-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NePRxrOm13O31uDSB+e+AshrylGEQvxxHviM7hjdj3ztb+Dwdtps4vYckZE/QAh6 33f3YYPRiCClYuVN5Gdlnw== 0000088000-96-000007.txt : 19960401 0000088000-96-000007.hdr.sgml : 19960401 ACCESSION NUMBER: 0000088000-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTTS LIQUID GOLD INC CENTRAL INDEX KEY: 0000088000 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 840920811 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13458 FILM NUMBER: 96540506 BUSINESS ADDRESS: STREET 1: 4880 HAVANA ST CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033734860 MAIL ADDRESS: STREET 1: PO BOX 39S CITY: DENVER STATE: CO ZIP: 80219-0019 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION{PRIVATE } WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [ FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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: $0.10 Par Value Common Stock ------------------------------------ (Title of Class) Securities registered pursuant to Section 12(g) of the Act: 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 X No --------- ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( Section 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 11, 1996 by non-affiliates of the Registrant was $15,414,622. This calculation assumes that certain parties may be affiliates of the Registrant and that therefore, 5,605,317 shares of voting stock are held by non-affiliates. As of March 11, 1996, the Registrant had 10,030,900 shares of its $0.10 par value common stock outstanding. Documents Incorporated by Reference The Registrant's 1995 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 1, 1996, is incorporated by reference in Part III. SCOTT'S LIQUID GOLD-INC. ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995 PART I ------ ITEM 1. BUSINESS. - ------------------- Portions of the 1995 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," "Products and Services," and "Management Discussion and Analysis of Financial Condition and Results of Operations" of the Annual Report hereby is incorporated by reference into this Report. ITEM 2. PROPERTIES. - --------------------- The information set forth under "Description of Business - Properties" and "Management Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" of the Annual Report hereby is incorporated by reference into this Report. ITEM 3. LEGAL PROCEEDINGS. - ---------------------------- The information set forth under "Description of Business - Legal Proceedings" and "Management Discussion and Analysis of Financial Condition and Results of Operations - Other" of the Annual Report hereby is incorporated by reference into this Report. The lawsuit by the United States Department of Justice at the request of the United States Army, as described therein, is United States of America v. Scott's Liquid Gold-Inc., in the United States - ---------------------------------------------------- District Court for the District of Colorado and was instituted on September 8, 1994. The lawsuits against private label producers, as described in the Report, are the following: Neoteric Cosmetics, Inc. v. Evron Industries, Inc., in the -------------------------------------------------- United States District Court for the District of Colorado, which was instituted on January 30, 1996; and Neoteric Cosmetics, Inc. v. Perrigo Co. and Cumberland- ------------------------------------------------------- Swan, Inc., in the United States District Court for the District of - ---------- Massachusetts, which was instituted on July 18, 1995. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------- Not applicable. 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. As of March 11, 1996, the Company had approximately 1,400 shareholders of record. The high and low prices of Scott's Liquid Gold-Inc. common stock as traded on the New York Stock Exchange for the 1995 year were as follows: Three Months Ended 1995 High Low March 31 6 5-1/8 June 30 5-5/8 3-3/4 September 30 4-3/4 3-1/4 December 31 3-5/8 2-1/2
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 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 1, 1996, 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 Income - Years ended December 31, 1995, 1994 and 1993 Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Public Accountants (2) Financial Statement Schedules: II - Valuation and Qualifying Accounts - Years ended December 31, 1995, 1994 and 1993 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: Not applicable. (c) Exhibits: DOCUMENT -------- EXHIBIT NO. - ------- 3.1 Articles of Incorporation, as amended and restated through May 4, 1988, incorporated by reference to Exhibit 3.1 of Annual Report on Amended Form 10-K for the year ended December 31, 1993. 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 Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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 Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1994. 10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and Accident Plan effective January 1, 1995, incorporated by reference to Exhibit 10.1 of Annual Report on Form 10-K for the year ended December 31, 1994. 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, 1992. 10.3* Scott's Liquid Gold-Inc. Restricted Stock Plan effective July 22, 1987, incorporated by reference to Exhibit 10.3 of Annual Report on Amended Form 10-K for the year ended December 31, 1993. 10.4* 1996 Key Executive Bonus Plan. 10.5* Indemnification Agreements dated May 6, 1987 between the Registrant and Jerome J. Goldstein, Mark E. Goldstein, Carolyn J. Anderson, and Barry Shepard, incorporated by reference to Exhibit 10.5 of Annual Report on Amended Form 10-K for the year ended December 31, 1993. An Indemnification Agreement dated October 4, 1990 between the Registrant and Michael J. Sheets, incorporated by reference to Exhibit 10.5 of Annual Report on Form 10-K for the year ended December 31, 1990. An Indemnification Agreement dated December 23, 1991 between the Registrant and Dennis H. Field, and two separate Indemnification Agreements dated January 17, 1992 between the Registrant and Michael J. Sheets and Dennis H. Field, incorporated by reference to Exhibit 10.5 of Annual Report on Form 10-K for the year ended December 31, 1992. Indemnification Agreement dated February 23, 1993 between the Registrant and James F. Keane, incorporated by reference to Exhibit 10.5 of Quarterly Report on Form 10-Q for the three months ended March 31, 1993. 10.6* Scott's Liquid Gold-Inc. Employee Stock Ownership Plan and Trust Agreement, effective January 1, 1989, and First and Second Amendments thereto, incorporated by reference to Exhibit 10.6 of Annual Report on Form 10- K for the year ended December 31, 1994. 10.7* 1986 Incentive Stock Option Plan and First Amendment thereto, incorporated by reference to Exhibit 4.4 of the Company's Registration Statement No. 33-63254 on Form S-8, filed with the Commission on May 25, 1993. 10.8* 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. 10.9 Compliance Order on Consent, executed by the Colorado Department of Health on March 5, 1990, originally filed with the Commission on Form 10-K for the year ended December 31, 1989, and incorporated by reference to Exhibit 10.9 of Annual Report on Form 10-K for the year ended December 31, 1994. 13 Portions of 1995 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, 1994. 23 Consent of Arthur Andersen LLP. 24 Powers of Attorney. 27 Financial Data Schedule. *Management contract or compensatory plan or arrangement
Valuation and Qualifying Accounts Schedule II Column A Column B Column C Column D Column E Additions Balance 1 2 at Charge Balance Description Beginning to Charges at of Costs and to other End of Period Expenses Accounts Deductions Period Year Ended December 31, 1995 Allowance for doubtful accounts $345,900 $229,000 $73,800 (1) $501,100 Year Ended December 31, 1994 Allowance for doubtful accounts $184,800 $174,400 $13,300 (1) $345,900 Year Ended December 31, 1993 Allowance for doubtful accounts $150,200 $44,900 $10,300 (1) $184,800
(1) Uncollectible accounts written off, net of recoveries. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Scott's Liquid Gold-Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Scott's Liquid Gold- Inc. and subsidiaries' annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 15, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of financial statements 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 financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic 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 financial statements taken as a whole. /s/ Arthur Andersen LLP Denver, Colorado January 15, 1996 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 28, 1996. SCOTT'S LIQUID GOLD-INC. a Colorado corporation By: /s/ Barry Shepard --------------------------------------- Barry Shepard, as an Attorney-in-Fact for 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 28, 1996 Carolyn J. Anderson, ) Director ) ) March 28, 1996 Mark E. Goldstein, ) Director ) ) March 28, 1996 Jerome J. Goldstein, ) /s/ Barry Shepard Director ) ------------------------- ) Barry Shepard, for ) himself and as Attorney- ) in-Fact for the named ) directors who March 28, 1996 Dennis H. Field, ) together constitute all of Director ) the members of ) Registrant's Board of ) Directors March 28, 1996 Michael J. Sheets, ) Director ) EXHIBIT INDEX ------------- EXHIBIT DOCUMENT NO. -------- - ---- 3.1 Articles of Incorporation, as amended and restated through May 4, 1988, incorporated by reference to Exhibit 3.1 of Annual Report on Amended Form 10-K for the year ended December 31, 1993. 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 Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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 Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1994. 10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and Accident Plan effective January 1, 1995, incorporated by reference to Exhibit 10.1 of Annual Report on Form 10-K for the year ended December 31, 1994. 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, 1992. 10.3* Scott's Liquid Gold-Inc. Restricted Stock Plan effective July 22, 1987, incorporated by reference to Exhibit 10.3 of Annual Report on Amended Form 10-K for the year ended December 31, 1993. 10.4* 1996 Key Executive Bonus Plan. 10.5* Indemnification Agreements dated May 6, 1987 between the Registrant and Jerome J. Goldstein, Mark E. Goldstein, Carolyn J. Anderson, and Barry Shepard, incorporated by reference to Exhibit 10.5 of Annual Report on Amended Form 10-K for the year ended December 31, 1993. An Indemnification Agreement dated October 4, 1990 between the Registrant and Michael J. Sheets, incorporated by reference to Exhibit 10.5 of Annual Report on Form 10-K for the year ended December 31, 1990. An Indemnification Agreement dated December 23, 1991 between the Registrant and Dennis H. Field, and two separate Indemnification Agreements dated January 17, 1992 between the Registrant and Michael J. Sheets and Dennis H. Field, incorporated by reference to Exhibit 10.5 of Annual Report on Form 10-K for the year ended December 31, 1992. Indemnification Agreement dated February 23, 1993 between the Registrant and James F. Keane, incorporated by reference to Exhibit 10.5 of Quarterly Report on Form 10-Q for the three months ended March 31, 1993. 10.6* Scott's Liquid Gold-Inc. Employee Stock Ownership Plan and Trust Agreement, effective January 1, 1989, and First and Second Amendments thereto, incorporated by reference to Exhibit 10.6 of Annual Report on Form 10-K for the year ended December 31, 1994. 10.7* 1986 Incentive Stock Option Plan and First Amendment thereto, incorporated by reference to Exhibit 4.4 of the Company's Registration Statement No. 33-63254 on Form S-8, filed with the Commission on May 25, 1993. 10.8* 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. 10.9 Compliance Order on Consent, executed by the Colorado Department of Health on March 5, 1990, originally filed with the Commission on Form 10-K for the year ended December 31, 1989, and incorporated by reference to Exhibit 10.10 of Annual Report on Form 10-K for the year ended December 31, 1994. 13 Portions of 1995 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, 1994. 23 Consent of Arthur Andersen LLP. 24 Powers of Attorney. 27 Financial Data Schedule *Management contract or compensatory plan or arrangement EX-3.2 2 BYLAWS{PRIVATE } OF SCOTT'S LIQUID GOLD-INC. (A COLORADO CORPORATION) EFFECTIVE AS OF FEBRUARY 27, 1996 2/15/96 EXHIBIT B TO RESOLUTIONS OF BOARD OF DIRECTORS DATED FEBRUARY 27, 1996 BYLAWS OF SCOTT'S LIQUID GOLD-INC. (A COLORADO CORPORATION) EFFECTIVE AS OF FEBRUARY 27, 1996 BYLAWS ------ OF -- SCOTT'S LIQUID GOLD-INC. ------------------------ TABLE OF CONTENTS ----------------- Page ---- ARTICLE I -Offices ........................................... 1 1. Business Offices .................................. 1 2. Principal Office .................................. 1 3. Registered Office ................................. 1 ARTICLE II -...............................Shareholders' Meetings 1 1. Annual Meetings ................................... 1 2. Special Meetings .................................. 2 3. Place of Special Meetings ......................... 2 4. Notice of Meetings ................................ 3 5. Shareholders' List ................................ 4 6. Organization ...................................... 4 7. Agenda and Procedure .............................. 5 8. Quorum ............................................ 5 9. Adjournment ....................................... 5 10. Voting ............................................ 6 11. Inspectors ........................................ 7 12. Meeting by Telecommunication ...................... 8 ARTICLE III -..................................Board of Directors 8 1. Authority, Election and Tenure .................... 8 2. Number and Qualification .......................... 9 3. Regular Meetings .................................. 9 4. Special Meetings .................................. 9 5. Place of Meetings ................................. 9 6. Notice of Meetings ................................ 9 7. Quorum and Voting ................................. 10 8. Organization, Agenda and Procedure ................ 10 9. Resignation ....................................... 11 10. Removal ........................................... 11 11. Vacancies ......................................... 11 12. Executive and Other Committees .................... 12 13. Compensation of Directors ......................... 13 14. Meeting by Telecommunication ...................... 14 ARTICLE IV - Waiver of Notice by Shareholders and Directors and Action of Shareholders and Directors by Consent .......... 14 1. Waiver of Notice .................................. 14 2. Action Without a Meeting .......................... 15 ARTICLE V -Officers .......................................... 16 1. Election and Tenure ............................... 16 2. Resignation, Removal and Vacancies ................ 16 4. President ......................................... 17 5. Vice Presidents ................................... 18 6. Secretary ......................................... 18 7. Treasurer ......................................... 19 8. Assistant Secretaries and Assistant Treasurers .... 19 9. Bond of Officers .................................. 19 10. Compensation ...................................... 20 ARTICLE VI - Indemnification.................................. 20 1. Indemnification ................................... 20 2. Provisions Not Exclusive .......................... 21 3. Effect of Modification ............................ 21 4. Definitions ....................................... 21 5. Insurance ......................................... 22 6. Expenses as a Witness ............................. 23 7. Notice to Shareholders ............................ 23 ARTICLE VII -Execution of Instruments; Loans; Checks and Endorsements; Deposits; Proxies ................................. 24 1. Execution of Instruments .......................... 24 2. Borrowing ......................................... 24 3. Loans to Directors, Officers and Employees ........ 24 4. Checks and Endorsements ........................... 25 5. Deposits .......................................... 25 6. Proxies ........................................... 25 ARTICLE VIII - Shares of Stock................................ 26 1. Certificates of Stock ............................. 26 2. Shares Without Certificates ....................... 26 3. Record ............................................ 27 4. Transfer of Stock ................................. 27 5. Transfer Agents and Registrars; Regulations ....... 27 6. Lost, Destroyed or Mutilated Certificates ......... 28 ARTICLE IX - Corporate Seal................................... 28 ARTICLE X -Fiscal Year ....................................... 28 ARTICLE XI - Corporate Records................................ 29 1. Corporate Records ................................. 29 2. Addresses of Shareholders ......................... 29 3. Fixing Record Date ................................ 29 4. Inspection of Corporate Records ................... 30 5. Distribution of Financial Statements .............. 30 6. Audits of Books and Accounts ...................... 30 ARTICLE XII - Emergency Bylaws................................ 30 ARTICLE XIII - Amendments..................................... 31 BYLAWS ------ OF -- SCOTT'S LIQUID GOLD-INC. ------------------------ (a Colorado Corporation) ARTICLE I{PRIVATE } ----------- Offices -------- 1.{PRIVATE } Business Offices Corporation may have one or more offices at such place or places within or without the State of Colorado as the Board of Directors may from time to time determine or as the business of the Corporation may require. 2.{PRIVATE } Principal Office The initial principal office of the Corporation shall be as set forth in the Articles of Incorporation. The Board of Directors, from time to time, may change the principal office of the Corporation. 3.{PRIVATE } Registered Office The registered office of the Corporation shall be as set forth in the Articles of Incorporation, unless changed as provided by the provisions of the Colorado Business Corporation Act, as it may be amended from time to time, or any successor law (the "Act"). ARTICLE II{PRIVATE } -------------------- Shareholders' Meeting --------------------- {PRIVATE }1. Annual Meetings The annual meetings of shareholders for the election of directors to succeed those directors whose terms expire and for the transaction of such other business as may come before the meeting shall be held each year at such date, time and place, either within or without the State of Colorado, as may be designated by resolution of the Board of Directors from time to time; provided, however, that an annual meeting shareholders shall be held each year on a date that is within the earlier of six months after the close of the last fiscal year or fifteen months after the last annual meeting. If the day so fixed for such annual meeting shall be a legal holiday at the place of the meeting, then such meeting shall be held on the next succeeding business day at the same hour. {PRIVATE }2. Special Meetings Special meetings of shareholders for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called at any time by the President or by the Board of Directors and shall be called by the President or the Secretary upon one or more written demands (which shall state the purpose or purposes therefor) signed and dated by the holders of shares representing not less than ten percent of all votes entitled to be cast on any issue proposed to be considered at the meeting. The record date for determining the shareholders entitled to demand a special meeting is the date of the earliest of any of the demands pursuant to which the meeting is called, or the date that is 60 days before the date on which the first of such demands is received, whichever is later. Business transacted at any special meeting of shareholders shall be limited to the purpose or purposes stated in the notice of such meeting. 3.{PRIVATE } Place of Special Meetings Special meetings of shareholders shall be held at such place or places, within or without the State of Colorado, as may be determined by the Board of Directors and designated in the notice of the meeting, or, if no place is so determined and designated in the notice, special meetings of shareholders shall be held at the principal office of the Corporation. 4.{PRIVATE } Notice of Meetings Not less than 10 nor more than 60 days prior to each annual or special meeting of shareholders, written notice of the date, time and place of each annual and special shareholders' meeting shall be given to each shareholder entitled to vote at such meeting; provided, however, that if the authorized shares of the Corporation are proposed to be increased, at least 30 days' notice in like manner shall be given; and provided, further, that if the Act prescribes notice requirements for particular circumstances (as in the case of the sale, lease or exchange of the Corporation's assets other than in the usual and regular course of business, or the merger or dissolution of the Corporation), the provisions of the Act shall govern. Notice may be given in person; by telephone, telegraph, teletype, electronically transmitted facsimile, or other form of wire or wireless communication; and, if so given, shall be effective when received by the shareholder. Notice may also be given by deposit in the United States mail, postage prepaid, if addressed to the shareholder at the address of such shareholder shown in the Corporation's current record of shareholders, and, of so given, shall be effective when mailed. If three successive notices mailed to any shareholder in accordance with the provisions of this Section 4 are returned as undeliverable, no further notices to such shareholder shall be necessary until another address for such shareholder is made known to the Corporation. The notice of a special meeting shall, in addition, state the meeting's purposes. 5.{PRIVATE } Shareholders' List A complete record of the shareholders entitled to notice of any shareholders' meeting (or an adjourned meeting described in Section 9 of this Article II) shall be prepared by the Secretary of the Corporation. Such shareholders' list shall be arranged by voting groups and, within each voting group by class or series of shares, shall be alphabetical within each class or series and shall show the address of, and the number of shares of each such class and series that are held by, each shareholder. (When used in these Bylaws, the term "voting group" or "voting groups" shall have the meaning assigned by the Act.) The shareholders' list shall be available for inspection by any shareholder beginning on the earlier of ten days before the meeting for which the list was prepared or two business days after notice is given and continuing through the meeting and any adjournment thereof at the Corporation's principal office or at a place identified in the notice of the meeting in the city where the meeting will be held. A shareholder or his agent or attorney is entitled on written demand to inspect and, subject to the requirements of the Act, to copy the list during regular business hours and during the period it is available for inspection. 6.{PRIVATE }Organization The President or, in the President's absence, the Chairman of the Board, or, in the absence of both these persons, any Vice President shall call meetings of shareholders to order and act as chairperson of such meetings. In the absence of said officers, any shareholder entitled to vote at the meeting, or any proxy of any such shareholder, may call the meeting to order and a chairperson shall be elected by a majority of the votes present and entitled to be cast at the meeting. The Secretary or any Assistant Secretary of the Corporation or any person appointed by the chairperson may act as secretary of such meetings. 7.{PRIVATE } Agenda and Procedure The Board of Directors shall have the responsibility of establishing an agenda for each meeting of shareholders, subject to the rights of shareholders to raise matters, if any, which may properly be brought before the meeting although not included within the agenda. The chairperson shall be charged with the orderly conduct of all meetings of shareholders and may impose rules or procedures for this purpose. 8.{PRIVATE } Quorum Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless otherwise provided in the Act or in the Corporation's Articles of Incorporation, a majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of that voting group for action on that matter. In the absence of a quorum at any shareholders' meeting, a majority of the votes present in person or represented by proxy and entitled to vote on any matter at the meeting may adjourn the meeting from time to time for a period not to exceed 120 days from the original date of the meeting without further notice (except as provided in Section 9 of this Article II) until a quorum shall be present or represented. 9.{PRIVATE } Adjournment When a meeting is for any reason adjourned to another date, time or place, notice need not be given of the adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 120 days from the date of the original meeting, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder as of the new record date. 10.{PRIVATE } Voting (a) Except as provided by law or in the Articles of Incorporation, at every meeting of shareholders, or with respect to corporate action which may be taken without a meeting, each outstanding share having voting power is entitled to one vote, and each fractional share, if any is outstanding, is entitled to a corresponding fractional vote, on each matter voted on at a shareholders' meeting. (b) A shareholder may vote the shareholder's shares in person or by proxy. A shareholder may appoint a proxy by signing an appointment form, either personally or by the shareholder's attorney-in-fact. A shareholder may appoint a proxy by transmitting or authorizing the transmission of a telegram, teletype or other electronic transmission providing a written statement of the appointment to the proxy, to a proxy solicitor, proxy support service organization, or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the Corporation; except that the transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the shareholder transmitted or authorized the transmission of the appointment. An appointment of a proxy is not effective against the Corporation until the appointment is received by the Corporation. The appointment is effective for eleven months unless a different period is expressly provided in the appointment form. An appointment of a proxy shall be revocable by the shareholder except as may be permitted or provided by law. (c) When a quorum is present at any meeting of shareholders, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the matter is one upon which a different vote is required by express provision of a statute, or the Articles of Incorporation, or these Bylaws, in which case such express provision shall govern and control the decision on such matter. 11.{PRIVATE } Inspectors The chairperson of the meeting may at any time appoint two or more inspectors to serve at a meeting of the shareholders. Such inspectors shall decide upon the qualifications of voters, including the validity of proxies, accept and count the votes for and against the matters presented, report the results of such votes, and subscribe and deliver to the secretary of the meeting a certificate stating the number of shares of stock within each voting group that is issued and outstanding and entitled to vote thereon and the number of shares within each voting group that voted for and against the matters presented. The voting inspectors need not be shareholders of the Corporation, and any director or officer of the Corporation may be an inspector on any matter other than a vote for or against such director's or officer's election to any position with the Corporation or on any other matter in which such officer or director may be directly interested. 12.{PRIVATE } Meeting by Telecommunication If and only if permitted by the Board of Directors, any or all of the shareholders may participate in an annual or special shareholders' meeting by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting may hear each other during the meeting. If the Board of Directors determines to allow shareholders to participate in a shareholders' meeting by telecommunication, the Board shall establish the terms and conditions under which shareholders may participate by such means and shall cause the notice of the meeting to contain such terms and conditions. Only shareholders who comply with the terms and conditions indicated in such notice shall be entitled to so participate by telecommunication in the shareholders' meeting. A shareholder participating in a meeting by telecommunication in compliance with the terms and conditions established by the Board of Directors is deemed to be present in person at the meeting. ARTICLE III{PRIVATE } -------------------- Board of Directors ------------------- 1.{PRIVATE } Authority, Election and Tenure All corporate power shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, a Board of Directors. The Board of Directors shall be elected at each annual meeting of shareholders. In an election of directors, that number of candidates equaling the number of directors to be elected having the highest number of votes cast in favor of their election shall be elected to the Board of Directors. 2.{PRIVATE } Number and Qualification In accordance with the Corporation's Articles of Incorporation, the number of directors shall be at least three and not more than nine. Within that range, the number of directors shall be as stated by resolution of the Board of Directors from time to time (which latest enacted resolution shall be deemed a part of these Bylaws and is incorporated herein by reference), but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Directors must be natural persons at least eighteen years of age but need not be shareholders or residents of the State of Colorado. 3.{PRIVATE } Regular Meetings Regular meetings of the Board of Directors shall be held at such dates, times and places as may be determined by the Board of Directors. Regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting. 4.{PRIVATE } Special Meetings Special meetings of the Board of Directors may be called by the President at any time and shall be called by the President or the Secretary on the written request of any two directors. 5.{PRIVATE } Place of Meetings Any meeting of the Board of Directors may be held at such place or places either within or without the State of Colorado as shall from time to time be determined by the Board of Directors and as shall be designated in the resolution of the Board of Directors fixing the date, time and place of the regular meetings of the Board of Directors or in the notice of special meeting. 6.{PRIVATE } Notice of Meetings Notice of the date, time and place of each special meeting of directors shall be given to each director at least two days prior to such meeting. The notice of a special meeting of the Board of Directors need not state the purposes of the meeting. Notice to each director of any special meeting may be given in person; by telephone, telegraph, teletype, electronically transmitted facsimile, or other form of wire or wireless communication; or by mail or private carrier. Oral notice to a director of any special meeting is effective when communicated. Written notice to a director of any special meeting, including without limitation notice sent by electronic mail, is effective at the earliest of: (a) the date received; (b) five days after it is deposited in the United States mail, properly addressed to the last address for the director shown on the records of the Corporation, first class postage prepaid; (c) the date shown on the return receipt if mailed by registered or certified mail, return receipt requested, postage prepaid, in the United States mail and if the return receipt is signed by or on behalf of the director to whom the notice is addressed. 7.{PRIVATE } Quorum and Voting A majority of the number of directors fixed by or in accordance with Section 2 of this Article III shall constitute a quorum at all meetings of the Board of Directors. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as otherwise required by the Act. 8.{PRIVATE } Organization, Agenda and Procedure The Chairman of the Board or, in the absence of the Chairman of the Board, the President shall act as chairperson of the meetings of the Board of Directors. The Secretary, any Assistant Secretary, or any other person appointed by the chairperson shall act as secretary of each meeting of the Board of Directors. The agenda of and procedure for such meetings shall be as determined by the Board of Directors. 9.{PRIVATE } Resignation Any director of the Corporation may resign at any time by giving written resignation notice to the Corporation or the Secretary of the Corporation at the Corporation's principal office. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective, unless it so provides. A director who resigns may, but is not required to, deliver to the Secretary of State for filing a statement to that effect. 10.{PRIVATE } Removal Any director may be removed, either with or without cause, at any time, at a special meeting of the shareholders called and held for such purpose if the number of votes cast in favor of removal exceeds the number of votes cast against removal; provided, however, that if a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that director. A vacancy in the Board of Directors caused by any such removal may be filled by the Corporation's shareholders at such meeting or, if the shareholders at such meeting shall fail to fill such vacancy, by the Board of Directors as provided in Section 11 of this Article III. 11.{PRIVATE } Vacancies If a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors: (a) the shareholders may fill the vacancy at the next annual meeting or at a special meeting called for that purpose; or (b) the Board of Directors may fill the vacancy; or (c) if the directors remaining in office constitute fewer than a quorum of the Board of Directors, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The term of a director elected to fill a vacancy pursuant to subparagraph (b) or (c) of the foregoing sentence expires at the next annual shareholders' meeting. The term of a director elected to fill a vacancy pursuant to subparagraph (a) of this Section 11 shall be the unexpired term of such director's predecessor in office; except that, if the director's predecessor had been elected to fill a vacancy pursuant to Subparagraph (b) or (c) of this Section 11, the term of a director elected pursuant to Section (a) of this Section 11 shall be the unexpired term of the last predecessor elected by the shareholders. If the vacant directorship was held by a director elected by a voting group of shareholders and one or more of the remaining directors were elected by the same voting group, only such directors are entitled to vote to fill the vacancy if it is filled by directors, and they may do so by the affirmative vote of a majority of such directors remaining in office; and only the holders of shares of that voting group are entitled to vote to fill such vacancy if it is filled by the shareholders. 12.{PRIVATE } Executive and Other Committees Except as otherwise required by the Act, the Board of Directors, by resolution adopted by the greater of a majority of the number of directors fixed by or in accordance with Section 2 of this Article III or the number of directors required to take action pursuant to Section 7 of this Article III, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in the resolution and except as otherwise prescribed by the Act, shall have and may exercise all of the authority of the Board of Directors in the management of the Corporation, except that no committee shall: (a) authorize distributions; (b) approve or propose to shareholders action that the Act requires to be approved by shareholders; (c) fill vacancies on the Board of Directors or on any of its committees; (d) amend the Articles of Incorporation; (e) adopt, amend, or repeal these Bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (h) authorize or approve the issuance or sale of shares, or a contract for the sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that with respect to this clause (h) the Board of Directors may authorize a committee to do so within limits specifically prescribed by the Board of Directors. The provision of these Bylaws governing meetings, action without meeting, notice, waiver of notice, and quorum and voting requirements of the Board of Directors shall apply to committees and the members thereof. 13.{PRIVATE } Compensation of Directors Each director may be paid such compensation as fixed from time to time by resolution of the Board of Directors, together with reimbursement for the reasonable and necessary expenses incurred by such director in connection with the performance of such director's duties. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity or any of its subsidiaries in any other capacity and receiving proper compensation therefor. 14.{PRIVATE } Meeting by Telecommunication One or more members of the Board of Directors or any committee designated by the Board of Directors may hold or participate in a meeting of the Board of Directors or such committee through the use of any means of communication by which all persons participating can hear each other at the same time. ARTICLE IV{PRIVATE } --------------------- Waiver of Notice by Shareholders and Directors and Action --------------------------------------------------------- of Shareholders and Directors by Consent ---------------------------------------- 1.{PRIVATE } Waiver of Notice A shareholder may waive any notice required by the Act or by the Articles of Incorporation or these Bylaws, and a director may waive any notice of a directors' meeting, whether before or after the date or time stated in the notice as the date or time when any action will occur or has occurred. The waiver shall be in writing, be signed by the shareholder or director entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing with the corporate records, but such delivery and filing shall not be conditions of the effectiveness of the waiver. Attendance of a shareholder at a meeting waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice, and waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director, at the beginning of the meeting or promptly upon his or her later arrival, objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice and does not thereafter vote for or assent to action taken at the meeting, or if special notice was required of a particular purpose pursuant to the Act, the director objects to transacting business with respect to the purpose for which such special notice was required and does not thereafter vote for or assent to action taken at the meeting with respect to such purpose. 2.{PRIVATE } Action Without a Meeting Any action required or permitted to be taken at a meeting of the shareholders, directors or members of an executive or other committee, as applicable, may be taken without a meeting if all shareholders entitled to vote with respect to such action, or all directors or all members of an executive or other committee, as the case may be, give written consent to such action in writing. The record date for determining shareholders entitled to take action without a meeting is the date a writing upon which the action is taken, pursuant to this Section 2 of Article IV, is first received by the Corporation. Any shareholder who has signed a writing describing and consenting to action taken pursuant to this Section 2 of this Article IV may revoke such consent by a writing signed by such shareholder describing the action and stating that the shareholder's prior consent thereto is revoked, if such writing is received by the Corporation before the effectiveness of the action. Action taken without a meeting shall be effective: in the case of an action of shareholders, as of the date the last writing necessary to effect the action is received by the Corporation unless all of the writings necessary to effect the action specify another date, which may be before or after the date the writings are received by the Corporation; and in the case of directors' action, action is taken when the last director signs a writing describing the action taken unless before such time the Secretary has received a written revocation of the consent of any other director, and any action so taken shall be effective at the time taken unless the directors specify a different effective date. ARTICLE V{PRIVATE } -------------------- Officers -------- 1.{PRIVATE } Election and Tenure The officers of the Corporation shall consist of a Chairman of the Board, a President, a Secretary and Treasurer, each of whom shall be appointed annually by the Board of Directors. The Board of Directors may also designate and appoint such other officers and assistant officers as may be deemed necessary. The Board of Directors may delegate to any such officer the power to appoint or remove subordinate officers, agents or employees. Any two or more offices may be held by the same person. Each officer so appointed shall continue in office until a successor shall be appointed and shall qualify, or until the officer's earlier death, resignation or removal. Each officer shall be a natural person who is eighteen years of age or older. 2.{PRIVATE } Resignation, Removal and Vacancies Any officer may resign at any time by giving written notice of resignation to the Board of Directors or the President. Such resignation shall take effect when the notice is received by the Corporation unless the notice specifies a later effective date, and acceptance of the resignation shall not be necessary to render such resignation effective. Any officer may at any time be removed by the Board of Directors. If any office becomes vacant for any reason, the vacancy may be filled by the Board of Directors. An officer appointed to fill a vacancy shall be appointed for the unexpired term of such officer's predecessor in office and shall continue in office until a successor shall be elected or appointed and shall qualify, or until such officer's earlier death, resignation or removal. The appointment of an officer shall not itself create contract rights in favor of the officer, and the removal of an officer does not affect the officer's contract rights, if any, with the Corporation and the resignation of an officer does not affect the Corporation's contract rights, if any, with the officer. 3. Chairman of the Board. The Chairman of the Board shall preside at meetings of the Board of Directors and shall give counsel and advice to the Board of Directors and the officers of the Corporation on all subjects concerning the welfare of the Corporation and the conduct of its business. The Chairman of the Board of Directors shall perform all other duties incident to the office of the Chairman of the Board and such other duties as the Board may from time to time determine. 4. President The President shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. The President shall, when present, preside at all meetings of the shareholders. The President in general shall perform all duties incident to the office of President and such other duties as may be assigned by the Board of Directors from time to time. 5. Vice Presidents The Vice Presidents, if any, shall perform such duties and possess such powers as from time to time may be assigned to them by the Board of Directors or the President. In the absence of the President or in the event of the inability or refusal of the President to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of the election or appointment of the Vice Presidents) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. 6. Secretary The Secretary shall perform such duties and shall have such powers as may from time to time be assigned by the Board of Directors or the President. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of Secretary including, without limitation, the duty and power to give notice of all meetings of shareholders and the Board of Directors, the preparation and maintenance of minutes of the directors' and shareholders' meetings and other records and information required to be kept by the Corporation under Article III and for authenticating records of the Corporation, and to be custodian of the corporate seal and to affix and attest to the same on documents, the execution of which on behalf of the Corporation is authorized by these Bylaws or by the action of the Board of Directors. 7.{PRIVATE } Treasurer The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of Treasurer including, without limitation, the duty and power to keep and be responsible for all funds and securities of the Corporation, to deposit funds of the Corporation in depositories selected in accordance with these Bylaws, to disburse such funds as ordered by the Board of Directors, making proper accounts thereof, and to render as required by the Board of Directors statements of all these transactions taken as Treasurer and of the financial condition of the Corporation. 8.{PRIVATE } Assistant Secretaries and Assistant Treasurers The Assistant Secretaries and Assistant Treasurers, if any, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. In the absence, inability or refusal to act of the Secretary or the Treasurer, the Assistant Secretaries or Assistant Treasurers, respectively, in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election or appointment, shall perform the duties and exercise the powers of the Secretary or Treasurer, as the case may be. 9.{PRIVATE } Bond of Officers The Board of Directors may require any officer to give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for such terms and conditions as the Board of Directors may specify, including without limitation for the faithful performance of such officer's duties and for the restoration to the Corporation of any property belonging to the Corporation in such officer's possession or under the control of such officer. 10.{PRIVATE } Compensation Officers of the Corporation shall be entitled to such salaries, emoluments, compensation or reimbursement as shall be fixed or authorized from time to time by the Board of Directors. ARTICLE VI{PRIVATE } ------------------- Indemnification ----------------- 1.{PRIVATE } Indemnification To the extent permitted or required by the Act and any other applicable law, if any director or officer of the Corporation is made a party to or is involved in any proceeding because such person is or was a director or officer of the Corporation, the Corporation shall (a) indemnify such person from and against any liability, including but not limited to expenses of investigation and preparation, expenses in connection with appearance as a witness, and fees and disbursements of counsel, accountants or other experts, incurred by such person in such proceeding, and (b) advance to such person expenses incurred in such proceeding. The Corporation may in its discretion, but is not obligated in any way to, indemnify and advance expenses to an employee or agent of the Corporation to the same extent as to a director or officer, and the Corporation may indemnify an employee, fiduciary, or agent of the Corporation to a greater extent than expressly permitted herein for officers and directors if not inconsistent with public policy. 2.{PRIVATE } Provisions Not Exclusive The foregoing provisions for indmnificatoin and advancement of expenses are not exclusive, and the Corporation may at its discretion provide for indemnification or advancement of expenses in a resolution of its shareholders or directors, in a contract or in its Articles of Incorporation. 3.{PRIVATE } Effect of Modification Any repeal or modification of the foregoing provisions of this Article for indemnification or advancement of expenses shall not affect adversely any right or protection stated in such provisions with respect to any act or omission occurring prior to the time of such repeal or modification. If any provision of this Article or any part thereof shall be held to be prohibited by or invalid under applicable law, such provision or part thereof shall be deemed amended to accomplish the objectives of the provision or part thereof as originally written to the fullest extent permitted by law, and all other provisions or parts shall remain in full force and effect. 4.{PRIVATE } Definitions As used in this Article, the following terms have the following meanings: (a) Act. When used with reference to an act or omission occurring prior to the effectiveness of any amendment to the Act which occurs after the effectiveness of the adoption of this Article, the term "Act" shall include such amendment only to the extent that the amendment permits a corporation to provide broader indemnification rights than the Act permitted prior to the amendment. (b) Corporation. The term "Corporation" includes any domestic or foreign entity that is a predecessor of the Corporation by reason of a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (c) Director or Officer. A "director" or "officer" is an individual who is or was a director or officer of the Corporation or an individual who, while a director or officer of the Corporation, is or was serving at the Corporation's request as a director, officer, partner, trustee, employee, fiduciary, or agent of another domestic or foreign corporation or other person or entity or of an employee benefit plan. A director or officer is considered to be serving an employee benefit plan at the Corporation's request if his or her duties to the Corporation also impose duties on, or otherwise involve services by, the director or officer to the plan or to participants in or beneficiaries of the plan. The terms "director" and "officer" include, unless the context requires otherwise, the estate or personal representative of a director, or officer. (d) Liability. The term "liability" means the obligation incurred with respect to a proceeding to pay a judgment, settlement, penalty, fine (including any excise tax assessed with respect to an employee benefit plan), or reasonable expenses. (e) Proceeding. The term "proceeding" means any threatened, pending or completed action, suit, or proceeding whether civil, criminal, administrative or investigative, and whether formal or informal. 5.{PRIVATE } Insurance The Corporation may purchase and maintain insurance on behalf of a person who is or was a director, officer, employee, fiduciary, or agent of the Corporation, or who, while a director, officer, employee, fiduciary, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of another domestic or foreign corporation or other person or entity or of an employee benefit plan, against liability asserted against or incurred by the person in that capacity or arising from his or her status as a director, officer, employee, fiduciary, or agent, whether or not the Corporation would have power to indemnify the person against the same liability under the Act. Any such insurance may be procured from any insurance company designated by the Board of Directors, whether such insurance company is formed under the laws of this state or any other jurisdiction of the United States or elsewhere, including any insurance company in which the Corporation has an equity or any other interest through stock ownership or otherwise. 6.{PRIVATE } Expenses as a Witness The Corporation may pay or reimburse expenses incurred by a director, officer, employee, fiduciary, or agent in connection with an appearance as a witness in a proceeding at a time when he or she has not been made a named defendant or respondent in the proceeding. 7.{PRIVATE } Notice to Shareholders If the Corporation indemnifies or advances expenses to a director under this Article in connection with a proceeding by or in the right of the Corporation, the Corporation shall give written notice of the indemnification or advance to the shareholders with or before the notice of the next shareholders' meeting. If the next shareholder action is taken without a meeting at the instigation of the Board of Directors, such notice shall be given to the shareholders at or before the time the first shareholder signs a writing consenting to such action. ARTICLE VII{PRIVATE } -------------------- Execution of Instruments; Loans; Checks and Endorsements -------------------------------------------------------- Deposits; Proxies ----------------- 1.{PRIVATE } Execution of Instruments The President or any Vice President shall have the power to execute and deliver on behalf of and in the name of the Corporation any instrument requiring the signature of an officer of the Corporation, except as otherwise provided in these Bylaws or when the execution and delivery of the instrument shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. 2.{PRIVATE } Borrowing No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness for borrowed money shall be issued, endorsed or accepted in its name, unless authorized by the Board of Directors or a committee designated by the Board of Directors so to act. Such authority may be general or confined to specific instances. When so authorized, an officer may (a) effect loans at any time for the Corporation from any bank or other entity and for such loans may execute and deliver promissory notes or other evidences of indebtedness of the Corporation; and (b) mortgage, pledge or otherwise encumber any real or personal property, or any interest therein, owned or held by the Corporation as security for the payment of any loans or obligation of the Corporation, and to that end may execute and deliver for the Corporation such instruments as may be necessary or proper in connection with such transaction. 3.{PRIVATE } Loans to Directors, Officers and Employees The Corporation may lend money to, guarantee the obligations of and otherwise assist directors, officers and employees of the Corporation, or directors of another corporation of which the Corporation owns a majority of the voting stock, only upon compliance with the requirements of the Act. 4.{PRIVATE } Checks and Endorsements All checks, drafts or other orders for the payment of money, obligations, notes or other evidences of indebtedness, bills of lading, warehouse receipts, trade acceptances and other such instruments shall be signed or endorsed for the Corporation by such officers or agents of the Corporation as shall from time to time be determined by resolution of the Board of Directors, which resolution may provide for the use of facsimile signatures. 5.{PRIVATE } Deposits All funds of the Corporation not otherwise employed shall be deposited from time to time to the Corporation's credit in such banks or other depositories as shall from time to time be determined by resolution of the Board of Directors, which resolution may specify the officers or agents of the Corporation who shall have the power, and the manner in which such power shall be exercised, to make such deposits and to endorse, assign and deliver for collection and deposit checks, drafts and other orders for the payment of money payable to the Corporation or its order. 6.{PRIVATE } Proxies Unless otherwise provided by resolution adopted by the Board of Directors, the President or any Vice President: (a) may from time to time appoint one or more agents of the Corporation, in the name and on behalf of the Corporation, (i) to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, association or other entity whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, association or other entity, or (ii) to consent in writing to any action by such other corporation, association or other entity; (b) may instruct the person so appointed as to the manner of casting such votes or giving such consent; and (c) may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as may be deemed necessary or proper. ARTICLE VIII{PRIVATE } -------------------- Shares of Stock --------------- 1.{PRIVATE } Certificates of Stock The shares of the Corporation may but need not be represented by certificates. Unless the Act or another law expressly provides otherwise, the fact that the shares are not represented by certificates shall have no effect on the rights and obligations of shareholders. If the shares are represented by certificates, such certificates shall be signed either manually or in facsimile by the President and the Secretary or such other representatives of the Corporation as are designated by the Board of Directors. If the person who signed, either manually or in facsimile, a share certificate, no longer holds office when the certificate is issued, the certificate is nevertheless valid. Every certificate representing shares issued by the Corporation shall state the number and class of shares and the designation of the series, if any, the certificate represents, and shall otherwise be in such form as is required by law and as the Board of Directors shall prescribe. 2.{PRIVATE } Shares Without Certificates The Board of Directors may authorize the issuance of any class or series of shares of the Corporation without certificates. Such authorization shall not affect shares already represented by certificates until they are surrendered to the Corporation. Within a reasonable time following the issue or transfer of shares without certificates, the Corporation shall send the shareholder a complete written statement of the information required on certificates by the Act. 3.{PRIVATE } Record A record shall be kept of the names and addresses of the Corporation's shareholders, in a form that permits preparation of a list of shareholders that is arranged by voting group and within each voting group by class or series of shares, that is alphabetical within each class or series, and that shows the addresses of, and the number of shares of each class and series and the date of issuance of the shares (and in case of cancellation, the date of cancellation) held by, each shareholder. The person or other entity in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof, and thus a holder of record of such shares of stock, for all purposes as regards the Corporation. 4.{PRIVATE } Transfer of Stock Transfers of shares of the stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by such registered holder's attorney thereunto authorized, and on the surrender of the certificate or certificates for such shares properly endorsed. 5.{PRIVATE } Transfer Agents and Registrars; Regulations The Board of Directors may appoint one or more transfer agents or registrars with respect to shares of the stock of the Corporation. The Board of Directors may make such rules and regulations as it may deem expedient and as are not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. 6.{PRIVATE } Lost, Destroyed or Mutilated Certificates In case of the alleged loss, destruction or mutilation of a certificate representing stock of the Corporation, a new certificate may be issued in place thereof, in such manner and upon such terms and conditions as the Board of Directors may prescribe, and shall be issued in such situations as required by the Act. ARTICLE IX{PRIVATE } --------------------- Corporate Seal ---------------- The corporate seal shall be in the form approved by resolution of the Board of Directors. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. The impression of the seal may be made and attested by either the Secretary or any Assistant Secretary for the authentication of contracts or other papers requiring the seal. ARTICE X {PRIVATE } ------------ Fiscal Year ----------- The fiscal year of the Corporation shall be the year established by the Board of Directors. ARTICLE XI{PRIVATE } --------------------- Corporate Records ----------------- 1.{PRIVATE } Corporate Records The Corporation shall comply with the provisions of the Act regarding maintenance of records and shall keep such records at such place as the Act may designate or, if the Act does not designate the place for such records, then at such place or places as may be from time to time designated by the Board of Directors. 2.{PRIVATE } Addresses of Shareholders Each shareholder shall furnish to the Secretary of the Corporation or the Corporation's transfer agent an address to which notices from the Corporation, including notices of meetings, may be directed and if any shareholder shall fail so to designate such an address, it shall be sufficient for any such notice to be directed to such shareholder at such shareholder's address last known to the Secretary or transfer agent. 3.{PRIVATE } Fixing Record Date The Board of Directors may fix in advance a date as a record date for the determination of the shareholders entitled to a notice of or to vote at any meeting of shareholders or entitled to receive payment of any dividend or other distribution or allotment of rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 70 days before the meeting or action requiring a determination of shareholders; except that the record date for determining shareholders entitled to take action without a meeting or entitled to be given notice of action so taken is the date upon which a writing upon which such action is taken is first received by the Corporation. Only such shareholders as shall be shareholders of record on the date so fixed shall be so entitled with respect to the matter to which the same relates. If the Board of Directors shall not fix a record date as above provided, then the record date shall be determined in accordance with the Act. 4.{PRIVATE } Inspection of Corporate Records Shareholders shall have those rights to inspect and copy the Corporation's records as provided in the Act. 5.{PRIVATE } Distribution of Financial Statements Upon the written request of any shareholder of the Corporation, the Corporation shall mail to such shareholder its last annual and most recently published financial statement, if any. 6.{PRIVATE } Audits of Books and Accounts The Corporation's books and accounts may be audited at such times and by such auditors as shall be specified and designated by resolution of the Board of Directors. ARTICLE XII{PRIVATE } Emergency Bylaws and Actions ------------------------------ Subject to repeal or change by action of the shareholders, the Board of Directors may adopt emergency bylaws and exercise other powers in accordance with and pursuant to the provisions of the Act. XIII{PRIVATE } ------------ Amendments ------------ The Board of Directors may amend or repeal these Bylaws or adopt new bylaws. The shareholders may also amend or repeal these Bylaws or adopt new EX-10.4 3 1996 KEY EXECUTIVE INCENTIVE BONUS PLAN SCOTT'S LIQUID GOLD-INC. PURPOSE OF THE PLAN The purpose of the Key Executive Incentive Bonus Plan (the "Plan") is to provide incentive to the Company's key executives to maximize corporate earnings for 1996 and to reward such executives based upon performance. STRUCTURE OF THE PLAN This Plan is constructed to reserve exclusively to the shareholders the first $1 million in pre-tax earnings. Thereafter, for each $1 million in additional pre- tax earnings , a bonus of $100,000 will be paid as an incentive bonus. This Plan is also constructed so as to encourage Management to expend every effort possible to increase pre-tax earnings in excess of $1 million. The more pre-tax profit the Company makes, the greater the bonus and the greater the return to the Company's shareholders. Further, by not capping bonuses to be paid under this Plan, the Board of Directors believes that the incentives to the Company's executives to make larger and larger profits will not be limited. PLAN PROVISIONS 1. For 1996, a bonus pool equal to 10% of pre-tax earnings in excess of $1 million will be set aside for distribution to the Company's key executives. 2. Partial distributions of the bonus pool may be made in December of 1996, but the final distribution is only to be made after the close of the year, based upon audited pre-tax profits, during the quarter following the close of the fiscal year. 3. Bonuses, if any, for 1996, will be divided equally among the Company's four EX-13 4 EXHIBIT 13 SCOTT'S LIQUID GOLD-INC. 1995 ANNUAL REPORT DESCRIPTION OF BUSINESS general Scott's Liquid Gold-Inc. was incorporated in Colorado on February 15, 1954 and is headquartered in Denver, Colorado. Through its wholly-owned subsidiaries, the Company manufactures and markets high quality household chemical products, skin care products, and a line of disposable cigarette filters. In this report, the term "Company" refers to Scott's Liquid Gold-Inc. and its subsidiaries. The Company's household chemical products consist primarily of "Scott's Liquid Gold"for wood, a wood preservative and cleaner sold nationally for nearly 25 years, and "Touch of Scent", an aerosol room air freshener distributed nationally since 1982. To expand its consumer products base and to capitalize upon its established distribution network, the Company entered into the cosmetics business in early 1992 through a subsidiary, Neoteric Cosmetics, Inc., which introduced two skin care products under the name "Alpha Hydrox". At the end of 1995, more than twenty-five skin care products were being marketed by the Company, with additional products being prepared and proposed for market introduction during 1996. Net sales of Alpha Hydrox products have grown rapidly, from $5.9 million in 1992 to $31.6 million in 1995. strategy The Company's policy is to manufacture and market high quality consumer products that are distinct within each category in which the Company competes. Scott's Liquid Gold for wood distinguishes itself from competing products as a wood cleaner and preservative, not simply a polish. Touch of Scent is different from competing aerosol air fresheners in that it need not be shaken before each use and, since it is activated by a dispenser mounted to any smooth surface, it is more convenient to use than competing brands. With respect to Alpha Hydrox, the Company's line of cosmetics products, it was the first alpha hydroxy acid skin care product sold to the mass market at prices which consumers can afford. The Company's goal is to increase sales and profits with an emphasis on its skin care products. As part of its strategy to achieve this goal, the Company expanded its physical plant in Denver, a project which was completed in early 1996. Ongoing efforts to achieve this goal include the following: (1) the continuation of an aggressive advertising posture; (2) the development of additional skin care products where a perceived consumer need exists; and (3) focusing on domestic sales while not ignoring opportunities for expansion into other countries (the Canadian market was opened in 1995). Regarding the first point, the Company believes that sales of its consumer products require the support of effective advertising. In addition to television advertising and the commencement of radio spots, the Company endeavors to impart the benefits of Alpha Hydrox to consumers by furnishing information to health and beauty editors of magazines, newspapers, and television information programs concerning developments in and advantages of alpha hydroxy acids for skin beautification. Additionally, to augment its ongoing educational program, the Company provides a 24-hour toll-free line to consumers. products Scott's Liquid Gold for wood, a wood cleaner and preservative, has been the Company's core product since the Company's inception. It has been well-known in the U.S. market for nearly twenty-five years. In 1982, the Company added Touch of Scent, a room air freshener, to its line of household chemical products. The Company believes that Touch of Scent is the most convenient to use air freshener available. Household chemical products accounted for 40.7% of the Company's consolidated net sales in 1994, and 36.8% in 1995. Scott's Liquid Gold for wood, when applied to wood surfaces such as furniture, paneling, and kitchen cabinets, and to outside stained doors and decking , penetrates microscopic pores in the surface and lubricates beneath, restoring moisture and, at the same time, minimizes the appearance of scratches, darkening the wood slightly. Scott's Liquid Gold preserves wood's natural complexion and beauty without wax. Touch of Scent is sold with a decorative plastic dispenser which can be mounted on any hard surface and into which the consumer inserts an aerosol refill unit. At a touch of the dispenser, any one of several fragrances contained in the refill unit is propelled into the air, masking unpleasant odors and refreshing the air with a pleasant scent. The Company manufactures both the dispenser and the refill unit. Unlike some competitive aerosol air fresheners, Touch of Scent is extremely dry and, therefore, leaves practically no residue after use. The Company recently reformulated its Touch of Scent product so as to reduce the emission of volatile organic compounds as is required by the environmental laws of the State of California beginning on January 1, 1996 and to use an improved, concentrated formula. Additionally, in 1996, the Company is test marketing a new variety of highly decorative Touch of Scent dispensers. In early 1992, the Company began to market two skin care products under the trade name of Alpha Hydrox. At the end of 1995, the Company's skin care line consisted of over 20 products, with more on the way for introduction in 1996. The viability of each new product is monitored; a limited men's line of products is being discontinued because of low sales. Most of the Company's Alpha Hydrox products, which are sold by a wholly-owned subsidiary, Neoteric Cosmetics, Inc., contain alpha hydroxyethanoic acids in low but effective concentrations. Alpha hydroxyethanoic acids act as an exfoliant which gently sloughs off dead skin cells to promote a healthier, more youthful appearance. Some of the Company's skin care products, such as its moisturizers, do not contain an alpha hydroxy acid, but are marketed to be used in conjunction with those which do. Alpha Hydrox products accounted for 57.3% of the Company's consolidated net sales in 1994, and 61.1% in 1995. In addition to household chemical and skin care products, the Company produces a line of disposable cigarette filters known as Aquafilters. Although Aquafilters are designed to trap some of the tar, nicotine, carcinogens and toxic gases otherwise admitted into a smoker's body, sales of this product line have decreased steadily over the last several years. The cigarette filter business accounted for 2.0% of the Company's consolidated net sales in 1994 and 2.1% in 1995. The Company also manufactures injection molded components for household chemical products and Aquafilters. These components consist principally of plastic caps for Touch of Scent and Scott's Liquid Gold, dispensers for Touch of Scent, and holders for Aquafilters. The Company had considered in-house manufacturing of bottles and jars for Alpha Hydrox. However, because extensive capital outlays were involved in the Company's recent plant and office expansion, the Company is no longer considering such in-house manufacturing. marketing and distribution All of the Company's products are sold nationally, directly and through independent brokers, to mass marketers, drugstores, supermarkets, wholesale distributors and other retail outlets. In 1995, one customer, Wal-Mart Stores, Inc. of Bentonville, Arkansas, accounted for approximately 22.6% of the Company's sales of household chemical products and 22.0% of Alpha Hydrox sales. This customer is not related to the Company. A loss of this large customer would have a material effect on the Company if the Company's consumer base served by that customer did not purchase the Company's products at other retail outlets. No long-term contracts exist between the Company and Wal-Mart Stores, Inc. or any other customer. As is common in the industry, the Company permits returns of its products by customers. The Company's household chemical products and Alpha Hydrox are advertised nationally on network and, at times, on cable television and in print media. The Company is also testing the use of radio ads in certain geographic areas. The Company maintains an aggressive posture in promoting and advertising its skin care products. The Company's goal is to increase its share of the skin care market each year over the next several years, which it believes it has the resources to do. During 1996, however, but subject to change, the Company's budget calls for a decrease in advertising expenses, as a percentage of net sales, from 1995 levels. The Company believes that decreasing expenditures for advertising in 1996 will not affect the Company's ability to reach its 1996 sales goals, but there can be no assurance that such goals will be attained or, indeed, that the Company will maintain its current market share. However, the Company notes that even at budgeted 1996 advertising levels, consolidated net sales for 1996 can decrease from 1995 levels by more than 10% without affecting the Company's ability to service its bond debt. Further, the Company periodically considers adjustments to advertising expenditures based on consolidated net sales, endeavoring in the process to gauge the cost effectiveness of its advertising. manufacturing The Company owns and operates its manufacturing facilities and equipment. The Company manufactures all of its products, maintaining a high quality standard and sufficient inventories to ship most orders as they are received. Quality control is enforced at all stages of production, as well as upon the receipt of raw materials from suppliers. Raw materials are purchased from a number of suppliers and, at the present time, are readily available. There is only one U.S. manufacturer of the type of alpha hydroxy acid used by the Company. Relations with that supplier are satisfactory. Most of the Company's manufacturing operations, including most packaging, are highly automated, and, as a result, the Company's manufacturing operations are not labor intensive, nor, for the most part, do they involve extensive training. From time to time, the Company's facilities for the manufacture of Alpha Hydrox products have been stretched to near capacity. The addition to the Company's plant facilities, completed in early 1996, has more than doubled the Company capacity for skin care products, which the Company believes will be adequate for the foreseeable future. competition The Company's business is highly competitive in both household chemical and skin care products. The Company competes with several companies engaged in marketing air fresheners and products designed for the beautification of wood, but it does not have sufficient information to make an accurate representation as to the market share of its products. Both the air freshener and wood care categories are dominated by three to five manufacturers significantly larger than the Company, each of which produce several products. Irrespective of the foregoing, over the years, the Company has maintained a strong national base of distribution for its household chemical products. The skin care category is also highly competitive. Several competitors are significantly larger than Scott's Liquid Gold-Inc., and each of these competitors produces several products. Some of these companies, including some new competitors, also produce alpha hydroxy acid products with which Alpha Hydrox must compete. Because of the number of varied products produced by competitors, the Company cannot make an accurate representation as to the market share of its skin care products. Irrespective of the foregoing, it can be stated that the Company has established a strong national base of distribution for Alpha Hydrox, and, based upon data obtained from an independent rating service, believes that its products rank high among leading brand-name alpha hydroxy acid skin care products. The Company knows of few competitors who market cigarette filters. While the Company does not have sufficient information to make a representation as to its share of this market, it believes it to be significant in an insignificant category. As a matter of corporate philosophy, the Company subscribes to the belief that quality and product performance are an attraction to the consuming public. The Company, therefore, competes on the basis of quality and distinguishing characteristics of its products. See Strategy above. regulation The Company is subject to various federal, state and local laws and regulations which pertain to the type of products it manufactures and sells. The Company's skin care products containing alpha hydroxy acids are cosmetics within the meaning of the Federal Food Drug and Cosmetic Act ("FDCA") The FFDCA defines `cosmetics'' as products intended for cleansing, beautifying, promoting attractiveness or altering the appearance. The Company's cosmetic products are subject to regulation under the FFDCA and the Fair Packaging and Labeling Act ("FPLA") and the regulations promulgated under these acts. The relevant laws and regulations are enforced by the U.S. Food & Drug Administration ("FDA"). Such laws and regulations govern the ingredients and labeling of cosmetic products and set forth general manufacturing practices for companies to follow. Although FDA regulations require that the safety of a cosmetic ingredient be substantiated prior to marketing, there is no requirement that a company contemplating inclusion of a cosmetic ingredient in its products submit to the FDA the results of its testing or any other data or information with respect to the ingredient. Prior to marketing its products, the Company conducts studies to demonstrate that its Alpha Hydrox products do not irritate the skin or eyes. Consistent with FDA regulations, the Company has not submitted the results of its studies to the FDA. In April of 1994, an FDA official raised some questions about the safety of alpha hydroxy acids in skin care products, and later indicated that the effects of long-term usage of such products are unknown. The Cosmetic Ingredient Review ("CIR") Expert Panel sponsored by the cosmetics industry, is currently conducting a review of a compilation of alpha hydroxy acid safety data assembled by cosmetic manufacturers. The CIR is a cooperative proceeding in which an FDA representative can and does participate as a non-voting, liaison member. There can be no assurance that the FDA will not adopt new regulations directed at alpha hydroxy acid products that could adversely affect the Company's cosmetics business. Based upon information available to the Company, the Company believes that Alpha Hydrox products are safe and that the possibility of FDA action against its products is remote. The Company's products contain concentrations of alpha hydroxy acids ranging from zero to 8.4% , the highest percentage being several times lower than a chemical peel product that posed a problem of acute skin irritation and was the target of an FDA warning letter in the past. To enable consumers to make informed decisions, the Company lists the concentration of alpha hydroxy acid on its product containers and in its other promotional materials, does not exaggerate benefits to be expected from the use of its products, and recommends to consumers the use of a sunscreen in its written directions contained in every box. Further, the package also includes a toll- free telephone number for consumers to call with questions and concerns. The Company's advertising is subject to regulation under the Federal Trade Commission Act and its implementing regulations, which prohibit false and misleading claims in advertising. The Company's labeling and promotional materials are believed to be in full compliance with applicable statutes and regulations. Some chemicals used in consumer products, including some used by the Company, have come under scrutiny by various state governments and the Congress of the United States in connection with clean air laws and regulations. These chemicals are volatile organic compounds ("VOCs") that are contained in various categories of consumer products. As a result of VOC regulation, it was necessary for the Company to reformulate some of its products. In late 1995, for example, the Company changed its formula for Touch of Scent to conform to regulations of the California Air Resources Board ("CARB") which became effective with regard to air fresheners on January 1, 1996. The Company believes it has done all that is now necessary to satisfy the current requirements of the Clean Air Act and laws of various state governments. These laws and regulations have not affected the Company's skin care products. However, under CARB regulations, the Company has not been permitted to sell its pourable form of Scott's Liquid Gold wood cleaner and preservative in California since January 1, 1994, but is permitted to sell the aerosol form of this product. Limitations regarding the VOC content of consumer products by both state and federal agencies will continue to be a part of regulatory efforts to achieve compliance with standards for ozone at or near ground level. Under the Clean Air Act Amendments of 1990, the Environmental Protection Agency ("EPA") is required to study the contribution of consumer products to ground-level ozone problems and to promulgate regulations reducing the VOC content of consumer products. During 1995, the EPA published a prioritized list of categories of consumer products for regulation, including categories which affect Scott's Liquid Gold for Wood and Touch of Scent. Regulations pertaining to those products, which the Company believes, but can not assure, will be no more stringent than those issued previously by CARB, are scheduled to be issued in 1997. Various states, in addition to California, have enacted or are considering promulgating VOC regulations. The Company is unable to predict how many or which other states might enact legislation regulating the VOC content of consumer products or what effect such legislation might have upon its household chemical products. employees The Company employs 189 persons, 117 in plant and production related functions and 72 in administrative, sales and advertising functions. No contracts exist between the Company and any union. The Company monitors wage and salary rates in the Rocky Mountain area and pursues a policy of providing competitive compensation to its employees. The compensation of the Company's executive officers is under the purview of the Compensation Committee of the Company's Board of Directors. Fringe benefits for Company employees include an excellent medical and dental plan, life insurance, a 401K Plan with matching contributions for lower paid employees (those earning $30,000 or less per annum), an Employee Stock Ownership Plan, and a Profit Sharing Plan. The Company considers its employee relations to be satisfactory. patents and trademarks The Company actively uses its registered trademarks for Scott's Liquid Gold, Liquid Gold, Touch of Scent, and Neoteric in the United States and has registered trademarks in several additional countries. The U.S. patent for the dispenser and cap designs for Touch of Scent expired in 1995. The Company has owned this patent since 1981 when it was purchased from an unrelated company, and has considered it to be significant because of its conceptual advantage over other competing products. Because the Company has produced Touch of Scent for approximately 16 years and has established a consumer base for the product, the Company believes, but cannot assure, that the expiration of its patent will have no material effect on sales of Touch of Scent. The Company has applied for federal registration of the trademark "Alpha Hydrox". The issuance of this trademark is being challenged on the basis that the name of the Company's product falls in the realm of a general description of the type of acid used as an ingredient. The Company believes that the issuance or non-issuance of this trademark is not material to the Company or to its sales of Alpha Hydrox products. 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. The Company's U.S. patents pertaining to Aquafilter disposable cigarette filters have expired. The Company no longer considers these patents to be significant, irrespective of the uniqueness of this item. The Company intends to renew its U.S. Aquafilter trademark, which expires in 1996. Such trademark is registered in numerous countries. legal proceedings The Company filed two lawsuits in 1995 and early 1996 against companies which the Company asserts have infringed the Company's trademark and trade dress rights and have unfairly competed with the Company's Alpha Hydrox products. Both of these companies are private label producers of alpha hydroxy skin care products which are sold to customers of the Company and result in confusion in the mind of the consumer. With regard to a suit filed against the Company by the U.S. Justice Department on behalf of the United States Army, see "Management Discussion and Analysis of Financial Condition and Results of Operations-Other". properties The Company's Denver facilities are currently comprised of three connecting, modern buildings and a parking garage (approximately 261,100 square feet in total) and about 16.2 acres of land, of which approximately 6 acres remain for future expansion. These buildings range in age from 0 to 25 years (126,600 square feet having been added in 1995). The Denver facility houses the Company's corporate headquarters and all operations except those of Aquafilter Corporation, and serves as one of several distribution points. All of the Company's land and buildings in Denver serve as collateral under a deed of trust for a $12.0 million bond issue consummated by the Company on July 29, 1994. In addition to the Company's properties in Denver, Aquafilter Corporation, a subsidiary of the Company, owns a modern 50,000 square foot manufacturing and office facility in Fort Lauderdale, Florida, which is subject to a mortgage ($466,600 at December 31, 1995). The Fort Lauderdale facility is used for the production of Aquafilters and, additionally, serves as a warehouse and distribution point for the Company's household chemical and skin care products. The addition of the aforecited 126,600 square feet in Denver was prompted by the growth of the Company's cosmetics business. Such construction includes a 74,600 square foot office building and a 52,000 square foot addition to the Company's previously existing 134,500 square feet (reported previously as 126,000 square feet) of manufacturing and warehouse space. The Company believes that its current space will provide capacity for growth for at least the next five years. PRODUCTS AND SERVICES Scott's Liquid Gold (R) In the United States, ``Scott's Liquid Gold'' has continued to be a leader in wood care products for nearly twenty-five years and, for many years prior to its introduction nationally, was held in high esteem regionally. Its longevity in the market place attests to its effectiveness. Affected by some heating and air conditioning systems, by dust, dirt, age and use, expensive wood panelling, kitchen cabinets, and furniture thirst for the penetrating, preserving action of "Scott's Liquid Gold" to inhibit warping, cracking, shrinking and loss of color. Replacing fine wood has always been expensive, whereas preserving them with "Scott's Liquid Gold" is far more economical. In addition to uses inside the home and office, many consumers have discovered the benefits of using "Scott's Liquid Gold" on outside stained doors and decking which are exposed to the elements, causing drying and cracking. Through years of advertising, the Company has conveyed the message that `Scott's Liquid Gold'' is a wood preservative and cleaner, not a polish, and is effective on any natural wood surface whether it be panelling or furniture. The fact that "Scott's Liquid Gold" continues to be a leader in many supermarkets and non-food chains is proof of its quality. "Scott's Liquid Gold" is or has been advertised nationally on television and in newspapers. Touch of Scent (R) The Company believes "Touch Of Scent" air freshener is the most convenient- to-use air freshener available anywhere.The "Touch of Scent" system consists of an attractive wall dispenser unit - available in several colors and designs - which mounts easily on any wall or hard surface, and a specially designed "Touch Of Scent" refill can, available in several delightful fragrances, which slips into the dispenser and is ready to work at the touch of a finger. "Touch Of Scent" is or has been nationally advertised on television and in newspapers. AQUAFILTER (R) CIGARETTE FILTERS "Aquafilter" cigarette holders, which the Company believes possess a superb, built-in filtration system, are designed to trap and hold a large portion of the tar, nicotine, carcinogens and toxic gases otherwise admitted to a cigarette smoker's system, without changing the taste. ALPHA HYDROX TM "Alpha Hydrox" made its national debut in early 1992 as a skin creme and lotion. Since then, the Company has introduced more than twenty additional skin care products and, in 1996 expects to introduce additional products to the marketplace. Each product in the Company's family of "Alpha Hydrox" products is designed to beautify the skin. Most of the products contain, as their active ingredient, an alpha hydroxy acid which gently sloughs off dead skin cells, rejuvenating the skin and promoting a healthier, more youthful appearance. Some "Alpha Hydrox" products, such as the moisturizers, do not contain an alpha hydroxy acid, but are designed to complement those which do. SLG PLASTICS, INC. This wholly-owned subsidiary produces an uninterrupted supply of plastic components for household chemical and "Aquafilter" products at substantial savings to the Company. Products produced include caps for household chemical items, dispensers for "Touch Of Scent" and holders for "Aquafilters". ADVERTISING PROMOTIONS INCORPORATED Advertising Promotions Incorporated assists with advertising for Scott's Liquid Gold-Inc. and its subsidiaries. SELECTED FINANCIAL DATA Scott's Liquid Gold-Inc. and Subsidiaries
(In Thousands of Dollars) 1995 1994 1993 1992 1991 Revenues Scott's Liquid Gold household products $19,238 $21,960 $20,765 $22,452 $20,772 Neoteric Cosmetics 31,924 30,583 15,790 5,932 - Aquafilters 1,095 1,103 1,234 1,235 1,306 _____________________________________________ $52,257 $53,646 $37,789 $29,619 $22,078 Income from operations before income taxes $ 4,554 $9,653 $4,884 $ 180 $ 2,077 Provision for income taxes 1,731 3,801 1,955 63 777 Income before extraordinary item and accounting change 2,823 5,852 2,929 117 1,300 Tax benefit of operating loss carryforward - - - - 257 Cumulative effect at January 1, 1992 of income tax accounting change - - - 257 - ________________________________________________ Net income $2,823 $5,852 $2,929 $ 374 $1,557 Primary Per Share Data Income before extraordinary item and accounting change $ .28 $ .57 $ .30 $ .01 $ .14 Tax benefit of operating loss carryforward - - - - .03 Cumulative effect at January 1, 1992 of income tax accounting change - - - .03 - Primary earnings per share $ .28 $ .57 $ .30 $ .04 $ .17 Fully diluted earnings per share $ .28 $ .57 $ .29 $ .04 $ .17 Dividends declared per common share $ .10 $ .10 $ - $ - $ - Assets $35,661 $32,231 $17,311 $13,312 $14,629 Working capital* $6,497 $8,501 $4,676 $2,217 $2,826 Capital additions $10,537 $4,153 $ 474 $ 709 $ 271 Depreciation $ 820 $ 636 $ 643 $ 608 $ 610 Long-term debt* $10,474 $11,467 $2,631 $3,621 $4,718 * See Management Discussion and Analysis of Financial Condition and Results of Operations.
Selected Quarterly Financial Data 1995
First Second Third Fourth Year Net sales $14,448 $14,616 $12,585 $10,110 $51,759 Gross profit $10,575 $10,525 $8,707 $7,867 $37,674 Income from operations before income taxes $ 49 $ 589 $ 1,371 $ 2,545 $ 4,554 Net income $ 30 $ 362 $ 844 $ 1,587 $ 2,823 Primary earnings per share $ - $ .04 $ .08 $ .16 $ .28 Fully diluted earnings per share $ - $ .04 $ .08 $ .16 $ .28
1994
First Second Third Fourth Year Net sales $13,074 $15,513 $12,172 $12,649 $53,408 Gross profit $9,476 $11,664 $9,424 $9,391 $39,955 Income from operations before income taxes $ 1,346 $3,391 $2,361 2,555 $ 9,653 Net income $ 814 $2,026 $1,419 1,593 $ 5,852 Primary earnings per share $ .08 $ .20 $ .14 $ .15 $ .57
MANAGEMENT DISCUSSION AND ANALSYS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS general The Company manufactures and markets household chemical products, skin care products and cigarette filters. In early 1992, the Company entered into the cosmetics business, introducing a new line of skin care products, Alpha Hydrox, which is sold throughout the United States. Sales of the cosmetics line were $15.8 million in 1993, $30.6 million in 1994, and $31.6 million in 1995. As a result, the Company experienced record revenues and profits in both 1993 and 1994, but, due to heavy advertising of cosmetics products during 1995 and a decline of 12.3% in sales of the Company's household chemical products, the Company's net income was lower in 1995 than in 1994. results of operations Summary of Results as a Percentage of Net Sales
Year Ended December 31, 1993 1994 1995 Net sales Scott's Liquid Gold household products 54.8% 40.7% 36.8% Neoteric Cosmetics 41.9% 57.3% 61.1% Aquafilters 3.3% 2.0% 2.1% __________________________ Total net sales 100.0% 100.0% 100.0% Cost of sales 30.9% 25.6% 28.2% __________________________ Gross profit 69.1% 74.4% 71.8% Other revenue 0.3% 0.4% 1.0% __________________________ 69.4% 74.8% 72.8% _________________________ Operating expenses 55.3% 55.3% 62.4% Interest 1.1% 1.2%1 .6% ________________________ 56.4% 56.5% 64.0% _________________________ Income before income taxes 13.0% 18.1% 8.8% =========================
year ended December 31, 1995 compared to year ended December 31, 1994 Consolidated net sales for 1995 were $51.7 million vs. $53.4 million for 1994, a decrease of $1,650,000 or about 3.1%. Included in the aggregate sales decrease is a decrease in average selling prices of $512,625, of which $476,300 pertains to a decrease in average selling prices of cosmetics products and $36,325 pertains to a decrease in average selling prices of household chemical products. (Average selling prices of Scott's Liquid Gold wood care products were up by $292,975, but average selling prices of Touch of Scent were down by $329,300). Over 80% of the decrease in average selling prices occurred during the last quarter of 1995. Industry-wide sales of branded alpha hydroxy cosmetics products were relatively flat in 1995 compared to 1994. During 1995, net sales of the Company's cosmetics products accounted for 61.1% of consolidated net sales compared to 57.3% in 1994. Net sales of these products for 1995 were $31,623,200 compared to $30,583,000 in 1994, an increase of $1,040,200, or 3.4%. The Company attributes such increase to several factors: extensive advertising of the Company's cosmetics line, competitive pricing, the addition of new products in mid and late 1995, and the efficacy of the Company's products. Irrespective of the 1995 increase in sales of Alpha Hydrox, it should be noted that the number of competitive skin care products containing alpha hydroxy acids increased during the year, particularly in the area of private label products, and may continue to do so in the future. No assurance can be given that 1996 sales of the Company's skin care products will exceed or be the same as those of 1995. Sales of household chemical products decreased in 1995 vs. 1994, which, in part, accounted for a lower percentage of consolidated net sales, 36.8% in 1995 compared to 40.7% in 1994. These products are comprised of Scott's Liquid Gold for wood, a wood cleaner which preserves as it cleans, and Touch of Scent, a room air freshener. During 1995, sales of household chemical products were $19,050,100 compared to $21,732,100 in 1994, a decrease of $2,682,000 or 12.3 %. Sales of Scott's Liquid Gold for wood were down by $784,800, a decrease of 7.5%, and sales of Touch of Scent were down by $1,897,200 or 16.9 %. Advertising expenditures for household chemical products during 1996 decreased by 54.4% when compared to 1994. With regard to Touch of Scent, the Company is using a new concentrated formula and is also testing a new variety of highly-decorative dispensers in an effort to increase sales of its air fresheners in the future. Net sales of ``Aquafilters'', a disposable cigarette filter, represented 2.1% of consolidated net sales in 1995 compared to 2.0% in 1994. Such sales were lower in 1995 than in 1994 by $8,000, a decrease of .7%. Over the last several years, sales of Aquafilters have declined. The Company expends very little money to advertise this product. Cost of goods sold on a consolidated basis were $14,583,200 in 1995 compared to $13,690,700 in 1994, an increase of 6.5%. As a percentage of consolidated net sales, cost of goods sold increased from 25.6% in 1994 to 28.2% in 1995, principally due to the following: (a) an increase in 1995 over 1994 of manufacturing overhead of about $443,200, primarily due to an increase in indirect labor (up $214,100, mostly in the areas of technical support/laboratory and quality control) and in laboratory expenses other than salaries (up $236,100), offset by a net decrease in various other overhead expenses, none of which, by itself, was material, of about $7,200; (b) a decrease in plant utilization in 1995 vs. 1994, particularly in the third quarter (in the third quarter of 1994, the Company operated on a two-shift basis to produce certain new Alpha Hydrox products to be sold into the market place during the fourth quarter of that year and during the first quarter of 1995; further, plant utilization suffered in 1995 from a decrease from 1994 levels due to lower production demands for household chemical products); and (c) certain products introduced during 1995, particularly Alpha Hydrox Body Wash which accounted for 11% of Alpha Hydrox sales during 1995, are list-priced to produce a gross margin which is substantially lower than that of most other Alpha Hydrox products. There were no sales of Body Wash products during 1994. Further, substantially more pre-pack, display cases of Alpha Hydrox products were sold in 1995 than in 1994. Due to both higher labor content and costs of packaging materials, sales of prepacks produce a lower gross margin than sales of products sold in 12-count cases. An addition of plant facilities and equipment, as is described below under `Liquidity and Capital Resources,'' will increase depreciation expense in 1996 by approximately $125,000 per year, which is expected to have little effect on gross margins. Advertising expenses for 1995 were $17,990,300 compared to $15,107,200 in 1994, an increase of $2,883,100 or 19.1%. Of this increase, $5,902,000 pertained to cosmetic products and $10,100 pertained to Aquafilter products, both offset by a decrease of $3,029,000 for household chemical products. During 1996, the Company intends to maintain an aggressive advertising posture, while, at the same time, decreasing, as a percentage of net sales, its advertising expenses from 1995 levels. The Company believes that its 1996 advertising program will not adversely affect its ability to reach its 1996 sales goals. As the year progresses, the Company will consider adjusting its budgeted advertising expenses based upon year-to-date consolidated net sales. The Company wishes to make clear that, irrespective of the foregoing, it intends to spend significant amounts in 1996 to advertise its cosmetics and household chemical products for the following reasons: (i) it believes that, thus far, although industry-wide sales of skin care products containing alpha hydroxy acids have been flat when compared to 1994, the Company's penetration of the skin care market has been modest and that future growth is, therefore, possible; (ii) without advertising to educate the consuming public as to the merits of Alpha Hydrox, future growth, although not assured by advertising, will be severely restricted; (iii) competitive products continue to enter the marketplace and, accordingly, the Alpha Hydrox name needs to be kept in front of current consumers; and (iv) advertising is essential to maintain or increase sales levels of both the Company's cosmetics and household chemical products. The Company recognizes that sustaining its advertising program is highly dependent upon sales of its skin care products. Selling expenses for 1995 were $7,859,600 compared to $8,038,500 for 1994, a decrease of $178,900 or 2.2%. Administrative expenses for 1995 were $6,440,300 compared to $6,504,800 in 1994, a decrease of $64,500 or 1.0%. Interest expense for 1995 was greater than that of 1994 by $177,700, an increase of 27.3%, which was due to higher borrowings and interest rates. Interest expense will continue to increase during 1996 due to the issuance by the Company in July of 1994 of 10% First Mortgage Bonds, the proceeds of which were used to finance the Company's physical expansion as is described below under Liquidity and Capital Resources. During the construction phase of this expansion, which was completed in 1995, a portion of the amount of interest paid was capitalized ($428,800 in 1995). Offsetting the increase in interest expense for 1995 was $489,800 of interest earned, an increase over 1994 of $260,800, which was the result of investing the proceeds of the bond issue and the Company's excess cash in short-term Treasury Bills and similar paper. Expenditures for research and development, irrespective of an increase in such expenditures, were not material during 1995 (under 1% of revenues). year ended December 31, 1994 compared to year ended December 31, 1993 Consolidated net sales for 1994 were $53.4 million vs. $37.7 million for 1993, an increase of $15.7 million or 41.8%. Included in the aggregate sales increase was $1,223,500 attributable to improved selling prices of cosmetics products (up $ 213,800) and of household chemical products (up $1,009,700 of which $791,700 related to Scott's Liquid Gold wood care products). During 1994, net sales of cosmetics products accounted for 57.3% of consolidated net sales compared to 41.9% in 1993. Net sales of these products for 1994 were $30.6 million compared to $15.8 million in 1993, an increase of $14.8 million, or 93.7%. The Company attributes such increase to several factors: extensive advertising of the Company's cosmetics line, competitive pricing, the addition of five new products in May and three in December of 1994, and the efficacy of the Company's products. Irrespective of the Company's success during 1994, it was noted that, during that year, the number of competitive skin care products containing alpha hydroxy acids increased significantly and that additional competitive products may be introduced in the future. Net sales of household chemical products accounted for 40.7% of consolidated net sales in 1994 compared to 54.8% in 1993. These products are comprised of Scott s Liquid Gold for wood, a wood cleaner which preserves as it cleans, and Touch of Scent, a room air freshener. During 1994, sales of household chemical products were $21.7 compared to $20.6 million in 1993, an increase of $1.1 million or 5.2%. Sales of Scott's Liquid Gold for wood were up by $1.1 million, an increase of 11.8%, and sales of Touch of Scent were up by $350,200 or 3.2%, both offset by a decrease in sales of $385,700 pertaining to a discontinued product. Net sales of Aquafilters, a disposable cigarette filter, represented 2.0 % of consolidated net sales in 1994 compared to 3.3% in 1993. Such sales were lower in 1994 than in 1993 by $131,900, a decrease of 10.8%. Over the last several years, sales of Aquafilters have declined. The Company expends no moneys in advertising this product. Cost of goods sold on a consolidated basis were $13.7 million in 1994 compared to $11.7 million in 1993, an increase of 17.4%. For the most part, this increase is the result of the Company's increase in sales volume. As a percentage of consolidated net sales, cost of goods sold decreased from 31% in 1993 to 25.6% in 1994, principally due to product mix which, in 1994, contained a higher percentage of cosmetics products than in 1993. These products yield greater gross margins than those produced by household chemical products. Advertising expenses for 1994 were $15.1 million compared to $8.5 million in 1993, a increase of $6.6 million or 78.4%. Of this increase, 59% pertained to household chemical products and 41% pertained to cosmetics products. Selling expenses for 1994 were $8.0 million, compared to $7.2 million for 1993, increasing by $863,000 or 12.0%. Of that increase, $661,400 is attributable to an increase in shipping expenses and sales commissions (which vary with sales volume), $268,200 related to increased salaries, fringe benefits and travel expenses of field personnel, and $144,400 pertained to increases in a variety of other selling expenses, none of which, by itself, was material; all offset by decreased couponing and slotting expenses of $211,000. Administrative expenses for 1994 were $6.5 million compared to $5.2 million in 1993, an increase of $1.3 million, or 25.0%. Almost all of that increase ($1,245,000) pertained to an increase in the Company's accrual of profit sharing and bonuses which is based upon pre-tax profits, and to increases in allowances for bad debts ($129,700), offset by decreased legal and professional fees of $70,500. Interest expense for 1994 was greater than that of 1993 by $248,900, an increase of 61.8%, which was due to higher borrowings and interest rates. Part of the increase in interest was due to the issuance by the Company in July of 1994 of 10% First Mortgage Bonds, the proceeds of which were used to finance the Company's physical expansion as is described below under Liquidity and Capital Resources. During the construction phase of this expansion, a portion of the amount of interest to be paid was capitalized ($68,200 in 1994). Partially offsetting the increase in interest expense for 1994 was $229,000 of interest earned, an increase over 1993 of $121,100, a portion of which resulted from investing the proceeds of the bond issue in short-term Treasury Bills and similar paper. liquidity and capital resources On July 29, 1994, the Company consummated a $12 million bond issuance to finance the expansion of the Company's Denver facilities. This expansion, necessitated by the growth of the Company's wholly-owned subsidiary, Neoteric Cosmetics, Inc., manufacturer of Alpha Hydrox skin care products, included construction of a 74,600 square foot office building, replacing a smaller, existing office structure; and an additional 52,000 square feet of manufacturing and warehouse space at an aggregate cost of approximately $13.65 million (up from an estimated $12.9 million cost as reported in the Company's 1994 Annual Report), including the cost of fixtures and equipment. Construction of the project began in August of 1994 and was completed in January, 1996. The net proceeds of the bond issue, after expenses (including an Underwriter's commission of $360,000 and repayments of certain indebtedness) was $8,861,300, which was deposited with Norwest Bank Colorado which serves as the Trustee under the Bond Indenture. In conformity with the Registration Statement pertaining to the bond issue, approximately $2,754,600 of the net proceeds was used to repay certain of the Company's then indebtedness, including about $2.0 million to the Company's then principal lender and $626,800 to the wife of the Company's Chairman of the Board; and about $24,100 was used for other expenses related to the bond issue. In addition to the foregoing, the Company paid out, from its own cash reserves, approximately $240,000 for other expenses, primarily professional fees, in connection with the bond issue. In accordance with the terms of the Bond Indenture, the net proceeds of the bond issue were disbursed by the Trustee over the construction period to cover building costs as such costs were incurred and certified by the project's architect. Because the cost of the construction project, including machinery and office furnishings, was approximately $13.65 million, the Company needed to generate, prior to completion of the project, approximately $4.8 million from operations to pay for the entire project. Prior to the close of 1995, all moneys held by the Trustee and earmarked for the construction project had been paid out. Also, by December 31, 1995, the Company had paid out approximately $4,425,000 from its accumulated cash reserves towards the construction project, leaving a balance of about $375,000 to be paid in 1996. Interest on the $12 million bond issue is payable semi-annually beginning on January 1, 1995 at the rate of 10% per annum. (The January 1996 interest payment was made in a timely manner.) A sinking fund payment of $1 million is required annually, with a first payment in 1995. That requirement was fulfilled prior to the end of 1995. Currently, the Company is voluntarily paying $183,333 each month to the Trustee to cover future interest and sinking fund payments. The Trustee, at the Company's request, holds such moneys in accounts to which the Company has no access. Among other things, the Bond Indenture requires that the Company maintain a current ratio of at least 1.0:1 while the bonds are outstanding, and further requires that the Company maintain a ratio of consolidated funded debt (reduced by any amount held in the bond sinking fund) to consolidated net worth of not more than 1.5:1. Both of the foregoing requirements were met at December 31, 1995. The Bond Indenture also states that the Company may not declare or pay any dividend or distribution on its equity securities, purchase or otherwise acquire securities of the Company, or incur any additional consolidated funded debt if, after giving affect to the action, the ratio of consolidated funded debt (reduced by amounts held in the bond sinking fund) to consolidated net worth would exceed 1.25:1. The bonds are secured by a first deed of trust on the Company's Denver land and buildings, including new structures financed by the bond issuance. An independent appraisal conducted just prior to the issuance of the bonds placed an aggregate market value of $16 million on this property, assuming completion of the construction project. During 1995, the Company's working capital decreased by $2,004,300, and concomitantly, its current ratio (current assets divided by current liabilities) decreased from 2.46:1 at December 31, 1994 to 1.83:1 at December 31, 1995. This decrease in working capital is attributable to net income of $2,823,400, contributions to the Company's ESOP and exercise of incentive stock options of $438,400, a decrease in restricted cash of $6,162,700, a decrease in other assets of $48,800, and an increase in deferred income taxes of $217,900; all offset by capital expenditures in excess of depreciation of $9,714,200, the declaration in March of 1995 of a dividend of $989,000, and a net reduction of $992,300 in long-term debt. At December 31, 1995, the ratio of consolidated funded debt to consolidated net worth was .63:1. Trade accounts receivable at December 31, 1995 were lower by $1,670,100 than those at December 31, 1994 primarily because net sales of December of 1994 exceeded those of December of 1995 by about $1.7 million. Trade accounts payable are higher at December 31, 1995 than they were at December 31, 1994 by $1,338,500. While some of that increase is due to the building of inventories of the Company's new Alpha Hydrox foot care products, most is attributable to slower payments by the Company to certain suppliers. Although relations with suppliers remain satisfactory, the Company intends to reduce its trade accounts payable early in 1996. Inventories at December 31, 1995 were higher than those at December 31, 1994 by $778,600, an increase of 16.2% which is attributable to new products and slow sales in December of 1995. The Company's Board of Directors has adopted a dividend philosophy under which the Board will consider periodically the payment of dividends which recognize performance during 1996 if certain goals for net sales during a quarter and for cumulative net sales during the year are satisfied. Such dividends, if declared, will not exceed 50% of net income on a cumulative basis. However, in any event, the Board of Directors' declaration of dividends is dependent upon the Company's financial condition, cash needs, satisfaction of the bond covenants described above and other relevant factors. other As described in earlier reports, on September 8, 1994, the United States Justice Department, at the request of the United States Army, filed an environmental lawsuit against the Company, alleging that the Company was a contributor to contamination in a groundwater aquifer underlying a portion of the Rocky Mountain Arsenal; and, therefore, that the Company should contribute to the existing and future costs incurred by the Army in connection with remediation of that groundwater. The Army claims to have incurred approximately $27 million, exclusive of interest, of past response costs related to the portion of the Arsenal in question. It asserts that one-half to two-thirds of that amount should be allocated to the Company. The Army also claims unquantified future response costs, including costs to acquire additional supplies of water to supplement or replace existing municipal sources. These costs have been estimated at $50 million. Based on the opinion and report of its groundwater consultant, the Company believes that any contamination from the Company has not migrated as far as the Arsenal and that the contamination at issue comes from other sources. The Company believes, in addition, that contaminant concentrations in a groundwater plume that the Army claims to have originated at the Company's facilities (and which the Company believes originated elsewhere) are such that any response costs actually incurred by the Army relative to the disputed plume are relatively small. Further, the Company believes that the need for additional or supplemental water supplies, if any, results solely from the Arsenal's munitions operations and not from any groundwater contamination to which the Army claims the Company contributed. An exchange of expert reports by the parties concluded on March 1, 1996. Other discovery is scheduled to be completed in the spring of 1996. No trial date has been set. The Company strongly believes that the lawsuit is unjustified and is mounting a vigorous defense. The Company has notified both primary and excess liability insurance carriers of the Army's claims. Some carriers have denied any obligation to defend or indemnify the Company. Other carriers have reserved rights on a variety of grounds (including a limited pollution exclusion which is currently the subject of litigation around the country) but are participating in the defense of the claims. The Rocky Mountain Arsenal is a Superfund Site resulting from activities of the United States Army and a major chemical company over many years. The Arsenal was involved in the production and demilitarization of war materials, including nerve gas, and the production of pesticides. Contaminants from these activities were deposited in numerous spots at the Arsenal, affecting groundwater, surface water, soil, air and wildlife. At one time, the Arsenal extended beyond its present boundaries, encompassing land now part of Stapleton International Airport. It is through this same land that the Army contends that contamination flows from the Company's facility (under the Stapleton runways) some 4.5 miles to the area in which a water treatment facility was built. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME Year ended December 31,
1995 1994 1993 Revenues: Net sales $51,758,500 $53,408,300 $37,671,400 Other income 498,200 237,200 118,000 ________________________________________ 52,256,700 53,645,500 37,789,400 Costs and expenses: Cost of sales 14,583,200 13,690,700 11,658,500 Advertising 17,990,300 15,107,200 8,468,200 Selling 7,859,600 8,038,500 7,175,500 General and administrative 6,440,300 6,504,800 5,200,600 Interest 829,500 651,800 402,900 ________________________________________ 47,702,900 43,993,000 32,905,700 Income from operations before income taxes 4,553,800 9,652,500 4,883,700 Provision for income taxes (Note 5) 1,730,400 3,801,000 1,955,000 _______________________________________ Net income $2,823,400 $5,851,500 $2,928,700 ======================================= Net income per common share (Note : Primary $ .28 $ .57 $ .30 Fully diluted $ .28 $ .57 $ .29 Primary weighted average number of common shares outstanding 10,252,700 10,228,500 9,674,700 Fully diluted weighted average number of common shares outstanding 10,160,200 10,209,100 10,019,300
CONSOLIDATED BALANCE SHEETS
December 31, ASSETS 1995 1994 Current assets: Cash and cash equivalents $4,761,500 $3,754,900 Trade receivables, less allowances of $501,100 and $345,900 for doubtful accounts 3,076,500 4,746,600 Inventories (Note 2) 5,572,100 4,793,500 Prepaid expenses 431,000 654,000 Deferred tax assets (Note 5) 503,500 367,800 _______________________ Total current assets 14,344,600 14,316,800 Property, plant and equipment, net (Notes 3 & 4) 20,575,500 10,861,300 Restricted cash - 6,162,700 Other assets 741,100 789,900 _______________________ $35,661,200 $32,130,700 ======================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $3,347,100 $2,008,600 Accrued expenses 3,426,300 2,771,600 Current maturities of long-term debt (Note 4) 1,074,600 1,035,700 _______________________ Total current liabilities 7,848,000 5,815,900 Long-term debt (Note 4) 10,474,300 11,466,600 Deferred income taxes (Note 5) 729,900 512,000 _______________________ 19,052,200 17,794,500 Commitments and Contingencies (Notes 7 & 10) Shareholders' equity (Note 6): Common stock $.10 par value, authorized 20,000,000 shares: issued and outstanding 10,030,900 and 9,763,800 1,003,100 976,400 Capital in excess of par 4,719,000 4,307,300 Retained earnings 10,886,900 9,052,500 _______________________ Shareholders' equity 16,609,000 14,336,200 _______________________ $35,661,200 $32,130,700 =======================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, Increase (Decrease) in Cash and Cash Equivalents 1995 1994 1993 Cash flows from operating activities: Net income $2,823,400 $5,851,500 $2,928,700 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 908,000 683,600 728,700 Provision for doubtful accounts receivable 229,000 174,400 44,400 Compensation expense of employee stock plans 255,700 208,800 202,900 Change in assets and liabilities: Accounts receivable 1,441,100 (2,252,200) (1,300,200) Inventories (778,600) (1,223,200) (712,600) Prepaid expenses 223,000 (33,900) (259,400) Other assets (36,700) (822,600) (14,000) Deferred income taxes 82,200 (25,800) (2,000) Accounts payable and accrued expenses 1,993,200 686,000 1,786,100 ____________________________________ Total adjustments to net income 4,316,900 (2,604,900) 473,900 Net Cash Provided by Operating Activities 7,140,300 3,246,600 3,402,600 Cash flows from investing activities: Purchases of property, plant and equipment (10,536,700) (4,152,600) (474,100) Net Cash Used by Investing Activities (10,536,700) (4,152,600) (474,100) Cash flows from financing activities: Proceeds from exercise of stock options 182,700 259,000 2,600 Proceeds from short-term borrowings 154,700 103,300 55,400 Principal payments on short-term borrowings (154,700) (203,300) (55,400) Proceeds from long-term borrowings 111,400 12,009,900 1,078,000 Principal payments on long-term borrowings (35,700) (3,219,500) (2,073,800) Increase in bond sinking fund (1,029,100) - - Decrease (increase) in restricted cash 6,162,700 (6,162,700) - Dividends paid (989,000) (954,600) - Net Cash Provided (Used) by Financing Activities 4,403,000 1,832,100 (993,200) Net Increase in Cash and Cash Equivalents 1,006,600 926,100 1,935,300 Cash and Cash Equivalents, beginning of year 3,754,900 2,828,800 893,500 Cash and Cash Equivalents, end of year $ 4,761,500 $3,754,900 $2,828,800 Supplemental disclosures: Cash paid during the year for: Interest (net of $428,800 and $68,200 capitalized in 1995 and 1994 respectively) $829,500 $669,600 $413,900 Income taxes $1,231,400 $3,772,800 $1,004,500
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Capital Retained Years ended December 31, Common Stock in Excess Earnings 1995, 1994 and 1993 Shares Amount of Par (Deficit) Balance January 1, 1993 9,148,800 $914,900 $3,695,500 $ 1,226,900 Net income - - - 2,928,700 Stock issued to employee stock ownership trust 164,000 16,400 186,500 - Other stock issuances 4,500 400 2,200 - Balance December 31, 1993 9,317,300 931,700 3,884,200 4,155,600 Net income - - - 5,851,500 Dividend - - - (954,600) Stock issued to employee stock ownership trust 50,200 5,000 203,800 - Other stock issuances 396,300 39,700 219,300 - Balance December 31, 1994 9,763,800 976,400 4,307,300 9,052,500 Net income - - - 2,823,400 Dividend - - - (989,000) Stock issued to employee stock ownership trust 45,400 4,500 251,200 - Other stock issuances 221,700 22,200 160,500 - Balance December 31, 1995 10,030,900 $1,003,100 $4,719,000 $10,886,900
See Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made in the 1994 and 1993 Consolidated Financial Statements to conform to the classifications used in the current year. The Company manufactures and markets household chemical products (36.8% of net sales), skin care products (61.1%) and cigarette filters (2.1%). The Company's products are sold nationally, directly and through independent brokers, to mass marketers, drugstores, supermarkets, wholesale distributors and other retail outlets. Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, plant and equipment are recorded at historical costs. Depreciation is provided using the straight-line method over estimated useful lives of the assets ranging from 3 to 45 years. The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. NOTE 2: Inventories Inventories consisting of materials, labor and overhead at December 31 were comprised of the following:
1995 1994 Finished goods $3,402,100 $2,714,000 Raw materials 2,170,000 2,079,500 __________________________ $5,572,100 $4,793,500
NOTE 3: Property, Plant and Equipment Property accounts at December 31 were comprised of the following:
1995 1994 Land $1,254,600 $1,254,600 Buildings 14,067,700 4,874,200 Production equipment 6,794,900 6,677,500 Office furniture and equipment 2,760,600 1,840,200 Other 331,500 253,300 Construction in progress 3,616,100 3,640,300 ____________________________ 28,825,400 18,540,100 Less accumulated depreciation 8,249,900 7,678,800 ____________________________ $20,575,500 $10,861,300 ============================
Construction of a new office building and additions to the manufacturing and warehouse facilities began in the late summer of 1994. Construction on the office building was completed in June 1995 and construction on the manufacturing and warehouse facilities were completed in January 1996. During 1995 and 1994, $428,800 and $68,200 of interest was capitalized respectively. NOTE 4: Long-Term Debt Long-term debt at December 31, also described in Management's Discussion and Analysis of Liquidity and Capital Resources, is presented below:
1995 1994 First mortgage bonds secured by Denver land and buildings, due 2001, interest at 10% payable semi-annually with sinking fund requirement of $1 million per year beginning December 31, 1995 $12,000,000 $12,000,000 Bond sinking fund (1,029,100) - First mortgage on Aquafilter land and building, payable in monthly installments through 1999, interest at 9.75% 466,600 502,300 Installment note on certain data processing equipment and software, payable in monthly installments through 1998, interest at 4.9% 111,400 - ____________________________ 11,548,900 12,502,300 Less current maturities 1,074,600 1,035,700 ____________________________ $10,474,300 $11,466,600 ============================
Maturities of long-term debt for the years 1996 through 2000 are respectively: $1,074,600, $1,080,400, $1,086,700, $1,336,200, $1,000,000 and $5,971,000 maturing after 2000. See Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operation. NOTE 5: Income Taxes The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, ``Accounting for Income Taxes''. The provisions for income taxes include the following:
1995 1994 1993 Currently payable: Federal $1,480,100 $3,256,800 $ 1,665,000 State 168,100 570,000 292,000 _______________________________________ Total currently payable 1,648,200* 3,826,800* 1,957,000* Deferred Federal 74,000 24,200 57,000 State 8,200 (50,000) (59,000) ______________________________________ Total deferred 82,200 (25,800) (2,000) Provision Federal 1,554,100 3,281,000 1,722,000 State 176,300 520,000 233,000 ______________________________________ Total provision $1,730,400 $3,801,000 $1,955,000
*Estimated payments of approximately $1,044,000, $3,275,000 and $1,000,000 were made as of December 31, 1995, 1994 and 1993 respectively for this liability. The Company's effective income tax rate was different than the statutory federal income tax rate as follows:
1995 1994 1993 Federal income tax at statutory rates $1,548,300 $3,282,000 $1,661,000 State income taxes, net of federal tax effect 176,300 385,000 234,000 Other 5,800 187,000 221,000 __________________________________________ Total 1,730,400 3,854,000 2,116,000 Tax credits - 53,000 161,000 __________________________________________ Effective tax $1,730,400 $3,801,000 $1,955,000
The 1993 income tax provision included an amount related to items under review by the Internal Revenue Service. Deferred taxes are determined based on estimated future tax effects of differences between the amounts reflected in the financial statements and the tax basis of assets and liabilities given the provisions of the enacted tax laws. The net deferred tax assets and liabilities as of December 31, 1994 and 1995 along with the changes during the fiscal year are comprised of the following:
1994 1995 Current: Allowance for uncollectible accounts $115,000 $173,800 Inventory reserves and other 108,000 115,700 Prepaid insurance - 33,500 Accrued vacation 123,000 159,300 Deferred slotting - - State taxes 26,000 - Other reserves 31,000 - Other (35,200) 21,200 _______________________ Net current deferred tax assets $367,800 $503,500 Noncurrent: Accelerated depreciation for tax $(661,000) $(793,000) Subsidiary start-up costs 84,000 50,000 Tax credits 12,000 13,100 Other 53,000 - _______________________ Total noncurrent deferred tax liability $(512,000) $(729,900)
At December 31, 1995 the Company has no federal tax credit carryforwards. The Company has state income tax credits of $13,100 expiring over a period ending in 2010. A reconciliation of the Company's income before taxes for financial statement purposes to taxable income is as follows: YEAR ENDED DECEMBER 31,
1995 1994 1993 Income before income taxes $4,553,800 $9,652,500 $4,883,700 Differences between income before income taxes and taxable income: State income taxes (176,300) (173,900) (30,400) Permanent differences 15,300 12,700 6,900 Net changes in temporary differences (136,900) 238,000 (2,700) ____________________________________ (297,900) 76,800 (26,100) ==================================== Federal taxable income $4,255,900 $9,729,300 $4,857,500
NOTE 6: Common Stock In 1981 and 1986 , the directors adopted incentive stock option plans for Company employees and, in 1993, adopted a non-qualified stock option plan for the outside directors (subsequently approved by shareholders) which permit the Company to grant options up to an aggregate of 1,650,000 shares of common stock. Options are granted at not less than fair market value of the stock at the date of grant and are exercisable from the grant date for five years. The 1981 plan expired in 1991 and, accordingly no shares are available for option under that Plan. 1981 PLAN 1986 PLAN 1993 PLAN
AVERAGE AVERAGE AVERAGE NUMBER OPTION PRICE NUMBER OPTION PRICE NUMBER OPTION PRICE OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE Maximum number of shares at inception of plans 750,000 500,000 400,000 =========================================================================== Outstanding, December 31,1992 499,000 $ .60 13,000 $ 1.07 - - Granted in 1993 - - 248,000 1.79 255,000 $1.48 Exercised (4,000) .58 (500) . 64 - - Cancelled - - (1,500) . 78 - - ___________________________________________________________________________ Outstanding, December 31,1993 495,000 $ .60 259,000 $ 1.77 255, 000 $1.48 Granted in 1994 - - 180,300 5.34 135,000 $4.88 Exercised (372,800) .60 (23,500) 1. 48 - - Cancelled - - - - - - __________________________________________________________________________ Outstanding, December 31,1994 122,200 $ .60 415,800 $ 3.29 390, 000 $2.65 Granted in 1995 - - - - - - Exercised (121,700) .58 - - (100, 000) $1.10 Cancelled (500) .58 (1,500) 3.80 - - __________________________________________________________________________ Outstanding, December 31,1995 - - 414,300 $ 3.29 290,000 $3.19 ========================================================================== Available for option, December 31, 1995 - 61,200 10,000 ==========================================================================
The Company has an Employee Stock Ownership Plan to provide retirement benefits for its employees. The Plan is designed to invest primarily in common stock of the Company and is non-contributory on the part of the Company's employees. Contributions to the plan are discretionary as determined by the Company's Board of Directors. The Company expenses the cost of shares issued to the Plan. The amount expensed for the Plan in 1995, 1994 and 1993 was $255,700, $208,800 and $202,900 respectively. During 1995, 1994 and 1993, the Company contributed 45,400 shares, 50,200 shares and 164,000 shares respectively to the Employee Stock Ownership Plan. Per share data for all years presented was determined by using the weighted average number of common and common equivalent shares outstanding. Common equivalent shares, determined by using the treasury stock method, result from stock options with exercise prices that are below the average market price of the common stock. On April 7,1995, the Company paid a dividend of $.10 per share (aggregate $989,000) to shareholders of record on March 24, 1995. On March 15, 1994, the Company paid a dividend of $.10 per share (aggregate $954,600) to shareholders of record on March 7, 1994. NOTE 7: Lease Commitments The Company has certain short-term rental arrangements for office equipment and other items. Aggregate rental expense for these items was as follows:
1995 1994 1993 $ 87,500 $ 65,900 $ 48,300 ==========================================
NOTE 8: Significant Customer In 1995, 1994 and 1993 one customer, Wal-Mart Stores, Inc. of Bentonville, Arkansas, accounted for approximately 22.6%, 21.5% and 21.7% respectively of the Company's sales of household chemical products and 22.0%, 20.9% and 18.6% respectively of the Company's sales of skin care products. This customer is not related to the Company. A loss of this large customer would have a material effect on the Company if the Company's consumer base served by that customer did not purchase the Company's products at other retail outlets. No long-term contracts exist between the Company and Wal-Mart Stores, Inc. or any other customer. NOTE 9: Transactions With Related Parties During 1995, the Company paid a consulting fee of $60,000 to Dr. Norman Brooks ($40,000 was paid in 1994) in connection with the development of its cosmetic products. Dr. Brooks' wife is the daughter of Jerome J. Goldstein and the sister of Mark E. Goldstein. The Company has adopted a bonus plan for its executive officers for the year 1996. The Plan provides that an amount will be distributed to the Company's executive officers equal to 10% of the annual before tax profit exceeding $1,000,000. In 1995, $416,400 was accrued or paid under the Plan. In 1994, $1,024,600 was accrued or paid under the Plan and in 1993, $452,000 was accrued or paid under the Plan. NOTE 10: Contingent Liabilities In September 1994, the United States Justice Department, at the request of the United States Army, brought an environmental lawsuit against the Company. The suit alleges that the Company was a contributor to contamination in a groundwater aquifer underlying a portion of the Rocky Mountain Arsenal, a Superfund Site contaminated by the U.S. Army and a major chemical company over many years; and, therefore, that the Company should contribute to the existing and future costs incurred by the Army in connection with the remediation of that groundwater. The Army claims to have incurred approximately $27 million, exclusive of interest, of past response costs related to the portion of the Arsenal in question. It asserts that one-half to two-thirds of that amount should be allocated to the Company. The Army also claims unquantified future response costs, including costs to acquire additional supplies of water to supplement or replace existing municipal sources. These costs have been estimated at $50 million. Based on the opinion and report of its groundwater consultant, the Company believes that any contamination from the Company has not migrated as far as the Arsenal and that the contamination at issue comes from other sources. The Company believes, in addition, that contaminant concentrations in a groundwater plume that the Army claims to have originated at the Company's facilities (and which the Company believes originated elsewhere) are such that any response costs actually incurred by the Army relative to the disputed plume are relatively small. Further, the Company believes that the need for additional or supplemental water supplies, if any, results solely from the Arsenal munition operations and not from any groundwater contamination to which the Army claims the Company contributed. The Company strongly believes that the lawsuit is unjustified and is mounting a vigorous defense. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Scott's Liquid Gold-Inc. We have audited the accompanying consolidated balance sheets of Scott's Liquid Gold-Inc. (a Colorado Corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positon of Scott's Liquid Gold-Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Anderson LLP Denver, Colorado January 15, 1996 CORPORATE DATA Plant and Executive Offices Scott's Liquid Gold-Inc., 4880 Havana Street, Denver, Colorado 80239 Phone 303-373-4860 Stock Transfer Agent Norwest Bank Minnesota N.A., 161 N. Concourse Exchange, South St. Paul, Minnesota 55075-0738 Shareholders As of February 17, 1995 the Company had approximately 1500 shareholders of record. Market Information The high and low prices or bid quotations of Scott's Liquid Gold-Inc. common stock as traded on the New York Stock Exchange as of November 23, 1994, and prior to that date, on NASDAQ or NASDAQ/NMS, were as follows: Three Months Ended 1993 High Low March 31 11/4 7/8 June 30 13/8 15/16 September 30 35/8 13/16 December 31 43/16 23/4 Three Months Ended 1994 High Low March 31 9 3-5/8 June 30 7-3/4 3-3/8 September 30 7-3/8 3-3/4 December 31 6-11/16 3-7/8
NYSE Symbol: SGD The above quotations prior to November 23, 1994 represent prices between dealers, and do not include retail mark-up or commissions, nor do they represent actual transactions. In March 1994, the Company paid its first cash dividend to shareholders in the amount of $.10 per share of common stock. This dividend was based upon the Company's performance in 1993. On March 7, 1995, based upon 1994's performance, the Company declared a dividend of $.10 per share to shareholders of record on March 24, 1995. No decision has been made as to future dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" for information concerning restrictions on dividends. DIRECTORS AND OFFICERS JEROME J. GOLDSTEIN Chairman of the Board and Director MARK E. GOLDSTEIN President, Chief Executive Officer and Director CAROLYN J. ANDERSON Executive Vice President, Chief Operating Officer, Corporate Secretary and Director BARRY SHEPARD Treasurer, Assistant Secretary, Chief Financial Officer and Director MICHAEL J. SHEETS Principal, Gerald Schoenfeld, Inc., Consultant and Director, New York City, NY DENNIS H. FIELD Independent Consultant and Director, Short Hills, NJ JAMES F. KEANE President, Engine World, Inc., and Director, Hudson, MA EX-23 5 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statement No. 33-63254. EX-24 6 POWER OF ATTORNEY Each of the undersigned directors and/or officers of Scott's Liquid Gold-Inc. (the "Company") hereby authorizes Mark E. Goldstein, Carolyn J. Anderson and Barry Shepard, and each of them, as their true and lawful attorneys-in-fact and agents (1) to sign in the name of the undersigned and file with the Securities and Exchange Commission the Company's annual report on Form 10-K, for the fiscal year ended December 31, 1995, and any amendments to such annual report; and (2) to take any and all actions necessary or required in connection with such annual report to comply with the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Signature Title Date /s/ Jerome J. Goldstein Director and Chairman of the Board 2/27/96 Jerome J. Goldstein /s/ Mark E. Goldstein Director, President and 2/27/96 Mark E. Goldstein Chief Executive Officer /s/ Carolyn J. Anderson Director, Executive Vice President 2/27/96 Carolyn J. Anderson Chief Operating Officer and Corporate Secretary /s/ Barry Shepard Director, Treasurer and Chief 2/27/96 Barry Shepard Financial Officer /s/ Dennis H. Field Director 2/27/96 Dennis H. Field /s/ James F. Keane Director 2/27/96 James F. Keane /s/ Michael J. Sheets Director 2/27/96 Michael J. Sheets EX-27 7
5 This schedule contains summary financial information extracted from the Scott's Liquid Gold-Inc. 1995 10-K and is qualified in its entirety by reference to such 10-K. YEAR DEC-31-1995 DEC-31-1995 $ 4,761,500 0 $ 3,577,600 501,100 $ 5,572,100 $14,344,600 $28,825,400 $ 8,249,900 $35,661,200 $ 7,848,000 $12,000,000 $ 1,003,100 0 0 0 $35,661,200 $51,758,500 $52,256,700 $14,583,200 $47,702,900 $32,290,200 0 $ 829,500 $ 4,553,800 $ 1,730,400 0 0 0 0 $ 2,823,400 0.28 0.28
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