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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-KSB

(Mark One)[X]
        Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended
        
        December 31, 2002[  ]
        Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from
        
        
        
        
        toCommission file number
        
        000-26434


Kyzen Corporation

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(Name of Small Business Issuer in Its Charter)


Tennessee
        
        87-0475115(State or Other Jurisdiction of
        
        (IRS EmployerIncorporation or Organization)
        
        Identification No.)


430 Harding Industrial Drive, Nashville, TN
        
        37211(Address of Principal Executive Offices)
        
        (Zip Code)


615-831-0888

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(Issuers Telephone Number, Including Area Code)


Securities registered under Section 12(b) of the Exchange Act:

Title Of Each Class
        
        Name Of Each Exchange On Which RegisteredCommon Stock
        
        Boston Stock ExchangeWarrants for Common Stock
        
        Boston Stock Exchange


Securities registered under Section 12(g) of the Exchange Act:

NONE

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(Title of class)


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

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

State issuers revenues for its most recent fiscal year
        $5,930,466


State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act)

$488,414 at $0.18 as of March 4, 2003





Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.






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ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS

Check whether the issuer has 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 REGISTRANTS

State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date.

4,776,887 shares of Common Stock outstanding as of February 28, 2003




DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.)
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (Securities
Act). The listed documents should be clearly described for identification
purposes (e.g., annual report to security holders for fiscal year ended
December 31, 1990).

Portions of the Registrants definitive Proxy Statement relating to the 2003
Annual Meeting of Shareholders to be held on April 17, 2003 are incorporated
into Part III of this report.

Transitional Small Business Disclosure Format (check one):     [  ] Yes    [ X ] No





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TABLE OF CONTENTS



|                    |                                                                                                                         |                                    |  |  |  |  |  | 
|------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---------------------------------- |  |  |  |  |  | 
|PART I             
|                    | Item 1. Description of Business                                                                                        
|                    | Item 2. Description of Property                                                                                        
|                    | Item 3. Legal Proceedings                                                                                              
|                    | Item 4. Submission of Matters to a Vote of Security Holders                                                            
|                    | PART II                                                                                                                
|                    | Item 5. Market for Common Equity and Related Stockholder Matters                                                       
|                    | Item 6. Managements Discussion and Analysis or Plan of Operation                                                      
|                    | Item 7. Financial Statements                                                                                           
|                    |                                                                                                                         | Independent Auditors Report      
|                    |                                                                                                                         | BALANCE SHEETS                    
|                    |                                                                                                                         | STATEMENTS OF OPERATIONS          
|                    |                                                                                                                         | STATEMENTS OF SHAREHOLDERS EQUITY
|                    |                                                                                                                         | STATEMENTS OF CASH FLOWS          
|                    |                                                                                                                         | NOTES TO FINANCIAL STATEMENTS     
|                    | Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           
|PART III           
|                    | Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
|                    | Item 10. Executive Compensation                                                                                        
|                    | Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                
|                    | Item 12. Certain Relationships and Related Transactions                                                                
|                    | Item 13. Exhibits and Reports on Form 8-K                                                                              
|                    | Item 14. Controls and Procedures                                                                                       
|CONSENT OF KPMG LLP



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KYZEN CORPORATION
INDEX

Page No.Part IItem 1.
        
        Description of Business
        
        
        4Item 2.
        
        Description of Property
        
        
        9Item 3.
        
        Legal Proceedings
        
        
        9Item 4.
        
        Submission of Matters to a Vote of Security Holders
        
        
        10Part IIItem 5.
        
        Market for Common Equity and Related Stockholder Matters
        
        
        11Item 6.
        
        Managements Discussion and Analysis or Plan of Operation
        
        
        11Item 7.
        
        Financial Statements
        
        
        16Independent Auditors Report  KPMG LLP
        
        
        17Balance Sheets as of December 31, 2002 and 2001
        
        
        18Statements of Operations for the years ended
December 31, 2002 and 2001
        
        
        19Statements of Shareholders Equity for the years
ended December 31, 2002 and 2001
        
        
        20Statements of Cash Flows for the years ended
December 31, 2002 and 2001
        
        
        21Notes to Financial Statements
        
        
        22Item 8.
        
        Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
        
        
        32Part IIIItem 9.
        
        Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
        
        
        33Item 10.
        
        Executive Compensation
        
        
        33Item 11.
        
        Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
        
        
        33Item 12.
        
        Certain Relationships and Related Transactions
        
        
        33Item 13.
        
        Exhibits and Reports on Form 8-K
        
        
        34Item 14.
        
        Controls and Procedures
        
        
        35


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KYZEN CORPORATION




PART I


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 no-lead soldering and solder bumping techniques
by assemblers of electronic components; growth within the Technical Road
markets; the Companys ability to successfully implement its Technical Roads
plan; the emergence of new competitors; 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 and other
components utilized; 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; changes in the Companys
liquidity or capital resources; changes in accounting policies and practices;
the ability of the Company to obtain financing or equity capital with favorable
terms and conditions; the availability of new expansion and acquisition
opportunities; changes in the financial condition, corporate strategy or
technology of the Companys primary customers; and the ability of the Company
to develop new competitive product lines or add product lines through
acquisitions, marketing agreements or licensing agreements. 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.




Item 1.       Description of Business

The Company

Kyzen® Corporation (Kyzen or the Company) is a specialty chemical company
focused on chemistries and processes for industrial manufacturing processes
including: electronics, electronic packaging, optical, glass, aerospace, metal
finishing, semiconductor and other high technology industries where precision
cleaning processes are required. The Company also manufactures and markets
peripheral equipment such as process control systems, prototype cleaning
machines and chemical handling systems that enhance the use by customers of the
Companys chemical solutions. Typically, the Companys 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 was incorporated in Utah in 1990 and re-domesticated under
Tennessee law in 1999. The Companys headquarters are located at 430 Harding
Industrial Dr., Nashville, TN 37211, where its telephone number is (615)
831-0888, and its fax number is (615) 831-0889.

History of the Company

The Company was founded in 1990 with its initial focus on developing chemical
products to replace chemicals that were to be banned under the Montreal
Protocol (the Protocol). The Protocol called for a freeze in the production
and consumption of ozone depleting products (ODPs) by the year 2000 for
developed countries and 2010 for developing countries. Over 90 nations,
representing over 90% of the worlds consumption of ODPs, were parties to the
Protocol. The more than 90 nations agreed to accelerate the phase-out of
production of ODPs to December 31, 1995 for developed countries and December
31, 2005 for developing countries. After the 1995 deadline, ODP products can
still be bought, recycled and sold until the inventories are depleted.

Because industrial cleaning is one of the largest applications for ODPs, Kyzen
was organized to develop chemical solutions and processes to replace ODPs used
in the cleaning of electronic assemblies and precision metal components.
Historically, materials such as chlorofluorocarbon 113 (CFC-113) and 1,1,1,
Trichloroethane (Methyl Chloroform or Trich) were widely used in these
applications. Today, no single replacement product has been developed that has
the broad applicability of the ODPs produced before 1995. The market for high
technology cleaning has fragmented into smaller niche cleaning segments where
specific products are developed to meet specialized market needs. This market
continues to evolve as newer technology and increasing miniaturization of
products present more difficult cleaning challenges for manufacturers.

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KYZEN CORPORATION
PART I (Continued)

The Companys Technology Roadmap

The technology roadmap, which the Company developed in 2000 has continued to
serve as Kyzens strategic plan since that date. This roadmap helps to
identify and focus the Companys products and resources to serve the niche
markets within four areas (the Technical Roads). The Technical Roads are
described in the table below:

Technical Road
        
        Niche Cleaning Applications
        
        Kyzen Products UsedElectronics
        
        Through Hole and Surface
Mount Circuit Boards;
Screens, Misprints,
Maintenance, Adhesives, Lead
Free Soldering Processes
        
        Aquanox®, Ionox®,
SynergyCCS, Lonox,
Cybersolv®Semiconductor
        
        Wafers, Hybrids, Wafer Level
Packaging, Flip Chips, Lead
Free Soldering Processes,
Ball Grid Arrays, Solder
Bumps, Photoresist,
        
        Ionox®, Micronox®,
SynergyCCS,
Optisolv®, Cybersolv®Metal Finishing
        
        Rocket Assemblies, Aerospace
Parts, Automotive Parts,
General Industrial Metal
Parts
        
        Ionox®, Metalnox®,
Cybersolv®,
Kryptonol,
SynergyCCSOptics
        
        Lenses, Moulds, Glass,
Lasers, Fiber Optics, Flat
Panel Displays
        
        Optisolv®, Micronox®,
Cybersolv®, Kryptonol


Electronics.Electronics has been the core of the Companys business since its
inception. As discussed below under the Competition heading, the advent of
no-clean soldering processes has reduced demand for the cleaning products and
processes provided by the Company to assemblers of electronic components. This
industry experienced a down cycle in 2001 that continued to some extent in
2002. Despite the slow market conditions, the Companys sales in this segment
increased in 2002 due to a combination of new customers and slightly higher
sales volume to existing customers. The Company anticipates that demand for
its products and processes in this Technical Road will increase in light of the
trends towards miniaturization and the use of no-lead soldering techniques as
discussed below.

Semiconductor.In order to produce semiconductor packages with faster clock
speeds, manufacturers of semiconductors are increasing their use of wafer level
packaging and flip chip technology. These technologies involve a soldering
process, which matches our core electronic assembly cleaning expertise. As a
result, the Company hopes to capitalize on its experience in the Electronics
Technical Road to increase its share of the business within the Semiconductor
Technical Road, which management continues to believe will be a growing market
in the future. The Company continued to make gains in this market segment in
2002; however, continued slowness in the overall semiconductor industry limited
the Companys growth in this area. The Company continues to develop innovative
products to meet the cleaning needs for the emerging technology being developed
in this industry.

Metal Finishing.The Company anticipates that the metal finishing industry,
including both civilian and military aerospace producers and general
industrial cleaning of metal parts, will represent a growing market for the
Companys products and processes. In order to gain entry and participate in
the aerospace industry, products must undergo rigorous testing to demonstrate
cleaning ability and compatibility with materials. The Companys comprehensive
product line has completed industry performance and compliance testing, and has
met with good results and solid customer acceptance. The Company does not plan
to patent these products but will protect its proprietary technology by
designing in such a way as to minimize the risk of reverse engineering. In
2002, the Company validated its laboratory results with substantial field
testing and continued customer acceptance, which we will build on in the coming
year.

Optics.In 1998, the Company began to provide cleaning products and processes
to the optical industry. Initially, the Company focused on products and
processes for cleaning ophthalmic lenses. In 2001, we expanded our focus to
include industrial glass and plastic devices, which resulted in increased
applications and market opportunity for these products. The Company has had
some success in marketing its products and services to manufacturers of various
optical product and devices. While the optics market continues to represent a
modest portion of our product mix, progress was made in 2002 as evidenced by
increased revenues. We expect that trend to continue in the coming year.

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KYZEN CORPORATION
PART I (Continued)

Most
of Kyzens formulations are non-flammable and non-combustible, low in toxicity
and generally require no hazardous material shipping or storage precautions.
The Company attempts to meet this standard with all of its products; however,
customized products for key high volume customers and new niche applications
frequently have unique requirements, which may necessitate departure from this
standard.

The Company continues to develop new cleaning chemistries and processes for all
of the Technical Roads. Management of the Company believes that future product
lines may also be obtained through acquisitions, marketing agreements or
licensing agreements. In 1998, the Company entered into a licensing agreement
with AlliedSignal, Inc., now known as Honeywell International Inc.
(Honeywell), and Hewlett Packard Company to sell and market a patented
cleaning product jointly developed by both companies. In 1999, the Company
entered into an exclusive agreement to sell and market Xolvone®, a patented
chemical developed by the DuPont Nylons Division. In 2002, DuPont announced
its decision to exit the Xolvone® business, but the Company retains the option
to develop the market for the product without DuPonts production assistance.
In 2001, the Company entered into an agreement to sell and market Vertrel®, a
patented chemical developed by the DuPont Fluoroproducts Division. These
chemicals are primarily used by the Company as ingredients in formulated
products sold under the Companys own trademarks, such as Ionox, Aquanox,
Cybersolv and Micronox. The primary application for these products is within
the Semiconductor Technical Road, with additional applications in both the
Metal Finishing and Electronics Technical Roads. The expiration or termination
of any such agreements would not have a material adverse effect on the
Companys financial condition or results of operations. The Company monitors
the market place in an effort to identify potential acquisition candidates or
licensors of cleaning technology and products. The Company has not entered
into any definitive agreement with such candidates or licensors, and there can
be no assurance that any particular opportunity will materialize.

Engineering Services Group

The goal of Kyzens Engineering Services Group is to enhance our customers
cleaning processes and eliminate obstacles preventing the implementation of
Kyzens chemical cleaning solutions. This group is responsible for developing,
manufacturing and/or retrofitting process control and cleaning equipment. In
addition, the group also builds and maintains equipment in Kyzens Cleaning
Applications and Evaluation Center, maintains existing customer processes
pursuant to service contracts and manufactures peripheral items necessary to
assist in the installation and implementation of our cleaning products. The
group also utilizes the Companys extensive array of equipment in our Cleaning
Applications and Evaluation Centers in Manchester, New Hampshire and Nashville,
Tennessee to perform contract-cleaning services.

Products sold by Engineering Services include meters to monitor cleaner
concentration, metering pumps, liquid level sensors, transfer pump systems,
holding tanks and coalescors, filters and the PCS-Process Control System. The
PCS is a fully-integrated process tool based on the Companys proprietary
technology that automatically samples and adjusts cleaning agent concentration
to a specified level in a cleaning tank or machine. All the products are
designed to operate on many of the Companys existing and developmental
cleaning products.

The Companys strategy is to continue to develop process control technology to
meet market needs and to differentiate the Companys cleaning agents and
processes from those of its competitors. The Company plans to pursue the
manufacture and sale of all its products within the Technical Roads.
Management believes growth of the Engineering Services Group will track the
Companys growth rate for the sale of its chemical products in the Technical
Roads; however, revenues from this group are expected to continue to be less
than ten percent of the overall sales for the Company.

Competition

The precision cleaning industry underwent rapid change in the 1990s as
companies searched for new technology to replace processes based on ODPs. The
precision cleaning industry moved from a commodity market supplied by major
chemical companies to a series of highly fragmented niche markets supplied by
numerous focused specialty chemical companies. In the last five years, the
Companys greatest competitive challenge has come not from direct competition
but from industry changes. The largest change came from the advent of
soldering technologies that do not require cleaning. These No Clean
technologies dominate electronic assemblies produced worldwide and limit
cleaning to those applications with more stringent reliability requirements.
The second change was the emergence of contract manufacturers of electronic
assemblies known as the Electronic Manufacturing Services (EMS) industry.
With the emergence of EMS, many original equipment manufacturers (OEMs) have
outsourced the production of their products to these contract manufacturers.
The EMS industry, unlike the OEM business, is a commodity market and focuses on
cost rather than reliability of end products. The end result is that many of
the products produced by the EMS

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KYZEN CORPORATION
PART I (Continued)

manufacturers are not cleaned, thereby
reducing the size of the cleaning market in the Electronics Technical Road.
The third change came in 2001 when the rapid growth experienced by high
technology businesses ended, and these businesses underwent a severe decline
due to worldwide economic conditions. Industry sources indicate that
manufacturing production in the electronics and semiconductor markets declined
by as much as 30 to 40 percent below the levels produced in 2000 and continued
to remain near those levels in 2002.

Recent technology developments appear to be creating new opportunities for the
Company in the Electronics and Semiconductor Technical Roads. The continued
trend of miniaturization has made formerly acceptable contaminants unacceptable
with the new service devices. Additionally, the desire to eliminate production
steps and reduce size is leading to the development of a new type of device 
the flip chip  and attachment technology known as wafer level packaging.
This emerging trend will require cleaning in many of the manufacturing steps.
Furthermore, environmental groups in various industrial nations are seeking the
elimination of lead-based products. If legislation prohibiting or limiting the
use of lead is enacted, management of the Company believes that no lead
soldering technologies will create more cleaning opportunities than those that
currently exist with lead-based soldering, particularly within the Electronics
and Semiconductor Technical Roads.

Currently, the Company considers its most significant competitors to be the
following companies: Petroferm, Church & Dwight, ITW-Magnaflux, Valtech, Alpha
Metals, Oakite, Envirosense, EKC Technology, Brulin, and Zestron/Dr. O.K. Wack
Chemie. As the Company continues to expand its product offering, management
believes new competitors will emerge as the Company moves to solve new
technical challenges. Management believes the Company has a competitive
advantage because the Company is one of a few companies that has as its primary
source of revenue the sale of high technology cleaning products. Management
believes that the Company may also have a competitive advantage due to the
Companys ability to leverage its core competencies though its agreements with
technology partners, such as DuPont, and the Companys provision of cleaning
data and information on environmentally sensitive cleaning processes to solder,
flux and equipment suppliers.

Dependence on Suppliers and Others

The Company purchases its raw materials, components and finished machines from
a variety of sources. Through its agreements with DuPont, the Company will be
dependent on DuPonts Fluoroproducts Division for the production of their
unique chemicals. While the Company is generally not dependent on any one
supplier for raw materials, components or finished products, it had
historically relied on one domestic chemical producer for its supply of the
non-linear alcohol used in many of the Companys cleaning formulations. In
2000, the Company became less reliant on this vendor as the Company began
obtaining its non-linear alcohol from both domestic and international sources.
There can be no assurance that any raw material or other components and systems
utilized by the Company will continue to be available at reasonable prices in
the volume required for the Company to meet its customers orders.

Production and Supply

The production of the Companys products involves the blending of chemicals
purchased from third-party suppliers in the open market. The Companys
chemical raw materials are widely available from numerous sources with the
exception of those obtained from DuPonts Fluoroproducts Division, as described
above.

Sales and Product Distribution

Marketing.There are a number of precision cleaning market niches ranging in
size from $1,000,000 to $50,000,000 in which management believes the Company
should be able to establish and maintain a competitive advantage. The Company
is now established in the Electronics Technical Road and has targeted Technical
Roads in Optics, Semiconductor and Metal Finishing for expansion. In most
aspects of the Electronics and Semiconductor Technical Roads, the Company uses
a direct sales force combined with selected agents with special expertise
because of the technical complexity of most sales. In the Optics, Metal
Finishing and non-critical aspects of the Electronics Technical Roads, the
Company utilizes multiple channels of sales to selected market segments.

Cleaning Applications and Evaluation Centers.The Company currently operates
comprehensive Cleaning Applications and Evaluation Centers in Manchester, New
Hampshire and Nashville, Tennessee. A Cleaning Applications and Evaluation
Center is a demonstration facility in which customers can view the
effectiveness of the Companys cleaning technology in a risk-free environment.
The Company believes it has the most comprehensive demonstration facilities in
the industrial cleaning industry. The centers are used to expedite the sales
cycle for Kyzens chemical solutions, to accelerate the development of new
cleaning products and to increase potential customers exposure to Kyzen and
its products.

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KYZEN CORPORATION
PART I (Continued)

Sales Force.One of the primary challenges facing the Company is selling its
cleaning technologies to customers who have limited experience with cleaning
agents and processes. Consequently, these sales often require long
relationship-building periods and considerable time for solving problems and
testing processes and chemistry. To shorten the sales cycle, the Company has
invested in the Cleaning Applications and Evaluation Centers described above,
which allow new and existing customers to test and collect data on various
cleaning products and processes. The sales cycle for conversion to the
Companys products typically ranges from three months to two years.

The Company currently sells its products through a direct regional sales force,
complemented in certain geographic regions or market segments with manufacturer
representatives or agents. The Company also uses sales engineers, chemists,
application lab personnel and inside sales personnel in the Companys sales
efforts depending on the customer application, sales volume potential and the
status of the customer in testing, buying and/or implementing the cleaning
chemical. The Company anticipates that as it diversifies its product offerings,
it will expand its channels to market in selected segments. The Company
delivers its product via common carrier.

Customers

During the year ended December 31, 2002, no customer accounted for more than
10% of the Companys revenues. Management believes that the loss of any one
customer would not have a material adverse effect on the Companys financial
condition or results of operations.

Patents

The Company holds six patents for its chemical cleaning formulations in the
United States. Three patents cover applications primarily in the electronics
and semiconductor areas and three cover applications mainly in the optical and
semiconductor area. The Company has also obtained one patent for electronic
and semiconductor applications in each of Mexico, China, Taiwan, Australia,
Korea, Brazil, the European Union and Japan. Two U.S. patents for electronic
and semiconductor applications, which expire between 2009 and 2014, and pending
international patents related to these two U.S. patents, are jointly owned by
the Company and Delphi Automotive Systems (Delphi, formerly Delco
Electronics, a division of General Motors). Delphi has retained the right to
use the chemistry developed under the patents, and the Company has retained the
right to market the patented formulations. Delphi is not entitled to receive
royalties or license fees from the Company on the chemical cleaning products
manufactured and sold by the Company. If the Company enters into a license or
royalty arrangement for the patented formulations, the resulting license fee or
royalties would be shared between the Company and Delphi.

The Company has applied for additional patents in the United States and several
foreign countries covering discoveries in all four Technical Roads and the use
of novel materials and processes. These filings relate to work performed
during the past four years on a number of formulations to be used in existing
and new market niches. Four U.S. patents were issued to the Company in October
1999 and January, May and October 2000 and will expire in approximately 2018.
The Company also has additional applications that are currently being reviewed
by the U.S. Patent and Trademark Office.

The Company is also required to pay patent royalties to Bix Manufacturing
Company, a shareholder of the Company. Royalties are based on 2% of revenues
related to the patented chemistry and were less than $50,000 in both 2001 and
2002. The Company is currently settling its royalty obligation through
consulting services performed by the Company. The Company also pays a royalty
to Honeywell for the sale of products under a licensing arrangement with
Honeywell. The royalty is based on a percentage of sales made by Kyzen under
the agreement. In both 2001 and 2002, these royalty payments were less than
$50,000.

Future Legislation and Governmental Regulation

The Company believes that the demand for its products is directly related to
governmental responses to and public concern with ozone depletion, CFC
elimination, use of hazardous or highly toxic cleaning agents and air and water
contamination. Decreased public concern over ozone depletion or air and water
contamination or less governmental pressure to remedy such problems could
substantially reduce demand for the Companys products. Although the Company
is not aware of any such pending or proposed federal legislation or regulation,
any legislation or regulation that limits the sale of the Companys products,
chemicals, services or components or limits the methods by which the Companys
products or chemicals are manufactured, installed or serviced could have a
material adverse effect on the financial condition or results of operations of
the Company.

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KYZEN CORPORATION
PART I (Continued)

Research and Development

The Companys research and development expenses in 2002 were $545,680 and in
2001 were $549,101. Research and development activities are expensed as
incurred because the majority of the Companys research and development
activities consist of developing technologically feasible products and
processes for niche specific applications. Management expects that the Company
will maintain its research and development costs at this level which will allow
the Company to continue to develop new and innovative products for all four
Technical Roads.

Employees

As of December 31, 2002, the Company had 27 full-time employees and two
part-time employees. The Company considers its employee relations to be
satisfactory. The management of the Company believes the current staffing
level is adequate to accomplish the necessary tasks for 2003, given historical
growth levels of the Company. Higher growth rates, acquisitions or licensing
of new product lines may require additional employees to properly staff
increased sales, development and technical support functions. Management of
the Company intends to hire additional personnel as they are required.

Environmental, Health and Safety Considerations

The Company and its operations are subject to certain federal, state and local
laws and regulations relating to the discharge of pollutants into the air and
water, worker exposure to the chemical formulations manufactured and sold and
established standards for the reuse, storage and disposal of hazardous wastes.
The Company believes that its operations are in material compliance with
current laws and regulations relating to such matters. The management of the
Company estimates the current cost of compliance with environmental laws is
less than $10,000 per year. The Company derives a large portion of its revenue
from the sale of blended products made from finished materials purchased from
various chemical producers. These chemicals are periodically evaluated and/or
re-evaluated by the third party chemical producers for potential adverse health
effects resulting from exposure or overexposure.




Item 2.       Description of Property

Facilities

The Companys headquarters are located at 430 Harding Industrial Dr.,
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, an equipment manufacturing facility and a regional sales office.
Management believes the current facilities and leased space are adequate to
serve the Companys needs for at least the next year.

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 to May 2006. The lease for the Tennessee facility has a
five-year term ending January 2006 with an option to renew for an additional
five years. As of December 31, 2002, future annual rental payments for the
next five years are summarized as follows:

2003
        
        $
        148,4202004
        
        
        150,5202005
        
        
        156,1202006
        
        
        27,9652007
        
        
        -0-


Total rent expense was $153,781 in 2002 and $147,109 in 2001. Included in rent
expense for 2002 and 2001 is approximately $109,000 and $104,000, respectively,
of rent paid to Charles Hawkins Company, whose pension plan is a shareholder of
the Company.

The Company carries general property and casualty insurance in an amount management considers adequate.




Item 3.       Legal Proceedings

The Company is not a party to any legal proceedings, and the Company is not
aware of any proceedings contemplated by any party or governmental authority
against the Company.

9



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##### Table of Contents



KYZEN CORPORATION
PART I (Continued)




Item 4.       Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter
of 2002.

10



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##### Table of Contents



KYZEN CORPORATION




PART II




Item 5.       Market for Common Equity and Related Stockholder Matters

The Companys Common Stock and Warrants to purchase Common Stock are quoted on
the OTC Bulletin Board (symbols KYZN.OB and KYZNW.OB, respectively) and listed
on the Boston Stock Exchange (symbols KYZ and KYZ&W, respectively). The
following table provides the range of the high and low bid quotations
(denominated in dollars or fractions thereof) for the Companys Warrants and
Common Stock for each quarter within the last two fiscal years. The quotations
reflect inter-dealer quotations without retail mark-up, mark-down or commission
and may not represent actual transactions.

Warrants
        
        Common StockDividends
        
        High
        
        Low
        
        High
        
        LowQuarter ended:
        
        March 31, 2001
        
        
        *
        
        
        $
        0.040
        
        
        $
        0.020
        
        
        $
        0.48
        
        
        $
        0.22June 30, 2001
        
        
        *
        
        
        
        0.030
        
        
        
        0.010
        
        
        
        0.50
        
        
        
        0.30September 30, 2001
        
        
        *
        
        
        
        0.010
        
        
        
        0.005
        
        
        
        0.38
        
        
        
        0.21December 31, 2001
        
        
        *
        
        
        
        0.010
        
        
        
        0.005
        
        
        
        0.38
        
        
        
        0.11March 31, 2002
        
        
        *
        
        
        
        0.020
        
        
        
        0.005
        
        
        
        0.23
        
        
        
        0.16June 30, 2002
        
        
        *
        
        
        
        0.005
        
        
        
        0.005
        
        
        
        0.30
        
        
        
        0.16September 30, 2002
        
        
        *
        
        
        
        0.030
        
        
        
        0.005
        
        
        
        0.22
        
        
        
        0.15December 31, 2002
        
        
        *
        
        
        
        0.030
        
        
        
        0.001
        
        
        
        0.28
        
        
        
        0.12


* The Company historically has not paid dividends and does not expect to
pay dividends in the foreseeable future.

There were approximately 130 shareholders of record and approximately 1,000
beneficial shareholders of Common Stock on February 28, 2003.




Item 6.       Managements Discussion and Analysis or Plan of Operation

Results of Operations

Comparison of the Years Ended December 31, 2002 and December 31, 2001

Net sales for the year ended December 31, 2002 from all business activities
increased approximately 6% or $325,399 to $5,930,466, as compared to $5,605,067
for the year ended December 31, 2001. Net chemical sales during the same
period increased by 11%. These increases reflect increased sales in the optics
and metal finishing industries as well as the addition of new customers in the
electronics industry. These increases were partially offset by a generally
recessionary economic environment, including a challenging market for many
customers in the electronics industry. Sales of Engineering Services
decreased during the year ended December 31, 2002 as compared to 2001. This
reflects the slow industrial markets and associated lower need for these
services in 2002. As a percentage of net sales, these Engineering Services
sales were less than 10% of net sales in both 2002 and 2001. The Company
intends to continue its focus on chemical sales and will use Engineering
Services to enhance future chemical sales.

Gross profit for the year ended December 31, 2002 increased 7% or $197,969 to
$3,086,573 as compared to $2,888,604 for the year ended December 31, 2001,
reflecting higher sales volume and changes in product mix.

Selling, marketing, general and administrative expenses for the year ended
December 31, 2002 decreased 4% or $113,269 to $2,507,694 as compared to
$2,620,963 for the year ended December 31, 2001. This decrease is the net
result of better targeted spending in areas such as marketing and sales and
control of spending in all areas. Considering the increased expenses for such
items as liability insurance, medical insurance and costs associated with being
a public company, the Company has been successful in reducing overall expenses
from 2001. Management believes it can maintain this level of infrastructure
expenses while providing adequate funding for growing sales and markets.

Research and development expenses for the year ended December 31, 2002 were
consistent with 2001 reflecting a net decrease of less than 1% or $3,421 from
$549,101 in 2001 to $545,680 for the year ended December 31, 2002. This small
change reflects the Companys continued focus on developing new products with
the talent and resources that are readily available within the organization.

Operating income for the year ended December 31, 2002 was $33,199, compared to
an operating loss of $281,460 for the year ended December 31, 2001. This
represents an increase in operating income of $314,659 or 112%. As the Company
controlled selling, marketing, general and administrative expenses and research
and development expenses, it increased its focus on the sale of new and
existing products in new and different markets during the year ended December
31, 2002.

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KYZEN CORPORATION
PART II (Continued)

Total other income of $5,968 for the year ended December 31, 2002 compared to
total other income of $12,816 for the year ended December 31, 2001. This net
decrease of $6,848 or 53% reflects lower interest rates in conjunction with
lower cash balances in the first half of 2002 versus 2001.

The Company did not record a provision for income taxes in 2002. The Company
applied net operating loss carryforwards to reduce taxable income to $0.

Comparison of the Years Ended December 31, 2001 and December 31, 2000

Net sales for the year ended December 31, 2001 from all business activities
decreased approximately 5% or $288,325 to $5,605,067, as compared to $5,893,392
for the year ended December 31, 2000. Net chemical sales during the same
period decreased by 7%. These decreases reflect a much slower market for many
customers in the electronic assembly industry corresponding with a general
recessionary economic environment. Sales of equipment, processes and
peripheral systems increased during the year ended December 31, 2001 as
compared to 2000, and as a percentage of net sales remained below 10% in both
2000 and 2001. The Companys focus continues to be on chemical sales, but
equipment sales have the potential to enhance future chemical sales.

Gross profit for the year ended December 31, 2001 decreased 10% or $330,227 to
$2,888,604 as compared to $3,218,831 for the year ended December 31, 2000,
reflecting the lower sales volume and negative changes in product mix.

Selling, marketing, general and administrative expenses for the year ended
December 31, 2001 decreased 11% or $336,842 to $2,620,963 as compared to
$2,957,805 for the year ended December 31, 2000. This decrease reflects
managements continuing effort to control costs in these areas. In addition,
certain personnel changes, including reductions in personnel and redirection of
individual efforts have contributed to this reduction.

Research and development expenses for the year ended December 31, 2001
increased 37% or $149,399 to $549,101 from $399,702 for the year ended December
31, 2000. The Company incurred higher research and development expenses in 2001
as it invested time and personnel in accelerating the development of new
products in the aerospace and semiconductor markets.

The operating loss for the year ended December 31, 2001 was $281,460, compared
to an operating loss of $138,676 for the year ended December 31, 2000. This
represents an increased loss of $142,784 or 103%. Kyzen has controlled
selling, marketing, general and administrative expenses; however, the lower
sales and related gross margins, the change in product mix and the increased
research and development expenses caused this increased loss, much of which
occurred in the first six months of 2001.

Total other income of $12,816 for the year ended December 31, 2001 compared to
a total other income of $24,605 for the year ended December 31, 2000. This net
decrease of $11,789 or 48% reflects the decreased amount of cash balances and
lower interest rates during the last half of the year.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations.SFAS No. 143 will require the
Company to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also
will record a corresponding asset that is depreciated over the life of the
asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to
reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company is required to adopt SFAS No. 143 on
January 1, 2003. The adoption of SFAS No. 143 is not expected to have a
material effect on the Companys financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. The provisions of the Statement related to
Statement No. 13 were effective for transactions occurring after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material effect on the
Companys financial statements.

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KYZEN CORPORATION
PART II (Continued)

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements were effective for financial statements
of interim and annual periods ending after December 15, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications were required for
fiscal years ending after December 15, 2002 and are included in Note 1 in the
Notes to Financial Statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51.This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The application of this Interpretation is not
expected to have a material effect on the Companys financial statements as the
Company has no variable interest entities. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

Recent Business Developments

During 2002, management implemented steps to control expenses in all areas and
focus on increasing sales by adhering to the Technical Roads plan outlined
above in Item 1. Despite the weak economy in 2001 and 2002, particularly in the
Electronics and Semiconductor Technical Roads, the Company followed its plan to
pursue other high technology cleaning niches. These efforts have proved
successful and management intends to continue to execute this same strategy in
2003.

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 flow from operations. The
Companys primary uses of funds are the funding of research and development of
new products, purchase of capital equipment and sales and marketing activities.

As of December 31, 2002, the Company had working capital of $1,310,858,
compared to $1,179,539 as of December 31, 2001, representing an increase of
$131,319. Increases in cash and accounts receivable and other assets along
with a decrease in accounts payable are primarily responsible for the increase
in working capital, which was partially offset by decreases in inventory and
the collection of an outstanding note receivable to the Company. The inventory
decreases are due to increased use of just-in-time delivery of some raw
materials at the end of the year. The decrease in accounts payable is the
result of fewer raw material receipts at the end of the year, along with
generally lower payables as the Company effectively used the cash on hand. The
increase in other current assets is the result of pre-payments for several
trade shows and insurance contract payments.

Cash provided by operations was $99,088 for the year ended December 31, 2002, a
net increase of $124,272 from the $25,184 of cash used by operations for the
year ended December 31, 2001. This increase in cash provided by operations is
attributed mostly to the net income for the year versus the net loss in 2001.
The decrease in inventory and a much smaller increase in accounts receivable
account for most of the balance in this activity, which was partially offset by
a decrease in accounts payable.

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##### Table of Contents



KYZEN CORPORATION
PART II (Continued)

Cash used in investing activities of $32,931 for the year ended December 31,
2002, represented a decrease of $248,804 as compared to cash provided by
investing activities for the year ended December 31, 2001 of $215,873. This
variation is primarily due to the absence of short-term investments and
payments from a major shareholder which provided $300,000 from investing
activities in 2001.

Capital expenditures for the year ended December 31, 2002 increased 22% to
$56,306 from $46,180 for the year ended December 31, 2001. This increase of
$10,126 reflects capital spending on manufacturing plant capacity expansions as
well as necessary computer related expenditures. Capital expenditures for
patents decreased for the year ended December 31, 2002 to $6,625 from $7,947
for the year ended December 31, 2001. The Company remains committed to the
pursuit of patents and the need to protect its patent rights where appropriate.

The reduction in cash flows used in financing activities in 2002 is a result of
the payment by the Company of notes payable totaling $100,000 in 2001; however,
there was some use of cash in the Companys stock repurchase program in 2002.
This program was approved by the Board of Directors in October 2002 and began
in December 2002. As of December 31, 2002, $189 of Common Stock or 900 shares,
had been repurchased by the Company.

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 flows from operations will be sufficient to
satisfy its contemplated cash requirements through at least December 31, 2003.
The Companys cash requirements for 2003 and beyond will depend primarily upon
the level of sales of chemical products, inventory levels, product development,
product procurement, sales and marketing expenditures, timing of potential
acquisitions and capital expenditures. If the Companys plans change or its
assumptions change or prove to be inaccurate (due to unanticipated expenses,
delays, deterioration of customer base, financial condition or otherwise), the
Company may have to seek financing from public or private debt and equity
markets. 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 financing. Additionally, the Company
plans to continue to investigate potential acquisition candidates that are
consistent with the Companys growth strategy, which would create additional
financing needs for the Company.

Contractual Obligations

The following table sets forth our contractual obligations at December 31,
2002.

Payments Due by PeriodTotal
        
        1 Yr
        
        2-3 Yrs
        
        4-5 Yrs
        
        ThereafterOperating leases
        
        $
        483,025
        
        
        $
        148,420
        
        
        $
        306,640
        
        
        $
        27,965
        
        
        $
        0Total contractual
cash obligations
        
        $
        483,025
        
        
        $
        148,420
        
        
        $
        306,640
        
        
        $
        27,965
        
        
        $
        0


International Trade Developments

In 1998, manufacturers in the Peoples Republic of China became significant
suppliers of the Company. In 2002 and 2001, the Company imported raw materials
from foreign sources, the largest being located in China. The Company
continues to rely on this foreign source and is not aware of any changes in
international legislation or events that could have a material effect on this
supply.

Critical Accounting Policies

The Securities and Exchange Commission (SEC) recently issued disclosure
guidance for critical accounting policies. The SEC defines critical
accounting policies as those that require application of managements most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.

Kyzens significant accounting policies are described in Note 1 in the Notes to
Financial Statements. Not all of these significant accounting policies
require management to make difficult, subjective or complex judgements or
estimates. Management considers the following to be critical:

Patent costs, including the purchase of patent rights and legal costs incurred
related to issued and pending patents, are recorded 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

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KYZEN CORPORATION
PART II (Continued)

the
carrying amount of the assets may not be recoverable. During 2002, the Company
recognized approximately $4,000 as an impairment for part of a foreign patent
application that was abandoned. Additionally, the Company recorded the cost of
an application for a pending patent as an asset. 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.

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##### Table of Contents



KYZEN CORPORATION
PART II (Continued)




Item 7.       Financial Statements

INDEX TO FINANCIAL STATEMENTS

PageIndependent Auditors Report  KPMG LLP
        
        
        17Balance Sheets as of December 31, 2002 and 2001
        
        
        18Statements of Operations for the years ended December 31, 2002 and 2001
        
        
        19Statements of Shareholders Equity for the years ended December 31, 2002 and 2001
        
        
        20Statements of Cash Flows for the years ended December 31, 2002 and 2001
        
        
        21Notes to Financial Statements
        
        
        22


16



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##### Table of Contents






Independent Auditors Report

The Board of Directors
and Shareholders of
Kyzen Corporation:

We have audited the accompanying balance sheets of Kyzen Corporation as of
December 31, 2002 and 2001, and the related statements of operations,
shareholders equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kyzen Corporation as of
December 31, 2002 and 2001 and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ KPMG LLP

Nashville, Tennessee
January 18, 2003

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##### Table of Contents



KYZEN CORPORATION




BALANCE SHEETS


December 31,2002
        
        2001ASSETSCurrent assets:Cash and cash equivalents
        
        $
        383,306
        
        
        $
        317,338Accounts receivable, net of allowance for
doubtful accounts of $11,683 in 2002, and
$11,616 in 2001
        
        
        927,508
        
        
        
        919,650Note receivable from related party
        
        
        
        
        
        
        30,000Inventory
        
        
        419,340
        
        
        
        457,437Other
        
        
        72,711
        
        
        
        60,353Total current assets
        
        
        1,802,865
        
        
        
        1,784,778Property and equipment, net
        
        
        272,216
        
        
        
        352,291Patents, net
        
        
        204,203
        
        
        
        216,469Total assets
        
        $
        2,279,284
        
        
        $
        2,353,538LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
        
        $
        489,438
        
        
        $
        598,802Accounts payable to related parties
        
        
        2,569
        
        
        
        6,437Total current liabilities
        
        
        492,007
        
        
        
        605,239Commitments and contingencies (Note 10)Shareholders equity:Preferred Stock, $0.01 par value;10,000,000
shares authorized, no shares issued or
outstanding in 2002 and 2001; 100,000
Designated Series A Junior Participating
Preferred Stock
        
        
        
        
        
        
        Common Stock, $0.01 par value; 40,000,000
shares authorized, 4,776,887 shares issued and
outstanding in 2002 and 4,777,787 shares issued
and outstanding in 2001
        
        
        47,769
        
        
        
        47,778Additional paid-in capital
        
        
        5,302,224
        
        
        
        5,302,404Accumulated deficit
        
        
        (3,562,716
        )
        
        
        (3,601,883
        )Total shareholders equity
        
        
        1,787,277
        
        
        
        1,748,299Total liabilities and shareholders equity
        
        $
        2,279,284
        
        
        $
        2,353,538


See accompanying notes to the financial statements.

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KYZEN CORPORATION




STATEMENTS OF OPERATIONS


For the years endedDecember 31,2002
        
        2001Net sales
        
        $
        5,930,466
        
        
        $
        5,605,067Cost of sales
        
        
        2,843,893
        
        
        
        2,716,463Gross profit
        
        
        3,086,573
        
        
        
        2,888,604Operating costs and expenses:Selling, marketing, general and administrative expenses
        
        
        2,507,694
        
        
        
        2,620,963Research and development expenses
        
        
        545,680
        
        
        
        549,101Total operating expenses
        
        
        3,053,374
        
        
        
        3,170,064Operating income (loss)
        
        
        33,199
        
        
        
        (281,460
        )Other income (expense):Interest income
        
        
        5,968
        
        
        
        15,540Interest expense
        
        
        
        
        
        
        (2,724
        )Total other income
        
        
        5,968
        
        
        
        12,816Net income (loss)
        
        $
        39,167
        
        
        $
        (268,644
        )Net income (loss) per share  basic
        
        $
        0.01
        
        
        $
        (0.06
        )Net income (loss) per share  diluted
        
        $
        0.01
        
        
        $
        (0.06
        )Weighted average shares outstanding  basic
        
        
        4,777,718
        
        
        
        4,777,787Weighted average shares outstanding  diluted
        
        
        4,777,718
        
        
        
        4,777,787


See accompanying notes to the financial statements.

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##### Table of Contents



KYZEN CORPORATION




STATEMENTS OF SHAREHOLDERS EQUITY


For the years ended December 31, 2002 and 2001

AdditionalCommon Stock
        
        Paid-in
        
        AccumulatedShares
        
        Amount
        
        Capital
        
        Deficit
        
        TotalBalance at December 31, 2000
        
        
        4,777,787
        
        
        $
        47,778
        
        
        $
        5,202,404
        
        
        $
        (3,333,239
        )
        
        $
        1,916,943Payment of Shareholder Loan
        
        
        
        
        
        
        
        
        
        
        100,000
        
        
        
        
        
        
        
        100,000Net Loss and Comprehensive
Loss
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (268,644
        )
        
        
        (268,644
        )Balance at December 31, 2001
        
        
        4,777,787
        
        
        
        47,778
        
        
        
        5,302,404
        
        
        
        (3,601,883
        )
        
        
        1,748,299Purchase of Common Stock
        
        
        (900
        )
        
        
        (9
        )
        
        
        (180
        )
        
        
        
        
        
        
        (189
        )Net Income and
Comprehensive Income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        39,167
        
        
        
        39,167Balance at December 31, 2002
        
        
        4,776,887
        
        
        $
        47,769
        
        
        $
        5,302,224
        
        
        $
        (3,562,716
        )
        
        $
        1,787,277


See accompanying notes to the financial statements.

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KYZEN CORPORATION




STATEMENTS OF CASH FLOWS


For the years endedDecember 31,2002
        
        2001Cash Flows from Operating Activities:Net income (loss)
        
        $
        39,167
        
        
        $
        (268,644
        )Depreciation and amortization
        
        
        155,272
        
        
        
        197,097Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Increase in accounts receivable
        
        
        (7,858
        )
        
        
        (83,105
        )Decrease (increase) in inventory
        
        
        38,097
        
        
        
        (25,518
        )(Increase) decrease in other current assets
        
        
        (12,358
        )
        
        
        12,769Decrease in interest receivable from related parties
        
        
        
        
        
        
        1,750(Decrease) increase in accounts payable and accrued expenses
        
        
        (113,232
        )
        
        
        140,467Net cash provided by (used in) operating activities
        
        
        99,088
        
        
        
        (25,184
        )Cash Flows from Investing Activities:Maturity of short-term investments
        
        
        
        
        
        
        200,000Purchase of property and equipment
        
        
        (56,306
        )
        
        
        (46,180
        )Purchase of patent rights and related expenditures
        
        
        (6,625
        )
        
        
        (7,947
        )Collection of note receivable from related party
        
        
        30,000
        
        
        
        Note receivable from related party
        
        
        
        
        
        
        (30,000
        )Payment of loan from major shareholder
        
        
        
        
        
        
        100,000Net cash (used in) provided by investing activities
        
        
        (32,931
        )
        
        
        215,873Cash Flows from Financing Activities:Payments of long term debt
        
        
        
        
        
        
        (100,000
        )Purchase of common stock
        
        
        (189
        )
        
        
        Net cash used in financing activities
        
        
        (189
        )
        
        
        (100,000
        )Net increase in cash and cash equivalents
        
        
        65,968
        
        
        
        90,689Cash and cash equivalents at beginning of year
        
        
        317,338
        
        
        
        226,649Cash and cash equivalents at end of year
        
        $
        383,306
        
        
        $
        317,338


Supplemental cash flow information:
Cash used for interest payments was $0 in 2002 and $2,724 in 2001. The Company
paid no income taxes in 2002 or 2001.

See accompanying notes to the financial statements.

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KYZEN CORPORATION




NOTES TO FINANCIAL STATEMENTS


December 31, 2002 and 2001


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. On May 26, 1999, the Company
redomesticated under the laws of Tennessee. Kyzen was formed to develop
environmentally safe chemical solutions to replace ozone-depleting chlorinated
solvents. The Company manufactures and markets chemical solutions and
processes used in high-technology cleaning applications, including electronic
assemblies and precision metal and plastic components where precision cleaning
processes are required. The Company also manufactures and markets peripheral
equipment such as process control systems and chemical handling systems that
enhance the use by customers of the Companys chemical solutions. Sales of
such equipment totaled less than 10% of net sales in both 2002 and 2001.
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 business segment.
Sales to customers outside the United States totaled $575,194 in 2002 and
$779,598 in 2001, representing approximately 10% of net sales in 2002 and 14%
of net sales in 2001. No individual customer or foreign country accounted for
more than 10% of the Companys revenue in 2002 or 2001.

Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers investment securities with an original maturity of three
months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Companys best estimate of
the amount of probable credit losses in the Companys existing accounts
receivable. The Company determines the allowance based on historical write-off
experience. The Company reviews its allowance for doubtful accounts monthly.
Past due balances over 90 days and a specified amount are reviewed individually
for collectibility. All other balances are reviewed on a pooled basis. Account
balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. The
Company does not have any off-balance-sheet credit exposure related to its
customers.

Inventories

Inventories are valued at the lower of cost or market value with cost
determined using the weighted average and the first in, first out (FIFO)
method.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line
basis over the estimated useful lives (2 to 12 years) of the respective assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated useful life of the asset or the lease term.

Patent Costs

Patent costs, including the purchase of patent rights and legal costs incurred
related to issued and pending patents, are recorded and amortized using the
straight-line method over the shorter of the statutory or estimated useful
lives of the patents, which range from 17 to 20 years. If a pending patent is
not approved, the remaining net book value is written off. Accumulated
amortization was $138,613 and $119,722 at December 31, 2002 and 2001,
respectively.

Impairment of Long-Lived Assets

On January 1, 2002, the Company adopted the Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No.
144 requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. The adoption of SFAS No. 144 did not have a material
impact on the Companys financial statements.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

Business Concentrations

The Company purchases its raw materials, components and finished machines from
a variety of sources. Through its agreements with certain third parties, the
Company will be dependent on those parties for the production of their unique
chemicals.

The Company sells its products to customers involved in a variety of industries
including electronics, metal finishing, optics, semiconductors and industrial
manufacturing. Kyzen performs continuing credit evaluations of its customers
and does not require customers to pledge 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 sales of chemical products or services is recognized when the
products are shipped or the services are performed. Revenues and profits for
certain equipment contracts are recorded using the percentage of completion
method based on the product type, contract size and duration of the time to
completion. The percentage of completion is determined by relating the actual
costs of work performed to date to the current estimated total cost of the
respective contracts. If estimated total costs on any of these contracts
indicate a loss, the entire amount of the estimated loss is recognized
immediately.

Advertising Costs

Costs incurred for producing and communicating advertising are expensed in the
period incurred and totaled $34,633 in 2002 and $76,453 in 2001.

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.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

Comprehensive Income

The Company did not have any components of comprehensive income other than net
income in 2002 and net loss in 2001.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

Stock Option Plan

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 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. 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.

2002
        
        2001Net income (loss), as reported
        
        $
        39,167
        
        
        
        (268,644
        )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
        
        
        (3,140
        )
        
        
        (22,195
        )Pro forma net income (loss)
        
        $
        36,049
        
        
        
        (290,839
        )Net income (loss), per share reported (basic and diluted)
        
        
        0.01
        
        
        
        (0.06
        )Net income (loss), per share, pro forma (basic and diluted)
        
        
        0.01
        
        
        
        (0.06
        )


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:

2002
        
        2001Expected dividend yield
        
        
        0
        %
        
        
        0
        %Expected stock price volatility
        
        
        105.0
        %
        
        
        99.3
        %Risk-free interest rate
        
        
        5.21
        %
        
        
        5.15
        %Expected life of options
        
        1-10
        years
        
        1-10
        years


The weighted average fair value at date of grant for options granted during
2002 and 2001 was $0.19 and $0.78 per option, respectively.

Earnings Per Share

The Company calculates basic earnings per share as income available to common
shareholders divided by the weighted average number of shares outstanding
during the year. Diluted earnings per share is calculated using the treasury
stock method for options and warrants. At December 31, 2002, the Company had
575,183 options and 1,650,000 warrants outstanding. Because the Company
incurred net losses in 2001, the effect of common stock options and warrants
was not included in the computation of diluted earnings per share as such
effect was anti-dilutive. Although the Company had a net income in 2002, the
exercise price of these options and warrants was above the market price of the
Companys stock in each of the granting reporting periods ending December 31,
2002; therefore, the effect from these options and warrants was anti-dilutive.

Fair Value of Financial Instruments

Carrying values of cash, accounts receivable and accounts payable approximate
fair value due to the short-term maturities of these assets and liabilities.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations.SFAS No. 143 will require the
Company to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also
will record a corresponding asset that is depreciated over the life of the
asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to
reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company is required to adopt SFAS No. 143 on
January 1, 2003. The adoption of SFAS No. 143 is not expected to have a
material effect on the Companys financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. The provisions of the Statement related to
Statement No. 13 were effective for transactions occurring after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material effect on the
Companys financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements were effective for financial statements
of interim and annual periods ending after December 15, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51.This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The application of this Interpretation is not
expected to have a material effect on the Companys financial statements as the
Company has no variable interest entities. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

NOTE 2  NOTES RECEIVABLE

During 1999, certain key executives of the Company exercised options to
purchase 93,333 shares of the Companys common stock by executing non-recourse
promissory notes payable to the Company. At December 31, 2002 and 2001, the
notes totaled $17,500 and are reflected as a reduction in additional paid-in
capital. The notes bear interest at 5% per year and mature on November 24,
2003 and are secured by the Companys common stock held by such executives.
The interest payable on the notes is being withheld from the applicable
executives paychecks.

On November 1, 2000, the Company entered into a $100,000 short-term promissory
note with a major shareholder. The note bore interest at prime plus 1% and was
secured by 350,000 shares of the Companys common stock held by the
shareholder. Due to the uncertain nature of the shareholders intent to repay
the loan, as evidenced by his failure to repay the loan on the original
maturity date, the note was reflected as a reduction of shareholders equity.
All principal and interest was paid during April 2001.

During 2001, the Company entered into a short-term loan of $30,000 with Michael
L. Bixenman, Chairman of the Company, for the purchase of Kyzen Common Stock
from another shareholder. This loan bore interest at a rate of 9% per year and
had an original maturity date of April 2002. Interest was received via
automatic payroll deductions on a monthly basis. This loan was secured by
200,000 shares of the Companys Common Stock. In April 2002, a payment in the
amount of $10,000 was received from Mr. Bixenman. At that time, the note
maturity was extended to April 2003 by the Board of Directors. In December
2002, Mr. Bixenman paid the note in full in advance of the required due date.

NOTE 3  INVENTORY

Inventory consists of the following:

December 31,2002
        
        2001Raw materials
        
        $
        287,910
        
        
        $
        341,557Work in process
        
        
        
        
        
        
        1,705Finished goods
        
        
        131,430
        
        
        
        114,175$
        419,340
        
        
        $
        457,437


NOTE 4  PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

December 31,2002
        
        2001Manufacturing equipment
        
        $
        709,290
        
        
        $
        663,529Office furniture and fixtures
        
        
        485,478
        
        
        
        474,933Demonstration equipment
        
        
        413,614
        
        
        
        413,614Leasehold improvements
        
        
        278,231
        
        
        
        278,2311,886,613
        
        
        
        1,830,307Less-accumulated depreciation
        
        
        (1,614,397
        )
        
        
        (1,478,016
        )$
        272,216
        
        
        $
        352,291


Depreciation expense totaled $136,381in 2002 and $177,334 in 2001.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

NOTE 5  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

December 31,2002
        
        2001Accounts payable
        
        $
        330,610
        
        
        $
        430,826Salaries, wages and commissions
        
        
        11,357
        
        
        
        13,404Other accrued expenses
        
        
        147,471
        
        
        
        154,572$
        489,438
        
        
        $
        598,802


NOTE 6  NOTES PAYABLE

During the fourth quarter of 2000, the Company entered into a line of credit
permitting maximum borrowings of $200,000 with a bank. This line of credit had
a maturity date of April 30, 2001. Money borrowed by the Company pursuant to
the line of credit incurred interest at a rate of 7.95%. The obligation to
repay any money borrowed pursuant to the line of credit was secured by $200,000
of short-term investments with the same maturity date, earning interest at
5.95%. The Company borrowed $100,000 under this credit line during the fourth
quarter of 2000. The Company repaid this obligation during the second quarter
of 2001 and has not reentered into such an arrangement. There were no other
notes payable during the balance of 2001 nor at any time during 2002.

NOTE 7  CAPITAL STOCK

Common Stock

The Company is authorized to issue up to 40,000,000 shares of common stock,
$0.01 par value per share (the Common Stock).

Warrants

In conjunction with its initial public offering in 1995, the Company issued
warrants to purchase 1,650,000 shares of Common Stock at an exercise price of
$5.00 per share. The Warrants were exercisable from February 4, 1996 through
August 4, 2002. The Board of Directors authorized the extension of the
expiration date of these warrants, effective June 18, 2002, from August 4, 2002
to August 4, 2004. This extension provided the Companys Warrant holders with
two additional years to exercise their Warrants. The Warrants are subject to
redemption at the Companys option at $0.05 per warrant at any time on
thirty-days, prior written notice, provided that the closing price or the
closing bid quotation for the Common Stock has equaled or exceeded $7.50 for
ten trading days. All warrants remained outstanding at December 31, 2002.

Preferred Stock

The Company is also authorized to issue up to 10,000,000 shares of preferred
stock with a par value of $0.01 per share (the Preferred Stock). The terms of
any Preferred Stock to be authorized, including dividend rates, conversion
prices, voting rights, redemption prices, and similar matters, will be
determined by the Board of Directors. As of December 31, 2002, there were no
shares of preferred stock issued or outstanding.

Stock Purchase Right

On January 15, 1999, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a Right) for each outstanding share of
the Companys Common Stock to holders of record at the close of business on
January 15, 1999. Each Right will entitle the registered holder, subject to
the terms of the Rights Agreement, to purchase from the Company one
one-hundredth (0.01) of a share of Series A Junior Participating Preferred
Stock at a purchase price of $5.00 per Right, subject to adjustment (the
Purchase Price). The Rights may cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by a majority
of the Board of Directors. Thus, the Rights are intended to encourage persons
who may seek to acquire control of the Company to initiate such an acquisition
through negotiations with the Companys Board of Directors.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

The Rights attach to all certificates representing outstanding shares of
Company Common Stock, and no separate certificates in respect of the Rights
will be distributed. The Rights will separate from the Common Stock, and will
be distributed, upon the earlier of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Stock, excluding certain specified persons (such person or
group being an Acquiring Person), or (ii) 10 business days (or such later
date as may be determined by the Board of Directors) following the commencement
of, or an announcement of an intention to commence, a tender offer or exchange
offer that would result in a person or group becoming an Acquiring Person (the
earlier of (i) and (ii) being the Distribution Date). Until the Distribution
Date, (i) the Rights will be evidenced by the Common Stock certificates and
will be transferred with and only with such certificates, (ii) new Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificates. In the event that any
person becomes an Acquiring Person, each holder of a Right will thereafter have
the right to receive, upon exercise, the number of shares of Common Stock (or,
in certain circumstances, cash, property or other securities of the Company)
having a value equal to two times the Purchase Price.

The Rights are not exercisable until distributed and will expire at the close
of business on January 15, 2009 unless earlier redeemed or extended by the
Company.

In the event that, after such time as a person becomes an Acquiring Person: (i)
the Company engages in a merger or business combination transaction in which
the Company is not the surviving corporation; (ii) the Company engages in a
merger or business combination transaction in which the Company is the
surviving corporation and the Common Shares of the Company are changed or
exchanged; or (iii) 50% or more of the Companys assets or earning power is
sold or transferred, each holder of a Right (except Rights which have
previously been voided as set forth above) shall thereafter have the right to
receive, upon exercise of the Right, the number of shares of common stock of
the acquiring company having a value equal to two times the Purchase Price. The
Board of Directors may redeem the Rights in whole, but not in part, at a price
of $0.001 per Right, payable, at the election of the Board of Directors, in
cash or shares of Company Common Stock. Until a Right is exercised, the holder
will have no rights as a shareholder.

A total of 100,000 shares of Series A Junior Participating Preferred Stock are
initially reserved for issuance upon exercise of the Rights, subject to
adjustment.

Stock Options

The Company has an incentive stock option plan. Under this plan, officers,
directors and other key employees of the Company may be granted options, each
of which allows for the purchase of shares of the Companys Common Stock. The
per share exercise price of the options granted under the plan is equal to the
estimated fair value of the Common Stock on such date as determined by the
Board of Directors, except for options granted to 10% or greater shareholders
for which the per share exercise price is 110% of the estimated fair value.
Under the plan, the Company has reserved 600,000 shares of Common Stock for
issuance upon exercise of the options. The stock options have terms of five to
ten years from the date of the grant and vest ratably over a three-year period,
except for options granted to outside directors, which vest immediately upon
grant.

During 2001, the Company granted options to outside directors to purchase
15,000 shares of the Companys Common Stock at an exercise price of $0.50 per
share.

During 2002, the Company granted options to its outside directors to purchase
15,000 shares of the Companys Common Stock at an exercise price of $0.21 per
share. The Company also granted options to officers and employees to purchase
67,600 shares of the Companys Common Stock at an exercise price of $0.21 per
share.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

Stock option transactions were as follows:

Weighted AverageNumber of Shares
        
        Exercise PriceOutstanding, December 31, 2000
        
        
        501,750
        
        
        $
        2.38Granted
        
        
        15,000
        
        
        
        0.50Exercised
        
        
        
        
        
        
        Forfeited
        
        
        (19,167
        )
        
        
        1.84Outstanding, December 31, 2001
        
        
        497,583
        
        
        
        2.34Granted
        
        
        82,600
        
        
        
        0.21Exercised
        
        
        
        
        
        
        Forfeited
        
        
        (5,000
        )
        
        
        1.29Outstanding, December 31, 2002
        
        
        575,183
        
        
        $
        2.04


The following table summarizes information concerning outstanding and
exercisable options at December 31, 2002:

Options Outstanding
        
        Options ExercisableWeighted AverageRange of
        
        
        
        Remaining
        
        Weighted
        
        
        
        WeightedExercise
        
        Number
        
        Contractual Life
        
        Average
        
        Number
        
        AveragePrices
        
        Outstanding
        
        (years)
        
        Exercise Price
        
        Exercisable
        
        Exercise Price$0.21
        
        
        81,100
        
        
        
        9.3
        
        
        $
        0.21
        
        
        
        15,000
        
        
        $
        0.210.40  0.75
        
        
        100,600
        
        
        
        6.9
        
        
        
        0.64
        
        
        
        97,479
        
        
        
        0.661.00   1.38
        
        
        45,300
        
        
        
        5.6
        
        
        
        1.31
        
        
        
        45,300
        
        
        
        1.311.69  1.86
        
        
        55,700
        
        
        
        2.8
        
        
        
        1.81
        
        
        
        55,700
        
        
        
        1.812.81  3.99
        
        
        291,983
        
        
        
        1.1
        
        
        
        3.19
        
        
        
        291,983
        
        
        
        3.194.50
        
        
        500
        
        
        
        1.0
        
        
        
        4.50
        
        
        
        500
        
        
        
        4.50575,183
        
        
        
        
        
        
        
        2.04
        
        
        
        505,962
        
        
        
        2.29


NOTE 8  RETIREMENT PLAN

The Company implemented the Kyzen Corporation 401(k) Retirement Plan (the
Plan) in 1997. Employees become eligible to participate in the Plan after 90
days of their initial employment. Employees may contribute as little as 1% or
up to 20% of their salary to the Plan. The Company pays all expenses of the
Plan and matches employee contributions on a discretionary basis in such
amounts as are determined by the Companys Board of Directors. Matches of
employee contributions are available to the employee based on a six year
vesting schedule that is prorated at different percentages for each year
vested. The Company did not match or make other contributions to the Plan
during 2002 or 2001. The Plan expense for 2002 and 2001 was $1,689 and $1,439,
respectively.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

NOTE 9  INCOME TAXES

The Company did not record a provision for income taxes in 2002 or 2001. A
reconciliation of the total provision for income taxes with amounts determined
by applying the statutory U.S. federal income tax rate of 34% to income (loss)
before income taxes is as follows:

December 31,2002
        
        2001Income tax expense (benefit) at statutory rate
        
        $
        13,317
        
        
        $
        (91,339
        )State income taxes, net of federal tax provision
        
        
        3,002
        
        
        
        (4,308
        )Research and development credit, net of federal tax provision
        
        
        (24,524
        )
        
        
        (27,102
        )Change in valuation allowance
        
        
        1,559
        
        
        
        165,928Other
        
        
        6,646
        
        
        
        (43,179
        )Total income tax provision
        
        $
        
        
        
        $
        


Significant components of the Companys deferred tax assets at December 31,
2002 and 2001 are as follows:

December 31,2002
        
        2001Federal and state net operating loss carryforwards
        
        $
        843,322
        
        
        $
        892,159Research and development credits
        
        
        280,976
        
        
        
        243,818Other
        
        
        54,640
        
        
        
        41,402Deferred tax assets
        
        
        1,178,938
        
        
        
        1,177,379Valuation allowance
        
        
        (1,178,938
        )
        
        
        (1,177,379
        )Net deferred tax assets
        
        $
        
        
        
        $
        


At December 31, 2002, the Company had net operating loss carryforwards
available to reduce future Federal taxable income of approximately $2,206,856.
The carryforwards expire between 2007 and 2021. The Company has provided a
valuation allowance for the entire balance of its deferred tax assets,
including its net operating loss carryforwards, due to the uncertainty of
future realization.

NOTE 10  COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company conducts its operations from facilities under two operating lease
agreements. The lease for the New Hampshire facility was renewed in May 2002
and extended to May 2006. The lease for the Tennessee facility was renewed in
February 2001 and extended to January 2006 with an option to renew for an
additional five years. As of December 31, 2002, future annual rental payments
for the next five years are summarized as follows:

2003
        
        $
        148,4202004
        
        
        150,5202005
        
        
        156,1202006
        
        
        27,9652007
        
        
        -0-


Total rent expense was $153,781 in 2002 and $147,109 in 2001. Included in rent
expense for 2002 and 2001 is approximately $109,000 and $104,000, respectively,
of rent paid to Charles Hawkins Company, whose pension plan is a shareholder of
the Company.

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KYZEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001

Patents

The Companys original patents were for products developed by a founder of the
Company while employed by Bix Manufacturing Company (Bix) and Delphi
Automotive Systems (Delphi, formerly Delco Electronics, a division of General
Motors). The joint effort was undertaken to develop a more effective
non-chlorinated fluorocarbon cleaning solvent which would be environmentally
neutral. A patent was applied for jointly by Bix and Delphi in 1989. The
Company purchased the patent rights from Bix in 1990 and two patents were
subsequently issued jointly to Kyzen and Delphi in the United States. Delphi
retained the right to use chemistry developed under the patent and the Company
retains the right to market the patented technology. However, if the Company
enters into a license or royalty arrangement for the patented technology, the
resulting license fee or royalty revenues will be shared jointly between Delphi
and the Company.

Royalty Agreements

The Company is also required to pay patent royalties to Bix, a shareholder of
the Company. Royalties are based on 2% of revenues related to the patented
chemistry and amounted to less than $50,000 in both 2002 and 2001. The Company
is currently settling its royalty obligation through consulting services
performed by the Company. In addition, the Company also pays a royalty to
Honeywell for the sale of products under a licensing arrangement with
Honeywell. The royalty is based on a percentage of sales made by Kyzen under
the agreement. In both 2002 and 2001, these royalty payments were less than
$50,000.

Employment Agreements

Certain officers and key employees are party to an employment agreement that
provides that if the employee is terminated upon a change of control, the
employee shall immediately be paid, among other things, all accrued
compensation to the date of termination. For the remainder of the existing
employment term and for a period of two years thereafter, the employee shall be
entitled to receive semi-monthly severance payments equal to the salary which
would otherwise have been paid to the employee.

NOTE 11  RELATED PARTY TRANSACTIONS

The Company paid certain shareholders approximately $122,000 and $137,000 for
advertising, investor relations, transportation services and rent in 2002 and
2001, respectively. The Company received a payment in the amount of $10,000 in
April 2002 and another payment of $20,000 in December 2002 from Mike Bixenman,
Chairman of the Company in full payment of a loan given to him in April 2001.
Also see notes 2 and 10.

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KYZEN CORPORATION
PART II (Continued)




Item 8.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On October 29, 2001, the Board of Directors of the Company, based on the
recommendations of management and the Audit Committee, approved the dismissal
of PricewaterhouseCoopers LLP (PricewaterhouseCoopers) and the engagement of
KPMG LLP (KPMG) as the Companys independent public accountants effective
November 2001, following the closing of the Nashville office of
PricewaterhouseCoopers. KPMG audited the Companys financial statements for
the years ended December 31, 2002 and 2001.

During the past two fiscal years, there were no disagreements between the
Company and KPMG, or PricewaterhouseCoopers on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of KPMG or
PricewaterhouseCoopers, would have caused KPMG or PricewaterhouseCoopers to
make reference to the subject matter of the disagreement in connection with its
report. Neither KPMG nor PricewaterhouseCoopers has, in either of the
preceding two fiscal years, issued an adverse opinion or disclaimer of opinion
with respect to the Companys financial statements or qualified or modified
their opinions as to uncertainty, audit scope or accounting principles. During
the fiscal year prior to their engagement as the Companys independent
accountants, the Company did not consult with KPMG regarding accounting or
reporting issues. PricewaterhouseCoopers submitted a letter dated November 2,
2001 addressed to the Securities and Exchange Commission regarding the
Companys change in independent accountants which was filed as an exhibit to
the Companys current report on Form 8-K dated November 2, 2001 and has been
incorporated by reference into the exhibits filed with this annual report.

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##### Table of Contents






KYZEN CORPORATION
PART III




Item 9.       Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act

Incorporated by reference to the information contained under the captions
Election of Directors and Section 16(a) Beneficial Ownership Reporting
Compliance included in Registrants definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 17, 2003.




Item 10.      Executive Compensation

Incorporated by reference to the information contained under the captions
Compensation of Directors and Executive Compensation included in
Registrants definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 17, 2003.




Item 11.       Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference to the information contained under the captions
Security Ownership of Certain Beneficial Owners and Management and Executive
Compensation included in Registrants definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April 17, 2003.




Item 12.       Certain Relationships and Related Transactions

Incorporated by reference to the information contained under the caption
Certain Relationships and Related Transactions included in Registrants
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on April 17, 2003.

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##### Table of Contents






Item 13.       Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.
        
        DescriptionExhibit 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 10.1
        
        Lease Agreement, dated June 11, 1993, between Harding
Business Park, a partnership, and Registrant for Registrants
headquarters and chemical manufacturing facilities (2)Exhibit 10.3
        
        Employee Agreements, dated January 1, 1994 with officers and
key employees of Registrant (2):(a) Kyle J. Doyel*(b) Michael L. Bixenman*(c) Thomas M. Forsythe*Exhibit 10.4
        
        1994 Employee Stock Option Plan* and forms of Stock Option Grant, Acceptance and Exercise Notice and Agreement (2)Exhibit 10.5
        
        First Amendment to the 1994 Employee Stock Option Plan* (2)Exhibit 10.7
        
        Purchase Agreement, dated May 1, 1990, between Bix Manufacturing Company, Inc. and Registrant (2)Exhibit 10.8
        
        Technology Exchange Agreement, dated December 17, 1993, between Bix Manufacturing Company, Inc. and Registrant (2)Exhibit 10.20
        
        Warrant Agreement between Kyzen Corporation and American Stock Transfer & Trust Company (2)Exhibit 10.21
        
        Reassignment of Patents to Bix Manufacturing Company, Inc. (2)Exhibit 10.24
        
        Lease Agreement, dated April 25, 1995, between Five-Forty North Associates, a partnership, and the Registrant for
Registrants offices, demonstration facility, and equipment manufacturing facilities (5)Exhibit 10.31
        
        Form of Amendment No. 1 to Employment Agreements with certain officers of the Company (6):(a) Kyle J. Doyel*(b) Michael L. Bixenman*(c) Thomas M. Forsythe*Exhibit 10.33
        
        Amended Lease Agreement, dated February 21, 2001, between
Harding Business Park, a partnership, and the Registrant for
the Registrants Nashville, Tennessee headquarters and
chemical manufacturing facilities (7)Exhibit 10.37
        
        Second Amendment to Lease Agreement, dated May 20, 2002,
between Five-Forty North Associates, a partnership, and the
Registrant for Registrants offices, demonstration facility,
and equipment manufacturing facilities (8)Exhibit 23
        
        Consent of KPMG LLP


* Indicates a management contract or compensation plan or arrangement.



|(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.

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##### Table of Contents





|(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.                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | Filed as an exhibit to the Companys annual report on Form
10-KSB for the year ended December 31, 1997, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.  
|   
|(6) |  | Filed as an exhibit to the Companys quarterly report on Form
10-QSB for the quarter ended June 30, 1999, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.
|   
|(7) |  | Filed as an exhibit to the Companys annual report on Form
10-KSB for the year ended December 31, 2000, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.  
|   
|(8) |  | Filed as an exhibit to the Companys quarterly report on Form
10-QSB for the quarter ended June 30, 2002, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.

(b) Reports on Form 8-K

None.




Item 14.       Controls and Procedures

The Companys Chief Executive Officer and Chief Accounting Officer have
conducted an evaluation of the Companys disclosure controls and procedures
within 90 days of the filing date of this report. Based upon this
evaluation, the Companys Chief Executive Officer and Chief Accounting
Officer concluded that the Companys disclosure controls and procedures were
effective through the date of completing the evaluation in ensuring that
information required to be disclosed in this report was recorded, processed,
summarized and reported within required time periods and that such
information was accumulated and communicated to the Companys management as
appropriate to allow timely decisions regarding required disclosure. There
have not been any significant changes in the Companys internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation.

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##### Table of Contents



KYZEN CORPORATION

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

(Registrant)
        
        Kyzen CorporationBy
        
        
        
        /s/ Kyle J. DoyelKyle J. Doyel, President, CEO (Principal Executive Officer), DirectorDate:
        
        
        
        March 21, 2003


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By
        
        /s/ Michael L. BixenmanMichael L. Bixenman, Chairman, Vice President, DirectorDate:
        
        March 21, 2003By
        
        /s/ Kyle J. DoyelKyle J. Doyel, President, CEO (Principal Executive Officer), DirectorDate:
        
        March 21, 2003By
        
        /s/ Thomas M. ForsytheThomas M. Forsythe, Vice President, Treasurer (Principal Accounting
Officer and Principal Financial Officer), DirectorDate:
        
        March 21, 2003By
        
        /s/ John A. Davis IIIJohn A. Davis III, DirectorDate:
        
        March 21, 2003By
        
        /s/ James R. GordonJames R. Gordon, DirectorDate:
        
        March 21, 2003By
        
        /s/ Janet Korte BakerJanet Korte Baker, DirectorDate:
        
        March 21, 2003


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##### Table of Contents



CERTIFICATIONS

I, Kyle J. Doyel, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Kyzen Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.   The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)   designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b)   evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the Evaluation Date); and

c)   presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.   The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a)   all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and

b)   any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6.   The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 21, 2003
        
        /s/ Kyle J. DoyelKyle J. Doyel
Chief Executive Officer


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##### Table of Contents



I, Thomas M. Forsythe, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Kyzen Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.   The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)   designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b)   evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the Evaluation Date); and

c)   presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.   The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a)   all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and

b)   any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6.   The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 21, 2003
        
        /s/ Thomas M. ForsytheThomas M. Forsythe
Chief Accounting Officer


38