UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~ 2022

☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13458

SCOTT’S LIQUID GOLD-INC.

(Exact name of registrant as specified in its charter)


Colorado		84-0920811
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~4880 Havana Street,~~ 8400 E. Crescent Parkway, Suite ~~400, Denver,~~ 450, Greenwood Village, CO		~~80239~~80111
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (303)373-4860

Securities registered pursuant to Section 12(b) of the Exchange Act.


Title of each class	Trading Symbol	Name of exchange on which registered
None	None	None

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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer		☐
Non-accelerated filer	☒	Smaller reporting company		☒
~~Non-accelerated filer~~	☐ ~~(Do not check if a smaller reporting company)~~		~~Smaller reporting company~~		☒

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange ~~Act.~~Act). Yes ☐ No ☒

As of, November 13, ~~2017,~~2022 the ~~Registrant~~registrant had ~~11,885,839~~12,805,663shares of its common stock, $0.10 par value per share, outstanding.

CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of ~~U.S. federal securities laws.~~the Private Securities Litigation Reform Act of 1995, in addition to historical information. All statements, other than statements of historical ~~fact,~~facts, included in this Report that address activities, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements.You can typically identify forward-looking statements by the use of words, such as “may,” “could,” “should,” “assume,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” and other similar words. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements contained in this Report are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Forward-looking statements and our performance inherently involve ~~risk~~risks and ~~uncertainty~~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:

•

the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees;

•

disruptions or inefficiencies in the supply chain, including any impact of the COVID-19 pandemic;

•

dependence on third-party vendors and on sales to major customers;

•

regulations, economic conditions, and tariffs in the People’s Republic of China (“PRC”), as well as the transition from our exclusive distributor in the PRC to market and sell our products there;

•

a continued shift in the retail market from food and drug stores to mass merchandisers, club stores, dollar stores, e-commerce retailers, and subscription services;

•

competition from large consumer products companies in the United States;

•

competitive factors, including any decrease in distribution of (i.e., retail stores carrying) our significant products;

•

new competitive products and/or technological changes;

•

the need for effective advertising of our products and limited resources available for such advertising;

•

unfavorable economic conditions;

•

changing consumer preferences and the 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;

•

~~competitive factors, including any decrease in distribution of (i.e., retail stores carrying) our significant products;~~

~~continuation of our distributorship agreements for Montagne Jeunesse skin care products and Batiste Dry Shampoos;~~

~~the need for effective advertising of our products and limited resources available for such advertising;~~

~~new competitive products and/or technological changes;~~

~~dependence upon third party vendors and upon sales to major customers;~~

~~the availability of necessary raw materials and potential increases in the prices of these raw materials;~~

~~changes in the regulation of our products, including applicable environmental and U.S. Food and Drug Administration (“FDA”) regulations;~~

~~the continuing availability of financing on terms and conditions that are acceptable to us;~~

the degree of success of the integration of product lines or businesses we may acquire;

•

the degree of success of our conversion to outsourced manufacturing and dependence on third-party manufacturers;

•

changes in the regulation of our products, including applicable environmental, U.S. and international Food and Drug Administration regulations and process-audit compliance;

•

the loss of any executive officer or other personnel;

•

future losses which could affect our liquidity;

•

the ~~loss~~risk that we may not be able to remediate the existing material weakness related to the impairment assessment of ~~any executive officer;~~goodwill and

develop and maintain effective internal controls over financial reporting;

•

other matters discussed in this Report, including the risks described in the Risk Factors section of this ~~Report.~~

Report and in our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequent Quarterly Reports on Form 10-Q.

We caution you that forward-looking statements are not guarantees of future performance and that actual results or performance may be materially different from those expressed or implied in the forward-looking statements. The forward-looking statements in this Report speak as of the filing date of this Report. Although we may from time to time voluntarily update our prior forward-looking statements, 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.

TABLE OF CONTENTS


		Page
PART I
Item 1.	~~Condensed Consolidated~~ Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1316
Item 3.4.	~~Quantitative~~Controls and ~~Qualitative Disclosures About Market Risk~~Procedures	1922
~~Item 4.~~PART II
Item 1A.	~~Controls and Procedures~~Risk Factors	1923
Item 6.	~~PART II~~Exhibits
~~Item 1A.~~	~~Risk Factors~~	20
~~Item 6.~~	~~Exhibits~~	2023

P~~ART~~PART I

~~ITEM 1.~~

~~FINANCIAL STATEMENTS.~~

ITEM 1. FINANCIAL STATEMENTS.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of ~~Income~~Operations (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net sales
$
10,340,600

$
9,936,900

$
30,657,000

$
24,274,800

Operating costs and expenses:

Cost of sales

5,420,000

5,830,600

16,649,000

13,454,600

Advertising

109,800

91,700

531,100

1,426,600

Selling

1,583,400

1,717,300

4,878,600

4,184,300

General and administrative

1,062,700

1,218,800

3,166,300

3,433,000

Total operating costs and expenses

8,175,900

8,858,400

25,225,000

22,498,500

Income from operations

2,164,700

1,078,500

5,432,000

1,776,300

Other income

-

1,000

-

12,600

Interest expense

(26,400
)

(60,400
)

(101,500
)

(77,500
)
Income before income taxes

2,138,300

1,019,100

5,330,500

1,711,400

Income tax expense

(663,500
)

(415,500
)

(1,899,300
)

(697,900
)
Net income
$
1,474,800

$
603,600

$
3,431,200

$
1,013,500

Net income per common share

Basic
$
0.12

$
0.05

$
0.29

$
0.09

Diluted
$
0.12

$
0.05

$
0.28

$
0.08

Weighted average shares outstanding:

Basic

11,885,839

11,747,612

11,840,957

11,730,759

Diluted

12,360,079

12,027,956

12,217,890

11,969,167


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net sales	$	4,277		$	7,970		$	15,449		$	24,583
Cost of sales		2,358			5,100			8,337			14,624
Gross profit		1,919			2,870			7,112			9,959

Operating expenses:
Advertising		166			144			492			506
Selling		1,691			2,542			5,752			7,388
General and administrative		578			836			2,020			3,782
Intangible asset amortization		87			278			313			834
Impairment of goodwill and intangible assets		-			-			3,589			-
Total operating expenses		2,522			3,800			12,166			12,510
Loss from operations		(603	)		(930	)		(5,054	)		(2,551	)

Interest expense		(139	)		(109	)		(419	)		(219	)
Loss before income taxes and discontinued operations		(742	)		(1,039	)		(5,473	)		(2,770	)
Income tax expense		(2	)		(1,224	)		(55	)		(798	)
Loss from continuing operations		(744	)		(2,263	)		(5,528	)		(3,568	)
Loss from discontinued operations, net of taxes		-			(205	)		-			(246	)
Net loss	$	(744	)	$	(2,468	)	$	(5,528	)	$	(3,814	)

Basic and diluted net loss per common shares:
Loss from continuing operations	$	(0.06	)	$	(0.18	)	$	(0.43	)	$	(0.28	)
Loss from discontinued operations	$	-		$	(0.02	)	$	-		$	(0.02	)
Net loss	$	(0.06	)	$	(0.20	)	$	(0.43	)	$	(0.30	)

Weighted average shares outstanding:
Basic and diluted		12,749			12,642			12,747			12,628

See accompanying notes to these Condensed Consolidated Financial ~~Statements (Unaudited).~~Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands, except par value amounts)

	September 30,		December 31,
	2017		2016		September 30,			December 31,
	(Unaudited)				2022			2021
Assets
Current assets:
Cash and cash equivalents	$	2,389,000	$	2,097,300
Cash					$	14		$	770
Restricted cash						125			500
Accounts receivable, net		3,152,200		3,456,400		1,791			3,516
Inventories, net		9,483,900		5,641,300
Inventories						6,289			5,677
Income taxes receivable		-		7,000		247			320
Prepaid expenses		396,800		319,600		214			436
Total current assets		15,421,900		11,521,600		8,680			11,219

Property and equipment, net		823,900		578,400		3			7
Deferred tax asset		563,400		1,392,600
Goodwill		1,520,600		1,520,600		838			1,710
Intangible assets, net		6,303,600		6,769,100		2,272			5,160
Operating lease right-of-use assets						2,553			2,735
Other assets		49,100		51,000		38			38
Total assets	$	24,682,500	$	21,833,300	$	14,384		$	20,869

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,376,900	$	1,939,400	$	1,750		$	2,647
Accrued expenses		860,900		964,800		397			747
Income taxes payable		197,300		-
Current maturities of long-term debt		800,000		800,000
Current portion of long-term debt						2,684			1,000
Operating lease liabilities, current portion						264			251
Total current liabilities		4,235,100		3,704,200		5,095			4,645

Line-of-credit		-		750,000
Long-term debt, net of current maturities and debt issuance costs		556,100		1,137,300
Long-term debt, net of current portion and debt issuance costs						555			1,876
Operating lease liabilities, net of current						2,581			2,780
Other liabilities						27			27
Total liabilities		4,791,200		5,591,500		8,258			9,328

Shareholders’ equity:
Preferred stock, no par value, authorized 20,000,000 shares; no shares issued and outstanding		-		-
Common stock; $0.10 par value, authorized 50,000,000 shares; issued and outstanding 11,885,839 shares (2017) and 11,749,589 shares (2016)		1,188,600		1,175,000
Preferred Stock, no par value, authorized 20,000 shares; no shares issued and outstanding						-			-
Common Stock; $0.10 par value, authorized 50,000 shares; issued and outstanding 12,749 shares (2022) and 12,727 shares (2021)						1,275			1,273
Capital in excess of par		6,382,500		6,177,800		7,900			7,789
Retained earnings		12,320,200		8,889,000
(Accumulated deficit) retained earnings						(3,049	)		2,479
Total shareholders’ equity		19,891,300		16,241,800		6,126			11,541
Total liabilities and shareholders’ equity	$	24,682,500	$	21,833,300	$	14,384		$	20,869

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited).

(in thousands)


	Common Stock
	Shares		Amount		Capital in Excess of Par			(Accumulated Deficit) Retained Earnings			Total
Balance, December 31, 2021		12,727	$	1,273	$	7,789		$	2,479		$	11,541
Stock-based compensation		-		-		35			-			35
Net loss		-		-		-			(451	)		(451	)
Restricted stock unit vesting		22		2		26			-			28
Balance, March 31, 2022 (Unaudited)		12,749		1,275		7,850			2,028			11,153
Stock-based compensation		-		-		22			-			22
Net loss		-		-		-			(4,333	)		(4,333	)
Balance, June 30, 2022 (Unaudited)		12,749		1,275		7,872			(2,305	)		6,842
Stock-based compensation		-		-		28			-			28
Net loss		-		-		-			(744	)		(744	)
Balance, September 30, 2022 (Unaudited)		12,749	$	1,275	$	7,900		$	(3,049	)	$	6,126

Balance, December 31, 2020		12,618	$	1,262	$	7,633		$	13,570		$	22,465
Stock-based compensation		-		-		69			-			69
Net loss		-		-		-			(280	)		(280	)
Balance, March 31, 2021 (Unaudited)		12,618		1,262		7,702			13,290			22,254
Stock-based compensation		-		-		33			-			33
Net loss		-		-		-			(1,066	)		(1,066	)
Balance, June 30, 2021 (Unaudited)		12,618		1,262		7,735			12,224			21,221
Stock-based compensation		-		-		(3	)		-			(3	)
Stock options exercised		45		4		53			-			57
Restricted stock unit vesting		3		-		-			-			-
Net loss		-		-		-			(2,468	)		(2,468	)
Balance, September 30, 2021 (Unaudited)		12,666	$	1,266	$	7,785		$	9,756		$	18,807

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands)

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net income
$
3,431,200

$
1,013,500

Adjustment to reconcile net income to net cash provided (used) by operating activities:

Depreciation and amortization

591,400

264,900

Stock-based compensation

183,500

189,500

Deferred income taxes

829,200

649,600

Change in operating assets and liabilities:

Accounts receivable

304,200

(2,774,700
)
Inventories

(3,842,600
)

(305,500
)
Prepaid expenses and other assets

(75,300
)

(54,200
)
Income taxes payable (receivable)

204,300

(13,400
)
Accounts payable and accrued expenses

333,600

906,300

Total adjustments to net income

(1,471,700
)

(1,137,500
)
Net cash provided (used) by operating activities

1,959,500

(124,000
)

Cash flows from investing activities:

Cash paid for Acquisition

-

(9,000,000
)
Purchase of property and equipment

(352,600
)

(223,600
)
Net cash used by investing activities:

(352,600
)

(9,223,600
)

Cash flows from financing activities:

Borrowing under line-of-credit

-

3,694,100

Repayments under line-of-credit

(750,000
)

(1,794,100
)
Proceeds from issuance of long-term debt

-

2,400,000

Repayments of long-term debt

(600,000
)

(200,000
)
Debt issuance costs

-

(75,200
)
Proceeds from exercise of stock options

34,800

30,500

Net cash (used) provided by financing activities:

(1,315,200
)

4,055,300

Net increase (decrease) in cash and cash equivalents

291,700

(5,292,300
)

Cash and cash equivalents, beginning of period

2,097,300

7,165,100

Cash and cash equivalents, end of period
$
2,389,000

$
1,872,800

Supplemental disclosures:

Cash paid during the period for interest
$
101,500

$
77,500

Cash paid during the period for income taxes
$
865,700

$
-


	Nine Months Ended
	September 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(5,528	)	$	(3,568	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		480			1,357
Stock-based compensation		113			99
Deferred income taxes		-			784
Impairment of goodwill and intangible assets		3,589			-
Change in operating assets and liabilities:
Accounts receivable		1,725			228
Inventories		(612	)		(2,651	)
Prepaid expenses and other assets		222			175
Income taxes receivable		73			192
Accounts payable, accrued expenses, and other liabilities		(1,251	)		1,990
Total adjustments to net loss		4,339			2,174
Net cash used in operating activities		(1,189	)		(1,394	)

Cash flows from investing activities:
Purchase of software		(142	)		(262	)
Net cash used in investing activities		(142	)		(262	)

Cash flows from financing activities:
Repayments on term loans		(2,000	)		(750	)
Proceeds from revolving credit facility		20,763			29,824
Repayments of revolving credit facility		(18,563	)		(27,222	)
Proceeds from exercise of stock options		-			57
Net cash provided by financing activities		200			1,909

Net (decrease) increase in cash and restricted cash		(1,131	)		253

Cash and restricted cash, beginning of period		1,270			5
Cash and restricted cash, end of period	$	139		$	258

Supplemental disclosures:
Cash paid during the period for interest	$	256		$	372

~~Supplemental disclosure of non-cash activity:~~

In connection with the Company’s Acquisition (defined in Note 5) during the nine months ended September 30, 2016, the Company acquired $400,000 of inventory, intangible assets of $7,079,400, and goodwill of $1,520,600 for a total of $9,000,000.

See accompanying notes to these Condensed Consolidated Financial ~~Statements (Unaudited).~~Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Scott’s Liquid Gold-Inc. & Subsidiaries~~(in thousands, except per share data)

~~Note 1.~~

~~Organization and Summary of Significant Accounting Policies~~

~~(a)~~

~~Company Background~~

Note 1. Organization and Summary of Significant Accounting Policies

(a) Company Background

Scott’s Liquid Gold-Inc. (a, a Colorado ~~corporation)~~corporation was incorporated on February 15, 1954. Scott’s Liquid Gold-Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” or “us”) develop, ~~manufacture,~~ market and sell high quality ~~household and skin and hair care products. We are also a distributor~~products in ~~the United States of Montagne Jeunesse skin sachets and Batiste Dry Shampoo manufactured by~~ two ~~other companies. Our business is comprised of two segments,~~ segments: household products and ~~skin~~health and ~~hair~~beauty care products.

~~(b)~~

~~Principles of Consolidation~~

(b) Principles of Consolidation

Our Condensed Consolidated Financial Statements ~~(Unaudited)~~ include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

On December 23, 2021, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell to all of our right, title and interest in and to certain assets of the Dryel® product line. We have reflected the operations of the Dryel® product line as discontinued operations for all periods presented, which were previously classified under our household products segment. See Note 3 for further information.

~~(c)~~

~~Basis of Presentation~~

The unaudited Condensed Consolidated Statements of ~~Income,~~Operations, Condensed Consolidated Balance Sheets, and ~~the~~ Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at September 30, ~~2017~~2022 and results of operations and cash flows for all periods have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements ~~(Unaudited)~~ should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021. The results of operations for the period ended September 30, ~~2017~~2022 are not necessarily indicative of the operating results for the full ~~year.~~year and are unaudited.

~~(d)~~

~~Use of Estimates~~

(d) Useof Estimates

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States~~GAAP requires us to make estimates and assumptions that affect the reported amounts in our financial statements 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. Significant estimates include, but are not limited to, the realization of deferred tax assets, reserves for slow moving and obsolete inventory, customer returns and allowances, intangible asset useful lives and amortization method, fair value of assets acquired in business combinations, operating lease right-of-use assets and operating lease liabilities, and stock-based compensation. Actual results could differ from our estimates.

(e) Cash and Restricted Cash

~~(e)~~

~~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 and restricted cash ~~equivalents.~~

~~(f)~~

~~Sale of Accounts Receivable~~

On March 16, 2011, we entered into a financing agreement with Wells Fargo Bank, National Association (“Wells Fargo”) for the purpose of lowering the cost of borrowing associated with the financing of our accounts receivable. Pursuant to this agreement, we were able to sell accounts receivable from Wal-Mart Stores, Inc. (“Wal-Mart”) at a discount to Wells Fargo. On January 29, 2016 we terminated our agreement with Wells Fargo due to Wal-Mart changing its accounts payable policy.

During the nine months ended September 30, 2017 and 2016, we sold approximately $0 and $306,800, respectively, of our relevant accounts receivable to Wells Fargo for approximately $0 and $305,200, respectively. The difference between the invoiced amountconsist of the ~~receivable~~following:


	September 30, 2022		December 31, 2021
Cash	$	14	$	770
Restricted Cash		125		500
	$	139	$	1,270

(f) InventoriesValuation and the cash that we received from Wells Fargo is a cost to us. This cost is in lieu of any cash discount our customer would have been allowed and, thus, is treated in a manner consistent with standard trade discounts granted to our customers.Reserves

The reporting of the sale of accounts receivable to Wells Fargo is treated as a sale rather than as a secured borrowing. As a result, affected accounts receivable are relieved from the Company’s financial statements upon receipt of the cash proceeds.

~~(g)~~

~~Inventories Valuation and Reserves~~

Inventories consist of raw materials and finished goods and are stated at the lower of cost (first-in, first-out method) or ~~market.~~net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We ~~record a~~estimate an inventory reserve, which is generally not material to our financial statements, for slow moving and obsolete products and raw ~~materials. We estimate this reserve~~materials based upon, among other things, an assessment of historical and anticipated ~~sales.~~sales of our products. In the event that actual results differ from our estimates, the results of future periods may be impacted.

Inventories were comprised of the following at:


	September 30, 2017			December 31, 2016			September 30, 2022		December 31, 2021
Finished goods	$	7,364,900		$	2,668,700			5,986	$	5,499
Raw materials		2,133,600			3,035,000			303		178
Inventory reserve for obsolescence		(14,600	)		(62,400	)
	$	9,483,900		$	5,641,300		$	6,289	$	5,677

Our remaining raw materials balance is to be sold to contract manufacturing partners based on production demand.

~~(h)~~

~~Property and Equipment~~

(g) Property and Equipment

Property and equipment are recorded at historical cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three to ~~20 years. Production equipment and production support equipment are estimated to have useful lives of 15 to~~ 20 years ~~and three to 10 years, respectively.~~. Office furniture and office machines are estimated to have useful lives of 10 to 20 years and three to five years, respectively. Maintenance and repairs are expensed as incurred. Improvements that extend the useful lives of the asset or provide improved efficiency are capitalized.

~~(i)~~

(h) Leases

Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

Certain nonlease components, such as maintenance and other services provided by the lessor, are included in the valuation of the lease. Leases with an initial term of 12 months or less, which are not material to our financial statements, are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Lease agreements with lease and nonlease components are combined as a single lease component.

The Company evaluates reimbursable leasehold improvements based on whether improvements are indicative of a lessor or lessee asset. The Company concluded that all of its reimbursable leasehold improvement payments have qualified as lessor assets and, as such, have accounted for leasehold improvement payments as prepaid rent included in prepaid expenses on the Condensed Consolidated Balance Sheets.

~~Intangible Assets~~

(i) Intangible Assets and Goodwill

Goodwill is subject to impairment tests at least annually or when events or changes in circumstances indicate that an asset may be impaired. Other intangible assets ~~consist of~~with finite lives, such as customer relationships, trade names, and formulas, ~~and batching processes and a non-compete agreement. The fair value of the intangible assets is~~are amortized over their estimated useful lives, generally ranging from 5 to 20 years. Amortization expense related to intangible assets is included in Operating Expenses on the Condensed Consolidated Statement of Operations.

Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the software once the software is ready for its intended use and ~~range from a period~~placed into service. In the second quarter of 2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is five ~~to 15~~ years and ~~are reviewed~~will be periodically reassessed based on considerations for ~~impairment when changes in market circumstances occur~~obsolescence, technology, competition, and ~~written down to fair value if impaired.~~other economic factors.

~~(j)~~

~~Goodwill~~

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the Acquisition discussed in Notes 5 and 6. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests, and in certain circumstances these assets are written down to fair value if impaired.(j) Financial Instruments

~~(k)~~

~~Financial Instruments~~

Financial instruments which potentially subject us to concentrations of credit risk include cash, ~~and~~restricted cash, ~~equivalents~~ and accounts receivable. We maintain our cash balances in the form of bank demand deposits with financial institutions that we believe are creditworthy. ~~During the nine months ended September 30, 2017,~~Historically, we have maintained balances in various operating accounts in excess of federally insured limits. We establish an allowance for doubtful accounts, which is generally not material to our financial statements, 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~~restricted cash, ~~equivalents,~~ receivables, other current assets, accounts payable, and accrued expenses ~~and current maturities of long-term debt~~ approximate fair value due to the short-term nature of these financial instruments. The recorded amount of long-term debt approximates fair value and is estimated primarily based on current market rates for debt with similar terms and remaining maturities. At September 30, 2017, we had long-term debt of $1,400,000 and no outstanding balance on our line-of-credit. At December 31, 2016 we had long-term debt of $2,000,000 and a $750,000 outstanding balance on our line-of-credit.

(k) Income Taxes

~~(l)~~

~~Income Taxes~~

Income taxes reflect the tax effects of transactions reported in the ~~financial statements~~Condensed Consolidated Financial Statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. A valuation allowance is ~~provided~~established 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.

Taxes are reported based on tax positions that meet a more-likely-than-not standard and that are measured at the amount that is more-likely-than-not to be realized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits or expense. We classify penalty and interest expense related to income tax liabilities as an income tax expense. There are no significant interest and penalties recognized in the Condensed Consolidated Statements of Income or accrued on the Condensed Consolidated Balance Sheets.

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the three and nine months ended September 30, 2022 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax income primarily due to valuation allowance. The effective tax rate for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 was ~~35.6%~~0.0% and ~~40.8% respectively,~~21.6% respectively.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a valuation allowance has been recorded against the Company’s net deferred tax assets as of September 30, 2022, and December 31, 2021.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which ~~differs from~~is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the ~~statutory~~COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund. The tax impact of the carryback of the 2020 loss was recorded in the first quarter 2021 income tax ~~rate due~~provision. We elected to ~~permanent book to~~defer our portion of social security tax ~~differences.~~payments, and we paid this liability in the third quarter of 2021.

~~(m)~~

~~Revenue Recognition~~

(l) Revenue Recognition

Our revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until it is met. ~~In our case,~~When consideration is received in advance of the ~~criteria generally~~delivery of goods or services, a contract liability is recorded. Our revenue contracts are ~~met when: (i) we have an arrangement~~identified when purchase orders are received and accepted from customers and represent a single performance obligation to sell our products to a ~~product; (ii) we have delivered~~customer.

Net sales reflect the ~~product in accordance with that arrangement; (iii) the~~transaction prices for contracts, which include products shipped at selling list prices reduced by variable consideration. Variable consideration includes estimates for expected customer allowances, promotional programs for consumers, and sales ~~price~~returns. Based on our customer-by-customer history, our variable consideration estimates are generally accurate and subsequent adjustments are generally immaterial.

Variable consideration is primarily comprised of ~~the product is determinable; and (iv) we believe that we will be paid for the sale.~~

~~We establish~~customer allowances. Customer allowances primarily include reserves for ~~customer returns~~trade promotions to support price features, displays, slotting fees, and other merchandising of our products to our customers. Promotional programs for consumers primarily include coupons, rebates, and certain other promotional programs, and do not represent a significant portion of variable consideration. The costs of both customer allowances and promotional programs for consumers are estimated using either the expected value or most likely amount approach, depending on the nature of the allowance, using all reasonably available information, including our historical experience and current expectations. Customer allowances and promotional programs for consumers are reflected in the transaction price when sales are recorded. We may adjust our estimates based on actual results and consideration of other factors that cause allowances. ~~We estimate these reserves~~In the event that actual results differ from our estimates, the results of future periods may be impacted.

Sales returns are generally not material to our financial statements, and do not comprise a significant portion of variable consideration. Estimates for sales returns are based ~~upon,~~on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These ~~reserves~~estimates are established in the period of sale and reduce our revenue in that period.

Our reserve for customer allowances includes primarily reserves for trade promotions to support price features, displays, slotting fees and other merchandising of our products to our customers. The actual level of returns and customer allowances is influenced by several factors, includingSales are recorded at the ~~promotional efforts of our customers, changes in mix of our customers, changes in the mix~~time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we ~~sell~~consider several indicators, including significant risks and rewards of products, our right to payment, and the ~~maturity~~legal title of the ~~product. We may change our estimates based~~products. Based on ~~actual results and consideration of other factors that cause returns and allowances. In~~ the ~~event that actual results differ from our estimates, the results of future periods may be impacted.~~

~~We also establish reserves for coupons, rebates and certain other promotional programs for consumers. We estimate these reserves based upon, among other things, an~~ assessment of ~~historical trends and current~~control indicators, sales ~~activity. These reserves~~ are ~~recorded as a reduction of revenue at the later of the date at which the revenue is~~generally recognized ~~or the date at which the sale incentive is offered.~~when products are delivered to customers.

We have also established an allowance for doubtful accounts. We estimate this allowance based upon, among other things, an assessment of the credit risk of specific customers and historical trends. We believe our allowance for doubtful accounts is adequate to absorb any losses which may arise. In the event that actual losses differ from our estimates, the results of future periods may be impacted.

Customer allowances for trade promotions and allowance for doubtful accounts are included in net accounts receivable on the Condensed Consolidated Balance Sheets and were as follows:

At September 30, 2017 and December 31, 2016 approximately $831,400 and $1,184,700, respectively, had been reserved as a reduction of accounts receivable. Trade promotions to our customers and incentives such as coupons to our consumers are deducted from gross sales and totaled $1,854,100 and $1,584,500 for the nine months ended September 30, 2017 and 2016, respectively, and totaled $522,300 and $616,300 for the three months ended September 30, 2017 and 2016, respectively.


	September 30, 2022		December 31, 2021
Trade promotions	$	379	$	1,242
Allowance for doubtful accounts		44		14
	$	423	$	1,256

~~(n)~~

~~Advertising Costs~~

(m) Advertising Costs

We expense advertising costs ~~are expensed~~ as incurred.

~~(o)~~

~~Stock-based Compensation~~

~~The Company accounts~~(n) Stock-Based Compensation

We account for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. ~~The Company determines~~We determine the estimated grant-date fair value of stock options with only service conditions using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. ~~The Company recognizes~~We recognize compensation costs ratably over the vesting period using the straight-line ~~method.~~method, which approximates the service period.

The Company issues restricted stock unit ("RSUs") awards with restrictions that lapse upon the passage of time (service vesting) and satisfaction of market conditions targeted to our Company’s stock price. For those RSU awards with only service vesting, the Company recognizes compensation cost on a straight-line basis over the service period. For awards with both market and service conditions, the Company starts recognizing compensation cost over the requisite service period, with the effect of the market conditions reflected in the calculation of the award's fair value at grant date. The Company values awards with only service vesting requirements based on the grant date share price. The Company values awards with market and service conditions using a Monte Carlo simulation. The Company determines the requisite service period for awards with both market and service conditions based on the longer of the explicit service period and the derived service period. Stock awards that contain market vesting conditions are included in the computations of diluted EPS reflecting the average number of shares that would be issued based on the highest 30-day average market price during the reporting periods, if their effect is dilutive. If the condition is based on an average of market prices over some period of time, the corresponding average for the period is used.

~~(p)~~

~~Operating Costs and Expenses Classification~~

(o) Operating Costs and Expenses Classification

Cost of sales includes costs associated with the purchase of goods from our third-party manufacturing ~~and distribution including~~partners, which include labor, materials, and other expenses associated with the manufacturing of our products, 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 as selling expenses. Other selling expenses consist primarily of ~~wages~~costs for warehousing and ~~benefits for~~distribution, sales and sales support personnel, ~~travel,~~ brokerage commissions, customer compliance fines, and promotional costs. Freight-out costs ~~as well as certain other indirect costs. Shipping~~included in selling expenses totaled $429 and ~~handling costs~~$624 for the three months ended September 30, 2022 and 2021, respectively, and totaled ~~$1,864,400~~$1,725 and ~~$1,149,600~~$2,163 for the nine months ended September 30, ~~2017~~2022 and ~~2016, respectively, and totaled $611,200 and $439,000 for the three months ended September 30, 2017 and 2016,~~2021, respectively.

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.

~~(q)~~

~~Recently Issued Accounting Standards~~

On April 29, 2021, the Company announced that Mark E. Goldstein, the President and Chief Executive Officer of the Company and a member of the Board of Directors, retired effective as of April 26, 2021. In ~~May 2014,~~connection with Mr. Goldstein’s retirement, the ~~Financial~~Company and Mr. Goldstein entered into a Separation Agreement, Waiver and Release (the “Separation Agreement”), pursuant to which the Company will pay Mr. Goldstein $720 in severance payments (equal to 18 months base salary) over a period of 30 months and reimbursement for the costs of continuing health benefits for a period of 18 months. Severance costs of $805 were recognized in the second quarter of 2021 and are included in general and administrative expenses. Accrued severance costs are included in accrued expenses on the Condensed Consolidated Balance Sheets.

(p) Recently Adopted Accounting Standards ~~Board (“FASB”)~~

In March 2020, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. ~~2014-09,~~ ~~“Revenue from Contracts with Customers~~2020-04, “Reference Rate Reform (Topic ~~606)”~~848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU ~~2014-09”~~2020-04”). The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance ~~as amended by subsequent ASUs on~~primarily provides temporary optional expedients which simplify the ~~topic, outlines a comprehensive model~~accounting for ~~determining revenue recognition for contracts with customers, which replaces numerous industry-specific requirements and converges areas under this topic with those of~~contract modifications to existing debt agreements expected to arise from the ~~International Financial Reporting Standards. This guidance implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed~~market transition from LIBOR to ~~transfer of risk and rewards.~~alternative reference rates. The new guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts and customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is consideredamendments in ~~the transaction price, and allowing estimates of variable consideration to be recognized before contingencies~~ASU 2020-04 are ~~resolved in certain circumstances. The new guidance is~~ effective for ~~reporting periods beginning after December 15, 2017, and early adoption is permitted. Entities can transition to the new guidance either retrospectively or as a cumulative-effect adjustment~~all entities as of ~~the date~~March 12, 2020 through December 31, 2022. An entity may elect to apply amendments prospectively through December 31, 2022. The Company adopted ASU 2020-04 effective July 1, 2022. The adoption of the adoption. We have substantially completed our assessment of the new guidance and continue to make progress on its implementation. We plan to adopt the new guidance on January 1, 2018, on a “full retrospective” basis. Currently, we believe that the new guidance is not expected tothis standard did not have a material impact on our financial ~~statements and we are currently assessing the need for expanded financial disclosures, if any.~~statements.

(q) Recently Issued Accounting Standards

In ~~August 2016, the FASB issued ASU 2016-15,~~ ~~“Statement of Cash Flows: Classification of Certain Cash Receipts and Payments”~~ (“ASU 2016-15”), which provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. Application of ASU 2016-15, which should be applied prospectively, is required for the annual and interim periods beginning after December 15, 2017. Early adoption is permitted. ASU 2016-15 is not expected to have a material impact on our financial statements.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~“Business Combinations (Topic 805): Clarifying the Definition of a Business”~~ (“ASU 2017-01”), which provides a more defined framework to use in determining when a set of assets and activities is a business. ASU 2017-01 also provides greater consistency in applying the guidance, making the definition of a business more operable. ASU 2017-01 is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017. ASU 2017-01 is not expected to have a material impact on our financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~“Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting”~~ (“ASU 2017-09”), clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. ASU 2017-09 is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 is not expected to have a material impact on our financial statements.

~~In February 2016,~~September 2022, the FASB issued ASU No. ~~2016-02,~~ ~~“Leases (Topic 842)”~~ ~~(“ASU 2016-02”),~~2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, ~~2018,~~2023. We are currently assessing the impact of this guidance on our financial statements.

Note 2. Going Concern

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern.

The Company had cash and restricted cash of $139 and $944 of available borrowing capacity under our revolving credit facility as of September 30, 2022. Primarily due to a decline in net sales and increases in costs associated with the manufacture and distribution of our products, the Company used net cash in operating activities of $1,189 during the nine months ended September 30, 2022. The Company’s debt agreements with UMB Bank, N.A. and La Plata Capital, LLC mature on July 1, 2023 and November 9, 2023, respectively. Management’s assessment of cash flow forecasts indicate that, absent any other action, the Company likely will require additional liquidity to continue its operations over the next 12 months.

Management has implemented actions to reduce the Company’s operating expenses and has approved a plan to extend and restructure debt facilities. Management is considering additional various strategic actions including ~~interim periods within those fiscal years. A modified retrospective transition approach is~~asset sales, workforce reduction, deferring or eliminating certain capital expenditures, and further reduction of other operating expenses to ensure alignment with customer demand in order to address liquidity needs and pursue its business plan. The Company expects that these strategic actions will reduce expenses and outstanding debt balances and provide required liquidity for ~~lessees for capital and operating leases existing at, or~~ongoing operations. If these plans aren't successfully implemented there could be substantial doubt about the Company's ability to continue as a going concern.

Note 3. Discontinued Operations

On December 23, 2021, we entered into ~~after, the beginning~~an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title and interest in and to certain assets of the ~~earliest comparative~~Dryel® product line. The total consideration paid to us was $4,850, plus an amount equal to the value of the Dryel® inventory of $440, subject to post-close adjustment. At closing, $500 of the total consideration was held in escrow for a twelve-month period ~~presented~~following the closing date, to be released ratably in four installments in 2022. We received the first three installment payments during the first nine months ended September 30, 2022. This consideration is reflected as Restricted Cash on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. Dryel® generated approximately $2,800 of net sales in the ~~financial statements. We anticipate that most~~trailing twelve-month period ending December 31, 2021.

Under ASC 360, a long-lived asset group should be classified as held for sale if all of ~~our operating leases will~~the established criteria are met. The sale of Dryel® did not meet these criteria in the year ending December 31, 2021, because we had not established an active program to locate a buyer and because the brand was not being marketed for sale. All efforts between the buyer and the Company occurred during the fourth quarter of 2021. As a result, ~~in recognition of additional~~there was no adjustment to fair value under ASC 360 guidance related to held for sale assets, and the ~~corresponding~~difference between the consideration paid to us and the carrying amount of all assets is reflected in the loss on sale of discontinued operations.

We have reflected the operations of the Dryel® product line as discontinued operations. Our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations report discontinued operations separate from continuing operations. Our Condensed Consolidated Statements of Equity and Statements of Cash Flows combine the results of continuing and discontinued operations. As of the three and nine months ended September 30, 2022, there were no operating results from discontinued operations included in the Condensed Consolidated Statements of Operations. As of September 30, 2022 and December 31, 2021, respectively, there were no assets and liabilities onrelating to discontinued operations presented separately in the Condensed Consolidated Balance Sheets. ~~We have not determined~~There were no capital expenditures or significant operating and investing noncash items related to discontinued operations during the ~~amount~~nine months ended September 30, 2022 and 2021, respectively. A summary of ~~these transactions or the final impact~~financial information related to our ~~earnings~~discontinued operations is as ~~the actual impact will depend on the Company’s lease portfolio at the time of adoption.~~follows:

~~In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”~~ ~~(“ASU 2016-13”)~~. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). ASU 2016-13 is not expected to have a material impact on our financial statements.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~“Simplifying the Test for Goodwill Impairment”~~ ~~(“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by elimination~~Reconciliation of the Step 2 requirement to calculate the implied fair value of goodwill. Instead, if a reporting unit’s carrying amount exceeds its fair value, an impairment charge will be recorded based on that difference. The impairment charge will be limitedLine Items Constituting Pretax Loss from Discontinued Operations to the ~~amount~~After-Tax Loss from Discontinued Operations in the Condensed Consolidated Statements of ~~goodwill allocated to that reporting unit. ASU 2017-04 will be applied prospectively~~Operations for the three and ~~is effective for impairment tests performed after December 15, 2019, with early adoption permitted. ASU 2017-04 is not expected to have a material impact on our financial statements.~~nine months ended September 30:


	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Net sales	$	585		$	1,856
Cost of sales		313			1,013
Gross profit		272			843

Operating expenses:
Selling		144			367
Intangible asset amortization		123			369
Interest expense		99			298
Loss from discontinued operations, before tax		(94	)		(191	)


Income tax expense		(111	)		(55	)
Loss from discontinued operations, net of tax	$	(205	)	$	(246	)

~~Note 2.~~

~~Stock-Based Compensation~~

During the nine months ended September 30, 2017, we granted: (i) options to acquire 16,560 shares of our common stock to employees at prices ranging between $1.80 and $2.25 per share; and (ii) options to acquire 30,000 shares of our common stock to a non-employee board member at a price of $2.25 per share. During the nine months ended September 30, 2016,Note 4. Stock-Based Compensation

On January 18, 2022, we granted ~~options to acquire 3,000 shares of our common stock~~25 RSUs to an employee at(the “2022 Individual Employee Grant”) with a ~~price of $1.20 per share.~~

~~The weighted average~~grant date fair ~~market~~ value of $10. The 2022 Individual Employee Grant vested one-third on the initial grant date, and the remaining two-thirds will vest on each anniversary of the grant date.

On March 2, 2022, we granted 15 shares of restricted stock to one executive all of which vested on the grant date with a fair value of $18.

Compensation cost related to stock options ~~granted~~totaled $10 and $44 in the nine months ended September 30, ~~2017~~2022 and ~~2016 was estimated on the date of grant, using a Black-Scholes option pricing model with the following assumptions:~~

September 30, 2017

September 30, 2016
Expected life of options (using the “simplified” method)
4 years

6 years
Average risk-free interest rate

1.44%

1.50%
Average expected volatility of stock

78%

134%
Expected dividend rate
None

None
Fair value of options granted
$55,100

$3,488

~~Compensation cost related to~~2021, respectively. The stock options ~~recognized in operating results (included in general and administrative expenses) totaled $183,500 and $189,500~~were fully vested in the ~~nine months ended September 30, 2017 and 2016, respectively, and totaled $71,500 and $61,600 in the three months ended September 30, 2017 and 2016, respectively. Approximately $495,000~~second quarter of ~~total unrecognized compensation costs related to non-vested stock options is expected to be recognized over the next 12-60 months, depending on the vesting provisions of the options.~~2022. There was no tax benefit from recording the non-cash expense as it relates to the options granted to employees, as these were qualified stock options which are not normally tax deductible.

~~In 2005, we adopted a stock option plan~~10

Compensation cost related to RSUs totaled $103 and $55 for ~~our employees, officers~~the nine months ended September 30, 2022 and ~~directors (the “2005 Plan”). In 2015, we adopted a stock option plan for our employees, officers and directors (the “2015 Plan”)~~2021, respectively. Approximately $170 of total unrecognized compensation costs related to ~~replace~~non-vested RSUs is expected to be recognized over the ~~2005 Plan, which expired on March 31, 2015.~~next three years.

~~Activity under our two stock option plans is as follows:~~

Number of Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

2005 Plan

Outstanding, December 31, 2016

628,313

$
0.63

3.8 years

$
510,000

Granted

-

Exercised

(136,250
)

Cancelled/Expired

-

Outstanding, September 30, 2017

492,063

$
0.73

4.0 years

$
865,300

Exercisable, September 30, 2017

378,158

$
0.69

3.3 years

$
679,000

2015 Plan

Outstanding, December 31, 2016

787,615

$
1.27

7.2 years

$
136,000

Granted

46,560

Exercised

-

Cancelled/Expired

(49,491
)

Outstanding, September 30, 2017

784,684

$
1.32

6.6 years

$
916,500

Exercisable, September 30, 2017

380,205

$
1.31

6.2 years

$
449,200

~~Note 3.~~

~~Earnings per Share~~

Note 5. Earnings per Share

Per share data is 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. 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.

Basic earnings per share include no dilution and are computed by dividing income available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in our earnings.

A reconciliation of the weighted average number of common shares outstanding (in thousands) is as ~~follows:~~follows. The dilutive effect of stock options and RSUs are excluded for periods in which the Company has a net loss because the impact is anti-dilutive.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
Common shares outstanding, beginning of the period		11,885,839		11,742,329		11,749,589		11,710,745		12,749		12,618		12,727		12,618
Weighted average common shares issued		-		5,283		91,368		20,014		-		24		20		10
Weighted average number of common shares outstanding		11,885,839		11,747,612		11,840,957		11,730,759		12,749		12,642		12,747		12,628
Dilutive effect of common share equivalents		474,240		280,344		376,933		238,408		-		-		-		-
Diluted weighted average number of common shares outstanding		12,360,079		12,027,956		12,217,890		11,969,167		12,749		12,642		12,747		12,628

Common stock equivalents (in thousands) that have been excluded from the calculation of earnings per share because they would have been anti-dilutive:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Stock options

46,600

579,500

89,100

659,000


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Stock options		153		15		153		15

~~Note 4.~~

~~Segment Information~~

Note 6. Segment Information

We operate in two different segments: household products and ~~skin~~health and ~~hair~~beauty care products. Our products are sold nationally and internationally (primarily Canada), directly through our sales force and indirectly through independent brokers and manufacturer’s representatives, to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, and other retail outlets and to wholesale distributors. We have chosen to organize our business around these segments based on differences in the products sold.

Accounting policies for our segments are the same as those described in Note 1. We evaluate segment performance based on segment income or loss ~~before income taxes.~~from operations.

The following provides information on our segments for the three and nine months ended September 30:

Three Months Ended September 30,

2017

2016

Household Products

Skin and Hair Care Products

Household Products

Skin and Hair Care Products

Net sales
$
1,409,000

$
8,931,600

$
1,453,400

$
8,483,500

Operating costs and expenses:

Cost of sales

661,600

4,758,400

690,000

5,140,600

Advertising expenses

37,700

72,100

10,300

81,400

Selling expenses

332,000

1,251,400

276,800

1,440,500

General and administrative expenses

367,200

695,500

328,900

889,900

Total operating costs and expenses

1,398,500

6,777,400

1,306,000

7,552,400

Income from operations

10,500

2,154,200

147,400

931,100

Other (expense) income

-

-

(1,100
)

2,100

Interest expense

-

(26,400
)

-

(60,400
)
Income before income taxes
$
10,500

$
2,127,800

$
146,300

$
872,800


	Three Months Ended September 30, 2022
	Household Products			Health and Beauty Care Products			Total
Net sales	$	2,748		$	1,529		$	4,277
Loss from operations		(371	)		(232	)		(603	)
Capital and intangible asset expenditures		-			-			-
Depreciation and amortization		99			41			140


	Three Months Ended September 30, 2021
	Household Products			Health and Beauty Care Products			Total
Net sales	$	3,846		$	4,124		$	7,970
Loss from operations		(382	)		(548	)		(930	)
Capital and intangible asset expenditures		113			-			113
Depreciation and amortization		297			155			452


	Nine Months Ended September 30, 2022
	Household Products			Health and Beauty Care Products			Total
Net sales	$	9,103		$	6,346		$	15,449
Loss from operations		(4,854	)		(200	)		(5,054	)
Capital and intangible asset expenditures		142			-			142
Depreciation and amortization		386			93			480


	Nine Months Ended September 30, 2021
	Household Products			Health and Beauty Care Products			Total
Net sales	$	10,762		$	13,821		$	24,583
Loss from operations		(1,960	)		(591	)		(2,551	)
Capital and intangible asset expenditures		262			-			262
Depreciation and amortization		893			464			1,357

Nine Months Ended September 30,

2017

2016

Household Products

Skin and Hair Care Products

Household Products

Skin and Hair Care Products

Net sales
$
4,189,400

$
26,467,600

$
4,490,300

$
19,784,500

Operating costs and expenses:

Cost of sales

2,010,600

14,638,400

2,148,500

11,306,100

Advertising expenses

353,900

177,200

889,100

537,500

Selling expenses

977,000

3,901,600

1,118,400

3,065,900

General and administrative expenses

1,046,400

2,119,900

1,136,900

2,296,100

Total operating costs and expenses

4,387,900

20,837,100

5,292,900

17,205,600

(Loss) income from operations

(198,500
)

5,630,500

(802,600
)

2,578,900

Other income

-

-

2,300

10,300

Interest expense

-

(101,500
)

(3,500
)

(74,000
)
(Loss) income before income taxes
$
(198,500
)

$
5,529,000

$
(803,800
)

$
2,515,200

~~The following is a reconciliation of segment information to consolidated information:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net sales
$
10,340,600

$
9,936,900

$
30,657,000

$
24,274,800

Consolidated income before income taxes
$
2,138,300

$
1,019,100

$
5,330,500

$
1,711,400

September 30, 2017

December 31, 2016

Assets:

Household Products
$
2,133,600

$
1,850,000

Skin and Haircare Products

21,883,700

18,371,500

Corporate

665,200

1,611,800

Consolidated
$
24,682,500

$
21,833,300

Corporate assets noted above are comprised primarily of our deferred tax assets and property and equipment not directly associated with our manufacturing, warehousing, shipping and receiving activities.

~~Note 5.~~

~~Acquisition~~

On June 30, 2016, Neoteric Cosmetics, Inc. (“Neoteric”), a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Ultimark Products, Inc. (“Ultimark”) and consummated the transaction contemplated thereby (the “Acquisition”), pursuant to which Neoteric purchased from Ultimark all intellectual property assets and certain related assets owned by Ultimark as well as inventory of finished goods owned by Ultimark and used in connection with the manufacture, sale and distribution of the Prell^®~~, Denorex~~^®~~, and Zincon~~^® brands of hair and scalp care products (collectively, the “Brands”). The total consideration Neoteric paid for the Brands was approximately $9.0 million, plus the assumption by Neoteric of certain specific liabilities of Ultimark related to the performance of certain purchase orders and contracts following June 30, 2016.

~~Note 6.~~

Note 7. Goodwill and ~~Intangible Assets~~

Intangible ~~assets consisted~~Assets

There was no impairment in the three months ended September 30, 2022 and 2021, respectively.

During the second quarter of 2022, we experienced a significant decline in our stock price and market capitalization and revised internal forecasts relating to all reporting units due to inflationary related pressures at our customers which have caused sales decreases. We concluded that the changes in circumstances in these reporting units triggered the need for a quantitative review of the ~~following:~~

As of September 30, 2017

As of December 31, 2016

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Intangible assets:

Customer relationships
$
4,022,100

$
502,800

$
3,519,300

$
4,022,100

$
201,100

$
3,821,000

Trade names

2,362,400

196,800

2,165,600

2,362,400

78,700

2,283,700

Formulas and batching processes

668,600

69,800

598,800

668,600

27,900

640,700

Non-compete agreement

26,300

6,400

19,900

26,300

2,600

23,700

7,079,400

775,800

6,303,600

7,079,400

310,300

6,769,100

Goodwill

1,520,600

1,520,600

Total intangible assets

$
7,824,200

$
8,289,700

~~The amortization expense for~~carrying values of goodwill and certain intangible assets and resulted in impairment charges to our All-Purpose reporting unit during the ~~three and~~ nine months ended September 30, ~~2017~~2022 and resulted in the following impairment charges:


	Intangible Assets		Goodwill		Total
All-Purpose		2,717		872		3,589

There was ~~$155,100~~no impairment in the nine months ended September 30, 2021.

The changes in the carrying amount of goodwill by reporting unit for the nine months ended September 30, 2022 and ~~$465,500,~~2021 were as follows:


	Detergent		Shampoo		All-Purpose			Total
Balance, January 1, 2022	$	-	$	-	$	1,710		$	1,710
Additions		-		-		-			-
Impairment		-		-		(872	)		(872	)
Balance, September 30, 2022	$	-	$	-	$	838		$	838

Balance, January 1, 2021	$	593	$	1,520	$	1,710		$	3,823
Additions		-		-		-			-
Impairment		-		-		-			-
Balance, September 30, 2021	$	593	$	1,520	$	1,710		$	3,823

Intangible assets, which are comprised of our capitalized costs of software obtained for internal-use or are related to our acquisition of our Prell®, Denorex®, BIZ® and Kids N Pets® brands, consisted of the following:


	As of September 30, 2022						As of December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets:
Customer relationships	$	-	$	-	$	-	$	2,103	$	329	$	1,774
Trade names		970		99		871		1,850		151		1,699
Formulas and batching processes		1,000		441		559		1,370		452		918
Internal-use software		898		60		838		756		-		756
Non-compete agreement		33		29		4		48		35		13
	$	2,901	$	629	$	2,272	$	6,127	$	967	$	5,160

The change in the net carrying amounts of intangible assets during 2022 was due to capitalization of costs related to our internal-use software, the impact of impairment charges related to intangible assets in our All-Purpose reporting unit, and amortization expense. Amortization expense for the three months ended September 30, 2022 and 2021 was $87 and $278, respectively. Amortization expense for the ~~three and~~ nine months ended September 30, ~~2016~~2022 and 2021 was ~~$155,200.~~$313 and $433, respectively.

Estimated amortization expense for ~~2017~~2022 and subsequent years is as follows:

2017 (remaining)
$
155,200

2018

620,700

2019

620,700

2020

620,700

2021

617,600

Thereafter

3,668,700

Total
$
6,303,600


Remainder of 2022	$	86
2023		344
2024		344
2025		343
2026		342
Thereafter		813
Total	$	2,272

~~Note 7.~~

~~Long-Term Debt and Line-of-Credit~~

Note 8. Long-Term Debt and Line-of-Credit

On ~~June 30, 2016, Neoteric and the Company, as borrowers,~~July 1, 2020, we entered into a Loan and Security Agreement (as amended, the ~~Credit Agreement (the “Credit~~“UMB Loan Agreement”) with ~~JPMorgan Chase~~UMB Bank, N.A. (“~~Chase”~~UMB”)~~, as lender, pursuant to which Chase provided~~. Under the UMB Loan Agreement we obtained a $3,000 term loan, with equal monthly payments fully amortized over three years, and interest at the LIBOR Rate + 4.50% with a floor of 5.50%, and a revolving credit facility, ~~that was used to finance~~with a ~~portion~~maximum commitment of $7,000 with interest at the Acquisition and for the Company’s general corporate purposes and working capital. The term loan amount is $2.4 million with quarterly payments fully amortized over three years and interest of: (i) the LIBOLIBOR Rate + ~~3.75%; or (ii) the Prime Rate + 1.00%~~3.75%, with a floor of ~~the one month LIBO Rate + 2.5%~~4.75%. ~~At September 30, 2017, our rate was 4.98%. The~~On August 10, 2022, the revolving credit facility ~~amount is $4 million~~was reduced to a maximum commitment of $4,000 with interest ~~of: (i)~~at the ~~LIBO Rate~~one month term SOFR rate + ~~3.00%; or (ii) the Prime Rate + 0.25%~~6.83%, with a floor of ~~the one month LIBO Rate + 2.5%. At September 30, 2017, our rate was 4.23%~~7.75%. The revolving credit facility will terminate on ~~June 30, 2019 or any~~July 1, 2023, unless terminated earlier ~~date on which the revolving commitment is otherwise terminated~~ pursuant to the ~~Credit Agreement. Under the Credit Agreement we are obligated to pay quarterly an unused commitment fee equal to 0.5% per annum on the daily amount~~terms of the ~~undrawn portion of the revolving line-of-credit.~~UMB Loan Agreement. The loans are ~~collateralized~~secured by all of the assets of the Company and all of its subsidiaries.

The ~~Credit~~UMB Loan Agreement requires ~~among other things, that beginning on December 31, 2016~~compliance with affirmative, negative, and ~~subsequently~~financial covenants, as determined on a ~~quarterly basis, the Company maintain a Debt Service Coverage Ratio of no less than 1.25 to 1.0 and a Funded Indebtedness to Adjusted EBITDA Ratio of no greater than 3.0 to 1.0.~~monthly basis. The ~~Credit~~UMB Loan Agreement also contains covenants typical of transactions of this type, including among others, limitations on ~~the Company’s~~our ability to: create, incur or assume any indebtedness or lien on ~~Company~~our assets; pay dividends or make other distributions; redeem, retire or acquire ~~the Company’s~~ outstanding common stock, options, warrants or other rights; make fundamental changes to ~~the Company’s~~our corporate structure or business; make investments or ~~asset sales;~~sell assets; or engage in certain other activities as set forth in the ~~Credit~~UMB Loan Agreement. The Company was in compliance with the UMB Loan Agreement financial covenants as of September 30, 2022.

As of September 30, 2022, our UMB revolving credit facility and UMB term loan had an outstanding balance of $2,414 and $0, respectively, with an all-in interest rate of 9.87% and 9.13%, respectively. Unamortized loan costs were as $149 of September 30, 2022.

On November 9, 2021, we entered into a loan and security agreement (the “La Plata Loan Agreement”) with La Plata Capital, LLC (“La Plata”). Under the La Plata Loan Agreement, we obtained a $2,000 term loan that bears interest at 14% and a maturity date of November 9, 2023. Interest-only payments are required on a monthly basis beginning in January 2022 and ending on December 1, 2022. Beginning on January 1, 2023, monthly principal payments of $30 are required in addition to accrued and unpaid interest. All remaining unpaid principal and interest are fully due on November 9, 2023.

The La Plata Loan Agreement requires compliance with affirmative, negative, and financial covenants, as determined on a monthly basis beginning in July 2022. The La Plata Loan Agreement is secured by all of the ~~Credit~~assets of the Company and all of its subsidiaries, subordinate to the security of the UMB Loan Agreement. In conjunction with this agreement, we also entered into an intercreditor and subordination agreement with UMB and La Plata, effective November 9, 2021. The Company was in compliance with the La Plata Loan Agreement as of September 30, ~~2017 and December 31, 2016. Capitalized terms used but not defined shall have the meanings provided in the Credit Agreement.~~2022.

~~Maturities~~As of ~~long-term debt are as follows~~September 30, 2022, our La Plata term loan had an outstanding balance of $1,000. La Plata unamortized loan costs were $26 as of September 30, ~~2017:~~2022.

As of September 30, 2022, the total principal payments due on our outstanding debt were as follows:

2017 (remaining)
$
200,000

2018

800,000

2019

400,000

1,400,000

Less unamortized debt issuance costs

(43,900
)
Total
$
1,356,100


	Revolving Credit Facility		Term Loan		Total
Remainder of 2022	$	-		-		-
2023		2,414		1,000		3,414
Total minimum principal payments	$	2,414	$	1,000	$	3,414

~~Debt issuance costs recognized~~Note 9. Leases

We have entered into a lease for our corporate headquarters with a remaining lease term of 9 years. This lease includes both lease and nonlease components, which are accounted for as a single lease component as we have elected the practical expedient to combine these components for all leases. As this lease does not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

Information related to leases was as follows:


	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Operating lease information:
Operating lease cost	$	100		$	300
Operating cash flows from operating leases		100			300
Net assets obtained in exchange for new operating lease liabilities		-			-

Weighted average remaining lease term in years		8.17			8.17
Weighted average discount rate		5.1	%		5.1	%

Future minimum annual lease payments are as follows:


Remainder of 2022	$	99
2023		406
2024		413
2025		420
2026		427
Thereafter		1,739
Total minimum lease payments	$	3,504
Less imputed interest		(659	)

Total operating lease liability	$	2,845

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of ~~interest expense~~Financial Condition and Results of Operations should be read in conjunction with the Company’s Consolidated Financial Statements in our Annual Report on Form 10-K for the ~~three~~year ended December 31, 2021. This Item 2 contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and ~~nine months~~other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. Please refer to "Item 1A. Risk Factors" in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of the uncertainties, risks and assumptions associated with these statements.

Executive Overview

Our Business

Scott’s Liquid Gold-Inc. exists to positively impact consumers’ lives in the markets we serve while creating shareholder value. We develop, market, and sell high-quality, high-value household and health and beauty care products nationally and internationally to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, other retail outlets, and to wholesale distributors.

COVID-19 Pandemic

For our fiscal quarter ended September 30, ~~2017 were $6,300~~2022, the coronavirus (COVID-19) pandemic continued to cause economic and ~~$18,800, respectively. Debt issuance costs recognized as~~social disruptions that led to ongoing uncertainties. During the first quarter of 2020, the global economy began experiencing a ~~component of interest expense for~~downturn related to the ~~three and nine months ended September 30, 2016 were $6,200. These costs are amortized using the effective interest method over the term~~impacts of the ~~loan.~~

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Results of Operations~~

~~Our consolidated net sales for~~COVID-19 global pandemic. Such impacts have included significant volatility in the ~~first nine months ended September 30, 2017 were $30,657,000 versus $24,274,800 for~~global stock markets, and uncertainty in the ~~first nine months ended September 30, 2016, an increase of $6,382,200 or 26.3%. We saw a 76.5% increase in net sales~~costs and performance of our ~~own lines of skin~~supply chain and ~~hair care products~~logistics partners. We expect to see continued volatility in these areas, which could impact our operating results in future periods.

Supply Chain and a 17.4% increase in net sales of the skin and hair care products that we distribute for other companies. We saw a 6.7% decrease in net sales of our household products. The reasons for the foregoing changes in net sales are described below.Outsourcing Partners

Our consolidated net sales for the three months ended September 30, 2017 were $10,340,600 versus $9,936,900 for the three months ended September 30, 2016, an increase of $403,700 or 4.1%. We saw a 37.5% increase in net sales of our own line of skin care products and an 11.0% decrease in net sales of the skin and hair care products that we distribute for other companies. We saw a 3.1% decrease in net sales of our household products. The reasons for the foregoing changes in net sales are described below.

Our net income for the first nine months ended September 30, 2017 was $3,431,200 versus net income of $1,013,500 in the first nine months ended September 30, 2016. Our net income for the third quarter of 2017 was $1,474,800 versus net income of $603,600 in the third quarter of 2016. The increase in net income for the first nine months ended September 30, 2017 compared to the net income for the same period in 2016 resulted primarily from: (1) increased sales asAs a result of COVID-19, we have encountered, and expect to continue to experience, various supply chain disruptions impacting the ~~Acquisition~~availability and ~~further growth~~lead times of certain raw materials for our finished goods products. We have been proactively identifying alternative sources for raw materials to mitigate the ~~skin~~impacts of these disruptions. All of our outsourcing partners, including contract manufacturing plants and ~~hair care products that we distribute; (2) an increase~~third-party logistics warehouses, have remained open during the entirety of COVID-19, however, they have had difficulties with staffing their workforce to keep production lines running.

Inflation

Inflationary trends in certain markets and global supply chain challenges have, and are expected to continue to, negatively affect our sales and operating performance. We experienced the ~~sales~~impact of ~~Alpha~~^®~~Skin Care products;~~greater inflation on material, logistical and (3) the incurrence of professional fees in the first nine months of 2016 related to the Acquisition. These increases were offset in part by an increase in income tax expense and the amortization of the acquired intangible assets. Our income tax expense for the first nine months ended September 30, 2017 was $1,899,300 versus an income tax expense of $697,900 in the first nine months ended September 30, 2016. Our income tax expense inother costs during the third quarter. We are aiming to offset these inflationary costs through a combination of pricing and cost savings strategies. We currently anticipate the impact of inflation in certain markets will be increasingly significant continuing into the fourth quarter ~~of 2017 was $663,500 versus an income tax expense of $415,500 in the third quarter of 2016.~~

~~Summary of Results as a Percentage of Net Sales~~

Year Ended December 31,

Nine Months Ended September 30,

2016

2017

2016

Net sales

Household products

17.0
%

13.7
%

18.5
%
Skin and hair care products

83.0
%

86.3
%

81.5
%
Total net sales

100.0
%

100.0
%

100.0
%
Cost of sales

56.9
%

54.3
%

55.4
%
Gross profit

43.1
%

45.7
%

44.6
%
Other revenue

0.0
%

0.0
%

0.1
%

43.1
%

45.7
%

44.7
%
Operating expenses

34.0
%

28.0
%

37.3
%
Interest expense

0.4
%

0.3
%

0.3
%

34.4
%

28.3
%

37.6
%
Income before income taxes

8.7
%

17.4
%

7.1
%

~~Our gross margins~~and fiscal 2023. We will continue to implement mitigation strategies and price increases to offset these trends; however, such measures may not ~~be comparable to those of companies who include all of~~fully offset the costs related to their distribution network in cost of sales because we, like some other companies, exclude a portion of these costs (i.e., freight out to customers) from gross margin. Instead, we include them as part of selling expenses. See Note 1(p), “~~Operating Costs and Expenses Classification~~,”impact to our ~~Condensed Consolidated Financial Statements (Unaudited) in Item 1.~~

operating performance.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~Distribution Agreement with Church & Dwight

~~Comparative Net Sales~~

Nine Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Total household products
$
4,189,400

$
4,490,300

(6.7
%)
Total skin and hair care products

26,467,600

19,784,500

33.8
%
Total net sales
$
30,657,000

$
24,274,800

26.3
%

Sales of household products for the first nine months of 2017 accounted for 13.7% of consolidated net sales compared to 18.5% for the same period in 2016. The net sales of these products were $4,189,400 in the first nine months of 2017 compared to $4,490,300 for the same period in 2016, a decrease of $300,900 or 6.7%. This decrease is primarily attributable to: (1) lower sales of our Scott’s Liquid Gold^® Floor Restore product due to the first nine months of 2016 including sales at one of our customers who discontinued the product in the second quarter of 2016; and (2) lower sales of our other household products.

Sales of skin and hair care products for the first nine months of 2017 accounted for 86.3% of consolidated net sales compared to 81.5% for the same period in 2016. The net sales of these products were $26,467,600 in the first nine months ended September 30, 2017 compared to $19,784,500 for the same period in 2016, an increase of $6,683,100 or 33.8%, primarily as a result of the addition of the net sales of Prell^®~~, Denorex~~^®~~, and Zincon~~^®~~, which we acquired in the Acquisition on June 30, 2016, and increases in the sales of Alpha~~^®~~Skin Care products and Montagne Jeunesse face masque sachets, and offset by a decrease in the sales of Batiste Dry Shampoo due to changes in our~~Our distribution agreement with Church & Dwight Co., Inc. (“Church & Dwight”) and our subsidiary, Neoteric Cosmetics, Inc., was not extended beyond the Expiration Date of December 31, 2021. As a result, the distribution agreement expired on its own terms as ~~previously disclosed in two Form 8-K filings dated July 17, 2017~~of the Expiration Date and ~~September 7, 2016.~~

~~The net~~the Company ceased to distribute Batiste Dry Shampoo products. Unless offset by increased sales of our ~~own skin~~other products, the conclusion of this distribution agreement is expected to have a material impact on our net sales and ~~hair care products were $9,694,800 in the first nine months~~result of ~~2017 compared to $5,492,800 for the same period in 2016, an increase of $4,202,000 or 76.5%. This increase is primarily attributable to: (1) an increase in the~~operations. Net sales of ~~Alpha~~^®~~Skin Care products; and (2)~~Batiste were $4,704 for the ~~addition of the net sales of Prell~~^®~~, Denorex~~^®~~, and Zincon~~^®~~. The net sales of Prell~~^®~~, Denorex~~^®~~, and Zincon~~^®~~were $4,709,800 in the first~~ nine months ended September 30, ~~2017.~~2021.

~~The net sales~~16

Sale of ~~Montagne Jeunesse~~Dryel® Brand

On December 23, 2021, we sold the Dryel® brand to a company that markets and ~~Batiste Dry Shampoo were $16,772,800~~distributes household cleaning products. We have reflected the operations of Dryel® as discontinued operations for all periods presented. These results are excluded from our segment results of household products, which previously included Dryel® operating results. See Note 3 - “Discontinued Operations” in the ~~first nine months~~Notes to Condensed Consolidated Financial Statements for further information.

Results of ~~2017 compared to $14,291,700 for the same period in 2016, an increase of $2,481,100 or 17.4%. This increase is primarily attributable to increased sales of Montagne Jeunesse face masque sachets.~~Operations

We paid our customers a total of $1,854,100 in the first nine months of 2017 for trade promotions to support price features, displays, slotting fees and other merchandising of our products compared to $1,584,500 for the same period in 2016, an increase of $269,600 or 17.0%. This increase is primarily attributable to the addition of the sales of Prell^®~~, Denorex~~^®~~, and Zincon~~^® ~~as well as increased sales of Montagne Jeunesse face masque sachets.~~

From time to time, our customers return products to us. For our household products, we permit returns only for a limited time. With regard to our skin and hair care products, returns are more frequent under an unwritten industry standard that permits returns for a variety of reasons. In the event a skin and hair care customer requests a return of a product, we will consider the request, and may grant such request in order to maintain or enhance our relationship with the customer, even in the absence of an enforceable right of the customer to do so. Typically, customers that return products to us take a credit on our invoice equal to the original sales price plus a handling charge ranging from 8-10% of the original sales price. Our product returns (as a percentage of net sales) were 0.2% for the first nine months of 2017 and 0.1% for the same period in 2016.

On a consolidated basis, cost of sales was $16,649,000 during the first nine months of 2017 compared to $13,454,600 for the same period in 2016, an increase of $3,194,400 or 23.7%, on a net sales increase of 26.3%. As a percentage of consolidated net sales, cost of sales was 54.3% in the first nine months of 2017 compared to 55.4% for the same period in 2016.

~~As a percentage of net sales of our household products, the costs of sales for our household products increased to 48.0% in the first nine months of 2017 compared to 47.8% for the same period in 2016.~~

As a percentage of net sales of our skin and hair care products, the cost of sales for our skin and hair care products decreased to 55.3% in the first nine months of 2017 compared to 57.1% for the same period in 2016. This change varies from period to period based on product mix and trade promotions of the products we make versus the products we distribute for other companies, which have higher costs and higher trade promotions. The underlying costs of the products did not significantly change in the first nine months of 2017 compared to the same period in 2016, except for an increase in certain overhead costs incurred from leasing additional warehouse space starting in the second quarter of 2016.

~~Operating Expenses, Interest Expense and Other Income~~

Nine Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Operating expenses

Advertising
$
531,100

$
1,426,600

(62.8
%)
Selling

4,878,600

4,184,300

16.6
%
General and administrative

3,166,300

3,433,000

(7.8
%)
Total operating expenses
$
8,576,000

$
9,043,900

(5.2
%)
Other income
$
-

$
12,600

(100.0
%)
Interest expense
$
101,500

$
77,500

31.0
%

Our operating expenses for the first nine months of 2017 were $8,576,000 compared to $9,043,900 for the same period in 2016, a decrease of $467,900 or 5.2%. These expenses consist primarily of advertising, selling, and general and administrative expenses.

Advertising expenses for the first nine months of 2017 were $531,100 compared to $1,426,600 for the same period in 2016, a decrease of $895,500 or 62.8%. This decrease is primarily due to: (1) the one-time expenses we incurred during the first nine months of 2016 relating to the repositioning of our Alpha^®~~Skin Care products and Scott’s Liquid Gold~~^® household products in the marketplace, which were not repeated in 2017; and (2) spending less on a national television campaign in the first nine months of 2017 compared to the same period in 2016 on our Scott’s Liquid Gold^® ~~Wood Care product~~.

Selling expenses for the first nine months of 2017 were $4,878,600 compared to $4,184,300 for the same period in 2016, an increase of $694,300 or 16.6%. This increase is primarily attributable to: (1) an increase in the commissions that we paid our sales brokers and an increase in our costs of freight-out to our customers due to higher sales volume; and (2) an increase in the accrual of probable bonus payments to personnel within our sales and marketing organization compared to the first nine months of 2016. This increase was offset primarily by a reduction in certain marketing and promotional activities compared to the first nine months of 2016.

General and administrative expenses for the first nine months of 2017 were $3,166,300 compared to $3,433,000 for the same period of 2016, a decrease of $266,700 or 7.8%. This decrease is due primarily to a decrease in professional fees in the first nine months of 2017 compared to higher fees in the same period of 2016 related to the Acquisition. This decrease was offset primarily by: (1) an increase in the accrual of probable bonus payments to our management and administrative personnel, compared to the first nine months of 2016; and (2) amortization of the acquired intangible assets.

~~Other income from interest earned on our cash reserves for the first nine~~Three months ended September 30, ~~2017 and 2016 was $0 and $12,600, respectively.~~

~~Interest expense for the first nine months of 2017 was $101,500~~2022 compared to ~~$77,500 for the same period~~three months ended September 30, 2021


	Three Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Net sales	$	4,277		$	7,970		$	(3,693	)		(46.3	%)
Cost of sales		2,358			5,100			(2,742	)		(53.8	%)
Gross profit		1,919			2,870			(951	)		(33.1	%)
Gross margin		44.9	%		36.0	%

Operating expenses:
Advertising		166			144			22			15.3	%
Selling		1,691			2,542			(851	)		(33.5	%)
General and administrative		578			836			(258	)		(30.9	%)
Intangible asset amortization		87			278			(191	)		(68.7	%)
Total operating expenses		2,522			3,800			(1,278	)		(33.6	%)
Loss from operations		(603	)		(930	)		327			35.2	%

Interest expense		(139	)		(109	)		(30	)		(27.5	%)
Loss before income taxes and discontinued operations		(742	)		(1,039	)		297			28.6	%
Income tax expense		(2	)		(1,224	)		1,222			99.8	%
Loss from continuing operations		(744	)		(2,263	)		1,519			67.1	%
Loss from discontinued operations		-			(205	)		205			100.0	%
Net loss	$	(744	)	$	(2,468	)	$	1,724			69.9	%

Change in ~~2016, an increase of $24,000 or 31.0%. The increase is~~net loss was primarily due to ~~borrowings under~~ the ~~Credit Agreement entered into on June 30, 2016 to help fund~~following:

•

Lower sales and gross profits from the ~~Acquisition.~~

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

~~Comparative Net Sales~~

Three Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Total household products
$
1,409,000

$
1,453,400

(3.1
%)
Total skin and hair care products

8,931,600

8,483,500

5.3
%
Total net sales
$
10,340,600

$
9,936,900

4.1
%

~~Sales~~conclusion of household products for the third quarter of 2017 accounted for 13.6% of consolidated net sales compared to 14.6% for the same period in 2016. The net sales of these products were $1,409,000 in the third quarter of 2017 compared to $1,453,400 for the same period in 2016, a decrease of $44,400 or 3.1%. This decrease is primarily attributable to lower sales of certain household products, which were partially offset by a slight increase in sales of our Scott’s Liquid Gold^® ~~Wood Care product~~.

Sales of skin and hair care products for the third quarter of 2017 accounted for 86.4% of consolidated net sales compared to 85.4% for the same period in 2016. The net sales of these products were $8,931,600 in the third quarter of 2017 compared to $8,483,500 for the same period in 2016, an increase of $448,100 or 5.3%, primarily as a result of increases in the sales of Alpha^®~~Skin Care products and Montagne Jeunesse face masque sachets, and offset by a decrease in the sales of Batiste Dry Shampoo due to changes in our distribution agreement with Church & Dwight.~~

The net sales of our own skin and hair care products were $3,919,800 in the third quarter of 2017 compared to $2,849,900 for the same period in 2016, an increase of $1,069,900 or 37.5%. This increase is primarily attributable to an increase in the sales of Alpha^®~~Skin Care products.~~

The net sales of Montagne Jeunesse and Batiste Dry Shampoo were $5,011,800 in the third quarter of 2017 compared to $5,633,600 for the same period in 2016, a decrease of $621,800 or 11.0%. This decrease is primarily attributable to changes in our distribution agreement with Church & Dwight for Batiste ~~Dry Shampoo,~~products, as well as reduced sales and gross profits from various product lines due to changes in our customers’ purchasing strategies related to inventory and inflationary pressures.

•

Gross margin increased due to product sales mix including the elimination of our Church and Dwight distribution agreement, as distributed products required higher promotional activity with customers which reduced our margins.

•

Decrease in selling expenses was ~~partially offset by an increase~~a result of lower logistics and warehousing costs from lower sales as well as a reduction in personnel costs.

•

Decrease in general and administrative costs due to changes in personnel and related costs.

•

Decrease in income tax expense as a valuation allowance on our deferred tax asset was established during the third quarter of 2021.

Segment Results

Household products

The following table shows comparative net sales, gross margin, gross profit, loss from operations, volume, and percentage changes for household products between periods:


	Three Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Net sales	$	2,748		$	3,846		$	(1,098	)		(28.5	%)
Gross profit	$	1,084		$	1,514		$	(430	)		(28.4	%)
Gross margin		39.4	%		39.4	%
Loss from operations	$	(371	)	$	(382	)	$	11			2.9	%

•

Net sales and gross profits decreased due to changes in our customers’ purchasing strategies related to inventory and inflationary pressures. In addition, supply chain affected in-stock levels of ~~Montagne Jeunesse face masque sachets.~~

~~We paid our customers a total of $522,300~~certain products. Due to low inventory levels in the third quarter of ~~2017 for trade promotions to support price features, displays, slotting fees and other merchandising~~2022, sales of ~~our~~BIZ powder products decreased compared to ~~$616,300 for~~ the same period in ~~2016, a decrease~~the prior year.

•

Loss from operations was offset due to decreases in selling expenses and general and administrative costs.

Health and beauty care products

The following table shows comparative net sales, gross margin, gross profit, loss from operations, volume and percentage changes for health and beauty care products between periods:


	Three Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Net sales - distributed products	$	-		$	1,535		$	(1,535	)		(100.0	%)
Net sales - manufactured products		1,529			2,589			(1,060	)		(40.9	%)
Total health and beauty net sales	$	1,529		$	4,124		$	(2,595	)		(62.9	%)

Gross profit	$	835		$	1,356		$	(521	)		(38.4	%)
Gross margin		54.6	%		32.9	%
Loss from operations	$	(232	)	$	(548	)	$	316			57.7	%

•

Net sales of ~~$94,000 or 15.3%. This decrease is~~distributed health and beauty care products decreased due to the termination of our Batiste distribution agreement with Church & Dwight in December 2021.

•

Net sales and gross profits from manufactured products decreased due to the elimination of sales to our exclusive China distributor of Alpha® Skin Care products. During the first quarter of 2022 we also eliminated sales of our Prell® and Denorex® brands to certain customers with minimal profitability.

•

Gross margins increased due to the elimination of our Church & Dwight distribution agreement and elimination of sales of our shampoo products to certain customers, as these sales required higher promotional activity which reduced our margins.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021


	Nine Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Net sales	$	15,449		$	24,583		$	(9,134	)		(37.2	%)
Cost of sales		8,337			14,624			(6,287	)		(43.0	%)
Gross profit		7,112			9,959			(2,847	)		(28.6	%)
Gross margin		46.0	%		40.5	%

Operating expenses:
Advertising		492			506			(14	)		(2.8	%)
Selling		5,752			7,388			(1,636	)		(22.1	%)
General and administrative		2,020			3,782			(1,762	)		(46.6	%)
Intangible asset amortization		313			834			(521	)		(62.5	%)
Impairment of goodwill and intangible assets		3,589			-			3,589			100.0	%
Total operating expenses		12,166			12,510			(344	)		(2.7	%)
Loss from operations		(5,054	)		(2,551	)		(2,503	)		(98.1	%)

Interest expense		(419	)		(219	)		(200	)		(91.3	%)
Loss before income taxes and discontinued operations		(5,473	)		(2,770	)		(2,703	)		(97.6	%)
Income tax expense		(55	)		(798	)		743			93.1	%
Loss from continuing operations		(5,528	)		(3,568	)		(1,960	)		(54.9	%)
Loss from discontinued operations		-			(246	)		246			100.0	%
Net loss	$	(5,528	)	$	(3,814	)	$	(1,714	)		(44.9	%)

Change in net loss was primarily ~~attributable to: (1) changes in~~due to the following:

•

Lower sales and gross profits from the conclusion of our distribution agreement with Church & ~~Dwight;~~Dwight for Batiste products, as well as reduced sales and ~~(2)~~gross profits from various product lines due to changes in our customers’ purchasing strategies related to inventory and inflationary pressures. In addition, supply chain affected in-stock levels of certain products and impacted our sales to customers.

•

Decrease in selling expenses caused by lower logistics and warehousing costs from lower sales as well as a reduction in ~~trade promotions~~personnel costs.

•

Decrease in general and administrative costs due to changes in personnel and related costs as well as reductions in restructuring costs associated with separation of employees during 2021.

•

Decreased intangible asset amortization is primarily from reduced carrying amounts related to ~~Batiste Dry Shampoo.~~impairments recognized in the fourth quarter of 2021.

•

Impairment of goodwill and intangible assets associated with our All-Purpose reporting unit.

~~From time to time, our customers return~~Segment Results

Household products ~~to us. For our~~

The following table shows comparative net sales, gross margin, gross profit, loss from operations, volume, and percentage changes for household products ~~we permit returns only for a limited time. With regard~~between periods:


	Nine Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Net sales	$	9,103		$	10,762		$	(1,659	)		(15.4	%)
Gross profit	$	3,714		$	4,213		$	(499	)		(11.8	%)
Gross margin		40.8	%		39.1	%
Loss from operations	$	(4,854	)	$	(1,960	)	$	(2,894	)		(147.7	%)

•

Net sales and gross profit decreased due to changes in our ~~skin~~customers’ purchasing strategies related to inventory and hair care products, returns are more frequent under an unwritten industry standard that permits returns for a variety of reasons. In the event a skin and hair care customer requests a return of a product, we will consider the request, and may grant such request in order to maintain or enhance our relationship with the customer, even in the absence of an enforceable right of the customer to do so. Typically, customers that return products to us take a credit on our invoice equalinflationary pressures as well as supply chain disruptions.

•

Loss from operations primarily due to the ~~original sales price plus a handling charge ranging from 8-10%~~impairment of ~~the original sales price. Our product returns (as a percentage of net sales) were 0.3% for the third quarter of 2017~~goodwill and ~~0.1% for the same period~~intangible assets associated with our All-Purpose reporting unit and partially offset by reductions in ~~2016.~~

On a consolidated basis, cost of sales was $5,420,000 during the third quarter of 2017 compared to $5,830,600 for the same period in 2016, a decrease of $410,600 or 7.0%, on a net sales increase of 4.1%. As a percentage of consolidated net sales, cost of sales was 52.4% in the third quarter of 2017 compared to 58.7% for the same period in 2016.

~~As a percentage of net sales of our household products, the costs of sales for our household products decreased to 47.0% in the third quarter of 2017 compared to 47.5% for the same period in 2016.~~

As a percentage of net sales of our skin and hair care products, the cost of sales for our skin and hair care products decreased to 53.3% in the third quarter of 2017 compared to 60.6% for the same period in 2016. This change varies from period to period based on product mix and trade promotions of the products we make versus the products we distribute for other companies, which have higher costs and higher trade promotions. The underlying costs of the products did not significantly change in the third quarter of 2017 compared to the same period in 2016.

~~Operating Expenses, Interest Expense and Other Income~~

Three Months Ended September 30,

Percentage Increase

2017

2016

(Decrease)

Operating expenses

Advertising
$
109,800

$
91,700

19.7
%
Selling

1,583,400

1,717,300

(7.8
%)
General and administrative

1,062,700

1,218,800

(12.8
%)
Total operating expenses
$
2,755,900

$
3,027,800

(9.0
%)
Other income
$
-

$
1,000

(100.0
%)
Interest expense
$
26,400

$
60,400

(56.3
%)

Our operating expenses for the third quarter of 2017 were $2,755,900 compared to $3,027,800 for the same period in 2016, a decrease of $271,900 or 9.0%. These expenses consist primarily of advertising, selling and general and administrative ~~expenses.~~costs.

Health and beauty care products

~~Advertising expenses~~The following table shows comparative net sales, gross margin, gross profit, loss from operations, volume and percentage changes for health and beauty care products between periods:


	Nine Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Net sales- distributed products	$	-		$	4,704		$	(4,704	)		(100.0	%)
Net sales- manufactured products		6,346			9,117			(2,771	)		(30.4	%)
Total healthcare and beauty net sales	$	6,346		$	13,821		$	(7,475	)		(54.1	%)

Gross profit	$	3,398		$	5,746		$	(2,348	)		(40.9	%)
Gross margin		53.5	%		41.6	%
Loss from operations	$	(200	)	$	(591	)	$	391			66.2	%

•

Net sales of distributed health and beauty care products decreased due to the ~~third~~termination of our Batiste distribution agreement with Church & Dwight in December 2021.

•

Net sales and gross profits from manufactured products decreased due to the elimination of sales to our exclusive China distributor of Alpha® Skin Care products. During the first quarter of ~~2017 were $109,800 compared~~2022 we also eliminated sales of our Prell® and Denorex® brands to ~~$91,700 for the same period in 2016, an increase of $18,100 or 19.7%.~~

Selling expenses for the third quarter of 2017 were $1,583,400 compared to $1,717,300 for the same period in 2016, a decrease of $133,900 or 7.8%. This decrease is primarily attributable to: (1) a reduction in certain ~~marketing and promotional activities; and (2) a decrease in the accrual of probable bonus payments to personnel within our sales and marketing organization compared~~customers with minimal profitability.

•

Gross margins increased due to the ~~third quarter~~elimination of ~~2016. This decrease was offset primarily by an increase in~~ our ~~costs~~Church & Dwight distribution agreement and elimination of ~~freight-out~~sales of our shampoo products to certain customers, as these sales required higher promotional activity which reduced our ~~customers due to higher sales volume.~~margins.

General and administrative expenses for the third quarter of 2017 were $1,062,700 compared to $1,218,800 for the same period of 2016, a decrease of $156,100 or 12.8%. This decrease is due primarily to: (1) a decrease in professional fees in the third quarter of 2017 compared to higher fees in the same period of 2016 related to the Acquisition; and (2) a decrease in the accrual of probable bonus payments to our management and administrative personnel compared to the third quarter of 2016.

~~Other income from interest earned on our cash reserves for the third quarter of 2017 and 2016 was $0 and $1,000, respectively.~~

Interest expense for the third quarter of 2017 was $26,400 compared to $60,400 for the same period in 2016, a decrease of $34,000 or 56.3%. The decrease is due to a lower balance on the term loan and no outstanding balance on the line-of-credit as of September 30, 2017. Both borrowings under the Credit Agreement had higher balances as of September 30, 2016 to help fund the Acquisition.

Liquidity and Capital Resources

Overview

Our primary sources of funds include cash expected to be generated from operations and borrowings from our line of credit. Our principal uses of cash are to fund planned operating expenditures, interest payments, and any principal payments on our line of credit. Working capital movements are influenced by the sourcing of finished goods inventories.

Financing Agreements

Please see Note 78 to our Condensed Consolidated Financial Statements ~~(Unaudited)~~ for information on our ~~Credit~~UMB Loan Agreement ~~with Chase. Please see Note 1(f) to our Condensed Consolidated Financial Statements (Unaudited) for information on our financing agreement with Wells Fargo, which was terminated during 2016.~~and La Plata Loan Agreement.

Liquidity and Changes in Cash Flows

At September 30, ~~2017,~~2022, we had ~~approximately $2.4 million~~$944 available on our revolving credit facility with UMB, and $139 in cash on hand, ~~which was $291,700 more~~a decrease of $1,131 when compared to the balance as of December 31, ~~2016, primarily due~~2021 as this cash was utilized to reduce long-term debt balances.

The following is a summary of cash provided by or (used in) each of the indicated types of activities:


	Nine Months Ended September 30, (in thousands)
							Increase / (Decrease)
	2022			2021			$			%
Operating activities	$	(1,189	)	$	(1,394	)	$	205			14.7	%
Investing activities		(142	)		(262	)		120			45.8	%
Financing activities		200			1,909			(1,709	)		(89.5	%)

•

Net cash used in operating activities was primarily related to conversion of working capital from accounts receivable and offset ~~by: (1) our use of~~by investments in finished goods inventories.

•

Net cash used in investing activities was due to ~~reduce the outstanding balance on our line-of-credit to zero; (2) repayments of long-term debt; (3) payment of income taxes; and (4) the payment of performance bonuses in the first nine months of 2017~~purchases relating to our ~~management,~~internal-use software.

•

Net cash provided by financing activities was from proceeds of our various debt facilities which is used for working capital.

The uncertainty related to the COVID-19 outbreak has impacted our operations and could affect our future results. Our liquidity has been affected by inflationary pressures at our customers which have caused sales ~~administrative support~~decreases and ~~operations personnel that were accrued for~~higher costs on materials, logistics, and other purchases.

Primarily due to a decline in ~~2016. For~~net sales and increases in costs associated with the ~~first~~manufacture and distribution of our products, the Company used net cash in operating activities of $1,189 during the nine months ended September 30, ~~2017, the primary components~~2022. The Company’s debt agreements with UMB Bank, N.A. and La Plata Capital, LLC mature on July 1, 2023 and November 9, 2023, respectively. Management’s assessment of working capital that significantly affected operating cash flows were the following: (1) net accounts receivable were $304,200 less at September 30, 2017 than at December 31, 2016 due primarily to receivables related to the timing of receiving payment; (2) inventory at September 30, 2017 was $3,842,600 more than at December 31, 2016 due primarily to higher sales volume and the timing of receiving certain inventory from our vendors and shipping our products to our customers; and (3) accounts payable and accrued expenses at September 30, 2017 were $333,600 more than at December 31, 2016 due primarily to bonuses paid to certain employees and the timing of payments on our inventory.

~~We anticipate that our existing cash and our~~ cash flow ~~from~~forecasts indicate that, absent any other action, the Company likely will require additional liquidity to continue its operations ~~together with our current Credit Agreement with Chase, will be sufficient~~over the next 12 months.

Management has implemented actions to ~~meet our cash requirements for~~reduce the ~~12 months following the filing date of this Report. During the first nine months of 2017, we spent $352,600~~Company’s operating expenses and has approved a plan to ~~purchase production~~extend and ~~warehouse equipment to improve our manufacturing capabilities and efficiencies and on~~restructure debt facilities. Management is considering additional production and warehouse equipment that is primarily related to the Acquisition, and paid an additional $100,000 in deposits for future production and warehouse equipment to be received and placed in service in 2017. We expect to make additionalvarious strategic actions including asset sales, workforce reduction, deferring or eliminating certain capital expenditures, and further reduction of ~~approximately $90,000~~other operating expenses to ensure alignment with customer demand in ~~2017 on additional production~~order to address liquidity needs and ~~warehouse equipment~~pursue its business plan. The Company expects that ~~is primarily related~~these strategic actions will reduce expenses and outstanding debt balances and provide required liquidity for ongoing operations. If these plans aren't successfully implemented there could be substantial doubt about the Company's ability to ~~the Acquisition.~~continue as a going concern.

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~Not applicable.~~21

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

AsAn evaluation was performed as of September 30, ~~2017, we conducted an evaluation,~~2022, under the supervision and with the participation of our ~~Chief Executive Officer~~President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our ~~Chief Executive Officer~~President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the previously disclosed material weakness relating to the operating effectiveness of the review of the impairment assessment of goodwill prepared by a third-party firm. We believe the actions described in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2022 will be sufficient to remediate the identified material weakness and related disclosure controls and procedures. However, we do not believe that the new and enhanced controls and procedures have been implemented for a sufficient amount of time for management to conclude that the material weakness in the Company’s internal controls over financial reporting and effectiveness of related disclosure controls and procedures has been fully remediated, and we are ~~effective as~~still in the process of ~~September 30, 2017.~~improving those controls and procedures. We will continue to improve and monitor the effectiveness of these controls and will make any further changes that management determines to be appropriate.

Changes in Internal Control over Financial Reporting

In June 2022, we implemented an enterprise resource planning (“ERP”) software system on a company-wide basis. Despite this transition in software, there has not been a significant change in internal controls over financial reporting. Over the remainder of 2022, certain internal controls over financial reporting will be automated, modified, or implemented to address the new control environment associated with the ERP system. Additionally, the Company completed pre-implementation and post-implementation internal control monitoring associated with the launch. While we believe that this new system will enhance its internal control over financial reporting, there are inherent risks in implementing any new system, and we will continue to monitor and evaluate these control changes as part of our assessment of the control design and effectiveness throughout 2022.

There ~~was~~have been no ~~change~~other changes in our internal control over financial reporting that occurred during the ~~nine months ended September 30, 2017~~third quarter of 2022 that ~~has~~ materially affected or isare reasonably likely to materially affect our internal control over financial reporting.

PART II

P~~ART II~~

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

We have identified a material weakness in our internal control over financial reporting.

We are a public reporting company subject to the rules and regulations established from time to time by the SEC. As a public company we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting.

As disclosed in Part I, Item 4, “Disclosure Controls and Procedures,” we have identified a material weakness in our controls related to the operating effectiveness of the review of the impairment assessment of goodwill prepared by a third-party firm as of June 30, 2022. We did not maintain effective controls to sufficiently review the completeness and accuracy of the impairment assessment.

This material weakness did not result in any restatements to our Condensed Consolidated Financial Statements. Our management is committed to remediating this material weakness and is in the process of developing a remediation plan to address the material weakness.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 and subsequent quarterly reports on Form 10-Q, which could materially affect our business, financial condition, or future results.

ITEM 6. EXHIBITS


~~ITEM 6.~~Exhibit Number	~~EXHIBITS~~

~~Exhibit Number~~		Document
~~10.1~~31.1		~~Amendment to the Exclusive Distribution Agreement, dated April 1, 2015, between Montagne Jeunesse International Limited and Neoteric Cosmetics, Inc.~~
~~10.2~~		~~Second Amendment to the Exclusive Distribution Agreement, dated September 5, 2017, between Montagne Jeunesse International Limited and Neoteric Cosmetics, Inc.~~
~~10.3~~		Second Amendment to the Customer Agreement, dated as of July 17, 2017, between Church & Dwight Co., Inc. and Neoteric Cosmetics, Inc. incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2017.
~~31.1~~		Rule 13a-14(a) Certification of the ~~Chief Executive Officer.~~President.
31.2		Rule 13a-14(a) Certification of the Chief Financial ~~Officer~~Officer..
32.1*		Section 1350 ~~Certification~~Certification..
101.INS		Inline XBRL Instance ~~Document.~~Document – the instance document does not appear in the Interactive Data File because XBRLtags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	~~Furnished, not filed.~~

* Furnished, not filed.

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~Report~~report to be signed on its behalf by the undersigned thereunto duly authorized.


SCOTT’S LIQUID GOLD-INC.
By:		/s/ ~~Mark E. Goldstein~~Tisha Pedrazzini
		~~Mark E. Goldstein~~Tisha Pedrazzini, President
		~~President and Chief~~(Principal Executive ~~Officer~~Officer)
		~~(Principal Executive Officer)~~
By:		/s/ ~~Barry J. Levine~~David M. Arndt
		~~Barry J. Levine~~David M. Arndt, Chief Financial Officer
		~~Treasurer, Chief Financial Officer and Chief Operating Officer~~
		(Principal Financial and Chief Accounting Officer)

Date: November 14, ~~2017~~2022

2124

	September 30, 2017		September 30, 2016
Expected life of options (using the “simplified” method)	4 years		6 years
Average risk-free interest rate		1.44%	1.50%
Average expected volatility of stock		78%	134%
Expected dividend rate	None		None
Fair value of options granted	$55,100		$3,488

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
2005 Plan
Outstanding, December 31, 2016		628,313		$	0.63	3.8 years	$	510,000
Granted		-
Exercised		(136,250	)
Cancelled/Expired		-
Outstanding, September 30, 2017		492,063		$	0.73	4.0 years	$	865,300
Exercisable, September 30, 2017		378,158		$	0.69	3.3 years	$	679,000

2015 Plan
Outstanding, December 31, 2016		787,615		$	1.27	7.2 years	$	136,000
Granted		46,560
Exercised		-
Cancelled/Expired		(49,491	)
Outstanding, September 30, 2017		784,684		$	1.32	6.6 years	$	916,500
Exercisable, September 30, 2017		380,205		$	1.31	6.2 years	$	449,200

	September 30, 2017		December 31, 2016
Assets:
Household Products	$	2,133,600	$	1,850,000
Skin and Haircare Products		21,883,700		18,371,500
Corporate		665,200		1,611,800
Consolidated	$	24,682,500	$	21,833,300

	As of September 30, 2017						As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Intangible assets:
Customer relationships	$	4,022,100	$	502,800	$	3,519,300	$	4,022,100	$	201,100	$	3,821,000
Trade names		2,362,400		196,800		2,165,600		2,362,400		78,700		2,283,700
Formulas and batching processes		668,600		69,800		598,800		668,600		27,900		640,700
Non-compete agreement		26,300		6,400		19,900		26,300		2,600		23,700
		7,079,400		775,800		6,303,600		7,079,400		310,300		6,769,100
Goodwill						1,520,600						1,520,600
Total intangible assets					$	7,824,200					$	8,289,700

2017 (remaining)	$	155,200
2018		620,700
2019		620,700
2020		620,700
2021		617,600
Thereafter		3,668,700
Total	$	6,303,600

2017 (remaining)	$	200,000
2018		800,000
2019		400,000
		1,400,000
Less unamortized debt issuance costs		(43,900	)
Total	$	1,356,100

	Year Ended December 31,			Nine Months Ended September 30,
	2016			2017			2016
Net sales
Household products		17.0	%		13.7	%		18.5	%
Skin and hair care products		83.0	%		86.3	%		81.5	%
Total net sales		100.0	%		100.0	%		100.0	%
Cost of sales		56.9	%		54.3	%		55.4	%
Gross profit		43.1	%		45.7	%		44.6	%
Other revenue		0.0	%		0.0	%		0.1	%
		43.1	%		45.7	%		44.7	%
Operating expenses		34.0	%		28.0	%		37.3	%
Interest expense		0.4	%		0.3	%		0.3	%
		34.4	%		28.3	%		37.6	%
Income before income taxes		8.7	%		17.4	%		7.1	%

	Nine Months Ended September 30,				Percentage Increase
	2017		2016		(Decrease)
Total household products	$	4,189,400	$	4,490,300		(6.7	%)
Total skin and hair care products		26,467,600		19,784,500		33.8	%
Total net sales	$	30,657,000	$	24,274,800		26.3	%