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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________________ to ____________________
Commission file number 0-26434
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Kyzen Corporation
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(Exact name of the small business issuer as
specified in its charter)
Utah 87-0475115
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Harding Industrial Drive, Nashville, TN 37211
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(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (615) 831-0888
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(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:
5,006,348 shares of Class A Common Stock outstanding as of April 14, 1997
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Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
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INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements:
Balance Sheet as of December 31, 1996 and
March 31, 1997 (unaudited) 3
Statement of Operations for the three months ended
March 31, 1996 (unaudited) and 1997 (unaudited) 4
Statement of Cash Flows for the three months ended
March 31, 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 9
</TABLE>
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KYZEN CORPORATION
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BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 741,820 $ 456,161
Short-term investments 528,416 541,382
Accounts receivable, net of allowance for doubtful
accounts of $16,338 in 1996 and $14,204 in 1997 860,785 817,855
Costs and estimated losses in excess of billings
on uncompleted contracts 80,321 80,003
Inventory 205,126 251,396
Other 37,137 52,120
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Total current assets 2,453,605 2,198,917
Property and equipment, net 786,797 824,846
Patents, net 99,243 105,302
Interest receivable from related parties 124,839 136,166
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Total assets $ 3,464,484 $ 3,265,231
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LIABILITIES, REDEEMABLE STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and capital lease obligations, current $ 5,610 $ 5,741
Accounts payable and accrued expenses 432,088 437,949
Accounts payable to related parties 20,913 71,165
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Total current liabilities 458,611 514,855
Notes payable and capital lease obligations 6,697 5,225
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Total liabilities 465,308 520,080
Shareholders' equity (deficit):
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding at December 31, 1996
and March 31, 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) (2,599,175)
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Total shareholders' equity 2,999,176 2,745,151
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Total liabilities and shareholders' equity $ 3,464,484 $ 3,265,231
=========== ===========
</TABLE>
3
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KYZEN CORPORATION
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STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1997
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(UNAUDITED)
<S> <C> <C>
NET SALES $ 964,530 $ 1,287,618
Cost of sales 524,687 652,110
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GROSS PROFIT 439,843 635,508
OPERATING COSTS AND EXPENSES:
Selling, general and administrative expenses 586,279 770,892
Research and development expenses 178,211 143,146
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TOTAL OPERATING EXPENSES 764,490 914,038
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OPERATING LOSS (324,647) (278,530)
OTHER INCOME (EXPENSE):
Interest income 30,019 23,574
Interest expense (8,524) (288)
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TOTAL OTHER INCOME 21,495 23,286
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NET LOSS $ (303,152) $ (255,244)
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Net income (loss) per Class A Common Share $ (0.06) $ (0.05)
=========== ===========
Weighted average shares outstanding 4,917,322 5,000,167
=========== ===========
</TABLE>
4
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KYZEN CORPORATION
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STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
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(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (303,152) $(255,244)
Adjustments to reconcile net income to net used by
operating activities:
Depreciation and amortization 25,503 51,072
Non-cash interest charge 5,342
Decrease in accounts receivable 32,489 42,930
Decrease (increase) in costs and estimated losses on long-term contracts (43,520) 318
Increase in inventory (4,431) (46,270)
Increase in other current assets (11,667) (14,983)
Increase in interest receivable from related parties (3,748) (11,327)
Increase in accounts payable and accrued expenses 159,512 56,113
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Net cash used by operating activities (143,672) (177,391)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (211,504) (12,966)
Purchase of fixed assets (77,383) (87,017)
Purchase of patent rights and related expenditures (3,600) (8,163)
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Net cash used by investing activities (292,487) (108,146)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock 1,219
Payment on note payable (1,341)
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Net cash used by financing activities -- (122)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (436,159) (285,659)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,608,890 741,820
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,172,731 $ 456,161
=========== =========
</TABLE>
Cash used for interest payments was $3,186 and $288 for the three months
ended March 31, 1996 and 1997, respectively.
5
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KYZEN CORPORATION
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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 $36,590 and $227,297 in the first
quarter of 1996 and 1997, respectively, representing 4% and 18%, respectively of
net sales for the three-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.
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 of
equipment 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 losses of approximately $101,000 and $5,600
during the first quarter of 1996 and 1997, respectively, related to its
specialty cleaning machine contract.
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.
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 $44,780 as of
March 31, 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 March 31, 1997 no impairment was indicated.
6
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KYZEN CORPORATION
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
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 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-month period 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, 1997; its results of operations for the
three-month period ended March 31, 1996 and 1997; and its cash flows for the
three months ended March 31, 1996 and 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS 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, SFAS Statement No. 123, "Accounting for Stock-Based
Compensation" was issued. The Company will continue to measure compensation
costs of its employee stock compensation plans as prescribed by Accounting
Policy Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
as allowed under SFAS No. 123. SFAS No. 123 does, however, require disclosure of
the pro forma effect of stock-based compensation. This information is disclosed
in the footnotes to the financial statements.
NOTE 2 - RESTATEMENT OF QUARTER
As a result of adjustments identified in the year-end closing process, which
impact the previously reported financial position and results of operations of
the quarter ended March 31, 1997, these 1997 quarterly financial statements have
been restated as follows:
<TABLE>
<CAPTION>
As Reported Restated
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<S> <C> <C>
Balance Sheet:
Current Assets $2,203,454 $2,198,917
Total Assets 3,279,531 3,265,231
Statement of Operations:
Net Sales $1,287,618 $1,287,618
Gross Profit 646,379 635,508
Total operating expenses 896,671 914,039
Net loss (227,006) (255,244)
</TABLE>
7
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KYZEN CORPORATION
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
The Company has reviewed the underlying causes of the adjustments and has taken
steps management believes necessary to prevent the need for such adjustments in
the future.
8
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KYZEN CORPORATION
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESTATEMENT OF QUARTER FINANCIAL STATEMENTS
In the course of performing the year-end closing, the Company identified certain
adjustments which affected the quarter ended March 31, 1997 as discussed in
detail in Note 2 to the financial statements. This Management's Discussion and
Analysis of Financial Condition has been revised to reflect those changes.
COMPARISON OF QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1997
Net sales for the quarter ended March 31, 1997 from all business activities
increased approximately 33% or $323,088 to $1,287,618. 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 quarter ended March 31, 1997 increased 44% or $195,665 to
$635,508 as compared to $439,843 in the first quarter 1996. This $195,665
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 46% in
the first quarter of 1996 to 49% in the first quarter of 1997, reflecting a
change in product mix and sales of higher margin products.
Selling, general, and administrative expenses for the quarter ended March 31,
1997 increased 31% or $184,613 to $770,892 as compared to $586,279 for the first
quarter of 1996. This increase reflects augmented spending on advertising,
selling expenses, and marketing expenses during the first quarter of 1997.
Research and development expenses for the quarter ended March 31, 1997 decreased
20% or $35,065 to $143,146 from $178,211 for the quarter ended March 31, 1996.
This decrease resulted from research and development expenses in the first
quarter of 1996 related to the development of a new machine product line, that
were not expended during the first quarter of 1997.
Operating loss for the quarter ended March 31, 1997 decreased 14% or $46,117 to
a loss of $278,530 from a loss of $324,647 for the quarter ended March 31, 1996.
This decrease is due primarily to the increased chemical sales in the first
quarter of 1997 over the first quarter of 1996.
Interest income for the quarter ended March 31, 1997 decreased 21% to $23,574
from $30,019 for the first quarter 1996. This $6,445 decrease is due to lower
cash balances during the first quarter 1997 as a result of the investment of
cash into the operations of the business.
Interest expense for the first quarter 1997 decreased 97% to $288 from $8,524 in
the first quarter 1996. The decrease of $8,236 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 source of funds has been 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.
9
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KYZEN CORPORATION
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As of March 31, 1997 the Company had working capital of $1,684,062 compared to
$1,994,994 as of December 31, 1996. This represents a decrease of $310,932, or
16% 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 March 31, 1997, there was no balance outstanding on this line of
credit.
Cash used by operations of $177,391 in the first quarter of 1997 represented a
$33,719 increase over cash used by operations of $143,672 during the same period
in 1996. This increase resulted from losses from operations and increases in
inventory.
Cash used by investing activities of $108,146 in the quarter ended March 31,
1997 represented a $184,341 decrease over cash used by investing activities
during the first quarter of 1996 of $292,487. This decrease was due to the
reduced purchasing of short-term investments during the first quarter 1997.
Cash used by financing activities amounted to $122 in the quarter ended March
31, 1997. No cash was provided or used by financing activities during the
quarter ended March 31, 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.
10
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KYZEN CORPORATION
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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
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(Registrant)
Date February 3, 1998 /s/ Kyle J. Doyel
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(Signature)
Kyle J. Doyel
President and Chief Executive Officer
Date February 3, 1998 /s/ Thomas M. Forsythe
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(Signature)
Thomas M. Forsythe
Treasurer and Chief Accounting Officer
