<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)                          FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 
     1934


For the fiscal year ended      December 31, 1998                                
                         -------------------------------------------------------

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 
     OF 1934

For the transition period from                         to 
                              ------------------------   -----------------------
Commission file number                0-26434    
                      ----------------------------------------------------------

                                Kyzen Corporation
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

    Utah                                                  87-0475115
--------------------------------------      ------------------------------------
  State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization                      Identification No.)

    430 Harding Industrial Drive, Nashville, TN                          37211
--------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)

Issuer's telephone number          615-831-0888                        
                         -------------------------------------------------------
Securities registered under Section 12(b) of the Exchange Act:

      Title of each class              Name of each exchange on which registered

Class A Common Stock                              Boston Stock Exchange
------------------------------------          ----------------------------------
Warrants for Class A Common Stock                 Boston Stock Exchange
------------------------------------          ----------------------------------

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

                                      NONE
--------------------------------------------------------------------------------
                                (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 there is no disclosure of delinquent filers in response to
Items 405 of Regulation S-B 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. $5,877,974
                                                                 -----------

         State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act) $3,593,965 at $1.125 per share on February 4, 1999
    ---------------------------------------------------

NOTE: If determining whether a person is an affiliate would 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.


<PAGE>   2

                         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) or 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 last practicable date.

   5,006,681 shares of Class A Common Stock outstanding as of February 4, 1999

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 Annual
Meeting of Shareholders to be held on April 9, 1999 are incorporated into Part
III of this report

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



<PAGE>   3
KYZEN CORPORATION
--------------------------------------------------------------------------------
INDEX

<TABLE>
<CAPTION>
                                                                                                           Page No.
                                                                                                           --------

<S>      <C>        <C>                                                                                    <C> 
Part I

         Item 1.    Description of Business                                                                   4

         Item 2.    Description of Property                                                                   8

         Item 3.    Legal Proceedings                                                                         8

         Item 4.    Submission of Matters to a Vote of Security Holders                                       8

Part II

         Item 5.    Market for Common Equity and Related Stockholder Matters                                  9

         Item 6.    Management's Discussion and Analysis or Plan of Operation                                 9

         Item 7.    Financial Statements                                                                     14

                           Report of Independent Accountants                                                 15

                           Balance Sheet as of December 31, 1998, and 1997                                   16

                           Statement of Operations for the years ended

                               December 31, 1998 and 1997                                                    17

                           Statement of Changes in Shareholders' Equity for the years

                               ended December 31, 1998 and 1997                                              18

                           Statement of Cash Flows for the years ended

                               December 31, 1998 and 1997                                                    19

                           Notes to Financial Statements                                                     20

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

                        Financial Disclosure                                                                 27



Part III

         Item 9.    Directors, Executive Officers, Promoters and Control Persons;
                      Compliance With Section 16(a) of the Exchange Act.                                     28

         Item 10.   Executive Compensation                                                                   28

         Item 11.   Security Ownership of Certain Beneficial Owners and Management                           28

         Item 12.   Certain Relationships and Related Transactions                                           28

         Item 13.   Exhibits and Reports on Form 8-K                                                         28
</TABLE>



                                     Page 3
<PAGE>   4


KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART I

ITEM 1.    DESCRIPTION OF BUSINESS

THE COMPANY

Kyzen(R) Corporation ("Kyzen" or the "Company") is a specialty chemical company
focused on CFC-replacement chemistries and processes for electronics and other
high technology industries 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. 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. Its headquarters are located at
430 Harding Industrial Dr., Nashville, TN 37211, where its telephone number is
(615) 831-0888, and its fax number is (615) 831-0889.

HISTORY OF THE COMPANY

In September 1987, the United States and 22 other countries signed the Montreal
Protocol ("the Protocol") on Substances that Deplete the Ozone Layer. 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. As of February 1993, over 90 nations, representing
over 90% of the world's consumption of ODPs, were parties to the Protocol. In
1990, the United States enacted the Clean Air Act mandating that the use of ODPs
be phased out by the year 2000. In September 1991, the US Environmental
Protection Agency announced that ozone layer depletion over North America was
greater than expected. In response to this announcement, then President Bush
issued an executive order accelerating the phase-out of ozone depleting
materials to December 31, 1995. The more than 90 nations which are signatories
to the Protocol 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 found that had the
broad applicability of the ODPs produced before 1995. As such, the market for
high technology cleaning has fragmented into smaller niche cleaning applications
where specific products were developed to meet specialized market needs. In
addition, this market continues to evolve as newer technology and
miniaturization of products presents more difficult cleaning challenges for
manufacturers.

CHEMICAL CLEANING PRODUCTS

Kyzen has formulated seven general lines of cleaning chemistries that serve
different market niches. These chemistries are:

         -  semi-aqueous electronic cleaning  (Ionox(R));

         -  aqueous cleaner concentrates for electronic cleaning (Aquanox(R)); 

         -  metal/plastic precision cleaners which can be aqueous or 
            semi-aqueous (Metalnox(R));

         -  volatile organic chemical ("VOC") compliant cleaning agents for
            electronics and metals (Lonox(TM)); 

         -  optical solvents and cleaning agents (Optisolv(TM)); 

         -  semi-conductor cleaning agents (Micronox(TM)); and 

         -  waterless solvents and hand-wipe solvents (Kryptonol(R)).

In addition, Kyzen has identified product niches in cleaning chemistries and
processes for batteries and medical devices and is currently selling limited
amounts of specialty cleaning products in those industries.



                                     Page 4
<PAGE>   5

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART I (CONTINUED) 

The Company's strategy is to patent its formulations where unique materials,
blends or uses are identified. In other formulations the Company uses a
combination of multiple ingredients and suppliers to protect and maintain as
proprietary information the key active materials used in each product.

Most Kyzen 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 departures from these
general standards. The Company is currently developing new cleaning chemistries
and processes for its existing electronics niche in addition to developing new
products for the semiconductor, optics, medical device and other niche cleaning
markets. Kyzen believes its unique chemical products will be an attractive
alternative in each of these industries. Management of the Company also believes
that future product lines may be obtained through acquisitions or licensing
agreements. In 1998, the Company entered in to a licensing agreement with
AlliedSignal and Hewlett Packard to sell and market a patented cleaning product
jointly developed by both companies. The Company has been in discussions from
time to time with potential acquisition candidates or licensors of cleaning
technology and products. The Company has not entered into definitive agreements
and there can be no assurance that any particular acquisition or licensing
opportunities will materialize.

EQUIPMENT PRODUCTS AND PERIPHERALS

The goal of Kyzen's Equipment Products and Peripherals ("EP&P") group is to
enhance processes and expedite and eliminate obstacles in the implementation of
Kyzen's chemical cleaning solutions. Prior to the third quarter of 1997, the
Company was focused on developing process control systems, water re-use and
cleaning machine technology and incorporating those technologies into equipment
sold by the Company. Historically, the Company had viewed its EP&P group as
necessary to sell Kyzen chemical products, despite the losses incurred by the
group since the inception of the Company. During 1997, changes in customer
requirements and in capabilities of outside vendors resulted in the Company's
decision to downsize the EP&P group. The Company currently maintains the group
at a manpower level smaller than its historical level in 1996 and 1997. This
group however, is capable of developing and manufacturing process control
equipment, building and maintaining equipment in Kyzen's Cleaning Applications
and Evaluation Centers, maintaining existing customer machines and service
contracts and manufacturing peripheral items necessary to assist the
installation and implementation of chemicals. EP&P sales amounted to 3% of sales
in 1998, down from 8% of sales in 1997.

Process Control Systems ("PCS"). The Company's PCS system is a fully integrated
tool based on the Company's proprietary developed technology that automatically
samples and adjusts cleaning agent concentration to a specified level in a
cleaning tank or machine. The PCS system also has the capability to
automatically (1) monitor and maintain liquid levels, (2) pump chemicals
directly from the drum to the wash tank and (3) fill the cleaning machine. The
current PCS product line is designed to operate on a number of the Company's
existing and developmental cleaning solutions.

The Company's strategy is to further develop Kyzen's technologies in the PCS
area and use them to differentiate the Company's cleaning agents from
competitors. The Company plans to pursue the construction and sale of its PCS to
potential customers in current markets and to continue to develop the PCS system
for new niche cleaning applications and possibly for other chemical
applications.

Process Rinse Water Reuse Technology. Because historically, the majority of
chemical cleaning products designed to replace ODPs require the use of water in
the cleaning process, either as a part of the washing process or as a rinsing
agent and because the Company determined that most potential customers in the
early 1990's desired to recycle the rinse water in the cleaning process, the
Company developed technologies for process water reuse machines using reverse
osmosis ("RO") membranes in conjunction with distillation, activated carbon and
ion exchange resins. Currently, the recycling of reuse water is less problematic
for the Company's customers because most publicly owned treatment works ("POTW")
now accept rinse water effluent. Additionally, certain suppliers of water reuse
equipment are now able to handle water recycling within the precision cleaning
industry. If environmental laws become more stringent and require more water
recycling, the Company may be able to penetrate new markets with its water reuse
technology, but this technology does not currently represent a growth area for
the Company.



                                     Page 5
<PAGE>   6

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART I (CONTINUED) 

The Company's strategy regarding its process water reuse technology is to
maintain Kyzen's installed base and to offer its technology in this area to
potential cleaning agent customers as a differentiated competitive advantage to
the Company's competitors. The Company plans to assist customers in developing
processes for water reuse with Kyzen's cleaning products but will use third
party vendors to construct and sell the actual mechanical systems to the
potential customer.

Specialized Cleaning Machine. In the past the Company was involved with the
development and manufacture of specialized cleaning machines, primarily
developed for a specific application within Intel Corporation. The Company's
strategy is to retain Kyzen's technology and development work used in the
development of the cleaning machine for Intel in the event a potential customer
opportunity for such equipment arises. Since the second quarter of 1997,
however, the Company has downsized its machine manufacturing capability and does
not plan to aggressively pursue the manufacture or sale of the specialized
cleaning machines for potential customers. In the event an opportunity arises,
management of the Company expects to outsource the manufacture of cleaning
machines in some form of strategic alliance that would mitigate the risk to the
Company of such an endeavor.

COMPETITION

The precision cleaning industry is undergoing rapid change as companies search
for new technology to replace processes based on ODPs. The market is rapidly
moving from a commodity market supplied by major chemical companies to a series
of highly fragmented niche markets supplied by numerous focused specialty
chemical companies. Management believes its most significant competitors are
Petroferm(R), Church & Dwight, Valtron, Alpha Metals, Multicore and Dr. O.K.
Wack Chemie. Management believes the Company has a competitive advantage in the
Company's targeted markets because the Company's strategic method of selling
directly to its customers rather than utilizing distribution. This provides the
Company the advantage of closer customer contact, less "middlemen" in the
selling process resulting in lower costs for the Company's customers and higher
gross profit margins for the Company. Another competitive advantage is that
Kyzen is one of few companies whose primary source of revenue is from the sale
of high technology cleaning products. This focus on the cleaning market niche
allows the Company's sales force to be totally committed to selling and
servicing the customer, as opposed to competitive sales forces or distributors
that are less focused due to demands from multiple product lines in multiple
markets.

DEPENDENCE ON SUPPLIERS AND OTHERS

The Company purchases its raw materials, components and finished machines from a
variety of sources. While the Company is generally not significantly dependent
on any one supplier for raw materials, components and finished machines, it had
historically, relied on one domestic chemical producer for its supply of the
nonlinear alcohol used in many of the Company's cleaning formulations. In 1998,
the Company became less reliant on this specific vendor as the Company sourced
this material 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 chemicals involves the blending of specific
chemicals purchased from third party chemical producers in the open market. The
Company's chemical raw materials, other than the nonlinear alcohol, are widely
available from numerous sources. The nonlinear alcohol is currently available
from three producers, all of which management believes are currently operating
at levels below capacity. In addition the Company has had discussions with other
producers who have indicated an interest in producing the nonlinear alcohol.

SALES AND DISTRIBUTION

Marketing. There are a number of precision cleaning market niches ranging in
size from $5 million to $50 million in which management believes the Company
should be able to maintain a competitive advantage. The Company is now
established in the electronic assembly market niche. The Company is currently
developing other cleaning processes and products for niches such as high volume
precision cleaning of plastic and metal parts, peripheral cleaning products such
as hand cleaning products and wipes, cleaning of other electronic devices,
optical lenses and moulds, medical devices and semiconductors.



                                     Page 6
<PAGE>   7

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART I (CONTINUED) 

Cleaning Applications and Evaluation Centers. The Company currently operates
comprehensive Cleaning Applications and Evaluation Centers in Manchester, New
Hampshire and in 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 these centers give it a competitive advantage in that the Company
believes it has the most comprehensive testing facilities in the cleaning
industry. The centers are used to expedite the sales cycle for Kyzen's chemical
solutions in addition to accelerating the development of new Kyzen chemical
products.

Sales Force. One of the primary sales challenges facing the Company is selling
its cleaning technologies to customers who have limited experience with
water-based cleaning agents and processes. Consequentially, these sales often
require long relationship building periods and considerable time for problem
solving and testing of process and chemistry. The Company is accelerating this
process through the investment in Cleaning Applications and Evaluation Centers
which is designed to shorten the period required for testing and problem solving
and will increase customer's exposure to Kyzen and its products. The Company's
sales cycles for conversion to the Company's products typically range from three
months to two years.

The Company currently sells it products through a direct regional sales force,
complemented in certain geographic regions or niches 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.

CUSTOMERS

During the year ended December 31, 1998, 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 two patents for its chemical cleaning formulations in the
United States. The Company also has obtained one patent in each of Mexico,
China, Taiwan, Australia, Korea, Australia, Brazil, European Union and Japan.
These existing patents, which expire between 2009 and 2014, and pending
international patents related to the two U.S. patents, are jointly owned by the
Company and Delco, a division of General Motors. Delco has retained the right to
use chemistry developed under the patents and the Company has retained the right
to market the patented formulations. Delco is not entitled to receive royalties
or license fees from the Company on the chemical cleaning products manufactured
and sold by the Company. However, if the Company were to enter into a license or
royalty arrangement for the patented formulations, the resulting license fee or
royalties would be shared between the Company and Delco.

The Company has applied for three additional patents in the United States during
1997 and 1998. These filings relate to work performed during the past three
years on a number of formulations to be used in existing and new market niches.
These patents are currently being reviewed by the patent office.

The Company is also required to pay patent royalties to Bix Manufacturing
Company (a shareholder). Royalties are based on 2% of revenues related to the
patented chemistry. The Company is currently settling its royalty obligation
through consulting services performed by the Company. In 1998 and 1997, $46,675
and $71,925, respectively, has been recorded as royalty expense to reflect these
transactions.

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 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
such 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 Company.



                                     Page 7
<PAGE>   8

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART I (CONTINUED) 

RESEARCH AND DEVELOPMENT

The Company's research and development expenses in 1998 were $424,335 and in
1997 were $461,470. Of this amount, $398,962 in 1998 and $430,460 in 1997 were
spent for chemical research and development of products. 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 continue to maintain research and
development activity in the same 6% to 8% of revenue level for the foreseeable
future in order to create new and better products and processes as required by
niche markets in which management believes the Company can effectively compete.

EMPLOYEES

As of December 31, 1998, the Company had 34 full-time employees and 1 part-time
employee. 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 1999 given historical growth levels of the
Company. Higher growth rates, acquisitions or licensing of new product lines may
require additional staff to properly staff increased marketing, 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 compliance with current laws and
regulations relating to such matters. The management of the Company estimates
the current annual 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, which houses a research and development laboratory, a
Cleaning Applications and Evaluation Center, a chemical manufacturing facility
and sales, engineering, marketing and administrative offices. The Company leases
an approximately 6,625 square foot facility located at 540 Commercial Street,
Manchester, New Hampshire. This location houses a Cleaning Application and
Evaluation Center, EP&P manufacturing and a regional sales office. Management
believes the current facilities and leased space are adequate to serve the
Company's needs for the next year.

The Company conducts its operations from facilities under two operating lease
agreements. The lease for the New Hampshire facility terminates in May 2000 with
an option to renew for one year, and the Tennessee facility lease terminates in
February 2001 with an option to renew for two years. As of December 31, 1998,
future annual rental payments are summarized as follows:

<TABLE>
                  <S>                                  <C> 
                  1999                                 $129,958
                  2000                                  110,550
                  2001                                    8,000
</TABLE>

Total rent expense was $132,882 in 1998 and $163,434 in 1997. Included in rent
expense for 1998 and 1997 is approximately $96,536 and $92,198, respectively, of
rent paid to a shareholder.

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

ITEM 3.    LEGAL PROCEEDINGS

As of December 31, 1998, the Company was not a party to any legal proceedings.

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
1998.



                                     Page 8
<PAGE>   9

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Class A Common Stock and Warrants to purchase Class A Common Stock
are quoted on the Nasdaq Small Cap Stock Market (symbols KYZN and KYZNW,
respectively) and listed on the Boston Stock Exchange (symbols KYZ and KYZW,
respectively). The following table provides the range of the high and low bid
quotations for the Company's Warrants and Class A Common Stock on the Nasdaq
Small Cap Stock Market for each quarter within the last two fiscal years. The
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                                                            Class A
                                                                    Warrants              Common Stock
                                                  Dividends    High         Low        High          Low   
                                                  ---------   ------       -----     --------     --------

<S>               <C>                             <C>         <C>          <C>       <C>          <C>
Quarter ended:    March 31, 1997                     $0       $  1/2       $9/32     $      3     $  1 3/4
                  June 30, 1997                       0          3/8        3/16      1 15/16      1 11/32
                  September 30, 1997                  0        11/16         1/4        2 1/2        1 1/4
                  December 31, 1997                   0          3/4         1/8      2 15/32        1 1/4

                  March 31, 1998                      0         7/16        3/16            2        1 3/8
                  June 30, 1998                       0         7/16        3/16        1 1/2       1 3/16
                  September 30, 1998                  0         7/16        1/32        1 1/2        13/16
                  December 31, 1998                   0         3/16        1/16       1 1/16          1/2
</TABLE>

There were approximately 100 shareholders of record and approximately 1,000
beneficial shareholders of Class A Common Stock on December 31, 1998.

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

Net sales for the year ended December 31,1998 from all business activities
increased approximately 8% or $418,128 to $5,877,974, while net chemical sales
increased 13% from the year ended December 31, 1997. These increases are due to
increased sales volume of the Company's chemical cleaning agents to existing
customers as well as sales to new customers who are converting to the Company's
products. Sales of equipment, processes and peripheral systems have decreased
56% during the year ended December 31, 1998, from 8% of net sales in 1997 to 3%
of net sales in 1998, reflecting the Company's focus on more profitable chemical
products and downsizing of its EP&P group in the year ended December 31, 1997.

Gross profit for the year ended December 31, 1998 increased 20% or $565,378 to
$3,341,094 as compared to $2,775,716 in the year ended December 31, 1997. This
increase is attributable to increased sales volume of the Company's cleaning
agents in addition to selling a higher margin chemical product mix. Gross profit
margins from all business activities increased from 51% in the year ended
December 31, 1997 to 57% in the year ended December 31, 1998. This increase
reflects a larger percentage of total sales attributable to higher margin
chemical products.

Selling, general and administrative expenses for the year ended December 31,
1998 decreased 2% or $48,556 to $2,912,453 in the year ended December 31, 1998
as compared to $2,961,009 in the year ended December 31, 1997. This decrease
reflects decreased spending on advertising in the year ended December 31, 1998
and decreases in commissions to manufacturers' representatives partially offset
by higher general and administrative expenses.

Research and development expenses for the year ended December 31, 1998 decreased
8% or $37,135 to $424,335 from $461,470 for the year ended December 31, 1997.
Research and development as a percentage of sales decreased from 8.5% to 7.2%.
The reduction reflects lower costs of supplies in the year ended December 31,
1998 and lower machine prototype costs associated with the development of the
PCS in the year ended December 31, 1998 versus the year ended December 31, 1997.



                                     Page 9
<PAGE>   10

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART II (CONTINUED) 

Operating income for the year ended December 31, 1998 increased $651,069 from a
loss of $646,763 in the year ended December 31, 1997 to income of $4,306 for the
year ended December 31, 1998. This increase is due to decreased expenses in
conjunction with increased chemical product sales partially offset by reduced
EP&P sales. The increased chemical sales and lower EP&P revenues from downsizing
of the EP&P group resulted in a product mix that had a higher percentage of
chemical sales. The higher concentration of chemical product sales in the year
ended December 31, 1998 increased gross profit margins by approximately 6%
thereby contributing to the operating income increase.

Interest income for the year ended December 31, 1998 decreased 18% to $68,271
from $83,222 for the year ended December 31, 1997. This $14,951 decrease results
from lower cash and short-term investment balances as a result of investment of
cash in the operations of the Company. A total of $45,312 of the interest income
in both the year ended December 31, 1998 and the year ended December 31, 1997
was non-cash interest accrued from notes receivable from officers and former
employees of the Company.

Interest expense for the year ended December 31, 1998 decreased 40% to $5,074
from $8,467 in the year ended December 31, 1997. This decrease reflects
management's decision to repay all the Company's outstanding notes payable in
the second quarter of 1998.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

Net sales for the year ended December 31, 1997 from all business activities
increased approximately 10% or $500,844 to $5,459,846, while net chemical sales
increased 20% from the year ended December 31, 1996. These increases are due to
increased sales volume of the Company's chemical cleaning agents to existing
customers as well as sales to new customers who converted to the Company's
products. Sales of equipment, processes and peripheral systems have decreased
during the year ended December 31, 1997, reflecting the Company's focus on more
profitable chemical products and smaller more profitable pieces of equipment
like the Process Control System (PCS).

Gross profit for the year ended December 31, 1997 increased 18% or $424,935 to
$2,775,716, as compared to $2,350,781 in the year ended December 31, 1996. This
increase was attributable to increased sales volume of the Company's cleaning
agents. Gross profit margins from all business activities increased from 47% in
the year ended December 31, 1996 to 51% in the year ended December 31, 1997.
This increase reflected a larger percentage of total sales coming from higher
margin chemical products.

Selling, general and administrative expenses for the year ended December 31,
1997 increased 12% or $320,026 to $2,961,009 in the year ended December 31, 1997
as compared to $2,640,983 for the year ended December 31, 1996. This increase
reflects increased spending on advertising and sales personnel partially offset
by lower general and administrative expenses.

Research and development expenses for the year ended December 31, 1997 decreased
20% or $114,838 to $461,470 from $576,308 for the year ended December 31, 1996.
Development expenses for chemical cleaning products increased approximately 7%
while expenditures for development of equipment, processes and peripherals
decreased significantly in the year ended December 31, 1997. This change
reflects the one-time research and development expenses associated with
developing the cleaning machine in the year ended December 31, 1996 for Intel.

Operating loss for the year ended December 31, 1997 decreased 25% or $219,747 to
a loss of $646,763 from a loss of $866,510 for the year ended December 31, 1996.
This decrease is due primarily to increased sales of chemical products and
smaller increases in operating expenses in conjunction with the downsizing of
the cleaning machine project from the year ended December 31, 1996 to the year
ended December 31, 1997.

Interest income for the year ended December 31, 1997 decreased 34% to $83,222
from $126,481 for the year ended December 31, 1996. This $43,259 decrease is due
to lower cash balances during the year ended December 31, 1997 as a result of
investment of cash in the operations of the Company.

Interest expense for the year ended December 31, 1997 decreased 49% to $8,467
from $16,591 in 1996. The decrease of $8,124 in interest expense is due to
interest charges incurred in the year ended December 31, 1996 related to a one
time put repurchase obligation settled in the year ended December 31, 1996. This
expense did not occur in the year ended December 31, 1997 resulting in a lower
expense.



                                    Page 10
<PAGE>   11


ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards that require entities to report in
current earnings, changes in equity that result from transactions and economic
events other than those that are the product of transactions with shareholders.
The statement also requires the presentation of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other required financial statements. The Company adopted the provisions of
this Statement effective January 1, 1998. Adoption of this statement did not
have an impact on the Company's financial condition or results of operations.

In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
adopted the provisions of this Statement effective January 1, 1998. Based upon a
review of its operations, management believes that the Company operated in only
one reportable segment at December 31, 1998.

In February 1998, FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Post-retirement Benefits." SFAS No. 132 revises and
standardizes employers' disclosures about pension and other post-retirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. The Company adopted the provisions
of this Statement effective January 1, 1998.

In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. The Company will adopt
the provisions of this Statement effective January 1, 2000. As the Company has
not engaged, and does not plan to engage in derivative or hedging activities,
adoption of this Statement will not have an impact on the Company's financial
condition or results of operations.

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 and Exchange Act of 1934, as amended. When used,
statements which are not historical in nature, including the words "anticipate,"
"estimate," "should," "expect," "believe," "intend" and similar expressions are
intended to identify forward-looking statements. Such statements are, by their
nature, subject to certain risks and uncertainties. Among the factors that could
cause actual results to differ materially from those projected are the
following: business conditions and the general economy as they affect interest
rates; business conditions as they affect manufacturers of chemical raw
materials; the federal, state and local regulatory environment; availability of
debt and equity capital with favorable terms and conditions; availability of new
expansion and acquisition opportunities; changes in the financial condition or
corporate strategy of the Company's primary customers; and the ability of the
Company to develop new competitive product lines. Actual results, events and
performance may differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to release
publicly the 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.

YEAR 2000 DISCLOSURE

Many computer systems (including application software and operating systems)
will not accurately interpret dates after December 31, 1999. The year
2000-century change can directly (in its own computer systems) or indirectly (if
its suppliers' and customers' systems are not able to accommodate the year
2000-century change) affect the Company.

The Company is currently evaluating its internal computing, communication and
non-computational systems and believes they will accommodate the year
2000-century change. Because of the relatively simple nature of the Company's
information systems, management believes that any impact on such systems
resulting from the year 2000 



                                       12
<PAGE>   12

KYZEN CORPORATION 
--------------------------------------------------------------------------------
PART II (CONTINUED)

and beyond will not have a material adverse effect on the Company's financial
condition or results of operations. The company expects to complete its
assessment of these systems by the end of the third quarter of 1999.

The Company is also in the process of evaluating non-computational systems such
as embedded chip technology, microprocessors and specific function chips.
Because of the relatively simple nature of the Company's product manufacturing
process and products, management believes any impact on such systems and
modifications required resulting from the year 2000 and beyond will not have a
material adverse effect on the Company's financial condition or results of
operations. The Company expects to complete its assessment of these systems by
the end of the third quarter of 1999.

The Company is also evaluating major vendors and suppliers of goods and services
to the Company and its major customers. The Company is currently uncertain as to
whether or not all such vendors, suppliers and customers will be able to
accommodate the year 2000-century change. Although management believes that
failure of any one vendor or supplier or customer to accommodate the year 2000
century change should not have a material adverse effect on the Company's
financial condition or results of operations, the inability of a significant
vendor or supplier, such as a provider of utilities, or a key chemical producer
such as a producer of alcohol used in many of the Company's cleaning
formulations, to accommodate the year 2000 century change could have a material
adverse effect on all customers of such vendor or supplier, including the
Company. The failure of a material vendor or supplier to accommodate the century
change could cause significant delays in the Company's manufacturing process or
the delivery of products to its customers as a result of problems such as,
inventory shortages and shipping delays. The failure of any material customer to
accommodate the century change could cause significant payment delays and could
have a material adverse effect on the Company's net sales. At the present time
the Company has no contingency plan to cover such year 2000 century change
issues, but intends to adopt such a plan by the fourth quarter of 1999.

The Company estimates it has spent less than $5,000 on its assessment of vendors
and suppliers, and in assessment and modification of the Company's systems to
accommodate the year 2000-century change. The Company expects future costs for
assessment and modification for the year 2000 century change to be
insignificant. The Company is currently working to upgrade some of its software
used in database management and electronic communications. The Company is making
this change based on the need to have better and improved software performance
and considers this change not to be driven by year 2000 compliance issues. All
vendors of these upgrades have represented to the Company that their products
are year 2000 compliant. After installation of these upgrades, the Company plans
to test them to further verify year 2000 compliance.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds have been the remaining proceeds from its
initial public offering in 1995 and cash flows from operations. The Company's
primary uses of funds are the funding of research and development of new product
lines, purchase of capital equipment, construction and expansion of the Cleaning
Applications and Evaluation Centers and sales and marketing activities.

As of December 31, 1998, the Company had working capital of $1,241,818, compared
to $1,250,588 as of December 31, 1997, representing a decrease of $8,770 or 1%.
This decrease resulted primarily from the construction of fixed assets,
repayment of long-term debt and the purchase of patent rights and related
expenditures during 1998, offset partially by $67,503 of net income earned
during year ended December 31, 1998.

The Company is currently negotiating with several lenders to obtain a credit
facility to replace the credit facility terminated by the Company in April 1998.
There can be no assurance, however, that the Company will be able to obtain
another credit facility on terms favorable to the Company.

Cash provided by operations was $48,379 in the year ended December 31, 1998, an
increase of $374,523 from $326,144 of cash used by operations in the year ended
December 31, 1997. This increase is the result of a $639,511 increase in net
income in 1998 versus the same period in 1997. This increase in net income was
offset by lower accounts payable as a result of more timely payment of bills.

Cash used by investing activities of $151,120 for the year ended December 31,
1998, represented a decrease of $372,533 as compared to cash provided by
investing activities during the year ended December 31, 1997 of $221,413. This
change was due primarily to the liquidation of the short-term investments during
the first quarter of 1998, partially



                                    Page 12
<PAGE>   13

KYZEN CORPORATION                                                           
----------------------------------------------------------------------------
PART II (CONTINUED)

offset by higher fixed asset purchases for the completion of the Company's
laboratories and Cleaning Applications and Evaluation Centers, and continuing
expenditures for patents in 1998.

Capital expenditures for the year ended December 31, 1998 increased 39% to
$207,783 from $149,739 in the year ended December 31, 1997. This increase of
$58,044 was attributed to the construction of the Nashville Cleaning
Applications and Evaluation Center, addition of cleaning equipment to both the
Nashville and Manchester Cleaning Applications and Evaluation Centers, addition
of laboratory equipment and addition of smaller equipment used in the normal
course of business. Capital expenditures for patents decreased slightly for the
year ended December 31, 1998 to $42,545 from $58,056 in the year ended December
31, 1997. This decrease is the result of timing of examinations of patents the
Company has on file in various countries.

Cash used by financing activities of $84,122 for the year ended December 31,
1998, represented an increase of $157,811 from cash provided by financing
activities of $73,689 during the year ended December 31, 1997. This difference
was due to obtaining the note payable in the fourth quarter of 1997 and
subsequent repayment of the note during the quarter ended June 30, 1998.

The Company anticipates, based on currently proposed plans and assumptions
relating to its operations and expansion plans, that the current cash balances
together with projected cash flow from operations will be sufficient to satisfy
its contemplated cash requirements at least through December 31, 1999. The
Company's cash requirements for the year 1999 and beyond will depend primarily
upon the level of sales of chemical products, product development, product
procurement, sales and marketing expenditures, timing of expansion plans 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 could be
required to seek additional financing from public or private debt and equity
markets prior to such time. There can be no assurance, however, that these
sources will be available to the Company on favorable terms, and unfavorable
markets could limit the Company's ability to obtain additional financing.
Further, there can be no assurance that the Company will obtain a credit
facility on favorable terms to replace the terminated Credit Facility if
financing of the Company's cash requirements becomes necessary. Additionally,
the Company plans to continue to investigate potential acquisition candidates
that are consistent with the Company's growth strategies, which would create
additional financing needs for the Company.

The Company sells its products to customers involved in a variety of industries
including electronics, optics and computers. Kyzen performs continuing credit
evaluations of its customers and does not require collateral. Historically, the
Company has not experienced significant losses related to individual customers
or groups of customers in any particular industry or geographic area. The
Company was informed in October 1998 of the closing of a facility in December
1998 which represents approximately 4.6% of the Company's net sales in the year
ended December 31, 1998. The Company believes that this customer has sold this
facility to a competitor within its marketplace. This customer ceased purchasing
products in the fourth quarter of 1998 and the Company is uncertain as to
whether or not sales will be made to this customer or its acquirer in 1999 and
beyond. The Company expects the loss of this customer to reduce net sales, gross
profit and earnings of the Company's in 1999, although the Company is currently
unable to determine the magnitude of this effect.

INTERNATIONAL TRADE DEVELOPMENTS

In 1998, manufacturers in the Peoples Republic of China became significant
suppliers to the Company. The Company expects to import up to approximately 30%
of the Company's purchases of raw materials from China. The United States has
threatened trade sanctions of up to $2 billion if China does not increase its
efforts to stop piracy and other intellectual property violations. In addition,
annual renewal of China's most-favored-nation trading status will be under
review by the United States government in 1999. Failure of the United States
government to continue to grant most-favored-nation treatment to China could
raise duties, thereby increasing the cost of certain of the Company's raw
materials. The Company has historically and continues to obtain a portion of
these raw materials domestically, and the Company has contingency plans in case
Chinese sources are no longer able to provide these raw materials. There can be
no assurance, however, that such developments will not have a material adverse
effect on the Company's financial condition and results of operations.



                                    Page 13
<PAGE>   14

KYZEN CORPORATION 
----------------------------------------------------------------------------
PART II (CONTINUED)

ITEM 7.    FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----

<S>                                                                                                         <C>
Report of Independent Accountants                                                                             15

Balance Sheet as of December 31, 1998 and 1997                                                                16

Statement of Operations for the years ended December 31, 1998 and 1997                                        17

Statement of Changes in Shareholders' Equity for the years ended December 31, 1998 and 1997                   18

Statement of Cash Flows for the years ended December 31, 1998 and 1997                                        19

Notes to Financial Statements                                                                                 20
</TABLE>



                                    Page 14
<PAGE>   15

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
and Shareholders of
Kyzen Corporation

In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Kyzen Corporation at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.


/s/  Pricewaterhouse Coopers LLP


PricewaterhouseCoopers LLP
Nashville, Tennessee
January 22, 1999



                                    Page 15
<PAGE>   16

KYZEN CORPORATION
-------------------------------------------------------------------------------
BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                          1998               1997
                                                                       -----------        -----------

<S>                                                                    <C>                <C>  
ASSETS
Current assets:
     Cash and cash equivalents                                         $   523,915        $   710,778
     Short-term investments                                                     --             99,208
     Accounts receivable, net of allowance for doubtful accounts
         of $8,160 in 1998, and $8,068 in 1997                             831,717            802,400
     Costs and estimated losses in excess of billings on
         uncompleted contracts                                                  --              7,155
     Inventory                                                             345,898            332,367
     Other                                                                  46,093             28,892
                                                                       -----------        -----------
         Total current assets                                            1,747,623          1,980,800

Property and equipment, net                                                861,521            928,079
Patents, net                                                               177,150            147,296
Interest receivable from related parties                                   215,463            170,151
                                                                       -----------        -----------

         Total assets                                                  $ 3,001,757        $ 3,226,326
                                                                       ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
     Current portion of note payable                                   $        --        $    15,816
     Current portion of capital lease obligation                               593              1,234
     Accounts payable and accrued expenses                                 503,951            707,781
     Accounts payable to related parties                                     1,261              5,381
                                                                       -----------        -----------
         Total current liabilities                                         505,805            730,212

Note payable                                                                    --             62,174
Long-term portion of capital lease obligation                                   --              5,491
                                                                       -----------        -----------
         Total liabilities                                                 505,805            797,877
                                                                       -----------        -----------

Commitments and contingencies (Note 11)
Shareholders' equity:
     Preferred Stock, $0.001 par value, 10,000,000 shares
         authorized, no shares issued or outstanding in 1998 or
         1997
     Class A Common Stock, $0.01 par value, 30,000,000 shares
         authorized, 5,006,781 and 5,006,681 shares issued and
         outstanding, respectively, in 1998 and 1997                        50,068             50,068
     Class B Common Stock, $0.001 par value, 1,200,000 shares
         authorized, no shares issued or outstanding in 1998 or
         1997
     Additional paid-in capital                                          5,294,633          5,294,633
     Treasury stock, at cost                                                  (313)              (313)
     Accumulated deficit                                                (2,848,436)        (2,915,939)
                                                                       -----------        -----------
         Total shareholders' equity                                      2,495,952          2,428,449
                                                                       -----------        -----------

         Total liabilities and shareholders' equity                    $ 3,001,757        $ 3,226,326
                                                                       ===========        ===========
</TABLE>


    The accompanying notes are an integral part of the financial statements



                                    Page 16
<PAGE>   17

KYZEN CORPORATION                                                               
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             FOR THE YEAR ENDED
                                                                                DECEMBER 31,

                                                                          1998               1997
                                                                       -----------        -----------

<S>                                                                    <C>                <C> 
Net sales                                                              $ 5,877,974        $ 5,459,846

Cost of sales                                                            2,536,880          2,684,130
                                                                       -----------        -----------
Gross profit                                                             3,341,094          2,775,716

Operating costs and expenses:

         Selling, marketing, general and administrative expenses         2,912,453          2,961,009

         Research and development expenses                                 424,335            461,470
                                                                       -----------        -----------
                  Total operating expenses                               3,336,788          3,422,479
                                                                       -----------        -----------
                  Operating income (loss)                                    4,306           (646,763)

Other income (expense):

         Interest income                                                    68,271             83,222

         Interest expense                                                   (5,074)            (8,467)
                                                                       -----------        -----------
                  Total other income (expense)                              63,197             74,755
                                                                       -----------        -----------
Net income (loss)                                                      $    67,503        $  (572,008)
                                                                       ===========        ===========


         Earnings (loss) per share - basic                             $      0.01        $     (0.11)
                                                                       -----------        -----------
         Earnings (loss) per share - diluted                           $      0.01        $     (0.11)
                                                                       -----------        -----------

         Weighted average shares outstanding
                  - basic                                                5,006,681          5,005,081

         Weighted average shares outstanding
                  - diluted                                              5,086,409          5,005,081
</TABLE>



    The accompanying notes are an integral part of the financial statements.



                                    Page 17
<PAGE>   18

KYZEN CORPORATION                                                              
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                           CLASS A              ADDITIONAL
                                        COMMON STOCK              PAID-IN       TREASURY       ACCUMULATED
                                   SHARES          AMOUNT         CAPITAL         STOCK          DEFICIT          TOTAL
                                -----------     -----------     -----------    -----------     -----------     -----------

<S>                             <C>             <C>             <C>            <C>             <C>             <C>
Balance at December 31, 1996      4,999,848     $    50,000     $ 5,293,420           (313)    $(2,343,931)    $ 2,999,176

Issuance of Stock                     6,833              68           1,213                                          1,281

Net loss                                                                                          (572,008)       (572,008)
                                -----------     -----------     -----------    -----------     -----------     -----------

Balance at December 31, 1997      5,006,681          50,068       5,294,633           (313)     (2,915,939)      2,428,449

Issuance of Stock

Net Income                                                                                          67,503          67,503
                                -----------     -----------     -----------    -----------     -----------     -----------

Balance at December 31, 1998      5,006,681     $    50,068     $ 5,294,633           (313)    $(2,848,436)    $ 2,495,952
                                ===========     ===========     ===========    ===========     ===========     ===========
</TABLE>

   The above Class A Common Stock and Additional Paid-in Capital have been 
        reduced by $906,263 to reflect stock notes receivable (see Note - 2).



    The accompanying notes are an integral part of the financial statements.



                                    Page 18
<PAGE>   19

KYZEN CORPORATION                                                               
-------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                    FOR THE YEAR ENDED
                                                                                       DECEMBER 31,
                                                                                  1998             1997
                                                                               ---------        ---------

<S>                                                                            <C>              <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                         $  67,503        $(572,008)
         Adjustments to reconcile net income (loss) to net cash provided
              (used) by operating activities:
         Depreciation and amortization                                           287,032          210,662
         (Increase) decrease in accounts receivable                              (29,317)          58,385
         Decrease in costs and estimated losses in excess of billings on
              uncompleted contracts                                                7,155           73,166
         Increase in inventory                                                   (13,531)        (319,443)
         (Increase) decrease in other current assets                             (17,201)           8,245
         Increase in interest receivable from related parties                    (45,312)         (45,312)
         (Decrease) increase in accounts payable and accrued expenses           (207,950)         260,161
                                                                               ---------        ---------

                  Net cash provided (used) by operating activities                48,379         (326,144)
                                                                               ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Decrease in short-term investments                                           99,208          429,208
     Purchase of fixed assets                                                   (207,783)        (149,739)
     Purchase of patent rights and related expenditures                          (42,545)         (58,056)
                                                                               ---------        ---------

                  Net cash provided (used) by investing activities              (151,120)         221,413
                                                                               ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Issuance of stock                                                                --            1,281
     Proceeds from issuance of note payable                                           --           80,000
     Payment on note payable                                                     (77,990)          (2,010)
     Payment on capital lease obligation                                          (6,132)          (5,582)
                                                                               ---------        ---------

                  Net cash provided (used) by financing activities               (84,122)          73,689
                                                                               ---------        ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                       (186,863)         (31,042)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                   710,778          741,820
                                                                               ---------        ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                       $ 523,915        $ 710,778
                                                                               =========        =========
</TABLE>

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash used for interest payments was $5,074 in 1998 and $8,467 in 1997. The
Company paid no income taxes in 1998 or 1997.

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

The Company reclassified inventory of $78,177 and $192,202 to fixed assets in
1998 and 1997, respectively.



    The accompanying notes are an integral part of the financial statements.



                                    Page 19
<PAGE>   20

KYZEN CORPORATION
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS


NOTE 1  -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BACKGROUND

Kyzen Corporation ("Kyzen" or the "Company") was incorporated under the laws of
the State of Utah on March 9, 1990. Kyzen was formed to develop environmentally
safe chemical solutions to replace ozone-depleting chlorinated solvents. 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
3% of net sales in 1998 and 8% of net sales in 1997. 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 $807,680 in 1998 and
$743,141 in 1997, representing approximately 14% of 1998 and 1997 net sales, in
each year. No individual customer or foreign country accounted for more than 10%
of the Company's revenues in 1998 or 1997.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

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

SHORT-TERM INVESTMENTS

By Company policy, short-term investments consist primarily of investment grade
commercial paper, direct obligations of the U.S. government and its agencies and
other short-term investment funds. The Company has classified all of its
investments in debt and equity securities as trading securities as defined by
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Debt and Equity Securities." In accordance with SFAS No. 115, the
Company records its investments at fair value and recognizes unrealized holding
gains and losses in earnings. Unrealized gains and losses recognized in earnings
during 1997 were not significant. There were no short-term investments
outstanding at December 31, 1998.

Fair value is determined by the most recently traded price of the security at
the balance sheet date. Net realized gains or losses are determined on the
specific identification cost method.

CONCENTRATION OF CREDIT RISK

The Company sells its products to customers involved in a variety of industries
including electronics and computers. Kyzen performs continuing credit
evaluations of its customers and does not require collateral. Historically, the
Company has not experienced significant losses related to individual customers
or groups of customers in any particular industry or geographic area.

REVENUE RECOGNITION

Revenue from chemical products or services is recognized based upon shipment of
products or performance of services. Revenues and profits 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. Revenues and profits on all other contracts are recorded as shipment
is made. If estimated total costs on any of these contracts indicate a loss, the
entire amount of the estimated loss is recognized immediately. Costs reduced by
estimated losses in excess of billings on uncompleted contracts, as reflected on
the accompanying balance sheet, represent revenues recognized in excess of
amounts billed.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying values of cash, accounts receivable and accounts payable approximate
fair value due to the short-term maturities of these assets and liabilities. The
fair value of the Company's note payable at December 31, 1997 was not
significantly different than its carrying amount based upon the interest rate
environment at such date.



                                    Page 20
<PAGE>   21

KYZEN CORPORATION
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
                                                 
INVENTORIES

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

INCOME TAXES

Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the income tax basis of the Company's assets and
liabilities.

PROPERTY AND EQUIPMENT

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

PATENT COSTS

Patent costs, including the purchase of patent rights (Note 11) and legal costs
incurred related to issued and pending patents, are amortized using the
straight-line method over the useful lives of the patents, not exceeding 17
years. Accumulated amortization was $65,372 and $52,681 at December 31, 1998 and
1997, respectively.

IMPAIRMENT OF VALUE

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," long lived assets held and
used by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows before
consideration of interest expense. As of December 31, 1998 and 1997, the Company
determined its long-lived assets were not impaired.

RESEARCH AND DEVELOPMENT COSTS

The Company is involved in research and development activities relating to new
product development and new uses for its chemicals. The Company expenses
research and development costs as incurred.

ADVERTISING COSTS

Costs incurred for producing and communicating advertising are expensed in the
period incurred and totaled $173,506 in 1998 and $203,895 in 1997.

USE OF ESTIMATES

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

EARNINGS PER SHARE

Effective December 31, 1997, SFAS No. 128, "Earnings per Share" requires a dual
presentation of earnings per share, basic and diluted. Basic earnings per share
have been computed by dividing net income (loss) by the weighted average number
of shares outstanding. Diluted earnings per share has been computed by dividing
net income (loss) by the weighted average number of common shares outstanding,
including the dilutive effects of common stock options using the treasury stock
method of 79,728 in 1998. Because the Company incurred a net loss in 1997, the
effect of common stock options were not included in the computation of diluted
earnings per share as such effect was anti-dilutive.

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which was adopted by the Company on January 1,
1998. SFAS No. 130 requires presentation of comprehensive income and its
components in the financial statements. The Company did not have any other
components of comprehensive income other than net income in 1998 and 1997.



                                    Page 21
<PAGE>   22

KYZEN CORPORATION
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

NOTE 2  -  NOTES RECEIVABLE

Certain key executives and former employees of the Company exercised stock
options during 1994 by issuing to the Company non-recourse promissory notes. The
notes bear interest at 5% per year and are secured by the Company's stock held
by such employees. Both principal and interest are due January 2000. The
non-recourse notes receivable balance of $906,263 at December 31, 1998 and 1997
has been reflected as a reduction of shareholders' equity. Interest receivable
on the notes of $215,463 and $170,151 at December 31, 1998 and 1997,
respectively, is included in non-current assets.

NOTE 3  -  COSTS AND ESTIMATED LOSSES IN EXCESS OF BILLINGS ON UNCOMPLETED 
CONTRACTS

Costs and estimated losses incurred on uncompleted contracts incorporate the
following:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                               1997
                                                                           ------------
<S>                                                                        <C>
Costs incurred on uncompleted contracts                                    $    325,219
Estimated losses                                                                (11,182)
                                                                           ------------
                                                                                314,037
Less:  Billings to date                                                         306,882
                                                                           ------------
Costs and estimated losses in excess of billings on
uncompleted contracts                                                      $      7,155
                                                                           ============
</TABLE>

     There were no uncompleted contracts in 1998.

NOTE 4  -  INVENTORY

Inventory consists of the following:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                  1998           1997
                                                                --------       --------
<S>                                                             <C>            <C> 
Raw materials                                                   $194,242       $206,811
Work in process                                                    1,705         78,813
Finished goods                                                   149,951         46,743
                                                                --------       --------
                                                                $345,898       $332,367
                                                                ========       ========
</TABLE>

NOTE 5  -  PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                1998           1997
                                                             -----------    -----------
<S>                                                          <C>            <C>  
Manufacturing equipment                                      $   611,892    $   595,234
Office furniture and fixtures                                    339,902        333,931
Demonstration equipment                                          410,166        327,112
Leasehold improvements                                           267,014        164,914
                                                             -----------    -----------
                                                               1,628,974      1,421,191
Less-accumulated depreciation                                   (767,453)      (493,112)
                                                             -----------    -----------

                                                             $   861,521    $   928,079
                                                             ===========    ===========
</TABLE>

Assets under capital lease amounted to $17,008 at December 31, 1998 and 1997,
respectively. Depreciation expense totaled $287,032 in 1998 and $200,658 in
1997. Included in depreciation expense in 1998 and 1997 was $2,430 and $2,706,
respectively, related to the amortization of assets under capital lease.



                                    Page 22
<PAGE>   23

KYZEN CORPORATION
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

NOTE 6  -  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                           1998              1997
                                         --------          --------
<S>                                      <C>               <C>  
Accounts payable                         $362,602          $623,626
Salaries, wages and commissions            22,891            75,076
Deferred revenue                               --             3,365
Accrued expenses                          118,458             5,714
                                         --------          --------

                                         $503,951          $707,781
                                         ========          ========
</TABLE>

NOTE 7  -  NOTES PAYABLE

CAPITAL LEASE AND CREDIT FACILITY OBLIGATIONS

In April 1997, the Company obtained a line of credit from a commercial bank in
the amount of $500,000 secured by the Company's accounts receivable and cash
balance (the "Credit Facility"). On November 13, 1997, the Credit Facility was
reduced to $420,000 and the Company obtained a term loan of $80,000 for the
financing of certain improvements to the Company's offices, laboratories and
demonstration facilities (the "Term Loan"). The Term Loan had a stated rate of
interest of 10% and required monthly interest and principal payments of $2,039
through December 2001. In April 1998, the Company repaid the outstanding balance
and terminated the Term Loan.

Due to its operating loss, the Company was in violation of certain of its
financial debt covenants under the Credit Facility during 1997 and received
waivers of these covenants from its lender. On April 12, 1998, the Company
terminated the Credit Facility and the lender released all security agreements
thereunder. The Company paid no fees related to this facility during 1998 or
1997.

In addition, the Company has a capital lease obligation of $593 included in its
current liabilities at December 31, 1998.

NOTE 8  -  CAPITAL STOCK

COMMON STOCK

The Company's authorized common stock is comprised of two classes, Class A and
Class B. The latter class provided redemption and/or other rights not available
to Class A common shareholders. The Company has 30,000,000 shares of $0.01 par
value Class A Common Stock authorized and 1,200,000 shares of $0.001 par value
Class B Common Stock authorized.

WARRANTS

In conjunction with its initial public offering in 1995, the Company issued
warrants to purchase 1,650,000 shares of Class A Common Stock at an exercise
price of $5.00 per share. The warrants are exercisable from February 4, 1996
through August 4, 2000. The warrants are subject to redemption by the Company 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 Class A Common Stock has
equaled or exceeded $7.50 for ten trading days. All warrants remained
outstanding at December 31, 1998.

PREFERRED STOCK

The Company is authorized to issue up to 10,000,000 shares of preferred stock
with a par value of $0.001 per share. The Board of Directors is authorized to
establish the terms and rights of the preferred stock.

As of December 31, 1998 and 1997 there were no preferred shares issued or
outstanding.

STOCK OPTIONS

The Company has an incentive stock option plan. Under this plan, officers,
directors and other key employees may be granted options, each of which allows
for the purchase of shares of the Company's Class A Common Stock. The per share
price of the options granted under the plan is equal to the estimated fair value
of the Class A Common Stock on such date as determined by the Board of
Directors, except for options granted to 10% or greater 



                                    Page 23
<PAGE>   24


KYZEN CORPORATION
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

shareholders for which the per share price is 110% of the estimated fair value.
The Company has reserved 600,000 shares of Class A Common Stock for issuance
upon exercise of the options. The stock options have terms of 5 to 10 years from
the date of the grant and vest ratably over a three-year period, except for
options granted to directors, which vest immediately upon grant. The Company
also granted options to purchase 106,666 shares of the Company's Class A Common
Stock to three employees under a prior non-qualified plan. Options to purchase
93,333 shares under this prior non-qualified plan remained outstanding at
December 31, 1998.

In accordance with the provisions of SFAS No. 123, "Accounting for Stock Based
Compensation," the Company applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock option plans and
accordingly, does not recognize compensation costs. If the Company had elected
to recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS 123, net income and earnings per share would
have been reduced to the pro forma amounts indicated in the table below:

<TABLE>
<CAPTION>
                                                                          1998                     1997
                                                                  ------------------       ------------------

     <S>                                                          <C>                      <C>  
     Net income (loss), reported                                  $           67,503       $         (572,008)
     Net loss, pro forma                                                    (124,622)                (749,902)
     Net income (loss), per share reported (basic and diluted)                  0.01                    (0.11)
     Net loss per share, pro forma (basic and diluted)                         (0.03)                   (0.15)
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                          1998                    1997
                                                                 ---------------------    ---------------------

     <S>                                                         <C>                      <C> 
     Expected dividend yield                                               0%                      0%
     Expected stock price volatility                                      75%                     76%
     Risk-free interest rate                                             6.2%                    6.4%
     Expected life of options                                         5-10 years               10 years
</TABLE>

The weighted average fair value at date of grant for options granted during 1998
and 1997 was $1.18 and $1.54 per option, respectively.

Stock option transactions were as follows:

<TABLE>
<CAPTION>
                                                        WEIGHTED AVERAGE
                                     NUMBER OF SHARES    EXERCISE PRICE
                                     ----------------   ----------------

<S>                                  <C>                <C> 
OUTSTANDING, DECEMBER 31, 1996           579,500           $   2.61
Granted                                   44,900               1.84
Exercised                                 (6,833)              0.19
Forfeited                               (109,184)              2.89
                                        --------           --------

OUTSTANDING, DECEMBER 31, 1997           508,383           $   2.51
Granted                                   91,100               1.49
Exercised                                     --                 --
Forfeited                                (35,333)          $   3.17
                                        --------           --------

OUTSTANDING, DECEMBER 31, 1998           564,150           $   2.30
                                        ========           ========
</TABLE>



                                    Page 24
<PAGE>   25


KYZEN CORPORATION
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998:

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                                        OPTIONS EXERCISABLE
----------------------------------------------------------------------------     -------------------------------
   RANGE OF                            WEIGHTED AVERAGE          WEIGHTED                            WEIGHTED
   EXERCISE              NUMBER           REMAINING              AVERAGE              NUMBER         AVERAGE
    PRICES            OUTSTANDING      CONTRACTUAL LIFE       EXERCISE PRICE       EXERCISABLE    EXERCISE PRICE
                                           (YEARS)
----------------------------------------------------------------------------     -------------------------------

  <S>               <C>                <C>                    <C>                <C>              <C>  
  $       0.19              93,333           3.4                  $0.19                 93,333        $0.19
   1.25 - 1.86             132,700           8.6                   1.60                 59,200         1.57
   2.81 - 3.99             337,617           4.9                   3.16                309,300         3.11
          4.50                 500           5.0                   4.50                    500         4.50
                    --------------                                               ------------- 
                           564,150                                                     462,333
                    ==============                                               =============
</TABLE>

NOTE 9  -  RETIREMENT PLAN

The Company implemented the Kyzen Corporation 401(k) Retirement Plan (the
"Plan") in 1997. Following initial enrollment, 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 6 year vesting schedule that is prorated at different percentages for each
year vested. The Company did not match or make other contributions to this Plan
during 1998 nor 1997. The Plan expense for 1998 and 1997 was $3,334 and $1,771
respectively.

NOTE 10  -  INCOME TAXES

The Company did not record a provision for income taxes in 1998 due to the
availability of net operating loss carryforwards to offset taxable income and in
1997 due to the Company's net loss. A reconciliation of the total provision for
income taxes with amounts determined by applying the statutory U.S. federal
income tax rate to income before income taxes is as follows:

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                         1998                1997
                                                                       ---------           ---------

<S>                                                                    <C>                 <C> 
Income tax provision at statutory rate                                 $  22,951           $(194,483)
State income taxes, net of federal tax provision                           1,738             (14,723)
Research and development credit, net of federal tax provision            (20,308)            (27,504)
Non-deductible expenses                                                   10,574              10,640
Other                                                                    (11,890)                 --
Change in valuation allowance                                             (3,065)            226,070
                                                                       ---------           ---------

Total income tax provision                                             $      --           $      --
                                                                       =========           =========
</TABLE>



                                    Page 25
<PAGE>   26

KYZEN CORPORATION
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

Significant components of the Company's deferred tax assets at December 31, 1998
and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,            
                                                                  1998                1997      
                                                                ---------           --------- 
<S>                                                             <C>                 <C> 
Net operating loss carryforwards                                $ 756,629           $ 801,672    
Research and development credits                                  134,593             102,562    
Other                                                              21,841              11,894    
                                                                ---------           ---------    
                                                                                                 
Deferred tax assets                                               913,063             916,128    
Valuation allowance                                              (913,063)           (916,128)   
                                                                ---------           ---------    
                                                                                                 
Net deferred tax assets                                         $      --           $      --    
                                                                =========           =========   
</TABLE>
 
At December 31, 1998, the Company had net operating loss carryforwards available
to reduce future taxable income of approximately $2,067,000. 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 11  -  COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company conducts its operations from facilities under two operating lease
agreements. The lease for the New Hampshire facility terminates in May 2000 with
an option to renew for one year, and the Tennessee facility lease terminates in
February 2001 with an option to renew for two years. As of December 31, 1998,
future annual rental payments are summarized as follows:

<TABLE>
               <S>                        <C>  
               1999                       $129,958
               2000                        110,550
               2001                          8,000
</TABLE>

Total rent expense was $132,882 in 1998 and $163,434 in 1997. Included in rent
expense for 1998 and 1997 is approximately $96,536 and $92,198, respectively, of
rent paid to a shareholder.

PATENTS

The Company's original patents were for products developed by a founder of the
Company while employed by Bix Manufacturing Company ("Bix") and Delco, 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 Delco in
1989. The Company purchased the patent rights from Bix in 1990 and two patents
were subsequently issued jointly to Kyzen and Delco in the United States. Delco
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 Delco
and the Company.


The Company is also required to pay royalties to Bix (a shareholder). Royalties
are based on 2% of revenues related to the patented chemistry, and amounted to
$46,675 and $71,925 in 1998 and 1997, respectively. The Company is currently
settling its royalty obligation through consulting services performed by the
Company.

NOTE 12  -  RELATED PARTY TRANSACTIONS

The Company purchased approximately $188,000 and $141,000 of advertising,
investor relations, rent and transportation services from shareholders 1998 and
1997, respectively.



                                    Page 26
<PAGE>   27

KYZEN CORPORATION 
-------------------------------------------------------------------------------
PART II  (CONTINUED)

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

None.



                                    Page 27
<PAGE>   28

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 Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 9, 1999.

ITEM 10.   EXECUTIVE COMPENSATION

Incorporated by reference to Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 9, 1999.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 9, 1999.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company is required to pay royalties in connection with the Company's
acquisition of certain patent rights to Bix Manufacturing Company, a
shareholder. Royalties are based on 2% of revenues related to the patented
chemistry. The Company is currently satisfying its royalty obligation through
consulting services performed by the Company. In 1998 and 1997, $46,675 and
$71,925, respectively, was recorded as royalty expense to reflect these
transactions. Michael L. Bixenman, a director and officer of the Company is a
10% shareholder of Bix Manufacturing Company.

The Company paid $19,850 and $26,262 in 1998 and 1997 for transportation
services from Benco Sales. Benco Sales is owned by Benny Bixenman, who is a
shareholder of the Company and the brother of Michael L. Bixenman a director and
officer of the Company.

The Company paid approximately $57,193 and $22,540 in 1998 and 1997 for
advertising services from Valentino Design. Valentino Design is owned by G.N.
Valentino who is a shareholder of the Company.

Total rent expense was $132,882 in 1998 and $163,434 in 1997. Included in the
rent expense for 1998 and 1997 is approximately $96,536 and $92,198,
respectively, of rent paid to Charles Hawkins Company who's pension plan is a
shareholder.

The Company paid $14,633 in 1998 for investor relations and consulting services
from John A. Davis III. Mr. Davis is a director of the Company.

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

<TABLE>
<CAPTION>
     EXHIBIT NO.                                DESCRIPTION
     -----------                                -----------

     <S>                   <C>   
     Exhibit 3.1           Registrant's Amended and Restated Articles of Incorporation, as amended
     Exhibit 3.2           Bylaws of Registrant (1)
     Exhibit 4.1           Specimen of Class A Common Stock Certificate (1)
     Exhibit 4.2           Specimen of Warrant Certificate (1)
     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. (1)
     Exhibit 10.3          Employee Agreements dated January 1, 1994 with officers and key employees of
                           Registrant: (1)
                                    (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 (1)
     Exhibit 10.5          First Amendment to the 1994 Employee Stock Option Plan* (1)
     Exhibit 10.6          Loan Agreements and 5% Promissory Notes between officers and key employees and
                           Registrant: (1)
                                    (a)      Kyle J. Doyel*
</TABLE>



                                    Page 28
<PAGE>   29

KYZEN CORPORATION 
------------------------------------------------------------------------------- 
PART III  (CONTINUED)

<TABLE>
     <S>                   <C>    
                                    (b)      Michael L. Bixenman*
                                    (c)      James J. Andrus
                                    (d)      Benjamin D. Wolfley*
                                    (e)      Thomas M. Forsythe*
     Exhibit 10.7          Purchase Agreement, dated May 1, 1990 between Bix Manufacturing Company, Inc. and
                           Registrant (1)
     Exhibit 10.8          Technology Exchange Agreement, dated December 17, 1993 between Bix Manufacturing
                           Company, Inc. and Registrant (1)
     Exhibit 10.20         Warrant Agreement between Kyzen Corporation and American Stock Transfer & Trust
                           Company (1)
     Exhibit 10.21         Reassignment of Patents to Bix Manufacturing Company, Inc. (1)
     Exhibit 10.23         Employment Agreement dated January 1, 1997 with Thomas J. Herrmann (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 (2)
     Exhibit 10.25         Amended Lease Agreement, dated December 30, 1997 between Five-Forty North Associates a
                           Partnership and the Registrant, for Registrant's offices, demonstration facility, and
                           equipment manufacturing facilities (2) 
     Exhibit 10.29         Amended Lease Agreement, dated April 1, 1998 between Harding Business Park, a 
                           Partnership, and the Company, for the Company's Nashville, TN headquarters
                           and chemical manufacturing facilities (3)
     Exhibit 10.30         Rights Agreement, dated January 15, 1999, between Kyzen Corporation and American 
                           Stock Transfer & Trust (4)
     Exhibit 21.1          Subsidiaries of the Company
     Exhibit 23.1          Consent of PricewaterhouseCoopers LLP
     Exhibit 27.1          Financial Data Schedule (for SEC Use Only)
</TABLE>

                  * Indicates a management contract or compensation plan or 
                    arrangement.
         (1)      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.
         (2)      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.
         (3)      Filed as an exhibit to the Company's quarterly report on Form
                  10-QSB for the quarter ended March 31, 1998, previously filed
                  pursuant to the Securities Exchange Act of 1934 and hereby
                  incorporated by reference.
         (4)      Filed as an exhibit to the Company's filing on Form 8-A dated
                  January 15, 1999 previously filed pursuant to the Securities
                  Exchange Act of 1934 and hereby incorporated by reference.



                                    Page 29
<PAGE>   30
KYZEN CORPORATION
--------------------------------------------------------------------------------
PART III (CONTINUED)


(b)  Reports on Form 8-K

     During the fourth quarter of 1998 the Company filed no reports on Form 8-K.



                                   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.

<TABLE>
<CAPTION>
(Registrant)                        Kyzen Corporation                                                                      
            -----------------------------------------------------------------------------------------------
<S>                                 <C>
By       /s/  Michael L. Bixenman                                                                                          
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             Michael  L. Bixenman, Chairman, Vice President, Director
      ------------------------------

By       /s/  Kyle J. Doyel                                                                                                
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             Kyle J. Doyel, President, CEO (Principal Executive Officer), Director
    --------------------------------

By       /s/  Thomas M. Forsythe                                                                                           
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             Thomas M. Forsythe, Vice President, Treasurer (Principal Accounting
     -------------------------------
                                      Officer), Director

By       /s/  Thomas J. Herrmann                                                                                           
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             Thomas J. Herrmann, Vice President, Secretary
     -------------------------------

By       /s/  John A. Davis III                                                                                            
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             John A. Davis, III, Director
     -------------------------------

By       /s/  James A. Gordon                                                                                              
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             James A. Gordon, Director
     -------------------------------

By       /s/  Larry A. Lofgreen                                                                                            
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             Larry A. Lofgreen, Director
     -------------------------------

By       /s/  Janet Korte Baker                                                                                            
  ---------------------------------------------------------------------------------------------------------

Date       March 15, 1999             Janet Korte Baker, Director
     --------------------
</TABLE>

                                    Page 30
<PAGE>   31

KYZEN CORPORATION  
-------------------------------------------------------------------------------
PART III  (CONTINUED)

                           EXHIBIT INDEX AND EXHIBITS

<TABLE>
<CAPTION>
     EXHIBIT NO.                  DESCRIPTION
     -----------                  -----------

     <S>                   <C>  
     Exhibit 3.1           Registrant's Amended and Restated Articles of Incorporation, as amended
     Exhibit 3.2           Bylaws of Registrant (1) 
     Exhibit 4.1           Specimen of Class A Common Stock Certificate (1) 
     Exhibit 4.2           Specimen of Warrant Certificate (1) 
     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. (1)
     Exhibit 10.3          Employee Agreements dated January 1, 1994 with officers and key employees of Registrant:(1)
                                    (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 (1)
     Exhibit 10.5          First Amendment to the 1994 Employee Stock Option Plan* (1)
     Exhibit 10.6          Loan Agreements and 5% Promissory Notes between officers and key employees and Registrant: (1)
                                    (a)      Kyle J. Doyel*
                                    (b)      Michael L. Bixenman*
                                    (c)      James J. Andrus
                                    (d)      Benjamin D. Wolfley*
                                    (e)      Thomas M. Forsythe*
     Exhibit 10.7          Purchase Agreement, dated May 1, 1990 between Bix Manufacturing Company, Inc. and 
                                 Registrant (1)
     Exhibit 10.8          Technology Exchange Agreement, dated December 17, 1993 between Bix Manufacturing 
                                 Company, Inc. and Registrant (1)
     Exhibit 10.20         Warrant Agreement between Kyzen Corporation and American Stock Transfer & Trust Company (1) 
     Exhibit 10.21         Reassignment of Patents to Bix Manufacturing Company, Inc. (1) 
     Exhibit 10.23         Employment Agreement dated January 1, 1997 with Thomas J. Herrmann (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 (2)
     Exhibit 10.25         Amended Lease Agreement, dated December 30, 1997 between Five-Forty North Associates a
                                 Partnership and the Registrant, for Registrant's offices, demonstration facility, and equipment
                                 manufacturing facilities (2)
     Exhibit 10.29         Amended Lease Agreement, dated April 1, 1998 between Harding Business Park, a Partnership, 
                                 and the Company, for the Company's Nashville, TN headquarters and chemical manufacturing 
                                 facilities (3)
     Exhibit 10.30         Rights Agreement, dated January 15, 1999, between Kyzen Corporation and American Stock
                                 Transfer & Trust (4)
     Exhibit 21.1          Subsidiaries of the Company
     Exhibit 23.1          Consent of PricewaterhouseCoopers LLP
     Exhibit 27.1          Financial Data Schedule (for SEC Use Only)
</TABLE>

                  * Indicates a management contract or compensation plan or 
                    arrangement.
         (1)      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.
         (2)      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.
         (3)      Filed as an exhibit to the Company's quarterly report on 
                  Form 10-QSB for the quarter ended March 31, 1998, previously
                  filed pursuant to the Securities Exchange Act of 1934 and
                  hereby incorporated by reference.
         (4)      Filed as an exhibit to the Company's filing on Form 8-A dated 
                  January 15, 1999 previously filed pursuant to the Securities
                  Exchange Act of 1934 and hereby incorporated by reference.



                                    Page 31