The projected financial plan is very sound. The one-time investment gives ATP the ability to take 50% of the profits (after tax) as dividends at the end of year two and to self fund expansion by one additional plant per year. The projected cash flow is outstanding and will enable ATP to be even more aggressive in our expansion plans.
As mentioned throughout this Business Plan, each plant will produce a maximum of 100,000 pallets per month, which is very low in comparison to the demand for pallets. (800 million pallets divide by 12 gives approximately an average of 67 million pallets per month sold in the U.S.)
In addition to the expansion within the U.S., overseas licensing projects will be developed, from which we will create additional revenue streams through licensing fees, royalties, and other contractual payments.
ATP may also enter into other joint ventures or partnerships to license other entities to manufacture and market RST-PAL pallets not only in the U.S. but also worldwide.
The last two sources of income are not included in the financial forecast and do not appear in the tables.
The financial plan based on important assumptions, detailed in the following statements:
This break-even analysis shows that ATP has budgeted fixed costs and projects sufficient sales to maintain good cash flow balances. This projection is based on two production lines.
The essential insight here is that ATP's projected sales levels will be running comfortably above the break-even point.
NOTES TO PROJECTED FINANCIAL STATEMENTS
NOTE 1 - MATERIALS COST
The raw materials, recycled scrap tire rubber, will be provided on an as needed basis. No large stockpiles of material or inventories of recycled rubber shall be stored at the manufacturing site.
The main ingredient of an RST-PAL pallet is recycled scrap tire rubber that has been processed to specific dimensions. There is three million tons of scrap tire shredded rubber on the ground in Texas with ten permitted processors or tire shredders, which want to provide material to ATP.
ATP will purchase scrap tire rubber from a Stamford, Texas processor, and has estimated the cost of material at $1.25/pallet ($50 per ton). It should be noted that ATP is working closely with the Texas Natural Resource and Conservation Commission and ATP may even have an opportunity to acquire surplus scrap tire rubber for less costs. Texas now produces approximately 200,000 tons of scrap tire rubber annually. In addition, the current Texas Legislature is considering paying manufacturers of products using recycled scrap tire rubber, $0.75 per pallet ($30 per ton) as an incentive to increase production of products using scrap tire rubber.
A small amount of recycled plastic is utilized in the formula and its cost is estimated at $0.90 per pallet. In addition a secret formulated binder, developed by the inventor Dan Radke, is used in the manufacture of the pallets, estimated to cost $6.50 per pallet.
NOTE 2 - DIRECT LABOR (Production Payroll) and PAYROLL BURDEN
Projected Direct Labor includes the salary and wages for those employees directly involved in the pallet production process in the plant and is reflected in Topic 6.1. Payroll burden is estimated at 23% (FICA 6.20%; Medicare 1.45%; FUTA .80%; State Unemployment 3.00%; Workers Compensation and Employee Health Benefits 11.55%).
The total Direct Labor cost includes payroll burden and other direct costs such as utilities, building repairs and maintenance, plus plant supplies estimated at 5%. The total for direct labor cost and payroll burden per pallet is estimated at $1.31.
NOTE 3 - ROYALTIES
The Licensing Agreement requires payment of 5% of gross sales to Mr. Radke, the inventor, as royalties. This may be paid quarterly or monthly (5% has been used throughout these projections). There will be no royalties for the first six months of production to help the cash flow of the company.
NOTE 4 -GENERAL & ADMINISTRATIVE WAGES AND PAYROLL BURDEN
The company will employ Management and clerical staff as appears in the Personnel table, Topic 6.1. Additional management members and marketing representatives will be added as needed throughout the growth of the company. Payroll burden estimated at 23% including taxes, W/C, health and employee benefits. During the six-month start-up phase and thereafter, the company will employ experts in the industry as consultants.
NOTE 5 - DEPRECIATION
Machinery and equipment is being depreciated over 10 years, property over 30 years.
NOTE 6 - OFFICE EXPENSES
Provision has been made for estimated general office expenses. Computers and office equipment costing $15,000 is included in the initial start-up budget and Expensed Equipment. The amount budgeted for Year One is $12,000, which will increase at the rate of $12,000 per year with each additional plant.
NOTE 7 - MARKETING and SALES
Management anticipates strong demand for the RST-PAL pallets creating a real challenge for production to keep up with the demand. Back orders are expected and sales on advanced production should drive expansion. With many potential pallet users identified, who currently use from 100,000 to 7 million pallets annually, we will approach the expansion of our national sales force, carefully. ATP does not want a large sales force with production sold out for months in advance. A budget in this category will be used for sales representatives or commissions on sales and is budgeted at $73,000 during year one. Based on attendance at conventions and trade shows it is anticipated that our targeted Dallas - Fort Worth Metropolis, Houston, San Antonio and the rest of Texas will absorb all our production for many years.
A Marketing Director shall develop goals and strategies with the board of directors. ATP plans to hire a qualified director in year one. Sales representatives will be hired and it is anticipated they will receive a base salary with commissions of ten cents per pallet sold. The budget takes these assumptions into consideration.
NOTE 8 - MACHINERY MAINTENANCE
The initial production line machinery will be in good working order, nevertheless, ATP will plan for parts maintenance and replacement. This budget grows as more machinery and plants are established.
NOTE 9 - TAXES
The "taxes incurred" appearing in the P&L represents State of Texas Franchise taxes and Federal Income Taxes for a total of 34%.
The Profit and Loss table for the first 12 months appears in the appendix.
The table presents our projected cash flow balances. The critical first year reflects positive cash flow. Monthly cash flow is positive and more important the balances are positive, which indicates adequate financial reserves and correct planning of the required working capital. The estimated results permit a margin of error and still appear strong, even though the numbers remain conservative.
ATP intends to distribute dividends to its shareholders in a way that will enable the continuation of the expansion of the company according to this Business Plan. ATP estimates that from year two forward 50% of the profit (after tax) will be distributed to the shareholders. The Board of Directors will determine any other distributions to be made on an annual basis.
The following chart shows the cash availability for the next 12 months. The bar labeled "Cash Balance" shows our projected cash balance for the first 12 months of the project and it is adequate (above zero). The second set of bars, labeled "Net Cash Flow", indicates the change in the Cash Balance for each month.
The Projected annual financial balances are shown in the following table. The balances for the first 12 months are presented in the appendix.
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 2448, Wood Pallets and Skids, are the closest available and are shown for comparison. ATP's patented technologies are so new, that there is no SIC code that directly applies.
In addition to the enclosed financial information contained in this Business Plan, ATP would like to make the following observations that were not emphasized in this Business Plan:
The Business Plan covers five years of activities. We consider the financial projections in the Business Plan as conservative. As an example; since July 2002, (the date the patent was issued), ATP's Vice President, Elie Banensohn has traveled to several European countries and has met with representatives of companies from the Far East. These companies recognize the value of RST-PAL pallets and have shown an interest in licensing the technology in order to manufacture and market the pallets in their countries (in some cases with our participation). The Business Plan does not include any income from licensing fees or royalties from foreign entities. Scrap tire problems exists everywhere and is even more acute in Europe and the Far East as they have less space for storage and less scrap tire processing technology than the U.S.
Revenues include some benefits from State or Federal level subsidies or grants for helping to clean up scrap tire problems, which are available. There are States that are offering participation in funding new companies using scrap tire rubber. ATP and its Board of Directors believe that demand for RST-PAL pallets may cause expansion plans to be reviewed and changed, assuming demand will be high. After initial exposure of RST-PAL pallets to the market, additional plants may need to be installed sooner than the company growth plan calls for.
As previously mentioned, a division or subsidiary of ATP will be proposed to manage the pallet leasing aspect of sales, which will afford pallet users the option to change over their entire inventories of wooden pallets to RST pallets on a "lease to purchase" plan. ATP anticipates substantial revenues and success in the pallet leasing market.