SCOTTS LIQUID GOLD INC, 10-K, 1999-03-30

SCOTTS LIQUID GOLD INC
10-K, 1999-03-30
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, 1998
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. [ ]

The aggregate market value of the Registrant's voting stock held as of March 10,
1999 by non-affiliates of the Registrant was $7,750,853. This calculation
assumes that certain parties may be affiliates of the Registrant and that,
therefore, 5,636,984 shares of voting stock are held by non-affiliates.

As of March 10, 1999, the Registrant had 10,103,058 shares of its $0.10 par
value common stock outstanding.

Documents Incorporated by Reference

The Registrant's 1998 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 5, 1999, is incorporated by
reference in Part III.
SCOTT'S LIQUID GOLD-INC.

ANNUAL REPORT ON

FORM 10-K

FOR YEAR ENDED DECEMBER 31, 1998

PART I

Item 1. Business.

Portions of the 1998 Annual Report to shareholders of Scott's Liquid
Gold-Inc. (the "Company" or "Registrant") are attached to this Report as Exhibit
13 and are called in this Report the "Annual Report". The information set forth
under the headings "Description of Business" and "Management Discussion and
Analysis of Financial Condition and Results of Operations" of the Annual Report
hereby is incorporated by reference into this Report.

In the third quarter of 1998, the Company added a retinol product to its
skin care products. This product, sold as Alpha Hydrox Retinol Night ResQ,
includes microsponge-entrapped retinol. It is manufactured by a third party who
is the sole supplier of the product to the Company under a supply and license
agreement. The agreement has a term which continues until the earlier of the
expiration of the last to expire patent relating to the product or June 9, 2008.
The supplier may also terminate the agreement if the Company does not meet
minimum purchase requirements. [The retinol product was in the first two months
of 1999 the highest volume product among the various skin care products of the
Company.]

Item 2. Properties.

The information set forth under "Description of Business - Properties,"
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 9 of Notes to
Consolidated Financial Statements of the Annual Report hereby is incorporated by
reference into this Report.

Item 3. Legal Proceedings.

As previously reported, a lawsuit was commenced in May of 1996 against
Neoteric Cosmetics, Inc. and others not related to the Company alleging
infringement of certain patents. Neoteric Cosmetics is the Company's wholly-
owned subsidiary which manufactures and sells skin care products under the name
Alpha Hydrox. The lawsuit was brought by TriStrata Technology, Inc. in the
United States District Court for the District of Delaware. The plaintiff claims
to be the assignee of five patents relating to the use of alpha hydroxy acids to
treat or reduce cosmetic conditions, particularly wrinkles or fine lines. Three
of the patents were issued in 1995; one issued in 1996; and one, which was
issued in 1992, was the subject of a re-examination completed in 1995. The
plaintiff in the lawsuit alleges that Neoteric contributes to and/or induces
infringement of the patents owned by the plaintiff by selling and promoting
Neoteric skin care products for the purpose of visibly reducing a human skin
wrinkle and/or fine lines and for the purpose of treating and/or preventing
cosmetic conditions and dermatologic disorders of the human skin such as
wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement, and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the
plaintiff, asserts the invalidity of patents, and is mounting a vigorous
defense. Certain defendants in this lawsuit, including the Company, are
cooperating with one another in matters of common interest to defend against
this action. The Company expects that the Court in this matter will soon
determine whether to adopt the defendant's interpretations or those of the
plaintiff regarding the scope of the claims of the patents involved in this
case. The Company cannot determine the potential outcome of this lawsuit or the
ultimate impact on the Company's financial position or results of operations.

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 included 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 lawsuit involved a claim for
compensation by the Brooks relating to Alpha Hydrox products. On July 24, 1998,
a jury unanimously found in favor of the Company, its subsidiary, and Jerome J.
Goldstein. The jury found that there was no liability as to each claim of the
plaintiffs. Subsequently, the plaintiffs in the Brooks case filed an appeal of
the judgment to the United States Tenth Circuit Court of Appeals. On
January 21, 1999, the Company entered into a settlement agreement with the
plaintiffs in the Brooks case. The settlement results in a dismissal of the
appeal of that case and a release regarding the Company and the other defendants
in the case. The Company continues to believe that the claims of the plaintiffs
in the Brooks case were groundless. The settlement allowed the Company to avoid
the cost, time, and any uncertainty involved in an appeal of the case. Under
the terms of the settlement, the defendants, including the Company, paid
$225,000 to the plaintiffs who had sought a jury award of $21 million in the
trial court. The $225,000 was paid in January, 1999, but was charged to 1998
operations. In settlement of its claim against the insurer under the Company's
directors and officers liability insurance policy, the Company received in the
first quarter of 1999 a substantial part of the legal expenses and settlement
paid by the Company with respect to the Brooks case.

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 n 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 U.S. Patent and Trademark Office. The issuance of this trademark
was challenged on the basis that the name of the Company's product is a
description of the type of acid used as an ingredient. This challenge was
denied by the United States Patent and Trademark Office in early 1999. At this
time, an appeal has not been filed. 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.

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.

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

Item 8. Financial Statements and Supplementary Data.

The information set forth under "Consolidated Financial Statements," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants" and "Selected Financial Data - Selected Quarterly Financial Data"
of the Annual Report hereby is incorporated by reference into this Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Item 13. Certain Relationships and Related Transactions.

For Part III, the information set forth in the Company's definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 5,
1999, hereby is incorporated by reference into this Report.

PART IV

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

(a)(1) Financial Statements:

Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996

Consolidated Balance Sheets
December 31, 1998 and 1997

Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996

Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

(2) Financial Statement Schedules:

II - Valuation and Qualifying Accounts -
Years ended December 31, 1998, 1997 and 1996

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 8K:

No report was filed by the Company on Form 8-K during the quarter ended
December 31, 1998.

Exhibit No.
Document
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., incorporated by reference to Exhibit 10.2 of
Annual Report on Form 10-K for the year ended December
31, 1997.
10.3* 1999 Key Executive Bonus Plan.
10.4* Indemnification Agreements dated May 6, 1987 between the
Registrant and Jerome J. Goldstein, Mark E. Goldstein,
Carolyn J. Anderson, and Barry Shepard. 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, incorporated
by reference to Exhibit 10.5 of Annual Report on Form 10-
K for the year ended December 31, 1997. Indemnification
Agreement dated February 23, 1993 between the Registrant
and James F. Keane.
10.5* 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.
10.6* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to Exhibit
4.7 of the Company's Registration Statement No. 33-63254
on Form S-8, filed with the Commission on May 25, 1993.
10.7* Scott's Liquid Gold-Inc. 1998 Stock Option Plan,
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement No. 333-67141, filed with the
Commission on November 12, 1998.
13 Portions of 1998 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
<TABLE>
Valuation and Qualifying Accounts
Schedule II

Scott's Liquid Gold-Inc. and Subsidiaries

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

Year Ended December
31, 1998
Allowance for
doubtful accounts $635,700 $43,600 $100 (1) $679,200

Year Ended December
31, 1997
Allowance for
doubtful accounts $580,400 $68,000 $12,700 (1) $635,700

Year Ended December
31, 1996
Allowance for
doubtful accounts $494,200 $270,900 $184,700 (1) $580,400
</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 1998
Annual Report incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 21, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

Arthur Andersen LLP

Denver, Colorado
January 21, 1999

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, 1999.

SCOTT'S LIQUID GOLD-INC.
a Colorado corporation

By: /s/ Mark E. Goldstein
Mark E. Goldstein, President
Principal Executive Officer

By: /s/ Barry Shepard
Barry Shepard, Treasurer
Principal Financial Officer

By: /s/ Jeffry B. Johnson
Jeffry B. Johnson, Controller

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

Date Name and Title Signature

March 30, 1999 Carolyn J. Anderson, )
Director )
)
March 30, 1999 Mark E. Goldstein, )
Director )
)
March 30, 1999 Jerome J. Goldstein, ) /s/ Barry Shepard
Director ) Barry Shepard, for himself
and as Attorney-in-Fact for
the named directors who
March 30, 1999 Dennis H. Field, ) together constitute all of the
Director members of Registrant's Board
) of Directors
March 30, 1999 James F. Keane, )
Director )
)
March 30, 1999 Michael J. Sheets, )
Director )
)
March 30, 1999 Barry Shepard, )
Director )

EXHIBIT INDEX

Exhibit No.
Document
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., incorporated by reference to Exhibit 10.2 of
Annual Report on Form 10-K for the year ended December 31,
1997.
10.3* 1999 Key Executive Bonus Plan.
10.4* Indemnification Agreements dated May 6, 1987 between the
Registrant and Jerome J. Goldstein, Mark E. Goldstein,
Carolyn J. Anderson, and Barry Shepard. 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, incorporated by reference to Exhibit 10.5 of Annual
Report on Form 10-K for the year ended December 31, 1997.
Indemnification Agreement dated February 23, 1993 between
the Registrant and James F. Keane.
10.5* 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.
10.6* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for Outside
Directors, incorporated by reference to Exhibit 4.7 of the
Company's Registration Statement No. 33-63254 on Form S-8,
filed with the Commission on May 25, 1993.
10.7* Scott's Liquid Gold-Inc. 1998 Stock Option Plan,
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement No. 333-67141, filed with the
Commission on November 12, 1998..
13 Portions of 1998 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
compensator
y plan or
arrangement

Exhibit 10.3

1999
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 1999 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 1999, 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
1999,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 1999, 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 NO. 10.4

Indemnification Agreement

Scott's Liquid Gold-Inc.

This Agreement is made and entered into as of May 6, 1987 between Scott's
Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and Jerome J.
Goldstein, of Denver, Colorado ("Director").

RECITALS:

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

B. Director has indicated that it is a condition to Director's 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

C. The Company'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 continued service as a
director and officer after the date of this Agreement, and in consideration of
the mutual covenants stated herein, the parties agree as follows:

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

(a) 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, but in the case of any 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.

(b) 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.

(c) 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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 effected 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.

8. Enforcement. The Corporation acknowledges that Director is relying upon
this Agreement in serving as a director, as well 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.

9. 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.

10. 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.

11. Miscellaneous.

(a) 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.

(b) 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.

(d) 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.

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

(f) 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.

(g) 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.

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

(i) 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:Carolyn J. Anderson, Jerome J. Goldstein
Executive Vice President

EXHIBIT NO. 10.4

Indemnification Agreement

Scott's Liquid Gold-Inc.

This Agreement is made and entered into as of May 6, 1987 between Scott's
Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and Carolyn J.
Anderson, of Denver, Colorado ("Director").

RECITALS:

AGREEMENT:

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

(a) 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, but in the case of any 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.

(c) 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.

11. Miscellaneous.

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

(f) 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.

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

(i) 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:Jerome J. Goldstein, Carolyn J. Anderson
President

EXHIBIT NO. 10.4

Indemnification Agreement

Scott's Liquid Gold-Inc.

This Agreement is made and entered into as of May 6, 1987 between Scott's
Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and Barry Shepard,
of Denver, Colorado ("Director").

RECITALS:

AGREEMENT:

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

(c) 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.

11. Miscellaneous.

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

(f) 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.

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

(i) 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:Jerome J. Goldstein, Barry Shepard
President

EXHIBIT NO. 10.4

Indemnification Agreement

Scott's Liquid Gold-Inc.

This Agreement is made and entered into as of May 6, 1987 between Scott's
Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and
Mark E. Goldstein, of Denver, Colorado ("Director").

RECITALS:

AGREEMENT:

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

(a) 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, but in the case of any 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.

(c) 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.

(f) 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.

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

(i) 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:Jerome J. Goldstein, Mark E. Goldstein
President

EXHIBIT NO. 10.4

INDEMNIFICATION AGREEMENT
SCOTT'S LIQUID GOLD-INC.

This Agreement is made and entered into as of February 23, 1993, between
Scott's Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and James
F. Keane of New London, New Hampshire ("Director").

RECITALS:

A. 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.

B. 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

C. 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:

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

(a) 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.

(c) 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.

2. 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.

7. 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 effected 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.

8. 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.

11. Miscellaneous.
(a) 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.

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

(f) 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.

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

(i) 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 James F. Keane

Description of Business

General

Scott's Liquid Gold-Inc., a Colorado corporation headquartered in Denver, was
incorporated on February 15, 1954. Through its wholly-owned subsidiaries, the
Company manufactures and markets quality household 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 Gold-Inc. and its subsidiaries. The Company's
business is comprised of two segments, household products and skin care
products.

The Company's household 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 skin care business through a subsidiary, Neoteric
Cosmetics, Inc. The Company's skin care products are sold primarily under the
name Alpha Hydrox. At the end of 1998, more than twenty skin care products were
being marketed by the Company. The Company may introduce additional products to
the market during 1999.

For information on the Company's operating segments, please see Note 9, Segment
Information, to the Consolidated Financial Statements of the Company.
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 skin care products, Alpha Hydrox
was the first alpha hydroxy acid skin care product sold to retailers for resale
to the public at affordable prices. Not all of the Company's skin care products
contain alpha hydroxy acids. In the third quarter of 1998, the Company added a
retinol product to its skin care line.

The Company's goal is to operate profitably each year, which it has done every
year during this decade, except for the most recent year. (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.) It has
been the Company's aim to grow sales each year, particularly in the area of its
skin care products. Through 1997, the company achieved that goal in reasonable
fashion. However, 1998 witnessed a significant decline in the Company's sale of
skin care products and, to a lesser extent, of one of the Company's major lines
of household products.

The growth in sales of Alpha Hydrox over the past several years caused the
Company to make substantial investments in property, plant and equipment to
handle that growth and the future growth of the Company's skin care products.
The decline in sales of those products in 1998 without a commensurate decrease
in the Company's cost of doing business, particularly in the area of fixed
costs, dictate that the 1998 sales decline be reversed as quickly as possible.
To achieve that goal, the Company intends to maintain an aggressive advertising
posture, to develop additional skin care products where a perceived consumer
need exists, and to remain focused on domestic sales while not ignoring
opportunities for expansion into other countries. Conforming to these
intentions, the Company has added retinol to its Alpha Hydrox line, is currently
introducing a skin care product to help diabetics cope with cuts and bruises, is
carving out a niche in the Hispanic market and is examining other products which
the Company believes may fit well with the Company's know how and financial
capabilities.

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-eight years. In 1982, the Company added
Touch of Scent, a room air freshener, to its line of household products.
Household products accounted for 36.7% of the Company's consolidated net sales
in 1998, and 31.1% in 1997. 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. Touch of
Scent sales have not been strong in recent years. In this regard 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 1998, the Company's skin care line
consisted of over 20 products, with additional products on the way for
introduction in 1999. The Company's Alpha Hydrox products are sold through a
wholly-owned subsidiary, Neoteric Cosmetics, Inc.; except for the retinol
product, they are manufactured by Neoteric Cosmetics. Many of the Alpha Hydrox
products contain alpha hydroxyethanoic acids in low but effective
concentrations. Properly blended with a carrier, 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.The retinol product contains a patented Microsponge"
technology that softens fine lines and wrinkles. Alpha Hydrox products accounted
for 63.3% of the Company's consolidated net sales in 1998, and 68.9% in 1997.
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 1998, Wal-Mart Stores, Inc. of
Bentonville, Arkansas, accounted for approximately 25% of the Company's sales of
household products. With regard to the Company's skin care products, Wal-Mart
accounted for 25% of 1998 sales.

The loss of this customer would have a material effect on the Company if the
consumer base served by it did not purchase the Company's products at other
retail outlets. No long-term contracts exist between the Company and Wal-Mart
Stores, Inc. or any other customer. The Company permits returns of its products
by its customers, a common industry practice.The Company's household 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 1999, but subject
to change, the Company plans a moderate decrease in advertising expenditures
from 1998 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 which contain such acids. 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 24-hour, toll free telephone number for use by
consumers of its products.

The Company sells its household and skin care products in Canada and other
foreign countries. Please see Note 9, Segment Information, to the Consolidated
Financial Statements for information regarding sales in foreign countries.
Currently, foreign sales are made to distributors who are responsible for the
marketing of the products, and the Company is paid for these products under
letters of credit in United States currency.

Manufacturing

The Company owns and operates its manufacturing facilities and equipment. With
the exception of the Company's retinol product, 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 and skin care
products. Household 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. From time to time, to
stem the attrition of this product line, the Company offers price incentives to
its customers.

The skin care category is also highly competitive. Several competitors are
significantly larger than Scott's Liquid Gold-Inc., and each of these
competitors produces several products. Some of these companies also produce
retinol and 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.

Following the issuance in June, 1997 of the CIR report, the FDA, in December,
1998, created a joint working group using staff from both the Center for Food
Safety and Applied Nutrition and the Center for Drug Evaluation and Research to
consider, among other things, whether products containing alpha hydroxy acid
should be classified for regulatory purposes as a drug. This group is expected
to analyze additional research initiated at the FDA's request. It is not
expected that recommendations by the working group will be forthcoming in the
near-term future. Further, any recommendation of the group will probably face
strong opposition by manufacturers of products containing alpha hydroxy acids.

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
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. Final regulations to control VOC's from consumer products, which
are no more stringent than those issued previously by CARB with which the
Company complies, were published in the September 11, 1998 Federal Register.
Various states, in addition to California, have enacted or are considering
promulgating VOC regulations. EPA's adoption of regulations may 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 products. The Company is unaware, at this time, of any states
which have adopted regulations more stringent than those adopted by CARB.

Employees

The Company employs 161 persons, 74 in plant and production related functions
and 87 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 currently owns no patents covering its products,
although the Company is seeking patent protection on at least one product.
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 was challenged on the basis that
it is a description of the type of acid used as an ingredient. This challenge
was denied by the United States Patent and Trademark Office in 1999. At this
time, an appeal has not been filed. 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 marks or trade dress
similar to Alpha Hydrox.

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 4 to 29 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.

Management Discussion and Anaysis
Of Financial Condition and Results of Operations

General

The Company manufactures and markets household products and, since 1992, has
also manufactured and marketed skin care products. In September of 1996, it
discontinued the production and marketing of cigarette filters by a wholly owned
subsidiary. The Company's products are sold throughout the United States and
Canada and insignificantly in other countries. Skin care products are sold under
the name Alpha Hydrox. Sales of such products were about $31.6 million in 1995,
$26.6 million in 1996 and, in 1997, $34.5 million, but decreased in 1998 from
the 1997 level by about $8.8 million. 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 those 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. In 1998, the Company experienced a net loss of almost $2.8 million.

<TABLE>
Results of Operations

Summary of Results as a Percentage of Net Sales
Year Ended December 31,

<S> <C> <C> <C>
1998 1997 1996
Net sales
Scott's Liquid Gold household products 36.7% 31.1% 39.9%
Neoteric Cosmetics 63.3% 68.9% 60.1%

Total net sales 100.0% 100.0% 100.0%
Cost of sales 33.4% 28.2% 32.2%

Gross profit 66.6% 71.8% 67.8%
Other revenue 1.5% 0.9% 0.7%

68.1% 72.7% 68.5%

Operating expenses 76.3% 53.1% 69.2%
Interest 3.0% 2.6% 2.7%

79.3% 55.7% 71.9%
Income (loss) from continuing operations
before income taxes (11.2%) 17.0% (3.4%)
</TABLE>

Year Ended December 31, 1998 Compared to Year
Ended December 31, 1997

Consolidated net sales for 1998 were $40.6 million vs. $50.0 million for 1997, a
decrease of $9.4 million or about 18.8%. Average selling prices for 1998 were
lower than those of 1997 by $1,831,700, with prices of household products being
down by $1,391,000 (virtually all of which pertained to Touch of Scent), while
average selling prices of skin care products decreased by $440,700.

During 1998, net sales of skin care products accounted for 63.3% of consolidated
net sales compared to 68.9% in 1997. Notwithstanding an increase in expenses in
1998 vs. 1997 to advertise the Company's skin care products, net sales of those
products were $25,700,000 in 1998 compared to $34,483,800 in 1997, a decrease of
$8,783,800 or 25.5%. That decrease resulted from a drop in unit sales of most of
the Company's skin care products and lower average selling prices of such
products. The Company believes that sales were affected by the maturation of
alpha hydroxy skin care products and the proliferation of competing products on
retail shelves; and that the format of the Company's television advertising,
which was effective in 1997 and included the airing of several new commercials
in that year, possibly lost some of its effectiveness when repeated in 1998.
With the goal of improving sales, the Company began to introduce, in late 1998
and early 1999, two new lines of skin care products, Belleza Latina,
specifically designed for the Hispanic market, and Diabetic Skin Therapy, a
healing cream and a therapeutic moisturizer developed to address skin conditions
of diabetics caused by poor blood circulation. Also, late in the third quarter
of 1998, the Company introduced Alpha Hydrox Retinol Night ResQ, a Microsponge"-
entrapped retinol product which softens fine lines and wrinkles. To present the
new retinol product, the first of its kind to be offered in the mass market, the
Company has produced and aired a new television commercial which, depending upon
results, the Company may use as a model to update all of the Company's Alpha
Hydrox commercials. Competition continues to be keen in the skin care category
in which the Company participates and is expected to remain so in the future.

Sales of household products in 1998 accounted for 36.7% of consolidated net
sales compared to 31.1% in 1997. 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 products were $14,932,000 in
1998 compared to $15,536,500 in 1997, a decrease of $604,500, or 3.9%. Sales of
Scott's Liquid Gold for wood increased from $8,529,500 in 1997 to $9,927,300 in
1998 (up by $1,397,800 or 16.4%) and sales of Touch of Scent decreased from
$7,007,000 in 1997 to $5,004,700 in 1998 (down by $2,002,300 or 28.6%). The
Company believes that increased expenditures to advertise Scott's Liquid Gold
for wood during 1998 compared to 1997 was largely responsible for its sales
volume increase. The Company also believes that the substantial decrease in
expenditures to advertise Touch of Scent in 1998 compared to 1997 affected the
sales of that product line. Even so, more than half of the decrease in Touch of
Scent sales resulted from price incentives, and operating results from the Touch
of Scent line were better in 1998 than in 1997. Despite the Company's efforts to
revitalize its line of air fresheners, including a product redesign in 1996 and
a major advertising push during 1997, Touch of Scent sales declined once again
in 1998, adding to the downward trend of the last several years. The Company is
actively seeking products to replace or augment Touch of Scent, particularly
products which would utilize the same manufacturing facilities. For 1999, it
plans only moderate advertising of that product line, but hopes that a new,
hard-hitting commercial will help to increase sales.

On a consolidated basis, cost of goods sold in 1998 was $13,581,900 compared to
$14,132,200 in 1997, a decrease of $550,300 or 3.9% (on a sales decrease of
18.8%). As a percentage of consolidated net sales, cost of goods sold was 33.4%
in 1998 vs. 28.2% in 1997, an increase of about 18%. That increase in the cost
of goods sold percentage is primarily the result of a decrease in average
selling prices in 1998 and a significant change in the mix of products sold
during 1998 vs. 1997. Alpha Hydrox products are less costly to produce relative
to their selling prices than are household products. Alpha Hydrox products
accounted for 63.3% of consolidated net sales in 1998 compared to 68.9% in 1997.
Cost of goods sold was also affected by a lower absorption of on-going (fixed)
manufacturing costs resulting from a lower level of products manufactured by the
Company.

Advertising expenses for 1998 were $15,221,200 compared to $15,026,000 for 1997,
an increase of $195,200 or 1.3%. In 1998, the Company spent $11,376,800 to
advertise its skin care products, compared to $9,977,200 in 1997, an increase of
14.0%, and $3,844,400 was spent in 1998 compared to $5,048,800 in 1997 to
advertise household products, a decrease of almost 23.9%. During 1998,
advertising expenses for Scott's Liquid Gold for wood increased by $1,473,600
(66.9%), whereas expenses to advertise Touch of Scent decreased by $2,678,000
(94.1%). Irrespective of year to year changes in expenditures to advertise its
products, the Company 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 1998 were $8,534,000 compared to $7,581,100 for 1997, an
increase of $952,900 or 12.6%. That increase was comprised of increases in costs
of promotional merchandise ($262,300), couponing costs and slotting allowances
($505,500), depreciation and amortization ($191,800), sales salaries and fringe
benefits ($269,000), and a net increase of $103,000 in other selling expenses,
none of which, by itself, was material; all offset by a decrease in brokerage
commissions and freight out ($378,700).

Administrative expenses in 1998 were $7,248,100 compared to $3,949,200 in 1997,
an increase of $3,298,900 or 83.5%. That increase was comprised of an increase
of $3,707,700 in legal and professional fees, which is primarily the result of
the recovery in 1997 of $2,690,900 of 1996 expenses related to an environmental
lawsuit, offset by "other legal and professional expenses" in 1997 of $703,000;
compared to "other legal and professional expenses" in 1998 of $1,719,800.
"Other legal and professional expenses" in 1997 is comprised of about $200,000
related to the Brooks case, $204,000 related to the TriStrata case (see Legal
Proceedings), and $299,000 related to other matters, primarily to trademarks and
trade names. "Other legal and professional expenses" in 1998 consisted of
approximately $770,400 related to the Brooks case (including the $225,000
discussed under Legal Proceedings), $409,800 related to the TriStrata case, and
$539,600 related to other matters, of which $190,200 pertained to trademarks and
trade names and $150,300 pertained to litigation by the Company against an
insurance carrier with regard to the 1996 environmental lawsuit. The 1998
increase over 1997 in legal and professional expenses ($3,707,700), offset by a
decrease in salaries, wages, and fringe benefits of $355,700 and a net decrease
of $53,100 in other administrative expenses, none of which, standing alone, was
material, accounts for the aggregate increase in 1998 over 1997 of $3,298,900 in
administrative expenses.

Interest expense for 1998 was $1,201,000 compared to $1,302,300 in 1997, a
decrease of $101,300 or 7.8%. Other income increased by $166,200 during 1998
compared to 1997 due to an increase in interest rates applicable to cash
reserves and an increase in the cash reserves themselves.

During both 1998 and 1997, expenditures for research and development were not
material (under 2% of revenues).

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, average prices of household 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 skin
care products increased by $933,800.

During 1997, net sales of skin care products accounted for 68.9% of consolidated
net sales compared to 60.1% in 1996. Net sales of these products for those
periods 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, coupled with a
modified advertising schedule contributed to the increase in sales of its skin
care products.

Sales of household products in 1997 accounted for 31.1% of consolidated net
sales vs. 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 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. 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 Touch of Scent for 1997 compared to 1996
decreased by about 27%. For 1998, the Company concentrated its efforts on sales
of Touch of Scent refill units.

On a consolidated basis, cost of goods sold was $14,132,200 in 1997 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%, was principally the result
of an increase in 1997 in average selling prices and a significant change in the
mix of products sold in 1997 vs. 1996. Alpha Hydrox products are less costly to
produce relative to their selling prices than are household 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 skin care 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 products, an increase of almost 81%. During 1997, expenses to
advertise Scott's Liquid Gold for wood decreased by $187,400 (7.8%), whereas
expenses to advertise Touch of Scent increased by $2,446,200. See 1998 compared
to 1997 for the Company's philosophy regarding advertising.

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 expenses of 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 2% 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, 1998 and January 1, 1999 interest payments were made
in a timely manner. There is no reason to believe that the interest payment due
on July 1, 1999 will not be made as is required by the Bond Indenture.) A
sinking fund payment of $1 million is required annually. Should the Company's
bonds remain outstanding through their maturity on July 1, 2001, the Company
will be required at that time to pay $6 million to redeem its bonds in addition
to the $6 million then accumulated in the sinking fund. 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,
1998. 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. 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. Although the
Company's bonds became subject to call on July 29, 1997, and, no matter that
long-term interest rates are significantly lower than the rate required to be
paid on the Company's bonds, the Company (a) has postponed any pursuit of
capital to refund all or a large portion of its bond debt, this in anticipation
of improved operating results in 1999 (which should facilitate any such
refunding), and (b) in order to conserve cash for current operations, has
decided not to use any of its cash reserves to redeem any outstanding bonds at
this time.

During 1998, the Company's working capital decreased by $3,690,800 and its
current ratio (current assets divided by current liabilities) decreased from
2.7:1 at December 31, 1997 to 2.4:1 at December 31, 1998. This decrease in
working capital is attributable to (1) a net loss in 1998 of $2,774,100, (2) a
reduction of long-term debt of $997,200, and (3) a dividend payment, based upon
the Company's 1997 performance, of $1,009,200 (equal to $0.10 a share, paid in
March 1998); all offset by (4) a decrease in other assets of $86,400, (5)
depreciation in excess of capital additions of $848,700, (6) an increase in
deferred income taxes of $131,900 and (7) stock option exercises of $22,700. At
December 31, 1998, the ratio of consolidated funded debt to consolidated net
worth was 0.39:1.

At December 31, 1998, trade accounts receivable were $1,976,500 compared to
$2,610,100 at the end of 1997, a decrease of $633,600, pretty much mirroring the
percent of sales decrease. Other receivables decreased by $786,000 during 1998,
largely consisting of two items: (1) the collection in 1998 of a 1997 receivable
which related to an environmental lawsuit, offset by (2) the recording in 1998
of refundable income taxes. Inventories were down at the end of 1998 compared to
1997 by $643,200, which was in line with the Company's sales decrease for the
year. Trade accounts payable increased during 1998 by $1,133,900, largely as the
result of an increase in payables for advertising at the end of 1998 vs. 1997.
Accrued expenses decreased from $3,975,400 at the end of last year to $1,787,000
at December 31, 1998, a decrease of $2,188,400, essentially due to a decrease in
accrued income taxes of $1,948,800 and accrued bonuses and profit sharing of
$331,700, offset by other items aggregating $92,100.

The Company has no significant capital expenditures planned for 1999 and expects
that its available cash and cash flows from operating activities will fund the
next twelve months cash requirements.

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. Such stock was contributed by the Company to its Employee Stock
Ownership Plan ("ESOP"). Also, the ESOP utilized its share (about $107,000) of a
$0.10 per share dividend (declared by the Board of Directors in February, 1998)
to purchase additional shares of the Company's common stock on the open market.

Legal Proceedings

The Company's 1997 Annual Report describes a patent infringement suit which was
filed in May of 1996 in the United States District Court for the District of
Delaware against Neoteric Cosmetics, Inc. (and others) by TriStrata Technology,
Inc. The plaintiff in the lawsuit alleges that Neoteric Cosmetics contributes to
and/or induces infringement of patents owned by the plaintiff by selling and
promoting Neoteric skin care products for the purpose of visibly reducing a
human skin wrinkle and/or fine lines and for the purpose of treating and/or
preventing cosmetic conditions and dermatologic disorders of the human skin such
as wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement, and
treble damages because of an alleged willful and deliberate nature of the
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the plaintiff,
asserts the invalidity of patents, and is mounting a vigorous defense. Certain
defendants in this lawsuit, including the Company, are cooperating with one
another in matters of common interest to defend against this action. The Company
expects that the Court in this matter will soon determine whether to adopt the
defendant's interpretations or those of the plaintiff regarding the scope of the
claims of the patents involved in this case. The Company cannot determine the
potential outcome of this lawsuit or the ultimate impact on the Company's
financial position or results of operations.

Until January, 1999, the Company, Neoteric Cosmetics, Inc., and the Company's
Chairman, Jerome J. Goldstein, were defendants in a lawsuit in the federal
District Court for the District of Colorado brought by Leslee Brooks (a daughter
of Mr. Jerome J. Goldstein), her husband, Dr. Norman Brooks (a California
dermatologist), and a related corporation. The lawsuit involved a claim for
compensation by the Brooks relating to Alpha Hydrox products. On July 24, 1998,
a jury unanimously found in favor of the Company, its subsidiary, and Jerome J.
Goldstein. The jury found that there was no liability as to each claim of the
plaintiffs. Subsequently, the plaintiffs in the Brooks case filed an appeal of
the judgment to the United States Tenth Circuit Court of Appeals. On January 21,
1999, the Company entered into a settlement agreement with the plaintiffs in the
Brooks case. The settlement results in a dismissal of the appeal of that case
and a release regarding the Company and the other defendants in the case. The
Company continues to believe that the claims of the plaintiffs in the Brooks
case were groundless. The settlement allowed the Company to avoid the cost,
time, and any uncertainty involved in an appeal of the case. Under the terms of
the settlement, the defendants, including the Company, paid $225,000 to the
plaintiffs who had sought a jury award of $21 million in the trial court. The
$225,000 was paid in January, 1999, but was charged to 1998 operations. In
settlement of its claim against the insurer under the Company's directors and
officers liability insurance policy, the Company is to receive in the first
quarter of 1999 a substantial part of the legal expenses and settlement paid by
the Company with respect to the Brooks case.

Market Risks

Market Risk represents the risk of loss due to adverse changes in financial and
commodity market prices and rates. The Company is not materially exposed to
market risks regarding interest rates because the Company's outstanding bonds
have a fixed interest rate. Further, the Company does not use foreign currencies
in its business. Currently, it receives payments for sales to parties in foreign
countries through letters of credit in U. S. dollars. Additionally, the Company
does not use derivative instruments or engage in hedging activities. As a
result, the Company does not believe that near-term changes in market risks will
have a material effect on results of operation, financial position or cash flows
of the Company.

Year 2000 ("Y2K") Issues

The Company has initiated a corporate-wide program to address Year 2000 (also
referred to as "Y2K") issues.

With respect to its central computer, changes to the Company's programs over the
last several years have fully prepared the Company and its subsidiaries to
process data in the forthcoming millennium. With regard to PC's (personal
computers) used throughout the Company for various purposes, the Company's
central computer is armed with emulation software so that a PC used to enter any
information into that computer is treated as if it were a "dumb" terminal.
Accordingly, whether or not the PC is Y2K compliant is moot.

The Company presently utilizes software for its UPS/RPS systems which needs to
be made Y2K compliant by October of 1999. This software, which enables UPS/RPS
shipments to interface with the Company's central computer (as other shipments
do through the use of scan guns), is vital to the production of manifests,
labels, and the assignment of tracking numbers. In that compliance will
basically involve the installation of purchased software, the Company
anticipates no problems in meeting the compliance deadline. With regard to
operating systems of non-computer related equipment, the Company believes that
no such system which may not be Y2K compliant will have a material effect on the
Company's operations.

Accordingly, any Y2K issues which may affect the Company will be caused either
(1) by a lack of preparedness on the part of companies with whom the Company
does business, including customers, or (2) by some unforeseen circumstance which
prevents the Company from completing, prior to January 1, 2000, its part of
Electronic Data Interchange ("EDI") re-documentation as is necessary to maintain
existing connections with customers and to establish future EDI connections with
other customers. Approximately 80% of dollar sales volume derives from orders
sent to the Company via EDI. The Company considers this scenario set forth in
(2) above to be unlikely in that the Company already has on hand the additional
manpower capable of performing the necessary documentation functions. The
Company expects the cooperation of its customers in completing all required re-
documentation.

With respect to non-compliance referred to in (1) above, the Company has
developed software to convert a non-compliant EDI version submitted by a
customer on or after January 1, 2000 by re-mapping it to comply with the new
(4010) version, and, thereafter, supplying whatever special documentation may be
required by the Company's customer.

It is possible that a customer's accounts payable records may become disordered,
date-wise, if the customer has not readied itself for the year 2000. This could
result in late payments to the Company and, although not expected, affect cash
flow.

In addition to EDI customers, the Company has contacted third parties with whom
it does business to request assurances that they are or will be prepared for
Y2K. Such third parties include about 200 vendors (all of whom have been
contacted) from whom the Company purchases raw materials, supplies, equipment,
and repair parts. To date, approximately half of these vendors have responded
the great preponderance in the affirmative. It is not known whether all vendors
contacted by the Company will respond, or, if they do, whether they will offer
assurances of being prepared for Y2K. The Company does not consider vendor
invoicing a problem for the Company even if such invoicing does not recognize
the year 2000. However, the Company is concerned that non-compliance with Y2K by
the Company's suppliers and by their suppliers may result in late or non-
deliveries to the Company which, in turn, would result in late or non-deliveries
to the Company's customers. Because the supply chain may be long, the Company
cannot be certain that Y2K will pose no problem for the Company.

The Company has also contacted its service suppliers -- banks, Transfer Agent,
insurance brokers and carriers, 401k advisors, administrator, and stock brokers,
etc., as well as public utilities, communications suppliers, etc. -- with regard
to their readiness in respect of the forthcoming millennium. The Company has not
completed its survey in this area, but is confident that the year 2000 will pose
no special problems for these service providers.

Excluding an upgrade of the Company's central computer which would have taken
place as a matter of routine, the Company's incremental costs for handling Y2K
issues were approximately $100,000 in 1998 and will probably exceed that amount
in 1999, especially if the services of other EDP personnel are required to
address such issues in 1999.

Because of the state of the Company's readiness for Year 2000 and the current
status of dealing with third parties, the Company has not developed
contingency plans for Year 2000 issues. The Company is generally aware of
alternative suppliers if Year 2000 issues affect the ability of a supplier to
make timely deliveries.

Forward Looking Statements

This report may contain "forward-looking statements" within the meaning of the
U.S. federal securities laws. These statements are made pursuant to the safe
harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward-looking statements and the Company's performance inherently involve
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. Factors that would cause or contribute to
such differences include, but are not limited to, continued acceptance of the
Company's products in the marketplace; the degree of success of any new product
or product line introduction by the Company; competitive factors; the need for
effective advertising of the Company's products; limited resources available for
such advertising, new competitive products and/or technological changes;
dependence upon third party vendors and upon sales to major customers; changes
in the regulation of the Company's products, including applicable environmental
regulations; Year 2000 issues, adverse developments in pending litigation; the
loss of any exective officer; and other matters discussed in the Company's
periodic filings with the Securities and Exchange Commission.

<TABLE>
Consolidated Statements of Operations
Year ended December 31,
<S> <C> <C> <C>
1998 1997 1996
Revenues:
Net sales $40,632,000 $50,020,300 $44,144,000
Other income 621,700 455,500 299,000
41,253,700 50,475,800 44,443,000
Costs and expenses:
Cost of sales 13,581,900 14,132,200 14,191,200
Advertising 15,221,200 15,026,000 13,405,600
Selling 8,534,000 7,581,100 7,470,900
General and administrative 7,248,100 3,949,200 9,661,800
Interest 1,201,000 1,302,300 1,200,200
45,786,200 41,990,800 45,929,700
Income (loss) from
continuing operations
before income taxes (4,532,500) 8,485,000 (1,486,700)
Income tax expense
(benefit) (Note 7) (1,758,400) 3,154,400 (553,000)
Income (loss) from
continuing operations (2,774,100) 5,330,600 (933,700)
Discontinued operations
(Note 5):
Loss from operations,
net of income taxes - - (8,300)
Gain on disposal, net
of income taxes - 750,900 31,100
Net income (loss) $(2,774,100) $ 6,081,500 $ (910,900)
Earnings (loss)
per common share (Note 8):
Continuing operations $ (0.27) $ 0.53 $ (0.09)
Discontinued operations - 0.07 -
Net income (loss)
per common share $ (0.27) $ 0.60 $ (0.09)
Diluted earnings (loss)
per common share (Note 8):
Continuing operations $ (0.27) $ 0.52 $ (0.09)
Discontinued operations - 0.07 -
Net income (loss) per
common share $ (0.27) $ 0.59 $ (0.09)
Weighted average number of
common shares outstanding 10,103,100 10,069,500 10,030,900
Diluted weighted average
number of common shares
outstanding 10,103,100 10,200,900 10,030,900
</TABLE>
See Notes to Consolidated Financial Statements.

Consolidated Balance Sheets
<TABLE>
December 31,
<S> <C> <C>

ASSETS 1998 1997

Current assets:

Cash and cash equivalents $ 5,421,400 $ 8,201,900
Trade receivables, less
allowances of $679,200
and $635,700 for
doubtful accounts 1,976,500 2,610,100
Other receivables 1,818,900 2,604,900
Inventories (Note 2) 3,189,700 3,832,900
Prepaid expenses 383,700 537,500
Deferred tax assets (Note 7) 752,000 540,400
Total current assets 13,542,200 18,327,700
Property, plant and
equipment, net (Note 3) 18,224,300 19,073,000
Other assets 105,100 191,500
$31,871,600 $37,592,200

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 2,815,000 $ 1,681,100
Accrued payroll and benefits 744,400 999,400
Other accrued expenses 1,042,600 2,976,000
Current maturities of
long-term debt (Note 6) 1,000,000 1,040,200
Total current liabilities 5,602,000 6,696,700
Long-term debt (Notes 4 & 6) 6,980,600 7,977,800
Deferred income taxes (Note 7) 1,175,000 1,043,100
13,757,600 15,717,600

Commitments and contingencies (Note 11)

Shareholders' equity (Note 8):

Common stock $.10 par value,
authorized 50,000,000 shares:
issued and outstanding
10,103,100 and 10,089,400
shares 1,010,300 1,008,900
Capital in excess of par 4,829,500 4,808,200
Retained earnings 12,274,200 16,057,500
Shareholders' equity 18,114,000 21,874,600
$31,871,600 $37,592,200
</TABLE>
See Notes to Consolidated Financial Statements

<TABLE>
Consolidated Statements of Cash Flows

Year ended December 31,
<S> <C> <C> <C>

1998 1997 1996
Cash flows from operating
activities:
Net income (loss) $ (2,774,100) $ 6,081,500 $ (910,900)

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

Depreciation and
amortization 1,316,800 1,084,800 1,106,900

Provision for doubtful
accounts receivable 43,500 68,000 270,900

Compensation expense of
employee stock plans - 81,300 -

Gain on sale of
discontinued operations - (1,115,800) (47,100)

Change in assets and liabilities:

Accounts and other
receivables 1,376,100 (1,239,100) (1,321,700)

Inventory 643,200 296,300 1,301,300

Prepaid expenses (38,500) (271,800) 157,500

Other assets - - 371,000

Deferred income taxes (79,700) 1,027,000 (750,700)

Accounts payable and
accrued expenses (1,054,500) (805,900) (242,200)

Total adjustments
to net income (loss) 2,206,900 (875,200) 845,900

Net Cash Provided (Used)
by Operating Activities (567,200) 5,206,300 (65,000)

Cash flows from investing activities:

Purchases of property,
plant and equipment (189,400) (209,600) (1,057,100)

Proceeds from sale of
discontinued operations - 2,100,000 600,000

Net change in assets of
discontinued operations - (609,400) (432,900)

Net Cash Provided (Used)
by Investing Activities (189,400) 1,281,000 (890,000)

Cash flows from financing activities:

Proceeds from exercise
of stock options 22,700 13,700 -

Proceeds from
short-term borrowings - 135,300 150,700

Principal payments on
short-term borrowings - (135,300) (150,700)

Proceeds from
long-term borrowings - - 2,007,400

Principal payments on
long-term borrowings (40,200) (2,039,600) (39,000)

Increase in
bond sinking fund (997,200) (1,008,700) (984,400)

Dividends paid (1,009,200) - -

Net Cash Provided (Used)
by Financing Activities (2,023,900) (3,034,600) 984,000

Net Decrease in Cash
and Cash Equivalents (2,780,500) 3,452,700 29,000

Cash and Cash Equivalents,
beginning of year 8,201,900 4,749,200 4,720,200

Cash and Cash Equivalents,
end of year $ 5,421,400 $ 8,201,900 $ 4,749,200

Supplemental disclosures:

Cash paid during the year for:

Interest (net of $30,300
capitalized in 1996) $ 1,194,400 $ 1,333,700 $ 1,219,900

Interest paid by
discontinued operations $ - $ - $ 43,800

Income taxes $ 1,928,500 $ 859,800 $ 716,100

Noncash investing and financing activities:

Note receivable on sale of
discontinued operations $ - $ - $ 200,000

Note receivable on sale
of equipment $ - $ - $ 50,000
</TABLE>
See Notes to Consolidated Financial Statements

<TABLE>
Consolidated Statements of Shareholders' Equity

Years ended Common Stock Capital
December 31, 1998, in Excess Retained
1997 and 1996 Shares Amount of Par Earnings

Balance January 1, 1996 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 Plan 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
Net loss - - - (2,774,100)
Dividend - - - (1,009,200)
Other stock issuances 13,700 1,400 21,300 -
Balance December 31, 1998 10,103,100 $1,010,300 $4,829,500 $12,274,200
</TABLE>
See Notes to Consolidated Financial Statements

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, 1999 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:
<TABLE>
1998 1997

Three Months Ended Three Months Ended
High Low High Low
<C> <C> <C> <C> <C> <C>

March 31 4-5/16 2-3/4 March 31 2-7/8 1-3/8
June 30 3-1/8 2 June 30 2-7/8 1-1/2
September 30 2-11/16 1-13/16 September 30 4-1/16 2
December 31 2-1/16 1-1/4 December 31 4-11/16 3-1/8
</TABLE>
NYSE Symbol: SGD

The Company paid a dividend in three of the last five years. 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.scottsliquidgold.com
http://www.alphahydrox.com
http://www.touch-of-scent.com

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 23

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference or included in this Form 10-K, into the
Company's previously filed form S-8 Registration Statement No. 33-63254, No. 333
48213, No. 333-67141.

Arthur Andersen LLP

Denver, Colorado March 29, 1999

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, 1998, and any amendments to such annual
report; and (2) to take any and all actions necessary or required in connection
with such annual report to comply with the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.

Signature Title Date

/s/ Jerome J. Goldstein Director and Chairman of
the Board 2/10/99

/s/ Mark E. Goldstein Director, President and 2/10/99
Chief Executive Officer

/s/ Carolyn J. Anderson Director, 2/10/99
Executive Vice President
Chief Operating Officer and
Corporate Secretary

/s/ Barry Shepard Director, Treasurer and Chief 2/10/99
Financial Officer

/s/ Dennis H. Field Director 2/17/99

/s/ James F. Keane Director 2/10/99

/s/ Michael J. Sheets Director 2/10/99

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Scott's
Liquid Gold-Inc. 1998 10-K Report and is qualified in its entirety by reference
to such 10-K filing.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,421,400
<SECURITIES> 0
<RECEIVABLES> 7,664,300
<ALLOWANCES> 679,200
<INVENTORY> 3,189,700
<CURRENT-ASSETS> 13,542,200
<PP&E> 18,224,300
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,871,600
<CURRENT-LIABILITIES> 5,602,000
<BONDS> 12,000,000
0
0
<COMMON> 1,010,300
<OTHER-SE> 17,103,700
<TOTAL-LIABILITY-AND-EQUITY> 31,871,600
<SALES> 40,632,000
<TOTAL-REVENUES> 41,253,700
<CGS> 13,581,900
<TOTAL-COSTS> 44,585,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,201,000
<INCOME-PRETAX> ( 4,532,500)
<INCOME-TAX> ( 1,758,400)
<INCOME-CONTINUING> ( 2,774,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 2,774,100)
<EPS-PRIMARY> ( .27)
<EPS-DILUTED> ( .27)

</TABLE>