249,600 $ 1,692,900 32.9%
Touch of Scent 311,400 368,400 (15.5%)
----------- ----------- ------
Total household
products 2,561,000 2,061,300 24.2%
----------- ----------- ------
Alpha Hydrox and
other skin care 652,400 1,719,600 (62.1%)
Montagne Jeunesse
skin care 919,900 1,943,900 (52.7%)
----------- ----------- ------
Total skin care
products 1,572,300 3,663,500 (57.1%)
----------- ----------- ------
Total Net Sales $ 4,133,300 $ 5,724,800 (27.8%)
=========== =========== ======
Consolidated net sales for the second quarter of the current year
were $4,133,300 versus $5,724,800 for the comparable quarter of 2005, a
decrease of $1,591,500 or about 27.8%. Average selling prices for the
second quarter of 2006 were down by $83,700 over those of the comparable
period of 2005, prices of household products being up by $142,700, while
average selling prices of skin care products were down by $226,400.
Co-op advertising, marketing funds, slotting fees and coupon expenses
paid to retailers were subtracted from gross sales in accordance with
current accounting policies totaling $522,600 in the second quarter of
2006 versus $491,500 in the same period in 2005, an increase of $31,100
or 6.3%. This increase consisted of an increase in coupon expenses of
$77,500, an increase in co-op advertising of $62,000, offset by a
decrease in slotting of $108,400.
During the second quarter of 2006, net sales of skin care products
accounted for 38.0% of consolidated net sales compared to 64.0% for the
second quarter of 2005. Net sales of these products for those periods
were $1,572,300 in 2006 compared to $3,663,500 in 2005, a decrease of
$2,091,200 or 57.1%. Net sales of Montagne Jeunesse were approximately
$919,900 in the second quarter of 2006 compared to $1,943,900 in the
second quarter of 2005. Please see the discussion above for the first
half of 2006 for additional information regarding sales of skin care
products, which is also applicable to sales of skin care products in
the second quarter of 2006.
Sales of household products for the second quarter of this year
accounted for 62.0% of consolidated net sales compared to 36.0% for the
same period of 2005. These products are comprised of Scott's Liquid Gold
wood care and mold remediation products, and "Touch of Scent", a room air
freshener. During the second quarter of 2006, sales of household products
were $2,561,000, as compared to sales of $2,061,300 for the same three
months of 2005. Sales of Scott's Liquid Gold wood care products were up
by $167,400, an increase of 8.1%. Sales of "Touch of Scent" were down by
$100,500 or 27.3%. During the second quarter of 2006 we began the
introduction of our mold remediation product "Mold Control 500" with
sales of $432,800 during this period. Please see the discussion above
for the first half of 2006 for additional information regarding sales of
household products, which is also applicable to sales of household
products in the second quarter of 2006.
On a consolidated basis, cost of goods sold was $2,567,400 during
the second quarter of 2006 compared to $3,131,400 for the same period of
2005, a decrease of $564,000 (18.0%), on a sales decrease of 27.8%. As
a percentage of consolidated net sales for the second quarter of 2006,
cost of goods sold was 62.1% compared to 54.7% in 2005, an increase of
7.4%, which reflects the increase in sales promotion expenses, which
are offset against sales, which lowered our margins particularly in the
skin care line of products.
Operating Expenses, Interest Expense and Other Income
Percentage
Increase
2006 2005 (Decrease)
----------- ----------- ----------
Operating Expenses
Advertising $ 107,600 $ 202,000 (46.7%)
Selling 1,410,200 1,491,000 (5.4%)
General & Administrative 863,200 999,200 (13.6%)
----------- ----------- ------
Total operating expenses $ 2,381,000 $ 2,692,200 (11.6%)
=========== =========== ======
Interest Income $ 14,300 $ 7,800 83.3%
Interest Expense $ 59,100 $ 47,500 24.4%
Operating expenses, comprised primarily of advertising, selling and
general and administrative expenses, decreased $311,200 in the second
quarter of 2006, when compared to the same period during 2005. The
various components of operating expenses are discussed below.
Advertising expenses for the second quarter of 2006 were $107,600
compared to $202,000 for the comparable quarter of 2005, a decrease of
$94,400 or 46.7%. Advertising expenses applicable to household products
decreased by $36,000 (39.2%) while advertising expenses for Alpha Hydrox
products decreased by $58,400 (53.0%).
Selling expenses for the three months ended June 30, 2006 were
$1,410,200 compared to $1,491,000 for the comparable three months of
2005, a decrease of $80,800 or 5.4%. That decrease was primarily
because of a decrease in salaries, fringe benefits and related travel
expense of $94,200 resulting from a decrease in personnel in 2006 versus
2005, offset by a net increase in other selling expenses, none of which
by itself is significant, of $13,400.
General and administrative expenses for the second quarter of 2006
were $863,200 compared to $999,200 for the comparable period of 2005, a
decrease of $136,000 or 13.6%. That decrease was primarily attributable
to a decrease in salaries and fringe benefits resulting from a reduction
in both personnel and net health care costs of $68,500, a decrease in bad
debt expense of $30,700, and a net decrease in other general and
administrative expenses of $36,800.
Interest expense for the second quarter of 2006 was $59,100 versus
$47,500 for the comparable period of 2005. Interest expense increased
because of higher interest rates and borrowing levels. Interest income
for the three months ended June 30, 2006 was $14,300 compared to $7,800
for the same period of 2005.
During the second quarter of 2006 and of 2005, expenditures for
research and development were not material (under 2% of revenues).
Liquidity and Capital Resources
We currently have a line of credit with Citywide Banks of Aurora,
Colorado for $1,300,000. We obtained this line of credit originally on
August 8, 2004 in the amount of $1,500,000, which was increased to
$1,800,000 on August 8, 2005 and reduced to the current amount in
connection with a new secured term loan described below. We use the
line of credit for inventory and other working capital purposes. The
line of credit bears interest at a rate of .5% over the bank's base rate
(7.75% at June 30, 2006) and matures on August 8, 2006. The line of
credit is secured by inventory and accounts receivable. Under its
terms, events of default include a material adverse change in our
financial condition. The covenants are the same as the bank loan
described below.
On June 28, 2006, we entered into a new loan with a fifteen year
amortization with Citywide Banks for $5,156,600 secured by the land,
building and fixtures at our Denver, Colorado facilities. This loan
replaces the bank loan with Citywide Banks, secured by the facilities,
in the principal amount of approximately $1,582,900. Interest on the
bank loan (8.0% at June 30, 2006) is at the prime rate as published in
The Wall Street Journal, adjusted annually each June. Part of the
proceeds of the new loan have been used to pay off the prior loan, and
the remaining proceeds will be used in business operations, including
development of new products and the introduction of new products. This
loan requires 180 monthly payments of approximately $49,500, which
commenced on July 28, 2006. As did the prior bank loan, 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. We 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 first half of 2006.
In connection with the new loan, we agreed with Citywide Banks
to reduce the amount available under our line of credit with Citywide
Banks from $1,800,000 to $1,300,000.
During the first half of 2006, our working capital increased by
$2,348,900, and concomitantly, our current ratio (current assets divided
by current liabilities) increased from 1.6:1 at December 31, 2005 to
2.2:1 at June 30, 2006. This increase in working capital is attributable
to an increase in long-term debt of $4,034,200, depreciation in excess
of capital additions of $273,500, offset by a net loss in the first half
of 2006 of $1,907,600, an increase in other assets of $50,000, and a
decrease in accumulated comprehensive income of $1,200.
At June 30, 2006, trade accounts receivable were $940,500 versus
$1,633,100 at year-end, largely because sales in the quarter ended
June 30, 2006 were less than those of the quarter ended December 31, 2005.
Accounts payable increased from the end of 2005 through June of 2006 by
$332,000 corresponding primarily with the increase in inventory over
that period. At June 30, 2006 inventories were $521,600 more than at
December 31, 2005, primarily due to an increase in household products
inventory, including inventory for our new mold remediation product, to
support sales of these products in the upcoming quarters. Prepaid
expenses increased from the end of 2005 by $295,400 primarily due to
prepaid promotional costs related to our new mold product and to prepaid
promotional costs related to our Montagne Jeunesse products. Accrued
payroll and benefits increased $156,500 from December 31, 2005 to
June 30, 2006 primarily because of the increase in accrued employee
fringe benefits. Other accrued liabilities decreased by $71,300
primarily because of a decrease in accrued property taxes.
We have no significant capital expenditures planned for 2006 and
have no current plans for any external financing, other than our existing
bank loans. We expect that our available cash, cash flows from operating
activities and borrowings will fund the next twelve months' cash
requirements.
Our dependence on operating cash flow means that risks involved in
our business can significantly affect our liquidity. Any loss of a
significant customer, any further decreases in distribution of our skin
care or household products, any new competitive products affecting sales
levels of our products, or any significant expense not included in our
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, we have no arrangements for any additional external financing of
debt or equity, and we are not certain whether any such financing would
be available on acceptable terms. Please also see other risks summarized
in "Forward Looking Statements" below. In order to improve our operating
cash flow, we need to achieve profitability.
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. Except to the extent
changes in the prime rate affect our line of credit, we are not materially
exposed to market risks regarding interest rates. The interest on our
long-term debt is at the lender's base rate, which approximates the prime
rate, adjustable yearly. Our 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 our debt and equity securities would have decreased by
approximately $600. Further, we do not use foreign currencies in our
business. Currently, we receive payments for sales to parties in foreign
countries in U.S. dollars. Additionally, we do not use derivative
instruments or engage in hedging activities. As a result, we do not
believe that near-term changes in market risks will have a material
effect on results of operations, financial position or our cash flows.
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 our
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 each of our
significant products in the marketplace; the degree of success of any
new product or product line introduction by us; the uncertainty of
consumer acceptance of the new Alpha Hydrox, mold control and wood wash
products; competitive factors; any decrease in distribution of (i.e.,
retail stores carrying) our significant products; continuation of our
distributorship agreement with Montagne Jeunesse; the need for effective
advertising of our 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 our products, including applicable
environmental regulations; adverse developments in pending litigation;
the loss of any executive officer; and other matters discussed in our
2005 Annual Report on Form 10-K. We undertake no obligation to revise
any forward-looking statements in order to reflect events or circumstances
that may arise after the date of this report.
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 June 30, 2006, we 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 us 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 June 30, 2006.
There was no change in our internal control over financial reporting
during the quarter ended June 30, 2006 that has materially affected, or
is reasonably likely to materially affect, our internal control over
financing reporting.
PART II OTHER INFORMATION
Item 1. Not Applicable
Item 1A. Risk Factors
There have been no material changes from risk factors as
previously disclosed in our 2005 Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
On May 3, 2006, we held our 2006 Annual Meeting of
Shareholders. At that meeting, the seven existing directors were
nominated and re-elected as our directors. These seven persons
constitute all members of our Board of Directors. These directors
and the votes for and withheld for each of them were as follows:
For Withheld
--------- --------
Mark E. Goldstein 8,768,220 281,787
Jeffrey R. Hinkle 8,783,620 266,387
Jeffry B. Johnson 8,770,420 279,587
Dennis P. Passantino 8,770,420 279,587
Carl A. Bellini 8,785,520 264,487
Dennis H. Field 8,785,520 264,487
Gerald J. Laber 8,770,420 279,587
Item 5. Not Applicable
Item 6. Exhibits
10.1 Product Development, Production and Marketing
Agreement with Modec, Inc. dated April 4, 2006
10.2 Change in Terms Agreement with Citywide Banks,
dated June 28, 2006, between us and Citywide
Banks, incorporated by reference to Exhibit 10.1
of our Current Report on Form 8-K filed on
June 30, 2006
10.3 Business Loan Agreement, dated June 28, 2006,
between us and Citywide Banks, incorporated by
reference to Exhibit 10.2 of our Current Report
on Form 8-K filed on June 30, 2006
10.4 Addendum to Loan Documents, dated June 28, 2006,
incorporated by reference to Exhibit 10.3 of our
Current Report on Form 8-K filed on June 30, 2006
10.5 Promissory Note dated June 7, 2006 by us to
Citywide Banks; Deed of Trust dated June 7, 2006
among us, Citywide Banks and the Public Trustee
of the City and County of Denver, Colorado;
Assignment of Rents dated June 7, 2006 between us
and Citywide Banks; letter agreement dated June 7,
2006 regarding the change in the amount under the
existing bank line of credit with Citywide Banks,
incorporated by reference to Exhibit 10.0 of our
Current Report on Form 8-K filed on June 12, 2006
31.1 Rule 13a-14(a) Certification of the Chief Executive
Officer
31.2 Rule 13a-14(a) Certification of the Chief Financial
Officer
32.1 Section 1350 Certification
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 11, 2006 BY: /s/ Mark E. Goldstein
Date --------------------------------------
Mark E. Goldstein
President and Chief Executive Officer
August 11, 2006 BY: /s/ Jeffry B. Johnson
Date --------------------------------------
Jeffry B. Johnson
Treasurer and Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Document
10.1 Product Development, Production and Marketing
Agreement with Modec, Inc. dated April 4, 2006
10.2 Change in Terms Agreement with Citywide Banks,
dated June 28, 2006, between us and Citywide
Banks, incorporated by reference to Exhibit 10.1
of our Current Report on Form 8-K filed on
June 30, 2006
10.3 Business Loan Agreement, dated June 28, 2006,
between us and Citywide Banks, incorporated by
reference to Exhibit 10.2 of our Current Report
on Form 8-K filed on June 30, 2006
10.4 Addendum to Loan Documents, dated June 28, 2006,
incorporated by reference to Exhibit 10.3 of our
Current Report on Form 8-K filed on June 30, 2006
10.5 Promissory Note dated June 7, 2006 by us to
Citywide Banks; Deed of Trust dated June 7, 2006
among us, Citywide Banks and the Public Trustee
of the City and County of Denver, Colorado;
Assignment of Rents dated June 7, 2006 between us
and Citywide Banks; letter agreement dated June 7,
2006 regarding the change in the amount under the
existing bank line of credit with Citywide Banks,
incorporated by reference to Exhibit 10.0 of our
Current Report on Form 8-K filed on June 12, 2006
31.1 Rule 13a-14(a) Certification of the Chief Executive
Officer
31.2 Rule 13a-14(a) Certification of the Chief Financial
Officer
32.1 Section 1350 Certification