We are raising $500,000 to start an ethanol fuel production company. In the recent economy with increasing gas prices, ethanol production is both cost effective and a smart alternative to more traditional forms of fuel.

EXECUTIVE SUMMARY

With the growth of the ethanol industry along with the increasing gas prices, the timing could not be any better for a start up of an ethanol business. We are raising $500,000 in order to start this business. Once funding is in place, we will be driving sales in the first three months of operation. The long-term outlook is also very strong.

PRODUCT

Our product is simple. We will be selling ethanol fuel for consumer uses such as automobiles and other small engines like those used in lawn mowers, rototillers, and the like.

Because of the increase in fuel prices at the pump and the forecasted continued rise, consumers are looking for alternatives to gasoline. Our product will fill that need.

The technology available today allows for the ability for almost anyone to produce ethanol. We have decided to produce the product on a mass scale, large enough to corner a market in our region.

TARGET MARKET

Ethanol does not burn as clean as higher-end gasoline. Therefore, we will not be targeting the high-end cars and SUVs that require high octane gasoline. Furthermore, our product does not work in any motorcycles or mopeds, and we will therefore not be targeting those markets.

The type of vehicles that our product will work in:

Trucks—Quarter, half, three-quater and 1 ton
Vans—Half, three-quater and 1 ton
Nissan
GMC
Chevy
Ford
Dodge
Honda
Hyundai
Toyota
All two and four cycle engines
Garden trackers

Because of the way our product is produced, we will use a just-in-time type of ordering and delivery process for our product.

PRODUCTION AND TRAINING

We will use the following method to produce our product.

Wheat or corn kernels are ground in a hammermill to expose the starch.
The ground grain is mixed with water, cooked briefly, and enzymes are added to convert the starch to sugar using a chemical reaction called hydrolysis.
Yeast is added to ferment the sugars to ethanol.
The ethanol is separated from the mixture by distillation.
Water is removed from the mixture using dehydration.

A new process is under development for making ethanol from the cellulose and hemicellulose components of cheaper biomass feedstocks such as wood and agricultural residues. The method is similar to the traditional process that uses the starch component of grain or corn. However, this method is more difficult because these types of feedstock require more complex pre-treatment and hydrolysis steps that use acid or enzymes before the sugars can be fermented to ethanol.

We have already contracted with about twenty farmers in the region. Each month we will purchase from these farmers only the best corn. The farmers realize that we have high quality needs so they are taking extra care in the farming process in order to supply us with the best in their product. The farmers that accommodate us will make about four times per bushel then if they were to sell their corn to the regular distribution channels.

Training Staff

Because this is a newer, somewhat unusual product, some people may have questions about the product and its uses. We have created a list of common questions with appropriate responses to address these concerns. Some of these include:

Is ethanol a more powerful fuel than gasoline?

Yes, if the engine is designed for ethanol fuels. Gasoline actually has more heat content per gallon than ethanol (about 1.5 times as much), but ethanol contains oxygen. This means that you can burn about 1.6 times as much ethanol by volume as gasoline. You get more total heat and the engine is also cooled better. The net result is more power. The very high octane rating of ethanol (about 129) also means the engine can run a lot higher compression ratio, further increasing the horsepower potential.

How much higher is the octane with ethanol fuels?

The octane of pure ethanol is so high (about 113) that it cannot be measured in the same way as gasoline. Any amount of ethanol in gasoline raises the octane rating of the fuel. E-10 (10 percent ethanol/90 percent gasoline) has an octane about two to three points higher (typically around 93 octane for E-10).

Will ethanol damage a car's fuel system?

E-10 will not damage any parts of your car so long as it is a late model vehicle that specifies that it is E-10 compatible (refer to the owner's manual to be sure). In fact, E-10 fuels have been shown to promote cleaner fuel injectors and have a higher octane rating (less prone to knocking and run-on). With modern reformulated fuels, especially those containing ethanol, fuel injector clogging that was once a common problem is virtually nonexistent today. In order to run E85 (85 percent ethanol/10 percent gasoline), a car must be specifically designed for it. These are called ''Flexible Fuel Vehicles'' (FFVs) and are usually identified by a gas cap insignia and in the owner's manual.

If ethanol is so good, why aren't all gas stations carrying E-10 and E-85 fuels?

At the current rate of gasoline consumption, there simply isn't enough production capacity. However, this is rapidly changing. For example, the state of Indiana has only two operating ethanol production facilities, but has nine more under construction. You'll be seeing a lot more ethanol motor fuels as production capacity increases. New technologies are also improving the efficiency of production as well as opening up new raw materials that can be grown to produce ethanol.

Does ethanol make a car run cleaner?

Yes. As an effective oxygenate, ethanol promotes more complete combustion. Gasoline chemicals contain a lot of carbon resulting in emissions of carbon monoxide and carbon dioxide. Ethanol contains very little carbon and also contains oxygen, so it burns a lot cleaner.

Years ago, I heard about problems with ''gasohol''. Is E-10 just a new name for gasohol?

No. Gasohol was introduced in the late 1970's and really was just the existing gasolines of the time with ethanol added. New E-10 fuels are formulated in accordance with federal standards for lower sulphur content, detergency, controlled volatility, and many other factors that make it a much cleaner and better fuel.

Why will we be using more gasolines with ethanol in them?

There are a variety of reasons including those of economics, environmental issues, and even national security. Much of the ethanol made today uses corn and other renewable crops raised by our American farmers. This keeps more US dollars in America. Ethanol is environmentally friendly so we can enjoy cleaner air. Decreasing our dependence on foreign oil has also become a critical matter of national security. It is in our best interests to be as energy-independent as possible. Today, every domestic and foreign new car is E10 compatible and there are over two million E-85-comaptible ''Flexible Fuel Vehicles'' (FFVs) already on the road. By the end of this year 2006, there will be an additional 400,000 FFVs produced and sold.

BACKGROUND

Today, U.S. ethanol is primarily produced from starch- and sugar-based crops by dry-mill or wet-mill processing. Cellulose ethanol has not yet been produced commercially. However, several commercial cellulose ethanol production plants are under construction, and intensive research and development is rapidly advancing the state of cellulose ethanol technology.

Powering vehicles with ethanol across Canada

Ethanol is produced from the starch, or cellulose and hemicelluloses components of biomass. Ethanol can be blended with gasoline to produce an environmentally beneficial transportation fuel. The most common blend, which is composed of 10 percent ethanol and 90 percent gasoline, is known as E10. It can be burned in any car and is available at over 1,000 filling stations in 6 provinces across central and western Canada. In the future, a blend of 85 percent ethanol and 15 percent gasoline (E85) might become commercially available. Cars that are capable of burning any combination of ethanol/gasoline—up to 85 percent ethanol-are already available on the market for no, or insignificant, additional cost.

Bioenergy

Development Program Ethanol has many environmental advantages over gasoline—a major contributor to climate change. It is estimated that a litre of biomass ethanol used to replace a litre of gasoline reduces the accumulation of atmospheric carbon dioxide—a harmful greenhouse gas—by 70 percent. For the past two decades, Natural Resources Canada's CANMET Energy Technology Centre (CETC) has assisted Canadian firms in making ethanol from biomass a commercial reality.

The automotive industry's first investigation into fuel ethanol dates back to Henry Ford's original Model T design. While gasoline soon replaced ethanol as the fuel of choice, modern environmental concerns have revived interest in this green gasoline.

Until recently, environmental concerns were outstripped by the fact that gasoline was far cheaper and more accessible than ethanol. However, with heightened environmental awareness and a global commitment to reduce greenhouse gases, ethanol has emerged as an available option for consumers. 130 million litres of grain based fuel ethanol are produced in Canada each year. With the addition of new production plants currently under construction, this is expected to at least triple over the next few years. Grain ethanol, as an additive to transportation fuels, has now gained commercial acceptance. Over 950 retail outlets across Canada offer E-10 ethanol-blend fuels (10 percent ethanol, 90 percent gasoline).

Biomass Ethanol

Ethanol can be made from products other than grain. Major breakthroughs are being made to convert biomass products into ethanol. Currently, the focus of CETCs Bioenergy Development Program is on forestry wastes such as wood chips and sawdust, and agricultural wastes such as straw and chaff. Great strides are also being made to convert municipal wastes as well. There is enough wood waste in British Columbia alone to replace half of Canada's gasoline with E10.

Waste Ethanol

Based on the amount of waste currently available across the country, it is predicted that wastes alone could theoretically produce all of Canada's fuel ethanol needs. (3.8 billion litres/year or 10 percent blend in the 38 billion litres/year vehicle fuel demand projected for 2005). The challenge is that these wastes contain ''lignocellulosic'' or woody materials that require special treatment not required in traditional grain ethanol production.

At present, the production of alcohol from lignocellulosic feedstocks is a four stage process:

pre-treatment to expose the cellulose and hemicellulose components
converting the cellulose and hemicellulose components into sugars
fermenting the sugars to produce ethanol
recovering the ethanol

In 1974, it cost $2.50 to produce a litre of ethanol from wood. As a result of cooperative Research and Developement, the cost is now estimated at $0.30 to 0.35/litre. Within ten years, researchers expect production costs to drop to $0.22/litre.

Technology Advancement Innovative, high-tech systems are being developed to meet the specific requirements of producing ethanol from wastes. Basically, they all consist of four unit operations, each with it's own technical and economic barriers. Through our partnerships in research and development, we serve as a catalyst to remove these barriers and to make commercial implementation a reality.

pre-treatment: the pre-treatment of hard wood, soft wood and agricultural residues using steam or extrusion based processes has been optimized;
hydrolysis: specifically tailored acid or enzyme based processes have greatly improved the efficiency of conversion of the pre-treated feedstock to fermentable sugars;
fermentation: new genetically engineered strains of bacteria show promise for significantly improving ethanol production volumes; and
ethanol recovery: extractive fermentation and other new developments have greatly enhanced overall efficiency. As a result of some of these innovations, Canada's first demonstration plant to produce ethanol from agricultural and wood wastes is scheduled for construction in 1999.

START UP EXPENSES

Equipment—$15,000

Legal—$2,500

Business licence—$200

Corn for first month's production—$5,000

Other Ingredients—$3,000

Advertising—$2,000

Auto—$3,000

Miscellaneous—$3,300

Staff—$6,500

Lease hold improvements—$20,000

Lease—$3,400

COMPETITION

This is a very hot market and there is a lot of competition in both the region and the sector. We feel this will continue to grow, however the market size is tremendous and we feel our investment will not be affected by the competition.

MARKET ANALYSIS

With the ever-increasing demand for alternative fuels from around the world, the pressure on ethanol will continue to grow despite even its drawbacks. The author of this business plan has identified extensive data that will strongly support the investment in ethanol production.

Business Case for our Business Start up

Ontario corn farmers are big supporters of the expanded use of renewable fuels including ethanolblended gasoline, and neat ethanol (fuels containing at least 85 percent ethanol). So, too, are a growing percentage of Canadian automobile owners.

Here's why:

Biological renew ability. Ethanol is made from growing crops, not fossil energy sources. The sun is the source of most energy used to make fuel ethanol.
Cleaner environment. When ethanol is used as an automotive fuel, either by itself or in an ethanolgasoline blend, the result is less carbon monoxide, lower emissions of hydrocarbons into the air, and less dependence on toxic compounds used to increase the octane level of automotive fuels.
Cleaner burning engines equals less carbon build-up.
Lower net carbon dioxide emissions caused by the combustion of automotive fuels; this means less potential for global warming.
Less dependence on imported light crude oil used, increasingly, for gasoline production in Canada.
Expanded market opportunity for Canadian farmers, without hampering Canadian food production capabilities.
Economic opportunities for rural Canada.

TIME LINE

Once we have access to the start up money, we will be in production within three months. We are hoping to raise $500,000 for this start-up, most of which will be used for operating expenses. Investors will be able to see return on their investment within 12 months of our start-up.

KEY STAFF

Bill Brown will be the Operations manager. Bill has over twenty years of management experience as a production manager.

Bob White will be the CFO; Bob has over ten years experience as a CFO for various business sectors.

Ben Black will be the procurement manager; he will in charge of all the buying of production products.

Dale Green will be the sales manager in charge of all aspects of selling the products.

Darren Winters and Karen Summer will be the two main shareholders of the company with an initial investment of $20,000 each. They are looking at raising $500,000 for the company. In the first year the sales target is $400,000 with an operating profit of $140,000.

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