SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
June 30, 2000
Commission File No. 0-5128
SCOTT'S LIQUID GOLD-INC.
4880 Havana Street
Denver, CO 80239
Phone: 303-373-4860
Colorado 84-0920811
State of Incorporation I.R.S. Employer
Identification No.
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.
YES x NO ____
The Registrant had 10,103,100 common shares, $0.10 par value, its only
class of common stock, issued and outstanding on July 31, 2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Net sales $7,561,000 $8,003,900 $15,189,900 $18,093,000
Other income 168,900 233,100 437,300 436,800
7,729,900 8,237,000 15,627,200 18,529,800
Costs and
Expenses:
Cost of sales 2,781,000 2,904,900 5,451,700 6,305,600
Advertising 1,995,900 3,429,000 5,326,100 8,136,100
Selling 1,541,800 1,759,700 3,357,600 3,703,000
General and
administrative 1,471,900 1,687,700 3,050,400 2,947,600
Interest 301,600 300,000 607,900 601,100
-------- -------- --------- ----------
8,092,200 10,081,300 17,793,700 21,693,400
-------- -------- --------- ----------
Loss before income
taxes (362,300) (1,844,300) (2,166,500) (3,163,600)
Income tax expense
(benefit) (123,100) (475,000) (736,600) (963,100)
-------- -------- --------- ----------
Net loss $(239,200) $(1,369,300) $(1,429,900) $(2,200,500)
========= ========= ========== ===========
Net loss per
common share $ (0.02) $ (0.14) $ (0.14) $ (0.22)
(Note 3) ========= ========= ========== ===========
Diluted net loss
per common share $ (0.02) $ (0.14) $ (0.14) $ (0.22)
(Note 3) ========= ========= ========== ===========
Weighted average
number of common
shares outstanding 10,103,100 10,103,100 10,103,100 10,103,100
Diluted weighted
average number of
common shares
outstanding 10,103,100 10,103,100 10,103,100 10,103,100
</TABLE>
See Notes to Consolidated Financial Statements
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
June 30, 2000 and December 31,1999
<TABLE>
ASSETS
2000 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $5,501,700 $5,008,600
Trade receivables 1,340,200 2,212,700
(Note 2)
Other receivables 757,500 408,300
Inventories:
Finished goods 1,627,700 1,404,300
Raw materials 1,248,000 1,362,000
Prepaid expenses 128,200 216,000
Deferred tax assets 713,700 713,700
--------- ---------
Total current assets 11,317,000 11,325,600
Property, plant and equipment
at cost 27,154,600 27,108,100
Less accumulated depreciation 9,906,800 9,477,300
--------- ---------
17,247,800 17,630,800
Other assets 1,900 18,700
---------- ----------
$28,566,700 $28,975,100
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
--------- ---------
Current liabilities:
Accounts payable $2,830,600 $1,420,600
Accrued expenses 2,090,800 1,924,600
Current maturities of
long-term debt 1,000,000 1,000,000
--------- ---------
Total current liabilities 5,921,400 4,345,200
Long-term debt 5,311,200 5,865,900
Deferred income taxes 1,154,500 1,154,500
--------- ---------
12,387,100 11,365,600
--------- ---------
Shareholders' equity (Note 3):
Common stock 1,010,300 1,010,300
Capital in excess of par 4,829,500 4,829,500
Retained earnings 10,339,800 11,769,700
--------- ---------
Shareholders
equity 16,179,600 17,609,500
--------- ---------
$28,566,700 $28,975,100
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
Six Months Ended
June 30
<S> <C> <C>
2000 1999
Cash flows from
operating activities:
Net income (loss) $(1,429,900) $ (2,00,500)
Adjustments to reconcile net income
(loss) to net cash provided (used) by operating activities:
Depreciation and amortization 446,300 712,400
Provision for doubtful accounts receivable 78,000 87,800
Change in assets and liabilities:
Receivables 445,300 1,767,300
Inventories (109,400) (511,200)
Prepaid expenses 87,800 111,900
Accounts payable and accrued expenses 1,576,200 (610,400)
------ ------
Total adjustments to net income 2,524,200 1,557,800
------ ------
Net Cash Provided (Used)
by Operating Activities 1,094,300 (642,700)
------ ------
Cash flows from investing activities:
Purchase of property,plant & (46,500) (152,000)
equipment ------ ------
Net Cash Used by Investing Activities (46,500) (152,000)
------ ------
Cash flows from financing activities:
Proceeds from short-term borrowings - 110,500
Principal payments on short-term
borrowings - (72,100)
Increase in bond sinking fund (554,700) (672,900)
------ ------
Net Cash Used by Financing Activities (554,700) (634,500)
------ -------
Net Increase (Decrease) in Cash
and Cash Equivalents 493,100 (1,429,200)
Cash and Cash Equivalents,
beginning of period 5,008,600 5,421,400
Cash and Cash Equivalents,
end of period $ 5,501,700 $ 3,992,200
====== ======
Supplemental disclosures:
Cash paid during the period for:
Interest $ 616,000 $ 592,700
Income taxes $ 12,300 $ 1,719,600
</TABLE>
See Notes to Consolidated Financial Statements
SCOTT'S LIQUID GOLD-INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1.
In the opinion of management, the financial information in this report
reflects all adjustments necessary for a fair presentation of the results
for the interim periods.
NOTE 2.
Allowance for doubtful accounts at June 30,2000 and December 31, 1999 were
$711,800 and $645,500, respectively.
NOTE 3.
Per share data was determined by using the weighted average number of
common shares outstanding. Common equivalent shares are considered only
for diluted earnings per share, unless considered anti-dilutive. As of
June 30, 2000 and 1999, the Company had 829,400 and 893,300 stock options
outstanding, respectively.
A reconciliation of the weighted average number of common shares
outstanding follows:
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Common shares outstanding,
beginning and end of
the period 10,103,100 10,103,100 10,103,100 10,103,100
Weighted average number of
common shares outstanding 10,103,100 10,103,100 10,103,100 10,103,100
Diluted weighted average number of
common shares outstanding 10,103,100 10,103,100 10,103,100 10,103,100
</TABLE>
At June 30, 2000, there were authorized 50,000,000 shares of the Company's
$.10 par value common stock and 20,000,000 shares of preferred stock issuable
in one or more series.
NOTE 4.
The following provides information on the Company's segments for the three
and six months ended June 30, 2000 and 1999:
<TABLE>
Three Months Ended June 30,
2000 1999
Household Skin Care Household Skin Care
Products Products Products Products
<S> <C> <C> <C> <C>
Net sales to external customers $3,339,000 $4,222,000 $3,098,600 $ 4,905,300
Income (loss) before profit sharing,
bonuses and income taxes $ (29,800) $ (332,500) $ 232,800 $(2,077,100)
Six Months Ended June 30,
2000 1999
Household Skin Care Household Skin Care
Products Products Products Products
Net sales to external customers $6,374,300 $8,815,600 $6,419,800 $11,673,200
Income (loss) before profit sharing,
bonuses and income taxes $ (274,500) $(1,892,000) $ 856,600 $(4,020,200)
</TABLE>
The following is a reconciliation of segment information to consolidated
information for the three and six months ended June 30, 2000 and 1999:
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales to external customers $7,561,000 $8,003,900 $15,189,900 $18,093,000
Other income 168,900 233,100 437,300 436,800
Consolidated revenues $7,729,900 $8,237,000 $15,627,200 $18,529,800
Loss before profit sharing,
bonuses and income taxes
for reportable segments $ (362,300) $(1,844,300) $(2,166,500) $(3,163,600)
Corporate activities - - - -
Consolidated loss before
income taxes $ (362,300) $(1,844,300) $(2,166,500) $(3,163,600)
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations
Summary of Results as a Percentage of Net Sales
<TABLE>
Year Ended Six Months Ended
December 31, June 30,
1999 2000 1999
(Audited) (Unaudited)
<S> <C> <C> <C>
Net sales
Scott's Liquid Gold
household products 37.0% 42.0% 35.5%
Neoteric Cosmetics 63.0% 58.0% 64.5%
Total net sales 100.0% 100.0% 100.0%
Cost of sales 34.2% 35.9% 34.9%
Gross profit 65.8% 64.1% 65.1%
Other revenue 1.8% 2.9% 2.4%
67.6% 67.0% 67.5%
Operating expenses 66.3% 77.3% 81.7%
Interest 3.5% 4.0% 3.3%
69.8% 81.3% 85.0%
Income (loss) before
income taxes (2.2%) (14.3%) (17.5%)
</TABLE>
Six Months Ended June 30, 2000
Compared to Six Months Ended June 30,1999
Consolidated net sales for the first half of the current year were $15,189,900
vs. $18,093,000 for the first six months of 1999, a decrease of $2,903,100 or
about 16%. Product volumes declined while average selling prices for the first
six months of the year 2000 were up by $513,700 over those of the comparable
period of 1999, prices of household products being up by $349,800 (about 82% of
which related to Scott's Liquid Gold), while average selling prices of skin care
products were up by $163,900.
During the first half of the year, net sales of skin care products accounted
for 58% of consolidated net sales compared to 64.5% for the first six months of
1999. Net sales of these products for those periods were $8,815,600 in 2000
compared to $11,673,200 in 1999, a decrease of $2,857,600 or 24%. Almost all of
that sales decrease resulted from reduced unit sales of the Company's line of
alpha hydroxy acid products and its other skin care products, including certain
items introduced to the marketplace during the most recent two years. The
Company believes that its skin care sales were adversely affected by the
Company's emphasis on retinol products in allocating its advertising dollars
during 1999, and by intense competition from producers of similar or alternative
products, many of whom are considerably larger than Neoteric Cosmetics, Inc.,
the Company's skin care subsidiary. In the year 2000, the Company implemented a
revised approach to its television advertising, emphasizing short advertising
spots on various television channels. Some brands of alpha hydroxy acid skin
care products have experienced recent increases in sales of such products,
contrary to the Company's experience. The Company continues to address the
decrease in sales of products in the alpha hydroxy acid category of skin care
products through the introduction of new products which target "niche" market
opportunities. However, sales of such new products have not been sufficient to
offset declining shipments of alpha hydroxy acid-based products. During the
second half of the year 2000, the Company will be introducing a new
Alpha Hydrox Facial Moisturizing Cleanser and a new Alpha Hydrox Under Eye
Renewal treatment.
During the first half of 1999, the Company introduced Neoteric Diabetic Skin
Care, a healing creme and a therapeutic moisturizer developed by the Company to
address skin conditions of diabetics which are caused by poor blood circulation.
More recently, the Company announced its development of Alpha Hydrox Fade Creme,
which was designed to lighten age spots and skin discoloration caused by sun
exposure and other factors, and Alpha Hydrox Oxygenated Moisturizer, the
Company's second skin care product based upon a patented oxygenated oil
technology. Sales of these two new products and of the diabetic products have
been satisfactory. The Company has discontinued the Belleza Latina product
line which wasintroduced during the second half of 1998.
Sales of household products for the first half of this year accounted for 42% of
consolidated net sales compared to 35.5% for the same period of 1999. These
products are comprised of "Scott's Liquid Gold" for wood, a wood cleaner which
preserves as it cleans, and "Touch of Scent", a room air freshener. During the
six months ended June 30, 2000, sales of household products were $6,374,300, as
compared to sales of $6,419,800 for the same six months of 1999. Sales of
"Scott's Liquid Gold" for wood were down by $190,100, a decrease of 4.2%. We
believe this sales decrease to be the carryover effect of reduced advertising of
this product line during 1999. Sales of "Touch of Scent" were up by $144,600 or
7.5%. As noted in previous reports to shareholders, efforts in recent years to
revitalize Touch of Scent have produced less than satisfactory results.
Although the Company continues to seek products to replace or augment Touch of
Scent, particularly products which would increase the utilization of the
Company's manufacturing facilities, it believes that a consolidation of
purchasing activities by certain customers may continue to help to improve Touch
of Scent sales during 2000.
On a consolidated basis, cost of goods sold was $5,451,700 during the first six
months of 2000 compared to $6,305,600 for the same period of 1999, a decrease of
$853,900 (13.5%, on a sales decrease of 16%). As a percentage of consolidated
net sales for the first half of 2000, cost of goods sold was 35.9% compared to
34.9% in 1999, an increase of 2.9% which was essentially due to a change in
product mix and to the spreading of fixed manufacturing costs over lower unit
production in the first half of 2000 than in 1999.
Operating expenses, comprised primarily of advertising, selling and
administrative expenses, decreased 5.5% as a percentage of sales in the first
the half of 2000, when compared to first half of 1999, largely because of the
decline in advertising expenses and cost cutting measures initiated during the
second half of 1999. The various components of operating expenses are discussed
below.
Advertising expenses for the first six months of 2000 were $5,326,100 compared
to $8,136,100 for the comparable six months of 1999, a decrease of $2,810,000 or
34.5%. Advertising expenses applicable to household products increased by
$520,700 (97%) during the first half of 2000, whereas, advertising expenses for
Alpha Hydrox products decreased for the comparative six month period by
$3,330,700 (43.8%). With respect to advertising expenses for household
products, the amount expended to advertise Scott's Liquid Gold for wood
increased by $521,400, while expenditures to advertise Touch of Scent decreased
by $700. Advertising expenses during the second half of 2000 are expected to
decrease from those of the first half.
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 the first half of 2000 were $3,357,600 compared to
$3,703,000 for the comparable six months of 1999, a decrease of $345,400 or
9.3%. That decrease was comprised of a decrease of $99,500 in brokerage
commissions (which vary with sales volume), a decrease in salary and fringe
benefits of $64,100, a decrease in coupon and slotting expenses of $40,200, a
decrease in depreciation and amortization of $228,900, all of which pertained
to a license agreement regarding the Company's retinol product which expired in
August 1999, and a net decrease in a variety of other expenses, none of which,
by itself, was material, of $89,400; all offset by an increase in promotion
expenses of $107,000, and a increase in freight expense of $69,700.
Administrative expenses for the first six months of 2000 were $3,050,400
compared to $2,947,600 for the comparable period of 1999, an increase of
$102,800 or 3.5%. Such increase was attributable to the recovery in 1999,
through insurance, of $550,000 in legal and professional fees which were
expensed in prior periods, offset by a decrease in salary and fringe benefits
cost of $385,900 and a net decrease in other administrative expenses, none of
which, by itself, was material, of $61,300.
Interest expense for the first half of 2000 was $607,900, approximately equal to
that of $601,100 for the comparable quarter of 1999. Other income for the six
months ended June 30, 2000 was $437,300 compared to $436,800 for the same period
of 1999. Other income essentially consists of interest earned on the Company's
cash reserves and cash deposits in its bond sinking fund.
During the first six months of 2000 and of 1999, expenditures for research and
development were not material (under 2% of revenues).
Three Months Ended June 30, 2000
Compared to Three Months Ended June 30,1999
Consolidated net sales for the second quarter of the current year were
$7,561,000 vs. $8,003,900 for the comparable quarter of 1999, a decrease of
$442,900 or about 5.5%. Product volumes declined while average selling prices
for the second quarter of 2000 were up by $174,800 over those of the comparable
period of 1999, prices of household products being up by $110,800 (about 92% of
which related to Liquid Gold), while average selling prices of skin care
products were up by $64,000.
During the second quarter of 2000, net sales of skin care products accounted for
55.8% of consolidated net sales compared to 61.3% for the second quarter of
1999. Net sales of these products for those periods were $4,222,000 in 2000
compared to $4,905,300 in 1999, a decrease of $683,300 or 13.9%. Almost all of
that sales decrease resulted from reduced unit sales of the Company's line of
alpha hydroxy acid products and its other skin care products, including certain
items introduced to the marketplace during the most recent two years. The
Company believes that its skin care sales were adversely affected by the
Company's emphasis on retinol products in allocating its advertising dollars
during 1999, and by intense competition from producers of similar or alternative
products, many of whom are considerably larger than Neoteric Cosmetics, Inc.,
the Company's skin care subsidiary. The Company continues to address the
decrease in sales of products in the alpha hydroxy acid category of skin care
products through the introduction of new products which target "niche" market
opportunities.
During the first half of 1999, the Company introduced Neoteric Diabetic Skin
Care, a healing creme and a therapeutic moisturizer developed by the Company to
address skin conditions of diabetics which are caused by poor blood circulation.
More recently, the Company announced its development of Alpha Hydrox Fade Creme,
which was designed to lighten age spots and skin discoloration caused by sun
exposure and other factors, and Alpha Hydrox Oxygenated Moisturizer, the
Company's second skin care product based upon a patented oxygenated oil
technology. Sales of these two new products and of the diabetic products have
been satisfactory.
Sales of household products for the second quarter of this year accounted for
44.2% of consolidated net sales compared to 38.7% for the same period of 1999.
These products are comprised of "Scott's Liquid Gold" for wood, a wood cleaner
which preserves as it cleans, and "Touch of Scent", a room air freshener. During
the second quarter of 2000, sales of household products were $3,339,000, as
compared to sales of $3,098,600 for the same three months of 1999. Sales of
"Scott's Liquid Gold" for wood were up by $101,900, an increase of 4.7%.
Sales of "Touch of Scent" were up by $138,500 or 15.2%. As noted in previous
reports to shareholders, efforts in recent years to revitalize Touch of Scent
have produced less than satisfactory results. Although the Company continues to
seek products to replace or augment Touch of Scent, particularly products which
would increase the utilization of the Company's manufacturing facilities, it
believes that a consolidation of purchasing activities by certain customers may
continue to help improve Touch of Scent sales during 2000.
On a consolidated basis, cost of goods sold was $2,781,000 during the second
quarter of 2000 compared to $2,904,900 for the same period of 1999, a decrease
of $123,900 (4.3%, on a sales decrease of 5.5%). As a percentage of
consolidated net sales for the second quarter of 2000, cost of goods sold was
36.8% compared to 36.3% in 1999, an increase of 1.4%.
Operating expenses, comprised primarily of advertising, selling and
administrative expenses, decreased 22.9% as a percentage of sales in the second
quarter of 2000, when compared to the same period during 1999, largely because
of the decline in advertising expenses and cost cutting measures initiated
during the second half of 1999. The various components of operating expenses
are discussed below.
Advertising expenses for the second quarter of 2000 were $1,995,900 compared to
$3,429,000 for the comparable quarter of 1999, a decrease of $1,433,100 or
41.8%. Advertising expenses applicable to household products increased by
$423,700 (467%) during the second quarter of 2000, whereas, advertising expenses
for Alpha Hydrox products decreased for the comparative three month period by
$1,856,800 (55.6%). With respect to advertising expenses for household
products, the amount expended to advertise Scott's Liquid Gold for wood
increased by $213,000, while expenditures to advertise Touch of Scent increased
by $210,700. Advertising expenses during the third quarter of 2000 are expected
to decrease from those of the second quarter.
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 the three months ended June 30, 2000 were $1,541,800
compared to $1,759,700 for the comparable three months of 1999, a decrease of
$217,900 or 12.4%. That decrease was comprised of a decrease of $104,000 in
coupon and slotting, a decrease in salaries and fringe benefits of $85,500, a
drop in travel expenses of $35,900, a decrease in depreciation and amortization
of $114,500, all of which pertained to a license agreement regarding the
Company's retinol product which expired in August 1999, and a net decrease in a
variety of other expenses, none of which, by itself, was material, of $45,000;
all offset by an increase in freight costs of $112,500, and an increase in
promotion expenses of $54,500.
Administrative expenses for the second quarter of 2000 were $1,471,900 compared
to $1,687,700 for the comparable period of 1999, a decrease of $215,800 or
12.8%. Such decrease was attributable to a decrease in salary and fringe benefit
costs of $211,100 and a net decrease in other administrative expenses, none of
which, by itself, was material, of $4,700.
Interest expense for the second quarter of 2000 was $301,600, approximately
equal to that of $300,000 for the comparable quarter of 1999. Other income for
the three months ended June 30, 2000 was $168,900 compared to $233,100 for the
same period of 1999. Other income essentially consists of interest earned on the
Company's cash reserves and cash deposits in its bond sinking fund.
During the second quarter of 2000 and of 1999, 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. Interest on the $12 million
bond issue is payable semi-annually beginning on January 1, 1995 at the rate of
10% per annum. (The January 1 and July 1, 2000 interest payments were made in
a timely manner. There is no reason to believe that the interest payment due on
January 1, 2001 will not be made in conformity with the Bond Indenture.) A
sinking fund payment of $1 million is required annually. Sinking fund payments
for 1995 through 1999 were made as required. Currently, the Company is
voluntarily paying $183,300 each month to the Trustee to cover future interest
and sinking fund payments. The Trustee, at the Company's request, holds such
moneys in accounts to which the Company has no access. The entire debt is due
July 1, 2001, and will need to be refinanced at that time or earlier.
During the first half of 2000, the Company's working capital decreased by
$1,584,800, and concomitantly, its current ratio (current assets divided by
current liabilities) decreased from 2.6:1 at December 31, 1999 to 1.9:1 at June
30, 2000. This decrease in working capital is attributable to a net loss in the
first six months of 2000 of $1,429,900, and a reduction in long-term debt of
$554,700, both offset by depreciation in excess of capital additions of $383,000
and a decrease in other assets of $16,800. The Company has cash and cash
equivalents of $5.5 million at June 30, 2000. Cash provided by operating
activities for the six months ended June 30, 2000 amounted to $1,094,300 and the
Company spent $46,500 on new equipment. At June 30, 2000, the ratio of
consolidated funded debt to consolidated net worth was .33:1.
At June 30, 2000, trade accounts receivable were $872,500 lower than at year
end, largely because sales in June of 2000 were less than those of December of
1999. At June 30, 2000, other receivables were $349,200 greater than at December
31, 1999, because of an increase in the income tax refund receivable of
$379,900. Accounts payable increased from the end of 1999 through June of 2000
by $1,410,000 primarily due to the existence of advertising payables at the end
of the quarter whereas none existed at the end of last year.
The Company does not anticipate any significant capital expenditures during the
remainder of the year and expects that its cash and cash equivalents plus
available cash flows from operating activities will fund the next twelve months
cash requirements.
Legal Proceedings
The Company's Annual Reports from 1996 forward describe a patent infringement
suit filed against Neoteric Cosmetics, Inc. (and others) in May of 1996 in the
United States District Court for the District of Delaware by TriStrata
Technology, Inc. Neoteric Cosmetics is a wholly owned subsidiary of the Company
which manufactures and sells skin care products under the name Alpha Hydrox. The
plaintiff in the lawsuit, among other things, alleges that Neoteric Cosmetics
contributes to and/or induces infringement of patents owned by the plaintiff by
promoting and selling Neoteric skin care products for the purpose of visibly
reducing a human skin wrinkle and/or fine lines. 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. 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 continues to mount a vigorous defense in this case. The Company cannot
predict the potential outcome of this lawsuit or the ultimate impact on the
Company's financial position or results of operations.
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 its results of
operations, financial position or cash flows of the Company.
Forward-Looking Statements
This report may contain "forward-looking statements" within the meaning of 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; adverse developments in pending litigation; the loss of any
executive officer; and other matters discussed in the Company's periodic filings
with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Please see "Market Risks" in Item 2 of Part I of this Report which information
is incorporated herein by this reference.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Please see "Legal Proceedings" in Item 2 of Part I of this Report which
information is incorporated herein by this reference. The legal proceeding
described in that Item have been previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 3, 2000, the Company held its 2000 Annual Meeting of Shareholders. At
that meeting, the five existing directors were nominated and re-elected as
directors of the Company. These five persons constitute all members of the
Board of Directors of the Company. These directors and the votes for and
withheld for each of them were as follows:
For Withheld
Mark E. Goldstein 8,686,501 144,911
Carolyn J. Anderson 8,688,001 143,411
Barry Shepard 8,688,201 143,211
Dennis H. Field 8,690,001 141,411
James F. Keane 8,690,001 141,411
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The following report was filed by the Company on Form 8-K during
the second quarter of 2000: A current report on Form 8-K dated
June 20, 2000 reporting an event under Item 5, Other Events.
(b) Exhibits
Exhibit
No. Document
10.5 Scott's Liquid Gold-Inc. Employee Stock Ownership
Plan and Trust Agreement as amended through June 20,
2000.
SIGNATURES
Pursuant to the requirements 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.
SCOTT'S LIQUID GOLD-INC.
August 11, 2000 BY: /s/ Mark E. Goldstein
Mark E. Goldstein
President and Chief Executive Officer
August 11, 2000 BY: /s/ Jeffry B. Johnson
Jeffry B. Johnson
Controller
EXHIBIT INDEX
Exhibit
No. Document
10.5 Scott's Liquid Gold-Inc. Employee Stock Ownership
Plan and Trust Agreement as amended through June 20,
2000.
