Hybrid Automotive Technologies A Division of Terra Energy Resources: TRRE.OB Business Plan 2009-2010 Table of Contents Confidentiality Agreement Executive Summary 1.0 The Market 1.1 Financial Considerations 1.2 Objectives 1.3 Mission 1.4 Keys to Success 2.0 Start-Up Summary 3.0 Company Location and Facilities 4.0. Market Analysis 4.1. Industry Participants 4.2. Competition and Buying Patterns 4.3 Competitive Overview 5.0 Strategy and Implementation Summary 5.1 Marketing Strategy 5.2 Pricing Strategy 5.3 Sales Strategy 5.4 Sales Programs 6.0. Milestones 6.1 Management Summary 6.2 Organizational Structure 6.3 Division Leads – Internal Bios 6.4 Management Team Gaps 6.5 Personnel Plan 7.0 Business Partnerships 8.0 Financial Plan 8.1 Current Shareholder Positions 8.2 Important Assumptions 9.0 Product Roll-out Summary 10.0 Exit Strategy Hybrid Automotive Technologies Business Plan 30 June 2007 The information contained in this business plan is confidential and propriety to Terra Energy Resources. TRRE.OB Corporation and is intended only for the persons to whom it is transmitted by the company or its representatives. Any reproduction of this document, in whole or part, or divulgence of any of its contents without prior written consent of the company, is prohibited. This is a business plan; it does not imply and shall not be construed as an offering of securities. Persons interested in pursuing an investment should contact their professional advisors. Confidentiality Agreement The undersigned reader acknowledges that the information provided by Terra Energy Resources. TRRE.OB Corporation in this business plan is confidential. Therefore, the undersigned reader agrees not to disclose any such information without express written permission of Terra Energy Resources. TRRE.OB Corporation. It is hereby acknowledged by the undersigned that the information to be furnished in this business plan is in all respects confidential in nature (other than such information which is already in the public domain through other means) and that any disclosure or use of same by the undersigned may cause serious harm or damage to Terra Energy Resources. TRRE.OB Corporation. Upon request, this document is to be immediately returned to Terra Energy Resources. TRRE.OB Corporation and may not be reproduced or rewritten in any manner. Signature, Print Name Date: EXECUTIVE SUMMARY Executive Summary Introduction This business plan introduces a new division of Hybrid Automotive Technologies that comprehensively addresses these challenges. Hybrid Automotive Technologies introduces the Bio-Operations division and seeks equity financing for its anticipated rapid growth and market dominance of the still relatively new arena that houses the biofuel industry. Mission Statement Energy‟s Bio-Operations division is the answer to several nagging questions of how can the Unites States, as a nation, address sustainability issues which include: decreasing our dependency on foreign oil; producing multiple forms of sustainable energy without dangerously depleting our natural resources or increasing pollution levels; infusing local economies with agri-based business and local job opportunities. Hybrid Automotive T echnologies has an embedded message in its name and an embedded purpose. Its name is reflective of the Biblical land of Hybrid Automotive Technologies and its purpose is parallel to that of the same place - to shine light in a dark world. The U.S.‟s current state of energy resources points to an unstable future both nationally and world wide if we do not take deliberate, expedient steps. The goal of Hybrid Automotive Technologies is to generate fuel/energy resources and opportunities that will expand to provide relief across the board. We will accomplish this goal by systematically establishing strategic presences across the country - at low investment cost - that garner high production rates at significant financial returns. Hybrid Automotive Technologies‟s business objectives are steeped in an overall motivation to enhance social wellness and provide opportunities to cultivate development and economic relief to international communities. We will also leverage Cause Related Marketing efforts to accelerate our brand presence and resource acquisition that will position the company for long-term success through a “cornered” supply market. The Company Promote national security by reducing dependence on foreign oil as we leverage existing US fossil fuel resources, through maximization of alternative fuels and creating strategic exchange relationships. Catapult agribusiness as a prominent industry by creating economically viable rural communities through partnerships with municipalities and farmers to grow energy crops. Save valuable resources such as soy and corn, currently being utilized for alternative fuels, and instead cultivate exclusive “energy crops” as renewable agri-feedstock sources. Provide opportunities for economic development through critical research, education and job training for renewable energy concepts and operations, to help propel localities into the new age economy. Address negative environmental issues through the processing of waste cooking oil, clean energy crop and biomass recycling and the development of innovative technologies for water purification and energy conservation. The Opportunity With regard to need, there are approximately 225 inhabited countries and territories in the world. The United States accounts for 6% of the global population and consumes 25% of the world‟s energy resources. China accounts for 25% of the global population and energy consumption and is closely followed by India, both rapidly developing, high energy consuming countries. Globally, we will soon surpass 100% energy capacity using a finite resource. No longer maintaining Most Favored Nation Status, America‟s position in the global marketplace is shifting and it is imperative to relieve dependency on foreign oil as well as address fuel/energy sustainability beyond the depleting geo availability of crude oil. Enter: the Biofuel Industry and Energy‟s core service area, biodiesel - or alkyl esters. This is a clean burning alternative fuel, produced from domestic, renewable resources. Made through a chemical process called transesterification, biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel to create a biodiesel blend. Energy processes B100 biodiesel; meaning our finished product is pure grade, or not yet blended with petroleum based diesel. It can be used in compression-ignition (diesel) engines with little or no modifications. Diesel operating systems account for the bulk of federal, state and local government engine operations as well as in private and commercial industries. According to a study by the National Biodiesel Board, the premiere industry authority, the biodiesel industry will add $24 Billion to the US economy between 2005 and 2015 and reach an annual production of 650 million gallons. With regard to economic impact, based on the study, biodiesel production will create over 39,000 jobs in all sectors of the economy. The benefits of this product crosses industries and cultures as demonstrated here, biodiesel is: A cleaner burning fuel drastically decreases emissions (the EPA estimates that biodiesel produces 78.5% less carbon dioxide than petroleum diesel) providing for cleaner air. Increases labor opportunities from the standpoint of refinement. In some cases, priced very closely to petroleum diesel, and many times it is priced less. Upon continued utilization, especially B100, will likely experience an increase in demand as the commercial and environmental benefits become more apparent. Innovative Approach While the concept of utilizing vegetable oils for fuel is almost a century old, it is only recently that the implementation of biodiesel production has become a reality. Because the cost of petroleum has grown exponentially over the past thirty years, it has become necessary to revisit fueling alternatives, prompting the production of biodiesel fuel for diesel engines. The most common sources of biodiesel fuel in the U.S. are soybean oil and recycled cooking oil, both extremely abundant and fairly easy to refine into fuel. Additionally, in 2000, biodiesel became the only alternative fuel source to successfully complete EPA-mandated Tier I and Tier II health effects testing under the Clean Air Act. To date, biodiesel has been utilized as an ingredient in petroleum -based fuels. The most common is B-20, which contains a blend of 20% biodiesel and 80% petroleum diesel. It has been successfully blended, however, at a rate of between 1% and 20% (or B1 to B20), and studies show that it can be functional in B100 form, i.e., 100% biodiesel. It is generally accepted that for every percentage point of biodiesel blended with petroleum diesel, the retail cost increases by a penny. Accordingly, the amount of biodiesel used is generally determined by the price that any particular market can bare. It is important to note that while biodiesel is more expensive in B1-B20 form, it is not as expensive in B100 form. The reason for this is that a major part of the cost of blending biodiesel and petroleum diesel is in the actual production and combination efforts. If biodiesel is processed for B100 there is no combination process necessary, so when the product is refined from the combination of virgin and recycled cooking oils it is already prepared for retail. Hybrid Automotive Technologies will focus on creating B100 fuel for these reasons and, as the company is able to gain more capacity, it will continually redevelop its refinement processes in search of the most cost efficient manner in producing quality biodiesel. In the future, we may establish additional relationships with our petroleum buyers to combine their refined crude product to the standard 80/20 mix and explore retail options. Summary Financials Hybrid Automotive Technologies Bio-Fuels is a startup biofuel production operation. There have been no revenues generated for the fiscal year of 2008. However, management feels there is significant upside to the business plan for generation of strong top revenues and bottom line profits. Projected pilot (1 site) revenues for fiscal year 2008 are 3.3 million and 4.1 million for 2009. Under a full implantation model (10 sites) projected revenues escalate to 33 million for 2008 and 41 million for 2009. A summary pro-forma is attached in an exhibit for review. SEE ATTACHED FINANCIAL MODEL Marketing/Branding Hybrid Automotive Technologies‟ marketing focus is business to business (B2B). Our approach blends a cultural, mind- share, emotional and viral branding approach to reach the marketplace. Cultural (Biodiesel) – Increases purchaser acceptance by emphasizing the need for America to end its dependency on foreign oil, validate their fears of increases in oil prices, and highlight biodiesels environmental relevance in alleviating concerns of global warming. Mind-Share (Biodiesel) – Features focus on the unique selling proposition (usp), which is sustainable low cost biodiesel; stemming from the use of feedstock and biodegradable waste as sources for producing fuel. Production cost are lower and the cost is less volatile then other alternative energies, ie. Ethanol industry which is facing short and long- term spikes in production cost as the prices of soy and corn continue to rise. The primary markets that Hybrid Automotive Technologies will focus upon, initially, in terms of the retail of its biodiesel products are: Municipalities and Public Works for metropolitan areas Utility companies Fuel companies, particularly gas stations on major truck routes Long-distance commercial trucking companies Commercial and recreational marine interests Other commercial interests that utilize diesel for vehicles or fuel-based needs The initial secondary markets that Hybrid Automotive Technologies will focus on as it relates to the retail of its biodiesel products are: Private diesel vehicle owners who are located within a 15-mile radius of gas stations that are contracted to carry Hybrid Automotive Technologies‟s biodiesel product. Farmers who are interested in purchasing biodiesel directly from Hybrid Automotive Technologies. Mining and other agricultural interests that utilize sizeable amounts of diesel fuel. A cause related marketing (CRM) program linked to Hybrid Automotive Technologies is a vehicle for additional marketing opportunities as well as provide a direct method to effect company growth. Hybrid Automotive Technologies will make effective use of a specially designed awareness and collection program at the unregulated consumer level. This program targets improper waste grease disposal, which so severely affects the quality of life in our urban markets. Citizens are encouraged and provided incentives for their involvement in the clean up of local sewage problems, creating a direct spike in environmental health. Dually this program will, over time, allow Hybrid Automotive Technologies to collect maximum quantities of feedstock oil for processing at minimum investment. Strategy and Implementation Summary Hybrid Automotive Technologies‟s strategy is to enter the biofuel/renewable energy market by establishing a firm foothold in the biodiesel processing and sales arena by leveraging innovative, proprietary equipment, an unregulated waste grease market and specially engineered energy or “natural oil crops” crops. CRITICALLY IMPORTANT NOTE: In addition to possessing cutting edge, proprietary technology within our operation and major benefit to Hybrid Automotive Technologies is our origin processing and distribution strategy that is hub-based for easier client supply and a more streamlined, cost-effective system for the company. Additionally, there are many subsequent opportunities existing within equipment sales, retail and developing other bio-based products (ie. ethanol). We will use our cost effective processing model to produce the highest quality product for sale at reasonable prices. Business Partnerships/Outsourcing Hybrid Automotive Technologies will supplement our internal team by utilizing outsourcing and strategic partnerships to perform our daily operations. In today‟s highly competitive business environment, outsourcing of essential daily business functions has become a necessity to stay competitive in the market place both from a financial savings and a functionality standpoint. Hybrid Automotive Technologies is committed to process precision, and we will assess every aspect of our operations on a regular basis to create strategic partnerships that allow us to focus on that our specialty areas. 1.0 The Market Why this Business Will Succeed The future for energy lies within renewable, locally produced, low emissions fuel sources. Imported petroleum has accounted for over 50% of petroleum consumed by the U.S. each year since 1998 and in 2004 was nearly 60%. Increasing petroleum demand, along with declining U.S. production of oil are main causes for this rel iance on imported oil. The Energy Information Administration reported in it‟s May 2007 edition of International Petroleum Monthly that as of February 2007, the United States (tracked as a member of the Organization for Cooperation and Economic Development) had net imports of nearly 11 million barrels of petroleum (oil) per day. The national need for biodiesel - be it for direct use or petroleum relief - has reached a critical point. By focusing on our core services of processing and delivery of biodiesel for government, municipal, commercial and private sectors, as well as the manufacturing and sale of related equipment, we will systematically ease the demand for petro-based diesel. This achievement will gradually redirect fossil resources into the consumer supply chain for gas pricing relief. Hybrid Automotive Technologies and its affiliates will be particularly successful when our endearment value has been increased by that factor coupled with what consumers should recognize as a meaningful contribution to improved environmental air quality. Hybrid Automotive Technologies‟s implementation is managed by a team with a exemplary ethics, core knowledge within the industry, a competitive operations skill set and exclusive technology to ensure swift and efficient growth within the bio-energy arena. This business has a high probability of success because there is an increasing global demand for renewable energy relief as our finite resources move to depletion. Hybrid Automotive Technologies is becoming strategically positioned to meet that need. Market Management: The Executive Board believes it is critical to engage successful individuals in the administration and operation of Hybrid Automotive Technologies whether, as consultants or advisors, financial contributors, team members or representatives. The inclusion of select individuals who have specific areas of expertise or resources can - and will - influence the market. For all intents and purposes, approaching our national and local energy supply opens the market to involvement from several different areas excluded by the petroleum industry. With respect to various media outlets, we must have clear visibility, name recognition and a positive presence. Online management will become an alternative method to promote ease of use for clients and consumer access to Hybrid Automotive Technologies‟s industry position, products and services. While these actions may not ensure market exclusivity, they will assure Hybrid Automotive Technologies‟s position in the market as it allows us to systematically eliminate competitive pressures. Additionally, Hybrid Automotive Technologies will pay specific attention to: 1 Partnerships/strategic alliances, 2 Back-office operations & customer service, 3 Marketing objectives and strategies, and 4 Operating and control systems along with fiscal management to minimize operating costs. Exclusive relationships in research and modern technology provide the ability to consistently produce a massive supply of high performance product for sale at a very affordable price, yielding very respectable margins. Distribution Channels: By far, the most lucrative channels for distributing our primary product, B100 biodiesel, is to government and municipal clients and then secondarily as a wholesale product for trucking and other commercial industries. There are thousands of opportunities to supply at wholesale or operate company owned retail outlets across the U.S. It is our goal to, obtain long-term supplier contracts with local, state and federal government. Further, we have loosely based our origin processing and national distribution model around regional implementation around the “spoke-hub distribution model” which has proven enormously effective for major players in their respective industries such as Fed-Ex (creator of this model) and Boeing. Here, we have an opportunity to spearhead a new approach to fuel and energy development and consumer supply at both affordable and convenient levels. 1.1 Financial Considerations Hybrid Automotive Technologies‟s start-up costs for pilot implementation (1 site) is $500,000, full implementation (10 sites) will be approximately 3.5 million due to cost of scale savings, which will include completion and establishment of the operational model (Hartford, CT) from processor build-out (5 gallon per minute/250,000 gallon per month continuous unit) and erection to delivery of product. It will also cover the build out of nine additional units and placement in areas where we have negotiated incentive and development resources. Hybrid Automotive Technologies should achieve investment satisfaction and operational profitability by twenty four months of operation. 1.2 Objectives Hybrid Automotive Technologies‟s energy agenda is based upon the following objectives: 1. Promote national security by reducing dependence on foreign oil as we leverage existing US fossil fuel resources, through maximization of alternative fuels and creating strategic exchange relationships. 2. Catapult agribusiness as a prominent industry by creating economically viable rural communities through partnerships with municipalities and farmers to grow energy crops. 3. Save valuable resources such as soy and corn, currently being utilized for alternative fuels, and instead cultivate exclusive “energy crops” as renewable agrifeedstock sources. 4. Provide opportunities for economic development through critical research, education and job training for renewable energy concepts and operations, to help propel localities into the new age economy. 5. Address negative environmental issues through the processing of waste cooking oil, clean energy crop and biomass recycling and the development of innovative technologies for water purification and energy conservation. 1.3 Mission Hybrid Automotive Technologies acknowledges that the future for energy lies within renewable, locally produced, low emissions fuel sources. By focusing on our core services of processing and delivery of biodiesel for government, municipal, commercial and private sectors, as well as the manufacturing and sale of related equipment, we will systematically ease the demand for petro-based diesel and increase economic stability and emergency preparedness. Through our program, we also aim to gradually redirect fossil resources into the consumer supply chain for gas pricing relief. 1.4 Keys to Success To succeed, Hybrid Automotive Technologies must: 1 Produce and sell high quality, easily accessible fuel product. 2 Achieve repeat buyer status with all of our customers and convert them into customers for subsequent products and equipment supplied by Hybrid Automotive Technologies. 3 Build brand image and market share through strategic planning and quality product, interaction and marketing. 4 Keep abreast of changing regulations, industry shifts and consumer needs/demands through constant market research. 5 Build network relationships with key players in the industry and business community at large. 6 Stay constant in profitability and growth targets. 8 Effectively manage in house staff and outsourced business relationships. 2.0 Start-up Summary Capital Needs Hybrid Automotive Technologies is seeking twelve (12) months of projected operating expenses for the purpose of implementing its business model. Considering the financial projections set forth in this plan, it is Hybrid Automotive Technologies‟s intention to acquire $3,500,000 in capital to support the company as it goes through its initial period of operations. Processors 10 $1,250,000 Source Acquisition Plan A $450,000 Source Acquisition Plan B $330,000 Government Consultants $120,000 Sales/Marketing $300,000 Land Options $100,000 International Travel $50,000 Payroll $750,000 Cons ultants $250,000 START UP TOTAL: $3,500,000 Barriers to Market Entry The primary barriers to properly implementing the Hybrid Automotive Technologies business model have been established as: Logistics – Relating to developing locations for key operating activities such as supply collection, virgin oil production, biodiesel production, and refinement. Hybrid Automotive Technologies has bypassed this barrier as it has already settled on all logistical issues pertaining to production and refinement. Clientele – Because the vast majority of the initial market potential in this industry lies in commercial use, it is vital to have a developed client attraction infrastructure Capital – To implement this business model it is necessary for Hybrid Automotive Technologies to obtain sufficient capital to build the three production facilities. It is also necessary for Hybrid Automotive Technologies to obtain enough capital to support the complete implementation of its pilot program; including developing the oil collection program, funding the purchase of transport vehicles, and purchasing necessary equipment to move the raw materials to the initial pilot production facility. 3.0 Company Location and Facilities Hybrid Automotive Technologies’s headquarters are located at 1500 Market Street 12th Floor, Philadelphia, PA 19102 Test Pilot Processing Plant Location: Hartford, CT Subsequent plant locations: - Philidephia, PA - Atlanta, GA - Las Vegas, NV - Washington, DC - Kansas City, MO - New Orleans, LA - North Carolina 4.0 Market Analysis Summary Hybrid Automotive Technologies has selected this business model because the market is at a place where it is easy to see that alternative fuel sources are the next generation for the industry. The current dependence on foreign oil has cost the United States hundreds of billions of dollars in the last half-decade alone; in lost labor, oil security, importation, environmental expenses, and other areas. It is projected that by 2015, the biodiesel industry will have provided a $16B increase to the Gross Domestic Product, while decreasing carbon monoxide and other detrimental emissions by 15%. The ability to move into this market at a time when there are relatively few major players provides Hybrid Automotive Technologies the opportunity to build a brand and market presence that could become exceptionally lucrative from both a commercial and social standpoint. Micro-Market Ramifications We are aware of the comprehensive impact of transitioning to a renewable energy source, particularly for diesel based industries which serve the general public in so many areas. To understand exactly how impactful Hybrid Automotive Technologies‟s presence will be, we must break down our market and relay the relative benefits. The micro-ramifications of expanding the use of biodiesel in the U.S. market include: Cleaner burning fuel which can drastically decrease emissions (the EPA estimates that biodiesel produces 78.5% less carbon dioxide than petroleum diesel) providing for cleaner air. Infuse the agricultural community with opportunities to mass produce energy crops. Increased labor opportunities from the standpoint of processing and refinement. Lowering the ever-increasing cost of petroleum based biodiesel. Increased energy security at the national and local levels. The continued utilization of biodiesel, especially B100, will likely increase the demand for the product as the commercial and environmental benefits become more apparent. Commercial Ramifications While the soybean market (main ingredient in the virgin cooking oil used to create biodiesel) has shown no signs of price de-escalation, the cost of petroleum hasn‟t either; thus making the two fuel sources very price comparable, and making it easier for commercial interests to switch to biodiesel. Beyond EPA backing, it is widely believed that the federal government will pass legislation granting tax incentives to those commercial interests who purchase and utilize minimum amounts of biodiesel; this will offset some of the costs. As more commercial interests begin to use biodiesel, it will alleviate a large percentage of the demand for petroleum; providing more supply which can translate to cost savings for non-diesel drivers. As biodiesel is the only alternative fuel source that requires very few adjustments to existing engines, it allows diesel users to transfer to biodiesel immediately. 4.1 Industry Participants There are new entrants into the biodiesel industry surfacing almost daily. However, this is clearly a new arena and the key is to have a viable strategy and the appropriate financial and infrastructure capacity for efficient implementation and sustainability. Effective management of source availability, processing systems and distribution flow is key to success. The National Biodiesel Board (NBB) is the national trade association representing the biodiesel industry in the United States and is headed by Joe Jobe as Chief Executive Officer. Jobe recently stated that growth in the biodiesel industry by providers seeking to meet the demand has been “phenomenal, almost frightening.” About 76 commercial biodiesel plants are in production today, up from 22 in 2004. The average business operates one plant that yields 30 million gallons a year of fuel and costs up to $20 million to build. Some companies are planning refineries capable of brewing up to 100 million gallons a year. A few of the important players in this industry are Renewable Energy, World Energy Alternatives, Seattle Biodiesel and Greenshift Corporation. Their recent activity profiles which identifies them as significant competitors are detailed below. 4.2 Competition and Buying Patterns Nationwide production of biodiesel tripled from 25 million in 2003 to over 75 million gallons in 2004. The NBB estimates that production will double this year, but also estimates that the number could reach as much as, if not more, than 250 million gallons by year‟s end. Industry players and analysts have found that the ability of entrepreneurs to succeed in the long term will depend on much more than acres of oil-rich crops or deep pockets. In response, Jobe further noted that “You don‟t necessarily have to be a national player, but you need to optimize distribution within your region…and you need to make high-quality commercial biofuel while promising consistent quality to your customers.” 4.3 Competitive Overview Amidst the voluminous movement, The New York Times has reported on the following significant activity: - Renewable Energy plans to produce 460 million gallons from several of its plants. The company was spun off from a soybean farmer cooperative called West Central, which built its first biodiesel plant in Ralston, Iowa, in 1996. Nile Ramsbottom, the president of Renewable Energy, said he expected sales to reach $740 million in 2010, a rise from $116 million last year. - World Energy Alternatives in Chelsea, Massachusetts expects to exceed $100 million in sales this year from producing biodiesel from soybeans, canola and animal fat. - Seattle Biodiesel, which recently changed its name to Imperium Renewables was the first biodiesel business to receive venture-capital financing. Since spring of last year, three firms have invested $10 million in the company: Nth Power of San Francisco; Technology Partners in Palo Alto, Calif.; and Vulcan Capital, led by Paul G. Allen, the co- founder of Microsoft. Imperium‟s Seattle refinery produces five million gallons a year, and the company is building a refinery in Grays Harbor, Wash., able to produce 100 million gallons a year. Imperium now buys soybean oil from the Midwest, a costly business, but it is seeking crop sources closer to its base. - Greenshift Corporation, based in New York, announced in June that it received $22 million from Cornell Capital Partners for its GS AgriFuels division, mostly to build a plant that will produce 45 million gallons of fuel a year. - Major food processors like Cargill and Archer Daniels Midland Company are investing heavily in biofuels. On the energy front, Chevron and BP are pouring millions into biofuels production or processing. 5.0 Strategy and Implementation Summary Hybrid Automotive Technologies‟s strategy is to enter the biofuel/renewable energy market by establishing a firm foothold in the biodiesel processing and sales arena by leveraging innovative, proprietary equipment, an unregulated waste grease market and specially engineered energy crops. There are many subsequent opportunities that exist within equipment sales, retail and developing other bio-based products (ie. ethanol). We will use our cost effective processing model to produce the highest quality product for sale at reasonable prices. The Hybrid Automotive Technologies business model is attractive based upon the manner in which the oil will be attained, and the way that it will be processed. Hybrid Automotive Technologies will utilize a combination of virgin cooking oil and recycled cooking oil as its base materials for biodiesel production. Hybrid Automotive Technologies has assembled the necessary sources to provide for fundamental operations, including: 1) Identifying locations for operations - There are huge waste oil problems in several metropolitan areas within the states of NC, GA, AL, TX, and CA. Cities such as Las Vegas, as well as Atlanta, GA are particularly ripe for market focus; cleaning up this problem costs approximately $50 million per year. These locations have dense populations, a large number of fry-based eating establishments, and do not provide for the appropriate disposal of the waste oil; which has the potential to create huge sewer problems for municipalities. There are certain locales that offer more incentives for plant development, processing, and retail pricing at the state levels; there is also the opportunity to develop creative incentive packages within targeted cities. The petroleum pipelines up and down the East Coast are key focus points, and management would be wise to focus upon coastal states. For example: A. South Carolina – one of the best places to retail the product because truckers pay no tax on fuel purchases. There are also incentives such as a .05¢ per gallon payment to retailers of E85 and producer benefits such as a .20¢ per gallon subsidy for soy-bean-based production and .30¢ per gallon for non-soy-bean based production; these apply to runs of up to 3M gallons per year for a maximum of 5 years. B. North Carolina – one of the best locations for a processor because of incentives such as payment of 15% of taxpayer cost of construction, installation, and equipment, as well as a program that offers those providers which produce up to 100,000 gallons during the taxable year a credit equal to the per gallon excise tax paid for motor fuel tax. C. Georgia – an opportune state to collect waste oil feedstock while waiting for the tallow trees to mature. Additionally, it is expected that in 18 months the state will provide incentives similar to those which North and South Carolina offer with regard to providers. 2) Launch requirements - In order to create a successful chain of operation for biodiesel processing, several components must be in place, not the least of which is source collection. This requires an increase in public awareness for the initiative and the reasons behind it, as well as the need to outsource or train approxima tely ten contract managers to secure contracts with multi-family dwellings, churches, college campuses, targeted restaurant businesses, and both public and private school systems. Further, it will be necessary to provide 32oz containers for individual disposals and larger containers for commercial or industrial disposal. The operation chain is as follows: Initial Storage – following a public marketing outreach, it will be necessary to provide drop off containers for the collection of oil in strategic locations, and arrange for pick-up by small trucks driving defined routes. Transportation – the product will then be transferred from these individual, smaller containers to 55 gallon bins where 24 foot box trucks will transport them to secondary storage. Secondary Storage – after securing the processing plant site and breaking ground, a storage building for the oil will be constructed, providing the necessary feedstock for processing. Processing – the company will build the mobile processor facility and also grow crops on additional portions of the land. Distribution – the company will the follow a pre-planned process of distribution and also establish retail outlets; particularly in those coastal areas that host a sizeable amount of commercial traffic. Management will also seek to secure local municipal contracts for use of its production in trash trucks, school buses, and other fleet vehicles. 3) Developing a pilot program - To manage development and strategic planning initiatives, a pilot program will be implemented. Management has determined that Atlanta will be the initial source collection market. Because the city has such a desperate need for the removal of cooking oil, Hybrid Automotive Technologies will be able to effectively market its philosophy and easy drop-off procedures; thereby providing the company with all of the used oil that it requires for biodiesel production in the initial phase of operations. After collection, management has designated the town of Hartford, CT as the pilot site for production. This town has been selected because of the following: a. It is a small-yet-promising location for Hybrid Automotive Technologies because of the fact that civic leaders are aggressively trying to attract businesses to come to the town; they can be expected to offer many business and employment incentives. b. The area provides an abundance of rural land owned by independent farmers that provide joint venture opportunities to grow vegetative feedstock. This would create a circular process that could transition into a model for an agricultural mega-plex to grow, process, and sell alternative fuels. Once the operations system has been refined, Hybrid Automotive Technologies will utilize Hartford, CT as a holding and small-level production facility. After the products are stored and processed for initial refinement, Hybrid Automotive Technologies will formally distribute the product. We will then move to replicate the model in other targeted locations where relationships and resources for implementation have been prior negotiated. Hybrid Automotive Technologies Infrastructure As stated, Hybrid Automotive Technologies will initiate operations through the use of a pilot program targeting Atlanta as the primary place to acquire recycled oils, Hartford, CT (this could change if a viable location is found closer to Atlanta) as the initial place of production of the virgin oil, and the East Cost as the area of initial retail efforts. It is important to note that while Atlanta will serve as the initial supply area for recycled oils, any mid-major or major market can serve as a supply area. As Hybrid Automotive Technologies‟s production facilities become more developed from an operational standpoint, management will begin setting up a supply and collection infrastructure in other markets to alleviate some of the transportation expenses. Outside of the pilot production site in Hartford, CT (which is expected to process at least 600,000 gallons of biodiesel per quarter) . Because of major incentives provided by the state of Connecticut and by the US government, Hybrid Automotive Technologies expects to build its production facilities at very little intrinsic cost. As stated, Connecticut will provide Hybrid Automotive Technologies a $0.20 per gallon financial incentive for every gallon of biodiesel created for five years. In addition to these subsidies, the USDA bio-energy initiatives program provides incentives of up to $1.17 per gallon of biodiesel created. Utilizing the projected costing figures that Hybrid Automotive Technologies has developed, these subsidies would defray more than 50% of the costs of production, thus making the production facilities much less expensive than might be anticipated. 5.1 Marketing Strategy Promotion will be initially spearheaded by Hybrid Automotive Technologies‟s branding team and will include our strategic partner(s), to create a notable presence within the industry. When cash flow and presence begin to increase, we will then enhance our consumer marketing promotion campaign to foster brand recognition and loyalty at that level. A cause related marketing (CRM) program linked to Hybrid Automotive Technologies is a vehicle for additional marketing opportunities as well as provide a direct method to effect company growth. Hybrid Automotive Technologies will make effective use of a specially designed awareness and collection program at the unregulated consumer level. This program targets improper waste grease disposal, which so severely affects the quality of life in our urban markets. Citizens are encouraged and provided incentives for their involvement in the clean up of local sewage problems, creating a direct spike in environmental health. Dually, this program will over time, allow Hybrid Automotive Technologies to collect maximum quantities of feedstock oil for processing at minimum investment. 5.2 Pricing Strategy The pricing strategy will be to offer our product(s) at competitive wholesale prices before moving toward any type of retail sales/distribution. Based on our proposed operating strategy, our pricing is proposed to reflect approximately 20% below standard industry costs. This strategy will be altered as business dictates. Industry Pricing Barriers The most prominent barrier to the further development of the biodiesel industry is pricing; it is incumbent upon those with long-term commercial plans within this industry to address the following issues if pricing is to be stabilized. Hybrid Automotive Technologies is currently developing strategies to address these issues, and by doing this management believes the company can position itself as a major market participant in a relatively short period of time. The issues making price a growth barrier industry-wide are: Inefficient distribution channels – because of this the cost of transporting and handling biodiesel are much larger, and is a substantial contributor to the high retail prices. Soybean Oil prices – Soybeans are an expensive raw material and represent 75% of the price of most biodiesel fuels. For this reason Hybrid Automotive Technologies is attempting to find the best balance of virgin oil and recycled oil in order to increase the utilization of recycled oil without allowing overall quality to suffer. Blend production – For those companies that produce blended biodiesel, an added expense is the combination process for biodiesel and petroleum diesel. 5.3 Sales Strategy The primary markets that Hybrid Automotive Technologies will initially focus upon in terms of the sale of its biodiesel products are: Fuel Companies – Hybrid Automotive Technologies will attempt to negotiate with gas stations on major truck routes to purchase Hybrid Automotive Technologies‟s biodiesel and then sell to long- distance truckers. Long-distance commercial trucking companies, who would obtain product from the actual gas station clients. Other commercial interests who utilize a fleet of diesel trucks; these would order and obtain designated stocks of biodiesel. Municipalities and Public Works for metropolitan areas who utilize diesel vehicles and would order and obtain designated stocks of biodiesel. Utility companies, which would order and obtain designated stocks of biodiesel. Commercial and recreational marine interests which own marine vessels; these would also order and obtain designated stocks of biodiesel. The initial secondary markets that Hybrid Automotive Technologies will focus on as it relates to the sale of its biodiesel products are: Private diesel vehicle owners who are located within a 15-mile radius of gas stations that are contracted to carry Hybrid Automotive Technologies‟s biodiesel product. Farmers who are interested in purchasing biodiesel directly from Hybrid Automotive Technologies. Mining and other agricultural interests who utilize sizeable amounts of diesel fuel. Barriers to Market Entry The primary barriers to properly implementing the Hybrid Automotive Technologies business model have been established as: Logistics – Relating to developing locations for key operating activities such as supply collection, virgin oil production, biodiesel production, and refinement. Hybrid Automotive Technologies has bypassed this barrier as it has already settled on all logistical issues pertaining to production and refinement. Clientele – Because the vast majority of the initial market potential in this industry lies in commercial use, it is vital to have a developed client attraction infrastructure. Capital – To implement this business model it is necessary for Hybrid Automotive Technologies to obtain sufficient capital to build the three production facilities. It is also necessary for Hybrid Automotive Technologies to obtain enough capital to support the complete implementation of its pilot program; including developing the oil collection program, funding the purchase of transport vehicles, and purchasing necessary equipment to move the raw materials to the initial pilot production facility. 5.4 Sales Programs Opportunities - Production and Supply Hybrid Automotive Technologies is acquiring new clients who will be positioned for delivery of biodiesel beginning fourth quarter 2008. Biodiesel – Hybrid Automotive Technologies engages in providing supply clients with B100 biodiesel meeting ASTM and EPA standards suitable for wholesale purchase for retail distribution. Generator Distribution – Hybrid Automotive Technologies engages in manufacturing and supply opportunities for biodiesel generators to increase energy consumption and capacity through use of the cleaner burning source, biodiesel. Primary clients for production and supply are: government, municipal or university purchasers, commercial retailers and private industry. 6.0 Milestones This table lists important milestones for Hybrid Automotive Technologies, with dates, and participating team members for each. The Milestone schedule indicates our emphasis on planning and implementation. Milestone Produced Budget Department Executive $1,200 Special Projects Summary 5/29/2007 Equipment Research &Tech Built Process Research & Tech Established Pro Forma 5/23/2007 $1,200 Finance Written Business Plan 6/30/2007 $2,300 Special Projects Written Marketing Plan 6/27/2007 $1,750 Marketing & Branding Completed Pilot 9/30/2007 $125,000 Research & Tech Development Las Vegas Test 11/30/2007 $50,000 Research / Tech Commercial 10/1/2007- $1,000,000 Business Implementation ONGOIN G Development 6.1 Management Summary Terra Energy Resources.‟s Executive Team for Hybrid Automotive Technologies will grow to consist of the following positions: 1) CEO 2) President 3) COO 4) CFO 5) CMO 6) Vice President for Research and Process Operations 7) Vice President for New Business Development The duties of these individuals will be as follows: Chairman and Chief Executive Officer- This team member‟s has overall organizational responsibilities which are, but not limited to: Monitor and drive the financial success of the company, report to any and all shareho lders about financial results, develop and maintain strategic partnerships with companies and individuals that will enhance the overall mission of Hybrid Automotive Technologies. Final decision maker on any and all issues that face Hybrid Automotive Technologies operationally. President- This team member has primary management responsibility and is lateral in relationship to the CEO. Responsibilities include, but are not limited to: Provide vision and leadership to position the company at the forefront of the industry. Develop a strategic plan to advance the company's mission and objectives and to promote revenue, profitability and growth as an organization. Oversee company operations to insure production efficiency, quality, service, and cost-effective management of resources. Chief Operating Officer- This team member has direct report responsibility to the Chief Executive Officer (C.E.O.). Responsibilities to include, administrative operations, working closely with the C.F.O. and reporting all quarterly financial results to the C.E.O. Manages executive team members in the absence of the C.E.O., maps out operational strategy for Hybrid Automotive Technologies. Provides first line signature and verification of all vendor contracts. Ensure all outsourcing lines up with company financial, administrative and other concerns. Maps out company expansion objectives domestically, and internationally, oversees any and all legal issues with company lawyers, other duties as assigned. Chief Financial Officer- Responsible for monitoring all accounts payable, and receivables. Tracks Hybrid Automotive Technologies finances and reports findings to C.O.O. and Vice President for Business Development. Writes and maintains yearly budgets through the reporting of “Budget” vs. “ Actual” accounting principles. Work with outside, designated, audit firm to come up with and maintain accurate records of sales and expenses. Monitors and maintains all company bank accounts. Keeps an accurate record of monies received and spent. Reports o n a monthly basis to the C.O.O. Chief Marketing Officer - Manages all brand activity as it concerns positioning, promotion, and business relationships with external companies. Oversees and monitors all reputation concerns, positive or negative, in the public arena. Oversees and implements all Hybrid Automotive Technologies company promotions, marketing, production needs, etc. Maintains Hybrid Automotive Technologies websites to include any and all updates as needed, works directly with executive and design team to come up with image and company collateral. Sets and monitors timelines for release of new products. Works directly with other executive members to roll out company initiatives. Other duties as assigned. Vice President for Research and Process Operations - Team member‟s responsibility includes establishing process strategies and resource and equipment requirements. Responsible for product compliance and new product and equipment development. Oversees plant management, is responsible for any and all product processing and delivery operations or issues. Vice President for New Business Development- Directly responsible for all communication of product to potential customer outlets. Develops and launches new business arenas for potential Hybrid Automotive Technologies accounts. Conducts research revolving around customer research and direct product to client promotion. Oversee interaction with existing clients while driving efforts for the acquisition of new business relationships at the C -level. Create and contribute new business ideas. Promote and market services to accelerate client acceptance and engagement. Each of these members will participate in a bi-weekly meeting (virtual or physical presence is required) and will provide reports to brief other executive team members on their individual progress made towards the company objectives, goals, and mission. 6.2 Organizational Structure Hybrid Automotive Technologies is split by both location and functionality. The Executive Team members and the proposed plant locations/operations teams are and will continue to be located in various regions of the country and consistently utilize virtual office function and regular site visits to maintain communication, efficiency and effectiveness in operations. Hybrid Automotive Technologies will utilize a standard „Table of Organization Chart‟ (T.O.) to manage the reporting structure at Hybrid Automotive Technologies. The bulk of the day to day operational issues will be handled by the COO, VP for Research and Process Operations, and CMO. When Hybrid Automotive Technologies is funded by investment capital, we will add an „Office Manager‟ position which will handle day to day administrative and front line operational issues that may occur. 6.3 Management Team Gaps Management team gaps will be covered – at least initially – though infrastructure and consulting or partnership contracts. 6.4 Personnel Plan The personnel plan at Hybrid Automotive Technologies consists of the following positions to be filled, with projected per annum compensation base rates: Base Salaries F.Y. 2007 F.Y. 2008 F.Y. 2009 C.E.O. $48,000 $120,000 $135,000 President $48,000 $120,000 $135,000 C.O.O. $45,000 $96,000 $115,000 C.F.O. $45,000 $96,000 $115,000 C.M.O. $45,000 $96,000 $90,000 VP for Resear ch and $48,000 $120,000 $135,000 Process Operations VP for Business $45,000 $96,000 $115,000 Development Hybrid Automotive Technologies will only add staff/contractors to payroll when the business dictates these necessary additions. Hybrid Automotive Technologies is committed to not being a “Top Heavy” organization and seeks to avoid this business practice with the proper “outsourced” relationships and profit sharing across the board. Plant Staffing Each site will staff two engineers and bio-energy specialists to oversee production and biodiesel development. After the first year, staff requirements will double in all locations as the company gets closer to reaching biodiesel capacity. 7.0 Business Partnerships/Outsourcing Hybrid Automotive Technologies will use strategic partnerships in our daily operations. In today‟s highly competitive business environment, outsourcing of essential daily business functions has become a necessity to stay competitive in the market place both from a financial savings and a functionality standpoint. Hybrid Automotive Technologies is committed to process precision, and we will assess every aspect of our operations on a regular basis to create strategic partnerships that allow us to focus on that our specialty areas. The following tasks are being considered for assignment to outside businesses and firms: Legal counsel Accounting and tax management (Auditing) Human Resources (Payroll and benefits) Research and technology development Source cultivation and collection Processing Some aspects of sales and distribution Branding and Marketing/PR 8.0 Financial Plan Financial Highlights The tables in the accompanying appendices show the financial projections for Hybrid Automotive Technologies on a quarterly basis for a period of three years. These projections have been set forth conservatively to show the overall potential (both bottom and top line), and the specific potential that management sees within this market. All in all, when Hybrid Automotive Technologies maintains its initial processing and distribution goals of 2 million gallons per year from a single unit, we project to achieve $3.5M in gross sales, $2.2 M NET. Once the ten (10) locations are at production and distribution capacity, we are set to GROSS $30M and NET $$22M. Hybrid Automotive Technologies should be profitable within the next 18-24 months. Financial Assumptions All financial assumptions have been developed in an attempt to validate the projections that are set forth within this summary. These assumptions have been developed in accordance with industry standards and the overall expertise of the management team of Hybrid Automotive Technologies. Management along with industry consultants has attempted to prepare financial assumptions that will develop a conservative model. Considering that this industry is extremely commoditized and the products created are considered to be in high demand, management is confident that Energy should be able to surpass the projections set forth. Sales Assumptions Hybrid Automotive Technologies‟s sales model is dependent on several key factors, demand, market size, market entry point, current market trends (i.e. raw material costs), and the ability for Hybrid Automotive Technologies to meet the standards set by the preliminary contracts that it has received from both commercial and retail clientele. For the purpose of this model management assumes the following: As Hybrid Automotive Technologies already has generated interest and preliminary agreements from commercial (i.e. trucking companies) and retail (i.e. Gas Stations/Companies), management will concentrate on meeting the demands of this contract in an attempt to keep its burn rate (the rate at which a gallon of biodiesel is created versus the rate at which a gallon of biodiesel is sold) at 100% (the assumption is that Hybrid Automotive Technologies will keep its production to the point that every gallon created has already been contracted for sale). Management will maintain strict capacity restraints during the first three years of this business model. This will allow the company to keep costs low and will maximize the return on operational investments. For example, if Hybrid Automotive Technologies attains contracts to sell one million gallons of fuel per month, then capacity will be minimized to the point of producing one million gallons of fuel. This model assumes that the first site to open will be in Hartford,CT, and commence operations in February, 2008. This model assumes that a portion of sales will be generated from direct sales agents, and therefore management projects a direct sale expense equal to 1.2% of gross revenue Management has used a weighted average formula to project per gallon product costs at each site, these weighted averages take into account the cost of a gallon of virgin oil at $2.10 per gallon, a gallon of contract recycled oil at $1.80 per gallon (meaning that Hybrid Automotive Technologies will contract with companies to attain some of its recycled oil as its own collection of this oil is a pilot program and the results may vary), and a gallon of Hybrid Automotive Technologies recycled oil at $.60 per gallon (meaning that Hybrid Automotive Technologies collects, cleans, and delivers the oil to its processing plant)1 Another important direct cost will be the cost of processing this fuel; this includes everything from machinery to operations and for the purpose of this model, management projects that the cost of production is $.56 per gallon. For the purpose of this model management estimates that the average wholesale cost of biodiesel will be 13.8% higher than the cost of each gallon. This includes both the cost of goods sold and the production of the biodiesel, taking this into consideration management estimates that the wholesale price of biodiesel is as follows2: o Connecticut - $3.39/gallon Operating Expense Assumptions For the purpose of this model only four operating expenses will be highlighted. It is important to understand that the facility, production, and direct sales costs are all considered direct costs and taken into account in the sales projections. As it relates to operating expenses management has made the following assumptions: Hybrid Automotive Technologies will spend $250,000 per site for equipment, consulting, transportation, and development costs To feed the growth projections of this model, and to acquire new clients Hybrid Automotive Technologies will spend $50,000 per quarter per site for marketing expenses Staffing breakdowns will be as follows: o Corporate Staffing (consisting of the two-person management team) will be $255,000 per year and will increase by 10% annually after year one 1 It is important to note that if the Green Fuel Corporation collection program is successful, it could eventually encompass 100% of Green Fuel Corporation’s need for recycled oil 2 It is important to note that the current cost of biodiesel exceeds $3.00 (5/21/07), however because of market fluctuations th is could change fairly quickly. To neutralize this variation, this model assumes that no matter how m uch it costs to acquire the source materials for the biodiesel, the sales price will exceed that by 14.4%. This rate is based on published information from the Biodiesel Council, the Renew New York Program, and other similar biodiesel organizations. o Other staffing, including benefits, will be $85,000 per employee which takes into consideration raises on a three year scale. Each site will add one employee every nine months to assist with increasing demand Other expenses such as travel, utilities, professional services, research and development, etc. will be included in one miscellaneous account which will be calculated as 17.5% of the gross margin for that period. Company growth will be supported by strategic alliances and outside investment. This will keep the implemen tation consistent and manageable. The ownership group will retain majority ownership in the company regardless of outside investment dollars contributed. Hybrid Automotive Technologies has set aside 25% shares for capital investment dollar ownership. Expectations on return will be clarified in subsequent agreements made with investors. Hybrid Automotive Technologies is planning, through the proper planning and execution, to sell gallons of biodiesel (B100) in the first full year of operation. A snap shot of key result indicators is as follows: Please Reference Financial Model Attachments 8.1 Current Shareholder Positions Terra Energy Resources is a “Publicly Traded Company”. Hybrid Automotive Technologies is a wholly owned subsidiary. 8.2 Important Assumptions Hybrid Automotive Technologies has made the following assumptions as it concerns our business plan. We assume that: No major recession will occur during the outlined fiscal years. We can hold prices relatively steady as it concerns our biodiesel production. No investor is acquired who requires an unreasonably high R.O.I. Positive cash flow is achieved and maintained. No accounts receivables will go out past 30 days. Repeat orders from existing customers and new customer generation will increase as name brand recognition is established. Present infrastructure requirements will be sufficient to operate on scheduled business growth. No catastrophic event, as it concerns national security occurs. 9.0 Product Roll-Out Summary Hybrid Automotive Technologies plans to operate a pilot to model strategy. The point of this is to gauge sales, production, and distribution patterns and to ensure growth and fulfillment remains manageable. We intend to roll out our products and subsequent equipment sales by targeting specific areas of geographical regions. We will establish processing presences along the Eastern Pipeline and then move in the direction of establishing a westward pipeline. Our processing plant strategy is to erect them in clusters to account for transportation costs. This strategy would require us to establish 200K – 250K gallon plants within 250-300 miles of each other. As our innovative model includes the use of portable processors, Hybrid Automotive Technologies will monitor which plants are performing well in the market place and which are not, make appropriate location adjustments, or sales strategies, accordingly. Hybrid Automotive Technologies will monitor this process by examining monthly reorders of products from retail outlets that carry our products. The process of determining which designs are working and which ones aren‟t will be as follows: 1) Comparing product moved with pre-set sales goals. 2) Examining new and recurring reorders by city, state, and region. 3) Monitoring customer feedback. 4) Monitoring and reacting to competitive price point analysis. 5) Tracking external biodiesel manufacturer participation by numbers and customers. 6) Comparing Hybrid Automotive Technologies product quality with that of competitors. 10.0 Investor Exit Strategy Hybrid Automotive Technologies is a subsidiary of a public entity. A public offering will be cost effective and allow investors to sell their shares on the open market. The option of acquisition is a strong consideration for shareholders as well, for this service will provide excellent market penetration for an acquiring firm.
Pages to are hidden for
"Management Team Gaps"Please download to view full document