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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] 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 0-5128
SCOTT'S LIQUID GOLD-INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0920811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4880 Havana Street, Denver, CO 80239
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (303) 373-4860
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
$0.10 Par Value Common Stock
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (? 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the Registrant's voting stock held as of
March 8, 2000, by non-affiliates of the Registrant was $5,776,961. This
calculation assumes that certain parties may be affiliates of the Registrant and
that, therefore, 5,963,007 shares of voting stock are held by non-affiliates.
As of March 8, 2000, the Registrant had 10,103,058 shares of its $0.10 par
value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1999 Annual Report to shareholders is incorporated by
reference in Parts I, II and IV. The Registrant's definitive Proxy Statement
for the Annual Meeting of shareholders to be held on May 3, 2000, is
incorporated by reference in Part III.
SCOTT'S LIQUID GOLD-INC.
ANNUAL REPORT ON
FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1999
PART I
Item 1. Business.
Portions of the 1999 Annual Report to shareholders of Scott's Liquid
Gold-Inc. (the "Company" or "Registrant") are attached to this Report as Exhibit
13 and are called in this Report the "Annual Report". The information set forth
under the headings "Description of Business" and "Management Discussion and
Analysis of Financial Condition and Results of Operations" of the Annual Report
hereby is incorporated by reference into this Report.
In the third quarter of 1998, the Company added a retinol product to its
skin care products. This product, sold as Alpha Hydrox Retinol Night ResQ,
includes microsponge-entrapped retinol. It is manufactured by a third party who
is the sole supplier of the product to the Company under a supply and license
agreement. The agreement has a term which continues until the earlier of (1)
the expiration of the last to expire patent relating to the product or (2) June
9, 2008. The supplier may also terminate the agreement if the Company does not
meet minimum purchase requirements.
Item 2. Properties.
The information set forth under "Description of Business - Properties,"
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 9 of Notes to
Consolidated Financial Statements of the Annual Report hereby is incorporated by
reference into this Report.
Item 3. Legal Proceedings.
As previously reported, a lawsuit was commenced in May of 1996 against
Neoteric Cosmetics, Inc. and others not related to the Company alleging
infringement of certain patents. Neoteric Cosmetics is the Company's wholly-
owned subsidiary which manufactures and sells skin care products under the name
Alpha Hydrox. The lawsuit was brought by TriStrata Technology, Inc. in the
United States District Court for the District of Delaware. The plaintiff claims
to be the assignee of five patents relating to the use of alpha hydroxy acids to
treat or reduce cosmetic conditions, particularly wrinkles or fine lines. Three
of the patents were issued in 1995; one issued in 1996; and one, which was
issued in 1992, was the subject of a re-examination completed in 1995. The
plaintiff in the lawsuit alleges that Neoteric contributes to and/or induces
infringement of the patents owned by the plaintiff by selling and promoting
Neoteric skin care products for the purpose of visibly reducing a human skin
wrinkle and/or fine lines and for the purpose of treating and/or preventing
cosmetic conditions and dermatologic disorders of the human skin such as
wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement, and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the
plaintiff, asserts the invalidity of patents, and is mounting a vigorous
defense. Certain defendants in this lawsuit, including the Company, are
cooperating with one another in matters of common interest to defend against
this action. A hearing was held in November of 1998, at which the plaintiff and
the defendants were given the opportunity to present their interpretations
regarding the scope of plaintiff's patents. In late July of 1999, the Court
issued a decision which construed broadly the plaintiff's patent claims. The
Company believes that the Court's recent decision makes more relevant prior uses
of alpha hydroxy acid for treating aging skin, including wrinkles, and
reinforces the Company's view that the plaintiff's patents are invalid. The
Company continues to mount a vigorous defense in this case. The Company cannot
predict the potential outcome of this lawsuit or the ultimate impact on the
Company's financial position or results of operations.
As previously reported, the Company had been a defendant in an
environmental lawsuit brought by the United States Justice Department at the
request of the United States Army, alleging contribution by the Company to
contamination in a groundwater aquifer underlying a portion of the Rocky
Mountain Arsenal. In October of 1996, the Company and the United States, on
behalf of the Department of the Army, negotiated a settlement of this dispute.
The Settlement Agreement, which admits no wrong doing by the Company and which
was approved by the Court on November 6, 1996, required the payment to the
United States of $6 million of which $2.4 million was paid at once by the
Company's insurers (with an additional $600,000 paid in January of 1997) and $1
million was paid by the Company. The additional $2 million, by the terms of the
Agreement, was to be paid by the Company in equal installments of $250,000 over
eight years, beginning on October 31, 1997, together with interest approximating
the Treasury Bill rate. Due to income tax considerations, the Company decided
to liquidate its entire indebtedness to the Army and did so in October of 1997.
In December, 1996, the Company filed lawsuits, now pending in the United States
District Court for the District of Colorado, against three insurers (which did
not participate in the settlement) to recover at least amounts paid to the Army
by the Company, plus punitive damages and attorneys' fees. The Company has
settlements with all but one of its insurers, and as a result of the insurance
settlements in 1996 and 1997, most of the costs incurred to resolve
environmental claims relating to the Rocky Mountain Arsenal have been recovered.
Claims for recovery of the remainder of the costs are pending against one
insurance company.
The Company has applied for federal registration of the trademark "Alpha
Hydrox" with U.S. Patent and Trademark Office. The issuance of this trademark
was challenged on the basis that the name of the Company's product is a
description of the type of acid used as an ingredient. This challenge was
denied by the United States Patent and Trademark Office in 1999. No appeal has
been filed. The Company believes that the issuance of this trademark is
forthcoming in the near future. Whether or not the federal registration of
"Alpha Hydrox" is granted to the Company, the Company claims under common law
the exclusive right to use "Alpha Hydrox" as a trademark and to the right to
prevent the use by others of confusingly similar marks. The outcome of any such
claim, if contested in court, will depend on the facts and circumstances then
existing with respect to the use of the mark in a particular geographical area.
To date, there have been no court contests, but the Company has been successful
in convincing several manufacturers to refrain from the use of names similar to
Alpha Hydrox.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.
Name of Nominee and Director Principal Occupation for
Position Age Since Last Five Years
in the Company
Mark E. Goldstein 43 1983 Chairman of the Board of the
(Chairman of the Board, Company since February 22,
President and 2000, President and Chief
Chief Executive Officer) Executive Officer since
August, 1990. From 1982 to
1990, Vice President-
Marketing of the Company.
Employed by the Company since
1978.
Carolyn J. Anderson 61 1974 Executive Vice President
(Executive Vice since 1974, Chief Operating
President, Chief Officer of the Company since
Operating 1982 and Corporate Secretary
Officer and Corporate since 1973. Employed by the
Secretary) Company since 1970.
Jeffrey R. Hinkle 46 2000 Vice President-Marketing of
the Company since February
22, 2000. From 1995 to
February 2000, Vice President-
Marketing of the Company's
subsidiaries. Employed by
the Company since 1981.
Barry Shepard 69 1982 Treasurer and Chief Financial
(Treasurer and Chief Officer of the Company since
Financial Officer) 1981 when first employed by
the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information set forth under "Corporate Data" and "Market Information"
of the Annual Report hereby is incorporated by reference into this Report.
Item 6. Selected Financial Data.
The information set forth under "Selected Financial Data" of the Annual
Report hereby is incorporated by reference into this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth under "Management Discussion and Analysis of
Financial Condition and Results of Operations" of the Annual Report hereby is
incorporated by reference into this Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information set forth under "Management Discussion and Analysis of
Financial Condition and Results of Operations - Market Risks" of the Annual
Report hereby is incorporated by reference into this Report.
Item 8. Financial Statements and Supplementary Data.
The information set forth under "Consolidated Financial Statements," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants" and "Selected Financial Data - Selected Quarterly Financial Data"
of the Annual Report hereby is incorporated by reference into this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
For Part III, the information set forth in the Company's definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 3,
2000, hereby is incorporated by reference into this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements:
Consolidated Statements of Operations -
Years ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets -
December 31, 1999 and 1998
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts -
Years ended December 31, 1999, 1998 and 1997
Inasmuch as Registrant is primarily a holding company and all subsidiaries
are wholly-owned, only consolidated statements are being filed. Schedules other
than those listed above are omitted because of the absence of the conditions
under which they are required or because the information is included in the
financial statements or notes to the financial statements.
(b) Reports on Form 8-K:
The following report was filed by the Company on Form 8-K during the
quarter ended December 31, 1999: A Current Report on Form 8-K dated October 28,
1999, with an event reported under Item 5, Other Events.
(c) Exhibits:
Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by
reference to Exhibit 3.1 of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996.
4.1 Indenture of Trust (including form of First Mortgage
Bond Due 2001) dated July 1, 1994, between Registrant
and Norwest Bank Colorado, N.A. as Trustee,
incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement No. 33-76690 on Form
S-2, filed with the Commission on July 7, 1994.
4.2 Combination Deed of Trust, Security Agreement and
Fixture Financing Statement, dated July 29, 1994,
between the Company, as Grantor, the Public Trustee
for the City and County of Denver, Colorado, and
Norwest Bank Colorado, N.A. as Beneficiary,
incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement No. 33-76690 on Form
S-2, filed with the Commission on July 7, 1994.
10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and
Accident Plan effective January 1, 1995.
10.2* Amended Key Executive Disability Plan--Scott's Liquid
Gold-Inc., incorporated by reference to Exhibit 10.2
of Annual Report on Form 10-K for the year ended
December 31, 1997.
10.3* 2000 Key Executive Bonus Plan.
10.4* Indemnification Agreements dated May 6, 1987, between
the Registrant and Mark E. Goldstein, Carolyn J.
Anderson, and Barry Shepard, incorporated by
reference to Exhibit 10.4 of Annual Report on Form 10-
K for the year ended December 31, 1998. An
Indemnification Agreement dated December 23, 1991,
between the Registrant and Dennis H. Field, and an
Amendment to Indemnification Agreement dated January
17, 1992, between the Registrant and Dennis H. Field,
incorporated by reference to Exhibit 10.5 of Annual
Report on Form 10-K for the year ended December 31,
1997. Indemnification Agreement dated February 23,
1993, between the Registrant and James F. Keane,
incorporated by reference to Exhibit 10.4 of Annual
Report on Form 10-K for the year ended December 31,
1998.
10.5* Scott's Liquid Gold-Inc. Employee Stock Ownership
Plan and Trust Agreement, effective January 1, 1989,
and First and Second Amendments thereto.
10.6* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement
No. 33-63254 on Form S-8, filed with the Commission
on May 25, 1993.
10.7* Scott's Liquid Gold-Inc. 1998 Stock Option Plan,
incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement No. 333-67141, filed
with the Commission on November 12, 1998.
13 Portions of 1999 Annual Report to Security Holders.
21 List of Subsidiaries incorporated by reference to
Exhibit 21 of Annual Report on Form 10-K for the year
ended December 31, 1998.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________________________
*Management contract or compensatory plan or arrangement
Supporting Schedules
Scott's Liquid Gold-Inc and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
Column A Column B Column C Column D Column E
Additions Deductions
Balance at 1 2 Balance at
Description Beginning Charge to Charges to End of
of Period Costs and other Period
Expenses Accounts
Year Ended December 31, 1999
Allowance for doubtful accounts $679,200 -- $33,700 (1) $645,500
Year Ended December 31, 1998
Allowance for doubtful accounts $635,700 $43,600 $100 (1) $679,200
Year Ended December 31, 1997
Allowance for doubtful accounts $580,400 $68,000 $12,700 (1) $635,700
(1) Uncollectible accounts written off, net of recoveries.
Report of Independent Public Accountants
To the Board of Directors and Shreholders of scott's Liquid Gold-Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Scott's Liquid Gold-Inc.'s 1999
Annual Report incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 25, 2000. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Denver, Colorado
January 25, 2000
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: March 30, 2000.
SCOTT'S LIQUID GOLD-INC.
a Colorado corporation
By: /s/ Mark E. Goldstein
Mark E. Goldstein, President
Principal Executive Officer
By: /s/ Barry Shepard
Barry Shepard, Treasurer
Principal Financial Officer
By: /s/ Jeffry B. Johnson
Jeffry B. Johnson, Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of the Registrant and in
the capacities and on the dates indicated:
Date Name and Title Signature
March 30, 2000 Carolyn J. Anderson, )
Director )
) /s/ Barry Shepard
March 30, 2000 Dennis H. Field, ) Barry Shepard, for himself
Director ) and as Attorney-in-Fact for
) the named directors who
March 30, 2000 Mark E. Goldstein, ) together constitute all of
Director ) the members of
) Registrant's Board of
) Directors
March 30, 2000 James F. Keane, )
Director )
)
March 30, 2000 Barry Shepard, )
Director )
EXHIBIT INDEX
Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996.
4.1 Indenture of Trust (including form of First Mortgage Bond
Due 2001) dated July 1, 1994 between Registrant and
Norwest Bank Colorado, N.A. as Trustee, incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement No. 33-76690 on Form S-2, filed with the
Commission on July 7, 1994.
4.2 Combination Deed of Trust, Security Agreement and Fixture
Financing Statement, dated July 29, 1994, between the
Company, as Grantor, the Public Trustee for the City and
County of Denver, Colorado, and Norwest Bank Colorado,
N.A. as Beneficiary, incorporated by reference to Exhibit
4.2 of the Company's Registration Statement No. 33-76690
on Form S-2, filed with the Commission on July 7, 1994.
10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and
Accident Plan effective January 1, 1995.
10.2* Amended Key Executive Disability Plan--Scott's Liquid
Gold-Inc., incorporated by reference to Exhibit 10.2 of
Annual Report on Form 10-K for the year ended December 31,
1997.
10.3* 2000 Key Executive Bonus Plan.
10.4* Indemnification Agreements dated May 6, 1987, between the
Registrant and Mark E. Goldstein, Carolyn J. Anderson, and
Barry Shepard, incorporated by reference to Exhibit 10.4
of Annual Report on Form 10-K for the year ended
December 31, 1998. An Indemnification Agreement dated
December 23, 1991, between the Registrant and Dennis H.
Field, and an Amendment to Indemnification Agreement dated
January 17, 1992, between the Registrant and Dennis H.
Field, incorporated by reference to Exhibit 10.5 of Annual
Report on Form 10-K for the year ended December 31, 1997.
Indemnification Agreement dated February 23, 1993, between
the Registrant and James F. Keane, incorporated by
reference to Exhibit 10.4 of Annual Report on Form 10-K
for the year ended December 31, 1998.
10.5* Scott's Liquid Gold-Inc. Employee Stock Ownership Plan and
Trust Agreement, effective January 1, 1989, and First and
Second Amendments thereto.
10.6* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to Exhibit
4.7 of the Company's Registration Statement No. 33-63254
on Form S-8, filed with the Commission on May 25, 1993.
10.7* Scott's Liquid Gold-Inc. 1998 Stock Option Plan,
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement No. 333-67141, filed with the
Commission on November 12, 1998..
13 Portions of 1999 Annual Report to Security Holders.
21 List of Subsidiaries incorporated by reference to Exhibit
21 of Annual Report on Form 10-K for the year ended
December 31, 1998.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule
*Management contract or compensatory plan or arrangement