BUSINESS PLAN V.2.1 SWEET SORGHUM

Transcription

1 BUSINESS PLAN V.2.1 SWEET SORGHUM February 2009

2 Table of Contents Cover Page Sweet Sorghum 1.0 Introduction Letter Summary History Mission Goal & Objectives Products Comparison Sheet Ethanol Bio-Mass Grain Market Overview Target Market Competition Technology Overview Design, Engineering & Concept Processing Methods Seeding Farming Harvesting Splitting Processing Units Delivery Distillery Economics Revenue, Expense Sheets Profit Margin per Acre P/L Forecasts Financials Valuation Profitability Job Creation International Projects Capital Requirement Uses of Funds Conclusion Appendices BPSS-v2.1 2

3 1.0 Introduction Letter Dear Friend, At the start of the twentieth century dramatic changes would occur when in 1908 Henry Ford introduced the first mass production automobile called the Model-T Ford. This was to herald the modernization of the world, and change the course of history. Initially, Ford designed the automobile to run on ethyl alcohol (ethanol) as the fuel of choice. The goal was to base the industry s growth on agriculture to provide an environmental, sustainable, renewable and controllable input. However, that idea was replaced when oil was chosen by industrialists who saw the opportunities to use inexpensive and abundant oil as fuel. Today oil is no longer inexpensive, nor abundant and is rapidly depleting. At the start of the new millennium we are living with the resulting problems. The century effect of burning fossil fuels has changed the chemical balance of our atmosphere, and has resulted in devastating weather, pollution and environmental concerns. This required alternative solutions to be implemented when over 140 countries ratified the KYOTO Accord to reduce world CO 2 output levels. We now stand at another watershed moment in history. TECTANE Corp. has over the last three decades developed the proprietary technology that will answer the two major problems of KYOTO; burning fossil fuels and de-forestation. Our applications have the potential for immediate social and economic benefits to the world. The recommendation is to return to the original idea of Henry Ford, and truly develop an environmental, sustainable, renewable, controllable fuel based on agriculture. We are now ready to implement our plan, and welcome your participation in developing our business. We invite you to join us on our journey. Sincerely, Nino de Santis El Nino Friend of the Environment and Founder BPSS-v2.1 3

4 2.0 Summary TECTANE has been at the forefront of research & development for solutions to the problems of CO 2 emissions and de-forestation, which the United Nations has determined are the two main contributors to global warming ( Appendix A: IUCC Fact Sheet No. 25 ). Over the past quarter century we have advanced our technologies, and proprietary knowledge to the stage of implementation to grow a cash crop called Sweet Sorghum. 2.1 History During the energy crisis of the 1970 s President Jimmy Carter enacted the Alcohol Energy Security Act to safeguard America s energy supply from dependency on foreign oil. Being a farmer President Carter started a program to develop an agriculture energy crop, and millions of dollars were spent into research on a hybrid of grain sorghum, sugar cane and bamboo. When President Carter lost office the study was put on the shelf. TECTANE took this study into further research, and developed the ideal hybrid for maximum yields. In recent years TECTANE scientifically proved that sweet sorghum can grow in the northern climate of Canada for three consecutive years. Now into the fourth year growing cycle along the border of Quebec province (Canada) and New York state (USA). This is why sweet sorghum is called the super crop. It can grow in abundance with little help, requires 33% less water, 50% less fertilizer than corn, and it can grow in low quality soil. Fig.1 Nino de Santis with some team members, and the farmers in our sweet sorghum BPSS-v2.1 4

5 fields. With these positive results, TECTANE began negotiation for 10 year supply agreements in Canada with the giant pulp & paper company CASCADES Inc. for chemical pulp, and their subsidiary BORALEX for bio-mass wood chips to produce electricity in the U.S. We are also working on other potential clients for the bio-mass. We intend to build an ethanol distillery in co-generation with a steam boiler to produce electricity, and use the excess heat from the boiler to distil the sucrose into ethanol. Once completed we will sell our ethanol and by-products in the commodities market, and sell our bio-mass to other companies (Appendix B: Letters of Interest AMEC, BORALEX, CASCADES). 3.0 Mission To grow sweet sorghum as a renewable, sustainable, cash crop alternative to wood and reduce de-forestation. 4.0 Goal & Objectives 4.1 Goal To produce ethanol fuel from sweet sorghum for our Green House Gas (GHG) Reduction Program, and to provide alternative hardwood material from the bio-mass. 4.2 Objectives To produce ethanol fuel to sell as a commodity. To produce bio-mass for chemical pulp, wood chips, or oriented strand board (OSB). To create an environmental, sustainable, renewable solution to de-forestation. To create valuable (GHG) emissions trading credits. To help create a commodity market for Sweet Sorghum with the United Nations Commodity Trading Division, Geneva, Switzerland. BPSS-v2.1 5

6 5.0 Products 5.1 Comparison Sheet These values are in $USD, short tons and imperial gallons. The yields are based on 1 crop per Acre. For a 2 crop cycle the yields are doubled. Yield per Acre Sw eet Sorghum Corn W heat Trees Wet yield 45 tons Dry yield no sucrose 4.5 tons Bio-mass Air Dry 4.5 tons Bio-mass Bone Dry 2.7 tons Sucrose 600 gallons n/a n/a n/a Ethanol 500 gallons 350 gallons n/a n/a Grain 2 tons 4 tons 2 tons n/a W ax tbd n/a n/a n/a (a) Pulp Fiber (AD) 4 tons n/a n/a * 8.5 tons (b) Wood Chips (AD) 4 tons n/a n/a * 8.5 tons Growing Period 120 days years Harvest up to twice / yr 1 time / year 1 time / year every 10 years * Trees 85 tons per acre amortized over 10 years Product Uses Sucrose Syrup, Food Ethanol E10, E85 Gasoline, Alcohol. Grain Animal Feed, Cereal, Bread. Wax tbd Pulp Paper products. W ood Chips Electricity. Sorghum fibers burn over 7,600 btu / lb. W ood Chips OSB Panel boards. Building Materials Pre- Fabricated houses. One acre can produce a 20' x 40' house frame. From this comparison sheet sweet sorghum shows advantages over all other crops for the combined by-products that can be produced. The only item where there is a choice with the bio-mass to be used for either chemical pulp, wood chips for burning, oriented strand board (OSB) material, or pre-fabricated houses. Sweet sorghum provides an alternative source to many industries: (1) fuel, (2) feed, (3) pulp & paper, (4) wood, (5) electricity, (6) building material, and others. BPSS-v2.1 6

7 5.2 Ethanol Ethanol fuel accounts for almost 70% of the world ethyl alcohol production blended 5% - 30% with gasoline. Used in dedicated engines it is an effective octane booster, and there are many countries that use ethyl alcohol as a blended fuel. In the future more countries will be using ethanol as a green fuel because it has a positive net energy balance. This means; the energy in a ton of ethanol is greater than the energy required to produce this ton. It is better for the environment than petroleum additives, and is less of a health hazard to humans, plants and animals. From macro-economics it is good for developing countries in rural areas to create jobs, and to reduce oil import dependency for the country that makes it. 5.3 Bio-mass Sweet sorghum has a rapid growing cycle of 120 days, and in a warm climate we can produce 2 harvests a year. Stalks grow about 12 feet tall that yield 40% more ethanol per acre than corn, but requires 33% less water and 50% less fertilizer. Scientific tests indicate that the fiber is comparable to wood for chemical pulp, bio-mass for burning (7,600 Btu/lb), or building material for OSB panels and pre-fabricated houses. One acre of sweet sorghum has enough fiber to make one house frame 20 x 40. The rind has the same qualities as sugar cane because sweet sorghum is a hybrid (Appendix C: Cane Test Studies) Fig.3 The stalks will can be split into different by-products. Our main product is ethanol made from the sucrose, which we will sell on the commodities market. Our bio-mass will be sold for various uses including chemical pulp, bio-mass for wood chips, OSB panel and housing material. Special uses for the ethyl alcohol can also be BPSS-v2.1 7

8 sold to the medicine, pharmaceutical, manufacturing, plastics, and other industries. Industrial applications include solvents, detergents, paints, printing inks, photo-chemicals, latex, dyes, alcohol beverages, food products, cough syrup, mouthwash, drugs, disinfectants, etc. These industries represent thousands of companies in North America alone. 5.4 Grain Sweet sorghum produces a grain that is an ideal feedstock for animals. This can become an important agent to fight mad cow disease among the countries that have been affected. Sweet sorghum grain can be used to feed cattle to ensure they are free from BSE. Dairy cows would also produce a higher quality milk with more yield due to the high protein value of grain versus grass or hay. An acre yields about 2 tons of grain for one crop. Fig.2 The grain top will be sold for animal feed, flour or cereal. Grain Top Nutritional Facts of ¼ Cup Serving Calories 126 Calories from fat 10 Total Fat 1.1 g Saturated Fat 0 g Cholesterol 0 g Sodium 0 mg Total Carbohydrate 25 g Dietary Fibre 3 g Protein 4 g 7.9% of calories from Fat 79.4% of calories from Carbohydrates 12.7% of calories from Protein BPSS-v2.1 8

9 6.0 Market Overview 6.1 Target Market The U.S.A. is a large market for fuel ethanol. Almost 12% of fuel used each year, mostly in the southern United States, is based on ethanol which makes the U.S. the second largest ethanol market in the world using about 3 billion gallons a year and growing. This represents an outlet for our ethanol commodity in North America, but the international markets provide an even greater potential in countries that have signed the KYOTO Accord, especially in Asia and Europe. Brazil is an example of how ethanol could become the fuel of choice in many developing countries. Especially as oil becomes more expensive due to increased demand and falling supply. Brazil is currently the world s largest ethanol market using about 4 billion gallons per year. They were the first country in the world to switch almost entirely over to alcohol fuel. At one point 90% of all vehicles produced in Brazil were alcohol engines. This took place in the 1980 s until oil prices lowered and they reverted back to gasoline. Today Brazil is once again converting over to alcohol in anticipation of the next oil supply shock, and for environmental concerns for de-forestation of the Amazon rain forest. The forestry and pulp & paper industries have taken major setbacks in the last few years. There are indications that it will get worse as governments restrict cutting forests, and the KYOTO Accord will play a major role in these industries due to its direct influence on their business. TECTANE provides the economic and social alternative that will enable these industries to maintain their operations and allow forests precious time to re-grow. Pulp & paper mills, OSB panel manufacturers, co-generation plants and housing are target markets we will pursue. 6.2 Competition Making alcohol dates back thousands of years to the earliest days of civilization. Processing commercial ethanol has been around for decades, and today there are hundreds of distilleries worldwide. There are companies making ethanol from corn, sugar cane, sweet BPSS-v2.1 9

10 potato, and alternative crops. Distilling sucrose into ethanol is a relatively simple process that requires a storage tank, distiller, fermenting unit and a heat source. The market is dominated by the corn industry due to the influence of a few large companies, but corn is having major setbacks. For example, in 2003 Canadian farmers in Ontario were getting about CAD$150 per ton, but in 2004 they were only getting CAD$85 per ton. This was due to increased production in the U.S. and a weakening Canadian dollar. The corn industry does not hinder the use of sweet sorghum for ethanol production. Many international studies over decades by different organizations have proven that sweet sorghum produces 40% more yield of ethanol per acre than corn. Economically sweet sorghum is a better crop, especially in the warmer climates that allow for 2 harvests per year. Sorghum associations in the U.S. have been promoting the use of sweet sorghum in the agriculture industry. TECTANE has proprietary knowledge from years of research for a hybrid seed from among 500 different varieties of sorghum that yields the greatest combined values. In view of the weakening corn industry there are opportunities to capture a large share of the fuel ethanol market. Our program is an application that could be implemented immediately to translate into cash profits within a relatively short period. 7.0 Technology Overview 7.1 Design, Engineering & Concept AMEC Corporation is one of the largest engineering companies in the world. With their expertise and experience they will prepare the engineering for the co-generation unit. They have expressed interest for preliminary feasibility studies in regards to technical aspects of the overall project, and would be responsible for designing a system at the most cost effective method. With our initial analysis they will produce a complete engineering plan for optimal efficiency, and maximum output. BPSS-v2.1 10

11 PRAJ Industries Limited is one of the largest distillery companies in the world from India. With over 300 projects on 5 continents, and decades of experience in constructing alcohol plants they design the most efficient distilleries using their patented technologies. They will be responsible for the distillery. 8.0 Processing Methods 8.1 Seeding We will have to seed in early spring for annual crop to grow during the summer. The farmland requires about 10 lbs. of seed to grow a full acre of crop, which takes about 120 days to grow 10 to 15 feet tall. The gross yield will be about 45 tons of wet material. This is enough to provide the sucrose to produce 500 gallons of ethanol, and 4.5 tons of air dry bio-mass. 8.2 Farming We will use contract services of companies specialized in maintaining the farms. The location of the farms will be vital to our production. Crops can be grown local to our central processing facilities. The goal would be to encompass a radius of 100 km. so that transportation hauling would be minimized. 8.3 Harvesting The harvesting cycle will run 60 consecutive days by seasonal workers for two split shifts to run 12 hours a day; 6 a.m.-6 p.m. Total manpower for such operation would require 25 combine operators, 50 truck drivers and 25 extraction processors. 8.4 Splitting The crop will be split into various raw components. Grain would be removed and sold for animal feed. The bio-mass would be placed on covered ground and hauled to the processing units for extraction of the sucrose. BPSS-v2.1 11

12 8.5 Processing Units These units would be centrally located. These mechanical units would perform multiple functions: Split the stalks and separate the sucrose from the rind. Separate the wax and other material. Wash the rind and remove all traces of sucrose. Chop the rind into small chips. Blow the chips into piles for air drying. Collect the sucrose for delivery to the distillery. 8.6 Delivery Bio-mass - The air dried biomass has a low density compared to wood. We can compress the loose chips into a denser form for easier delivery and lower transport costs to the cogeneration plant. Sucrose - The sucrose will be stored on a tank farm next to our distillery. This will feed our distillery operation for a year round process. 8.7 Distillery We will use a 300 day annual cycle for this operation. Idle period would be 17% of the time for cleaning and maintenance. The storing facilities will be a tank farm adjacent to our distillery. Energy required for distilling will be minimized by co-generation off the excess heat from the co-generation plant. The fuel ethanol will be pumped out from the distillery into storage tanks, or directly into trucks for immediate delivery to the markets. BPSS-v2.1 12

13 9.0 Economics 9.1 Revenue, Expense Sheets These values are in $USD, short tons and imperial gallons. Revenue Low Medium High Yield Ethanol (per gal.) $2.00 $2.25 $ gal. Grain (per ton) $75 $85 $95 2 tons Pulp (per ton) $75 $115 $140 4 tons Chips (per ton) - (a) Burning $15 $20 $25 4 tons - (b) OSB Panels $90 $115 $140 4 tons 1 Hous e 20' x 40' $3,000 $4,000 $5,000 4 tons Wax $0.50 $0.75 $ lbs. Variable Costs Low Medium High Farm Leas e (per acre) $40 $45 $50 Seeds (per acre) $50 $60 $70 Fertilizer (per acre) $5 $10 $15 Harves t, Com bine, Labour (per acre) $95 $105 $115 Ethanol Production with Co-Generation (per gal.) $0.25 $0.35 $0.50 Trans portation Trucking (per ton) $1.00 $1.50 $2.00 Fixed Assets for 20,000 Acres Cost Units Total Am ortized Extraction Machines (50 tons / hr, 20 hrs, 60 days ) $750, $11,250,000 $1,314,332 Sucros e Tanks (4 m illion gallons ) $2,200,000 3 $6,600,000 $771,075 Dis tillery ( $1 / gallon) $10,000,000 1 $10,000,000 $1,168,295 Ins tallation cos ts $3,750,000 $438,111 Building $1,000,000 $116,830 Equipm ent $1,500,000 $175,244 Co-Generation Unit $15,000,000 1 $15,000,000 $1,752,443 Total Fixed As s ets $49,100,000 $5,736,331 Interes t Rate = 8% Term = 15 years BPSS-v2.1 13

14 This is for presentation purposes of a 20,000 acre North American project. 9.2 Profit Margin per Acre These values are in $USD, short tons and imperial gallons. We will lease the farm land and contract out the harvesting services. TECTANE's pre-tax profit margins based on low revenue, high expenses. Sweet Sorghum Harvest Gross Yield per Acre Per Acre 1 time / year 45 tons Revenues 1 Harvest Ethanol ($2 / gal.) $1, gallons Grain ($75 / ton) $150 2 tons Pulp ($75 / ton) $150 2 tons Chips ($15 / ton) $30 2 tons Total $1,330 Expenses Farms Lease per Acre $50 Seeds $70 Fertilizer $15 Harvest Contracting $115 Ethanol Production $250 Fixed Assets Amortized $287 Transportation Trucks $45 Total $832 Pre-Tax Profit per Acre $498 This is for presentation purposes of a North American project. For 2 harvests in a warm climate the estimates are doubled. BPSS-v2.1 14

15 10.0 P/L Forecasts These values are in $USD. This is for presentation purposes of a 20,000 acre North American project. YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Revenues Ethanol $0 $0 $20,000,000 $20,000,000 $20,000,000 Grain $0 $0 $3,000,000 $3,000,000 $3,000,000 Pulp $0 $0 $3,000,000 $3,000,000 $3,000,000 Chips $0 $0 $600,000 $600,000 $600,000 Total $0 $0 $26,600,000 $26,600,000 $26,600,000 Operational Expenses Farm Leas e $0 $0 $1,000,000 $1,000,000 $1,000,000 Seeds $0 $0 $1,400,000 $1,400,000 $1,400,000 Fertilizer $0 $0 $300,000 $300,000 $300,000 Contract Farm ing $0 $0 $2,300,000 $2,300,000 $2,300,000 Ethanol Production $0 $0 $5,000,000 $5,000,000 $5,000,000 Trans portation Trucking $0 $0 $900,000 $900,000 $900,000 Fixed As s ets Am ortized $5,736,331 $5,736,331 $5,736,331 $5,736,331 $5,736,331 Adm inis tration $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 Total Expens es $7,236,331 $7,236,331 $18,136,331 $18,136,331 $18,136,331 Pre-Tax Profit (Loss) -$7,236,331 -$7,236,331 $8,463,669 $8,463,669 $8,463,669 Based on 20,000 acres. Ethanol production cos ts are reduced due to co-gen energy from the BORALEX plant. Trans portation cos ts are reduced due to com pres s ing the bio-m as s before trans port. IRR over 10 years 45.28% NPV over 10 years 28,794,654 IRR over 15 years 47.03% NPV over 15 years 44,447,341 This is for presentation purposes of a 20,000 acre North American project. For 2 harvests in a warm climate the estimates are doubled. BPSS-v2.1 15

16 Assumptions: 2 years before completing the distillery, co-generation unit, and processing machinery, therefore: Year 1-2 No revenues, no production, only construction. Year 3 Fully operational Financials 11.1 Valuation Term = 10 years Total Revenue = $ million Net Present Value (NPV) = $ 28,794,654 over 10 years Net Present Value (NPV) = $ 44,447,341 over 15 years 11.2 Profitability Pre-Tax Profit Margin = % Break Even Point (BEP) = 3.71 years ( 45 ½ months ) Internal Rate of Return (IRR) = % over 10 years Internal Rate of Return (IRR) = % over 15 years 11.3 Job Creation contract workers, farmers, operations, 4-6 executive level, full time administration. Total jobs created would be about 200. This is for presentation purposes of a 20,000 acre North American project fully mechanical process International Projects The potential application of our program in the international market provides a huge opportunity to implement a combination of low technology, labour intensive operation that would employ thousands of low cost workers known as SOLO TECHNOLOGY. This would provide jobs, housing, food and commodity products that could develop the local economy with a sustainable industry, especially in developing countries of the world. For BPSS-v2.1 16

17 these projects in warm countries a 2 harvest cycle business model would be considered. A typical project of the same size as presented in this report would support a semimechanical process and create almost 5,000 low cost seasonal jobs Capital Requirement In order to finalize pending contracts, and fulfill our responsibilities to clients and joint venture partners TECTANE requires a minimum initial amount of US$ 2,500,000 by debt or equity investment. The following could be considered: Subordinated 12%. Loan guarantee in escrow, convertible to common shares 1:1 based on the debt amount. Convertible preferred 8%, 1:1 conversion ratio to common shares. Equity pre-ipo convertible to listed common shares 1: Uses of Funds The funds will be used to cover operational expenses to launch the company into full scale operation within 3 months. Monthly expenses will be budgeted to US$125,000 to cover all operational and administrative expenses. For the exit strategy we intend to list a NASDAQ OTC:BB public share within 3 months to post news releases, and raise additional capital for our project contracts. Also because market interest in our company is very high among potential investors public, private and institutional. Below is a detailed uses of funds. Financing for pre-ipo Business structure Executives and management Office Leases, furniture & equipment Computers & communications Accounting & Payroll Legal BPSS-v2.1 17

18 Administrative Staff NASDAQ OTC:BB stock listing Travel & Business Development Operating expenses SOLO- TECHNOLOGY HAND LABOR (10,000 acres) (Breakdown) Seed Production Bank $100,000 Tanks, irrigation, pipes Hand Labor Tool Package = $200 per person x 5,000 workers = $1,000,000 Fermentation Tanks $10, x $ Distillation Tanks $20, x $ Ethanol Storage Tanks $62, x $2,500 (500 gallons) TOTAL: + misc $25, $1,217, Conclusion This is the basic business model for our ethanol distillery with co-generation for a one crop cycle North American project. Our intellectual proprietary has been registered to confirm the advantages of sweet sorghum over other crops (Appendix D: CO 2 Reduction Process Patent). Forecasts were presented using very conservative estimates. We underestimated revenues and overestimated costs, and used a conservative amortization period of 15 years BPSS-v2.1 18

19 excluding any salvage values from fixed assets. We assumed the first 2 years with no revenues, but in reality we will have some production of crops after the first year that could yield by-product revenues from the grain, bio-mass and sucrose. The results show a net profitable outcome with a payback period in 4 years, and a good total debt service ratio (TDSR) capability. For an international project the economics are much better because sweet sorghum is ideal for a warm climate to produce 2 crop harvests. Major items have been confirmed with engineering consultants who have the experience with many similar projects with pulp & paper mills, distilleries, and farming projects. As mentioned before our products are not new. There exists a huge market for fuel ethanol, chemical pulp, bio-mass, OSB and housing materials. We have completed the required 3 year scientific studies for our crop to grow in the North American climate. For tropical warm climates our crops will grow easily in abundance at double the yields. The project will help create long term high quality sustainable jobs, revive the agriculture sector, and provide a showcase for future expansion projects. Indications from major pulp & paper companies show a much greater potential demand for our fibers for use in paper making, wood chips, and building materials. TECTANE Corporation is an economically feasible, and social responsible company. Precisely what the United Nations and the world are trying to promote in their objective to create a profitable environmental industry for job creation, economic benefits, and social advancement. We welcome your participation in our business to help save what s left of our world for our children, grandchildren and future generations. Nino Mario De Santis (aka Jaffar) C.E.O. Tectane Technologies International Former Sr. Technology Advisor United Nations Assoc. U.S.A. (California Chapter) Nominated Ecological Entrepreneur 1997 (Canada) BPSS-v2.1 19

20 14.0 Appendices Appendix A: IUCC Fact Sheet No. 25 Appendix B: Letters of Interest AMEC, BORALEX, CASCADES Appendix C: Cane Test Studies Appendix D: CO 2 Reduction Process Patent BPSS-v2.1 20

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