Date: Wed, 19 Nov 1997 23:09:03 GMT Server: Apache/1.2.4 Last-Modified: Thu, 28 Aug 1997 17:33:51 GMT ETag: "11827-1a6f-3405b67f" Content-Length: 6767 Accept-Ranges: bytes Connection: close Content-Type: text/html
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KFx UPDATE August 25, 1997 To our Shareholders:Several shareholders have expressed concern about the recent performance of our stock. I would like to share my thoughts with you regarding that issue and give you an update on the Company. There is no question that the industrial fire at the Wyoming plant in late December created a negative public perception. Even though the fire was totally unrelated to the technology or the K-Fuel processors, the destruction of the oil storage tank and oil heater prevented the start-up operations of the plant. New equipment was immediately ordered and the fire damage reconstruction was completed in early July. Because their oil supply was not affected by the fire, two of the four processors were operational during reconstruction. As an added precaution, Thermo Ecotek - which owns 95% of the plant - conducted a routine inspection of the contractor's work prior to full operation. The third party engineers discovered an error made by the construction contractor whereby the safety venting valves were under-designed in the unlikely event that there was a rupture of any internal tubes. The fix was to insert additional venting valves and install four surge tanks to contain any potential problem. This will take an additional 10 to 12 weeks. The additional costs of this project and any losses incurred are covered by the bonding companies. This unfortunate oversight has further delayed operations; however, the safety of employees is a foremost concern. We are also taking this opportunity to use the knowledge gained during the plant's initial operations to enhance its operation and efficiencies. The bad news is that the market has eagerly awaited the full start-up of the plant with subsequent test burns and is disappointed by the delays. Even though plant start-up and operations is a Thermo Ecotek responsibility, my team and I review daily the recovery engineering details both to obtain independent assessments and to help expedite tasks. TCK has accepted our assistance and remains positive about the K-Fuel technology based on the already completed 91 runs that proved that the plant would produce a quality, high-Btu K-Fuel. While we are intensely pushing the responsible parties to get the Gillette plant on line, we are taking several measures to strengthen the Company by maximizing the near term opportunities to generate positive cash flow and enhance shareholder value. Last month we successfully raised $17 million in the European markets at quite favorable terms for our Company. The debentures carry a low 6% coupon and are convertible at a later date at a significant premium to current market. The Company's challenge today is to put these funds to work to generate near-term revenues. Additionally, to prudently manage our resources and capitalize on our opportunities, we have taken the following steps:
· Reduced overhead costs by approximately 50% by cutting staff and administrative expenses and shifting other personnel and costs to our strategic partners - Thermo Ecotek and Kennecott. With all of this said, I have been receiving numerous phone calls asking why our stock price is so low. There were two unrelated events - one the result of a corporate merger and the other the pledging of stock to a bank as collateral - that resulted in significant stock liquidation. I believe these two large transactions, together with impatient investors, triggered other margin calls that continue to pressure the market. It appears we are seeing the end of this clean up. We received an additional vote of confidence from the just released in-depth research report by BlueStone Capital with a long-term BUY recommendation. I have invested millions of dollars in the technology over the past sixteen years. It is my opinion that we are now in the best place in the Company's history. We know the process works, we have found a huge international market for the product, and we have adequate cash to see it all through. Even with all of the problems of building a one-of-a-kind industry and the frustrations of constructing the first-of-its-kind plant, we are on target to achieve success. Thank you for your continued support and patience.
Sincerely,
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