<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
--------------------- --------------------------
Commission file number
----------------------------------------------------------
Kyzen Corporation
- --------------------------------------------------------------------------------
(Exact name of the small business issuer as
specified in its charter)
Utah 87-0475115
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Harding Industrial Drive, Nashville, TN 37211
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (615) 831-0888
-----------------------------------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of October 15, 1996
4,999,848 shares of Class A Common Stock
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
Page 1 of 11
<PAGE>
INDEX
Page No.
--------
Part I Financial Information
Item 1. Financial Statements:
Balance Sheet as of December 31, 1995 and
September 30, 1996 (unaudited) 3
Statement of Operations for the quarter and
nine months ended September 30, 1995, and
1996 (unaudited) 4
Statement of Cash Flows for the nine months
ended September 30, 1995 and 1996 (unaudited) 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Page 2 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,608,890 $ 534,656
Short-term investments 704,608 944,088
Accounts receivable, net of allowance for doubtful
accounts of $9,516 for 1995 and $6,889
for 1996 630,264 662,082
Costs and estimated losses in excess of billings
on uncompleted contracts 140,056 144,586
Inventory 172,581 306,555
Other 21,239 45,025
----------- -----------
Total current assets 3,277,638 2,636,992
Property and equipment, net 519,982 754,186
Patents, net 91,445 99,575
Interest receivable from related parties 87,105 113,510
----------- -----------
Total assets $ 3,976,170 $ 3,604,263
=========== ===========
LIABILITIES, REDEEMABLE STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 169,241 $ 384,789
Accounts payable to related parties 8,735 17,054
Put repurchase obligation 304,771 -
----------- -----------
Total current liabilities 482,747 401,843
Notes payable and capital lease obligations 13,634
----------- -----------
Total liabilities 482,747 415,477
Shareholders' equity :
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding
Class A Common Stock, $0.01 par value,
30,000,000 shares authorized, 4,917,322 shares
issued and outstanding at December 31, 1995; 4,999,948
shares issued with 4,999,848 shares outstanding at
September 30, 1996 49,174 50,000
Additional paid-in-capital 5,031,560 5,293,420
Treasury stock (313)
Accumulated deficit (1,587,311) (2,154,321)
----------- -----------
3,493,423 3,188,786
----------- -----------
Total liabilities and shareholders' equity $ 3,976,170 $ 3,604,263
=========== ===========
</TABLE>
Page 3 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,082,133 $ 1,347,212 $ 2,896,800 $ 3,567,133
Cost of sales 584,814 699,692 1,346,093 1,807,368
----------- ----------- ----------- -----------
Gross profit 497,319 647,520 1,550,707 1,759,765
Operating costs and expenses:
Selling, general and administrative expenses 486,195 704,741 1,241,766 1,953,947
Research and development expenses 45,868 102,577 148,666 446,841
----------- ----------- ----------- -----------
Total operating expenses 532,063 807,318 1,390,432 2,400,788
----------- ----------- ----------- -----------
Operating income (loss) (34,744) (159,798) 160,275 (641,023)
Other income (expense):
Interest income 35,808 22,845 59,038 90,302
Interest expense (35,365) (227) (136,549) (16,289)
----------- ----------- ----------- -----------
Total other income (expense) 443 22,618 (77,511) 74,013
----------- ----------- ----------- -----------
Net income (loss) before extraordinary loss (34,301) (137,180) 82,764 (567,010)
Extraordinary loss from extinguishment of debt 114,843 114,843
----------- ----------- ----------- -----------
Net income (loss) $ (149,144) $ (137,180) $ (32,079) $ (567,010)
=========== =========== =========== ===========
Accretion of Class B Common Stock to
redemption amounts (189,364) - (248,326) -
----------- ----------- ----------- -----------
Net loss allocable to Class A
Common Shareholders $ (338,508) $ (137,180) $ (280,405) $ (567,010)
=========== =========== =========== ===========
Net loss per Class A Common Share $ (0.08) $ (0.03) $ (0.07) $ (0.11)
=========== =========== =========== ===========
Weighted average shares outstanding 4,427,286 4,968,713 3,908,401 4,934,577
=========== =========== =========== ===========
Supplementary proforma net income (loss)
per share (unaudited) $ (0.05) $ 0.01
=========== ===========
Supplementary proforma weighted average
shares outstanding (unaudited) 4,118,862 4,066,789
=========== ===========
</TABLE>
Page 4 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1995 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (32,079) $ (567,010)
Adjustments to reconcile net loss to net cash provided / (used)
by operating activities:
Depreciation and amortization 55,271 110,296
Non-cash interest charge 39,845 11,948
Write off of note discount and issue costs 114,843
Increase in accounts receivable (30,402) (31,818)
Increase in notes receivable (3,906) -
Increase in inventory (241,929) (187,078)
Increase in costs and estimated losses on long-term contracts (4,530)
Increase in other current assets (17,031) (19,771)
Increase in interests receivable from related parties (30,541) (26,405)
Increase (decrease) in accounts payable and accrued expenses (28,602) 223,867
----------- -----------
Net cash used by operating activities (174,531) (490,501)
Cash Flows from Investing Activities:
Purchase of short-term investments (239,480)
Purchase of fixed assets (132,040) (268,959)
Purchase of patent rights and related expenditures (5,315) (13,971)
----------- -----------
Net cash used by investing activities (137,355) (522,410)
Cash Flows from Financing Activities:
Net payments of related party short term notes payable (170,000)
Issuance of stock 5,083,479 1,435
Repurchase of Class B Common Stock (1,066,584)
Repurchase of Class A Common Stock (59,796)
Payment on note payable (757,082) (2,962)
----------- -----------
Net cash provided (used) by financing activities 3,089,813 (61,323)
Net increase (decrease) in cash and cash equivalents 2,777,927 (1,074,234)
Cash and cash equivalents at beginning of year 81,589 1,608,890
----------- -----------
Cash and cash equivalents at end of period $ 2,859,516 $ 534,656
=========== ===========
</TABLE>
Cash used for interest payments was $26,741 and $80,223 for the three and
nine months ended September 30, 1995, respectively, and $345 and $4,325 for
the three and nine months ended September 30, 1996, respectively.
The Company converted $486,000 of short and long-term notes payable into
Bridge Loan Units during the nine months ended September 30, 1995.
The Company transferred $53,104 of inventory to fixed assets during the
nine months ended September 30, 1996.
Page 5 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Kyzen Corporation ("Kyzen" or the "Company") was incorporated under the laws of
the State of Utah on March 9, 1990. Kyzen was formed to develop environmentally
safe chemical solutions to replace ozone-depleting chlorinated solvents. Kyzen
manufactures and sells specialized chemicals used for industrial cleaning
processes. The Company's operations are located in Nashville, Tennessee and
Manchester, New Hampshire.
The Company's operations are conducted within one business segment. Sales to
customers outside the United States approximated 15% and 19% of net sales for
the three month periods ended September 30, 1995 and 1996, respectively.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS
The Company considers all highly-liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents. By Company
policy, short-term investments consist primarily of investment grade commercial
paper, direct obligations of the U.S. Government and its agencies, and other
short-term investment funds.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, FAS Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS No. 121") was
issued. FAS No. 121 requires that in the event certain facts and circumstances
indicate an asset may be impaired, an evaluation of recoverability must be
performed to determine whether or not the carrying amount of the asset is
required to be written down. The Company adopted the provisions of FAS No. 121
effective January 1, 1996, and adoption did not materially impact the Company's
financial condition or results of operations.
In October 1995, FAS Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123") was issued. The Company will continue to measure
compensation costs for its employee stock compensation plans as prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed under
FAS No. 123.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers involved in a variety of industries
including electronics and computers. Kyzen performs continuing credit
evaluations of its customers and does not require collateral. Historically, the
Company has not experienced significant losses related to individual customers
or groups of customers in any particular industry or geographic area.
REVENUE RECOGNITION
Revenue from products or services is recognized based upon shipment of products
or performance of services. Revenues and profits on long-term construction
contracts are recognized using the percentage of completion method generally
based on costs incurred as a percentage of estimated total costs of the project.
Anticipated losses on long-term contracts are recognized as they become known.
The Company incurred additional losses of approximately $10,000 in excess of
estimated revenues on long-term construction contracts during the third quarter
of 1996 related to its specialty cleaning machine contract.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined using
the weighted average, first in, first out (FIFO) method.
INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the income tax basis of the Company's assets and
liabilities.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated on a straight-line
basis over the estimated useful lives (4 to 7 years) of the respective assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated useful life of the asset or the lease term.
PATENT COSTS
Patent costs, including the purchase of patent rights and legal costs incurred
related to successful and pending patents, are amortized using the straight-line
method over the useful lives of the patents, not exceeding 17 years. Accumulated
amortization amounted to $34,856 as of December 31, 1995, and $40,698 as of
September 30, 1996. Impairment of the
Page 6 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
accounting value of the patent costs is
measured on the basis of anticipated undiscounted cash flows from operations. At
December 31, 1995 and at September 30, 1996, no impairment was indicated.
RESEARCH AND DEVELOPMENT COSTS
The Company is involved in research and development activities relating to new
product development and new uses for its chemicals. The Company expenses
research and development costs as incurred.
PER SHARE DATA
Net income (loss) allocable to Class A Common Shares is calculated based on
weighted average shares of Class A Common Stock outstanding. The weighted
average number of shares has been adjusted for each period presented using the
treasury stock method at the estimated initial public offering price to reflect
as outstanding all shares issued and issuable upon the exercise of stock options
granted subsequent to March 31, 1994.
Accretion of the Mandatorily redeemable Class B Common Stock increases the loss
or reduces the income available to Class A common shareholders.
Supplementary per share data giving effect to the redemption of the Class B
Common Stock and repayment of the Bridge notes payable is also presented. Net
income allocable to Class A Common shareholders is adjusted by $207,366 and
$335,171 for the three and nine months ended September 30, 1995, respectively,
to eliminate the accretion of Class B Common Stock and to reflect the reduction
in interest expense related to bridge and short-term notes payable.
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements have been prepared without an
audit, and certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes that
the disclosures herein are adequate to make the information presented not
misleading. These statements should be read in conjunction with the Company's
financial statements for the fiscal year ended December 31, 1995. The results of
operations for the three and nine month periods are not necessarily indicative
of results for the full fiscal year.
In the opinion of management, the accompanying interim financial statements
contain all adjustments necessary for a fair presentation of the Company's
financial position as of September 30, 1996; its results of operations for the
three and nine month periods ended September 30, 1995 and 1996; and its cash
flows for the nine months ended September 30, 1995 and 1996.
INITIAL PUBLIC OFFERING
On August 4, 1995, the Company consummated an initial public offering of 550,000
units consisting of 1,650,000 shares of Class A Common Stock and 1,650,000
Redeemable Class A Common Stock Purchase Warrants. In connection with the
offering, the Company (i) received net proceeds of approximately $5.1 million
(after deducting underwriting discounts and commissions and expenses of the
Offering); (ii) redeemed all outstanding shares of Class B Common Stock for
approximately $1.05 million; (iii) repaid all outstanding borrowings under the
bridge loan units totaling approximately $670,000; (iv) repaid short-term,
related party notes payable of approximately $150,000; and (v) invested the
balance of the net proceeds in short-term investment grade or equivalent
interest bearing instruments.
PUT REPURCHASE OBLIGATION
The Company accrued $59,796 of interest expense to current liabilities for a
potential obligation associated with a put option granted to a shareholder. This
option was exercised in August, 1996, and the Company acquired 100 shares of its
Class A Common Stock as a result of this transaction.
Page 7 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
Net sales for the third quarter 1996 from all business activities increased
approximately 24% or $265,089 to $1,347,212, while net chemical sales increased
14% from the third quarter 1995. These increases is due to increased sales
volume of the Company's chemical cleaning agents to existing customers and sales
to new customers who are converting from ozone depleting processes and chemicals
as well as increased sales of water reuse systems.
Gross profit for the third quarter 1996 increased 30% or $150,201 to $647,520 as
compared to $497,319 in the same period in 1995. This $150,201 increase is
attributable to increased domestic and foreign sales volume of the Company's
cleaning agents, as well as increased sales of water reuse systems. Gross profit
margins on chemical sales remained constant at 57% for the third quarter 1995
and 1996, while gross profit margins from all business activities increased from
46% in 1995 to 48% in 1996, reflecting small decreases in the costs of equipment
manufacturing.
Selling, general, and administrative expenses for the quarter ended September
30, 1996 increased 45% or $218,546 to $704,741 in 1996 as compared to $486,195
for the same quarter in 1995. This increase reflects augmented spending on
advertising, selling expenses, and expenses associated with being a public
company, such as the cost of investor relations, and expenses associated with
relocating sales personnel during the third quarter of 1996.
Research and development expenses for the quarter ended September 30, 1996
increased 124% or $56,709 to $102,577 from $45,868 for the three months ended
September 30, 1995. This increase reflects the Company's continued efforts in
development projects for new products and processes with current and potential
customers and expenses associated with development of a new product line. One of
the new product lines consists of specialty cleaning machines that will be built
to specific customer order.
Operating Income for the quarter ended September 30, 1996 decreased 360% or
$125,054 to a loss of ($159,798) from a loss of ($34,744) for the quarter ended
September 30, 1995. This decrease is due primarily to the increased research and
development expenses in developing a new line of specialty cleaning machines and
increased sales and marketing expenses in anticipation of greater sales growth
in the future.
Interest income for the third quarter 1996 decreased 36% to $22,845 from $35,808
for the third quarter 1995. This $12,963 decrease is due to lower cash balances
during 1996 as the cash obtained through the initial public offering continues
to be utilized for the growth of the Company.
Interest expense for the third quarter 1996 decreased 99% to $227 from $35,365
in the third quarter 1995. The decrease of $35,138 in interest expense reflects
the results of the extinguishment of debt with the proceeds of the Company's
initial public offering.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1996 increased 23% or $670,333
to $3,567,133 from the same period in 1995. This increase was due to higher
sales volume of the Company's chemical cleaning agents to existing customers,
sales to new customers who are converting from ozone depleting processes and
chemicals, increased sales and marketing efforts, increased sales of water reuse
systems, and sales of specialty cleaning machines.
Gross profit for the nine months ended September 30, 1996 increased 13% or
$209,058 to $1,759,765 from $1,550,707 for the nine months ended September 30,
1995. This increase reflects higher sales volume, shifting product mix, and
expenditures associated with developing a line of specialty cleaning machines.
Gross profit margins year-to-date decreased from 54% in 1995 to 49% in 1996,
primarily reflecting a shift in product mix and the lower margins associated
with manufacturing specialty cleaning machines.
Selling, general and administrative expenses for the nine months ended September
30, 1996 increased 57% or $712,181 to $1,953,947 as compared to $1,241,766 in
the prior year. The increase reflects an increased marketing effort and expenses
associated with being a public company, such as costs of printing of the annual
report, cost of investor relations, and expenses associated with relocating
sales personnel during 1996.
Research and development expenses during the nine months ended September 30,
1996 increased by 201% or $298,175 to $446,841 from $148,666 during the nine
months ended September 30, 1995. This increase reflects the Company's
Page 8 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
continued efforts in development projects for new products and processes with
current and potential customers and expenses associated with development of a
new specialty cleaning machine product line.
Operating income for the first nine months decreased from income of $160,275 in
1995 to a loss of ($641,023) during the first nine months of 1996. This decrease
is due primarily to the increased research and development expenses in
developing a new specialty cleaning machine product line.
Interest income for the first nine months of 1996 increased 53% or $31,264 to
$90,302 from $59,038 for the same period in 1995. This increase is due to the
greater cash resources available to the Company during the first nine months of
1996, than the same period in 1995 as a result of the initial public offering
completed in August 1995.
Interest expense for the nine months ended September 30, 1996 decreased 88% or
$120,260 to $16,289 in 1996, as compared to $136,549 for the nine months ended
September 30, 1996. This decrease reflects the reduction of borrowings and the
reduced debt level of the first nine months of 1996 from the proceeds of the
initial public offering as compared to the same period in 1995 when those
resources were not available.
Net loss increased from ($32,079) in the first nine months of 1995 to ($567,010)
in the first nine months of 1996. The loss in 1995 was due to an extraordinary
loss booked during the third quarter of 1995 in the amount of $114,843 from the
early extinguishment of debt relating to previous financing arrangements. The
loss in 1996 was due to the reasons set forth above regarding increased expenses
for selling, general, administrative, research and development.
ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued FAS Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." FAS No. 121 requires that in the event certain facts
and circumstances indicate an asset may be impaired, an evaluation of
recoverability must be performed to determine whether or not the carrying amount
of the asset is required to be written down. The Company adopted the provisions
of this statement effective January 1, 1996, and adoption did not materially
impact the Company's financial condition or results of operations.
In October 1995, FAS Statement No. 123, "Accounting for Stock-Based
Compensation" was issued. The Company will continue to measure compensation
costs for its employee stock compensation plans as prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees," as allowed under FAS No. 123.
FORWARD-LOOKING STATEMENTS
Management has included below certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. When used, the words
"anticipate," "estimate," "should," "expect," "believe," "intend," and similar
expressions are intended to identify forward-looking statements. Such statements
are, by their nature, subject to certain risks and uncertainties. Among the
factors that could cause actual results to differ materially from those
projected are the following: business conditions and the general economy as they
affect interest rates; business conditions as they affect manufacturers and
distributors of chemical raw materials; the federal, state and local regulatory
environment; availability of debt and equity capital with favorable terms and
conditions; availability of new expansion and acquisition opportunities; changes
in the financial condition or corporate strategy of the Company's primary
customers; and the ability of the Company to develop new, competitive product
lines.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash generated from operating
activities, a secured line of credit, and its initial public offering. The
Company's primary uses of funds are research and development of new product
lines, purchase of capital equipment, and sales and marketing activities.
Depending on the level of expansion and acquisition activities in the future, in
order to meet the Company's long-term liquidity requirements, management
anticipates that the Company's cash from operating activities will continue to
increase as a result of increased sales volume, and management expects to seek
additional equity or debt financing when market conditions are favorable. There
can be no assurance, however, that equity and debt markets will be favorable
sources of funding at such times as the Company wants to grow its business or
repay or refinance debt.
On August 4, 1995, the Company completed an initial public offering of its Class
A Common Stock. The Company received net proceeds of approximately $5,100,000
after underwriters' discounts, commissions and costs of the offering. Prior to
the offering, the Company financed its working capital requirements through the
private placement of equity and debt.
Page 9 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
As of September 30, 1996, the Company had working capital of $2,235,149 which
represents a $559,742 decrease from December 31, 1995. This decrease resulted
primarily from the funding of operating costs and expenses related to the
development of a new specialty cleaning machine line.
In March 1996, the Company obtained a line of credit from a commercial bank in
the amount of $500,000 secured by the Company's accounts receivable and a cash
balance. As of September 30, 1996, there was no balance outstanding on this line
of credit.
Cash used by operations of $490,501 in the first nine months of 1996 represented
a $315,970 increase over cash used by operations of $174,531 during the first
nine months of 1995. This increase resulted primarily from losses from
operations, increases in inventory, and work in process.
Cash used by investing activities of $522,410 in the first nine months of 1996
represented a $385,055 increase over cash used by investing activities during
the first nine months of 1995 of $137,355. This increase was due to the purchase
of short-term investments and fixed assets during the first nine months of 1996.
Cash used by financing activities of $61,323 in the first nine months of 1996
represented a decrease of $3,151,136 from cash provided by financing activities
of $3,089,813 during the same period in 1995. This difference was due to the
cash provided by the issuance of stock pursuant to the initial public offering
repurchase of Class B Common Stock, and repayment of debt during the first nine
months of 1995 and the reduction in debt and repurchase of Class A Common Stock
during the first nine months of 1996.
The Company reclassified $257,236 from stockholders' equity to current
liabilities to accrue for a potential obligation associated with a put option
related to the bridge loan offering, a combination debt and equity offering sold
in anticipation of the initial public offering.. This put option expired on
August 4, 1996 without any bridge loan holder having exercised it, and the
amount was reclassified from current liabilities to additional paid in capital.
The Company accrued $59,796 of interest expense to current liabilities for an
obligation associated with a put option granted to a shareholder. This option
was exercised in August 1996 and the Company acquired 100 shares of its Class A
Common Stock as a result of this transaction. The Company recorded the
acquisition of treasury stock of $313 and the reduction of the current
liability.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations and expansion plans, that the current cash balances,
together with projected cash flow from operations, will be sufficient to satisfy
its contemplated cash requirements for at least twelve months from the end of
the fiscal year. In the event that the Company's plans change, its assumptions
change or prove to be inaccurate, (due to unanticipated expenses, delays,
problems or otherwise) the Company could be required to seek additional
financing from public debt and equity markets prior to such time. Additionally,
the Company plans to continue to investigate potential acquisition candidates
that are consistent with the Company's growth strategies.
The Company's cash requirements for 1997 and beyond will depend primarily upon
the level of sales, product development, sales and marketing expenditures,
timing of expansion plans and capital expenditures.
Page 10 of 11
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KYZEN CORPORATION
- --------------------------------------------------------------------------------
(Registrant)
Date November 14, 1996 /s/ KYLE J. DOYL
--------------------------------- ---------------------------------------
(Signature)
Kyle J. Doyl
President and Chief Executive Officer
Date November 14, 1996 /s/ BENJAMIN D. WOLFLEY
--------------------------------- ---------------------------------------
(Signature)
Benjamin D. Wolfley
Treasurer and Chief Accounting Officer
Page 11 of 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KYZEN
CORPORATION 10-QSB 9/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 DEC-31-1996
<CASH> 534,656 1,608,890
<SECURITIES> 944,088 704,608
<RECEIVABLES> 668,971 639,780
<ALLOWANCES> (6,889) (9,516)
<INVENTORY> 306,555 172,581
<CURRENT-ASSETS> 2,636,992 3,277,638
<PP&E> 754,186 519,982
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 0
<CURRENT-LIABILITIES> 401,843 482,747
<BONDS> 0 0
0 0
0 0
<COMMON> 50,000 49,174
<OTHER-SE> 3,138,786 3,444,249
<TOTAL-LIABILITY-AND-EQUITY> 3,604,263 3,976,170
<SALES> 3,567,133 0
<TOTAL-REVENUES> 3,567,133 0
<CGS> 1,807,368 0
<TOTAL-COSTS> 2,400,788 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (74,013) 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (567,010) 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (567,010) 0
<EPS-PRIMARY> (0.11) 0
<EPS-DILUTED> (0.11) 0
</TABLE>
