<PAGE> 1
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 March 31, 1998
--------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
-------------------- -------------------------
Commission file number 0-26434
---------------------------------------------------------
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, $0.01 par value, outstanding as of
April 20, 1998
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
Page 1 of 16
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements:
Balance Sheet as of March 31, 1998 and
December 31, 1997 (unaudited) 3
Statement of Operations for the three months ended
March 31, 1998 (unaudited) and 1997 (unaudited) 4
Statement of Cash Flows for the three months ended
March 31, 1998 (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 9
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
Page 2 of 16
<PAGE> 3
KYZEN CORPORATION
BALANCE SHEET
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 459,321 $ 710,778
Short-term investments -- 99,208
Accounts receivable, net of allowance for doubtful accounts
of $7,094 in 1998 and $8,068 in 1997 882,977 802,400
Costs and estimated losses in excess of billings on
uncompleted contracts 4,529 7,155
Inventory 335,089 332,367
Other 34,834 28,892
----------- -----------
Total current assets 1,716,750 1,980,800
Property and equipment, net 1,036,747 928,079
Patents, net 148,967 147,296
Interest receivable from related parties 177,703 170,151
----------- -----------
Total assets $ 3,080,167 $ 3,226,326
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable and capital lease obligations, current $ 17,282 $ 17,050
Accounts payable and accrued expenses 563,254 707,781
Accounts payable to related parties 29,382 5,381
----------- -----------
Total current liabilities 609,918 730,212
Note payable and capital lease obligations 61,950 67,665
----------- -----------
Total liabilities 671,868 797,877
----------- -----------
Mandatorily redeemable Class B Common Stock, 1,200,000
shares authorized, no shares issued or outstanding at
March 31, 1998 and December 31, 1997, respectively
Shareholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding at
March 31, 1998 and December 31, 1997, respectively
Class A Common Stock, $0.01 par value, 30,000,000 shares
authorized, 5,006,781 and 5,006,681 shares issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively 50,068 50,068
Additional paid-in capital 5,294,633 5,294,633
Treasury stock, at cost (313) (313)
Accumulated deficit (2,936,089) (2,915,939)
----------- -----------
Total shareholders' equity 2,408,299 2,428,449
----------- -----------
Total liabilities and shareholders' equity $ 3,080,167 $ 3,226,326
=========== ===========
</TABLE>
Page 3 of 16
<PAGE> 4
KYZEN CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 1,427,190 $ 1,287,618
Cost of sales 616,026 652,110
----------- -----------
Gross profit 811,164 635,508
Operating costs and expenses:
Selling, marketing, general and administrative 737,994 770,892
Research and development expenses 108,013 143,146
----------- -----------
Total operating expenses 846,007 914,038
----------- -----------
Operating loss (34,843) (278,530)
Other income (expense):
Interest income 16,678 23,574
Interest expense (1,985) (288)
----------- -----------
Total other income (expense) 14,693 23,286
----------- -----------
Net loss $ (20,150) $ (255,244)
=========== ===========
Basic and diluted earnings per share $ (0.00) $ (0.05)
Weighted average shares outstanding 5,006,681 5,000,167
</TABLE>
Page 4 of 16
<PAGE> 5
KYZEN CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (20,150) $ (255,244)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 55,743 51,072
Non-cash interest charge -- --
Decrease (increase) in accounts receivable (80,577) 42,930
Decrease in costs and estimated losses in excess of billings on
uncompleted contracts 2,626 318
Increase in inventory (2,722) (46,270)
Increase in other current assets (5,942) (14,983)
Increase in interest receivable from related parties (7,552) (11,327)
Increase (decrease) in accounts payable and accrued expenses (120,526) 56,113
----------- -----------
Net cash used by operating activities (179,100) (177,391)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments 99,208 (12,966)
Purchase of fixed assets (158,086) (87,017)
Purchase of patent rights and related expenditures (7,996) (8,163)
----------- -----------
Net cash used by investing activities (66,874) (108,146)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock -- 1,219
Payment on note payable (5,483) (1,341)
----------- -----------
Net cash used by financing activities (5,483) (122)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (251,457) (285,659)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 710,778 741,820
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 459,321 $ 456,161
=========== ===========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used for interest payments was $1,975 for the three months ended March
31,1998 and $288 for the three months ended March 31, 1997. The Company paid no
income taxes for the three months ended March 31, 1998 or the three months ended
March 31, 1997.
Page 5 of 16
<PAGE> 6
KYZEN CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Kyzen(R) Corporation ("Kyzen" or the "Company") manufactures and markets
chemical solutions and processes used in high-technology cleaning applications,
including electronic assemblies and precision metal and plastic components where
precision cleaning processes are required. The Company also manufactures and
markets peripheral equipment such as process control systems and chemical
handling systems designed to enhance the use by the Company's customers of its
chemical solutions. These products and services may be sold as a package, as a
cleaning process or as separate items that can be integrated into the customer's
existing cleaning process. The Company was incorporated in Utah in 1990. Its
headquarters are located at 430 Harding Industrial Dr., Nashville, TN 37211,
where its telephone number is (615) 831-0888, and its fax number is (615)
831-0889.
The Company's operations are conducted within one business segment. Sales to
customers outside the United States totaled $123,254 in first quarter 1998 and
$227,297 in the first quarter 1997, representing approximately 9% and 18% of
1998 and 1997 net sales respectively, for the three-month periods then ended.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers securities with an original maturity of three months or
less to be cash equivalents.
SHORT-TERM INVESTMENTS
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. The Company has classified all of its
investments in debt and equity securities as trading securities as defined by
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Debt and Equity Securities." In accordance with SFAS No. 115, the
Company records its investments at fair value and recognizes unrealized holding
gains and losses in earnings. Unrealized gains and losses recognized in earnings
during the first quarter 1998 and the year 1997 were not significant.
Fair value is determined by the most recently traded price of the security at
the balance sheet date. Net realized gains or losses are determined on the
specific identification cost method.
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 chemical products or services is recognized based upon shipment of
products or performance of services. Revenues and profits are recorded using the
percentage of completion method for certain contracts based on the product type,
contract size and duration of the time to completion. The percentage of
completion is determined by relating the actual costs of work performed to date
to the current estimated total cost of the respective contracts. Revenues and
profits on all other contracts are recorded as shipment is made. If estimated
total costs on any of these contracts indicate a loss, the entire amount of the
estimated loss is recognized immediately. Costs reduced by estimated losses in
excess of billings on uncompleted contracts, as reflected on the accompanying
balance sheet, represent revenues recognized in excess of amounts billed.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" as of January 1, 1998. This Statement requires that certain transactions
historically recorded through the statement of stockholders equity be presented
in the financial statements as other comprehensive income. During the periods
presented, the Company did not have any transactions that gave rise to other
comprehensive income; therefore, comprehensive and net income are equivalent.
Page 6 of 16
<PAGE> 7
KYZEN CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values of cash, accounts receivable and accounts payable approximate
fair value due to the short-term maturities of these assets and liabilities. The
fair value of the Company's note payable is not significantly different than its
carrying amount based upon the current interest rate environment.
INVENTORIES
Inventories are valued at the lower of cost or market value 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.
PATENT COSTS
Patent costs, including the purchase of patent rights and legal costs incurred
related to issued 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 $59,006 as of March 31, 1998 and $52,681 as of December
31, 1997.
IMPAIRMENT OF VALUE
Impairment of accounting value is measured on the basis of anticipated
undiscounted cash flows from operations. Based upon a review of its assets, the
Company determined no impairment existed at March 31, 1998 or December 31, 1997.
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.
ADVERTISING COSTS
Costs incurred for producing and publishing advertising are expensed in the
period incurred and totaled $58,817 for the quarter ended March 31, 1998 and
$90,727 for the quarter ended March 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER SHARE DATA
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share," in the
quarter ending December 31, 1997. SFAS No. 128 requires the presentation of
basic and diluted earnings per share ("EPS") on the face of the statement of
operations. In accordance with the provisions SFAS No. 128, the Company
calculates basic EPS as income available to common shareholders divided by the
weighted average number of shares outstanding during the year. Diluted EPS is
calculated using the "if converted method" for convertible securities and the
treasury stock method for options and warrants as prescribed by Accounting
Principles Board Opinion No. 15. This Statement has been applied,
retrospectively, to all periods presented.
SFAS No. 128 also requires the Company to disclose a reconciliation of the
numerators and denominators used in basic and diluted EPS. Based upon the
Company's capital structure throughout for the quarter ended March 31, 1998 and
for the year 1997 and the Company's net losses for such periods, there are no
differences in the amounts used in the
Page 7 of 16
<PAGE> 8
KYZEN CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
numerators and denominators for purposes of calculating basic EPS and diluted
EPS. As a result, basic EPS and diluted EPS are the same for the periods
presented.
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, 1997. The results of
operations for the three-month period ended March 31, 1998 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 March 31, 1998; its results of operations for the
three-month period ended March 31, 1998 and 1997; and its cash flows for the
three months ended March 31, 1998 and 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
adopted the provisions of this Statement effective January 1, 1998. Based upon a
review of its operations, management believes that the Company operates in only
one reportable segment.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." SFAS No. 132 revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. The Company adopted the provisions
of this Statement effective January 1, 1998. Adoption of this Statement did not
have a material impact on the Company's financial condition or results of
operations.
Page 8 of 16
<PAGE> 9
KYZEN CORPORATION
PART I (CONT.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF QUARTERS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Net sales for the quarter ended March 31, 1998 from all business activities
increased approximately 11% or $139,572 to $1,427,190. This increase is due to
increased sales volume of the Company's chemical cleaning products to existing
customers as well as sales to new customers who are converting to the Company's
products. This increase reflects the shift in the Company's focus away from
sales of large pieces of equipment towards sales of more profitable chemical
cleaning products and smaller pieces of equipment like the Process Control
System (PCS). Sales of equipment, processes and peripheral systems decreased
during the first quarter 1998, versus the same period in 1997.
Gross profit for the quarter ended March 31, 1998 increased 28% or $175,656 to
$811,164, as compared to $635,508 in the first quarter of 1997. This $175,656
increase is attributable to increased sales volume of the Company's cleaning
products, as well as improved overall gross margin from selling a greater mix of
higher margin chemical products. Gross profit margins from all business
activities increased from 49% in the first quarter of 1997 to 57% in the first
quarter of 1998, reflecting a change in product mix, sales of higher margin
products and better economies of scale provided by the larger sales volume of
chemical products.
Selling, marketing, general and administrative expenses for the quarter ended
March 31, 1998 decreased 4% or $32,898 to $737,994 as compared to $770,892 for
the first quarter of 1997. This decrease reflects reduced spending on the
Company's annual report and rent offset by slightly increased spending on
advertising, selling expenses and marketing expenses during the first quarter of
1998.
Research and development expenses for the quarter ended March 31, 1998 decreased
25% or $35,133 to $108,013 from $143,146 for the quarter ended March 31, 1997.
This decrease resulted from the absence in 1998 of certain research and
development expenses that were incurred in the first quarter of 1997 related to
the purchase of experimental materials and supplies.
Operating loss for the quarter ended March 31, 1998 decreased 87% or $243,687 to
a loss of $34,843 from a loss of $278,530 for the quarter ended March 31, 1997.
This decrease is due primarily to increased chemical product sales, and higher
gross margins and the slight reduction of expenses in the first quarter of 1998
over the first quarter of 1997.
Interest income for the quarter ended March 31, 1998 decreased 29% to $16,678
from $23,574 for the first quarter 1997. This $6,896 decrease is due to lower
cash balances during the first quarter of 1998 as a result of the investment of
cash into the operations of the business.
Interest expense for the first quarter 1998 increased 589% to $1,985 from $288
in the first quarter 1997. The increase of $1,697 in interest expense reflects
the Company obtaining a term loan in November 1997.
FORWARD-LOOKING STATEMENTS
Management has included 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 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. Actual results, events and performance
may differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to release publicly the result
of any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Page 9 of 16
<PAGE> 10
KYZEN CORPORATION
PART I (CONT.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds has been the remaining proceeds from its
initial public offering in 1995 and borrowings on a term loan. The Company's
primary uses of funds are the funding of current operations, research and
development of new product lines, purchase of capital equipment, construction
and expansion of the Cleaning Applications and Evaluation Centers and sales and
marketing activities.
As of March 31, 1998, the Company had working capital of $1,106,832, compared to
$1,250,588 as of December 31, 1997, representing a decrease of $143,756, or 11%
from 1997. This decrease resulted primarily from the funding of current
operations, the purchase and construction of fixed assets and the purchase of
patent rights and related expenditures during the first quarter of 1998.
In April 1997, 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 (the "Credit Facility"). On November 13, 1997 the Credit Facility was
reduced to $420,000 and the Company obtained a term loan of $80,000 for the
financing of certain improvements to the Company's offices, laboratories and
demonstration facilities (the "Term Loan"). This Term Loan had a stated rate of
interest of 10% and requires monthly interest and principal payments of $2,039
through December 2001. As of March 31, 1998, the balance outstanding under the
Term Loan was $74,036. On April 12, 1998 the Company repaid the balance
outstanding and terminated the Term Loan.
As a result of its operating losses, the Company was in violation of certain of
its financial debt covenants under the Credit Facility at December 31, 1997 and
at March 31, 1998. The Company received waivers of these covenants from its
lender under the Credit Facility through December 31, 1997. At December 31, 1997
and March 31, 1998, the Company had no balances outstanding under the Credit
Facility. On April 12, 1998, the Company terminated the Credit Facility and the
lender released all security agreements thereunder. The Company is currently
negotiating with several lenders to obtain a replacement credit facility. There
can be no assurance, however, that the Company will be able to obtain another
credit facility on terms favorable to the Company to replace the Credit
Facility.
Cash used by operations of $179,100 in the first quarter of 1998 represented a
$1,709 or 1% increase over cash used by operations of $177,391 during same
period in 1997. This increase resulted from lower operating losses, decreases in
accounts payable and increases in accounts receivable as compared to the same
period in 1997.
Cash used by investing activities of $66,874 in the quarter ended March 31, 1998
represented a $41,272 or 38% decrease over cash used by investing activities
during the quarter ended March 31, 1997 of $108,146. This decrease was due
primarily to the liquidation of short-term investments during the first quarter
of 1998, and partially offset by higher fixed asset purchases for completion of
the Company's laboratories and demonstration facilities.
Cash used by financing activities of $5,483 in the quarter ended March 31, 1998
represented an increase of $5,361 or 4,394% from cash used by financing
activities of $122 during the quarter ended March 31, 1997. This difference was
due to principal payments on the Term Loan made during the quarter ended March
31, 1997.
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 at least through December 31, 1998. The
Company's cash requirements for 1998 and beyond will depend primarily upon the
level of sales of chemical products, product development, sales and marketing
expenditures, timing of expansion plans and capital expenditures. In the event
the Company's plans change, or 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.
Further, there can be no assurance that the Company will obtain a credit
facility on favorable terms to replace the Credit Facility if financing of the
Company's cash requirements becomes necessary. Additionally, the Company plans
to continue to investigate potential acquisition candidates that are consistent
with the Company's growth strategies, which would create additional financing
needs for the Company.
Page 10 of 16
<PAGE> 11
KYZEN CORPORATION
PART I (CONT.)
INTERNATIONAL TRADE DEVELOPMENTS
In 1998, manufacturers in the Peoples Republic of China have become major
suppliers to the Company. In 1998, the Company may import up to approximately
30% of its purchases from China. The United States has threatened trade
sanctions of up to $2 billion if China does not increase its efforts to stop
piracy and other intellectual property violations. In addition, annual renewal
of China's most-favored-nation trading status is under review by the United
States. Failure of the United States government to continue to grant
most-favored-nation treatment to could raise duties, thereby increasing the cost
of certain of the Company's raw materials. The Company has historically and
continues to obtain these raw materials domestically, and the Company has
contingency plans in case of negative developments in Chinese sources. There can
be no assurance, however, that such developments will not have a material
adverse affect on the Company's financial condition and results of operations.
YEAR 2000
The Company is evaluating its internal computing and communications systems and
believes such systems will all accommodate the year 2000 century change. Because
of the relatively simple nature of the Company's information systems, management
believes any impact on such systems resulting from the year 2000 and beyond will
not have a material adverse effect on the Company's financial condition or
results of operations.
Page 11 of 16
<PAGE> 12
KYZEN CORPORATION
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
Exhibit 10.29 Amended Lease Agreement, dated April 1, 1998 between
Harding Business Park, a Partnership, and the Company,
for the Company's Nashville, TN headquarters and
chemical manufacturing facilities.
Exhibit 27 Financial Data Schedule (for SEC use only).
Page 12 of 16
<PAGE> 13
KYZEN CORPORATION
PART II (CONT.)
(b) Reports on Form 8-K
During the first quarter of 1998 the Company filed two current reports on
Form 8-K. On January 27, 1998 a Form 8-K was filed reporting a press
release that was published on January 27, 1998, with its accompanying
schedules and exhibits, pertaining to the Company's fourth quarter and year
ended December 31, 1997, statement of operations and earnings per share. On
January 29, 1998 a Form 8-K was filed reporting an analyst conference call
script for the Company's conference call held on January 27, 1998, with its
accompanying information pertaining to the Company's fourth quarter and
year ended December 31, 1997, and discussion of the Company's business
plans.
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 May 15, 1998 /s/ Kyle J. Doyel
------------------------------- ----------------------------------------
(Signature)
Kyle J. Doyel
President and Chief Executive Officer
Date May 15, 1998 /s/ Thomas M. Forsythe
------------------------------- ----------------------------------------
(Signature)
Thomas M. Forsythe
Treasurer and Chief Accounting Officer
Page 13 of 16
<PAGE> 14
KYZEN CORPORATION
EXHIBITS
EXHIBIT INDEX AND EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
Exhibit 10.29 Amended Lease Agreement, dated April 1, 1998 between
Harding Business Park, a Partnership, and the Company,
for the Company's Nashville, TN headquarters and
chemical manufacturing facilities.
Exhibit 27 Financial Data Schedule (for SEC use only).
</TABLE>
Page 14 of 16
<PAGE> 1
KYZEN CORPORATION
EXHIBITS
EXHIBIT 10.29
Amended Lease Agreement, dated April 1, 1998 between Harding
Business Park, a Partnership and the Company, for the Company's
Nashville, TN headquarters and chemical manufacturing facilities.
LEASE EXTENSION AND AMENDMENT AGREEMENT
FOR AND IN CONSIDERATION of the mutual benefits to be derived
therefrom, it is hereby understood and agreed that the Lease Agreement dated
JUNE 11, 1993, and further amended JUNE 28, 1993 and FEBRUARY 1, 1996, by and
between HARDING BUSINESS PARK, A PARTNERSHIP, known as LESSOR and KYZEN
CORPORATION, A UTAH CORPORATION, known as Lessee is hereby amended as follows:
The LESSOR hereby grants LESSEE a TWO (2) YEAR EXTENSION on the term
of the existing Lease under the same terms and conditions except that the rental
rate shall be as follows:
$8,000.00/MONTH FOR THE PERIOD FEBRUARY 1, 1999 THROUGH JANUARY 31, 2001
Additionally, the LESSOR hereby grants to LESSEE, if not in default of
the Lease, ONE (1) TWO (2) YEAR OPTION TO RENEW under the same terms and
conditions of the Lease, except that the rental rate shall be as follows:
$8,400.00/MONTH FOR THE PERIOD FEBRUARY 1, 2001 THROUGH JANUARY 31, 2003
LESSEE shall give not less than ONE HUNDRED TWENTY (120) DAYS prior
written notice of it's intent to renew this Lease. In the event notice is not
received in such manner the option to renew is hereby deemed waived.
ACCEPTED AND AGREED:
LESSOR: HARDING BUSINESS PARK, A PARTNERSHIP
BY: /s/ Charles W. Hawkins / Vaden Lackey Jr.
--------------------------------------------
LESSEE: KYZEN CORPORATION
BY: /s/ Kyle J. Doyel
--------------------------------------------
Its: President and CEO
Dated: April 1, 1998
-----------------------------------------
Page 15 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF KYZEN CORPORATION FOR THE THREE MONTH PERIOD ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 459,321
<SECURITIES> 0
<RECEIVABLES> 890,071
<ALLOWANCES> 7,094
<INVENTORY> 335,089
<CURRENT-ASSETS> 1,716,750
<PP&E> 1,579,277
<DEPRECIATION> 542,529
<TOTAL-ASSETS> 3,080,167
<CURRENT-LIABILITIES> 609,918
<BONDS> 0
0
0
<COMMON> 50,068
<OTHER-SE> 2,358,231
<TOTAL-LIABILITY-AND-EQUITY> 3,080,167
<SALES> 1,427,190
<TOTAL-REVENUES> 1,427,190
<CGS> 616,026
<TOTAL-COSTS> 616,026
<OTHER-EXPENSES> 846,007
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,985
<INCOME-PRETAX> (20,150)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,150)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
