EDSR INFORMATION 01-10-2000 PQ Fa 014 r-rok
• MAS Technologies, Inc.
16820 Highway 10, #120
Elk River MN 55330
December 28th, 1999
Letter to Shareholders & Debenture holders, MAS Technologies
Ladies and Gentlemen:
Much water has passed under the bridge at MAS Technologies since you last
heard from the company in May. We are now in a position that the bank (Pine Island
Security State Bank) has seized the assets of the company due to the company's default
on debt payment obligations to them.
Besides simply passing that sad news on to you, we also wanted, in this letter, to
brief you on some of the activities that have led up to this apparent conclusion.
As was indicated in the shareholder letter in May, the company was operating
then, and continued to operate over the summer, in a mode of severe cash shortage
such that most efforts were focused on simply keeping the doors open, satisfying what
orders we had and supporting existing customers at a minimal level.With every
customer payment received, there was a "balancing act"to determine who would receive
what-at no time since May have we been able to achieve the status of having every
• debtor, payable and employee obligation satisfied. This in turn led to further difficulty in
satisfying even the most minor challenges; employee resignations, sinking morale
together with reduced attendance among the remaining employees. The withdrawal of
legal services by Lindquist and Vennum, long term supporters of MAS, served as an
indication of how bad things were.
The initiatives begun earlier in the year to raise funds or find a company
interested in an acquisition of MAS continued and gained momentum but ultimately led
to nothing:
• The business plan of May was revised in June to create a scenario a little more
conservative and hopefully, therefore, more attractive to investors...but also resulted
in a considerably larger cash infusion requirement. While some existing investors
agreed to put more funds into the company, and discussions were held with a
customer with regards to some investment by them, the ultimate funds committed
were somewhat short of our goal and, additionally, came with strings attached -- in
particular with regards to the appointment of a CEO pre-approved by the major
investment groups. By this time Martin Lymn, who served as Interim CEO without
compensation during the spring, elected not to take a full time position with the
company and resigned that position in late June, though he remained a director of
the company.
• Discussions were held with a variety of potential acquirers of MAS though only a
single offer was forthcoming, from Mocon,for$500,000 (assuming certain inventory
and receivable values) which was subsequently withdrawn. Among the discussions
• held were several with TMI in New York(previously a distributor of the product) with
whom we came close to developing a licensing agreement which would have
provided royalty payments to MAS for the next eleven years, based on TMI sales.
Unfortunately, these discussions fell apart at the eleventh hour due to the massive
MAS short term financial obligations TMI would have had to provide "up front" cash
to honor—something they were not prepared to do. Further, the real feasibility of the
royalty concept (even though this was our only avenue by this time)was thrown into
question by the existing substantial warranty obligations the royalty stream would
have had to finance and the interest burden of the close to $1.6million debt being
carried by the company by this time.
Even as the inevitable loomed, there were small indications of hope in the form of orders
in both Canada and England which might have provided some of the short term cash
required to finance the "TMI deal". Sadly, while MAS fulfilled those orders, the team at
MAS was unable to receive payment for those goods due to various contractual, dis-
satisfaction and customer support issues.
Pine Island Bank, as first position debt holder(which has been wholly supportive of MAS
and given the company every opportunity to find other remedies), ultimately served
written notice, after several earlier verbal indications, November 10"' and seized the
assets shortly after. As we understand it, the bank is currently seeking interested parties
to acquire the assets or the debt. The physical assets and receivables total an amount
well shy of the bank's debt position (around $330,000) so offers in excess of that are
unlikely (though possible if an acquirer sees adequate value in the customer base, the
product and its underlying technology). Values in excess of the bank's requirement, if
any, would, as we understand it, go to the government (for taxes owed), the employees
(for back salary owed) and then "second position" debt-holders—the"debenture group";
given their exposure of close to $1.2million it is highly unlikely, even in the most
optimistic scenario, any funds would remain beyond that.
Mr. Bill Sanborn at the bank has been keeping us up to date on his progress and I'm
sure that as he reaches his final conclusion we'll be among the first to know. In the
absence of that final chapter, however, it's difficult to close this dialog other than to tell
you, as your board and speaking in particular for the founders of the company, Tim
Keefe and Jon Ylvisaker, that we share your sadness as investors and debt-holders and
regret your loss as well as our own.
You should fee!free to contact Bill Sanborn at Pine Island bank for more information, or
if you are interested in acquiring the assets yourself. He can be reached in Pine Island at
507.356.8328
For, and on behalf of, the board of directors, MAS Technologies
Jon Ylvisaker
Tim Keefe
Dave Dent
David W. Johnson
Martin Lymn