OREGON STATE UNIVERSITY

Terra Preta Technologies

Team 9 Biochar

Wenqian Chen, Yuhang He, Qinqing Song, Jordan Stutzman

Integrated Business Project 2013

Terra Preta Technologes

Team 9 Biochar

By

Wenqian Chen

Yuhang He

Qinqing Song

Jordan J. Stutzman

A THESIS

Submitted to

Oregon State University

In partial fulfillment of

the requirements for the

degree of

Master of Business Administration

Presented May 23, 2014

Commencement June 2014

© Copyright by

Wenqian Chen

Yuhang He

Jordan J. Stutzman

Qinqing Song

May 23, 2014

All Rights Reserved

Master of Business Administration thesis of Wenqian Chen, Yuhang He, Jordan J. Stutzman, and

Qinqing Song presented on May 23, 2014

APPROVED:

Alex Vestel: _______________________________

John Becker-Blease: _________________________

Inara Scott: ________________________________

I understand that my thesis will become part of the permanent collection of Oregon State

University libraries. My signature below authorizes release of my thesis to any reader upon

request.

Wenqian Chen:________________________________

Yuhang He: __________________________________

Jordan J. Stutzman: ____________________________

Qinqing Song: ________________________________

ACKNOWLEDGEMENTS

The authors express sincere appreciation for the efforts and guidance of the following individuals

during the research and writing of this thesis:

Evan Smouse

John Mentler

John Turner

Alex Vestal

John Becker Blease

Inara Scott

Bob Mayes

Contents

Executive Summary ................................................................................................................................................ 1

The concept, the industry, and the product ...................................................................................................... 4

The Industry ......................................................................................................................................................... 4

The Concept and the Value .............................................................................................................................. 4

The Product and the Service ............................................................................................................................ 5

Market Research and Analysis ......................................................................................................................... 10

Market Size and Trends ................................................................................................................................. 10

Potential Customers ........................................................................................................................................ 11

Estimated Market Share ................................................................................................................................. 11

The Economics of the Business ....................................................................................................................... 13

Biochar Production Cost Estimation .......................................................................................................... 13

Product Costing – 27.5 yd. Bioswale Installation. ................................................................................. 13

Sales and Margin Estimation ........................................................................................................................ 14

Profit Sustainability......................................................................................................................................... 15

Fixed and Variable Costs .............................................................................................................................. 15

Marketing Plan ...................................................................................................................................................... 18

Overall Marketing Strategy - Advertising and Promotion ................................................................... 18

Pricing Strategy ................................................................................................................................................ 19

Sales Estimates and Tactics .......................................................................................................................... 19

Service and Warranty ..................................................................................................................................... 19

Distribution Plan .............................................................................................................................................. 20

Design and Development Plan ......................................................................................................................... 21

Technology Readiness.................................................................................................................................... 21

Infrastructure Requirements ......................................................................................................................... 21

Development Status and Tasks .................................................................................................................... 22

Difficulties and Risks ..................................................................................................................................... 22

New Products and Applications .................................................................................................................. 23

Cost Structure For Design ............................................................................................................................. 23

Proprietary Issues............................................................................................................................................. 23

Legal, Intellectual Property, and Ethical Issues........................................................................................... 24

Selection of a Business Entity ...................................................................................................................... 24

Managing Legal Obligations and Risks of Owners and Managers ................................................... 25

Developing and Protecting the IP of the Business ................................................................................. 26

Regulatory Issues ............................................................................................................................................. 27

Managing Other Legal Liability Risks ...................................................................................................... 28

Identifying and Managing Ethical Issues.................................................................................................. 28

Manufacturing and Operations Plan ............................................................................................................... 30

Operating Cycle ............................................................................................................................................... 30

Geographic Locations and Rationale ......................................................................................................... 30

Facilities and Improvements......................................................................................................................... 31

Strategy, Plans, Manufacturing, and Operations .................................................................................... 31

Supply Chain Strategy and Design ............................................................................................................. 32

Sustainability Plans ......................................................................................................................................... 33

Management Team ............................................................................................................................................... 34

Management Team and Responsibilities .................................................................................................. 34

Board of Directors ........................................................................................................................................... 34

Compensation and Ownership ..................................................................................................................... 35

Employment and Other Agreements .......................................................................................................... 35

Shareholders Rights and Restrictions ........................................................................................................ 36

Supporting Professional Advisors and Services ..................................................................................... 36

Overall Schedule ................................................................................................................................................... 37

Key Milestones and Target Dates. .............................................................................................................. 37

Summary of Overall Venture Implementation Schedule ..................................................................... 37

Critical Risks, Problems, and Assumptions .................................................................................................. 39

Major Risks to the Venture and Investors ................................................................................................ 39

Financials ................................................................................................................................................................ 41

Financial Summary ......................................................................................................................................... 41

Sales Estimation ............................................................................................................................................... 41

Cost Controls .................................................................................................................................................... 43

Operations Capital Plan ................................................................................................................................. 44

Sensitivity Analysis......................................................................................................................................... 44

Proposed Venture Offering ................................................................................................................................ 46

Investor Profile ................................................................................................................................................. 46

Required Financing ......................................................................................................................................... 46

Harvest Strategy ............................................................................................................................................... 47

Use of Funds ..................................................................................................................................................... 48

Works Cited ........................................................................................................................................................... 50

Appendix A ............................................................................................................................................................ 52

Appendix B ............................................................................................................................................................ 56

Appendix C ............................................................................................................................................................ 58

Appendix D ............................................................................................................................................................ 60

List of Figures Figure 1 - Cross section of a typical bioswale (Dept. of Public Utilities, Columbus, OH, 2014)........................................................................................................................................................................................ 6

Figure 2 - Removal of heavy metals using biochar. .................................................................................. 7

Figure 3- Annual precipitation in the U.S. (U.S. Global Change Research Program, 2013) .... 10

Figure 4 - Months to breakeven. ................................................................................................................... 16

Figure 5 - Time to positive cash flow. ......................................................................................................... 17

Figure 6 - TPT’s estimated operating cycle. ............................................................................................. 30

Figure 7 - Management organizational structure. ................................................................................. 35

Figure 8 - Summary of TPT's first five years of operation. ................................................................. 38

Figure 9 - TPT's operating margins over the first 10 years. .............................................................. 43 Figure 10 (cont.) - Monte Carlo Simulation outputs for 10, 20, 30, and 50% changes in estimated

number of units sold ............................................................................................................................................ 45

Figure 11 - Capitalization Table for round A & B of investment (for details on this table see Appendix D). ......................................................................................................................................................... 48

List of Tables Table 1 - 2012 Stormwater Budget for the City of Portland, Oregon. ............................................ 12

Table 2- Market share estimate. ................................................................................................................... 12

Table 3 - Biochar cost estimation. ................................................................................................................ 13

Table 4 - Product costing information (Variable Cost). ....................................................................... 14

Table 5 - Gross Profit. ........................................................................................................................................ 15

Table 6 - Service Costing for contaminated biochar removal, replacement, and disposal. ... 20

Table 7 - Difficulties and risks associated with developing biochar for stormwater management. ........................................................................................................................................................ 22

Table 8 - Business entity comparison. ........................................................................................................ 24

Table 9 - Intellectual property concerns. .................................................................................................. 26

Table 10 - List of suppliers. ............................................................................................................................. 32

Table 11 - Human resources requirements at operating year 4. ..................................................... 35

Table 12 - Key milestones. .............................................................................................................................. 37

Table 13 - TPT's revenue stream for the first five years. .................................................................... 41

Table 14 - Estimated units sold. .................................................................................................................... 42

Table 15 - Sensitivity Analysis Results (1000 iterations). .................................................................. 44

Table 16 - NPV for various scenarios. ......................................................................................................... 45

List of Equations Equation 1 - Units sold calculation. ............................................................................................................. 42

Equation 2 - Venture capital valuation equation ................................................................................... 46

1

Chapter 1

Executive Summary

Many cities and municipalities around the country and around the world have a common problem.

They must deal with the runoff from rain that is referred to as stormwater. This runoff has a habit

of picking up pollutants of various types as it makes its way from streets, parking lots, and

driveways, into to storm drains, and ultimately to the nearest river, stream, or watershed. This

runoff is a serious cause of water pollution in our rivers and streams. The Clean Water Act

(CWA) of 1972 and the National Pollution Discharge Elimination System (NPDES) require that

pollution from stormwater runoff from a point source be reduced to certain levels before being

discharged to navigable waterways. Failure to comply can result in penalties and fines. TPT’s

bioswales and other biochar applications aim to reduce the cost of compliance and reduce the

potential for fines.

A bioswale is a gently sloped, planted stormwater collection area that is designed to remove

pollutants through filtration. These bioswales are constructed of various types of substrate and

soil and are designed to minimize the flow rate in order to maximize the amount of pollutants

that can be removed before being discharged to the stormwater drainage system.

Biochar is a product that tests have shown to be capable of removing significant amounts of

heavy metals from water. By inserting this product into the bioswale design structure the amount

of pollutants and heavy metals that can be removed can be greatly increased. Bioswales are not

the only application of biochar in the stormwater management industry. Additional applications

include filtration systems in the rainwater collection systems of commercial buildings,

construction sites, curbside stormwater drains, and bridges and overpasses.

Given the number of potential application sites and the number of cities that experience

precipitation the marketplace for this product is huge, biochar as a product is in its infancy and

has not yet been applied to the stormwater management industry creating a competitive first

mover advantage for Terra Preta Technologies. Bioswales are a landscape feature that can not

only prevent pollution but also help to beautify the community. Terra Preta Technologies can

install these features at a cheaper price than is currently being done with conventional materials

and with a more effective result. There is also the possibility of Terra Preta Technologies cashing

2

in on the carbon credit market place as protocol for this market is being drafted in the state of

California, potentially providing an additional source of revenue.

Terra Preta Technologies’ business model is centered on first developing performance metrics on

biochar in the bioswale application and then contracting with local municipalities to install these

features. The second phase will see Terra Preta Technologies producing our own biochar and

continuing to develop relationships with local governments in the Pacific Northwest. Finally,

Terra Preta Technologies will seek to expand to cities in the wettest portions of the United States

through licensing of our process, designs, and formulas.

Terra Preta Technologies was founded by four students at Oregon State University in pursuit of

their master’s degree in Business Administration. Their experiences cover the key areas of

business including management and operations, sales and marketing, accounting, and

engineering. These individuals also represent the international community and the possibility for

expanding Terra Preta Technologies, as well as significant diversity of race and gender. These

four founders represent the executive management team and owners of Terra Preta Technologies.

Terra Preta Technologies will also add engineers and scientists to its list of employees as well as

skilled laborers, creating new jobs and opportunities to workers and the economy.

Terra Preta technologies believes that this market is wide open for new technology and for new

entrants and that there is great opportunity for growth. Initial investors in this new company can

expect to receive a 28.77% ownership stake in TPT with the opportunity to cash out through

acquisition or IPO in 6 years. Based on comparable companies in the pollution and treatment

controls industry and the venture capital valuation model TPT will be valued at $ 39.6 million at

year 6.

In order to enter the market and begin operations Terra Preta technologies requires two rounds of

investment. $1 million is required in round one in order to begin operations and demonstrate

biochar’s viability and performance in the stormwater management industry. These funds will

also be used to begin installation of bioswales and continuous research and development of

additional applications of this product to the industry. Round two of investment will allow Terra

Preta Technologies to purchase the necessary property, plant, and equipment to begin biochar

3

production operations and expand operating area to a greater portion of the northwest. Round two

will require $ 500,000.

4

Chapter 2

The concept, the industry, and the product

The Industry

Stormwater is water that originates from precipitation. When this water makes contact with roads

and bridges, buildings and houses it picks up contaminants and becomes polluted. This polluted

stormwater runs into storm drains and associated sewer systems, and, although some of it may be

treated in a water treatment facility, the majority of it discharges untreated to the nearest river,

stream, or watershed (Pitt, 2005). In an effort to mitigate the growing pollution concerns

congress passed the Clean Water Act (CWA) in 1972 and the stormwater management industry

was born.

Provisions in the CWA created the National Pollutant Discharge Elimination System (NPDES)

which is a permitting system that covers industrial and municipal discharges of stormwater and

provides for oversight from the federal Environmental Protection Agency (EPA) or equivalent

state’s environmental quality department. Permits granted under the NPDES allow organizations

to discharge stormwater to receiving waterways or sewers provided it meets the requirements set

forth in the CWA. This permitting applies to municipalities as well as private organizations and

requires governments to meet certain pollutant prevention requirements prior to discharging

urban runoff to receiving waterways. The EPA enforces these regulations with both civil and

criminal penalties and fines (Congress, United States, 1972).

The Concept and the Value

Terra preta or black earth refers to a dark soil of the Amazon basin that was created by mixing

the charred remains of biomass with the soil. This mixture of charcoal and dirt was known by

Amazonian tribes to produce a very fertile soil that improved crop yields. Today this terra preta,

created from waste biomass, is known as biochar and has been shown to not only have properties

that are good for plant growth but properties that are excellent for removing pollutants from

water.

TPT will use biochar in the stormwater management industry as a filtration medium for heavy

metals and other pollutants. New systems would be designed and adapted to current drainage and

sewer systems providing a retrofitted filtration system to remove contaminants. Terra Preta

5

Technologies (TPT) plans to obtain contracts with governments at all levels, as well as private

companies, to reduce the environmental impact from stormwater runoff. TPT also plans to

produce the necessary biochar to meet contract obligations. This will allow TPT to have better

control of product quality and costs associated with production.

Each Bioswale is a unique application and installation costs vary. The average cost per sw. ft. for

the city of Portland was found to be around $ 50.00 (Hauth, 2014). TPT can install a product

with improved filtration and pollutant removal capabilities for around $ 45.00 per sq. ft. This will

improve the quality of water being discharged to local rivers and streams and relieve some of the

concerns of potential fines and penalties associated with NPDES permitting and government

oversight. Additionally, the production of biochar is a green process that has the potential to

create revenue from carbon offsets1. Protocol for the production and sale of these offsets is

currently being debated in the state of California (Kauffman, 2014).

The Product and the Service

Terra Preta Technologies’ innovative product uses a process called pyrolysis to turn biological

waste such as corn cobs and stocks and wood debris from forests and mills into a form of

charcoal called biochar (Liu, Quek, & Hoekman, 2012). This charcoal product has properties that

make it an excellent filtration medium, similar to activated carbon, capable of removing

pollutants from water sources including heavy metals such as Zinc (Zn), Cadmium (Cd), Copper

(Cu), and Lead (Pb) (Hamill, Kumar, & Schafran, 2013). By applying biochar to current

stormwater management systems, organizations can more confidently comply with NPDES

requirements. These systems include but are not limited to point-source runoff sources such as

gutter systems and downspouts, runoff from construction sites, and bioswales2.

1 A carbon offset is a carbon savings or reduction created through a green process in one area in

order to offset an excess production of carbon in another area. 2 A bioswale is a sloped ditch or channel filled with a filtration medium such as porous rock,

compost etc. and is designed to remove pollutants from stormwater runoff before its discharge

into a receiving waterway or sewer system. Bioswales are in common use along roadways and

around parking lots.

6

Figure 1 - Cross section of a typical bioswale (Dept. of Public Utilities, Columbus, OH, 2014).

Not only is biochar cheaper than other carbon products used for water filtration, such as activated

carbon, it is also environmentally friendly (Miedema, 2013). The pyrolysis process used to

produce biochar is a chemical reaction that does not require energy. Furthermore the reaction

actually produces thermal energy. This surplus energy can be used to generate electricity to

power equipment and keep the lights on at the warehouse or sold to the local utility company to

help offset overhead costs (Kimmel, Hannah, Ovesen, & Stearns, 2012). This process not only

produces energy, it also reduces greenhouse gasses. By turning bio-waste into charcoal we are

actually arresting or sequestering Carbon that would otherwise be released to the atmosphere

through biological decay (Lehmann, 2009). This could potentially provide us with the

opportunity to sell carbon offsets to various local companies or governments3. Currently this

market has not been fully developed but represents a prospective revenue source in the future.

3 A Carbon offset is a reduction in the emission of a greenhouse gas in one area to make up for an

equal emission somewhere else. A carbon credit created by company A can be sold to company

B in order for Company B to meet emissions requirements in its operations.

Biochar

7

BIOCHAR PERFORMANCE EXPERIMENT

Heavy metal removal testing and results conducted by researchers from Old Dominion

University at NASA’s Langley Research Center.

Figure 2 - Removal of heavy metals using biochar.

0%

20%

40%

60%

80%

100%

30 min 1 hr 2 hrs 6 hrs 24 hrs 48 hrs 72 hrs

Copper Removal (%) - CuSO4.5H2O

2 g/L biochar 1 g/L biochar .5 g/L biochar

0%

20%

40%

60%

80%

100%

30 min 1 hr 2 hrs 6 hrs 24 hrs 48 hrs 72 hrs

Cadmium Removal (%) - Cd(NO3)2.4H2O

2 g/L biochar 1 g/L biochar .5 g/L biochar

0%

20%

40%

60%

80%

100%

30 min 1 hr 2 hrs 6 hrs 24 hrs 48 hrs 72 hrs

Lead Removal (%) - PbNO3

2 g/L biochar 1 g/L biochar .5 g/L biochar

Biochar performance information. An excerpt from Old Dominion Study.

“Biochar worked so well because of the presence of oxygen containing functional groups such a carboxyl (COOH), lactone (C=O) and hydroxyl groups.

Porous structure, irregular surface, high surface to volume ratio and presence of functional groups give biochar the ability to absorb both organic pollutants and heavy/trace metals.

The presence of O2 rich organic compounds on the biochar surfaces adds substantial cation exchange capacity or the molecular ability to grab other molecules.

Reported to absorb dissolved organic

compounds from the soil solution and make them less bioavailable.

High molecular weight polycyclic

aromatic hydrocarbons (PAH) have been reported to be absorbed strongly to biochar surfaces.

Biochar produced at higher

temperatures have benefits of high pH, cation exchange capacity and surface area. (Hamill, Kumar, & Schafran, 2013)”

TPT will consult with experts from the NW Biochar Consortium and OSU to determine the best starting point for proprietary formulation. Ultimately the configuration best suited to our application will be determined by TPT’s scientists and engineers.

8

Entry and Growth

Entry into this market will begin with developing and implementing a series of pilot tests to

demonstrate the viability of biochar in the stormwater management application. We will seek

these contracts with local municipalities such as the City of Corvallis or the City of Portland.

Year zero4

The first year will focus on developing the mechanisms and systems necessary to retrofit biochar

to the stormwater management industry.

1. Create Terra Preta Technologies Inc.

2. During the first year we will obtain a contract with a local government to conduct a pilot

test or demonstration project. Funding for this project could come from the government

organization itself or from outside investors. Additional funding for follow-on projects

will be obtained up front but contingent on the outcome of the demonstration project.

3. Engineers in the civil discipline will be hired to develop the designs necessary to retrofit

biochar to the stormwater management mechanisms already in place.

4. At this point TPT would not be producing our own biochar and would need to contract

with current biochar producers to obtain the necessary product. Costs could be saved by

consulting with John Miedema, a local scientist and biochar expert, who can produce

biochar in quantity at the desired quality.

Year one

Year one will consist of implementing the demonstration project developed during the first year.

1. Construction and installation of the demonstration projects will begin.

2. Once the system is installed and operational, monitoring and testing will be necessary to

ensure proper operation and efficiency of the system. Results of the demonstration will be

properly documented to facilitate intellectual property applications and validity of the

project.

4 Year zero refers to time = zero and represents the first year of operation. Thus the end of year

four is actually referring to the end of the fifth year of operation.

9

3. No design or application of biochar will be specific to every situation. During this second

year additional research and development will need to be conducted to fit the stormwater

management needs of potential customers.

4. Applications for intellectual property will be drafted and submitted.

Year two

At this point a positive outcome has been reached and it has been concluded that biochar

performance is confirmed and was as anticipated.

1. A follow on contract will be obtained with the initial government organization

facilitating the demonstration project and additional contracts sought in the Pacific

Northwest area.

2. At this point TPT will begin installation operations of bioswales as well as beginning to

produce our own biochar. The necessary production equipment and facilities will be

acquired and set up. TPT’s employees will begin to facilitate obtaining contracts with

other government agencies or private companies who have NPDES permitting

requirements.

3. We plan to receive a provisional patent at this point.

Year three

This year of operation will see TPT expand our production facility to meet growing demand.

1. We will seek to increase our market share in the Pacific Northwest.

2. TPT will also begin to obtain contracts with municipal governments outside the northwest

region. Based on our market analysis discussed in chapter 3, we will seek these contracts

in the southeastern United States.

3. In order to fulfill these out of state contracts we will license our intellectual property to

local biochar producers. Design work will reside with TPT in the Northwest while

biochar production and construction/installation will be contracted.

Year four

Year four will see our out of state licensing operations begin.

10

Chapter 3

Market Research and Analysis

Market Size and Trends

According to the EPA the stormwater treatment and management market in the United States has

been valued between three and six billion dollars annually and is projected to grow (Stormwater

Management Market Set for Growth, 2013). This presents a significant opportunity for TPT. All

cities experience rain at varying levels during the year and thus deal with stormwater on some

level. According to the U.S. Global Change Research Program the wettest states in the U.S. are

in the southeast, Midwest, and a portion of the northwest (U.S. Global Change Research Program,

2013). These areas represent the market segment that TPT will target. As an example, according

to the annual compliance report from Oregon Department of Environmental Quality, “The City

of Portland has invested more than $1.01 billion in stormwater management services and

facilities during permit years 1 through 18 (Portland, 2013).” In fiscal year 2012 Portland spent

$101 million on stormwater management requirements.

Figure 3- Annual precipitation in the U.S. (U.S. Global Change Research Program, 2013)

11

Potential Customers

The target customers of TPT are government agencies or departments as well as private

companies who must comply with the CWA’s NPDES requirements. Most cities in the United

States, depending on their size, have a public works department that will handle stormwater

management. This means that potential customers could potentially include any city government

in the world that has a stormwater management program. This also applies to the Departments of

Transportation for the fifty states who deal with stormwater runoff from highways, bridges, and

overpasses. The amount of rainfall that a city or state receives annually will have an effect on the

number of customers in this area. A second customer base would be private companies who have

to deal with NPDES permitting requirements. Industrial and construction companies are

examples of potential customers in this area that would benefit from our product.

Estimated Market Share

Market share was estimated by looking at the stormwater management budget for the City of

Portland and extrapolating it, based on population, to the 101 wettest cities in the United States

based on annual rainfall (101 Wettest Cities in the United States, 2013). This does not represent

the total market potential but a segment that represents the cities most likely to have a high

commercial need for stormwater management. Portland is generally regarded as a fairly

progressive city when it comes to green technologies and their implementation. Choosing

Portland as a reference city for market estimation presents a downside as an overestimation of the

market may occur. Portland has a well-documented history on stormwater management and an

eighteen year old program for bioswale installation representing the full potential of the bioswale

application. TPT assumes that The City of Portland’s effort in this area is indicative of the market

potential for bioswales in both the public and private sectors. Additionally, Portland is not even

one of the 101 wettest cities in the United States discussed above. These facts make the reference

information a reasonable assumption because it allows for the progressive nature of Portland’s

approach.

12

City of Portland Stormwater Management Budget (2012)

Major Program Category Requirements Percentage Share

Enforcement and Development Review $11.2 million 11%

Watershed program & Habitat Restoration 13.9 million 14%

Facilities Operations and Maintenance 29.0 million 29%

Capital Improvements 46.0 million 46%

Total Revenue Requirements $101.0 million

Table 1 - 2012 Stormwater Budget for the City of Portland, Oregon.

It is estimated that TPT’s product falls into the Watershed Program and Habitat Restoration

(13.9%) and Facilities Operations and Maintenance (29%) budget requirement areas. It is

assumed that biochar can capture 20% of the monies set aside for these requirements or $8.6

million. We extrapolated these numbers to estimate the market share from the 101 wettest cities

in the United States discussed above.

Stormwater Management Market Share Estimate

(Based on the 101 Wettest U.S. Cities)

Total Spent on Stormwater

Management

Total Spent on Bioswale Related

Applications (43%)

TPT Potential Market Share of

Bioswale Related Applications

(20%)

$2,188,594,755 $ 941,095,744 $188,219,149

Table 2- Market share estimate.

Competition and Competitive Advantage

Currently biochar is not used in the stormwater management industry. However, if biochar is

determined to be a viable product in this application other biochar producers may seek to enter

this market and capture market share. TPT’s competitive advantage is in the development of

proprietary designs for biochar’s application to existing infrastructure. By licensing this

intellectual property TPT can mitigate competition by contracting with other producers to fill

growing demand.

13

Chapter 4

The Economics of the Business

Biochar Production Cost Estimation

In order to estimate the cost of producing biochar we took the price of biochar found online and

removed the estimated packaging costs. We then calculated the cost per pound without the

packaging costs. We then estimated a $ 0.50 production costs (Table 3). This estimation was

based off the table below and personal interviews with biochar expert John Miedema

Biochar Cost Estimation5

(Buy Activated Charcoal) (U.S. Plastic)

25 lb (1.6 cu. ft.) Packaging Costs Selling Price Estimated Production Cost

$ 45.00 $ 5.00 $ 1.60 /lb $ 0.50 / lb

Table 3 - Biochar cost estimation.

Product Costing – 27.5 yd. Bioswale Installation.

TPT’s estimate for product cost was based on a bioswale channel 1 ft. wide (.33 yds.), 1 ft. deep

(.33 yds.), and 82.5 ft. long (27.5 yds.). This is the volume that three cubic yards of material will

fill. The filtration medium requirements were estimated at 1 yd3 each of sand, gravel, and biochar.

Variable costs associated with the installation were researched and estimated at $ 4,029 (Table 4).

This is only one example of potential stormwater management projects available in this industry

but we estimate that it will be one of the most commonly used and applicable to biochar.

5 Cost estimates are based on biochar products available in 5 gallon buckets (25 lbs.) at

buyactivatedcharcoal.com and 5 gallon bucket prices from and usplastic.com.

14

Product Costing Based on Per Unit (27.5 yd.) Bioswale installation

1 yd3 Biochar $ 684.00

1 yd3 Sand $ 35.00

1 yd3 Gravel $ 35.00

Labor (3 workers @ $20.00 per hr. for 3 days) $ 1,440.00

Drainage Pipe $ 130.00

Earthmoving Equipment Rental (3 days) (Earthmoving

Equipment)

$ 1,200.00

Drainage Fabric $ 100.00

Dump Truck Rental (Earthmoving Equipment) $ 305.00

Other Expense (utilities etc.) $ 100.00

Total $ 4029.00

Table 4 - Product costing information (Variable Cost).

The City of Portland budgets $ 50 per sq. ft. for their “Green Streets” bioswale program.

TPT’s product costing and pricing comes in at $ 45 per sq. ft. The city of Portland is looking

to explore the possibility of utilizing biochar in this application (Hauth, 2014).

Sales and Margin Estimation

Sales were estimated based on estimated units installed on an annual basis in the city of Portland

and extrapolated, based on population, to cities in Oregon, Washington, and Idaho. The table

below shows the estimated gross margin and net income for the first 5 years of operation.

15

Gross Profits6

Year 0 Year 1 Year 2 Year 3 Year 4

Sales - - 1,073,884.43 3,844,771.43 6,801,268.07

Variable Costs - - 326,312.55 1,168,279.50 2,066,646.15

Gross Profit - - 747,571.88 2,676,491.93 4,734,621.92

Gross Profit Margin - - 69% 70% 70%

Table 5 - Gross Profit.

Profit Sustainability

Profit sustainability will be determined largely on the results of the pilot testing discussed chapter

two. Stormwater management is a problem for any city that experiences precipitation7. We have

already discussed expanding from the Pacific Northwest to the 101 wettest cities in the United

States, most of which are located in the southeast (101 Wettest Cities in the United States, 2013).

Further profits can be obtained and sustained by developing new applications to retrofit biochar

to stormwater management as well as expanding TPT into new markets both domestic and

international. Additional profits will be obtained from services provided for the removal and

replacement of contaminated biochar. These services are estimated to be required at 5 years after

installation (Massie, 2013). Pilot testing will be required to confirm this.

Fixed and Variable Costs

Fixed and variable costs were estimated based on the operations timeline in chapter 2 and are

listed below.

Fixed cost for the first five years will include:

● Property, Plant, and Equipment costs: TPT plans to acquire the necessary PP&E assets in

year one at an estimated cost of $500,000.

6 For detailed financial table see Appendix A. 7 The vast majority of cities have a public utilities department that will have a stormwater

management office. The cities of Salem, OR, Corvallis, OR, Portland, OR, The Dalles, OR, and

Columbus, OH are referenced in this report. This statement can be verified by visiting a cities

website and searching for “public utilities” or “stormwater.”

16

● Monthly rent and utility fees: The monthly rent cost is estimated to be $4,000 in the first

two years with rent increasing in year three and onward as PP&E is acquired.

● Patent/ IP fees: TPT will apply for patent in year one with application fee/cost of $20,000

for each patent (Sather, 2014).

● Research and development: TPT plans to invest $200,000 annually in R&D.

● Salaries and general administrative expenses: Estimated annual costs are $200,000.

Variable cost:

● Cost of raw material: This cost will include payment for purchase such as sand, gravel,

drainage pipe etc. and are discussed above8.

● Fuel Cost: Fuel costs will not be incurred until operating year four and will be used to

operate heavy equipment as PP&E is acquired.

Months to Breakeven: The breakeven point was calculated to be 35.61 months.

Figure 4 - Months to breakeven.

8 For detailed breakdown of raw material costs see table 4.

$0

$1

$2

$3

$4

$5

$6

$7

1 2 3 4 5 6

Mil

lio

ns

Years

Breakeven

Revenue

Total Costs

17

Time to Positive Cash Flow: Positive cash flow was calculated at 47.81 months

Figure 5 - Time to positive cash flow.

($2)

($1)

$0

$1

$2

$3

$4

$5

1 2 3 4 5 6

Mil

lio

ns

Years

Cumulative Cash Flow

Cash Flow

18

Chapter 5

Marketing Plan

Overall Marketing Strategy - Advertising and Promotion

Terra Preta Technologies’ marketing strategy will not center on biochar itself but on the benefits

that its use carries. The general public is very familiar with the stormwater runoff problem and

the pollution that it can cause but is generally unfamiliar with biochar and its benefits. As a result

our marketing strategy will target both governments and the general public they serve. Content

will focus on cleaning up pollution, reducing greenhouses gasses and how Terra Preta

Technologies (TPT) can accomplish both. Our strategy will be carried out in three phases:

Phase 1 – Social Media Campaign

As TPT begins pilot testing biochar and associated designs, a social media campaign will be

started at the beginning of the operation. The purpose of this campaign is to raise general

awareness of TPT and the progress being made. This campaign will be composed of a Facebook

page, twitter handle and a YouTube channel.

Phase 2 – Advertising and Publishing Results in Professional Journals

As positive results are realized TPT will seek to publish official results in the professional

journals of the stormwater remediation industry as well as environmental, government, and

academic publications and magazines. Some examples of these publications include Stormwater

Magazine, Environmental Protection magazine, and Scientific American.

Phase 3 – Seminars and Conferences

In order to garner further attention to TPT and biochar, we will attend a series of various

seminars and conferences in the stormwater management and environmental protection

disciplines. These events will serve a similar purpose to publishing in professional journals but

could also carry the added benefit of putting us into contact with potential investors. An example

of a seminar we would like to attend is “Managing Stormwater in the Northwest,” which is held

in Tacoma, WA.

19

Pricing Strategy

TPT’s pricing is based on the installed cost per 27.5 yd. bioswale discussed in chapter 4 (The

Economics of the Business). A design fee of $5,700 per unit and a 15% markup are added in

order to obtain an installed cost per unit of $11,188 (Regulation, 2013). The design fee is an

arbitrary price set by TPT and may need to be adjusted as design progresses through pilot testing.

In researching allowable markups when working with government contracts they were found be

dependent on which government entity you were working with but that 15% was the maximum

allowable markup. As a result, we assumed a 15% markup when finalizing our pricing strategy.

Sales Estimates and Tactics

Sales estimates were discussed in chapter three (Sales and Margin Estimation) and were based on

the average demand for bioswales over the past twenty years in the City of Portland. Sales are

expected to exceed $5.7 million by year five of operation.

Sales tactics will be centered on a face-to-face strategy, primarily to government officials. This

will allow us to tailor each application and installation to the specific needs of the customer. We

will accomplish this by generating awareness of our product and its benefits through the first

three phases of our marketing strategy discussed above. This will help to generate credibility and

facilitate opportunities to schedule meetings with the appropriate individuals. Networking will

also be a key tactic that will be employed. By constantly networking we will be able to build our

reputation and broaden our customer base and expand into new regions.

Service and Warranty

Pilot testing will determine the carrying capacity of biochar and consequently how often biochar

will need to be replaced. This time period will vary with each application based on the amount of

pollutants in a certain area and is estimated to be five years (Massie, 2013). TPT will provide this

replacement and disposal service at an additional cost. Warranty packages will not be offered for

bioswale products. Warranties may be offered in the future on additional stormwater

management products. Service fees may be included in initial Bioswale installation contract or

added at a later date. If the latter option is chosen an additional 15% markup will be included.

20

Service Costing for Biochar Removal, Replacement, and Disposal.

(Based on Per Unit (27.5 yd.) Bioswale)

1 yd3 Biochar $ 684.00

Labor (3 workers @ $20.00 per hr. for 1 day) $ 480.00

Earthmoving Equipment Rental (1 days) (Earthmoving

Equipment)

$ 400.00

Dump Truck Rental (Earthmoving Equipment) $ 305.00

Disposal Fee $ 20.00

Other Expense (utilities etc.) $ 100.00

Total $ 1,989.00

Table 6 - Service Costing for contaminated biochar removal, replacement, and disposal.

Distribution Plan

For the bioswale application of biochar there are no distribution channels. Sales will be obtained

face-to-face with government agencies and departments and installed on a Just-In-Time basis.

Materials will be produced or purchased as needed and no inventory will be carried. In the future,

as additional designs and applications are explored and tested, additional distribution channels

will need to be developed. These channels could potentially include online orders and retail

operations.

21

Chapter 6

Design and Development Plan

Technology Readiness

Biochar is a created through a process that is known and understood. Studies have shown that

biochar possesses the capability to remove heavy metals from water (Hamill, Kumar, & Schafran,

2013). However, there are several factors that affect the quality of biochar and its heavy metal

and pollutant filtration capability (Miedema, 2013). The type of feedstock used and the

temperature at which it is cooked as well as the length of the cook time are examples of these

variables. Research will need to be done in order to determine the properties that will provide the

best filtration capability for stormwater filtration. Biochar cannot simply be inserted into current

stormwater management systems. In order to retrofit a biochar filtration capability to existing

systems proprietary designs will need to be developed. These designs will be specific to each

situation. For example the City of Portland’s stormwater drainage system will be different and far

more complicated than the City of Corvallis. Additionally each application of a bioswale will be

dependent on its location and length. Because of these factors the technology is at the

development level of readiness. A pilot test or demonstration project will be critical in preparing

the technology for the marketplace.

Infrastructure Requirements

Initial requirements for TPT will be minimal. A modest office will be required for the design and

development work as well as the executive staff. A 5,000 sq. ft. office space is adequate to fulfill

our initial needs9. This type of office space is readily available in various cities in the state of

Oregon and would require minimal modification or outfitting to begin operations. In year three of

operation, we are projecting begin to acquire the necessary infrastructure to expand our

operations and begin producing biochar. This will require us to obtain a significantly larger

industrial facility to house our production equipment. Production equipment will need to be

installed and the facility modified to house the equipment.

9 This estimate was made off of a familiar 2000 sq. ft. residence. The team estimated that

approximately twice the space would be needed for the initial startup with an extra 1,000 sp. ft.

allowance for early growth.

22

Development Status and Tasks

Currently TPT is in the beginning stages of developing this application of biochar. Development

will begin with the bioswale application and then move to other applications within the

stormwater management industry. Tasks that need to be accomplished include:

Conduct experiments to determine the appropriate biochar formula to maximize filtration

potential.

Conduct Research and development on how to dispose of contaminated biochar.

Source appropriately formulated biochar for pilot test.

Document and publish results.

Obtain contract to conduct bioswale pilot test/demonstration project.

Apply for patent protection.

Conduct stormwater infrastructure design research.

Explore additional applications of biochar to this industry such as filtering stormwater

runoff from commercial buildings, bridges and overpasses, and managing runoff from

highways.

Difficulties and Risks

TPT believes that there are difficulties and risks associated with developing biochar for this

application.

Difficulties Risks

Obtaining initial funding to begin

research operations

Pilot testing may prove biochar to be

inadequate in this application.

Developing a successful design for a

demonstration project that will adequately

demonstrate biochar’s value to the

stormwater management industry.

Inability to obtain patents for the

information obtained from pilot testing.

Developing methods to dispose of

contaminated biochar.

Competitors developing the same

technology and uses for biochar.

Expanding the use of biochar beyond the

bioswale application.

Potential changes in government

regulation.

Table 7 - Difficulties and risks associated with developing biochar for stormwater management.

23

New Products and Applications

As TPT moves forward we will seek to develop additional ways to apply biochar to the

stormwater management problem. These ideas include ways to remediate stormwater from

commercial buildings and private residences as well as runoff from agricultural lands. Significant

research and development will be necessary to develop these ideas into viable products. These

products will allow us to expand our customer base from government agencies to private

companies. Because biochar possesses filtration capabilities similar to active carbon there is

potential to insert biochar into every application where active charcoal is used currently. This

will allow us to expand our business to other industries and significantly widen our customer

base.

Cost Structure For Design

The cost structure associated with the development and testing of our product in the first two

years of operation will consist of the salaries for engineers and design team, materials, tools and

equipment required for implementing experiments and pilot testing, and the lawyer and

application fees associated with obtaining patents for proprietary information obtained from

development efforts. Cost structure related to design will include:

Salaries for engineers

Research and development costs

Pilot test implementation

Proprietary Issues

The development of proprietary information is critical to our business. The process to produce

biochar (pyrolysis) is not patentable. However, the specific quality (based on temperature and

oxygen controls) and formula (feedstock mix and cooking duration) for producing biochar with

properties that maximize filtration capabilities is proprietary information that may be patentable.

The design of the system utilized to retrofit biochar to existing stormwater infrastructure, whether

it be a bioswale or another application, certainly would be patentable. This type of information is

crucial to securing market share and profitability for TPT.

24

Chapter 7

Legal, Intellectual Property, and Ethical Issues

Selection of a Business Entity

Terra Preta Technologies has chosen to file for incorporation as a C-Corporation (C-Corp). There

are several factors that have led us to this decision. The first reason is that three of TPT’s

founders are not citizens of the United States but are in the country on student visas (Wood,

2012). This limits our options to a C-Corp. The second reason is that TPT needs that opportunity

to obtain venture capital. This is less likely when using an S-Corp or LLC. As the business

becomes successful and grows, TPT would also like to maintain the option to take the company

public (Bagley & Dauchy, 2008). There are several advantages of being a publically traded

company, which can benefit TPT. For instance, one advantage is the ability to raise capital for

financial and operational systems. At the same time going public can help raise public awareness

of the company, which may increase market share (Balasubramaniam, 2009). There are some

advantages and disadvantages to taking this approach, such as double taxation, but TPT expects

to grow rapidly in the first 10 years of operation and the benefits a C-Corp carries outweigh these

initial disadvantages (AICPA, 2007).

C Corp S Corp LLC

Taxation Double taxation - Company

income is taxed at corporate tax

rate (roughly 34%); shareholders

also pay tax on dividends or

profits distributed (roughly 20%)

Single taxation (Profit or loss

are passed directly to

shareholders)

Single taxation - Profit or

loss are passed directly to

members (top bracket

39.6%). Can elect to be taxed

as a corporation.

Legal Entity Separate entity from shareholders

(owners), who cannot be

normally held liable for any fiscal

obligations

Separate entity from

shareholders (owners), who

cannot be normally held

liable for any fiscal

obligations

Separate entity from

partners, but members may

be held liable for non-fiscal

obligations

Ownership Shareholders are owners Shareholders are owners Members

Suitable

for…

Medium-size to large businesses

with many shareholders

(including institutional investors)

Small businesses with less

than 100 shareholders,

consisting of US citizens

and/or resident aliens for

income tax purposes.

Smaller businesses with few

shareholders

(C corporation vs. LLC, 2014)

(C Corporation vs. S Corporation, 2014) Table 8 - Business entity comparison.

There are costs associated with filing for incorporation. TPT has allowed for $2,000 - $3,000 in

legal and filing fees (Nancy King, 2014). TPT will require legal patent services as well and will

25

make an effort to utilize a firm that can assist with intellectual property issues and legal entity

formation. Terra Preta Technologies has decided to register for incorporation in the State of

Oregon, which will provide various benefits. For example, it will be easier to raise capital.

Owners cannot be held personally liable for company debt and obligations (Incorporating Your

Business, 2014).

TPT will need to perform the following steps in filing for incorporation:

Decide on company name and check with the secretary of state to ensure that it is not in

use and that there are no trademark issues10.

File for trademark protection.

Draft articles of incorporation

Draft bylaws

Obtain Federal Employer Identification Number.

Obtain a general business operating license.

Open a bank account.

Issue stock certificates to TPT founders and shareholders.

Hold initial meeting of the board of directors.

Managing Legal Obligations and Risks of Owners and Managers

There are several factors that need to be taken into account when starting a new business (10

Steps to Starting A Business, 2014). These factors include ensuring that state and federal labor

laws are properly adhered to, employees are properly classified and paid, and that requirements

for maintaining a corporation are followed. TPT will designate one of the founders to manage the

legal obligations surrounding our operations. As the company grows and more employees are

required a legal department will be created to handle the extra legal issues.

Initially the legal risks for TPT are fairly low. As pilot testing proves successful and the company

begins installation operations of bioswales and other applications additional risks will become

necessary to take into consideration such as Occupation Health and Safety Administration

requirements for job sites and the potential for worker’s compensation claims. These concerns

10 We were able to search Oregon’s online database for Terra Preta Technologies and no results

were returned.

26

will not be relevant until year two of operation when installation of pilot testing begins but TPT

will need to be prepared to deal with these requirements and concerns.

Developing and Protecting the IP of the Business

TPT intends to immediately begin a social media campaign to spread the word about our product

and techniques11. Securing and protecting a domain name is critical to accomplishing this as well

as a YouTube Channel, Twitter handle, and Facebook page.

As discussed in chapters two and three, developing and protecting our intellectual property is

crucial to our success. This intellectual property is centered on the process of producing biochar

and the designs for its insertion into the stormwater system. The first is the development of a

specific process and “formula” for biochar production with regard to feedstock, cooking

temperature, cooking duration, and oxygen control. This formula may not be patentable due to it

being closely related to a natural process. If that is found to be the case this information will

become a trade secret that will need to be closely guarded. The second are the proprietary designs

that will allow for biochar’s use in the stormwater management industry. These designs will be

developed as part of our pilot testing and ongoing research and development and protection will

sought through a utility patent application (Sather, 2014). TPT will utilize legal counsel

(discussed previously) to ensure that we are not infringing on other’s intellectual property rights.

Intellectual Property IP Law Protection Owner Action/Strategy Biochar Formula

Trade Secret/Patent TPT Draft and enforce rules and procedures to

safeguard trade secrets.

Bioswale and other

application designs Patent Law (utility

patent) TPT

Ensure employees sign and adhere to

appropriate agreements i.e. invention

assignment, non-disclosure etc.

“Terra Preta

Technologies” business

name

Trademark TPT Verify that it is not in use and register

with the State of Oregon.

Terra Preta

Technologies Logo Trademark TPT Create an original logo, verify it’s

originality, and put it into use as soon as

possible

Domain name ICANN TPT Register as soon as possible.

Table 9 - Intellectual property concerns.

11 See Chapter 5 for details.

27

Regulatory Issues

All regulation in the stormwater industry stem from the Clean Water Act and the associated

National Pollution Discharge Elimination System’s (NPDES) permitting program. City and state

regulations come from the requirements of this program (Congress, United States, 1972).

Ensuring that our products meet and exceed the minimum requirements for pollution discharge is

critical to our viability as a company. This will require TPT to work closely with city officials

and employees to ensure that our products are in compliance with city, state, and federal

requirements.

Another aspect is the different design requirements that may be specified by city officials for

bioswales and other stormwater management facilities. TPT is presenting a new technology in

biochar that may achieve the same results within different design criteria. Pilot testing will

determine if this is in fact the case. TPT’s designs will need to be approved by city officials

before contracts could be obtained (City of Portland, 2008).

Regulations governing the disposal of contaminated materials will also need to be taken into

consideration (U.S. Environmental Protection Agency, 2012). Pilot testing will determine what

contaminates biochar that has been used in this application contains. These test results will

determine if this contaminated biochar will be able to be disposed of at landfills or if additional

treatment and/or remediation before disposal will be required (Kauffman, 2014).

Three of TPT’s founders are Chinese nationals who are in the United States on student visas.

H1B work visas will need to be obtained for these individuals.

In year two of operation TPT will begin installation of pilot test projects. This work will require

TPT to be licensed and insured in accordance with requirements of the State of Oregon. TPT will

also need to register with the Construction Contractor’s Board (CCB) (Construction Contractors

Board, 2014) (Construction Contractors Board).

Oregon has a Minority and/or Women Business Enterprise certification. All four founders of TPT

meet the requirements for this certification and it may provide an incentive for city governments

in Oregon to work with us (Business Oregon, 2014). For example, TPT may have opportunity to

28

work with more subcontractors and may have less paperwork to fill out and less insurance and

bonding requirements (York)

Managing Other Legal Liability Risks

Two potential liability issues have been identified.

1. Liability associated with installation of bioswales. Heavy equipment will be utilized

during these installations and may take place along busy roads or highways. These factors

produce a risk to our employees and a liability for the company. Safety procedures will

need to be developed to ensure that risk associated with construction activities is kept at a

minimum and that TPT is exercising its duty to employees to ensure their safety.

2. Liability associated with biochar production. The biochar production process (pyrolysis)

is one that involves a high temperature chemical reaction and is fed by combustible

material. This creates the potential for careless employees to be burned and the potential

for fire. Procedures for the operation of this equipment will need to be developed in order

to ensure the safety of employees and company equipment.

Both of these issues will need to be addressed with the aid of our legal counsel to ensure that

legal liability for TPT has been addressed in each of these cases (Beesley, 2012).

Identifying and Managing Ethical Issues

Terra Preta Technologies is based on a green technology that produces a useful product from

waste that is carbon negative and whose production produces energy. Ethical issues may arise

when dealing with certain processes that are contrary to this basic premise. TPT will seek to keep

a low carbon footprint and reduce waste wherever possible.

29

Ethical issues relating to business operations, contractual obligations, employee/employer

relations, and investor relations will be carefully dealt with by the founders and at meetings of

the board of directors and will maintain a high standard of ethical conduct12.

12 When conducting market research and looking for an application for biochar it was discovered

that the horticulture industry, specifically marijuana growers, were using biochar as a growing

medium. TPT’s founders are aware of the controversy and legal issues surrounding the

recreational and medicinal use of marijuana and made the ethical decision to forgo this

potentially lucrative market.

30

Chapter 8

Manufacturing and Operations Plan

Operating Cycle

TPT’s operating cycle will vary greatly depending on the contents of the contract that is obtained.

Some contracts obtained may be for one 10 yd. bioswale while another may be for three

bioswales of 40 yds. The City of Portland’s average bioswale is 300 sq. ft. per facility (Hauth,

2014). Operating cycles will be very different in these situations.

Figure 6 - TPT’s estimated operating cycle.

Fourteen days of preparation time are allowed for between contract signing and when

construction begins. These fourteen days include an allowance for the city or municipal

government to accomplish any preparations to the construction site or to allow for other factors

such as school or road closures or other traffic implications. Seven days are also allowed for the

biochar producers to source the feedstock and produce the required amount of biochar13. Three

days are allowed for installation per our discussion of product cost in chapter 4. Thirty days are

allowed between the completion of construction and the receipt of payment (BizFilings.com,

2012).

Geographic Locations and Rationale

The State of Oregon and the Pacific Northwest was chosen as the area to begin operations.

Oregon is the home state or state of residence of TPT’s founders as well as our technical advisor

13 In the first four years of operation biochar will be sourced from local produces. TPT will

produce our own biochar in the following years. In either case 7 days will be allowed for the

production of biochar with regard to the operating cycle.

31

and biochar expert John Miedema and so was chosen as company headquarters. The Pacific

Northwest is home to many of the biochar suppliers required for our early operations. This

portion of the country is also known for its rainy climate and the requisite need for stormwater

management programs. The people and governments of the Pacific Northwest, especially in

Portland, OR, tend to be more open and accepting to green technologies and ventures (Hauth,

2014).

Our research showed that contrary to popular opinion the wettest cities in the United States are

not in the Pacific Northwest (101 Wettest Cities in the United States, 2013). The 101 wettest

cities in the United States discussed in chapter 2 are in the southeastern part of the country.

TPT’s plans to expand the business into this region of the country by the fifth year of operation in

order to take advantage of these wet cities and the market they represent.

Facilities and Improvements

Facilities requirements for TPT in the initial three years of operation are minimal. An adequate

office space, discussed in Chapter 4, is all that will be necessary. Without these facilities, we will

not be able to provide technical and administrative support to our operations system, which will

lead to the failure of our plan. Year three of operation will require industrial production facilities

to house biochar production equipment and other heavy equipment necessary for the expansion

of TPT. Corvallis, Salem, and Portland Oregon are being considered as possible locations for this

office and industrial space. In year three of operation, when biochar production begins, we will

seek to co locate our production and office facilities in order to monitor production and reduce

logistical expense.

Strategy, Plans, Manufacturing, and Operations

TPT intends to employ and three step strategy.

1. Purchase biochar from suppliers. – In the first three years of operation TPT will source

biochar from local producers. This will allow TPT to complete pilot testing and determine

the product’s effectiveness without a large capital expenditure.

2. TPT produces its own biochar. – After pilot testing is complete and product efficiency is

proven TPT will begin to acquire the necessary PP&E to produce its own biochar. This

will allow TPT to have better control over the efficiency of its operations and effectively

practice Just-In-Time manufacturing.

32

3. TPT expands to the Southeastern United States. – TPT will plan to license our intellectual

property associated with biochar production processes and design to biochar producers in

the southeast. This could be done through franchising or by TPT opening a production

facility located in one of those states.

Supply Chain Strategy and Design

During the first two years, TPT will purchase Biochar from local producers for our pilot testing and

production purposes. Pilot testing will determine the proper formula for appropriate biochar

applications with respect to feedstock, cooking temperature and duration. Meanwhile, TPT’s

engineers will be designing bioswales that fit into different communities’ unique municipal

stormwater systems and adhere to municipal regulations. The goal of our supply chain strategy is to

have easy and efficient access to our suppliers, and maintain a relationship that allows for cost-

effective sourcing of high-quality materials. In the first two years TPT will be sourcing material from

suppliers in the northwest region as we develop markets in that region.

Beginning in operating year three, TPT will expand its biochar production in accordance with

growing demand. In order to eliminate out-of -state shipping expense and long-distance monitoring

issues, TPT will work with local suppliers in the states where bioswale contracts are obtained. In

order to operate in multiple states TPT will license its intellectual property to local biochar producers

while TPT’s main office in the northwest will be responsible for the design work.

Suppliers Products

Various (unknown) Feedstock

Local sand and gravel company Sand and Gravel

Local construction supply company Drainage Pipe

Local construction supply company Drainage Fabric

Local producers (NW) Biochar

Local rental companies Rental equipment

Table 10 - List of suppliers.

33

Sustainability Plans

Sustainability in manufacturing and operations can be attacked on several fronts.

1. Expansion through licensing of TPT’s IP to biochar producers in regions where TPT has

obtained contracts. Research has shown that this is most likely to occur in the

southeastern United States but will not be limited to that region.

2. Expansion by acquiring smaller biochar production facilities/producers14.

3. Sustainability through removal and replacement of saturated and contaminated biochar

from installed bioswales. These services could be negotiated as part of an original

contract or provided at an additional fee. It could also extend to convert existing

bioswales to biochar.

14 In a personal conversation with Biochar Supreme, former TPT researcher obtained

information that led him to believe that biochar supreme could be acquired for a reasonable price.

This company could be indicative of many smaller biochar producers around the country

(Anderson, 2013).

34

Chapter 9

Management Team

Management Team and Responsibilities

TPT’s senior management will be made up of the company’s founders, and will comprise the

following:

1. Chief Executive Officer, Jordan J. Stutzman – The CEO will be responsible for the

overall operations and decision making of TPT. Maintaining the strategic vision of TPT

and overall direction will fall to this officer.

2. Chief Operating Officer, Wenqian Chen – This individual will be responsible for the day

to day operating decisions and management of TPT as well as legal, human resources,

sales, marketing, and public relations operations.

3. Chief Financial Officer, Qinqing Song – This individual will be the keeper of the business

model, ensuring that TPT’s business model and operations remain consistent. They will

also be responsible for maintaining all financial and accounting reports and

communicating with investors and higher management.

4. Chief Technology Officer, Yuhang He – The CTO will be responsible for managing the

design team and the development of the specific formula for biochar’s use in stormwater

management as well as the designs necessary to retrofit biochar to existing stormwater

infrastructure. Decision making with regard to managing TPT’s R&D budget, research

focus, and maintaining the integrity of IP will fall to the CTO.

Board of Directors

The first three years of operation will see the board of directors made up of the founders and the

engineers and scientists on TPT’s staff. Additional members will not be added to the board of

directors until TPT reaches a more developed stage. Once this is achieved the board will be made

up of six members. The four founders of TPT will each hold a seat as well as one

representative/expert from the biochar industry and one representative/expert in finance and

35

business. One seat on the board may be considered for investors as part of the negotiation process.

This will render a good mix of expertise and experience.

Figure 7 - Management organizational structure.

Compensation and Ownership

Compensation paid to TPT’s senior management (four founders) listed above is budgeted to

$ 30,000 per year for the first three years and then will increase to $ 50,000 depending on the

success of pilot testing. TPT is valued at $ 3.3 million and will issue 2,866,898 shares. The four

founders will control 70% of those shares through round one and 66% through round two.

Employment and Other Agreements

In the first two years of operation the four founding members of TPT will conduct the sales,

marketing, accounting, and other operating activities required to conduct business. The engineer

and scientist will be the only initial hires and their salaries are covered in R&D budgets. Legal

council will be a contracted with a legal firm and will handle all legal matters on an as needed

basis. Table 8 shows projected human resources requirements at year 4.

Position Quantity Compensation Department

Receptionist 1 Hourly Operation

Sales Agent 2 Salary Operation

Engineer 1 Salary Technology

Scientist 1 Salary Technology

Accountant 2 Salary Finance

Lawyer 1 Hourly Operation

Table 11 - Human resources requirements at operating year 4.

Board of Directors

Chief Executive Officer

Chief Operating Officer

Sales and Marketing

Team

Chief Financial Officer

Financial and Accounting

Team

Chief Technology

Officer

R&D Team

36

Shareholders Rights and Restrictions

The board of directors will consist of seven voting members, TPT’s founders, two additional

members discussed in chapter 7, and TPT’s initial investors. The founders will each hold two

votes and the three additional members and investors will each hold one.

Supporting Professional Advisors and Services

A board of advisors will be created in order help TPT develop its technology and further the

awareness and potential uses of biochar. This advisory board will consist of specialists and

experts in the biochar/biomass industry. Members on this board would receive minimal

compensation and would include members of Oregon State University, the NW Biochar

Consortium, and professionals from government and the stormwater management.

37

Chapter 10

Overall Schedule

Key Milestones and Target Dates.

There are five major events in the overall plan to get TPT off the ground, operating and growing.

Each represents a key milestone that must be met in order for the company to move forward and

grow. These milestones are listed in the table below.

Key Milestones Target Date (begin) Begin Pilot Testing and Experimentation July 2015

Conduct Demonstration Project January 2016

Begin Installation Activities July 2016 Obtain Applicable Intellectual Property15 May 2017

Begin Biochar Production Operations July 2017

Begin Licensing Activities July 2019

Table 12 - Key milestones.

Summary of Overall Venture Implementation Schedule

The implementation schedule that has been developed for TPT is ambitious but allows for a

quick path to profitability. This adds some risk to the venture due to the fact that there is little

room for error in the timeline. Part of this is due to the necessity of conducting pilot testing and a

demonstration project to prove biochar’s validity in this application. Critical risks will be further

discussed in chapter 11.

15 This milestone represents the date that patents would be issued. Applications would be submitted approximately one year prior to this date. Any installation activities that occurred prior to patents being issued would be conducted with trade secret protections and agreements in place.

38

Figure 8 - Summary of TPT's first five years of operation.

39

Chapter 11

Critical Risks, Problems, and Assumptions

Major Risks to the Venture and Investors

There are several risks that have been identified regarding the creation of TPT.

The most significant risk is that the pilot testing and demonstration projects will not produce the

estimated results. This would ultimately render the business useless. We have identified research

from reputable institutions that provide data that show biochar is capable of effectively removing

contaminants from water, particularly zinc (Zn), lead (Pb), copper (Cu), and cadmium (Cd), and

that TPT’s tests will be successful (Hamill, Kumar, & Schafran, 2013) (Miedema, 2013).

However, testing of biochar in the bioswale application has not been done and may produce

different results.

The second risk is our estimates of the demand for bioswale products. The number of bioswales

was estimated using the average number of annual bioswales installed in the city of Portland over

the past 20 years (Hauth, 2014). This information was used to estimate average demand per city

in Oregon, Washington, and Idaho. This was done in a similar manner to the market size

estimation done in chapter 3 using the 101 wettest cities in the United States and the stormwater

management budget of the City of Portland16. This estimation is based on one data point, the

experiences of the city of Porltand, and may not be representative of the demand in the rest of the

101 wettest cities in the United States. This concern is further addressed in Chapter 12.

The third risk is that TPT will work with government organizations which all adhere to the Clean

Water Act’s NPDES provisions. Each municipality will have its own rules for ensuring

compliance. These differences may present a challenge to our operations. The volatility of

budgets and public priorities may result in a situation where fewer dollars are set aside for

stormwater management projects. This volatility will vary from city to city.

The installation/construction portion of our business model is one that could prove to be

unnecessarily problematic. Construction companies typically have lower operating margins and

16 See Chapter 3 for a detailed description of how this estimation was made.

40

P/E ratios and competition in the industry is stiff. By acting as the general contractor for

installation of bioswales TPT can ensure that they are installed properly, with high quality, and

that they function properly. Retaining an installation capability will become more critical as TPT

moves into other applications for biochar. However, using an independent contractor to install

bioswales and additional products may prove to be a more viable option as it would allow TPT to

focus more on developing new applications for this technology.

Note: For a detailed risk analysis see Appendix C.

41

Chapter 12

Financials

Financial Summary

TPT will post negative net income for the first two years of operation with revenue beginning in

year 3 of operation. Year four and following show an increasing trend in revenue and operating

margin. This is largely due to the rapid growth of the business as TPT expands throughout

Oregon and the Pacific Northwest. The breakeven point for is 35.6 months (see figure 3 in

chapter 4) and Positive cash flow will be reached at 47.8 months (see figure 4 in chapter 4). The

unit breakeven point is 99 units after the fourth year of operating. As TPT moves into the

licensing portion of the business model revenue will continue to increase as the northwest market

becomes saturated and operations are expanded to the southeast.

Revenue Stream

Year 0 Year 1 Year 2 Year 3 Year 4

Units Sold 0 0 81 290 513

Sales - - 1,073,884.43 3,844,771.43 6,801,268.07

Variable Costs - - 326,312.55 1,168,279.50 2,066,646.15

Gross Profit - - 747,571.88 2,676,491.93 4,734,621.92

Fixed Costs 444,000.00 444,000.00 557,428.57 707,428.57 707,428.57

Net Income (444,000.00) (444,000.00) 125,494.59 1,299,581.81 2,657,947.61

Operating Margin 11.69% 33.80% 39.08%

Table 13 - TPT's revenue stream for the first five years.

Sales Estimation

Sales Estimations are based on the units sold for TPT beginning in year 2. Units sold was

estimated using data from the City of Portland. The average number of bioswales installed

annually was reported at an average of 82.6 units (based on TPT’s 27.5 yd. unit) (Hauth, 2014).

The annual average was used to calculate the average unit per person in the state. A multiplier

42

was used to determine the percentage of the population reached annually. This strategy allowed

us to estimate the units sold in the target market in the five years.

PDX average units installed annually 82.6

PDX population 583,776

Average units per person 0.000141493

Oregon (Pop. 2,669,923) Washington (Pop. 4,369,618) Idaho (Pop. 1,076,510)

Time Target

Population* Multiplier

Units

Sold

Target

Population* Multiplier

Units

Sold

Target

Population* Multiplier

Units

Sold

Year 0

Year 1

Year 2 1,334,962 0.43 81

Year 3 2,669,923 0.43 162 2,184,809 0.33 102 538,255 0.33 25

Year 4 2,669,923 0.48 181 4,369,618 0.43 266 1,076,510 0.43 65

* Target population is intended to be representative of the region that TPT will reach in a given year. Year 2 shows half the

population, meaning TPT will seek contracts in the northwestern portion of the state. These contracts would be obtained in the

cities in this region. Year 3 shows the total population, representing the entirety of Oregon’s geographic area. The multiplier

represents the percentage of that region that TPT can sell to. This method was used for Washington and Idaho.

Table 14 - Estimated units sold.

𝑈𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑 = 𝑇𝑎𝑟𝑔𝑒𝑡 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 x 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 x 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑈𝑛𝑖𝑡𝑠 𝑃𝑒𝑟 𝑃𝑒𝑟𝑠𝑜𝑛

Equation 1 - Units sold calculation.

The cities in the three states listed above are not mentioned in the list of the 101 wettest cities in

the United States which would indicate that the stormwater management problem in the Pacific

Northwest is not the largest. EarthShare.org states that:

“In the United States, our infrastructure isn’t designed to handle the increased

floods and droughts that come with global warming. Consider Florida, where

coastal cities are spending billions of dollars on pumps and desalination plants to

deal with flooding…Clearly, we need to be smarter about our precious water

supply in the coming years. Many cities are already getting a jump start on smart

43

water solutions and their work provides models for other places dealing with

water challenges. (Cities Go Water Smart, 2013)”

Although Portland is a progressive city when it comes to green initiatives, the stormwater

problems in other parts of the country indicate that Portland’s model of using bioswales to

manage and filter runoff can be used as a model for other cities that have similar problems and

are spending large amounts of money on stormwater management. For this reason and those

discussed in Chapter 3 we believe using Portland for sales estimation is reasonable.

Cost Controls

Cost control responsibility will belong to the CFO. Design, manufacturing and installation

operations do not begin until a contract has been obtained with the customer. This will allow TPT

to operate on a Just-In-Time basis, reducing or eliminating inventory costs, and keeping overall

costs low and the operating cycle short (see figure 6). Licensing of the biochar “formula” will

allow biochar producers around the country to produce product for TPT. TPT will maintain

design and contracting operations from the Northwest but production and installation will be

done locally. Once licensing operations begin TPT will be able to increase market share without

expending large amounts of capital to open production locations in the southeastern United States.

This will allow TPT to maintain low costs and generate larger profits.

Figure 9 - TPT's operating margins over the first 10 years.

0

0.1

0.2

0.3

0.4

0.5

1 2 3 4 5 6 7 8 9 10

Operating Margin

Operating Margin

44

Operations Capital Plan

Initial capital of $ 1 million will be utilized to create the company and begin the R&D necessary

to conduct plot testing and develop the designs and IP necessary to TPT’s longevity. The second

round of capital at $ 500,000 will be used to purchase the necessary PP&E to begin production

operations. This PP&E includes the biochar production equipment and the increased rents for

larger facilities to house our operations. TPT will also utilize these funds to acquire additional

heavy equipment as necessary. Daily operations will be covered with these initial investments.

Sensitivity Analysis

A Monte Carlo simulation was conducted on the NPV of TPT’s cash flows over the first ten

years of operation. This was done in order to test how sensitive TPT’s NPV is to the number of

units sold. The estimation for number of units sold is the most risky portion of our revenue

estimation. The probabilistic input was the number of units sold annually. Units sold were varied

by plus or minus 10, 20, 30 and 50 percent to conduct the simulation.

Sensitivity Analysis Results

Minimum Maximum Mean Std. Dev. Values

10% $ 978,777.61 $ 1,272,349.05 $ 1,133,869.14 $ 49,080.06 1000

20% $ 843,315.20 $ 1,399,237.09 $ 1,133,866.88 $ 93,833.54 1000

30% $ 648,011.27 $ 1,521,646.50 $ 1,133,863.63 $ 142,346.39 1000

50% $ 394,308.72 $ 1,874,858.41 $ 1,133,873.52 $ 243,850.10 1000

Table 15 - Sensitivity Analysis Results (1000 iterations).

45

All simulations were run 1000 times and returned a positive NPV.

Figure 10 (cont.) - Monte Carlo Simulation outputs for 10, 20, 30, and 50% changes in estimated

number of units sold

This simulation on units sold was done to alleviate concerns that the City of Portland is not

indicative of the demand of other cities. Positive NPV’s were returned in all scenarios showing

that even if the reference data from the City of Portland, on which our assumptions lie, is

inaccurate the project would remain profitable.

A separate analysis was done in order to determine how variability in different aspects of the

business will affect value. Present values were calculated for a number of these scenarios. All

scenarios returned a positive NPV. Changes in the price per unit returned the largest decrease in

NPV.

Scenario Percent Change NPV

Normal Operation N/A $ 19,645,387.54

Price 30% Decrease $ 5,586,710.34

Units Sold 30% Decrease $ 12,887,705.05

Fixed Cost 30% Increase $ 18,627,755.20

Table 16 - NPV for various scenarios.

46

Chapter 13

Proposed Venture Offering

Investor Profile

Terra Preta Technologies is looking for angel investors interested in seeing the development and

growth of the green technology industry. This venture has significant development and testing

requirements associated with it. Investors who understand this and are willing to accept the added

risk without demanding excessive and hindering involvement are ideal. Venture capitalists with

similar views and goals will also be considered.

Required Financing

In order for TPT to begin operations $ 1 million is required. TPT is offering 866,898 shares to

Round A Investors with a share price of $1.15. This will give investors a 30.24% ownership

stake in the company and a 50% annual return on their investment over six years. During year 3

of TPT’s operation additional funding of $ 500,000 will be required. For Round B TPT will offer

146,185 shares at a price of $3.42. This will obtain a 4.85% ownership stake in the company and

a 40% annual return on investment over four years. Round B fund raising will dilute Round A

investors ownership percentage to 28.77 % (See figure 10).

TPT is a startup company in the early development stage in the Pollution and Treatment Controls

industry. The company valuation was done using the venture capital valuation method (Melicher,

2014).

𝑃𝑒𝑟𝑐𝑒𝑛𝑡 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 = 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 x (1 + 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒)𝑡

𝑃𝐸

x 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑡 + 𝑆𝑢𝑟𝑝𝑙𝑢𝑠 𝐶𝑎𝑠ℎ

Equation 2 - Venture capital valuation equation

P/E ratio – The P/E multiplier was determined by looking at other P/E ratios in the industry and

was found to be 34.9 (Yahoo! Finance, 2014). This was thought to be quite high. One company

in this industry reported a ratio over 2000. This number was thrown out along with the next

highest number and the lowest number. The industry average was recalculated at 26.2. We felt

47

that this number was high due to the public nature and maturity of the companies. As a result, 26

was cut in half and a P/E ratio of 13 was used.

Earnings – In this industry Net Income is used to determine EPS and P/E ratios. This was

confirmed by looking at the financials of three companies in the industry and calculating EPS.

Net income and earnings before tax were used in the calculations and net income returned the

correct result. Therefore, TPT used projected net income at year six to estimate the value of the

company.

Surplus Cash – TPT will carry a high percentage of surplus cash on the balance sheet compared

with the industry average. As TPT moves operations to the southeast the assumption has been

made that local producers of biochar will be capable of meeting demand. TPT will have enough

cash on hand to acquire the necessary equipment to ensure continued growth if local producers

cannot meet the additional demand.

Harvest Strategy

Acquisition – In year 6 TPT is estimated to be valued at $ 39.6 million and will provide investors

the opportunity to capitalize on their investment through acquisition by a larger company in the

industry. This estimated value, for Round A investors owning 28.77%, represents an estimated

$ 11 million payout and for Round B investors owning 4.85%, an estimated $ 2 million.

Initial Public Offering – Although this is not common for companies to go public in six years it is

an option that TPT will explore and will allow investors to cash out and the company to continue

as an independent organization. Exercising this option will largely depend on the success of pilot

testing, demonstration projects, and the first years of operation, displaying the performance of

biochar in this industry.

48

Figure 11 - Capitalization Table for round A & B of investment (for details on this table see Appendix D).

Use of Funds

At the beginning of operations, TPT will need initial funding of $1 million. This funding will be

used to form the corporation and cover legal and other fees associated with incorporating. Pilot

testing and demonstration projects will be funded with these initial funds. Two full scale

bioswales (approx. 300 sq ft. each) will be installed at a total cost of $10,000. Initial funds will

also be used to cover the salaries of TPT’s four founders, one engineer, and one scientist as well

as the office space, office supplies and other required general operating expenses. Moderate

funding for marketing activities will also be included. Legal fees to cover the IP application

process will also be paid with these funds. At the end of operating year 2 TPT will have a cash

balance of $ 46,000 and will need another $ 500,000 to begin the production of biochar. This

funding will be obtained during operating year 3. TPT will begin producing biochar during this

year and the funds will be used to purchase 2 pyrolysis machines at $75,000 – $100,000 per unit.

Founders, 70%

Round A Investors, 30%

Founders Round A Investors

Founders,

66.38%

Investor A,

28.77%

Investor B,

4.85%

Founders Investor A Investor B

Class Number of Shares Price/Share % Ownership Value

Founders Common 2,000,000 1.15$ 69.76% 2,307,077$

Investor A Common 866,898 1.15$ 30.24% 1,000,000$

Pre Money Value 2,307,077$

Post Money Value 3,307,077$

Class Number of Shares Price/Share % Ownership Value

Founders Common 2,000,000 3.42$ 66.38% 6,840,652$

Investor A Common 866,898 3.42$ 28.77% 2,965,073$

Investor B Common 146,185 3.42$ 4.85% 500,000$

Pre Money Value 9,805,725$

Post Money value 10,305,725$

Round 2

Round 1

49

A new facility to house and operate this equipment will be required and the additional rents will

be covered with the additional funding.

50

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52

Appendix A17

1. Average number of bioswales installed in the 20 largest cities in the Pacific Northwest (table

used to estimate units sold).

2. Sales Forecast Table

Forecast Sales from year 0 to year 4 (The estimated price per unit (27.5 yds.) is $4600.)

Year 0 Year 1 Year 2 Year 3 Year 4

Sales (units) 0 0 70 164 216

Sales From Licensing (units) 0 0 0 0 184

17 *Additional financial information can be found in the associated Excel document titled “Biochar TPT 10 years income statement”

PopulationBioswales Per

Year (Avg)yr 3 yr 4 yr 5

1 Seattle Washington 608,660 86 86 86

2 Portland Oregon 583,776 83 83 83 83

3 Spokane Washington 208,916 30 30 30

4 Boise Idaho 205,671 29 29

5 Tacoma Washington 198,397 28 28 28

6 Vancouver Washington 161,791 23 23 23 23

7 Eugene Oregon 156,185 22 22 22 22

8 Salem Oregon 154,637 22 22 22 22

9 Bellevue Washington 122,363 17 17 17

10 Gresham Oregon 105,594 15 15 15 15

11 Everett Washington 103,019 15 15

12 Renton Washington 95,448 14 14

13 Hillsboro Oregon 91,611 13 13 13 13

14 Yakima Washington 91,067 13 13 13

15 Beaverton Oregon 89,803 13 13 13 13

16 Nampa Idaho 81,557 12 12

17 Bellingham Washington 80,885 11 11 11

18 Bend Oregon 76,639 11 11 11 11

19 Kennewick Washington 76,244 11 11 11

20 Medford Oregon 74,907 11 11 11 11

Total 3,367,170 476 213 409 479

20 Largest Cities in the Pacific

Northwest

53

3. Annual Income Statement (Year 0 – Year 4)

4. Annual Balance Sheet Table (Year 0 – Year 4)

Period Year 2015 2016 2017 2018 2019

Revenue -$ -$ 906,214.43$ 3,244,471.43$ 5,739,358.07$

Liceasing Revenue -$ -$ -$ -$ 61,756.84$

Variable Cost: -$ -$ 906,214.43$ 3,244,471.43$ 5,801,114.91$

Biochar -$ -$ 55,367.55$ 198,229.50$ 350,661.15$

Gravel -$ -$ 2,835.00$ 10,150.00$ 17,955.00$

Sand -$ -$ 2,835.00$ 10,150.00$ 17,955.00$

Labor -$ -$ 116,640.00$ 417,600.00$ 738,720.00$

Drainage Fabric -$ -$ 8,100.00$ 29,000.00$ 51,300.00$

Pipe -$ -$ 10,530.00$ 37,700.00$ 66,690.00$

Dump Truck -$ -$ 24,705.00$ 88,450.00$ 156,465.00$

Earth Moving Equipment -$ -$ 97,200.00$ 348,000.00$ 615,600.00$

Other Expense -$ -$ 8,100.00$ 29,000.00$ 51,300.00$

Total Variable Cost -$ -$ 326,312.55$ 1,168,279.50$ 2,066,646.15$

Gross Profit -$ -$ 579,901.88$ 2,076,191.93$ 3,672,711.92$

Fix Cost: -$ -$ -$ -$ -$

Depreciation Expense for PP&E -$ -$ 71,428.57$ 71,428.57$ 71,428.57$

Rent 24,000.00$ 24,000.00$ 66,000.00$ 66,000.00$ 66,000.00$

SG&A 200,000.00$ 200,000.00$ 200,000.00$ 350,000.00$ 350,000.00$

Legal fees 20,000.00$ 20,000.00$ 20,000.00$ 20,000.00$ 20,000.00$

R&D 200,000.00$ 200,000.00$ 200,000.00$ 200,000.00$ 200,000.00$

Total Fixed Cost 444,000.00$ 444,000.00$ 557,428.57$ 707,428.57$ 707,428.57$

Total Cost 444,000.00$ 444,000.00$ 883,741.12$ 1,875,708.07$ 2,774,074.72$

EBIT (444,000.00)$ (444,000.00)$ 22,473.31$ 1,368,763.35$ 2,965,283.35$

Tax -$ -$ 7,640.93$ 465,379.54$ 1,008,196.34$

Net Income (444,000.00)$ (444,000.00)$ 14,832.39$ 903,383.81$ 1,957,087.01$

Estimate Annual Income Statement of TPT from year 0 to year 4

54

5. Annual Cash Flow Statement (Year 0 – Year 4)

Year Number 0 1 2 3 4

Period Dec 31,2015 Dec 31,2016 Dec 31,2017 Dec 31,2018 Dec 31,2019

Assets:

Current Assets:

Cash 532,000.00$ 46,000.00$ 139,901.88$ 1,572,452.88$ 4,143,785.26$

Prepaid Rent 24,000.00$ 66,000.00$ 66,000.00$ 66,000.00$ 66,000.00$

Total Current Assets 556,000.00$ 112,000.00$ 205,901.88$ 1,638,452.88$ 4,209,785.26$

PP&E -$ -$ 500,000.00$ 500,000.00$ 500,000.00$

Accumulative Depreciation:PP&E -$ -$ 71,428.57$ 142,857.14$ 214,285.71$

Total Assets 556,000.00$ 112,000.00$ 634,473.31$ 1,995,595.74$ 4,495,499.55$

Liabilities

Current Liability:

Income Tax payable -$ -$ 7,640.93$ 465,379.54$ 1,008,196.34$

Total Current Liability -$ -$ 7,640.93$ 465,379.54$ 1,008,196.34$

Total Liability -$ -$ 7,640.93$ 465,379.54$ 1,008,196.34$

-$ -$ -$ -$ -$

Stockholders' Equity: -$ -$ -$ -$ -$

Common Stock 1,000,000.00$ 1,000,000.00$ 1,500,000.00$ 1,500,000.00$ 1,500,000.00$

Retain earnings (444,000.00)$ (888,000.00)$ (873,167.61)$ 30,216.20$ 1,987,303.21$

Total Stockholder Equity 556,000.00$ 112,000.00$ 626,832.39$ 1,530,216.20$ 3,487,303.21$

Total Liability and Equity 556,000.00$ 112,000.00$ 634,473.31$ 1,995,595.74$ 4,495,499.55$

Estimate Annual Balance Sheet of TPT from year 0 to year 5

Year Number 0 1 2 3 4

Period Ending Dec 31,2015 Dec 31,2016 Dec 31,2017 Dec 31,2018 Dec 31,2019

Cash flow from Operations:Net Income (444,000.00)$ (444,000.00)$ 14,832.39$ 903,383.81$ 1,957,087.01$

Depreciation -$ -$ 71,428.57$ 71,428.57$ 71,428.57$

Adjustment:

Change in Prepaid Rent 24,000.00$ 42,000.00$ -$ -$ -$

Change in Account Payable: Tax Payable -$ -$ 7,640.93$ 457,738.61$ 542,816.80$

Total Cash Flow From Operations (468,000.00)$ (486,000.00)$ 93,901.88$ 1,432,551.00$ 2,571,332.38$

Cash Flow from Investments:PP&E -$ -$ (500,000.00)$ -$ -$

Total Cash Flow from Investment Activities -$ -$ (500,000.00)$ -$ -$

Cash Flow from Finance Activities:Issuance of common stock 1,000,000.00$ -$ 500,000.00$ -$ -$

Total Cash Flow from Finance Activities 1,000,000.00$ -$ 500,000.00$ -$ -$

Change in Cash 532,000.00$ (486,000.00)$ 93,901.88$ 1,432,551.00$ 2,571,332.38$

Cash at beginning of the year -$ 532,000.00$ 46,000.00$ 139,901.88$ 1,572,452.88$

Cash at the end of the year 532,000.00$ 46,000.00$ 139,901.88$ 1,572,452.88$ 4,143,785.26$

Estimate Annual Cash Flow of TPT from year 0 to year 5

55

56

Appendix B

Detailed Implementation Schedule

Task Name Duration Start Finish

Creation of "Terra Preta Technologies

Inc." 131 days Mon 14/9/1 Mon 15/3/2

Finding a Lawyer for Company start-up

and IP application 88 days Mon 14/9/1 Wed 14/12/31

Create Terra Preta Technologies Inc. 43 days Thu 15/1/1 Mon 15/3/2

Begin to raise capital 63 days Tue 15/2/3 Thu 15/4/30

Acquisition of office space and

Employees 66 days Fri 15/5/1 Fri 15/7/31

Move into office space 22 days Fri 15/5/1 Mon 15/6/1

Hire Engineers and Scientists 44 days Tue 15/6/2 Fri 15/7/31

Begin pilot testing and experimentation 368 days Thu 15/1/1 Mon 16/5/30

Finding biochar sample from biochar

suppliers for pilot test 129 days Thu 15/1/1 Tue 15/6/30

Obtain biochar suppliers 44 days Wed 15/7/1 Mon 15/8/31

Begin pilot testing and experimentation 239 days Wed 15/7/1 Mon 16/5/30

Obtain contracts with municipal

governments for demonstration project 109 days Mon 15/8/3 Thu 15/12/31

Install and monitor demonstration

project 285 days Tue 16/5/31 Thu 17/6/29

Installation of demonstration Project 66 days Tue 16/5/31 Tue 16/8/30

Conduct Demonstration Project 108 days Wed 16/8/31 Thu 17/1/26

Data Collection 174 days Wed 16/11/2 Thu 17/6/29

Patent application process 109 days Mon 17/1/2 Wed 17/5/31

Begin application process for IP 86 days Mon 17/1/2 Sun 17/4/30

Obtain Applicable Intellectual Property 23 days Mon 17/5/1 Wed 17/5/31

Begin to raise 2nd round of capital 65 days Sat 17/4/1 Thu 17/6/29

Acquire the necessary PP&E to begin 265 days Sun 17/1/1 Wed 18/1/3

57

biochar production operations

Acquiring PP&E 133 days Sun 17/1/1 Mon 17/7/3

Biochar Production Operations 132 days Tue 17/7/4 Wed 18/1/3

Begin licensing operations to out of state

contractors 133 days Mon 19/7/1 Wed 20/1/1

Begin Licensing Activities 133 days Mon 19/7/1 Wed 20/1/1

58

Appendix C

Risk Matrix

Risk Event Likelihood Impact Control/Response

Pilot test failure 3 1 TPT will hire experienced scientists and engineers and

maintain a well-funded R&D department.

Incorrect market

sales estimation 3 2

TPT has conducted sensitivity analysis for aggressive and

conservative sales estimations.

Inability to obtain

government

contracts.

4 1

Demonstration projects will show the capabilities of

biochar and create credibility.

Lack of funding 4 2

Maintain a network of investors and actively pursue new

investor relationships. Maintain a thorough and detailed set

of financials.

Cost overruns 3 2 Maintain good relationships with suppliers and carry low or

no inventory. Maintain a lean supply chain.

Failure to obtain IP 3 2 Careful documentation of pilot test results. Use of a good

legal team to ensure best chances of being granted a patent.

Failure to maintain

trade secrets 4 1

Have legal team assist in drafting employment contracts

that include a non-disclosure agreement. Practice careful

physical security controls. Disclose critical information

only on a need to know basis.

New market entrants 2 4 Maintain a robust R&D department. Innovate always!

Government

regulation 3 3

Maintain contact and good relationships with government

departments at the state and local levels. Utilize lobbyists

when appropriate.

1 = high likelihood/impact

5 = low likelihood/impact

59

60

Appendix D

Capitalization

Company Value (yr. 6) 39,590,473.89

Investor 2 % Ownership 4.85167%

Investor 1 % Ownership 28.77113%

Founders % Ownership 66.37720%

Round 1 Total % 95.14833%

Round 2 Total % 100%

Round 1 Round 2

Capital Requirement $ 1,000,000.00 $ 500,000.00

Initial shares for founders 2,000,000.00

Total shares after round 2 3,013,083

Round 1 Round 2

Investor shares 866,898 146,185

Price/Share $ 1.154 $ 3.420

Pre-Money Value $ 2,307,076.99 $ 9,805,725.19

Post-Money Value $ 3,307,076.99 $ 10,305,725.19

Founders 70% 66.38%

Round A Investors 30% 28.77%

Round B Investors 4.85%