KS Corporate Review, April 7.
ADDRESSING PERCEPTIONS: THE PRESIDENT
OF KAFUS GIVES
SHAREHOLDERS A CANDID UPDATE
The Company has received numerous telephone calls from its
shareholders, voicing concerns about the difficulties in clearly
understanding Kafus' business focus; the absence of anticipated material
revenues and in particular, the perception that our current trading values
are indicative of problems within the corporation.
In order to clarify this situation, I have prepared the following corporate
review and update to confirm that Kafus is focused in its development
activity, is poised to turn the corner from development to profitable
operations based on strong fundamentals and, most important of all, has
the very real potential for exponential growth in revenues. The Company
strongly believes that its shares are currently undervalued!
REVENUE PERFORMANCE
1999 was a year of mixed blessings for Kafus. On one hand, the past 18
months have been filled with a number of major achievements, a key
element of which is the approximate $3 billion of sales contracts, closed or
pending, for Kafus products. (This is based on nominal sales at current
prices projected from our Riverside, Lackawanna, and Elkhart facilities over
the next 15 years, plus sales projected from our Kenaf newsprint mill,
which anticipates financial closure and startup of construction in the short
term.) On the other hand, Kafus' corporate accomplishments have been
tempered by the delays in the startup of the CanFibre Riverside Medium
Density Fiberboard plant. The delays have directly caused a major
reduction in anticipated revenues, combined with significant increases in
operating expenses, which Kafus has been forced to support on behalf of
the Riverside project.
We believe the startup of our Riverside facility was hampered by a delay
and ultimate failure to complete the construction of the facility by its prime
contractor, Stone & Webster Engineering Corporation. Ultimately, CanFibre
of Riverside decided to terminate their contract and assume control of the
facility in January of 2000. CanFibre of Riverside is currently pursuing its
claims in excess of $45 million against the contractor in arbitration
proceedings. We intend to pursue these claims aggressively.
On the brighter side, since taking over control of the Riverside plant,
CanFibre of Riverside has made tremendous strides in completing the
facility, proof of the depth of abilities of our plant management and
support staff at Riverside. 1999 saw the initial shipments of CanFibre's
AllGreen© MDF as a UL certified fire-retardant board. We received
environmental certifications from Forest Stewardship Council and Scientific
Certification Systems for AllGreen© MDF's 100% recycled content and zero
incremental formaldehyde emissions. In early 2000 we commenced
shipments of our AllGreen© board to Home Depot for sale in up to 204
stores in the nine state western region. This relationship with Home Depot
is expected to grow significantly over the next 12 months with the
introduction of AllGreen© medium density fiberboard to Home Depot
stores in the Eastern United States from our second CanFibre plant
nearing completion in Lackawanna, New York.
All of the design and engineering lessons learned at Riverside are being
applied to the CanFibre Lackawanna facility. We anticipate that our
second AllGreen© MDF plant will be generating revenues shortly after
startup in third quarter 2000.
The significant losses incurred by Kafus over the past year are directly
attributable to the major financial burden placed on Kafus through the
delays in the Riverside MDF plant startup, as well as the direct costs
associated with managing a global development program. Additionally, a
large part of these losses are attributable to noncash items such as
amortization and depreciation.
I believe the losses are not an accurate reflection of the progress that
Kafus has made in meeting its corporate goals. The monies expensed to
date represent an investment in our future, a future that I believe, is now
assured as Kafus turns the corner from development to operations. Kafus
is now poised to capitalize on the vision of our founder, the energy,
strength and devotion of our managers and staff and the focus of our
corporate ambition to become the world's leading provider of sustainable
product solutions to industry.
CORPORATE FOCUS
In order for Kafus to be better understood on Wall Street and in other
global financial centers, we are currently simplifying and realigning our
various operating subsidiaries into specific industrial sectors. This will allow
us to independently finance growth and development within each of
those sectors and permit each of those sectors to align with major
strategic, industrial players to further enhance growth and cash flow. Our
regrouping is as follows:
Forest Products Without Trees
We are currently forming a new business unit into which we intend to roll
our current 85.5% ownership of the CanFibre Group; Kafus' ownership of
non-North American rights to AllGreen© MDF development; a 90%
ownership of Kenaf Paper Manufacturing and its Lasara newsprint
project; our current development program to produce AllGreen© OSB from
bark; our recent acquisition of Kafus Molded Fibers and its current
development program of producing molded structural board from pulp mill
residue; and our current interest in Fortra Fiber Cement. As a result of this
regrouping, the new operating unit will have the rare distinction of being a
global forest products' company without trees. As such, it can now be
identified by specific industry analysts and offers the potential to build
strategic relationships within and/or independent financing from the forest
products' sector.
Kafus Bio-Composites
This Company represents everything that can go well with a
development. As it matures, Kafus Bio-Composites offers a unique
potential for domestic and international growth as a fiberglass substitute
for use in a wide range of global industries.
In 1999, we commenced construction and successfully began the
operation of our Kafus Bio-Composites plant in Elkhart, Indiana. The
Elkhart plant produces natural fiber non-woven mats made from kenaf and
hemp fibers for utilization as a fiberglass substitute in automobile interior
trim components such as dashboards and headliners. Marketed under the
trademark of Flexform©, we have already shipped products to major Tier
One manufacturers such as Findley Industries for the Saturn program,
Johnson Controls and Ford's Visteon Division. We fully expect to have
FlexForm© natural fiber composites utilized in over 1.5 million cars in the
United States in model year 2000. Kafus Bio-Composites is now poised
for the tripling of production in Indiana for production year 2001 as well as
the introduction of its first plant in Europe during the same time period.
Sustainable Fiber Group
The single common ingredient across all our industrial sectors is our
reliance on the acquisition and long term supply of alternative sustainable
fiber. This runs the gamut from the 300,000 tons of waste wood required
as raw material at our Riverside and Lackawanna MDF plants, to the
25,000 acres of Kenaf required to feed our pending US$205 million
newsprint mill currently planned in Lasara, Texas, to our anticipated
requirements for the supply of bark to feed our proposed first AllGreen©
OSB development in Canada, and to ongoing requirements for hemp and
other natural fibers to feed the bio-composite plant in Elkhart and other
future locations.
In order to better service our current and long term fiber requirements on a
global basis, we are in the midst of forming a sustainable fiber business
unit into which we intend to roll our existing growing and fiber separation
operations in Texas and Italy and our current procurement requirement for
CanFibre and Kafus Bio-Composites. We will create a separate global
business unit able to be independently financed and able to guarantee
that Kafus' expanding sustainable fiber requirements can be met in the
decades to come. The new entity, which will be independently managed,
will be responsible for the establishment and management of Kenaf and
other natural fiber growing and harvesting, preliminary fiber separation and
the sourcing of other recoverable fiber resources. We expect that this
company will become an active trader in sustainable fiber, servicing
industry requirements beyond the needs of Kafus.
World Eco Trade
Our recent press release of April 3 could not have been announced at a
worse time, considering the massive drop in NASDAQ that occurred on
the same day. I believe that shareholders have not realized the
importance of this project. Kafus' move into this revolutionary new global
business-to-business, e-commerce development is in many ways one of
the more consequential development programs currently being undertaken
by this Company.
Our subsidiary, "World Eco Trade Ltd." is being developed to operate the
world's first sustainability-driven global information and trading platform. It
will service a wide range of industrial and government purchasing sectors
and be accessible to qualified global manufacturers and service providers
as well as retail and wholesale suppliers of eco-products.
Kafus currently owns 100% of World Eco Trade, however, 25% will
eventually be held by the Berkeley Group who are investing US$1 million
in cash to bring World Eco Trade to the point of a finished business plan
and a prototype operating e-commerce site. We expect that World Eco
Trade will finance its future development capital requirements through a
direct private placement and eventual initial public offering.
The current market for environmental products in the United States is
estimated to be over US$200 billion a year. According to a recent United
Nation's study, the environmental market currently accounts for 2.7% of
the world's GDP and is growing at an annual rate of 9%. We believe that
Kafus through World Eco Trade will be in a position to not only optimize its
own product sales through this proposed global platform, but more
importantly, will be able to turn a currently unfulfilled, global demand into a
very consequential and a highly profitable global business venture, all in
perfect harmony with the underlying sustainability mission that drives
Kafus.
New Developments
A number of shareholders have voiced concerns about the apparent lack
of focus and the perception that Kafus is continually forming new
companies and new projects. This perception is inaccurate. Kafus
develops nothing by chance. We believe that all of our new development
programs are the direct result of a strategic development program where
each development is synergistic to current activity and/or fits clearly into
the Kafus core strategy of creating sustainable solutions to major
environmental problems.
Current activities include:
The recent acquisition of Kafus Molded Fibers, which employs a patented
process to use waste fiber streams from pulp facilities to produce
packaging and pallets with extremely high strength to weight ratios;
Barkboard, which will utilize 100% of waste tree bark to manufacture an
AllGreen© OSB substitute and, finally, the pending acquisition of Kenaf
Bio-Catalytic Services which will utilize the kenaf core fiber to clean-up oily
waste water streams from petroleum refineries, while creating a biomass
based solid fuel.
CONCLUSION
Kafus is not like any other company you have ever seen before. We have
proven our ability to take major environmental problems and through
advanced technology, turn those problems into value added solutions.
Kafus is the ultimate innovator, proving that you can find balance between
ecology and the bottom line. Every development we do is based on
mitigating speculative risk. The Kafus focus is to increase shareholder
value by building a strong asset base, coupled with the real potential of
exponential growth in earnings. Our assets are based on secured, long
term operations and earnings.
Kafus is built on a solid foundation. It is focused, well managed, and
adequately financed. The year 2000 should see the turning point in the
fortunes of Kafus, as we demonstrate that we have turned the corner
from development to operations. We look forward to your continued
support. We welcome your comments and suggestions as a shareholder. I
can be contacted at: cheryl@kafus.com. Additionally, the Company
recently produced a video, "Kafus in Review," which vividly illustrates our
accomplishment in building "the bricks and mortar" side of our business
and Kafus' global expandability. For your free copy, please contact: Cheryl
Brayton at (781) 326-5001.
Mike McCabe
President
This report contains forward-looking statements that are subject to risks
and uncertainties. Such risks include, but are not limited to, market
acceptance of the proposed products and services to be provided by the
Company, that the Company has experienced losses and will continue
to experience losses in the near future, and that the Company is highly
leveraged. These risk factors are set forth in the Company's filings with
the Securities and Exchange Commission. Readers should not place
undue reliance on the forward-looking statements, which reflect
managements' view only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances.
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