SCOTTS LIQUID GOLD INC, 10-K, 1998-03-31

SCOTTS LIQUID GOLD INC
10-K, 1998-03-31
PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________________ to
_______________________________

Commission file number 0-5128

SCOTT'S LIQUID GOLD-INC.
(Exact name of Registrant as specified in its charter)

Colorado 84-0920811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4880 Havana Street, Denver, CO 80239
(Address of principal executive offices) (Zip Code)

Registrant's telephone number: (303) 373-4860

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

Title of each class Name of each exchange on which registered

$0.10 Par Value Common Stock New York Stock Exchange

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 (? 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,
1997 by non-affiliates of the Registrant was $22,571,052. This calculation
assumes that certain parties may be affiliates of the Registrant and that,
therefore, 5,642,763 shares of voting stock are held by nonaffiliates.

As of March 11, 1997, the Registrant had 10,092,358 shares of its $0.10 par
value common stock outstanding.

Documents Incorporated by Reference

The Registrant's 1997 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 6, 1998, is
incorporated by reference in Part III.

SCOTT'S LIQUID GOLD-INC. ANNUAL REPORT ON

FORM 10-K

FOR YEAR ENDED DECEMBER 31, 1997

PART I

Item 1. Business.

Portions of the 1997 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 & 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.
As previously reported, a lawsuit was commenced in May of 1996 against
Neoteric Cosmetics, Inc. and others not related to the Company alleging
infringement of certain patents. Neoteric Cosmetics is the Company's wholly
owned subsidiary which manufactures and sells skin care products under the name
Alpha Hydrox. The lawsuit was brought by TriStrata Technology, Inc. in the
United States District Court for the District of Delaware. The plaintiff claims
to be the assignee of five patents relating to the use of alpha hydroxy acids to
treat or reduce cosmetic conditions, particularly wrinkles or fine lines. Three
of the patents were issued in 1995; one issued in 1996; and one, which was
issued in 1992, was the subject of a re-examination completed in 1995. When the
suit was filed in 1996, four patents were asserted, of which three were asserted
against Neoteric. A fifth patent was added by amendment in 1997 and asserted
against Neoteric. Neoteric, in turn, has asserted a counterclaim contending all
5 patents as well as two other related but unasserted patents are invalid. The
plaintiff denies it has alleged infringement against Neoteric with respect to
three patents and contends the Court lacks jurisdiction to determine their
infringement or validity. All five patents asserted by plaintiff were subject
to a successful re-examination. The plaintiff in the lawsuit alleges that
Neoteric contributes to and/or induces infringement of the patents by selling
and promoting Neoteric products for the purpose of visibly reducing a human skin
wrinkle and/or fine lines and for the purpose of treating and/or preventing
cosmetic conditions and dermatologic disorders of the human skin such as
wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement, and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the
plaintiff, asserts the invalidity of patents as indicated above, and is mounting
a vigorous defense.

In June of 1997, a lawsuit was filed in the federal District Court for
the District of Colorado against the Company by Leslee Brooks, her husband, Dr.
Norman Brooks (a California dermatologist), and a corporation related to Dr.
Brooks. Other defendants include the Company's wholly-owned subsidiary,
Neoteric Cosmetics, Inc., Jerome J. Goldstein and the Goldstein Family Limited
Partnership. Leslee Brooks is a daughter of Jerome J. Goldstein and a sister of
Mark E. Goldstein, who are officers and directors of the Company. The Goldstein
Family Limited Partnership was established in November of 1996 by Mr. and Mrs.
Jerome J. Goldstein and was the recipient of common stock of the Company
previously held by Mr. and Mrs. Goldstein.

The Company unequivocally believes that there was no agreement, written or
oral, to provide any compensation to the plaintiffs beyond consulting fees paid
by the Company to them through Dr. Brooks' professional corporation, that there
was no expectation of such compensation and that the compensation already paid
to them for consulting services was fair and reasonable. The Company also
believes unequivocally there was no joint venture between the plaintiffs and the
Company, a subject that was first raised in the December, 1997 amended complaint
in this litigation. The Company views the lawsuit as groundless and is
vigorously defending itself. Discovery in this litigation is complete. The
trial in the Brooks case is tentatively scheduled to commence in April, 1998,
although the trial date may be changed to a later time. The trial in this
matter is expected to last approximately two weeks.

Neither the Company nor its legal counsel can determine the potential
outcome of the two lawsuits discussed above nor the ultimate impact on the
Company's financial position or results of operations.

As previously reported, the Company had been a defendant in an
environmental lawsuit brought by the United States Justice Department at the
request of the United States Army, alleging contribution by the Company to
contamination in a groundwater aquifer underlying a portion of the Rocky
Mountain Arsenal. In October of 1996, the Company and the United States, on
behalf of the Department of the Army, negotiated a settlement of this dispute.
The Settlement Agreement, which admits no wrong doing by the Company and which
was approved by the Court on November 6, 1996, required the payment to the
United States of $6 million of which $2.4 million was paid at once by the
Company's insurers (with an additional $600,000 paid in January of 1997) and $1
million was paid by the Company. The additional $2 million, by the terms of the
Agreement, was to be paid by the Company in equal
installments of $250,000 over eight years, beginning on October 31, 1997,
together with interest approximating the Treasury Bill rate. Due to income tax
considerations, the Company decided to liquidate its entire indebtedness to the
Army and did so in October of 1997. In December, 1996, the Company filed
lawsuits, now pending in the United States District Court for the District of
Colorado, against three insurers (which did not participate in the settlement)
to recover at least amounts paid to the Army by the Company, plus punitive
damages and attorneys' fees. The Company has settlements with all but one of
its insurers, and as a result of the insurance settlements in 1996 and 1997,
most of the costs incurred to resolve environmental claims relating to the Rocky
Mountain Arsenal have now been recovered. Claims for recovery of the remainder
of the costs are pending against one insurance company.

The Company has applied for federal registration of the trademark "Alpha
Hydrox" with the U.S. Patent and Trademark Office. The issuance of this
trademark is being challenged on the basis that the name of the Company's
product falls within the realm of a general description of the type of acid used
as an ingredient. The Company believes that the issuance or nonissuance 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. To date, there have been
no court contests, but the Company has been successful in convincing several
manufacturers to refrain from the use of names similar to Alpha Hydrox.

As described in prior Reports, two lawsuits were filed by the Company in
1995 and 1996 against two private label companies which the Company alleged had,
among other things, infringed the Company's trademark and trade dress rights
concerning Alpha Hydrox products. Both of these suits were settled on terms
satisfactory to the Company, one in 1996 and one in 1997. Payments received by
the Company were not material.

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.

Item 6. Selected Financial Data.

The information set forth under "Selected Financial Data" of the Annual
Report hereby is incorporated by reference into this Report.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The information set forth under "Management Discussion and Analysis of
Financial Condition and Results of Operations" of the Annual Report hereby is
incorporated by reference into this Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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 6,
1998, hereby is incorporated by reference into this Report.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) Financial Statements:

Consolidated Statements of Operations -
Years ended December 31, 1997, 1996 and 1995

Consolidated Balance Sheets -
December 31, 1997 and 1996

Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996 and 1995

Consolidated Statements of Shareholders' Equity Years ended December

31, 1997, 1996 and 1995

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

(2) Financial Statement Schedules:

II - Valuation and Qualifying Accounts -
Years ended December 31, 1997, 1996 and 1995

Inasmuch as Registrant is primarily a holding company and all subsidiaries
are wholly-owned, only consolidated statements are being filed. Schedules other
than those listed above are omitted because of the absence of the conditions
under which they are required or because the information is included in the
financial statements or notes to the financial statements.

(b) Reports on Form 8-K:

The following report was filed by the Company on Form 8-K during the
quarter ended December 31, 1997: A Current Report on Form 8-K dated December
30, 1997 with an event reported under Item 5, Other Events.

Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by reference to Exhibit 3.1 of
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996,
incorporated by reference to Exhibit 3.2 of Annual Report on Form 10-K
for the year ended December 31, 1995.
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.
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* 1998 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 2, 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, 1996. 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. 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.
13 Portions of 1997 Annual Report to Security Holders.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________________________
*Management contract or compensatory plan or arrangement

Supporting Schedules Supporting Schedules

Valuation and Qualifying Accounts
Schedule II
Scott's Liquid Gold-Inc. and Subsidiaries
<TABLE>

Column A Column B Column C Column D Column E
Additions Deductions
Balance at 1 2
Beginning of Charge to Charges to Balance
Description Period Costs and Other at
Expenses Accounts End of
Period
<S> <C> <C> <C> <C>

Year Ended December
31, 1997 $580,400 $68,000 $12,700 $635,700
Allowance for
doubtful accounts
Year Ended December
31, 1996 $494,200 $270,900 $184,700 (1 $580,400
Allowance for )
doubtful accounts
Year Ended December
31, 1995 $339,000 $229,000 $73,800 (1 $494,200
Allowance for )
doubtful accounts
</TABLE>
(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 included in Scott's Liquid Gold-Inc.'s
1997 Annual Report incorporated by reference in this Form 10-K, and have issued
our report thereon dated January 21, 1998. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The supplemental
Schedule 11 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

Arthur Anderson LLP

Denver, Colorado
January 21, 1998

SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Date: March 30, 1998.

SCOTT'S LIQUID GOLD-INC.
a Colorado corporation

By: Mark E. Goldstein, President
Principal Executive Officer

By: Barry Shepard, Treasurer
Principal Financial Officer

By: Jeffry B. Johnson, Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of the Registrant and in
the capacities and on the dates indicated:

Date Name and Title Signature
March 30, 1998 Carolyn J. Anderson,)
Director )
)
March 30, 1998 Mark E. Goldstein, )
Director )
)
March 30, 1998 Jerome J. Goldstein,)
Director ) Barry Shepard, for himself and
) as Attorney-in-Fact for the
March 30, 1998 Dennis H. Field, ) named directors who together
Director ) constitute all of the members
) of Registrant's Board of
March 30, 1998 James F. Keane, ) Directors
Director )
)
March 30, 1998 Michael J. Sheets, )
Director )
)
March 30, 1998 Barry Shepard, )
Director )

EXHIBIT INDEX

Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by reference to Exhibit 3.1
of the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996,
incorporated by reference to Exhibit 3.2 of Annual Report on Form 10-K
for the year ended December 31, 1995.
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.
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* 1998 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 2, 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, 1996. 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. 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.
13 Portions of 1997 Annual Report to Security Holders.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule

_
*Management contract or compensatory plan or arrangement

Exhibit 10.2

SECOND AMENDMENT TO
KEY EXECUTIVE DISABILITY PLAN

SCOTT'S LIQUID GOLD-INC.

AUTHORITY

The Key Executive Disability Plan ("the Plan") of Scott's Liquid Gold-Inc.
was established on July 2, 1982 by action of the Board of Directors of Scott's
Liquid Gold-Inc. ("the Corporation") out of an awareness (a) tht the able
prformance of all of the Corportion's officers directly relates to the
achievement of corporate profit objectives; and (b) that it is in the
Corporation's best interst to provide a easonable degree of personal security
for such persons ("Executive" or "Executives") so as to alleviate concerns which
may otherwise detract from such performance. That Plan was amended on June 10,
1987 and is hereby amended this 14th day of May 1992.

INTENT

The Plan's intent is to provide the executive with his/her regular salary
during periods of long-term disability in excess of ninety (90) calendar days,
the first ninety calendar days being covered by another plan. The term
"executive" or "executives" as used herein shall be understood to mean the
Chairman of the Board, President, Executive Vice President, and Treasurer of
Scott's Liquid Gold-Inc.

EXECUTIVE CLASSIFICATION

For the purpose of this Plan, there shall be two executive classifications
as follows:

Class A Executive - entitled to receive 100% of basic monthly compensation
ninety (90) days from date of disability to date of executive's demise, provided
the executive was actively employed by the Corporation at the time his
disability occurs. Only the Corporations' Chairman of the Board is eligible for
this classification.

Class B Executive - entitled to receive 100% of basic monthly compensation
ninety (90) calendar days from date of disability to age seventy (70) or to the
date of the executive's death, whichever shall first occur, provided the
executive was actively employed by the Corporation at the time his disability
occurs. All eligible executives other than the Corporation's Chairman of the
Board fall into this classification.

PAYMENTS UNDER THE PLAN

Class A Executive - Ninety days from the date of disability, the executive
will be paid 100% of his basic salary on the same date as the Corporation's (or
subsidiary's) other employees are paid.

Class B Executive - entitled to receive 100% of basic monthly compensation
ninety (90) calendar days from date of disability to age seventy (70) or to the
date of the executive's death, which ever shall first occur. All eligible
executives other than the Corporation's Chairman of the Board fall into this
classification.

SEPARATE OR RECURRING PERIODS OF DISABILITY

Each period of disability shall end when the executive is certified by a
licensed medical doctor to be physically and/or mentally capable of returning to
work to perform his or her normal business functions. Should the disability for
which the executive was absent from work recur within the executive's
"employment year," which is understood to run from employment anniversary date
to anniversary date, or should a separate disability arise within such
employment year, the benefits available under this Plan shall resume without
regard to the 90-day waiting period. However, such waiting period shall apply
to any new and separate disability occurring in the next succeeding employment
year.

INSURANCE

The Corporation shall have the right to insure each eligible executive
against the risks covered by this Plan. In the event that such insurance is
deemed by the Corporation to be desirable, each eligible executive is required
to do all things necessary to obtain such insurance. However, the non-
insurability of an executive initially (or subsequently as his/her basic salary
may increase), shall not preclude the payment of all benefits provided by this
Plan.

TERMINATION OF BENEFITS

Except as otherwise provided, benefits available under this Plan shall
cease as of the date of the executive's change in employment status, which shall
mean either the executive's termination or his/her continued employment in a
capacity other than one described under AUTHORITY and INTENT. However, should
such change in employment status take place during any period of disability, all
of the benefits set forth in this Plan shall continue to be paid as if the
executive's employment status had not changed.

Exhibit 10.4

1998
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 1998 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 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 1998, 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
1998, 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 1998, will be divided equally among the Company's
four (4) executive officers.

4. For purposes of this Plan, net pre-tax earnings and pre-tax profits
shall be determined without the deduction or addition of gains or losses from
infrequent or unusual events or transactions or from extraordinary items. The
exclusion of any such event, transaction or item shall be determined by action
of the Compensation Committee of the Board of Directors of the Company after
reviewing the proposed or final statements of income of the Company for the
relevant period and reviewing the accounting treatment of any such event,
transaction or item by the Company's independent accountants.

Exhibit 10.5

INDEMNIFICATION AGREEMENT

SCOTT'S LIQUID GOLD-INC.

This Agreement is made and entered into as of December 23, 1991 between
Scott's Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and Dennis
Field of Short Hills, New Jersey ("Director").

recitals:

At the request of the Corporation, Director currently serves as a director
of the Corporation (as defined below). As such, Director may be subjected to
claims, suits or proceedings.

Director has indicated that it was and is a condition of Director's
acceptance and continuing in such service that, among other things, the
Corporation agrees to indemnify Director against liabilities, expenses and costs
incurred in connection with any such claims, suits or proceedings, in accordance
with, and to the fullest extent permitted by, the Colorado Corporation Code; and

The Corporation's Articles of Incorporation and the Colorado Corporation
Code contemplate that contracts may be made between the Corporation and members
of its Board of Directors and officers with respect to indemnification.

agreement:

Now, therefore, in consideration of Director's acceptance and continuation
of service as a director after the date of this Agreement, and in consideration
of the mutual covenants stated herein, the parties agree as follows:

Definitions. As used in this Agreement, the following terms have the following
meanings:

Code. The term "Code" means the Colorado Corporation Code as it exists on
the date of this Agreement and as it may be hereafter amended from time to time.
In the case of any amendment of the Colorado Corporation Code after the date of
this Agreement, when used in reference to an act or omission occurring prior to
effectiveness of such amendment, the term "Code" shall include such amendment
only to the extent that the amendment permits the Corporation to provide broader
indemnification rights than the Colorado Corporation Code permitted the
Corporation to provide at the date of this Agreement and prior to the amendment.

Director. As used in reference to a position of Director, the term
"director" means a director of the Corporation and, while a director or officer
of the Corporation, Director's serving at the Corporation's request as a
director, officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan.
The term "director" also includes, unless the context otherwise requires, the
estate or personal representative of a director. The term "director" shall also
include any such broader definition as may be provided in the Code with
amendments after the date of this Agreement.

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.

Agreement to Indemnify. The Corporation shall indemnify, and keep indemnified,
Director in accordance with, and to the fullest extent permitted and/or required
by, the Code from and against any judgments, penalties, fines (including but not
limited to ERISA excise taxes), amounts paid in settlement and reasonable
expenses (including but not limited to expenses of investigation and preparation
and fees and disbursements of Director's counsel, accountants or other experts)
actually incurred by Director in connection with any proceeding in which
Director was or is made a party or was or is involved (for example, as a
witness) because Director is or was a director or is or was an officer of the
Corporation.

Insurance. So long as Director may be subject to any possible proceeding by
reason of the fact that Director is or was a director or officer of the
Corporation, to the extent the Corporation maintains an insurance policy or
policies providing directors' and officers' liability insurance, Director shall
be covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage applicable to any then current director or
officer of the Corporation.

Advances. In the event of any proceeding in which Director is a party or is
involved and which may give rise to a right of indemnification from the
Corporation pursuant to this Agreement, following written request to the
Corporation by Director, the Corporation shall pay to Director, in accordance
with and to the fullest extent permitted and/or required by the Code, amounts to
cover reasonable expenses incurred by Director in such proceeding in advance of
its final disposition upon receipt of (a) a written affirmation by Director of
Director's good faith belief that Director has met any applicable standard of
conduct; (b) a written undertaking executed by or on behalf of Director to repay
the advance if it shall ultimately be determined that Director did not meet such
standard of conduct; and (c) satisfactory evidence as to the amount of such
expenses.

Burden of Proof. If under applicable law, the entitlement of Director to be
indemnified or advanced expenses hereunder depends upon whether a standard of
conduct has been met, the burden of proof of establishing that Director did not
act in accordance with such standard shall rest with the Corporation. Director
shall be presumed to have acted in accordance with such standard and to be
entitled to indemnification or the advancement of expenses (as the case may be)
unless, based upon a preponderance of the evidence, it shall be determined that
Director has not met such standard. Such determination and any evaluation as to
the reasonableness of amounts claimed by Director shall be made by the Board of
Directors of the Corporation or such other body or persons as may be permitted
by the Code. For purposes of this Agreement, unless otherwise expressly stated,
the termination of any proceeding by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Director did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.

Notice to the Corporation. Director shall notify the Secretary of the
Corporation in writing of any matter for which Director intends to seek
indemnification hereunder as soon as reasonably practicable following the
receipt by Director of written notice thereof; provided, however, that delay in
so notifying the Corporation shall not constitute a waiver or release by
Director of rights hereunder.

Counsel for Proceeding. In the event of any proceeding in which Director is a
party or is involved and which may give rise to a right of indemnification
hereunder, the Corporation shall have the right to retain counsel reasonably
satisfactory to Director to represent Director and any others the Corporation
may designate in such proceeding. In any such proceeding, Director shall have
the right to retain Director's own counsel, but the fees and expenses of such
counsel shall be at the expense of Director unless (a) the retention of such
counsel has been specifically authorized by the Corporation; (b) representation
of Director and another party by the same counsel would be inappropriate, in the
reasonable judgment of Director, due to actual or potential differing interests
between them (as might be the case for representation of both the Corporation
and Director in a proceeding by or in the right of the Corporation); (c) the
counsel retained by the Corporation and satisfactory to Director has advised
Director, in writing, that such counsel's representation of Director would be
likely to involve such counsel in representing differing interests which could
adversely affect either the judgment or loyalty of such counsel to Director,
whether it be a conflicting, inconsistent, diverse or other interest; or (d) the
Corporation shall fail to retain counsel for Director in such proceeding.
Notwithstanding the foregoing, if an insurance carrier has supplied directors'
and officers' liability insurance covering a proceeding and is entitled to
retain counsel for the defense of such proceeding, then the insurance carrier
shall retain counsel to conduct the defense of such proceeding unless Director
and the Corporation concur in writing that the insurance carrier's doing so is
undesirable. The Corporation shall not be liable under this Agreement for any
settlement of any proceeding affected without its written consent. The
Corporation shall not settle any proceeding in any manner which would impose any
penalty or limitation on Director without Director's written consent. Consent
to a proposed settlement of any proceeding shall not be unreasonably withheld by
either the Corporation or Director.

Enforcement. The Corporation acknowledges that Director is relying upon this
Agreement in serving as a director, as well as any serving in the future as an
officer of the Corporation. If a claim for indemnification or advancement of
expenses is not paid in full by the Corporation within ninety (90) days after a
written claim has been received from Director by the Corporation, Director may
at any time bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in such suit, Director shall also
be entitled to be paid all reasonable fees and expenses (including without
limitation fees of counsel) in bringing and prosecuting such claim. Whether or
not Director has met any applicable standard of conduct, the Court in such suit
may order indemnification or the advancement of expenses as the Court deems
proper (subject to any express limitation of the Code). Further, the
Corporation shall indemnify Director from and against any and all expenses
(including attorneys' fees) and, if requested by Director, shall (within ten
business days of such request) advance such expenses to Director, which are
incurred by Director in connection with any claim asserted against or suit
brought by Director for recovery under any directors' and officers' liability
insurance policies maintained by the Corporation, regardless of whether Director
is unsuccessful in whole or in part in such claim or suit.

Proceedings by Director. The Corporation shall indemnify Director and advance
expenses to Director in connection with any proceeding (or part thereof)
initiated by Director only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.

Nonexclusivity. The rights of Director for indemnification and advancement of
expenses under this Agreement shall not be deemed exclusive of, or in limitation
of, any rights to which Director may be entitled under Colorado law, the
Corporation's Articles of Incorporation or Bylaws, vote of stockholders or
otherwise.

Miscellaneous.

Effectiveness. This Agreement is effective for, and shall apply to,
(i) any claim which is asserted or threatened before, on or after the date of
this Agreement but for which no action, suit or proceeding has actually been
brought prior to the date of this Agreement and (ii) any action, suit or
proceeding which is threatened before, on or after the date of this Agreement
but which is not pending prior to the date of this Agreement. Thus, this
Agreement shall not apply to any action, suit or proceeding which has actually
been brought before the date of this Agreement. So long as the foregoing
standard of effectiveness has been satisfied, this Agreement shall be effective
for and shall be applied to acts or omissions prior to, on or after the date of
this Agreement.

Survival; Continuation. The rights of Director hereunder shall inure to
the benefit of the Director (even after Director ceases to be a director or
officer), Director's personal representative, heirs, executors, administrators
and beneficiaries; and this Agreement shall be binding upon the Corporation, its
successors and assigns. The rights of Director under this Agreement shall
continue so long as Director may be subject to any possible proceeding because
of the fact that Director was a director or was an officer of the Corporation.
If the Corporation sells, leases, exchanges or otherwise disposes of, in a
single transaction or series of related transactions, all or substantially all
of its property and assets, the Corporation shall, as a condition precedent to
such transaction, cause effective provision to be made so that the person or
entity acquiring such property and assets shall become bound by and replace the
Corporation under this Agreement.

Governing Law. This Agreement shall be governed by the laws of the State
of Colorado.

Severability. If any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be deemed
amended to accomplish the objectives of the provision as originally written to
the fullest extent permitted by law and all other provisions shall remain in
full force and effect.

Amendment. No amendment, termination or cancellation of this Agreement
shall be effective unless in writing signed by the Corporation and Director.

Other Payments. The Corporation shall not be liable under this Agreement
to make any payment in connection with any proceeding against or involving
Director to the extent Director has otherwise actually received payment (under
any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder. Director shall repay to the Corporation the amount of any payment
the Corporation makes to Director under this Agreement in connection with any
proceeding against or involving Director, to the extent Director has otherwise
actually received payment (under any insurance policy, Bylaw or otherwise) of
such amount.

Subrogation. In the event of payment under this Agreement the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Director, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Corporation effectively to bring suit
to enforce such rights.

Headings. The headings in this Agreement are for convenience only and are
not to be considered in construing this Agreement.

Counterparts. This Agreement may be executed in counterparts, both of
which shall be deemed an original, and together shall constitute one document.

The parties have executed this Agreement as of the day and year first above
stated.

SCOTT'S LIQUID GOLD-INC. DIRECTOR

By:
Mark E. Goldstein, President Dennis Field

AMENDMENT TO INDEMNIFICATION AGREEMENT

THIS AMENDMENT TO INDEMNIFICATION AGREEMENT ("Amendment") is made and
entered into as of January 17, 1992, by and between Scott's Liquid Gold-Inc.
(the "Company") and Michael J. Sheets (the "Indemnitee").

RECITALS

The Board of Directors of the Company has established a Special Committee
to evaluate a stockholder derivative suit, and to make a determination as to
whether the Company should pursue the claims alleged in the litigation. Service
on the Special Committee may expose the members thereof to special legal risks
in excess of those to which they are otherwise exposed as directors of the
Company.

The actions of the Special Committee must, to the maximum extent possible,
be independent of the influences of the Company's Board of Directors.

Indemnitee is a party to an Indemnification Agreement with the Company
dated October 2, 1990 (which as it may be amended from time to time is called
the "Indemnification Agreement") which provides for indemnification by the
Company to Indemnitee. Because of the special legal risks incident to service
on the Special Committee and the desire to emphasize the independence of the
Special Committee, Indemnitee desires to amend the Indemnification Agreement to
provide certain procedural protections in respect of litigation arising out of
its activities on the Special Committee, which supplemental indemnification will
further support the independence of the Special Committee from the Company, and
the Company agrees to provide this indemnification on the terms set forth
herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and the covenants, terms
and conditions hereinafter set forth, the Company and Indemnitee hereby agree as
follows:

Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:

"Disinterested Director" means a director of the Company who neither
is or was not a party to (i) the Proceeding in respect of which indemnification
is sought by Indemnitee or (ii) the shareholders derivative suit that is the
subject of the Special Committee investigation.

"Dispute" has the meaning set forth in Section 4 of this Agreement.

"Expenses" includes all direct and indirect costs of any type or
nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements and other out-of-pocket costs actually and reasonably
incurred by the Indemnitee either in connection with the investigation, defense,
adjudication, settlement or appeal of a Proceeding or in connection with
establishing or enforcing a right to indemnification or advancement of Expenses
under this Agreement, the Articles of Incorporation or Bylaws of the Company,
applicable law or otherwise; provided, however, that Expenses shall not include
judgments, fines, penalties or amounts paid in settlement of a Proceeding.

"Good Faith" means in good faith and (i) with respect to actions taken
in the capacity of a director of the Company, in a manner Indemnitee reasonably
believed to be in the best interests of the Company, (ii) with respect to all
other actions, in a manner Indemnitee reasonably believed to be not opposed to
the best interests of the Company, and (iii) with respect to any criminal
Proceeding, with no reasonable cause to believe Indemnitee's conduct was
unlawful. A director of the Company shall be deemed not to have acted in Good
Faith with respect to a Proceeding charging improper personal benefit to the
director if he is finally adjudged in such Proceeding to be liable on the basis
that personal benefit was improperly received by him.

"Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past three years has been, retained to represent (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder. Notwith
standing the foregoing, the term "Independent Counsel" shall not include any
person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.

"Proceeding" means any threatened, pending or completed action, suit
or other proceeding, whether civil, criminal, administrative, investigative or
of any other type whatsoever to which Indemnitee is made a party by reason, in
whole or in part, of his activities on the Special Committee.

Indemnification. In connection with any Proceeding, the Company shall
indemnify and advance Expenses to Indemnitee to the fullest extent not pro
hibited by applicable law in effect on the date hereof and to such greater
extent as applicable law may thereafter from time to time permit. Without
limiting the generality of the foregoing, the Company shall indemnify and
advance Expenses to Indemnitee as provided in this Agreement.

Procedures for Determination of Good Faith.

Method of Determination. When, in connection with any Proceeding, an
Expense, judgment, penalty, fine or amount paid in settlement has been incurred
by Indemnitee or on Indemnitee's behalf, and where a determination would be
required by Paragraph 5 of the Indemnification Agreement (as required by
Colorado Revised Statutes Section 7-3-101.5(5) or any successor statute), a
determination with respect to Indemnitee's Good Faith and the amount of indem
nification and expense reimbursement shall be made as follows:

Unless Indemnitee shall request in writing that such
determination be made in accordance with clause (ii) of this Section 3(a),
the determination shall be made by Independent Counsel in a written opinion
to the Board, a copy of which shall be delivered to Indemnitee.

If so requested by Indemnitee as provided in clause (i) above,
the determination shall be made by the Board by a majority vote of
Disinterested Directors. In the event that one or more Disinterested
Directors is not obtainable or such Disinterested Director or Directors so
directs, the determination shall be made by Independent Counsel in a writ
ten opinion to the Board, a copy of which shall be delivered to Indemnitee.

Selection and Payment of Independent Counsel. In the event that the
determination of Good Faith is to be made by Independent Counsel pursuant to
Section 3(a), the Independent Counsel shall be selected by the Disinterested
Directors and Indemnitee, acting together (unless Indemnitee shall request that
such selection be made by the Board), and Indemnitee and the Disinterested
Directors shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. If the Disinterested Directors and
Indemnitee are unable to agree on the selection of Independent Counsel within 30
days of the date on which Indemnitee presents its choice to the Disinterested
Directors, the selection of Independent Counsel shall be adjudicated in
accordance with Section 4 of this Agreement. The issue for determination by the
court shall be limited to determining whether the Independent Counsel selected
by Indemnitee meets the criteria for independence included in the definition in
Section 1(e) hereof, and the Disinterested Directors may object to such
Independent Counsel so identified by Indemnitee solely on the grounds that such
person does not meet such requirements. The Independent Counsel selected by
Indemnitee shall be presumed to satisfy such requirements, and the Disinterested
Directors bear the burden of proving, by a preponderance of the evidence, that
such requirements are not satisfied. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel acting pursuant to this Agreement, and the Company shall pay all
reasonable fees and expenses incident to the selection of Independent Counsel
pursuant to this Section 3(b).

Authorization of Indemnification. In the event that a determination
is made by Independent Counsel that Indemnitee acted in Good Faith, the
Disinterested Directors (or the Board of Directors, if the provisions of
Section 3(a)(ii) are applicable) shall, within thirty (30) days after receipt of
such determination, determine the indemnification to which Indemnitee is
entitled and evaluate the reasonableness of the Expenses as to which
indemnification is sought, and shall authorize payment of such Expenses and of
all other amounts as to which indemnification is sought. The determination as
to authorized indemnification and evaluation of Expenses shall be made in the
Disinterested Director's (or the Board of Director's) reasonable good faith
judgment, and shall be subject to de novo review pursuant to Section 4(c).

Remedies of Indemnitee.

Application. This Section 4 shall apply in the event of a Dispute.
For purposes of this Section 4, "Dispute" shall mean any of the following
events:

a determination is made pursuant to Section 3 of this Agreement
(either by the Board of Directors or by Independent Counsel that Indemnitee
is not entitled to indemnification under this Agreement and Indemnitee
disagrees with such determination;

a determination is made by Independent Counsel pursuant to
Section 3 of this Agreement that Indemnitee is entitled to indemnification
under this Agreement and the Board of Directors of the Company disagrees
with such determination; or

any other dispute arising under this Agreement.

Adjudication. In the event of a Dispute, Indemnitee (or the Company
in the case of a Dispute arising under Section 4(a)(ii)), shall be entitled to
an adjudication in an appropriate court of the State of Colorado.

De Novo Review. Any judicial proceeding commenced pursuant to this
Section 4 shall be conducted in all respects as a de novo trial on the merits,
and Indemnitee shall not be prejudiced by reason of any prior action of the
Board. In any such proceeding, the Company shall have the burden of proving
that Indemnitee is not entitled to indemnification or advancement of Expenses.

Procedures Valid. The Company shall be precluded from asserting in
any judicial proceeding commenced pursuant to this Section 4 that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court that the Company is contractually bound by the
provisions of this Agreement.

Interpretation. The parties hereto intend for this Amendment and the
Indemnification Agreement to be interpreted and enforced so as to provide
indemnification and advancement of Expenses to Indemnitee to the fullest extent
which is now or hereafter not prohibited by applicable law and, in the event
that the validity, legality or enforceability of any provision of this Agreement
is in question, such provision shall be interpreted in a manner such that the
provision will be valid, legal and enforceable to the greatest extent possible.

Burden of Proof. In the event of any Dispute under this Agreement
involving the obligations of the Company to indemnify or advance Expenses to
Indemnitee, the Company shall have the burden of proving by clear and convincing
evidence that the Company is not so obligated to indemnify or advance Expenses
to Indemnitee.

Indemnification Agreement in Effect. Except as specifically amended
herein, the Indemnification Agreement shall be and remain in full force and
effect in all respects and shall apply to any indemnification and advancement of
expenses in connection with any Proceeding.

IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement
as of the date first set forth above.

SCOTT'S LIQUID GOLD-INC.

By
Name: Mark E. Goldstein
Title: President

INDEMNITEE:

Name: Michael J. Sheets

Amendment to Indemnification Agreement

THIS AMENDMENT TO INDEMNIFICATION AGREEMENT ("Amendment") is made and
entered into as of January 17, 1992, by and between Scott's Liquid Gold-Inc.
(the "Company") and Dennis H. Field (the "Indemnitee").

RECITALS

The actions of the Special Committee must, to the maximum extent possible,
be independent of the influences of the Company's Board of Directors.

Indemnitee is a party to an Indemnification Agreement with the Company
dated December 23, 1991 (which as it may be amended from time to time is called
the "Indemnification Agreement") which provides for indemnification by the
Company to Indemnitee. Because of the special legal risks incident to service
on the Special Committee and the desire to emphasize the independence of the
Special Committee, Indemnitee desires to amend the Indemnification Agreement to
provide certain procedural protections in respect of litigation arising out of
its activities on the Special Committee, which supplemental indemnification will
further support the independence of the Special Committee from the Company, and
the Company agrees to provide this indemnification on the terms set forth
herein.

Agreement

NOW, THEREFORE, in consideration of the foregoing and the covenants, terms
and conditions hereinafter set forth, the Company and Indemnitee hereby agree as
follows:

Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:

"Dispute" has the meaning set forth in Section 4 of this Agreement.

"Expenses" includes all indirect and indirect costs of any type or
nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements and other out-of-pocket costs actually and reasonably
incurred by the Indemnitee either in connection with the investigation, defense,
adjudication, settlement or appeal of a Proceeding or in connection with
establishing or enforcing a right to indemnification or advancement of Expenses
under this Agreement, the Articles of Incorporation or Bylaws of the Company,
applicable law or otherwise; provided, however, that Expenses shall not include
judgments, fines, penalties or amounts paid in settlement of a Proceeding.

"Good Faith" means in good faith and (i) with respect to actions taken
in the capacity of a director of the Company, in a manner Indemnitee reasonably
believed to be the best interests of the Company, (ii) with respect to all other
actions, in a manner Indemnitee reasonably believed to be not opposed to the
best interests of the Company, and (iii) with respect to any criminal
Proceeding, with no reasonable cause to believe Indemnitee's conduct was
unlawful. A director of the Company shall be deemed not to have aced in Good
Faith with respect to a Proceeding charging improper personal benefit to the
director if he is finally adjudged in such Proceeding to be liable on the basis
that personal benefit was improperly received by him.

"Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past three years has been, retained to represent (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.

Indemnification. In connection with any Proceeding, the Company shall
indemnify and advance Expenses to Indemnitee to the fullest extent not
prohibited by applicable law in effect on the date hereof and to such greater
extent as applicable law may thereafter from time to time permit. Without
limiting the generality of the foregoing, the Company shall indemnify and
advance Expenses to Indemnitee as provided in this Agreement.

Procedures for Determination of Good Faith.

Method of Determination. When, in connection with any Proceeding, an
Expense, judgment, penalty, fine or amount paid in settlement has been incurred
by Indemnitee or on Indemnitee's behalf, and where a determination would be
required by Paragraph 5 of the Indemnification Agreement (as required by
Colorado Revised Statutes Section 7-3-101.5(5) or any successor statute), a
determination with respect to Indemnitee's Good Faith and the amount of
indemnification and expense reimbursement shall be made as follows:

Unless Indemnitee shall request in writing that such
determination be made in accordance with clause (ii) of this
Section 3(a), the determination shall be made by Independent Counsel
in a written opinion to the Board, a copy of which shall be delivered
to Indemnitee.

If so requested by Indemnitee as provided in clause (i) above,
the determination shall be made by the Board by a majority vote of
Disinterested Directors. In the event that one or more Disinterested
Directors is not obtainable or such Disinterested Director or
Directors so directs, the determination shall be made by Independent
Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee.

Remedies of Indemnitee.

Application. This Section 4 shall apply in the event of a Dispute.
For purposes of this Section 4, "Dispute" shall mean any of the following
events:

a determination is made pursuant to Section 3 of this Agreement
(either by the Board of Directors or by Independent Counsel) that
Indemnitee is not entitled to indemnification under this Agreement and
Indemnitee disagrees with such determination;

a determination is made by Independent Counsel pursuant to
Section 3 of this Agreement that Indemnitee is entitled to
indemnification under this Agreement and the Board of Directors of the
Company disagrees with such determination; or

any other dispute arising under this Agreement.

IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement
as of the date first set forth above.

SCOTT'S LIQUID GOLD-INC.

By
Name: Mark E. Goldstein
Title: President

INDEMNITEE:

Name: Dennis H. Field

Description of Business

General
Scott's Liquid Gold-Inc., a Colorado corporation headquartered in Denver, was
incorporated on February 15, 1954. Through its whollyowned subsidiaries, the
Company manufactures and markets quality household chemical and skin care
products. Until late 1996, it also manufactured a line of disposable cigarette
filters through a wholly-owned subsidiary, Aquafilter Corporation, whose assets,
other than cash and receivables, were sold during 1996 and 1997. In this report,
the term "Company" refers to Scott's Liquid GoldInc. and its subsidiaries.

The Company's household chemical products consist of Scott's Liquid Gold for
wood, a wood preservative and cleaner sold nationally for over 25 years, and
Touch of Scent, an aerosol room air freshener distributed nationally since 1982.
In early 1992, the Company entered into the cosmetics business through a
subsidiary, Neoteric Cosmetics, Inc., which, at that time, introduced two skin
care products under the name Alpha Hydrox. At the end of 1997, more than twenty
skin care products were being marketed by the Company. The Company may introduce
additional products to the market during 1998.

Strategy
The Company's policy is to manufacture and market high quality consumer products
which 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
most competing aerosol air fresheners in that it need not be shaken before each
use, and, because it is activated by an attractive fixture which may be mounted
on any hard, smooth surface, it is more convenient to use than competing aerosol
brands. With respect to the Company's line of cosmetics products, Alpha Hydrox
was the first alpha hydroxy acid skin care product sold to retailers for resale
to the public at affordable prices.

The Company's goal is to operate profitably each year, which it has done every
year during this decade. (Although the Company experienced a net loss for 1996,
it nonetheless produced an operating profit for that year. But for the
settlement of an environmental lawsuit with the U.S. Army during 1996, the
Company would have produced a net profit for that year.) Additionally, it is the
Company's aim to grow sales each year, particularly in the area of its skin care
products, but not at the expense of the bottom line. Part of its strategy to
achieve this goal was an expansion of the Company's physical plant in Denver, a
project which was completed in early 1996. With regard to current product lines,
other efforts to achieve the goal of increasing sales include (1) continuing to
maintain an aggressive advertising posture, conforming to the Company's belief
that sales of its consumer products require effective advertising support; (2)
developing 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 Company currently ships products into the
Canadian market and into Argentina and Uruguay. Presently, the level of these
export sales is not material. Additionally, the Company is currently examining
products not currently in the Company's product line to determine whether the
manufacture and sale of such products fit well with the Company's know-how and
financial capability and whether such products, if added to the Company's
existing lines, would, in Management's opinion, turn a profit within a
relatively short time period.

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 popular
throughout the U.S. for over twenty-seven years. In 1982, the Company added
Touch of Scent, a room air freshener, to its line of household chemical
products. Household chemical products accounted for 31.1% of the Company's
consolidated net sales in 1997, and 39.9% in 1996. 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 intended to be used in conjunction with a decorative fixture
which can be mounted on any hard surface and into which the consumer inserts an
aerosol refill unit. At a touch, the fixture propels any of several fragrances
from a refill unit into the air, masking unpleasant odors and refreshing the air
with a pleasant scent. The Company manufactures both the fixture and the refill
unit. Unlike some competitive aerosol air fresheners, Touch of Scent is
extremely dry and, therefore, leaves practically no residue after use. Because
sales of Touch of Scent have not been strong in recent years, the Company
developed and introduced a new variety of highly decorative Touch of Scent
fixtures during 1996. Through 1997, irrespective of substantial advertising
support, this attempt to bolster sales has not been productive. (See
Management's Discussion and Analysis.)

In early 1992, the Company began to market two skin care products under the
trade name of Alpha Hydrox. At the end of 1997, the Company's skin care line
consisted of over 20 products, with two additional products on the way for
introduction in 1998. Further, the Company plans to introduce an ethnic line of
alpha hydroxy acid products by the third quarter of 1998. Most of the Company's
Alpha Hydrox products, which are manufactured and sold through a wholly-owned
subsidiary, Neoteric Cosmetics, Inc., contain alpha hydroxyethanoic acids in low
but effective concentrations. Alpha hydroxyethanoic acids gently slough 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 68.9% of the Company's consolidated net
sales in 1997, and 60.1% in 1996.

For many years, and through most of the third quarter of 1996, the Company also
produced a line of disposable cigarette filters known as Aquafilters. (See above
discussion of Aquafilter under "General".)

The Company also manufactures injection molded components, currently consisting
of plastic caps for Touch of Scent and Scott's Liquid Gold, and fixtures for
Touch of Scent.

Marketing and Distribution
All of the Company's products are sold nationally, directly and through
independent brokers, to mass marketers, drugstores, supermarkets, and other
retail outlets; and to wholesale distributors. In 1997, Wal-Mart Stores, Inc. of
Bentonville, Arkansas, accounted for approximately 26% of the Company's sales of
household chemical products. With regard to the Company's cosmetics products,
Wal-Mart accounted for 25% of 1997 sales and, Consumer Value Stores (CVS) of
Woonsocket, Rhode Island, accounted for about 13% of such sales. Neither
customer is related to the Company. A loss of either of these large customers
would have a
material effect on the Company if the consumer base served by those customers
did not purchase the Company's products at other retail outlets. No long-term
contracts exist between the Company and Wal-Mart Stores, Inc., CVS, or any other
customer. The Company permits returns of its products by its customers, a common
industry practice.

The Company's household chemical products and Alpha Hydrox are or have been
advertised nationally on network television and, at times, on cable television
and in print media. In the past, the Company has also used radio advertising in
selected areas and may do so in the future. The Company maintains an aggressive
posture in promoting and advertising its products, and, in particular, its skin
care products. During 1998, but subject to change, the Company plans to increase
its advertising expenditures by about 10% over 1997 levels. The Company
periodically reviews its advertising plans and may revise planned advertising
expenditures based upon actual sales results and competitive conditions. To
enable its customers to make informed decisions, the Company's containers and
promotional materials note the concentration of alpha hydroxy acid contained in
each of its Alpha Hydrox products. The Company does not exaggerate benefits to
be expected from the use of its products and recommends the use of sunscreen in
its written directions contained in every box. The Company also maintains a
24hour, toll free telephone number for use by consumers of its products.

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. Currently, the
Company's sole supplier of glycolic acid, which is the most common type of alpha
hydroxy acid used by the Company in its Alpha Hydrox products, is E.I. DuPont de
Nemours. So far as the Company knows, this supplier is one of only two U.S.
manufacturers of the grade of glycolic acid approved for use by the Company. No
contract exists between the Company and its supplier of glycolic acid. Relations
with that supplier and other suppliers 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. An addition to the
Company's plant facilities, completed in early 1996, greatly increased the
Company's capacity to produce skin care products. Except when demand is
unusually strong, the Company operates on a one-shift basis. The Company's
manufacturing facilities are capable of producing substantially more quantities
of the Company's products without any expansion, and, for that reason, the
Company believes that its physical plant facilities are adequate for the
foreseeable future.

Competition
The Company's business is highly competitive in both household chemical and skin
care products. Household chemical products are comprised of Touch of Scent air
fresheners and Scott's Liquid Gold, a wood cleaner and preservative. Both the
air freshener and wood care categories are dominated by three to five companies
significantly larger than the Company, each of which produce several products.
Irrespective of the foregoing, the Company maintains a visible position in the
wood care category, but does not have sufficient information to make an accurate
representation as to the market share of its products. Over the last several
years, sales of the Company's air freshener products have fallen off
significantly and may continue to do so in the future. To stem the attrition of
this product line, the Company is currently offering price incentives to its
customers.

The skin care category is also highly competitive. Several competitors are
significantly larger than Scott's Liquid GoldInc., and each of these competitors
produces several products. Some of these companies 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 supplied by
an independent rating service, the Company believes that its products rank high
among leading brand-name alpha hydroxy acid skin care products.

Conforming to its corporate philosophy, the Company competes on the basis of
quality and distinguishing characteristics of its products.

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 "FFDCA"). The FFDCA defines
"cosmetics" as products intended for cleansing, beautifying, promoting
attractiveness or altering the appearance. The Company's cosmetics 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 regulations, the Company does not submit 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 stated
that the effects of long-term usage of such products are unknown. Because of the
FDA's questions, the Cosmetic Ingredient Review Expert Panel ("CIR") sponsored
by the cosmetics industry, was requested to conduct 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 nonvoting, liaison member.

In June of 1997, the CIR issued its final report which, among other things,
concluded that glycolic acid (the most common type of alpha hydroxy acid used by
the Company) is safe for use in retail domestic products at concentrations of up
to 10%, with a pH level of no less than 3.5, when the directions for use include
the daily use of sun protection. The Company's products and directions for use
meet the CIR's criteria.

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 has been necessary, from
time to time, for the Company to reformulate some of its products including a
reformulation of Touch of Scent to conform to certain regulations of the
California Air Resources Board ("CARB") which became effective on January 1,
1996. The regulations concerning VOC content are relevant to the household
chemical products of the Company but have not affected the Company's skin care
products. 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. Currently, all of the Company's products may be sold in all areas
of the United States.

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 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 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 these products were proposed by the EPA in
April, 1996. If adopted as proposed, the regulations will be no more stringent
than those issued previously by CARB with which the Company complies. Final
regulations were scheduled to be issued in 1997 but, to the knowledge of the
Company, have not yet been published as of the date of this Report. Various
states, in addition to California, have enacted or are considering promulgating
VOC regulations. The EPA anticipates that its adoption of regulations should
help to induce states to conform to consistent, nationwide standards. 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 164 persons, 86 in plant and production related functions
and 78 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 ESOP
plan, and a Profit Sharing Plan. The Company considers its employee relations to
be satisfactory.

Patents and Trademarks
At present, the Company owns no patents covering its products. However, 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 a number of additional
countries. The Company's registered trademarks and pending trademark
applications concern names and logos relating to its products as well as the
design of boxes for certain of its products. 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
within 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. To date, there have been no court
contests, but the Company has been successful in convincing several
manufacturers to refrain from the use of names similar to Alpha Hydrox.
Additionally, in 1996 and in 1997, the Company satisfactorily settled litigation
it had filed against two companies which the Company believed had infringed its
trademark and trade dress rights.

Properties
The Company's facilities, located in Denver, Colorado, 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 are available for future expansion. These buildings range
in age from 3 to 28 years (126,600 square feet having been added in 1995 and
1996). The Denver facility houses the Company's corporate headquarters and all
of its operations, and serves as one of several distribution points. The Company
believes that its current space will provide capacity for growth for the
foreseeable future. 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. Through mid-October of 1997, Aquafilter
Corporation, a subsidiary of the Company, owned a modern 50,000 square foot
manufacturing and office facility in Fort Lauderdale, Florida, which it sold on
October 14, 1997.

Products and Services

Scott's Liquid Gold
Scott's Liquid Gold has treated America's fine wood treasures for over forty
years. From rocking chairs to kitchen cabinets, from expensive wood paneling to
exquisite dining room suites, Scott's Liquid Gold's penetrating, preserving
action inhibits warping, cracking, shrinking and color loss. A wood cleaner and
preservative, not a polish, Scott's Liquid Gold can also be used to treat
outside doors and decking which become dried and cracked by the elements.

Alpha Hydrox
Alpha Hydrox cremes, lotions, and body washes are designed to beautify and
rejuvenate the skin. Alpha hydroxy acids, the active ingredient in many of the
Company's products, gently slough off dead skin cells, promoting a healthier,
more youthful appearance. The current Alpha Hydrox line consists of twenty
products. Highly successful national television ads, which feature actual
consumers who are satisfied with Alpha Hydrox, help to keep the product name
and distinctive red box in the public's eye.
Elite Touch of Scent
This product consists of a decorative fixture which attaches to any hard surface
and into which the consumer inserts an aerosol refill unit which, when the
fixture is activated, conveniently dispenses a pleasant fragrance to mask ugly
odors.

SLG Plastics, Inc
This wholly-owned subsidiary produces an uninterrupted supply of plastic
components for household chemical products at substantial savings to the
Company. Currently, products produced are caps for household chemical products
and fixtures for Touch of Scent.

Advertising Promotions Incorporated
API, as this wholly- owned subsidiary is known, buys space and TV time to
advertise the Company's products, and participates in and/or originates
advertising and promotional materials.

Management Discussion & Analysis
Of Financial Condition and
Results of Operations

General

Results of Operations
Summary of Results as a Percentage of Net Sales
<TABLE>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales Scott's Liquid Gold
household products 31.1% 39.9% 37.6%
Neoteric Cosmetics 68.9% 60.1% 62.4%
Total net sales 100.0% 100.0% 100.0%
Cost of sales 28.2% 32.2% 27.6%
Gross profit 71.8% 67.8% 72.4%
Other revenue 0.9% 0.7% 1.0%
72.7% 68.5% 73.4%
Operating expenses 53.1% 69.2% 63.0%
Interest 2.6% 2.7% 1.5%
55.7% 71.9% 64.5%
Income (loss) from
continuing operations
before income taxes 17.0% (3.4%) 8.9%
</TABLE>

Note A: During 1996 and 1997, the Company sold the net assets, other than cash
and receivables, of Aquafilter Corporation, a wholly-owned subsidiary of the
Company. Accordingly, the figures set forth in the table above no longer reflect
operations of Aquafilter Corporation which are now set forth in the Company's
financial statements under the caption "Discontinued operations" (See Note 5 to
Financial Statements); nor do they include gains during 1996 and 1997 on sales
of certain assets of Aquafilter. The real property formerly owned and occupied
by Aquafilter Corporation was sold in October of 1997.

Note B: Expenses set forth in financial data for 1996 ($3,588,300) and for 1995
($262,000) as "lawsuit settlement" were reclassified in 1997 to conform to the
treatment in 1997 of recoveries of a portion of such expenses as a reduction of
"Operating expenses" in the above table.

The Company manufactures and markets household chemical products and skin care
products; and, until it discontinued the operations of one of its subsidiaries
in September of 1996, also produced and marketed cigarette filters. In early
1992, the Company entered into the cosmetics
business, introducing a new line of skin care products, Alpha Hydrox, which is
now sold throughout the United States and Canada and in certain South American
countries. Sales of skin care products were about $31.6 million in 1995, $26.6
million in 1996 and, in 1997, $34.5 million, equal to 69% of the Company's
consolidated net sales of that year. In both 1997 and 1996, the Company's net
income was materially affected by unusual events, primarily the settlement in
1996 of an environmental lawsuit which resulted in a pre-tax charge to income of
nearly $3.6 million; and, in 1997, in a pre-tax credit to income of about $3.8
million which related in part to the environmental lawsuit and in part to the
profitable sale of the Company's Florida real estate previously used in the now
discontinued operation. The net after-tax operating income, before accounting
for these unusual events, was approximately $3.6 million, equal to $.36 per
share, for 1997 and approximately $1.3 million, equal to $.13 per share, for
1996.

Year Ended December 31, 1997
Compared to Year Ended
December 31, 1996

Consolidated net sales for 1997 were $50.0 million vs. $44.1 million for 1996,
an increase of $5.9 million or about 13.3 %. Average selling prices for 1997
were higher than those of 1996 by $2,134,600, with prices of household chemical
products being up by $1,200,800 (of which $929,300 pertained to Touch of Scent
and $271,500 pertained to Scott's Liquid Gold), while average selling prices of
cosmetics products increased by $933,800.

During 1997, net sales of cosmetics products accounted for 68.9% of consolidated
net sales compared to 60.1% in 1996. Notwithstanding a decrease in expenditures
to advertise the Company's cosmetics products, net sales of these products were
$34,483,800 in 1997 compared to $26,550,300 in 1996, an increase of $7,933,500
or 29.9%. That increase resulted from higher average selling prices combined
with increases in unit sales of the Company's basic skin care products, Alpha
Hydrox cremes, lotions and face wash. Additionally, during 1996, sales of Alpha
Hydrox products were adversely affected by customer returns of a discontinued
product. The Company believes that more effective television advertising,
including the airing of several new commercials which, apparently, were well
received by the viewing public, coupled with a modified advertising schedule
contributed to the increase in sales of its skin care products. Competition
continues to be keen in the skin care category in which the Company participates
and is expected to remain so in the future. While the Company is pleased with
its Alpha Hydrox sales results for 1997, no assurance can be given that such
results will continue into the future.

Sales of household chemical products in 1997 accounted for 31.1% of consolidated
net sales compared to 39.9% in 1996. 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. Sales of household chemical products were
$15,536,500 in 1997 compared to $17,593,700 in 1996, a decrease of $2,057,200,
or 11.7 %. Sales of Scott's Liquid Gold for wood decreased from $9,850,900 in
1996 to $8,529,500 in 1997 (down by $1,321,400 or 13.4%) and sales of Touch of
Scent decreased from $7,742,800 in 1996 to $7,007,000 in 1997 (down by $735,800
or 9.5%). The Company believes that its expenditures to advertise Scott's Liquid
Gold for wood during both 1997 and 1996 were, at best, adequate to maintain a
market presence, but probably inadequate to build sales volume. An increase in
advertising expenditures for Scott's Liquid Gold is planned for 1998. As was
previously reported, Touch of Scent sales have declined over an extended period
of time. In an effort to increase sales of its air fresheners, the Company
introduced, toward the end of 1996, a new line of "Elite" decorative fixtures to
dispense new, concentrated formulae contained in its refill
units. Unfortunately, the Company's experience with its new line of fixtures
during 1997 was less than satisfactory. The Company had hoped that its new
fixtures would be the catalyst to revitalize its line of air fresheners, but
that did not occur. During 1997, as noted above, dollar sales of Touch of Scent
decreased by 9.5% while, at the same time, expenditures to advertise that
product line increased from $400,300 in 1996 to $2,846,500 in 1997. Case sales
of that product for 1997 compared to 1996 decreased by about 27%. For 1998, the
Company plans to concentrate its efforts on sales of Touch of Scent refill units
which require significantly less advertising support than that needed for sales
of the Company's "Elite" Touch of Scent fixtures. Further, the Company is also
offering price incentives for its Touch of Scent products to enhance unit
turnover at shelf level.

On a consolidated basis, cost of goods sold in 1997 was $14,132,200 compared to
$14,191,200 in 1996, a decrease of 0.4 % (on a sales increase of 13.3%). As a
percentage of consolidated net sales, cost of goods sold was 28.2% in 1997 vs.
32.2% in 1996, a decrease of 12.4%. The 1997 decrease in cost of goods sold,
during a year which saw net sales increase by 13.3%, is primarily the result of
an increase in average selling prices in 1997 and a significant change in the
mix of products sold during 1997 vs. 1996. Alpha Hydrox products are less costly
to produce relative to their selling prices than are household chemical
products. Alpha Hydrox products accounted for 68.9% of consolidated net sales in
1997 compared to 60.1% in 1996. Advertising expenses for 1997 were $15,026,000
compared to $13,405,600 for 1996, an increase of $1,620 400 or 12.1 %. In 1997,
the Company spent $9,977,200 to advertise its cosmetics products, compared to
$10,615,600 in 1996, a decrease of 6%, but $5,048,800 was spent in 1997 compared
to $2,790,000 in 1996 to advertise household chemical products, an increase of
almost 81%. During 1997, advertising expenses for Scott's Liquid Gold decreased
by $187,400 (7.8%), whereas expenses to advertise Touch of Scent increased by
$2,446,200. Irrespective of year to year changes in expenditures to advertise
its products, the Company reiterates that, as a matter of sound business
judgment, it recognizes that, whenever it is fiscally responsible to do so, it
must continue to advertise aggressively because the markets for skin care
products, furniture polish, and air fresheners are highly competitive and,
accordingly, the Company's brand names need to be kept in front of current and
potential consumers. Sustaining the Company's advertising program is highly
dependent upon sales of its skin care products.

Selling expenses for 1997 were $7,581,100 compared to $7,470,900 for 1996, an
increase of $110,200 or 1.5%. Administrative expenses were lower in 1997 than in
1996 by $5,712,600 ($3,949,200 vs. $9,661,800), a decrease of 59.1%. Such
expenses for 1996, after a reclassification of certain expenses, include a net
charge to income of $3,588,300 which represents the difference between (a) the
amount for which the Company settled an environmental lawsuit regarding its
alleged contribution to contamination at the Rocky Mountain Arsenal, plus (b)
the Company's legal expenses related to that lawsuit, and (c) recoveries by the
Company from certain of its insurers for a portion of the total settlement
amount and a portion of the Company's legal expenses. Administrative expenses
for 1997, on the other hand, include a credit related to the environmental
lawsuit. The combination of the 1996 lawsuit settlement expenses and the related
credits in 1997 amounts to $6,279,200, which is $566,600 more than the decrease
in administrative expenses between 1996 and 1997. Contributing to that $566,600
increase in administrative expenses was an increase in expense for profit
sharing and bonuses of $627,500 and an increase in legal and professional
expenses of $155,300, offset by a decrease in bad debt expense of $202,900 and a
net decrease in other administrative expenses, none of which, by itself, was
material, of $13,300.

Interest expense for 1997 was $1,302,300 compared to $1,200,200 in 1996,
an increase of $102,100 or 8.5%, the result of an increase in the average amount
of debt in 1997 and the capitalization of approximately $30,000 of interest
expenses during the first quarter of 1996, the final quarter of the Company's
construction period. (See Liquidity and Capital Resources below.) Other income
increased by $156,500 during 1997 compared to 1996 due to an increase in
interest rates applicable to cash reserves and an increase in the cash reserves
themselves.

During both 1997 and 1996, expenditures for research and development were not
material (under 1% of revenues).

Year Ended December 31, 1996 Compared to Year Ended
December 31, 1995

Consolidated net sales for 1996 were $44.1 million vs. $50.7 million for 1995, a
decrease of $6,529,300 or about 13%. Average selling prices for 1996 were higher
than those of 1995 by $613,000, average prices of household chemical products
being up by $997,000 (most of which related to Touch of Scent), offset by a
decrease in average selling prices of cosmetics products of $384,000.

During 1996, net sales of cosmetics products accounted for 60.1% of consolidated
net sales compared to 62.4% in 1995. Net sales of these products for those
periods were $26,550,300 in 1996 compared to $31,623,200 in 1995, a decrease of
$5,072,900 or 16%. Of that decrease, nearly $1.65 million pertained to sales of
Men's After Shave Lotion, a product discontinued by the Company in late 1995 due
to a lack of consumer interest; and about $2.4 million pertained to a decrease
in sales of the Company's body wash products which are subject to intense price
competition. In addition to decreases in sales of Men's After Shave Lotion and
Body Wash, the Company attributed declines in sales of its basic alpha hydroxy
acid products to increased competition, particularly to competition from private
label products containing alpha hydroxy acids and to a reduction in its
advertising expenditures during 1996. Based upon data available to the Company,
it appeared that industry-wide sales of skin care products containing alpha
hydroxy acids began to flatten in 1995, a trend which continued into 1996.

In 1996, sales of household chemical products accounted for 39.9% of
consolidated net sales vs. 37.6% in 1995. Sales of these products (which are
comprised of "Scott's Liquid Gold" for Wood and "Touch of Scent") were
$17,593,700 in 1996 compared to $19,050,100 in 1995, a decrease of $1,456,400,
or 7.7%. Sales of "Scott's Liquid Gold" for wood increased from $9,731,400 in
1995 to $9,850,900 in 1996 (up by $119,500 or 1.2%), but sales of "Touch of
Scent" decreased from $9,318,700 in 1995 to $7,742,800 in 1996 (down by
$1,575,900 or 16.9%). By the end of 1996, Touch of Scent sales had declined for
two consecutive years. In an effort to increase sales of its air fresheners, the
Company introduced, at the end of 1996, a new line of decorative fixtures to
dispense new, concentrated formulae then contained in its refill units.

On a consolidated basis, cost of goods sold was $14,191,200 in 1996 compared to
$13,986,000 in 1995, an increase of 1.5% (on a decrease in sales of 12.9%). As a
percentage of consolidated net sales, cost of goods sold was 32.1% in 1996 vs.
27.6% in 1995, an increase of 16.7%. That increase was principally due to (a) an
increase in 1996 of $1,647,800 over 1995 in raw materials costs, of which
$1,214,500 pertained to Touch of Scent which was reformulated to meet certain
regulatory requirements; while $176,400 pertained to Liquid Gold and $256,900
pertained to Alpha Hydrox; and, (b) the addition of a new plant facility and
concomitant increases in depreciation of plant and equipment, property taxes,
utilities, and other items classified by the Company as factory overhead, as
well as an under-absorption of that overhead caused by lower production.

Advertising expenses for 1996 were $13,405,600 compared to $17,970,200
for 1995, a decrease of $4,564,600 or 25.4%. Of this decrease, $4,812,900
pertained to cosmetics products, offset by an increase in advertising expenses
of $248,300 for household chemical products. See 1997 compared to 1996 for the
Company's philosophy regarding advertising. Selling expenses for 1996 were
$7,470,900 compared to $7,715,300 for 1995, a decrease of $244,400 or 3.2%.

Interest expense for 1996 was $1,200,200 compared to $782,100 in 1995, an
increase of $418,100 or 53.5%. That increase was largely due to the
capitalization of certain interest expenses during the construction of the
Company's physical facilities during 1995. Other income decreased by $190,000
during 1996 compared to 1995 when a portion of the net proceeds of the Company's
bond issue was available for short-term investment.

During both 1996 and 1995, expenditures for research and development were not
material (under 1% of revenues).

Liquidity and Capital Resources

On July 29, 1994, the Company consummated a $12 million bond issuance to finance
the expansion of the Company's Denver facilities. This expansion, prompted 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, including the cost
of furniture, fixtures and equipment. This project began in August of 1994 and
was completed in January of 1996.

Interest on the $12 million bond issue is payable semi- annually at the rate of
10% per annum. (The July 1, 1997 and January 1, 1998 interest payments were made
in a timely manner. There is no reason to believe that the interest payment due
on July 1, 1998 will not be made as is required by the Bond Indenture.) A
sinking fund payment of $1 million is required annually. The Company
voluntarily pays $183,300 each month to the Trustee to cover future interest and
sinking fund payments. The Trustee 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,
1997. 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 effect 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 to 1 on January 1, 1996 and thereafter. That provision had
also been satisfied at year end. The bonds are secured by a first deed of trust
on the Company's Denver land and buildings, including structures financed by the
bond issuance. Because the Company's bonds became subject to call on July 29,
1997, and because of the recent decline in long-term interest rates, the Company
is investigating a refunding of all or a large portion of its long-term debt.

During 1997, the Company's working capital increased by $5,433,600 and its
current ratio (current assets divided by current liabilities) increased from
1.8:1 at December 31, 1996 to 2.7:1 at December 31, 1997. This increase in
working capital is attributable to (1) a net income in 1997 of $6,081,500, (2) a
decrease in the net assets of discontinued
operations of $374,800, (3) contributions of $81,300 of corporate stock to the
Company ESOP, (4) depreciation in excess of capital additions of $788,800, (5)
stock option exercises of $13, 700, (6) a decrease in other assets of $86,400,
and (7) an increase in non-current deferred income taxes of $806,000; all offset
by (8) a reduction of long- term debt of $2,798,900. At December 31, 1997, the
ratio of consolidated funded debt to consolidated net worth was 0.36:1. On
October 14, 1997, the Company sold its land and building in Fort Lauderdale,
Florida, formerly owned by a wholly-owned subsidiary, Aquafilter Corporation.
The contribution of that sale to the increase in working capital is reflected in
(1) and (2) above.

The change in other receivables relate to the Company's environmental lawsuit
with the United States Army, which was collected subsequent to year end.
Accounts payable decreased during 1997 by $2,042,500 principally due to
reductions of amounts owed to raw material suppliers.

As a result of Board action at a meeting in February, 1998, the Company
purchased 25,000 shares of its common stock on the open market at a cost of
$103,000. The Board of Directors views the Company's stock as a good investment.
The Company intends to use the reacquired stock for contributions to its
Employee Stock Ownership Plan. Also, the Company expects that the dividend of
$.10 per share declared by the Board of Directors in February, 1998 will be used
by the Company's Employee Stock Ownership Plan (which will receive approximately
$107,000) to purchase additional shares of the Company's common stock on the
open market.

Legal Proceedings

As described in the Company's 1996 Annual Report, two lawsuits were filed by the
Company in 1995 and 1996 against two private label companies which the Company
alleged had, among other things, infringed the Company's trademark and trade
dress rights concerning Alpha Hydrox products. Both of these suits were settled
on terms satisfactory to the Company, one in 1996 and one in 1997. Payments
received by the Company were not material.

As previously reported, the Company had been a defendant in an environmental
lawsuit brought by the United States Justice Department at the request of the
United States Army, alleging contribution by the Company to contamination in a
groundwater aquifer underlying a portion of the Rocky Mountain Arsenal. In
October of 1996, the Company and the United States, on behalf of the Department
of the Army, negotiated a settlement of this dispute. The Settlement Agreement,
which admits no wrong doing by the Company and which was approved by the Court
on November 6, 1996, required the payment to the United States of $6 million of
which $2.4 million was paid at once by the Company's insurers (with an
additional $600,000 paid in January of 1997) and $1 million was paid by the
Company. The additional $2 million, by the terms of the Agreement, was to be
paid by the Company in equal installments of $250,000 over eight years,
beginning on October 31, 1997, together with interest approximating the Treasury
Bill rate. Due to income tax considerations, the Company decided to liquidate
its entire indebtedness to the Army and did so in October of 1997. The Company
filed lawsuits against three insurers (which did not participate in the
settlement) to recover at least amounts paid to the Army by the Company, plus
punitive damages and attorneys' fees. The Company has settlements with all but
one of its insurers, and as a result of the insurance settlements in 1996 and
1997, most of the costs incurred to resolve environmental claims relating to the
Rocky Mountain Arsenal have now been recovered. Claims for recovery of the
remainder of the costs are pending against one insurance company.

As previously reported, a lawsuit was commenced in May of 1996 against Neoteric
Cosmetics, Inc. and others not related to the Company alleging
infringement of certain patents. Neoteric Cosmetics is the Company's whollyowned
subsidiary which manufactures and sells skin care products under the name Alpha
Hydrox. The lawsuit was brought by TriStrata Technology, Inc. in the United
States District Court for the District of Delaware. The plaintiff claims to be
the assignee of five patents relating to the use of alpha hydroxy acids to treat
or reduce cosmetic conditions, particularly wrinkles or fine lines. Three of the
patents were issued in 1995; one issued in 1996; and one, which was issued in
1992, was the subject of a reexamination completed in 1995. When the suit was
filed in 1996, four patents were asserted, of which three were asserted against
Neoteric. A fifth patent was added by amendment in 1997 and asserted against
Neoteric. Neoteric, in turn, has asserted a counterclaim contending all 5
patents as well as two other related but unasserted patents are invalid. The
plaintiff denies it has alleged infringement against Neoteric with respect to
three patents and contends the Court lacks jurisdiction to determine their
infringement or validity. All five patents asserted by plaintiff were subject to
a successful reexamination. The plaintiff in the lawsuit alleges that Neoteric
contributes to and/or induces infringement of the patents by selling and
promoting Neoteric products for the purpose of visibly reducing a human skin
wrinkle and/or fine lines and for the purpose of treating and/or preventing
cosmetic conditions and dermatologic disorders of the human skin such as
wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement, and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the plaintiff,
asserts the invalidity of patents as indicated above, and is mounting a vigorous
defense.

In June of 1997, a lawsuit was filed in the federal District Court for the
District of Colorado against the Company by Leslee Brooks, her husband, Dr.
Norman Brooks (a California dermatologist), and a corporation related to Dr.
Brooks. Other defendants include the Company's wholly-owned subsidiary, Neoteric
Cosmetics, Inc., Jerome J. Goldstein and the Goldstein Family Limited
Partnership. Leslee Brooks is a daughter of Jerome J. Goldstein and a sister of
Mark E. Goldstein (see list of Officers and Directors on last page of this
Report). The Goldstein Family Limited Partnership was established in November of
1996 by Mr. and Mrs. Jerome J. Goldstein and was the recipient of common stock
of the Company previously held by Mr. and Mrs. Goldstein.

The plaintiffs in this case filed in December, 1997, an amended complaint which
claims that their disclosure to the Company in 1991 of the concept of an alpha
hydroxy acid based product for the mass market, as well as their assistance in
developing the Company's Alpha Hydrox products, entitles the plaintiffs to
compensation under a doctrine of unjust enrichment. In the amended complaint,
the plaintiffs also claim that they entered into a joint venture partnership
with the defendants to earn profits from originating, developing and marketing
alpha hydroxy skin care products, that the defendants breached fiduciary duties
resulting from the relationship of the parties, and that the Company and its
subsidiary aided and abetted, and conspired as to, the alleged breaches of
fiduciary duties. The plaintiffs assert additionally that the defendants made
fraudulent representations and conspired as to those representations by Mr.
Jerome J. Goldstein stating that the plaintiffs would get rich and by the
defendants' failure to disclose that they never intended to compensate the
plaintiffs. Another claim is made for negligent misrepresentations and
conspiracy by the defendants regarding these same matters. For each of these
claims, the plaintiffs claim onethird of the total income from Alpha Hydrox
products, a minimum amount of $10 million and punitive damages. In calculating
one-third of the total income from the products, the plaintiffs assert that they
are entitled to an amount equal to at least one-third of the pre-tax net
profit earned by Neoteric Cosmetics from its inception through 1996 and,
prospectively on a cash discounted basis, to such profits predicted by them
through 2002. The total amount computed by plaintiffs is $14.4 million. In a
related claim, the plaintiffs ask that a "constructive trust" be imposed on the
stock transferred to the Goldstein Family Limited Partnership.
The Company unequivocally believes that there was no agreement, written or oral,
to provide any compensation to the plaintiffs beyond consulting fees paid by the
Company to them through Dr. Brooks' professional corporation, that there was no
expectation of such compensation and that the compensation already paid to them
for consulting services was fair and reasonable. The Company also believes
unequivocally there was no joint venture between the plaintiffs and the Company,
a subject that was first raised in the December, 1997 amended complaint in this
litigation. The Company views the lawsuit as groundless and is vigorously
defending itself. Discovery in this litigation is complete. The trial in the
Brooks case is tentatively scheduled to commence in April, 1998, although the
trial date may be changed to a later time.
Neither the Company nor its legal counsel can determine the potential outcome of
the two lawsuits discussed above nor the ultimate impact on the Company's
financial position or results of operations.

<TABLE>
(Selected Financial Data In Thousands of Dollars
Except Per Share Data) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>

Revenues:
Scott's Liquid Gold
household products $ 15,678 $ 17,743 $ 19,238 $ 21,960 $20,765
Neoteric Cosmetics 34,798 26,700 31,924 30,583 15,790
$ 50,476 $ 44,443 $ 51,162 $ 52,543 $36,555
Income (loss) from
continuing operations
before income taxes $ 8,485 $ (1,487) $ 4,495 $ 9,602 $ 4,751

Income tax expense
(benefit) 3,154 (553) 1,711 3,784 1,910
Income (loss) from
continuing operations 5,331 (934) 2,784 5,818 2,841
Discontinued operations,
net of taxes 751 23 39 34 88
Net income (loss) $ 6,082 $ (911) $ 2,823 $ 5,852 $ 2,929
Earnings (Loss) Per
Common Share
Income (loss) from
continuing operations $ 0.53 $ (0.09) $ 0.28 $ 0.60 $ 0.31
Discontinued operations 0.07 - - - 0.01
Earnings (loss) per
common share $ 0.60 $ (0.09) $ 0.28 $ 0.60 $ 0.32
Diluted Earnings
(Loss) Per Common
Share

Income (loss) from
continuing operations $ 0.52 $ (0.09) $ 0.27 $ 0.56 $ 0.29
Discontinued operations 0.07 - 0.01 0.01 0.01
Diluted earnings
(loss) per common share $ 0.59 $ (0.09) $ 0.28 $ 0.57 $ 0.30
Dividends declared per
common share $ - $ - $ 0.10 $ 0. 10 $ -
Assets $ 37,592 $ 34,464 $ 35,126 $ 31,519 $ 16,280
Working capital* $ 11,631 $ 6,197 $ 6,331 $ 8,374 $ 4,500
Capital additions $ 210 $ 1,057 $ 10,537 $ 4,079 $ 468
Depreciation $ 998 $ 1,015 $ 820 $ 592 $ 588
Long-term debt* $ 7,978 $ 10,777 $ 10,047 $ 11,000 $ 2,129
</TABLE>

* See Management Discussion and Analysis of Financial Condition and
Results of Operations.

<TABLE>
Selected Quarterly Financial Data 1997
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C> <C>

Net sales $ 14,325 $ 11,854 $ 12,821 $ 11,020 $ 50,020
Gross profit $ 10,487 $ 8,490 $ 9,186 $ 7,725 $ 35,888
Income from
continuing operations $ 816 $ 137 $ 1,218 $ 3, 160 $ 5,331
Net income $ 816 $ 137 $ 1,218 $ 3,911 $ 6,082
Earnings per
common share $ 0.08 $ 0.01 $ 0.12 $ 0.39 $ 0.60
Diluted earnings
per common share $ 0.08 $ 0.01 $ 0.12 $ 0. 38 $ 0.59

1996
First Second Third Fourth Year
Net sales $ 12,757 $ 9,809 $ 10,569 $ 11,09 $ 44,144
Gross profit $ 8,494 $ 6,484 $ 7,229 $ 7,746 $ 29,953
Income (loss) from
continuing operations $ (642) $ (582) $(1,667) $ 1,957 $ (934)
Net income (loss) $ (639) $ (569) $(1,632) $ 1,929 $ (911)
Earnings (loss)
per common share $ (0.06) $ (0.06) $ (0.17) $ 0. 20 $ (0.09)
Diluted earnings
(loss) per
common share $ (0.06) $ (0.06) $ (0.17) $ 0.20 $ (0.09)
</TABLE>

Consolidated Statements of Operations
<TABLE>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>

Revenues:
Net sales $50,020,300 $44,144,000 $50,673,300
Other income 455,500 299,000 489,000
50,475,800 44,443,000 51,162,300
Costs and expenses:
Cost of sales 14,132,200 14,191,200 13,986,000
Advertising 15,026,000 13,405,600 17,970,200
Selling 7,581,100 7,470,900 7,715,300
General and
administrative 3,949,200 9,661,800 6,213,500
Interest 1,302,300 1,200,200 782,100
41,990,800 45,929,700 46,667,100
Income (loss) from
continuing operations
before income taxes 8,485,000 (1,486,700) 4,495,200
Income tax expense
(benefit) (Note 7) 3,154,400 (553,000) 1,710,500
Income (loss) from
continuing operations 5,330,600 (933,700) 2,784,700

Discontinued operations
(Note 5):
Income (loss) from
operations, net of
income taxes - (8,300) 38,700
Gain on disposal,
net of income taxes 750,900 31,100 -
Net income (loss) $ 6,081,500 $(910,900) $2,823,400

Earnings (loss) per
common share (Note 8):
Income (loss) from
continuing operations $ 0.53 $ (0.09) $ 0.28
Income from discontinued
Operations 0.07 - -
Net income (loss)
per common share $ 0.60 $ (0.09) $ .28
Diluted earnings
(loss) per common
share (Note 8):
Income (loss) from
continuing operations $ 0.52 $ (0.09) $ 0.27
Income from
discontinued operations 0.07 - 0.01
Net income (loss)
per common share $ 0.59 $ (0.09) $ .28
Weighted average
number of common
shares outstanding 10,069,500 10,030,900 9,987,900
Diluted weighted
average number of
common shares outstanding 10,200,900 10,030,900 10,252,700
</TABLE>
See Notes to Consolidated Financial Statements.

<TABLE>
Consolidated Balance Sheets
December 31,
ASSETS 1997 1996
<S> <C> <C>

Current assets:
Cash and cash equivalents $ 8,201,900 $ 4,749,200
Trade receivables,
less allowances of
$635,700 and $580,400
for doubtful accounts 2,610,100 3,362,100
Other receivables 2,604,900 681,800
Inventories (Note 2) 3,832,900 4,129,200
Prepaid expenses 537,500 265,700
Deferred tax assets (Note 7) 540,400 761,400
Total current assets 18,327,700 13,949,400
Property, plant and
equipment, net (Note 3) 19,073,000 19,861,800
Other assets 191,500 277,900
Net assets of discontinued
operations (Note 5) - 374,800
$37,592,200 $34,463,900

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,681,100 $3,723,600
Accrued expenses 3,975,400 2,738,800
Current maturities of
long-term debt
(Notes 4 and 6) 1,040,200 1,289,600
Total current liabilities 6,696,700 7,752,000
Long-term debt (Notes 4 & 6) 7,977,800 10,776,700
Deferred income taxes (Note 7) 1,043,100 237,100
15,717,600 18,765,800
Commitments and contingencies (Note 11)
Shareholders' equity (Note 8):
Common stock $.10 par value,
authorized 50,000,000 shares:
issued and outstanding
10,089,400 and 10,030,900
shares 1,008,900 1,003,100
Capital in excess of par 4,808,200 4,719,000
Retained earnings 16,057,500 9,976,000
Shareholders' equity 21,874,600 15,698,100
$37,592,200 $34,463,900
</TABLE>
See Notes to Consolidated Financial Statements

<TABLE>
Consolidated Statements of Cash Flows
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>

Cash flows from
operating activities:
Net income (loss) $ 6,081,500 $ (910,900) $ 2,823,400
Adjustments to reconcile
net income (loss) to net cash
provided (used) by
operating activities:
Depreciation and
Amortization 1,084,800 1,106,900 864,900
Provision for doubtful
accounts receivable 68,000 270,900 229,000
Compensation expense of
employee stock plans 81,300 - 255,700
Gain on sale of
discontinued operations (1,115,800) (47,100) -
Change in assets and
liabilities:
Accounts and
other receivables (1,239,100) (1,321,700) 1,463,700
Inventory 296,300 1,301,300 (798,000)
Prepaid expenses (271,800) 157,500 223,000
Other assets - 371,000 (36,700)
Deferred income taxes 1,027,000 (750,700) 82,200
Accounts payable and
accrued expenses (805,900) (242,200) 1,993,200
Total adjustments to
net income (loss) (875,200) 845,900 4,277,000
Net Cash Provided (Used)
by Operating Activities 5,206,300 (65,000) 7,100,400
Cash flows from
investing activities:
Purchases of property,
plant and equipment (209,600) (1,057,100) (10,536,700)
Proceeds from sale of
discontinued operations 2,100,000 600,000 -
Net change in assets of
discontinued operations (609,400) (432,900) 5,200
Net Cash Provided (Used)
by Investing Activities 1,281,000 (890,000) (10,531,500)
Cash flows from
financing activities:
Proceeds from exercise
of stock options 13,700 - 182,700
Proceeds from
short-term borrowings 135,300 150,700 154,700
Principal payments on
short-term borrowings (135,300) (150,700) (154,700)
Proceeds from long-term
Borrowings - 2,007,400 111,400
Principal payments on
long-term borrowings (2,039,600) (39,000) -
Increase in bond
sinking fund (1,008,700) (984,400) (1,029,100)
Decrease in
restricted cash - - 6,162,700
Dividends paid - - (989,000)
Net Cash (Used)
Provided by
Financing Activities (3,034,600) 984,000 4,438,700
Net Increase in Cash
and Cash Equivalents 3,452,700 29,000 1,007,600
Cash and Cash Equivalents,
beginning of year 4,749,200 4,720,200 3,712,600
Cash and Cash Equivalents,
end of year $ 8,201,900 $ 4,749,200 $ 4,720,200
Supplemental disclosures:
Cash paid during the year for:
Interest (net of $30,300
and $428,800 capitalized
in 1996 and 1995
respectively) $ 1,333,700 $ 1,219,900 $ 782,100
Interest paid by
discontinued operations $ - $ 43,800 $ 47,400
Income taxes $ 859,800 $ 716,100 $ 1,231,400
Noncash investing and
financing activities:
Construction commitments $ - $ - $ 371,000
Note receivable on sale
of discontinued
operations $ - $ 200,000 $ -
Note receivable on
sale of equipment $ - $ 50,000 $ -

</TABLE>
See Notes to Consolidated Financial Statements

Consolidated Statements of Shareholders' Equity
<TABLE>
Common Stock Capital
in Excess Retained
Shares Amount of Par Earnings
Years ended December 31, 1997, 1996 and 1995
<S> <C> <C> <C> <C>

Balance
January 1, 1995 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
Net loss - - - (910,900)

Balance
December 31, 1996 10,030,900 1,003,100 4,719,000 9,976,000
Net income - - - 6,081,500
Stock issued to
employee stock
ownership trust 50,000 5,000 76,300 -
Other stock
Issuances 8,500 800 12,900 -
Balance
December 31, 1997 10,089,400 $1,008,900 $4,808,200 $16,057,500
</TABLE>

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 1996 and 1995
Consolidated Financial Statements to conform to the classifications used in the
current year.

The Company manufactures and markets household chemical products (31.1% and
39.9% of net sales for 1997 and 1996 respectively), skin care products (68.9%
and 60.1% for 1997 and 1996 respectively) and, until September 20, 1996,
cigarette filters (See Note 5 " Discontinued Operations"). 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 primarily of
three months or less at the date of acquisition to be cash equivalents. As of
December 31, 1997 and 1996, balances of cash and cash equivalents at a financial
banking institution exceeded the federally insured limit of $100,000 by
approximately $125,000 and $220,000 respectively. These balances fluctuate
greatly during the year and can exceed this $100,000 limit. Management monitors
regularly the financial condition of the banking institution, along with the
Company's balances in cash and cash equivalents and tries to hold this potential
risk to a minimum.

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25, if
the exercise price of employee stock options equals the market price of the
underlying stock on the date of the grant, no compensation expense is recorded.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").

The Company recognizes revenue on its products when title and risk of ownership
passes to the customer, which generally is upon delivery of the products. The
Company permits customers to return products purchased from the Company on a
case by case basis. The Company estimates the amount of any returns and records
an appropriate reserve.

During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These standards require additional
disclosure related to reporting comprehensive income and segments of the
Company. The Company will adopt these statements in 1998 and believe they will
not materially impact the Company.

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.
Actual results could differ from those estimates.

NOTE 2: Inventories

Inventories consisting of materials, labor and overhead at December 31 were
comprised of the following:

<TABLE>
1997 1996
<S> <C> <C>
Finished goods $1,828,700 $2,244,900
Raw materials 2,004,200 1,884,300
$3,832,900 $4,129,200
</TABLE>
NOTE 3: Property,

Plant and Equipment
Property accounts at December 31 were comprised of the following:
<TABLE>
1997 1996
<S> <C> <C>

Land $ 1,091,600 $ 1,091,600
Buildings 16,107,300 16,104,200
Production equipment 7,445,200 7,339,900
Office furniture and equipment 2,135,900 2,090,600
Other 225,000 224,600
27,005,000 26,850,900
Less accumulated depreciation 7,932,000 6,989,100
$19,073,000 $19,861,800

NOTE 4: Financial Instruments

The recorded amounts for cash and cash equivalents, receivables, other current
assets, and accounts payable and accrued expenses approximate fair value due to
the short-term nature of these financial instruments. The fair value of amounts
outstanding under the Company's installment notes approximates book value due to
the variable nature of the interest rate associated with that debt. The fair
values of the Company's First Mortgage Bonds have been estimated using
discounted cash flow analysis based on current borrowing rates for debt with
similar maturities and ratings.

December 31, 1997 December 31, 1996
Book Value Fair Value Book Value Fair Value
Long-term debt $9,018,000 $9,288,700 $12,066,300 $12,427,300

NOTE 5: Discontinued Operations

Effective September 20, 1996, the Company's wholly owned subsidiary, Aquafilter
Corporation ("Aquafilter"), sold its manufacturing equipment, inventories,
patents and trade names to Lee Pharmaceuticals, Inc. for $800,000. The Company
received $500,000 cash and a note for $300,000 payable through April 1, 1997 at
an interest rate of 8.25%. The gain from the sale of this discontinued operation
($31,100, net of income taxes of $16,000) includes additional estimated costs of
approximately $107,000 related to the shutdown of Aquafilter.

On October 14, 1997, the Company completed the liquidation of the remaining
assets with the sale of Aquafilter's land and building in Fort Lauderdale,
Florida. The gain from the sale was $750,900, net of applicable income taxes of
$364,900. The net cash proceeds (after closing costs and payoff of the related
mortgage) were approximately $1,450,000.

Total revenues for Aquafilter for 1996 and 1995 were $810,600 and $1,094,400
respectively. Aquafilter's operating loss for 1996 was $8,300 (net of income tax
benefits of $5,100). Aquafilter's operating income for 1995 was $38,700 (net of
income taxes of $19,900).

NOTE 6: Notes Payable and Long-Term Debt

Long-term debt at December 31 is presented below:

</TABLE>
<TABLE>
1997 1996
<S> <C> <C>

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 (3,022,200) (2,013,500)

Installment note on certain
data processing equipment and
software, payable in monthly
installments through 1998,
interest at 4.9%. 40,200 79,800

Installment note, payable in
annual installments of $250,000
through October 31, 2004,
interest at a variable rate,
paid in full October 1997 - 2,000,000
9,018,000 12,066,300
Less current maturities 1,040,200 1,289,600
$ 7,977,800 $10,776,700
</TABLE>
The Company also had a first mortgage on the Aquafilter land and building, which
was sold in October 1997 and the related mortgage was then paid off. At December
31, 1996, the mortgage balance was $427,300. See Note 5 - Discontinued
Operations.

In October of 1996, the Company settled an environmental lawsuit brought against
it by the United States on behalf of the U.S. Army. Under the terms of the
settlement, the Company paid $1,000,000 to the Army in 1996 and, over a period
of eight years, would pay an additional $2,000,000 in equal annual installments,
together with interest at a variable rate. The $2,000,000 was paid in full in
October 1997. An additional $3,000,000 was paid to the Army by certain insurance
carriers.

Maturities of long-term debt for the years 1998 through 2001 are respectively:
$1,040,200, $1,000,000, $1,000,000 and $5,977,800.

See "Liquidity and Capital Resources" section of Management's Discussion and
Analysis for requirements under the Indenture pertaining to the Company's First
Mortgage Bonds.

NOTE 7: Income Taxes

The provisions for income taxes from continuing operations include the
following:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Currently payable:
Federal $2,063,100 $ 176,400 $1,460,200
State 113,400 18,800 168,100
Total currently payable 113,400 18,800 168,100
2,176,500* 195,200* 1,628,300*
Deferred:
Federal 899,700 (669,400) 74,000
State 78,200 (78,800) 8,200
Total deferred 977,900 (748,200) 82,200
Provision:
Federal 2,962,800 (493,000) 1,534,200
State 191,600 (60,000) 176,300
Total provision $3,154,400 $ (553,000) $1,710,500
</TABLE>
*Estimated payments of approximately $725,000, $0 and $1,044,000 were made
during the years ended December 31, 1997, 1996 and 1995 respectively.

Income tax expense (benefit) from continuing operations at the statutory tax
rate is reconciled to the overall income tax expense (benefit) from continuing
operations as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Federal income tax
at statutory rates $2,884,900 $ (505,500) $1,548,300
State income taxes, net
of federal tax effect 288,400 (60,000) 176,300
Other 18,700 12,500 (14,100)
Total 3,192,000 (553,000) 1,710,500
Tax credits (37,600) - -
Effective tax $3,154,400 $ (553,000) $1,710,500
</TABLE>
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 enacted tax laws.
The net deferred tax assets and liabilities as of December 31, 1997 and 1996 are
comprised of the following:
<TABLE>
1997 1996
<S> <C> <C>
Current:
Allowance for uncollectible
accounts $ 219,100 $ 206,100
Inventory reserves 134,000 150,400
Prepaid insurance 41,600 54,800
Accrued vacation 178,200 164,900
Other reserves - 40,700
Lawsuit liability - 95,000
Other (32,500) 49,500
Net current deferred tax assets $ 540,400 $ 761,400

Noncurrent:
Accelerated depreciation for tax $(1,083,900) $ (935,500)
Lawsuit installment note - 665,000
Tax credits 37,600 25,100
Other 3,200 8,300
Total noncurrent deferred
tax liability $(1,043,100) $ (237,100)
</TABLE>
At December 31, 1997 the Company has no federal tax credit carryforwards. The
Company has state tax credits of $37,600 expiring over a period ending in 2011.

A reconciliation of the Company's income before taxes for financial statement
purposes to taxable income is as follows:

<TABLE>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <S>
Income (loss) from continuing
operations before
income taxes $8,485,000 $(1,486,700) $4,495,200
Differences between income
before income taxes and
taxable income:
State income taxes (161,900) (18,800) (176,300)
Permanent differences 12,300 12,400 15,300
Lawsuit installment note (2,000,000) 2,000,000 -
Net changes in
temporary differences (479,400) 9,700 (136,900)
(2,629,000) 2,003,300 (297,900)
Federal taxable income $5,856,000 $ 516,600 $4,197,300
</TABLE>

NOTE 8: 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 (all 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 those granted are exercisable from the grant date for five years.
The 1981 and 1986 plans expired in 1991 and 1996 respectively and, accordingly
no shares are available for option under those Plans. In 1997, subject to
approval by shareholders at the 1998 Annual Meeting, the directors adopted a
1997 Stock Option Plan covering 300,000 shares of the Company common stock. Full
time salaried and hourly employees, excluding officers of the Company, are
eligible to receive options under the 1997 Plan.

<TABLE>
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
<S> <C> <C> <C> <C> <C> <C>

Maximum number
of shares
at inception of
plans 750,000 500,000 400,000

Outstanding,
December 31, 1994 122,200 $0.60 415,800 $3.29 390,000 $2.65

Granted in
1995 - - - - - -
Exercised (121,700) 0.58 - - (100,000) 1.10
Cancelled (500) 0.58 (1,500) 3.80 - -

Outstanding,
December 31, 1995 - - 414,300 3.29 290,000 3.19
Granted in
1996 - - - - - -
Exercised - - - - - -
Cancelled - (8,300) 2.16 - - -

Outstanding,
December 31, 1996 - - 406,000 3.31 290,000 3.19
Granted in
1997 - - - - 10,000 2.00
Exercised - - (8,500) 1.62 - -
Cancelled - - (1,000) 4.88 - -

Outstanding,
December 31, 1997 - $ - 396,500 $3.35 300,000 $3.15

Available for option,
December 31, 1997 - - -
</TABLE>

The weighted average fair share value of each option grant has been estimated as
of the date of grant using the Black-Scholes option-pricing model using the
following assumptions at December 31, 1997:

Dividend rate -
Expected volatility 323.00%
Risk-free interest rate 6.40%
Expected life (in years) 4.5

Using these assumptions, the fair value of the stock options granted in 1997 was
estimated to be approximately $12,600, net of income taxes. Had compensation
cost been recorded based on the fair value of the options granted, the Company's
pro-forma net income and net income per share for the year ended December 31,
1997 would have been as follows:

As Reported Pro-Forma
Net income $ 6,081,500 $ 6,068,900
Earnings per share $ 0.60 $ 0.60
Diluted earnings
per share $ 0.59 $ 0.59

The Company did not grant any options or other equity instruments in 1996 or
1995 and therefore is not required to present the pro-forma disclosures
prescribed in SFAS 123 for these years.

The Company has an Employee Stock Ownership Plan to provide retirement benefits
for its employees. The Plan is designed to invest primarily in the Company's
common stock 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 1997, 1996 and 1995 was $81,300, $202,700 and
$255,700 respectively. During 1997, 1996 and 1995, the Company contributed
50,000 shares, 100,000 shares and 45,400 shares respectively to the Employee
Stock Ownership Plan.

During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which
the Company adopted this year and, therefore, restated prior years' earnings per
share. Per share data is determined by using the weighted average number of
common shares outstanding. Common equivalent shares are considered only for
diluted earnings per share, unless considered anti-dilutive (as in 1996). Common
equivalent shares, determined using the treasury stock method, result from stock
options with exercise prices that are below the average market price of the
common stock. A reconciliation of the weighted average number of common shares
outstanding follows:

<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Common shares outstanding,
beginning of the year 10,030,900 10,030,900 9,763,800
Incremental shares issued
to Employee Stock Ownership
Plan 35,200 - 40,300
Incremental shares of stock
options exercised 3,400 - 183,800
Weighted average number of
common shares outstanding 10,069,500 10,030,900 9,987,900
Incremental common share
Equivalents 131,400 - 264,800
Diluted weighted average
number of common shares
outstanding 10,200,900 10,030,900 10,252,700
</TABLE>
The Company has 20,000,000 shares of preferred stock issuable in one or more
series, none of which are outstanding.

On April 7,1995, the Company paid a dividend of $.10 per share (aggregate
$989,000) to shareholders of record on March 24, 1995. See Note 12 - Subsequent
Event.

NOTE 9: Significant Customer

In 1997, 1996 and 1995, one customer, Wal-Mart Stores, Inc. of Bentonville,
Arkansas, accounted for approximately 26.2%, 24.4% and 22.6% respectively of the
Company's sales of household chemical products and 24.6%, 27.7% and 22.0%
respectively of the Company's sales of skin care products. Also, in 1997,
another customer, CVS Corporation of Woonsocket, Rhode Island, accounted for
approximately 12.8% of the Company's sales of skin care products. These
customers are not related to the Company. A loss of either of these large
customers would have a material effect on the Company if the Company's consumer
base served by these customers did not purchase the Company's products at other
retail outlets. No long-term contracts exist between the Company, Wal-Mart
Stores, Inc., CVS Corporation or any other customer.

NOTE 10: Transactions with Related Parties

During 1997, 1996 and 1995, the Company paid consulting fees of $15,000, $60,000
and $60,000 respectively to Dr. Norman Brooks in connection with its skin care
products. Dr. Brooks' wife is the daughter of Jerome J. Goldstein and the sister
of Mark E. Goldstein. See Note 11 - Contingent Liabilities for a description of
a lawsuit filed against the Company by Dr. and Mrs. Brooks.
The Company has adopted a bonus plan for its executive officers for 1998. 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,
excluding items that are infrequent, unusual, or extraordinary. In 1997,
$561,000 was accrued or paid under the Plan. In 1996 and 1995, $129,500 and
$416,400 respectively was accrued or paid under similar plans.

NOTE 11: Contingent Liabilities

In May 1996, a lawsuit was commenced against Neoteric Cosmetics, Inc. and others
not related to the Company alleging infringement of certain patents. Neoteric
Cosmetics is the Company's wholly-owned subsidiary which manufactures and sells
skin care products under the name Alpha Hydrox. The lawsuit was brought by
TriStrata Technology, Inc. in the United States District Court for the District
of Delaware. The plaintiff claims to be the assignee of five patents relating to
the use of alpha hydroxy acids to treat or reduce cosmetic conditions,
particularly wrinkles or fine lines. Three of the patents were issued in 1995;
one issued in 1996; and one, which was issued in 1992, was the subject of a re-
examination completed in 1995. When the suit was filed in 1996, four patents
were asserted, of which three were asserted against Neoteric. A fifth patent was
added by amendment in 1997 and asserted against Neoteric. Neoteric, in turn, has
asserted a counterclaim contending all 5 patents as well as two other related
but unasserted patents are invalid. The plaintiff denies it has alleged
infringement against Neoteric with respect to three patents and contends the
Court lacks jurisdiction to determine their infringement or validity. All five
patents asserted by plaintiff were subject to a successful re-examination. The
plaintiff in the lawsuit alleges that Neoteric contributes to and/or induces
infringement of the patents by selling and promoting Neoteric products for the
purpose of visibly reducing a human skin wrinkle and/or fine lines and for the
purpose of treating and/or preventing cosmetic conditions and dermatologic
disorders of the human skin such as wrinkles and fine lines.
The plaintiff requests damages to compensate the plaintiff for any infringement,
an injunction against further infringement, and treble damages because of an
alleged willful and deliberate nature of infringement. In 1995, after the
issuance of one of the patents involved in the lawsuit, the Company changed its
advertising and packaging to remove references to wrinkles and fine lines. The
Company denies the allegations of the plaintiff, asserts the invalidity of
patents as indicated above, and is mounting a vigorous defense.

In June of 1997, a lawsuit was filed against the Company by Leslee Brooks, her
husband, Dr. Norman Brooks (a California dermatologist), and a corporation
related to Dr. Brooks. Other defendants include the Company's wholly-owned
subsidiary, Neoteric Cosmetics, Inc. ("Neoteric"), Jerome J. Goldstein and the
Goldstein Family Limited Partnership. Leslee Brooks is a daughter of Mr. and
Mrs. Jerome J. Goldstein and a sister of Mark E. Goldstein. The Goldstein Family
Limited Partnership was established in November of 1996 by Mr. and Mrs. Jerome
J. Goldstein and was a recipient of common stock of the Company previously held
by Mr. and Mrs. Goldstein.

The Company unequivocally believes that there was no agreement, written or oral,
to provide any compensation to the plaintiffs beyond consulting fees paid by the
Company to them through Dr. Brooks' professional corporation, that there was no
expectation of such compensation and that the compensation already paid to them
for consulting services was fair and reasonable. The Company also believes
unequivocally there was no joint venture between the plaintiffs and the Company,
a subject that was first raised in the December, 1997 amended complaint in this
litigation. The Company views the lawsuit as groundless and is vigorously
defending itself. Discovery in this litigation is complete. The trial in the
Brooks case is tentatively scheduled to commence in April, 1998, although the
trial date may be changed to a later time.

Neither the Company nor its legal counsel can determine the potential outcome of
the two lawsuits discussed above nor the ultimate impact on the Company's
financial position or results of operations.

NOTE 12: Subsequent Event (Unaudited)

On February 10, 1998, based upon the Company's 1997 performance, the Company's
Board of Directors declared a dividend of $.10 per common share to shareholders
of record on February 24, 1998, to be paid March 2, 1998.

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, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial 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 position of Scott's Liquid Gold-Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

Arthur Anderson LLP

Denver, Colorado
January 21, 1998

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. Concord Exchange, South St. Paul, Minnesota
55075-0738

Shareholders
As of January, 1998 the Company had approximately 1400 shareholders of record.

Market Information
The high and low prices of Scott's Liquid Gold-Inc. common stock as traded on
the New York Stock Exchange were as follows:

1997 1996
Three Months Ended Three Months Ended
High Low High Low
March 31 2-7/8 1-3/8 March 31 3 2-1/2
June 30 2-7/8 1-1/2 June 30 3 1-3/4
September 30 4-1/16 2 September 30 2-1/8 1-1/2
December 31 4-11/16 3-1/8 December 31 1-7/8 1-1/2

NYSE Symbol: SGD
On February 10, 1998, based upon the Company's 1997 performance, the Company's
Board of Directors declared a dividend of $.10 per common share to its
stockholders of record on February 24, 1998, to be paid March 2, 1998. 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.
Current stock quotes, SEC filings, quarterly earnings and press releases can be
found at:
http://www.businesswire.com/cnn/sgd.htm
Product web sites: http://www.scotts-liquid-gold.com
http://www.alpha-hydrox.com

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

Dennis H. Field Independent Consultant and Director

James F. Keane Independent Businessman and Director

EXHIBIT 21

LIST OF SUBSIDIARIES:

SCOTT'S LIQUID GOLD-INC. (the "Company") wholly owns seven subsidiaries:

Advertising Promotions Incorporated

Aquafilter Corporation

Colorado Product Concepts, Inc.

Neoteric Cosmetics, Inc.

SLG Chemicals, Inc.

SLG Plastics, Inc.

SLG Touch-A-Lite, Inc. (inactive)

All of the foregoing subsidiaries are incorporated in the State of
Colorado.

Exhibit 24

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, 1997, 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

Jerome J. Goldstein Director and Chairman 2/27/98
of the Board

Mark E. Goldstein Director, President and 3/11/98
Chief Executive Officer

Carolyn J. Anderson Director, Executive Vice 3/9/98
President Chief Operating
Officer and Corporate Secretary

Barry Shepard Director, Treasurer 2/25/98
and Chief Financial Officer

Dennis H. Field Director 3/2/98

James F. Keane Director 2/26/98

Michael J. Sheets Director 3/2/98

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Scott's
Liquid Gold-Inc. 1997 10-K and is qualified in its entirety by reference to
such.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,201,900
<SECURITIES> 0
<RECEIVABLES> 5,850,700
<ALLOWANCES> 635,700
<INVENTORY> 3,832,900
<CURRENT-ASSETS> 18,327,700
<PP&E> 19,073,000
<DEPRECIATION> 7,932,000
<TOTAL-ASSETS> 37,592,200
<CURRENT-LIABILITIES> 6,696,700
<BONDS> 12,000,000
0
0
<COMMON> 1,008,900
<OTHER-SE> 20,865,700
<TOTAL-LIABILITY-AND-EQUITY> 37,592,200
<SALES> 50,020,300
<TOTAL-REVENUES> 50,475,800
<CGS> 14,132,200
<TOTAL-COSTS> 40,688,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,302,300
<INCOME-PRETAX> 8,485,000
<INCOME-TAX> 3,154,400
<INCOME-CONTINUING> 5,330,600
<DISCONTINUED> 750,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,081,500
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.59

</TABLE>