Advanced Technology Pallets
1. Why did you choose Stamford, Texas as your first location?
- One of the largest piles of shredded scrap tires in Texas is located in Stamford. The quantities of raw material in this pile are enough for ten years of full production.
- The state of Texas pays for making final products from the scrapped tires about $30 per ton (approximately $0.75 per pallet).
- In the area of DFW (about a radius of 150 miles around) the yearly consumption of new pallets is about sixty million.
- The local municipality is very helpful. Rural America has unemployment problems. Therefore the local authorities have offered to subsidize the plant for our production lines, by enabling us to use a new existing building of 60,000 sq.ft. with all the facilities including: offices, rest rooms, electricity, air conditioning, boiler system etc. and the property is located on seven acres with the building which can be used for storing and loading pallets and employee parking, all offered with great terms and conditions.
- The location of this plant is less than one mile from the scrap tire pile.
2. If your plant is in Texas why is your headquarters is in Las Vegas?
As can be seen from our Business Plan, ATP expects to open four plants in the next five years. These plants will be in different states. Las Vegas was chosen as our corporate headquarters because of the following reasons:
- No state tax in Nevada;
- Las Vegas is the leader for conventions, trade shows and exhibitions where our products will be displayed and introduced to many industries and manufacturers;
- Las Vegas is also a popular tourist destination for business people throughout the world. Vegas has excellent airline connections, which offers a real opportunity to bring executives to visit and learn more about RST-PAL pallets and how it will positively affect their company profits.
3. Is there any financial help from the State administration in putting up the plant in their State?
There are several States, among them Louisiana and New Jersey that are giving up to 80% of the capital cost of putting up a plant that will utilize scrap tires. The problem of scrap tires is enormous and exists in most states. Most states have scrap tire programs to deal with the remediation of scrap tires.
4. Are there any federal laws regarding the use of recycled products?
Yes, all Federal Agencies, including the Department of Defense and Department of Transportation are mandated to use “recycled products first”. Our product is made from recycled materials and is very strong and durable and is acceptable for Government use due to its life cycle being much longer than a traditional wooden pallet, and the price of a RST-PAL pallets is very competitive.
5. How does the production of pallets made from scrap tires helps the ecology?
The RST-PAL pallet is an environmentally correct product made from recycled materials that can be recycled itself, making it a “triple green product”. First, according to statistics published by NWPCA (National Wooden Pallet and Container Association) the U.S. consumption of pallets is 800 million per year. To make this huge quantity of pallets, 3.5 million trees are cut every year. Every RST-PAL pallet sold will help to save our forests, allowing hardwoods to be used for more important and valuable uses other than pallets.
Second, getting rid of the scrap tire piles is a worldwide problem. This problem is even more acute in Europe and the Far East. Each year in the U.S. 250-280 million tires are added to the existing stockpiles of scrap tires. These piles are environmental hazards as they can become disastrous tire fires and are breeding grounds for mosquitoes (which bring diseases such as the West Nile Virus), rodents, snakes, and other vermin.
6. Are the projections in ATP’s Business Plan “Too good to be true”?
ATP believes that the projections, although they are very positive, are conservative. We also believe our biggest challenge will be keeping up with the production needed to meet the demand for our pallets. When a company evaluates the annual cost of their wooden pallets, including; purchase, repair, replacement, and discarding costs versus the one time purchase price of RST-PAL pallets, they will see tremendous savings in buying and using RST-PAL pallets.
Regarding the financial forecasts, ATP has purposely left out several positive issues. For example, the cost of recycled rubber (cut and prepared for our use) is $1.25/pallet. This cost can be reduced drastically by purchasing a special machine (Grizli) and cutting the tire shreds to our specific dimensions. The price of the machine can be recovered within one year of production. Additionally, the most expensive cost in making our pallets is the binder system, $6.50/pallet. Our projections do not take into consideration the savings of using even less binder per pallet which will be achieved by utilizing the new production line machinery, with a different delivery system. We estimate a minimum saving of 25% on our projected costs when we will buy the raw material and batch it ourselves.
Additional savings will be achieved by getting larger discounts as the volume of materials purchased increases.
Other potential revenue streams that are not projected include licensing ATP technology to foreign countries to manufacture and market RST-PAL pallets. In addition ATP anticipates opening a subsidiary company to provide pallet leasing or a lease to purchase program for our customers to enable them the opportunity to convert their wooden pallet inventory to RST-PAL pallets at an accelerated pace.
7. How are the scrap tires used today?
Only a small portion of scrap tires are recycled or used today. The main use (about 30%) is adding crumb rubber to asphalt for making roads. Other products that are made of scrap tires are: car floor mats, playground filler, floor tiles and some other soft products which do not need strength or rigidity of the final material. Scrap tire piles continue to accumulate all over the country and constitute dangerous environmental hazards.
8.What is the real market potential and what is the risk if the users do not accept the pallets?
As previously stated, of the 800 million pallets manufactured each year, about 60% are made from hardwood. Our product replaces the hardwood pallets, and if you look at our 5-year projection, we will produce approximately 19 million pallets while in the same 5 years the pallets industry will produce 2.4 billion hardwood pallets, which means we will capture, within 5 years, about 0.8% (less than 1%) of the total pallet market.
ATP surveyed the acceptance of RST-PAL pallets through pre-production marketing efforts and it was excellent. We visited 62 pallet users in the DFW area. All of the companies were impressed with the RST-PAL pallets made from this unique and patented “new material” from recycled scrap tires. Many stated that they would use the pallets once we had a production facility. They were especially impressed that our pallets were stronger and more durable than wooden pallets and would perform much longer than wooden pallets. NWPCA states, “wooden pallets last from 1.5 to 2 trips before having to be repaired or replaced.” We also visited with the buyer of pallets for 3M company in Minneapolis, and the buyer was very eager to use RST-PAL pallets. 3M purchases more than 7 million pallets in just one year. ATP also contacted, through the Department of Defense, the Army, Air Force PX and Exchange, AAFAS. They actually wanted us to deliver 50,000 pallets as an initial order but unfortunately we were not in production.
9.Can you show us orders from companies that were interested in using your pallet?
No. As we have not begun production, we cannot guarantee that ATP will be able to deliver pallets on a specific date, and so we have not accepted any orders. As the projected calculation shows tremendous savings to the user, and as RST-PAL pallets have so many advantages in comparison to wooden pallets and at a competitive price, ATP believes that when production commences, pallets will be immediately accepted. Some of the users we visited were surprised that the price was so low in relation to the performances of RST-PAL pallets.
10. What are the technical properties of the pallets and which tests have already done?
The technical data and the tests results are as follows:
- RST-PAL pallets are both rackable and stackable, and pass ISO standards.
- The RST-PAL pallets have the same parameters as hardwood pallets, including two or four way entry, and meet GMA pallet standards.
- Weight: 40″x48″, four way GMA pallet, hardwood=65 lbs; RST-PAL=71 lbs.
The difference in weight disappears after the wood starts absorbing water/liquids.
- The deflection of a pallet with our material, according to ISO when R=1500KG, is about zero (actually equal to the deflection of metal under the same load).
- A test was conducted with 3 concrete beams weighing 25 tons (51,000 lbs), which were loaded and lifted onto an RST-PAL pallet. In comparison, wooden pallets have a static weight load of 2,500 pounds.
In conclusion, this is not a high precision, high tech product — it is a strong and durable pallet with excellent material qualities and is offered to pallet users at a very competitive price, which will save pallet buyers bottom line profits.
11. Usually, as production increases, the price normally decreases (mainly because of competition). In your B.P. the price is increased. Please explain?
Actually, part of the answer is in the question. There is no competition. Hardwood is a commodity and its price changes constantly with lumber prices (which continue to increase annually). Our increase in price takes this fact into account. The raise in prices, as appears in our projections, of 25% during the next five years is probably less than the increase in the cost of hardwood. Another reason is that our initial price is very low, designed so that ATP can penetrate different markets rapidly.
Most key pallet purchasers that we talk with, think we are vastly under priced for a pallet that is so durable and lasts so long. Some believe RST-PAL pallets should be in the $39.00-$59.00 price range (similar to plastic pallets), and not just a few dollars more than hardwood pallets. ATP assumes that for many years (due to patent protection) RST-PAL pallets will not have competitors, which can often drive the price down. The assumption is that the advantages of RST-PAL pallets over hardwood pallets will cause pallet users to purchase RST-PAL pallets to lower their pallet costs. Following RST-PAL pallets becoming established in the market place, the advantages and the savings will be widely recognized and there will be justification for further price increases.
The opening price of $18.50 is an average price and not applicable to all sizes nor to all customers. Certainly, a customer purchasing 500,000 pallets per year will be given a discount different from a customer purchasing 1,000 pallets.
The Board of Directors will re-visit the $18.50 price as sales develop. Our projected low price is intended to introduce the pallet to many different manufacturers and industries that use pallets, targeting those companies with a closed loop system that can use, retrieve and use over and over again the same durable pallets.
12. Everything seems so good, what is the down side to this project?
ATP believes that according to the projections, the only downside is our start-up production capacity. ATP knows that it will capture the small percentage of less than 1% of the total market demand. The projection shows that this 1% of the market will enable both growth from profits to fund expansion and a good return in the form of dividends for its investors.
RST-PAL pallets are heavier, by about 8 lbs, than the equivalent size pallet made of hardwood. This is true only at the beginning of the lifecycle of a wooden pallet as wood absorbs water and other liquids and can become even heavier than RST-PAL pallets. An average 40′ truck trailer carries about 22 loaded pallets, and by using RST-PAL pallets the total added weight is less than 200 lbs, which is not significant.
13. Is your patent defendable and what does it actually protect?
The patent was approved and issued in July 2002. It took about five years to perfect and to reach the utmost protection possible. It protects any product made from recycled scrap tire rubber using a plurality of sizes with or without other materials like plastic, adhesives etc.
14. Who has the exclusivity to utilize this patent?
The total and irrevocable exclusivity was granted to ATP Corporation, which consists of the new investors and the existing partners. This exclusivity includes licensing to other parties worldwide for the manufacturing and marketing of RST-PAL pallets.
15. It appears that you are looking for investment of $4M to $6M. Elaborate.
These two numbers express the difference between starting with one line of production vs. two lines. The basic set of machines needed for production can be extended to two lines with addition of some machines. By starting with two lines, the production capacity is doubled to 1.2M pallets per year with net profit projected of over $8M versus $3.2M if ATP opens with a single line.
16. How will the investor’s capital be used?
A detailed start-up expenses and funding table can be found in Topic 2.2. The main expense item is for machinery and in both cases about $750,000 remains as working capital.
17. What equity percentage are you offering for the investment?
The calculation of the present value of the company based on the projections appears in the business plan. The present value of five years of net earnings at 25% discount is over $100 million. We deliberately took an unreasonably high discount rate to avoid any disputes.
We value our company at “present value” of just over $17M. Hence, for the $6 million investment; we offer 35% of the company with all its rights.
18. Is there any other way of financing the project?
Yes. We would accept a loan, secured by the assets and rights of ATP, which will carry interest of 5% for a period of ten years starting (the repayment) at the beginning of the second year. The return can be accelerated.
In addition to the secured note, the lender will be offered 17.5% equity interest for a loan of $6 million.
19. Who is ATP’s management team?
See Chapter 6.0 of the Business Plan. Each member of the team along with our consultants, are highly qualified professionals with vast and proven experience in their fields (e.g. plant installation and operations, purchasing and marketing). ATP is also open to investor participation both in the company and on the Board of Directors.