<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, 1999
------------------------------------------------
[ ] 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 (615) 831-0888
- --------------------------------------------------------------------------------
(Address of principal (Zip Code) (Issuer's telephone number)
executive offices)
- --------------------------------------------------------------------------------
(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, 1999
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): [ ] Yes [ X ] No
Page 1 of 14
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I Financial Information
Item 1. Financial Statements:
Balance Sheet as of March 31, 1999 (unaudited) and
December 31, 1998 (audited) 3
Statement of Operations for the three months ended
March 31, 1999 (unaudited) and 1998 (unaudited) 4
Statement of Cash Flows for the three months ended
March 31, 1999 (unaudited) and 1998 (unaudited) 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
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 14
<PAGE> 3
KYZEN CORPORATION
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BALANCE SHEET
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 534,550 $ 523,915
Accounts receivable, net of allowance for doubtful accounts
of $9,345 in 1999 and $8,160 in 1998 938,070 831,717
Inventory 362,824 345,898
Other current assets 36,056 46,093
----------- -----------
Total current assets 1,871,500 1,747,623
Property and equipment, net 832,937 861,521
Patents, net 191,424 177,150
Interest receivable from related parties, net 128,282 215,463
----------- -----------
Total assets $ 3,024,143 $ 3,001,757
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 593 $ 593
Accounts payable and accrued expenses 546,660 503,951
Accounts payable to related parties 3,800 1,261
----------- -----------
Total current liabilities 551,053 505,805
Mandatorily redeemable Class B Common Stock, $0.001 par value, 1,500,000 shares
authorized, no shares issued or outstanding at March 31, 1999 or December
31, 1998
Mandatorily redeemable Class C Common Stock, $0.001 par value, 1,000,000 shares
authorized, no shares issued or outstanding at March 31, 1999 or December
31, 1998
Shareholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, no shares
issued or outstanding at March 31, 1999 or December 31, 1998
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized,
5,006,781 shares issued and 5,006,681 shares outstanding at March 31,
1999 and at December 31, 1998 50,068 50,068
Additional paid-in capital 5,294,633 5,294,633
Treasury stock, at cost (313) (313)
Accumulated deficit (2,871,298) (2,848,436)
----------- -----------
Total shareholders' equity 2,473,090 2,495,952
----------- -----------
Total liabilities and shareholders' equity $3,024,143 $ 3,001,757
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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Page 3 of 14
<PAGE> 4
KYZEN CORPORATION
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STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales $1,604,094 $1,427,190
Cost of sales 673,371 616,026
---------- ----------
Gross profit 930,723 811,164
Operating costs and expenses:
Selling, marketing, general and administrative 767,414 737,994
Research and development expenses 103,765 108,013
---------- ----------
Total operating expenses 871,179 846,007
---------- ----------
Operating income (loss) 59,544 (34,843)
Other income (expense) (82,406) 14,693
---------- ----------
Net loss $ (22,862) $ (20,150)
========== ==========
Earnings per share - basic and diluted $ (0.00) $ (0.00)
Weighted average shares outstanding - basic and diluted 5,006,681 5,006,681
</TABLE>
The accompanying notes are an integral part of these financial statements
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Page 4 of 14
<PAGE> 5
KYZEN CORPORATION
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STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(22,862) $(20,150)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 69,590 55,743
Increase in accounts receivable (106,353) (80,577)
Decrease in costs and estimated losses in excess of billings on
uncompleted contracts -- 2,626
Increase in inventory (16,926) (2,722)
Decrease (increase) in other current assets 10,037 (5,942)
Decrease (increase) in interest receivable from related parties 87,181 (7,552)
Increase (decrease) in accounts payable and accrued expenses 45,248 (120,526)
-------- --------
Net cash provided (used) by operating activities 65,915 (179,100)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments -- 99,208
Purchase of fixed assets (37,241) (158,086)
Purchase of patent rights and related expenditures (18,039) (7,996)
-------- --------
Net cash used by investing activities (55,280) (66,874)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable -- (5,483)
-------- --------
Net cash used by financing activities -- (5,483)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,635 (251,457)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 523,915 710,778
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $534,550 $459,321
======== ========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
There was no cash used for interest payments for the three months ended March
31,1999 and $1,975 for the three months ended March 31, 1998. The Company paid
no income taxes for the three months ended March 31, 1999 or the three months
ended March 31, 1998.
The accompanying notes are an integral part of these financial statements
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Page 5 of 14
<PAGE> 6
KYZEN CORPORATION
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
BACKGROUND
Kyzen(R) Corporation ("Kyzen" or the "Company') was formed to develop
environmentally safer chemical solutions to replace ozone-depleting solvents.
The Company manufacturers 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 peripheral equipment such as process
control systems and chemical handling systems that enhance the use by customers
of the Company's chemical solutions. Sales of such equipment totaled 3% of net
sales in both the three months ended March 31, 1999 and the three months ended
March 31, 1998. Typically these products are sold as separate items and are
integrated into a cleaning process by the customer or by the Company as part of
a contract service. The Company's operations are located in Nashville, Tennessee
and Manchester, New Hampshire.
The Company's operations are conducted within one reportable segment. Net sales
to customers outside the United States totaled $181,516 or 11% of net sales in
the three months ended March 31, 1999 and $123,254 or 9% of net sales in the
three months ended March 31, 1998. No one customer or non-US country accounted
for more than 10% of net sales during the periods presented.
INTERIM FINANCIAL STATEMENTS
The interim balance sheet at March 31, 1999 and the interim statements of
operations and of cash flows for three months ended March 31, 1999 and 1998 are
unaudited, and certain information and footnote disclosure related thereto,
normally included in the financial statements prepared in accordance with
generally accepted accounting principles, have been omitted, although management
believes that the disclosures herein are adequate to make information presented
not misleading. Management believes that the unaudited interim financial
statements were prepared following the same policies and procedures used in
preparation of the audited financial statements and all adjustments, consisting
only of normal recurring adjustments to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. These statements should be read in conjunction
with the Company's financial statements for the year ended December 31, 1998,
which are included in the Company's Annual Report on Form 10-KSB dated March 15,
1999. The results of operations for the interim periods are not necessarily
indicative of the results for the entire year.
EARNINGS PER SHARE
In accordance with the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS No. 128"), the Company calculates basic
earnings per share as income available to common shareholders divided by the
weighted average number of shares outstanding during the period. Diluted
earnings per share 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. SFAS No. 128 has been applied to
periods presented.
SFAS No. 128 requires the Company to disclose a reconciliation of the numerators
and denominators used in basic and diluted earnings per share. Based upon the
Company's capital structure throughout the three months ended March 31, 1999 and
1998 and the Company's net losses for such periods, there are no differences in
the amounts used in the numerators and denominators for purposes of calculating
basic and diluted earnings per share. As a result, basic and diluted earnings
per share are equivalent for each of the periods presented.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") on January 1, 1998. This Statement
requires the presentation of comprehensive income and its components in the
financial statements. The Company did not have any components of comprehensive
income other than its net loss during the periods presented.
INCOME TAXES
No benefit for income taxes is recorded for the periods presented as the Company
has significant net operating loss carryforwards and future realization is
uncertain.
Page 6 of 14
<PAGE> 7
KYZEN CORPORATION
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 2 INVENTORY
The following table details the components of inventory:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Raw Materials $228,643 $194,242
Work in process 1,705 1,705
Finished goods 132,476 149,951
-------- --------
Total Inventory $362,824 $345,898
======== ========
</TABLE>
NOTE 3 SHAREHOLDER RIGHTS PLAN
In January 1999, the Board of Directors of the Company adopted a Shareholder
Rights Plan (the "Plan"). Under the terms of the Plan, the Company declared a
dividend of preferred stock purchase rights (the "Rights") which generally
become exercisable upon the earlier of ten days following a public announcement
that a person or group has acquired 15% or more of the Company's Class A Common
Stock or ten days following the announcement of a tender offer which would
result in a person or group acquiring 15% or more of the Company's Class A
Common Stock. The Rights entitle the registered holder of one share of Class A
Common Stock to purchase from the Company one one-hundredth of a share of $0.01
par value Series A Junior Participating Preferred Stock of the Company at a
purchase price of $5.00 per Right (the "Purchase Price"), subject to certain
adjustments. The Rights expire at the close of business on January 15, 2009
unless earlier redeemed or extended by the Company.
Under certain circumstances, the Plan allows each holder of Class A Common
Stock, other than the acquiring person or group, to receive upon exercise the
number of shares of Class A Common Stock having a value equal to two times the
Purchase Price.
NOTE 4 SUBSEQUENT EVENTS
On April 28, 1999, shareholders of the Company approved among other things, the
redomestication of the Company from Utah to Tennessee and the amendment of the
Company's articles of incorporation. The amended articles of incorporation
authorize the issuance of not more than 40,000,000 shares of $0.01 par value
Common Stock, and 10,000,000 shares of $0.01 par value Preferred Stock including
up to 100,000 shares of $0.01 par value Series A Junior Participating Preferred
Stock. The capital structure of the Company provided for in the amended articles
of incorporation has not been reflected in the Company's balance sheet as of
March 31, 1999.
Page 7 of 14
<PAGE> 8
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Net sales for the quarter ended March 31, 1999 from all business activities
increased approximately 12% or $176,904 to $1,604,094. This increase is due to
increased sales volume of the Company's chemical cleaning products to existing
customers, sales to new customers who are converting to the Company's products
and introduction of new products in new market niches. This increase was offset
by the loss of a customer that closed its production facility, which had
represented 5% of net sales for the quarter ended March 31, 1998 and no sales
for the quarter ended March 31, 1999.
Gross profit for the quarter ended March 31, 1999 increased 15% or $119,559 to
$930,723, as compared to $811,164 in the first quarter of 1998. This increase is
attributable to increased sales volume of the Company's cleaning products,
greater efficiencies in production and procurement of raw materials and
increasing sales of higher margin chemical products. Gross profit margins from
all business activities increased from 57% in the first quarter of 1998 to 58%
in the first quarter of 1999, reflecting sales of higher margin chemical
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, 1999 increased 4% or $29,420 to $767,414 as compared to $737,994 for
the quarter ended March 31, 1998. This increase primarily reflects increased
spending on corporate items such as the Company's annual report, investor
relations and increased legal expenses associated with the Company's adoption of
a Shareholder rights plan and redomestication from Utah to Tennessee. The
remaining increase reflects increased selling expenses and marketing expenses
resulting from the publication of new sales materials, placement of new
advertising and attending trade shows.
Research and development expenses for the quarter ended March 31, 1999 decreased
4% or $4,248 to $103,765 from $108,013 for the quarter ended March 31, 1998.
This decrease resulted from the absence in 1999 of certain research and
development expenses that were incurred in the first quarter of 1998 related to
the purchase of experimental materials and supplies.
Operating income for the quarter ended March 31, 1999 increased 271% or $94,387
to $59,544 from a loss of $34,843 for the quarter ended March 31, 1998. This
increase is due primarily to increased chemical product sales, and higher gross
margins in the first quarter of 1999 over the first quarter of 1998.
Other expense for the quarter ended March 31, 1999 was $82,406 compared to other
income for the quarter ended March 31, 1998 of $14,693. The change was due to
management's decision to record a non-cash charge of approximately $88,000 due
to collectibility concerns surrounding accrued interest on a note receivable due
from certain former employees.
FORWARD-LOOKING STATEMENTS
Management has included in this report certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities 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; changes in the
import and export rules, regulations and tariffs as they apply to countries
where the Company conducts its business; the ability of the company to obtain
financing or 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; the failure of the
Company's significant suppliers or customers to accommodate the year 2000
century change 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 results 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 8 of 14
<PAGE> 9
KYZEN CORPORATION
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PART I (CONT.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds have been the remaining proceeds from its
initial public offering in 1995 and cash flows from operations. The Company's
primary uses of funds are the funding of 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, 1999, the Company had working capital of $1,320,447, compared to
$1,241,818 as of December 31, 1998, representing an increase of $78,629 or 6%
from 1998. This increase resulted from primarily increased income from
operations.
The Company is currently negotiating with several lenders to obtain a credit
facility to replace the credit facility terminated by the Company in April 1998.
The Company believes that its recently improved operating results should enable
the Company to obtain a replacement credit facility by the end of 1999. There
can be no assurance, however, that the Company will be able to obtain another
credit facility or that, if obtained, it would be on terms favorable to the
Company.
Cash provided by operations of $65,915 in the first quarter of 1999 represented
a $245,015 or 137% increase over cash used by operations of $179,100 during same
period in 1998. This increase resulted from higher operating margins, increases
in accounts payable and depreciation as compared to the same period in 1998.
Cash used by investing activities of $55,280 in the quarter ended March 31, 1999
represented a $11,594 or 17% decrease from cash used by investing activities
during the quarter ended March 31, 1998 of $66,874. This decrease was due
primarily to lower fixed asset purchases in the first quarter of 1999. In 1998,
the Company was completing its expansion of facilities in Nashville and using
proceeds from short-term investments to pay for a portion of the expansion. This
decrease was offset by $10,043 more spent on patents during the quarter ended
March 31, 1999 than in the same quarter in 1998.
Cash used by financing activities of $-0- in the quarter ended March 31, 1999
represented a decrease of $5,483 in expenditures of cash used by financing
activities of $5,483 during the quarter ended March 31, 1998. This difference
was due to the elimination of payments on a term loan that was paid in full
during the second quarter of 1998.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations and expansion plans that its current cash balances
together with projected cash flow from operations will be sufficient to satisfy
its contemplated cash requirements at least through December 31, 1999. The
Company's cash requirements in 2000 and beyond will depend primarily upon the
level of sales of chemical products, product development, sales and marketing
expenditures, timing of acquisitions, if any, and timing of expansion plans and
capital expenditures, if any. 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 or that, if obtained, it will be on
favorable terms to replace the credit facility terminated by the Company in
April 1998. Failure to obtain financing on terms favorable to the Company could
have a material adverse effect on the Company's financial condition and results
of operations. Additionally, the Company continues to investigate potential
acquisition candidates that are consistent with the Company's growth strategies,
which would create additional financing needs for the Company.
INTERNATIONAL TRADE DEVELOPMENTS
In 1998, manufacturers in the Peoples Republic of China became significant
suppliers to the Company. The Company expects to import up to approximately 30%
of its purchases of raw materials from China in 1999. The United States has
threatened trade sanctions 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 will be under review by the United
States government in 1999. Failure of the United States government to continue
to grant most-favored-nation treatment to China could raise duties, thereby
increasing the cost of certain of the Company's raw materials. The Company has
historically and continues to obtain a portion of these raw materials
domestically, and the Company has contingency plans in the event Chinese sources
are no longer able to provide these raw materials. There can be no assurance,
however, that such developments will not have a material adverse effect on the
Company's financial condition and results of operations.
Page 9 of 14
<PAGE> 10
KYZEN CORPORATION
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PART I (CONT.)
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 SFAS No. 131 effective January 1, 1998. Based upon a
review of its operations, management believes that the Company operated in only
one reportable segment for the periods presented.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. The Company will adopt
the provisions of SFAS No. 133 effective January 1, 2000. As the Company has not
engaged, and does not plan to engage, in derivative or hedging activities,
management anticipates that adoption of SFAS No. 133 will not have an impact on
the Company's financial condition or results of operations.
YEAR 2000 READINESS DISCLOSURE
Many computer systems (including application software and operating systems)
will not accurately interpret dates after December 31, 1999. The year 2000
century change can directly (in its own computer systems) or indirectly (if its
suppliers' and customers' systems are not able to accommodate the year 2000
century change) affect the Company.
The Company is currently evaluating its internal computing, communication and
non-computational 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. The Company
expects to complete its assessment of the Company's systems by the end of the
third quarter 1999.
The Company is also in the process of evaluating non-computational systems such
as embedded chip technology, microprocessors and specific function chips.
Because of the relatively simple nature of the Company's product manufacturing
process and products, management believes any impact on such systems and
modifications required resulting from the year 2000 and beyond will not have a
material adverse effect on the Company's financial condition or results of
operations. Management expects to complete its assessment of these systems by
the end of the third quarter of 1999.
The Company is also evaluating major vendors and suppliers of goods and services
to the Company and its major customers. The Company is currently uncertain as to
whether or not all such vendors, suppliers and customers will be able to
accommodate the year 2000 century change. Although management believes that the
failure of any one vendor, supplier or customer to accommodate the year 2000
century change should not have a material adverse effect on the Company's
financial conditions or results of operations, the inability of a significant
vendor or supplier, such as a provider of utilities, or a key chemical producer
such as a producer of alcohol used in many of the Company's cleaning
formulations, to accommodate the year 2000 century change could have a material
adverse effect on all customers of such vendor or supplier, including the
Company. The failure of a material vendor or supplier to accommodate the century
change could cause significant delays in the Company's manufacturing process or
the delivery of products to its customers as a result of problems such as
inventory shortages and shipping delays. The failure of any material customer to
accommodate the century change could cause significant payment delays and could
have a material adverse effect on the Company's net sales. At the present time,
the Company has no contingency plan to cover such year 2000 century change
issues, but management intends to adopt such a plan by the fourth quarter of
1999.
In the quarter ended March 31, 1999, the Company purchased gasoline powered
electric generators that are capable of providing electrical power during
prolonged electrical outages. The generators will allow the Company to operate
its production facility in Nashville for normal production of the Company's
products if electricity is disrupted to the Company because of weather or year
2000 compliance issues.
Page 10 of 14
<PAGE> 11
KYZEN CORPORATION
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PART I (CONT.)
The Company estimates it has spent less than $10,000 on its assessment of
vendors and suppliers and in its assessment and modification of the Company's
systems to accommodate the year 2000 century change. The Company expects future
costs for assessment and modification for the year 2000 century change to be
insignificant. The Company is currently working to upgrade some of its software
used in database management and electronic communications. The Company is making
this change based on the need to have better and improved software performance
and considers this change not to be driven by year 2000 compliance issues. All
vendors of these upgrades have represented to the Company that their products
are year 2000 compliant. After installation of these upgrades, which is
anticipated to occur by the end of the third quarter in 1999, the Company plans
to test them to further verify year 2000 compliance.
Page 11 of 14
<PAGE> 12
KYZEN CORPORATION
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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
On January 15, 1999, the Company entered into a Rights Agreement with
American Stock Transfer & Trust Company, as rights agent, in connection
with the Company's newly adopted Rights Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
Exhibit 10.30 Rights Agreement, dated January 15, 1999, between
Kyzen Corporation and American Stock Transfer &
Trust Company (1)
Exhibit 27 Financial Data Schedule.
(1) Filed as an exhibit to the Company's Form 8-A dated January 15,
1999 previously filed pursuant to the Securities Exchange Act of
1934 and hereby incorporated by reference.
(b) Reports on Form 8-K
None.
Page 12 of 14
<PAGE> 13
KYZEN CORPORATION
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PART II (CONT.)
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 10, 1999 /s/ Kyle J. Doyel
------------------------ -----------------------------------------
(Signature)
Kyle J. Doyel
President and Chief Executive Officer
Date May 10, 1999 /s/ Thomas M. Forsythe
------------------------ -----------------------------------------
(Signature)
Thomas M. Forsythe
Treasurer and Chief Accounting Officer
Page 13 of 14
<PAGE> 14
KYZEN CORPORATION
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EXHIBITS
EXHIBIT INDEX AND EXHIBITS
EXHIBIT NO. DESCRIPTION
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Exhibit 27 Financial Data Schedule.
27 Financial Data Schedule
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1999-KYZEN CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 534,550
<SECURITIES> 0
<RECEIVABLES> 947,415
<ALLOWANCES> 9,345
<INVENTORY> 362,824
<CURRENT-ASSETS> 1,871,500
<PP&E> 1,666,215
<DEPRECIATION> 833,278
<TOTAL-ASSETS> 3,024,143
<CURRENT-LIABILITIES> 551,053
<BONDS> 0
0
0
<COMMON> 50,068
<OTHER-SE> 2,423,022
<TOTAL-LIABILITY-AND-EQUITY> 3,024,143
<SALES> 1,604,094
<TOTAL-REVENUES> 1,604,094
<CGS> 673,371
<TOTAL-COSTS> 673,371
<OTHER-EXPENSES> 871,179
<LOSS-PROVISION> 1,185
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (22,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,862)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
