UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
(Mark One)
[ X ]Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 000-26434
Kyzen Corporation
| Tennessee | 87-0475115 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
430 Harding Industrial Drive, Nashville, TN 37211
(615) 831-0888
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 the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
4,690,119 shares of Common Stock, $0.01 par value per share, outstanding as of May 7, 2004
Transitional Small Business Disclosure Format (Check one):
[ ] Yes [ X ] No
Page 1
KYZEN CORPORATION
INDEX
Page 2
KYZEN CORPORATION
Part I. Financial Information (Continued)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Item 1. Financial Statements.
BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2004 | 2003 | |||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 509,421 | $ | 438,999 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $13,017 in 2004 and $9,846 in 2003 | 1,088,846 | 940,877 | ||||||
| Inventory | 557,177 | 487,775 | ||||||
| Other current assets | 76,422 | 70,930 | ||||||
| Total current assets | 2,231,866 | 1,938,581 | ||||||
| Property and equipment, net | 311,175 | 231,376 | ||||||
| Patents, net | 191,624 | 195,243 | ||||||
| Total assets | $ | 2,734,665 | $ | 2,365,200 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 708,311 | $ | 466,633 | ||||
| Current portion of capital lease obligation | 21,186 | — | ||||||
| Total current liabilities | 729,497 | 466,633 | ||||||
| Long-term liabilities: | ||||||||
| Capital lease obligation | 47,534 | — | ||||||
| Total long-term liabilities | 47,534 | — | ||||||
| Total liabilities | 777,031 | 466,633 | ||||||
| Shareholders’ equity: | ||||||||
| Preferred Stock, $0.01 par value per share, 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2004 or December 31, 2003; 100,000 of which have been designated Series A Junior Participating Preferred Stock | — | — | ||||||
| Common Stock, $0.01 par value per share, 40,000,000 shares authorized, 4,690,119 shares issued and outstanding at March 31, 2004 and December 31, 2003 | 46,902 | 46,902 | ||||||
| Additional paid-in capital | 5,295,531 | 5,295,531 | ||||||
| Accumulated deficit | (3,384,799 | ) | (3,443,866 | ) | ||||
| Total shareholders’ equity | 1,957,634 | 1,898,567 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,734,665 | $ | 2,365,200 | ||||
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KYZEN CORPORATION
Part I. Financial Information (Continued)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Net sales | $ | 1,603,868 | $ | 1,544,809 | ||||
| Cost of sales | 707,919 | 665,422 | ||||||
| Gross profit | 895,949 | 879,387 | ||||||
| Operating costs and expenses: | ||||||||
| Selling, marketing, general and administrative expenses | 704,271 | 687,807 | ||||||
| Research and development expenses | 132,474 | 146,271 | ||||||
| Total operating expenses | 836,745 | 834,078 | ||||||
| Operating income | 59,204 | 45,309 | ||||||
| Other (expense) income | (137 | ) | 722 | |||||
| Net income | $ | 59,067 | $ | 46,031 | ||||
| Net income per share – basic | $ | 0.01 | $ | 0.01 | ||||
| Net income per share – diluted | $ | 0.01 | $ | 0.01 | ||||
| Weighted average shares outstanding – basic | 4,690,119 | 4,776,887 | ||||||
| Weighted average shares outstanding – diluted | 4,740,450 | 4,776,887 | ||||||
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KYZEN CORPORATION
Part I. Financial Information (Continued)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 59,067 | $ | 46,031 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 32,123 | 37,080 | ||||||
| Gain on sale of property and equipment | — | (450 | ) | |||||
| Increase in accounts receivable | (147,969 | ) | (10,726 | ) | ||||
| Increase in inventory | (69,402 | ) | (11,317 | ) | ||||
| Increase in other current assets | (5,492 | ) | (8,708 | ) | ||||
| Increase (decrease) in accounts payable and accrued expenses | 241,678 | (45,268 | ) | |||||
| Net cash provided by operating activities | 110,005 | 6,642 | ||||||
Cash Flows from Investing Activities: | ||||||||
| Purchases of property and equipment | (37,528 | ) | (5,825 | ) | ||||
| Proceeds from sale of property and equipment | — | 450 | ||||||
| Expenditures for patent rights | (1,576 | ) | — | |||||
| Net cash used in investing activities | (39,104 | ) | (5,375 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
| Principal payments on capital lease obligation | (479 | ) | — | |||||
Net increase in cash and cash equivalents | 70,422 | 1,267 | ||||||
Cash and cash equivalents at beginning of period | 438,999 | 383,306 | ||||||
Cash and cash equivalents at end of period | $ | 509,421 | $ | 384,573 | ||||
Supplemental Disclosure of Cash Flow Information Assets and liabilities resulting from capital lease obligation: | ||||
| Equipment | $ | 69,199 | ||
| Capital lease obligation | $ | 69,199 |
NOTE 1 BASIS OF PRESENTATION
Background
Kyzen ® Corporation (“Kyzen” or the “Company”) was incorporated under the laws of the State of Utah in 1990. In May 1999, the Company re-domesticated under the laws of the State of Tennessee. Kyzen was formed to develop environmentally safer chemical solutions to replace ozone-depleting solvents. The Company manufactures and markets chemical solutions and processes used in high-technology cleaning applications. This core business continues to be focused on four markets, which the Company has defined as “Technical Roads.” The Technical Roads include Electronics, Semiconductor, Optics and Metal Finishing. The Company also manufactures peripheral equipment such as process control systems and chemical handling systems that enhance the use of the Company’s chemicals by its customers. Sales of such equipment were less than 10% of net sales in each of the three months ended March 31, 2004 and March 31, 2003. The Company’s operations are located in Nashville, Tennessee and Manchester, New Hampshire.
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KYZEN CORPORATION
Part I. Financial Information (Continued)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
The Company’s operations are conducted within one reportable business segment. Sales to customers outside the United States totaled $158,636, or 10% of net sales, in the three months ended March 31, 2004, versus $167,639, or 11% of net sales, in the three months ended March 31, 2003. No single customer or foreign market accounted for more than 10% of net sales for the three months ended March 31, 2004.
Interim financial statements
The interim balance sheet at March 31, 2004 and the interim statements of income and cash flows for the three ended March 31, 2004 and 2003 are unaudited, and certain information and footnote disclosures related thereto, normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted, although management believes that the disclosures herein are adequate to make the interim information presented not misleading. In the opinion of management, the unaudited interim financial statements were prepared following the same policies and procedures used in the 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, 2003, which are included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
Net income per share
The Company calculates basic net income per share as net income available to common shareholders divided by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated using the treasury stock method for options and warrants. As of March 31, 2004, there were options to purchase 349,184 shares of the Company’s common stock and warrants to purchase 1,650,000 shares of the Company’s common stock outstanding. As of this date, options to purchase 109,300 shares of the Company’s common stock that had exercise prices less than the average trading value of the stock and, therefore, were dilutive. On March 31, 2003, there were options to purchase 565,583 shares of the Company’s common stock and warrants to purchase 1,650,000 shares of the Company’s common stock outstanding. As of that date, none of the options or warrants had exercise prices less than the average trading value of the stock; therefore, there was no dilutive effect.
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KYZEN CORPORATION
Part I. Financial Information (Continued)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
Stock Option Plan
The Company had an incentive stock option plan, which terminated pursuant to its terms in January 2004. As a result of this termination, the Company will not grant any new options; however, existing options will continue to vest or expire according to the terms stated in the stock option grant.
The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees,and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44,Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25,issued in March 2000, to account for its stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation,established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Net income, as reported | $ | 59,067 | $ | 46,031 | ||||
| Add stock-based employee compensation expense included in reported net income, net of tax | — | — | ||||||
| Deduct total stock-based employee compensation expense determined under fair-value-based method for all rewards, net of tax | (1,410 | ) | (856 | ) | ||||
| Pro forma net income | $ | 57,657 | $ | 45,175 | ||||
| Net income, per share reported (basic and diluted) | $ | 0.01 | $ | 0.01 | ||||
| Net income, per share, pro forma (basic and diluted) | $ | 0.01 | $ | 0.01 | ||||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following assumptions:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| Expected stock price volatility | 1.06 | % | 1.06 | % | ||||
| Risk-free interest rate | 3.76 | % | 3.96 | % | ||||
| Expected life of options | 1-10 years | 1-10 years | ||||||
NOTE 2 INVENTORY
Inventory consisted of the following:
| March 31, 2004 | December 31, 2003 | |||||||
| Raw Materials | $ | 388,262 | $ | 336,230 | ||||
| Finished goods | 168,915 | 151,545 | ||||||
| Total Inventory | $ | 557,177 | $ | 487,775 | ||||
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KYZEN CORPORATION
Part I. Financial Information (Continued)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 3 INCOME TAXES
No provision for income taxes has been included due to the availability of net operating loss carryforwards sufficient to offset the taxable income for all periods presented.
NOTE 4 RELATED PARTIES
No related party transactions occurred during the three months ended March 31, 2004 or 2003, respectively.
NOTE 5 RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, revised December 2003 (“FIN 46R”), Consolidation of Variable Interest Entities,which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in variable interest entities (“VIEs”) created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest in the VIE.
At this time, it is anticipated that the adoption of FIN 46R will not have an impact on the Company because the Company does not have any interests in variable interest entities.
NOTE 6 SUBSEQUENT EVENTS
On May 5, 2004, the Company announced that its Board of Directors had made a decision not to extend the expiration date of the Company’s outstanding warrants because of increased costs. These warrants will expire on August 4, 2004.
On May 5, 2004, the Company also announced that its Board of Directors had authorized the Company to delist the Company’s securities from the Boston Stock Exchange. The lack of trading activity on the Boston Stock Exchange of the Company’s securities and the expense of maintaining such a listing were reasons for the Board’s decision.
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KYZEN CORPORATION
Part I. Financial Information (Continued)
Item 2. Management’s Discussion and Analysis.
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 and manufacturing output; business conditions as they affect manufacturers of chemical raw materials; trends toward miniaturization and the use of lead-free soldering and solder bumping techniques by assemblers of electronic components; whether other jurisdictions follow the European Union in banning lead-tin solders; whether lead-free soldering technology results in additional cleaning requirements; the rate of growth within the Technical Road markets; the Company’s ability to successfully implement its Technical Roads plan; the emergence of new competitors; the negotiation of a satisfactory arrangement to continue the Company’s relationship with DuPont; the ability of the Company to attract and retain qualified employees; the Company’s ability to control costs including selling, marketing, general and administrative expenses and research and development expenses; the availability of raw materials at favorable prices from suppliers; 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 business; changes in the Company’s liquidity or capital resources; the accuracy of the Company’s sales estimates as they relate to the impairment of patents; changes in accounting policies and practices; the ability of the Company to obtain financing or equity capital with favorable terms and conditions; changes in the financial condition, corporate strategy or technology of the Company’s primary customers; the Company’s ability to attract new customers; the ability of the Company to develop new competitive product lines or add product lines through marketing agreements or licensing agreements; the Company’s ability to capitalize on its existing relationships to expand into new markets; and acceptance of the Company’s new products by the Company’s existing and potential customers. 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.
Executive Overview
The Company continues to focus on the four Technical Roads, which included Electronics, Semiconductor, Optics and Metal Finishing. The cleaning processes and technology used in each Technical Road are similar; therefore, the Company can use this knowledge in the appropriate market as needed. As the market for precision cleaning changes, whether from “no-clean” solder paste, outsourcing to Electronic Manufacturing Services production or conversions to lead-free solders, the Company has focused on understanding the market and making necessary changes to stay ahead of the trends. The four Technical Roads offer the Company the opportunity to avoid significant unfavorable changes in one market by having continuing activity in the other markets. The Company has now had seven consecutive profitable quarters, and management expects that trend to continue as the Company strives to offer new, innovative and effective products in all its Technical Roads, applying its cleaning knowledge and abilities to each area.
The Company will also continue to leverage its knowledge of cleaning chemicals and processes in order to access new target markets. We continue developing new channels of distribution to target markets by working with cleaning equipment producers, flux manufacturers and distributors of cleaning supplies. Partners such as these may bring market or specific customer expertise in newer markets and help the Company expand its market penetration in cleaning areas in which the Company is already established. Using these complementary channels allows the Company to continue to focus on developing methods and products for cleaning.
Recent Business Developments
During the first quarter of 2004, the Company continued to focus and refine its execution of the Technical Roads strategic plan. The metal finishing and optics markets were stronger during this quarter than during the same quarter in the prior year, while the electronics and semi-conductor markets were stable. The Company continues to focus on its sales and technical efforts with direct customers and broadening its reach in the market through the use of partners delivering products through different channels.
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KYZEN CORPORATION
Part I. Financial Information (Continued)
Results of Operations
Comparison of the Quarters Ended March 31, 2004 and March 31, 2003
| Increase (decrease) | ||||||||||||||||
| 2004 | 2003 | Change ($) | Change (%) | |||||||||||||
| Net sales | $ | 1,603,868 | $ | 1,544,809 | $ | 59,059 | 4 | % | ||||||||
| Gross profit | 895,949 | 879,387 | 16,562 | 2 | ||||||||||||
| Selling, marketing, general and administrative expenses | 704,271 | 687,807 | 16,464 | 2 | ||||||||||||
| Research and development expenses | 132,474 | 146,271 | (13,797 | ) | (9 | ) | ||||||||||
| Operating income | 59,204 | 45,309 | 13,895 | 31 | ||||||||||||
Net Sales
The increase in net sales for the three months ended March 31, 2004 versus the same three-month period in 2003 reflected changes in the Company’s product mix. These changes included increases in the Metal Finishing and Optics Roads, with net sales in the Electronics Road and Engineering Services remaining fairly consistent with net sales in those areas in the same quarter in 2003. The Company will continue to focus on chemical sales and use the Engineering Services Group to enhance future chemical sales.
Gross Profit
The increase in gross profit for the quarter ended March 31, 2004 versus the quarter ended March 31, 2003 is due to slightly higher sales volume. Gross profit as a percent of sales decreased from 57% for the quarter ended March 31, 2003 to 56% for the quarter ended March 31, 2004. This decrease reflects slightly higher production cost and recent increases in the cost of chemical raw materials.
Selling, Marketing, General and Administrative Expenses
The increase in selling, marketing, general and administrative expenses for the 2004 first quarter versus the same period in 2003 was the result of increases in commissions, health insurance and the cost of being a public reporting company. The Company believes that the current level of spending is appropriate to encourage sales growth while maintaining other costs. Management will continue to evaluate the best alternatives to control costs, particularly in light of the new reporting requirements mandated by the Sarbanes-Oxley Act of 2002 and, in particular, the new internal control reporting that must be enhanced in response to Section 404 of the Sarbanes-Oxley Act.
Research and Development Expenses
Research and development expenses for the quarter ended March 31, 2004 were lower as compared to the same period in 2003. This is the result of a reduced need for executive oversight in this area as the research and development staff has become more experienced and self-reliant.
Operating Income
Operating income increased during the quarter ended March 31, 2004 from the same period in 2003 as a result of higher net sales and control over the rate of increase in operating expenses in achieving those sales.
Liquidity and Capital Resources
| 2004 | 2003 | Change ($) | Change (%) | |||||||||||||
| Working capital | $ | 1,502,369 | $ | 1,471,948 | $ | 30,421 | 2 | |||||||||
| Cash provided by operating activities | 110,005 | 6,642 | 103,363 | 1,556 | ||||||||||||
| Cash used in investing activities | 39,104 | 5,375 | 33,729 | 628 | ||||||||||||
| Purchases of property and equipment | 37,528 | 5,825 | 31,703 | 544 | ||||||||||||
The Company’s primary source of funds is cash flow from operations in the normal course of selling products. The Company’s primary uses of funds are buying raw materials, the funding of research and development of new products, purchases of capital equipment and sales and marketing activities.
Increases in cash and cash equivalents, accounts receivable and inventory, partially offset by the increase in accounts payable, are the reason for the increase in working capital for the quarter ended March 31, 2004 versus the same period in 2003.
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KYZEN CORPORATION
Part I. Financial Information (Continued)
Cash provided by operating activities increased significantly during the first quarter of 2004 as compared to the same period during 2003 due to increases in accounts payable and net income, which were partially offset by increases in accounts receivable and inventory.
Cash used in investing activities increased substantially for the quarter ended March 31, 2004 versus the quarter ended March 31, 2003. This increase is the result of fixed asset purchases for information technology related items.
International Trade Developments
The Company has been using foreign manufacturers since 1997 for certain raw materials. During the second quarter of 2003, and again in February and April 2004, the International Trade Commission (“ITC”) requested that the Company complete a questionnaire regarding the Company’s purchase of certain raw materials from a Chinese supplier. In January 2004, the U.S. Department of Commerce (“DOC”) rendered a preliminary decision that the Chinese supplier was determined to be underselling its U.S. competition and requested that a bond, representing a tariff, be posted by the Company in the amount of 31.3% of the purchase price of any future purchases of the materials from the Chinese supplier. The bond requirement will remain in place until further investigation and determinations can be completed by both the DOC and ITC. The Company believes that the DOC and ITC will make final decisions in the third quarter of 2004. An imposition of significant duties on the Chinese supplier, should it be found by the ITC to have violated federal “anti-dumping” laws and regulations, could have a material adverse effect on the Company’s financial condition and results of operations due to an anticipated increase in the cost of the raw materials from domestic suppliers. The Company did not purchase any of these raw materials from the Chinese supplier during the first quarter of 2004. The Company is currently purchasing these materials from a domestic producer and will continue to do so in the near future. The Company believes it is in the best interest of its shareholders to have multiple sources for key raw materials and has identified several organizations, both domestic and abroad, which are capable of manufacturing these materials. Beginning in the second quarter of 2004,the Company began to actively pursue such organizations to produce these materials should the DOC and ITC decisions preclude imports of these materials from the Chinese supplier.
Critical Accounting Policies
Kyzen’s significant accounting policies are described in Note 1 of the Notes to Financial Statements included in the report on Form 10-KSB filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2003. Not all of these significant policies require management to make difficult, subjective or complex judgements or estimates.
Management considers the recording of patent costs, including the purchase of patent rights and legal costs incurred related to issued and pending patents, to be a critical accounting policy as defined by the SEC. Patent costs are capitalized and amortized using the straight-line method over the shorter of the statutory or estimated useful lives of the patents, not exceeding 20 years. Patent costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This policy is considered to be critical because management relies on sales estimates of patented products to evaluate impairment of patents. If such sales estimates are not attained, there could be future impairment of the patents. If a pending patent is not approved, the remaining net book value is written off.
Future Cash Commitments
The Company’s headquarters are located at 430 Harding Industrial Drive, Nashville, Tennessee. At this facility, the Company occupies approximately 24,000 square feet of leased space, consisting of a research and development laboratory, a cleaning application and evaluation center, a chemical manufacturing facility and sales, engineering, marketing and administrative offices. This property is located in a well-maintained industrial park. The Company also leases an approximately 7,425 square foot facility located at 540 Commercial Street, Manchester, New Hampshire. The New Hampshire location houses a cleaning application and evaluation center, engineering services group, manufacturing and a regional sales office. Management believes the current facilities and leased space are adequate to serve the Company’s needs through at least March 31, 2005.
The Company conducts its operations from these facilities under two operating lease agreements. The lease for the New Hampshire facility was renewed in May 2002 and extended through May 2006. The lease for the Tennessee facility has been extended to February 2006 with an option to renew for an additional five years.
The Company has an operating lease for a copier/printer located in the Company’s Nashville facility.
The Company entered into a long-term capital lease with GE Capital during March of 2004, extending through March 2007, for the purchase of equipment to be used for research and development as well as analytical testing.
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KYZEN CORPORATION
Part I. Financial Information (Continued)
As of March 31, 2004, future annual rental payments for the next five years for the operating and capital leases are summarized as follows:
| Operating | Capital | |||||||||||
| Leases | Leases | Total | ||||||||||
| 2005 | $ | 161,040 | $ | 26,206 | $ | 187,246 | ||||||
| 2006 | 147,510 | 26,206 | 173,716 | |||||||||
| 2007 | 16,110 | 24,022 | 40,132 | |||||||||
| 2008 | 8,520 | — | 8,520 | |||||||||
| 2009 | — | — | — | |||||||||
| Sub total | 333,180 | 76,434 | 409,614 | |||||||||
| Less Interest: | — | 7,714 | 7,714 | |||||||||
| Total | $ | 333,180 | $ | 68,720 | $ | 401,900 | ||||||
Annual rental payments for operating and capital leases for the remainder of 2004 are $141,316 as of March 31, 2004.
The Company has no financial derivatives, letters of credit, lines of credit or similar future cash commitments.
Off-Balance Sheet Arrangements
The Company does not have any interests in variable interest entities or in any other off-balance sheet arrangement.
Item 3. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Accounting Officer have supervised and participated in an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Accounting Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations.
Internal Control over Financial Reporting
There has not been any change in the Company’s internal controls over financial reporting identified in connection with the evaluation required by Rules 13a-15(f) under the Securities Exchange Act of 1934 that occurred during the fiscal quarter to which this report relates that has materially affected or is reasonably likely to materially affect these controls.
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KYZEN CORPORATION
Part II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities.
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 3.1 | Registrant’s Restated Charter (1) | |
| Exhibit 3.2 | Amended Bylaws of Registrant (1) | |
| Exhibit 4.1 | Warrant and Registration Rights Agreement by and among Kyzen Corporation, Paulson Investment Company, Inc., Nutmeg Securities, Ltd. and LaJolla Securities, dated August 3, 1995 (2) | |
| Exhibit 4.5 | Specimen of Common Stock Certificate (3) | |
| Exhibit 4.6 | Specimen of Warrant Certificate (3) | |
| Exhibit 4.7 | Rights Agreement, dated January 15, 1999, between Kyzen Corporation and American Stock Transfer & Trust (4) | |
| Exhibit 31.1 | Certification of the Chief Executive Officer of Kyzen Corporation pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| Exhibit 31.2 | Certification of the Chief Accounting Officer of Kyzen Corporation pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| Exhibit 32.1 | Certification of the Chief Executive Officer of Kyzen Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| Exhibit 32.2 | Certification of the Chief Accounting Officer of Kyzen Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| (1) | Filed as an exhibit to the Company’s Registration Statement on Form S-3 (No. 333-82021) dated June 30, 1999, previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. | |
| (2) | Filed as an exhibit to the Company’s Registration Statement on Form SB-2 (No. 33-91854-A) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. | |
| (3) | Filed as an exhibit to the Company’s Registration Statement on Form S-3/A (No. 333-82021) dated August 2, 1999, previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. | |
| (4) | Filed as an exhibit to the Company’s filing on 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
On March 17, 2004, the Company filed a report on Form 8-K containing a press release reporting the Company’s earnings for the fourth quarter and year ended December 31, 2003.
Page 13
KYZEN CORPORATION
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KYZEN CORPORATION (Registrant) | ||||
| Date May 13, 2004 | by /s/ Kyle J. Doyel | |||
| (Signature) | ||||
| Kyle J. Doyel President and Chief Executive Officer | ||||
| Date May 13, 2004 | by /s/ Thomas M. Forsythe | |||
| (Signature) | ||||
| Thomas M. Forsythe Treasurer and Chief Accounting Officer | ||||
Page 14
KYZEN CORPORATION
EXHIBIT INDEX
| Exhibit Number | Description | |
| 31.1 | Certification of the Chief Executive Officer of Kyzen Corporation pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of the Chief Accounting Officer of Kyzen Corporation pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Chief Executive Officer of Kyzen Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of the Chief Accounting Officer of Kyzen Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
