<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 June 30, 1997
--------------------------------------------------
[ ] 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
PROCEEDINGS 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 number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
5,006,681 shares of Class A Common Stock outstanding as of July 10, 1997
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): [ ] Yes [ X ] No
Page 1 of 10
<PAGE>
INDEX
Page No.
--------
Part I Financial Information
Item 1. Financial Statements:
Balance Sheet as of December 31, 1996 and
June 30, 1997 (unaudited) 3
Statement of Operations for the six months ended
June 30, 1996 (unaudited) and 1997 (unaudited) 4
Statement of Cash Flows for the six months ended
June 30, 1996 (unaudited) and 1997 (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 10
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 741,820 $ 654,498
Short-term investments 528,416 99,788
Accounts receivable, net of allowance for doubtful
accounts of $16,338 in 1996 and $9,732 in 1997 860,785 767,184
Costs and estimated losses in excess of billings
on uncompleted contracts 80,321 82,262
Inventory 205,126 507,759
Other 37,137 39,896
------------ -----------
Total current assets 2,453,605 2,151,387
Property and equipment, net 786,797 805,722
Patents, net 99,243 116,300
Interest receivable from related parties 124,839 147,495
------------ -----------
Total assets $ 3,464,484 $ 3,220,904
============ ===========
LIABILITIES, REDEEMABLE STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and capital lease obligations, current $ 5,610 $ 5,875
Accounts payable and accrued expenses 432,088 515,868
Accounts payable to related parties 20,913 6,941
------------ -----------
Total current liabilities 458,611 528,684
Notes payable and capital lease obligations 6,697 3,716
------------ -----------
Total liabilities 465,308 532,400
Shareholders' equity (deficit):
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding at December 31, 1996
and June 30, 1997, respectively
Class A Common Stock, $0.01 par value, 30,000,000 shares
authorized, 4,999,948 and 5,006,448 shares issued and
4,999,848 and 5,006,348 shares outstanding 50,000 50,065
Additional paid-in-capital 5,293,420 5,294,574
Treasury stock at cost (313) (313)
Accumulated deficit (2,343,931) (2,655,822)
------------ -----------
Total shareholders' equity 2,999,176 2,688,504
------------ -----------
Total liabilities and shareholders' equity $ 3,464,484 $ 3,220,904
============ ===========
</TABLE>
Page 3 of 10
<PAGE>
KYZEN CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- --------------------------
1996 1997 1996 1997
---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $1,255,391 $1,303,444 $ 2,219,921 $ 2,591,063
Cost of sales 582,989 610,140 1,107,676 1,251,379
---------- ---------- ------------ -----------
GROSS PROFIT 672,402 693,304 1,112,245 1,339,684
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses 662,927 688,043 1,249,206 1,441,568
Research and development expenses 166,053 102,661 344,264 245,808
---------- ---------- ------------ -----------
TOTAL OPERATING EXPENSES 828,980 790,704 1,593,470 1,687,376
---------- ---------- ------------ -----------
OPERATING INCOME (LOSS) (156,578) (97,400) (481,225) (347,692)
OTHER INCOME (EXPENSE):
Interest income 37,438 19,915 67,457 43,489
Interest expense (7,538) (7,400) (16,062) (7,688)
---------- ---------- ------------ -----------
TOTAL OTHER INCOME (EXPENSE) 29,900 12,515 51,395 35,801
---------- ---------- ------------ -----------
NET INCOME (LOSS) $ (126,678) $ (84,885) $ (429,830) $ (311,891)
========== ========== ============ ===========
Net income (loss) per Class A Common Share $ (0.03) $ (0.02) $ (0.09) $ (0.06)
========== ========== ============ ===========
Weighted average shares outstanding 4,917,322 5,006,348 4,917,322 5,003,342
========== ========== ============ ===========
</TABLE>
Page 4 of 10
<PAGE>
KYZEN CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (429,830) $ (311,891)
Adjustments to reconcile net income to net cash provided / (used)
operating activities:
Depreciation and amortization 67,674 101,352
Non-cash interest charge 12,507
Decrease (increase) in accounts receivable (272,056) 93,601
Increase in inventory (215,992) (302,633)
Decrease (increase) in costs and estimated losses on long-term contracts 37,526 (1,941)
Increase in other current assets (12,106) (2,759)
Increase in interest receivable from related parties (15,077) (22,656)
Increase in accounts payable and accrued expenses 466,410 69,808
------------ -----------
Net cash used by operating activities (360,944) (377,119)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments (129,476) 428,628
Purchase of fixed assets (223,913) (116,080)
Purchase of patent rights and related expenditures (6,710) (21,254)
------------ -----------
Net cash provided (used) by investing activities (360,099) 291,294
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock 1,219
Payment on note payable (1,679) (2,716)
------------ -----------
Net cash used by financing activities (1,679) (1,497)
NET DECREASE IN CASH AND CASH EQUIVALENTS (722,722) (87,322)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,608,890 741,820
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 886,168 $ 654,498
============ ===========
</TABLE>
Cash used for interest payments was $3,182 and $373 for the three and six
months ended June 30, 1996 and $288 and $7,400 for the three and six months
ended June 30, 1997 respectively.
Page 5 of 10
<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 totaled $231,580 and $194,303 for the
quarter and $268,170 and $421,600 for the six months ended June 30, 1996 and
1997, respectively, representing approximately 12% and 16%, respectively of net
sales for the six month periods then ended.
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
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. Revenue 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 related to its specialty cleaning machine
contract of approximately $35,000 and $500 for the three months ended June 30,
1996 and 1997, respectively, and $136,000, and $6,100 for the six months ended
June 30, 1996 and 1997, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values of cash, short-term investments, accounts receivable, and
accounts payable approximate fair value due to the short-term maturities of
these assets and liabilities.
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 (2 to 12 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.
Page 6 of 10
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
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 $42,677 as of December 31, 1996, and
$46,874 as of June 30, 1997. Impairment of the accounting value of the patent
costs is measured on the basis of anticipated undiscounted cash flows from
operations. At December 31, 1996, and at June 30, 1997 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 Share is calculated based on
weighted average shares of Class A Common Stock outstanding. The weighted
average number of shares has been adjusted to reflect as outstanding, for each
period presented using the treasury stock method, all shares issued and issuable
upon the exercise of stock options.
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, 1996. The results
of operations for the three and six 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 June 30, 1997; its results of operations for the six
month period ended June 30, 1996 and 1997; and its cash flows for the six months
ended June 30, 1996 and 1997.
Page 7 of 10
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED JUNE 30, 1996 AND JUNE 30, 1997
Net sales for the second quarter ended June 30, 1997 from all business
activities increased approximately 4% or $48,053 to $1,303,444. These sales
remained constant from the prior year even as the chemical customer base
increased, due to the order timing of some larger customers.
Gross profit for the quarter ended June 30, 1997 increased 3% or $20,902 to
$693,304 as compared to $672,402 for the same quarter in 1996. Gross profits
remained constant from the prior year even as the chemical customer based
increased, due to the order timing of some larger customers. Gross profit
margins from all business activities remained constant at approximately 53% from
the second quarter of 1996.
Selling, general, and administrative expenses for the quarter ended June 30,
1997 increased 4% or $25,116 to $688,843 as compared to $662,927 for the same
quarter of 1996. This increase reflects slightly augmented spending on
advertising, selling expenses, and marketing expenses during the second quarter
of 1997.
Research and development expenses for the quarter ended June 30, 1997 decreased
38% or $63,392 to $102,661 from $166,053 for the quarter ended June 30, 1996.
This decrease resulted from research and development expenses in the second
quarter of 1996 related to the development of a new machine product line, that
were not expended during the second quarter of 1997.
Operating loss for the quarter ended June 30, 1997 decreased 38% or $59,178 to a
loss of $97,400 from a loss of $156,578 for the quarter ended June 30, 1996.
This decrease is due primarily to decreases in research and development expenses
in the second quarter of 1997 from the second quarter of 1996.
Interest income for the quarter ended June 30, 1997 decreased 47% to $19,915
from $37,438 for the second quarter 1996. This $17,523 decrease is due to lower
cash balances during the second quarter of 1997 as a result of the investment of
cash into the operations of the business.
Interest expense for the second quarter of 1997 remained constant at
approximately $7,400 from the second quarter 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
Net sales for the six months ended June 30, 1997 from all business activities
increased approximately 17% or $371,142 to $2,591,063. These increases are due
to increased sales volume of the Company's chemical cleaning agents to existing
customers as well as sales to new customers who are converting from ozone
depleting processes and chemicals. Sales of equipment, processes and
peripheral systems have increased due to increased sales and marketing efforts.
Gross profit for the six months ended June 30, 1997 increased 20% or $227,439 to
$1,339,684 as compared to $1,112,245 in the six months 1996. This increase is
attributable to increased sales volume of the Company's cleaning agents, as well
as increased sales of equipment, processes, and peripheral systems. Gross
profit margins from all business activities increased from 50% in the first six
months of 1996 to 52% in the first six months of 1997, reflecting a change in
product mix and sales of higher margin products.
Selling, general, and administrative expenses for the six months ended June 30,
1997 increased 15% or $192,362 to $1,441,568 as compared to $1,249,206 for the
first six months of 1996. This increase reflects augmented spending on
advertising, selling expenses, and marketing expenses during the first six
months of 1997.
Research and development expenses for the six months ended June 30, 1997
decreased 29% or $98,456 to $245,808 from $344,264 for the six months ended June
30, 1996. This decrease resulted from research and development expenses in the
first six months of 1996 related to the development of a new machine product
line, that were not expended during the first six months of 1997.
Operating loss for the six months ended June 30, 1997 decreased 28% or $133,533
to a loss of $347,692 from a loss of $481,225 for the six months ended June 30,
1996. This decrease is due primarily to the higher overall profit margin and
decreased research and development expenses in the first six months of 1997 over
the first six months of 1996.
Page 8 of 10
<PAGE>
KYZEN CORPORATION
- --------------------------------------------------------------------------------
Interest income for the six months ended June 30, 1997 decreased 36% to $43,489
from $67,457 for the first six months of 1996. This $23,968 decrease is due to
lower cash balances during the first six months 1997 as a result of the
investment of cash into the operations of the business.
Interest expense for the first six months 1997 decreased 52% to $7,688 from
$16,062 in the first six months 1996. The decrease of $8,374 in interest
expense reflects the results of the extinguishment of debt.
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,
statements which are not historical in nature, including 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 the remaining proceeds from its
initial public offering in 1995. The Company's primary uses of funds are
research and development of new product lines, purchase of capital equipment,
and sales and marketing activities.
As of June 30, 1997 the Company had working capital of $1,622,703 compared to
$1,994,994 as of December 31, 1996. This represents a decrease of $372,291, or
19% from December 31, 1996. This decrease resulted primarily from the funding
of operations and purchase of fixed assets.
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 June 30, 1997, there was no balance outstanding on this line of
credit.
Cash used by operations of $377,119 in the first six months of 1997 represented
a $16,175 increase over cash used by operations of $360,944 during the same
period in 1996. This increase resulted from losses from operations, increases in
inventory, and decreases in accounts receivable.
Cash provided by investing activities of $291,294 in the six months ended June
30, 1997 represented a $651,393 increase over cash used by investing activities
during the first quarter of 1996 of $360,099. This decrease was due to the
reduced purchasing of fixed assets and selling of short-term investments during
the first six months of 1997.
Cash used by financing activities amounted to $1,497 in the six months ended
June 30, 1997, compared to $1,679 used by financing activities during the same
period of 1996.
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, or
otherwise) the Company could be required to seek additional financing from
public or private debt and equity markets prior to such time. There can be no
assurance, however, that these sources will be available to the Company on
favorable terms, and unfavorable markets could limit the Company's ability to
obtain additional financing. 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 the remainder of 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 9 of 10
<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 7/15/97 /s/ KYLE J. DOYEL
--------------------------- --------------------------------------
(Signature)
Kyle J. Doyel
President and Chief Executive Officer
Date 7/15/97 /s/ BENJAMIN D. WOLFLEY
--------------------------- --------------------------------------
(Signature)
Benjamin D. Wolfley
Treasurer and Chief Accounting Officer
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KYZEN
CORPORATION FORM QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 0 654,498
<SECURITIES> 0 99,788
<RECEIVABLES> 0 767,184
<ALLOWANCES> 0 0
<INVENTORY> 0 507,759
<CURRENT-ASSETS> 0 2,151,387
<PP&E> 0 2,827,074
<DEPRECIATION> 0 436,483
<TOTAL-ASSETS> 0 3,220,904
<CURRENT-LIABILITIES> 0 528,684
<BONDS> 0 0
0 0
0 0
<COMMON> 0 50,065
<OTHER-SE> 0 2,638,439
<TOTAL-LIABILITY-AND-EQUITY> 0 3,220,904
<SALES> 1,303,444 25,911,063
<TOTAL-REVENUES> 1,303,444 25,911,063
<CGS> 610,140 1,251,379
<TOTAL-COSTS> 610,140 1,251,379
<OTHER-EXPENSES> 790,704 1,687,376
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (12,515) (35,801)
<INCOME-PRETAX> (84,885) (311,891)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (84,885) (311,891)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (84,885) (311,891)
<EPS-PRIMARY> (.02) (.06)
<EPS-DILUTED> (.02) (.06)
</TABLE>
