COMMITTED TO INNOVATION & COMMUNITY

1 “Committed to Innovation and Community”

Gfdfghjkl;


Dear Prospective Investor,

biofuels America, Inc. d/b/a BFA Energy

Solutions (“the Company) is an

innovative company dedicated to

bringing advanced alternative energy

technologies and solutions to market.

We have identified unique opportunities

in the lignin and cellulosic ethanol markets.

Our mission is simple. To maximize shareholder value and to

increase profitability. As a major component of the New Energy

Economy our goal is to develop bio-refinery infrastructure assets to

produce cellulosic ethanol, lignin and other related bio-chemicals.

Just as important, is our goal to become a stakeholder in the

communities in which we operate. We are “Committed to

Innovation and Community.”

Respectfully,

Jackie Joyner Kersee

Vice President Investor Relations

© bfa Energy Solutions, 2011. All rights reserved.


Table of Contents

Section A: Executive Summary

Corporate Information ………………………………………………………………. 9

Mission and Vision ………………………………………………………………….. 10

Location ……………………………………………………………………………… 10

Availability of Workforce …………………………………………………………… 11

Existing Ethanol Plant on Site ……………………………………………………….. 11

Process Technology …………………………………………………………………. 16

Biomass Feedstock Supply & Delivery Systems …………………………………….. 17

Primary Output ………………………………………………………………………. 18

Our Economic Analysis ……………………………………………………………… 23

National Export Initiative …………………………………………………………….. 25

Energy requirements …………………………………………………………………. 27

Transportation ……………………………………………………………………….. 27

Project Permitting …………………………………………………………………….. 29

Project Construction …………………………………………………………………… 29

Environmental Issues …………………………………………………………………. 30

Community Concerns …………………………………………………………………. 32

Section B: Economic Feasibility

Location ……………………………………………………………………………….. 35

Infrastructure ………………………………………………………………………….. 35

Feedstock Source Management ……………………………………………………….. 37

Impact on Existing Manufacturing Plants …………………………………………….. 38

Economic Impact ………………………………………………………………………. 41

Renewable Fuels Standard …………………………………………………………….. 42

Section C: Management and Organization

Organization ……………………………………………………………………………. 47

Board of Directors ……………………………………………………………………… 47

Continuity and Adequacy of Management ……………………………………………... 51

Executive Team ………………………………………………………………………… 53

Strategic Relationships …………………………………………………………………. 63

Section D: Market Feasibility Determinations

Market Analysis ………………………………………………………………………… 67

Financing Obstacles …………………………………………………………………… 68

Sales Objectives ………………………………………………………………………… 69

Market and Budget Results …………………………………………………………….. 69

Situation Analysis ………………………………………………………………………. 74

Competition …………………………………………………………………………….. 75


Section E: Technical Feasibility Determinations

Background of Advance Technology Invention ……………………………………… 88

Kraft Pulping Processes Disadvantages ………………………………………………. 92

PLET Process Advantages ……………………………………………………………. 92

PLET Production Process …………………………………………………………….. 93

PLET Pilot Plant ……………………………………………………………………… 103

Design & Engineering ………………………………………………………………… 108

Timing of Major Component Replacement & Rebuild ……………………………. 114

Section F: Financial Feasibility Determinations

Reliability of Financial Projections and Assumptions ………………………………… 117

Financial Assumptions and Elements of Development Costs …………………………. 119

Ability to Achieve Projected Income and Cash Flow …………………………………. 120

Availability of Short Term Credit ……………………………………………………… 122

Adequacy of Raw Materials and Supplies …………………………………………….. 125

Sensitivity Analysis ………………………………………………………………….. 125

Feedstock Costs ………………………………………………………………………… 127

Energy Costs …………………………………………………………………………… 127

Risks Related to Project ………………………………………………………………… 128

Borrower Financing Plan ……………………………………………………………….. 132

Source of Funds ………………………………………………………………………… 133

Exit Strategy ……………………………………………………………………………. 136

Tax Issues ………………………………………………………………………………. 137


List of Table, Images & Figures

Tables

Table # 1: Corporate Ownership ........................................................ 10

Table # 2: Marion County, TN Available Workforce & Related Dem.

Table # 3: ` Property Building Schedule ..............................................

Table # 4: bfA Project Revenues ....................................................... 27

Table # 5: Equity Drive Schedule ...................................................... 27

Table # 6: ` Energy Use ........................................................................ 28

Table # 7: Site Logistics Data ............................................................ 29

Table # 8: Construction Permitting Timeline ..................................... 30

Table # 9: Completed Pre-Development Work .................................. 37

Table # 10: Existing Manufacturing Consumption ............................... 40

Table # 11: Project Corporate Income Tax Expense ............................ 43

Table # 12: Job Creation & Econ. Value of Cellulosic Feedstock Prod. 46

Table # 13: bfA Project Revenues .......................................................... 69

Table # 14: Annual Marketing Budget ................................................ 70

Table # 15: Energy Industry Magazines ............................................... 74

Table # 16: Customer Sales Agreements .............................................. 75

Table # 17: Tankage Requirements Per Day of Processing in US Gallons 98

Table # 18: Daily Requirement for Chemicals & Water ……………… 100

Table # 19: Production Output for 36T Input of Feedstock/Day ............ 101

Table # 20: Energy Balance; Based on Processing 36T Sawdust Daily 102

Table # 21: Mass Balance; Based on Processing 36T Sawdust Daily.... 103

Table # 22: Project Financial Statements ……………………………… 117

Table # 19: Summary of Sensitivities …………………………………. 126

Table # 20: Feedstock Costs …………………………………………… 127

Table # 21: Energy & Replacement Costs …………………………….. 128

Table # 22: Product/Co-Product ……………………………………….. 128

Table # 23: Political Support for Project Tennessee …………………… 139

Images

Image # 1: Arial Map of Jasper, Tennessee ................................................ 47

Image # 2: Arial Map of Jasper, TN Plant .................................................. 49

Image # 3: Jasper, TN, Plant ....................................................................... 50

Image # 4: Arial of Existing Manufacturers ............................................... 77

Image # 5: PLET Pilot Plant Photo # 1 ....................................................... 125





Image # 10: PLET Pilot Plant Photo # 6 ........................................................ 127

Image # 11: PLET Pilot Plant Photo # 7 ........................................................ 128


Image # 12: PLET Pilot Plant Photo #8 ........................................................ 128

Image # 13: PLET Pilot Plant Photo # 9 ......................................................... 129

Image # 14: Impregnation Tank Assembly ..................................................... 287

Image # 15: Lignin Pre-Treatment Plant Assembly ....................................... 288

Image # 16: LP1 Isometric .............................................................................. 289

Image # 17: LP1 Side view ............................................................................... 290

Figures

Figure # 1: PLET Production Process Flowchart ............................................. 57

Figure # 2: U.S. Production of Advanced Biofuels Under RFS ...................... 80

Figure # 3: PLET Process Flow Chart ............................................................. 116

Figure # 4: PLET Process Flow Chart ................................................................. 117


Section A: Executive Summary

The growing concern over our nation’s increasing need for energy, in the form of electricity,

liquid fuels and bio-chemicals and the federal government’s mandate of renewable fuel standards

coupled with governmental financial incentives has created a burgeoning need for renewable

energy solutions. Biofuels America Inc. d/b/a BFA Energy Solutions, a Tennessee corporation

(―BFA Energy‖ or the ―Company‖) was founded in 2008 to take advantage of these

opportunities in the renewable energy sector.

To fulfill this increasing demand for energy, The Company plans to develop a fleet of

biorefineries across the United States in opportunistic states. The Company’s first project

located in Jasper Tennessee is called ―Project Tennessee.‖ Project Tennessee will cost

approximately $112 million and will create 50 permanent ―green jobs‖ and roughly 150

temporary jobs during construction. Total year one sales are conservatively projected at

$ 117,006,245.00

Project Tennessee involves the acquisition of a closed grain ethanol facility and retrofitting that

facility into a Combined Heat and Power (―CHP‖) biorefinery. Project Tennessee will use an

advanced patented process by Pure Lignin Environmental Technology, Ltd, (―PLET‖) of

Kelowna, B.C., Canada licensed to the Company. Using the licensed technology from PLET, the

Company will convert wood wastes and urban trash (pre-sorted municipal solid waste) into

cellulosic ethanol and other valuable biochemicals such as lignin and will also combust some of

the lignin to produce electricity.

From 1995 to 2007, total U.S. electricity consumption increased by 24% even while the price of

electricity also rose by 32.5%. From 1990 to 2008 the U.S. consumption of petroleum rose

36.5% even though the price of oil also increased over the same time period by 117%. The U.S.

Department of Energy, Energy Information Administration predicts that U.S. electricity

consumption will continue to rise by 26% from 2007 through 2030, notwithstanding pending

improvements in energy efficiency.

In the early 2000s, several start-up companies developed corn-based and soybean-based ethanol

plants in order to produce ethanol. U.S. policy favored the development of these liquid fuel

producers through a series of excise tax credits. When world agricultural prices spiked in mid-

2008, many first generation ethanol producers found that they could not acquire feedstock in the

form of corn or soybeans at prices that made ethanol profitable. As a result, many first

generation ethanol producers failed or halted their operations. In addition, the apparent

competition of ethanol producers for edible products like corn and soybeans produced a political

backlash that has tended to disfavor ethanol production based on grains. In spite of this backlash,

the federal government instituted the Renewable Fuels Standard (―RFS‖). The RFS is a

provision of the US Energy Policy Act of 2005 that mandated 7.5 billion gallons of renewable

fuels by 2012. United States currently produces 5 billion gallons of ethanol. In addition, the

―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or

ethanol produced from non-food sources are entitled to a $1.01 subsidy for every gallon of

cellulosic ethanol produced.

http://www.bioenergywiki.net/US

http://www.bioenergywiki.net/2005


http://www.bioenergywiki.net/United_States

http://www.bioenergywiki.net/Ethanol_producers_by_country

http://www.bioenergywiki.net/Ethanol


According to the U.S. National Center for Environmental Research, the U.S. produces some 26

million tons of lignin each year but as to the quality they find that: ‖Despite the judicious

schemes devised for fractionating and derivatizing the lignin preparations employed by the

traditional Kraft Pulping process which is the current technology in use, the optimum lignin

contents in these polymeric materials have typically fallen in a range of 25 to 40%. Even in this

low grade form of Lignin is a highly consumed product with a large number of uses. The value

of Lignin per ton is normally twice that of pulp even in such low quality. Our test results to date,

furnished by Pure Lignin Environmental Technology, Ltd. (―PLET‖) our technology provider,

have shown that as a by-product of making cellulose, we can produce an 83% pure lignin that

contains 17% impurities, the purest lignin produced in the world. The Company believes that

with a simple washing process the lignin can reach a purity level between 95% and 99%. Unlike

many that have tried and failed in the past, this technology actually provides a cost effective way

to produce ―pure lignin‖, which can then be used to produce 100% biodegradable plastics as well

as many other food grade and biodegradable products. Lignin has many uses and is a widely

used commodity that is in high demand, The Company foresees itself creating and improving

many lignin based products and making a great impact on not only the pulp and lignin markets

but many markets in the U.S. and around the world. Current lignin prices range from $200 to

$3,000 per Ton. The Company’s financial model estimates that it will sell its LMW lignin for

$500 per Ton and its high molecular weight (―HMW‖) Lignin for $1,700 per Ton. The

company estimates year one lignin sales of $81,600,000.00.

The high price of foreign oil and our nation’s dependence on it coupled with our country’s

policy commitment to energy security and combating climate change, presents an immense

opportunity for developers of bio-refineries to produce electricity, liquid fuels and bio-chemicals.

The Company’s production model, utilizes readily-available and inexpensive inputs to produce

marketable, high-value outputs. PLET’s advanced, patented, revolutionary, green, bio-

technology produces three separate, economically profitable products: commercial grade

cellulose, pure lignin and Sweet liquor (sugars, hemicellulose). It combines a unique blend of

chemicals and low-pressure steam in a closed-loop process which emits no emissions or

pollution. The process can utilize any vegetation as its source including waste-wood, Pine beetle-

killed trees, sugar cane, grasses, husks etc. The plants will be much more profitable than

traditional methods with costs to build and operate considerably lower than conventional

processes and more revenue streams.

The company will produce 15 million gallons per year (―MMGY‖) of cellulosic ethanol, 93,000

Tons of lignin and 15 Megawatts (―MW‖) of electricity annually. The electricity that the

Company will produce and sell is generated by the combustion of some of the LMW lignin that

it produces in the refining process. Relying on an engineering study from an experienced

renewable energy consulting firm, the Company estimates that its implementation of the PLET

production process should produce more than enough LMW lignin to produce 15 MW of

electricity per year. Of that power, the Company would expect to use about 1 MW of as

combined heat and power in its own operations, leaving 14MW available for sale.

Project Tennessee is surrounded by hundreds of miles of largely uninhabited forestland. The

Company commissioned a study in 2009 from Ward Consulting Services, Inc. on the availability

of wood and wood waste feedstock from the area surrounding Project Tennessee. The Ward


Consulting study focused on available wood and wood waste within a 75 mile radius of the

Project Tennessee site to minimize transportation costs and concluded that the $30 to $45 per ton

price estimate was sustainable at an annual rate of consumption of 400,000 tons. In addition to

the Ward Consulting study, the Company has entered into a requirements delivery contract with

The Price Company, Inc. to purchase the Company’s requirements of wood and wood waste at a

price of $45 per ton for up to 400,000 tons per year (including transportation to the Company’s

site). The Company will be able to acquire the feedstock for its operations at costs that are a

small fraction of those paid by first-generation producers for corn and soybeans. By utilizing a

lower-cost feedstock than the first-generation producers, the Company will produce ethanol at a

lower cost, with a higher and more sustainable profit margin. At an average sales price of $1.83

(as of 5/25/10) per gallon, the company expects year one revenue from ethanol sales to be $

27,450,000.

On May 20, 2009, the Company entered into an Ethanol Sales and Marketing Agreement with

CHS. Under the agreement CHS will purchase all of the ethanol that the plant produces. Under

the Agreement CHS is obligated to market and sell to commercial purchasers all of the ethanol

produced by the Company. The Company’s sales of ethanol will be priced based upon the

purchaser bearing the cost of shipment from the Company’s location and the Company will pay

CHS a marketing commission equal to 1.25% of the actual price paid by the purchase but not

less than $0.015 per gallon. CHS is a diversified global agriculture and energy company in the

Fortune 200 (NASDAQ: CHSCP) with over 75 years in the energy industry and over 25 years of

experience in ethanol marketing that had 2008 revenues of $32.2 billion with net income of $803

million.

The excess electricity produced will be sold to one or more electric utilities under a long term

power purchase agreement (or ―PPA‖). The Company expects to negotiate a power purchase

agreement with TVA, or with one of TVA’s distributors in the area of Project Tennessee, that

takes advantage of the premium provided by TVA for renewable energy. The Company has a

preliminary letter of intent with Veolia Energy will to design, operate and maintain the CHP

power plant at its site. Veoila Energy is a division of Veolia Environment, a French multi-

national company with 2007 revenues of $48 billion. Veolia Environment is the world leader

and benchmark player in environmental services. Veolia Environment is a 150 year old

company with operations on every continent and approximately 300,000 employees. Veolia

Energy has extensive experience in designing, building, operating and maintaining energy

projects and refineries. The Company has received a Letter of Intent in which Veolia Energy

―would support [the Company] in securing the Power Purchase Agreement (“PPA”)”

The Company has engaged the firm of E3 Energy Partners to manage the project from planning

phase, through engineering and construction phases, to completion and implementation. E3

Energy Partners is a global leader in chemical engineering, process scale-up, detailed design and

project oversight for renewable energy solutions. With 25 years of experience, E3 Energy

Partners is one of the most highly respected project engineering firms in the country. It blends

fiscal management, problem analysis, engineering, and a disciplined work measurement into its

overall project control process. While E3 Energy Partners has considerable experience in all

types of industrial projects, it has created a special niche in retrofitting existing facilities with

new technology, rather than construction of new facilities.


Corporate Information

The Company is a Tennessee C – corporation that was incorporated on May 8, 2008. Its

registered agent is W. E. ―Pete‖ Reeves. The Company has 1,000 shares of common stock

outstanding and 500 shares issued. The corporate shares are held as follows:

Table # 1

Corporate Ownership

The Company is licensed (License #: 110002800) in Memphis, Shelby County, Tennessee.

SHARE HOLDER ADDRESS PHONE # % OWNERSHIP OWNERSHIP

SHARES

Pete Reeves 221 East Dale Avenue

Springfield, IL 62703

(901) 832-1144 15 75

Cole Porter 815 E. H. Crump Blvd.

Memphis, TN 38126

(901) 832-0082 15 75

Malcolm Xavier Beal 17 St. Christopher Lane

Cahokia, IL 62203

(217) 481-1767 9 45

The Camara Group 1734 South 7th Street


(217) 753-9000 15 75

Gabriele Reeves

c/o Natasha Crider

217 South Paul


(217) 202-2270 9 45

Kaye Ammer 1614 Saddle Lane

South Haven, MS

(901) 577-1658 5 25

Bob Pitman 8921 Timber Trail Cove

Cordova, TN 38018

(901) 486-3917 2 10

Abdul Zarif P.O. Box 18692

Saint Louis, MO

(731) 443-6205 2 10

Brian Walters 137 Fava Drive

Greenville, MS 38701

(662) 820-2732 2 10

Terrance Jamison 5296 Villa de Rey

Memphis, TN 38116

(901) 210-3664 2 10

Brad Jones 1630 East Moffat


(217) 801-8146 2 10

Joyce Flagg 1436 East Washington


(217) 361-2271 5 25

Joyce Nash 1901 East Pine

Springfield, IL 62703 (217) 502-5237 5 25

Karen Wooldridge 1238 North Van Dyke

Decatur, IL 62522

(217) 619-3855 5 25

Biofuels

AMERICA, INC.

815 E. H. Crump Blvd.

Memphis, TN 38126

(901) 577-1658 4 20

Robert Johnson 1601 South 14th

Street


(217) 361-2271 3 15

TOTAL 100 500


Mission & Vision

Location

Project Tennessee is located in the township of Jasper in Marion County, Tennessee. Marion

County is situated in the southeastern part of the state, and is considered a part of the

Chattanooga, TN-GA Metropolitan Statistical Area. Jasper is approximately 18 miles west of

Chattanooga, TN, which has an estimated population of 518,000. Jasper is approximately 120

miles northwest from Atlanta, Georgia and approximately 145 miles northeast of Birmingham,

Alabama.

Image #1

Arial Map of Jasper, Tennessee

Source: Southeast Industrial Development Association

Mission Statement

The mission of biofuels AMERICA, INC. is to be a globally competitive corporation by creating

value for our shareholders from natural resources to become a premiere producer of cellulosic

ethanol and other biochemicals.

Vision Statement

A boundary less learning organization engaged in diverse fuel production enhancing the quality of

life of our shareholders, employees and customers.


Availability of Workforce

Between Marion County and adjacent Hamilton County, there is an indigenous population base

of more than 500,000. Marion County is rural, with a population density of slightly more than

50 per square mile. Hamilton County contains both rural and urban areas, with a population

density of more than 500 per square mile. Once Project Tennessee becomes operational, the

operation will provide competitive wages and comprehensive employee benefits designed to

attract a stable, long-term workforce.

Table # 2

Marion County, TN

Available Workforce & Related Demographics

Existing Ethanol Plant Already On-site

The site already has a closed corn ethanol plant situated on the property. This facility will be

reengineered to accommodate the proprietary technology the Company will utilize to produce cellulosic

ethanol, bio-chemicals and electricity from biomass. The property includes the following assets and

attributes:

1. Existing Ethanol Refinery - A fully constructed ethanol refinery, with nine (9)

riveted steel and concrete silos for a total storage capacity of 539,000 bushels of

source material.

2. 35 Usable Acres - The property consists of 35 acres are functionally usable by the

plant.

DESCRIPTION DATA

Labor Force 13,100

Unemployment 750

Unemployment Rate 5.7%

Property Tax (Per $100 Value) $2.08

Ratio of Assessment

Residential

25%

Industrial 40%

Personal (equipment Inventory) Raw

Materials Only

30%

Sales Tax (County) 2.25%

Sales Tax (State) 7.0%

Income Tax None

Personal 6.0% on interest and

Dividends

Excise (Corporate) 6.5% of net earnings

Franchise Tax .25 per $100 of Capital


3. Clean Phase I Environmental Assessment - It is clean of any hazardous wastes

or spillages. A Phase-One environmental site assessment was conducted in May

2005 by QORE, Inc. (Project #05-3099E) which documented the site’s

environmental cleanliness.

4. River Access - The property is situated within 5 miles of the Tennessee River,

which provides barge access to the Gulf of Mexico via the Tennessee Tombigbee

Waterway.

5. Rail Access - The site has direct rail access to interstate carriers. A dual spur run

of 0.75 miles has been brought onto the property, connecting the plant to mainline

rail systems.

6. Highway Access - It is less than 2 miles from Interstate-24, with direct access via

paved secondary highway for incoming and outgoing truck transport.

7. Utility Connections - The facility is already equipped with water, electricity, and

natural gas.

8. Industrial Improvements - Additional heavy industrial improvements have

been made to the property which will reduce construction time and production

start-up by at least 12 months.

Image #2

Arial Map of Jasper, TN Plant

Source: Henry B. Glascock Company, Site Appraisal, 2/7/08

These improvements include:


1. Maintenance facilities, administrative offices, and weigh station building;

2. Ten (10) 350,000-gallon carbon steel slope bottom storage tanks;

3. Silo elevators;

4. Three (3) metal petroleum containers;

5. Railroad spur with siding and turnout;

6. Railroad car scale;

7. Two (2) truck scales; and

8. Loading docks and crane ways

Image #3

Jasper, TN Plant

Source: Henry B. Glascock Company, Site Appraisal, 2/7/08

The existing corn-based ethanol plant on the site of Project Tennessee.

The improvements described to follow are situated on tax map and parcel 132-62 and they are to

the north of the L&N Railroad property that bisects that tract. This approximate 25-acre

industrial complex is improved with 18 permanent structures and many ancillary improvements.

The following table illustrates the type of structure and its approximate building area.

Table # 3

Property Building Schedule

BUILDING # DESCRIPTION SQ. FT.

Building #1 Guard Shack 84

Building #2 Main Office 9,600

Building #3 Service Garage 6,300

Building #4 Small Warehouse 5,360

Building #5 Small Fire Bldg. 256

Building #6 General Maint. Bldg. 18,480

Building #7 Engineering Bldg. (Laboratory) 4,000

Building #8 Refrigeration Bldg 496

Building #9 Loading Bay 2,400

Building # 10 Operational Facility for Silo 19,680

Building # 11 Office-Main Silo Area 2,800

Building # 12 Grain Loading Facility 7,360

Building # 13 Operation Facility 12.600

Building # 14 Portion of Operation Facility 1,500

Building # 15 Pump Bldg. 1,032

Building # 16 Acid C3,600ontainment Facility


The following narrative description is for the subject structures that are considered to be

substantial as opposed to those that have minimal value.

1. Main Office: This structure is a 9,600 square foot single story Class B office

structure having dimensions of 80 feet by 120 feet. The exterior walls are

decorative concrete block and the structure has a metal facade along the roofline.

The roof structure is flat, being bar joist and metal deck with built-up composition

cover. Again, the structure is situated on a concrete pad that is a minimum of 18

inches thick. The interior finish is typical in that wall partitioning is drywall and

ceilings consist of suspended mineral fiber. The entire structure is sprinklered

and all interior partitioning is steel stud. Additionally, the structure has super

adequate electrical service as evidenced by the attached photos. The HVAC

systems are super adequate in that the normal requirement of approximately

12 tons of heating and cooling capacity was upgrade to 50 tons. Other interior

improvements include suspended floor systems for computer rooms, conference

rooms, offices, restrooms, etc. The structure is in average to good condition and

maintenance has occurred with the most recent previous and present ownership.

2. Car Dox Buildings: This area is to the west of the previous structure. These

buildings (two) were originally constructed to be utilized in conjunction with the

ethanol production facility. Following the failure of that occupancy, they were

subsequently occupied as a dry ice production plant, hence, the designation ―Car

Dox‖ area. The Car Dox service garage is a typical steel frame metal clad

structure having dimensions of 40 feet by 70 feet. Interior partitioning within

this structure is concrete block, however. The structure is heavy by service garage

standards and it has a drive through bay for the servicing of semi-tractor trailers.

It is has two overhead garage doors and it is in average but serviceable

condition. The main Car Dox structure is also of steel frame metal clad design.

The main portion of this structure has dimensions of 80 feet by 60 feet. Also,

there is a metal offset portion, which has dimensions of 20 feet by 28 feet. The

total building area is 5,360 square feet. The structure has high ceiling heights (in

excess of 20 feet) and it is in average but serviceable condition. It also has a

loading dock at truck bed level. Overall Maintenance Building: This is a heavy

duty steel frame metal clad structure that was originally intended for the

maintenance of all equipment related to the production of ethanol. It has an

approximate 18-foot service ceiling height and a good portion of the

structure is finished in Class ―C‖ offices and machine shop and personnel areas.

Interior partitioning is concrete block and extremely heavy steel. The attached

photos of the interior of this structure illustrates that it was originally designed to

carry heavy crane ways for machine maintenance purposes. Areas partitioned in

steel are on 24-inch centers. The structure is completely lighted and is sprinklered.

3. Engineering Building: This is a concrete block structure having dimensions of

40 feet by 100 feet that was to be utilized, basically, as a laboratory. It is a wood

joist and wood deck roofed structure with a flat, built-up composition roof cover.


It is situated on a concrete pad within the containment area. It is basically

unfinished on the inside, accepting suspended mineral fiber ceilings but it heavy -

duty utility service including electrical and plumbing similar to the main office. It

is in fair condition and would require conversion to a use other than an

engineering building.

4. Operational Facility for Silo Storage: This structure is within the containment

area of the main facility. It is located adjacent to the concrete silos (to be

described later) and it is a two-story steel framed metal clad construction.

However, it must be noted that frame members within this structure are on 24-

inch centers and the building is of extremely heavy construction. The structure

has exterior dimensions of 120 feet by 82 feet and it is a two-story design. Grain

Loading Facility: This concrete and steel structure houses the aforementioned

steel grain silos. It was designed for the delivery of product into semi-tractor truck

trailers. The structural framework has exterior dimensions of 40 feet by 184

feet and it would be classified as very heavy industrial construction. Again, as the

photos illustrate, it facilitates five 100-foot tall, 51,000-bushel grain silos

constructed of riveted steel.

5. Operation Facility: This structure housed the main operation for the ethanol

plant. It is a specialized industrial structure with extremely limited conversion

potential. This is an industry specific structure of much higher than standard

construction materials. As the photos of the structure in its construction phase

(dated photos) illustrates, very few buildings exhibit this degree of heavy

construction. It is primarily of steel frame construction on very narrow centers

and it is a three-story design. The building area is approximately 12,600 square

feet. Also part of this structure is an additional elevated building consisting of

approximately 1,500 square feet that is of similar construction. Access to this

portion of the building is gained by way of catwalks.

6. Acid Containment Facility: Situated within the expanded containment, this

structure is also of steel frame metal clad construction. It was designed for the

housing of and containment of hazardous chemicals (never actually put to use)

and as with the previous structure is extremely specialized in design. It is also of

extremely heavy construction and conversion potential is nonexistent. It is a

single story structure having exterior dimensions of 70 feet by 60 feet with a

lower level open area. The remainder of the improvements are either smaller

structures such as truck scales and guard stations or the aforementioned concrete

silos. These silos are 120 feet tall and they were constructed of solid concrete.

Each silo has the capacity for 71,000 bushels of grain. Obviously, structures of

this nature are extremely limited in utility for alternative uses. However, the

cost new of this specialized structure is very high. Equipment remaining with

these structures include the grain elevators that have electric motors in the 400

horse power range.

Again, the property is also improved with a railroad spur with siding, a railroad spur turnout,

detention ponds, evaporation pit, fencing, roads, rail and truck scales, etc.


The existing assets on the site of Project Tennessee, in combination with the ready availability of

low-cost feedstock and the ability of the Pure Lignin to transform those feed stocks into ethanol,

biochemicals and electricity create a compelling value proposition, especially in comparison to

other cellulosic ethanol projects that have project development costs of three or more times

greater than Project Tennessee.

Process Technology

The PLET production process involves the following steps:

STEP 1: The biomass is ground into small chips or sawdust using commercial grinding

machines. Grinding the biomass into small chips or particles makes it easier for the chemical

solution to soak into (or ―impregnate‖) the biomass in the next step.

STEP 2: The biomass is soaked or impregnated with a solution of nitric acid and ammonium

hydroxide for a period of time, generally two to twenty hours. The soak time depends upon the

type of biomass involved and the size of the biomass particles, with softer biomass (such as

grasses) requiring less time than harder forms of biomass (such as hardwood trees). This acid

solution breaks down the cellulose in the biomass and separate the constituent parts.

STEP 3: The wood and acid solution is heated to a temperature above the solution’s boiling

point, but below the temperature at which the lignin would be destroyed by heat. The solution is

also agitated with a mixing device to ensure thorough heating and dispersion of the liquid. Most

of the acid solution evaporates and is condensed and recycled for re-use in the production

process.

STEP 4: The remaining material (which is now called a ―catalyzed biomass‖) is moved to a

digester tank into which is added a caustic alkaline mixture (generally, sodium hydroxide

(NaOH). The mixture is then heated and agitated to produce black liquor and wood pulp.

STEP 5: The mixture is strained and removed from the digester to a press device where the

mixture is separated into black liquor and wood pulp. The wood pulp (or cellulose) is then

removed and stored for commercial sale.

STEP 6: The black liquor is moved to a precipitation tank where it is cooled, agitated and

treated with another acid solution. The resulting precipitate is lignin and the remaining fluid is

an acidified hemi-cellulose (or sweet liquor) solution, consisting of C5 and C6 sugars.

STEP 7: The lignin is removed from the solution through a staining and filtration process and

then removed for storage and commercial sale. The sweet liquor is also stored in a storage tank

and may either be commercially sold or fermented into ethanol for commercial sale. As a result

of the PLET process, woody biomass is converted into three primary outputs:

1. Cellulose (Wood Pulp);


2. Lignin; and

3. Hemi – Cellulose (Sweet Liquor)

Each of these outputs can either be sold commercially or further refined or processed into other

value-added products(See Figure #1).

The Company’s production of fuels and chemicals from waste biomass yields significant

benefits, including environmental, social and economic impacts. In addition to providing new

local jobs, The Company’s ethanol bio refinery platform produces significant economic value

from what is otherwise considered waste, and also contributes to the goal of reducing air

pollution and harmful contaminants from the burning of conventional fossil fuels.

Biomass Feedstock Supply and Delivery Systems

The primary input in the Company’s production process is biomass feedstock. Acceptable types

of feedstock include wood, wood waste, woody biomass and municipal solid waste (MSW).

Although a longer-term source of feedstock may include municipal solid waste, the problems of

transporting, storing and sorting MSW (i.e., sorting the incoming MSW into biodegradable and

non-biodegradable categories) is problematic and the Company’s plans have not included MSW

in its financial model.

Project Tennessee located is in the eastern part of the state in a rural area that is surrounded by

hundreds of miles of largely uninhabited forestland. The Company commissioned a study in

2009 from Ward Consulting Services, Inc. on the availability of wood and wood waste feedstock

from the area surrounding Project Tennessee. The study concluded that ―establishment of a

400,000 ton facility in the Jasper area is doable at costs ranging from $30 to $45 per ton

delivered and based upon a mix heavily weighted toward hardwood round wood.” The

Ward Consulting study focused on available wood and wood waste within a 75 mile radius of the

Project Tennessee site to minimize transportation costs and concluded that the $30 to $45 per ton

price estimate was sustainable at an annual rate of consumption of 400,000 tons. The

Company’s production model for achieving 30 MGY of annual ethanol production would require

slightly less than 400,000 tons (roughly 357,000) and the Company’s financial model has

conservatively taken $45 per ton as its cost value. In addition to the Ward Consulting study, the

Company has entered into a requirements delivery contract with The Price Company, Inc. to

purchase the Company’s requirements of wood and wood waste at a price of $45 per ton for up

to 400,000 tons per year (including transportation to the Company’s site). Although the

Company is not obligated to purchase at this price (and is free to identify lower-cost providers)

the Company has contractually assured itself of a sufficient supply of feedstock at a price that is

enumerated in its financial model.

Other Inputs

Other inputs required for the Company’s production process include sulfuric acid and lime. Both

are standard industrial products that are readily available on the market. The sulfuric acid is the

primary input from the de-crystallization and hydrolysis processes that separate the lignin from


the cellulose prior to fermentation. The lime is used to neutralize any residual acid in the

hydrolate (fermentable sugar) solution, precipitating gypsum and other by products and

clarifying the hydrolate for fermentation into ethanol.

The Company’s financial model assumes a price of $80 per ton for sulfuric acid and $376 per ton

for lime.

Primary Outputs

The Company’s CHP Biorefinery will have three outputs from the Hydrolic Catalytic Reactor

Process (―CRP‖) which include (1) cellulosic ethanol, (2) valuable biochemicals, including

lignin; and (3) electricity, from the combustion of lignin.

The Company’s production model aims to produce 15 million gallons of ethanol in the first year

of production. In subsequent years the Company plans to increase production until reaching 30

million gallons per year in its third year. The company will be able to increase production by

accepting increasing quantities of feedstock, perhaps including MSW from surrounding

populated areas.

The Company’s financial model has priced its ethanol production conservatively at $1.83 per

gallon. Since January 2008 prices for ethanol have range from a high of nearly $3.00 to a brief

low only slightly under $1.50. The average price during this time period is roughly $2.00 and

since October 2008 (in the midst of the global financial crisis when the prices of most

commodities plummeted) the price of ethanol has generally stayed above $1.75 per gallon.

Consequently, the Company believes that its model value of $1.83 per gallon is conservative.

The Company will produce several valuable biochemicals from its acid hydrolysis process

including lignin. Lignin is a biochemical that is utilized in industrial glues and can be adapted

for use in building supplies, including particle board and plywood and related applications. The

price of lignin can vary greatly from $200 per ton to $3,000 per ton. The Company has

conservatively modeled its revenues using a value of $200 per ton – the low value in the range.

Based upon the Company’s target production of 15 MGY of ethanol, the Company would expect

to produce approximately 48,000 tons of lignin with a market value of $81,600,000. If the

Company can derive higher-value lignin from its production process, the actual market value

could be substantially higher than this forecast.

The Company will also produce carbon dioxide gas that will be sequestered and stored in a

pressurized tank as part of the fermentation process. The production of each 100,000 gallons of

ethanol will also produce roughly 317 tons of carbon dioxide gas. The Company’s financial

model assumes the sale of CO2 at $14 per ton.

The Company’s electricity production will be used for the Company’s own productive purposes

and excess electricity will be sold to one or more electric utilities under a long term power

purchase agreement (or ―PPA‖). The Tennessee Valley Authority (―TVA‖), one of the country’s

largest electric utilities, encourages the development and retail sale of electricity from renewable

power through its ―Green Switch‖ program. Through the Green Switch program, which the

TVA regularly advertises and promotes, residential and consumer customers are encouraged to


purchase ―green power‖ from the TVA which the TVA, in turn, has either purchased or produced

from qualified renewable energy sources. According to the U.S. Department of Energy’s Green

Figure # 1

PLET Production Process Flowchart

PLET Production Process Flow Chart

Source: http://www.purelignin.com

Biomass Feedstock

(Wood, Grass, MSW,

etc.)

REACTOR

PRECIPITATION TANK

DIGESTER

Acid Wash

Alkaline Wash

Acid Condensate

Condensate

Condensate

CELLULOSE (WOOD PULP)

HEMI-CELLULOSE (SWEET LIQUOR)

LIGNIN

http://www.purelignin.com/


Power Network program1, the TVA offers providers of green power a premium of $2.67/kWh for

qualified renewable energy. The Company expects to negotiate a power purchase agreement

with TVA, or with one of TVA’s distributors in the area of Project Tennessee, that takes

advantage of the premium provided by TVA for renewable energy. While the price to be paid in

a power purchase agreement is subject to negotiation, the Company has conservatively used

$0.06/kWh as the price in its financial forecast.

Our Products

Our bio-refineries will produce the following:

1. Ethanol; and

2. Lignin;

Ethanol:

The Company will produce cellulosic ethanol from the catalyzed biomass in the PLET process..

The catalyzed biomass is moved to a digester tank into which is added a caustic alkaline mixture

(generally, sodium hydroxide (NaOH). The mixture is then heated and agitated to produce black

liquor and wood pulp. The mixture is strained and removed from the digester to a press device

where the mixture is separated into black liquor and wood pulp. The wood pulp (or cellulose) is

then removed and stored for commercial sale. The black liquor is moved to a precipitation tank

where it is cooled, agitated and treated with another acid solution. The resulting precipitate is

lignin and the remaining fluid is an acidified hemi-cellulose (or sweet liquor) solution, consisting

of C5 and C6 sugars.

The lignin is removed from the solution through a staining and filtration process and then

removed for storage and commercial sale. The sweet liquor is also stored in a storage tank and

may either be commercially sold or fermented into cellulosic ethanol for commercial sale. A

total of 15MMGY will be produced in year #1, 20MMGY in year #2 and 30 MMGY in year #3

and all subsequent years.

Lignin:

Sources:

Lignin is derived from woody biomass and is the glue that holds plant fibers together and gives

them their support. There are many different types of lignin depending on the biomass species

and the method of recovering the lignin. In general, lignin can be divided into two categories,

sulfonated lignins, and non-sulfonated lignins. Only sulfonated lignins are currently

commercially available.


Products from Lignin:

Some uses of lignin are:

Power, fuel and syngas (generally near-term opportunities)

Macromolecules (generally medium-term opportunities)

Aromatics and miscellaneous monomers (long-term opportunities)

Of these three, power generation is the most common use of lignin, with

other applications including; Dispersants in high performance cement

applications, water treatment formulations and textile dyes

Producers:

Nearly all pulping/papermaking plants produce some form of lignin as a byproduct. The most

common form of the lignin produced is lignosulfates formed by the Kraft pulping process. The

lignin produced from these processes is almost exclusively burned for energy, and is not

extracted or sold commercially.

Consumers:

Only a few companies are converting lignin into other products, these include:

Borregaard LignoTech (Specialty Chemicals);

EnviroTech (Dust Suppression & Traction Aids)

Price:

Mead Westvaco is currently producing twenty-five different types of lignin, ranging in price

from $0.25 to $2.25 per pound. Lignin prices worldwide currently vary from $200 to $3,000 per

metric ton for sulfated lignin. In general, the price of the lignin is very dependent on the quality

of the lignin, and the market need it can meet. A high quality lignin that can be used as a phenol

substitute for resin adhesives in the board industry can get prices up to $3,000 per metric ton.

Analysis:

There is a fairly strong market need for lignin that can replace phenolic resins in the plywood,

OSB, and chipboard industry; however there are currently very few sources for lignin of this

quality. Other opportunities may also exist for lignin as a precursor for vanillin. Most vanillin is

benzene based, however, high oil prices have driven up these vanillin prices, increasing the

demand for wood-based vanillin. For lower grade lignin the best market value is probably still in

its value as a fuel.

In summary, the lignin market is still quite undeveloped, but can present good opportunities for

producers of high value lignin.


Feedstock

The primary input in the Company’s production process is biomass feedstock. Acceptable types

of feedstock include wood, wood waste, woody biomass and municipal solid waste (MSW).

Although a longer-term source of feedstock may include municipal solid waste, the problems of

transporting, storing and sorting MSW (i.e., sorting the incoming MSW into biodegradable and

non-biodegradable categories) is problematic and the Company’s plans have not included MSW

in its financial model.

Project Tennessee is located in the Southeastern part of the country and the Southeastern part of

the state in a rural area that is surrounded by hundreds of miles of largely uninhabited forestland.

The Company commissioned a study in 2009 from Ward Consulting Services, Inc. on the

availability of wood and wood waste feedstock from the area surrounding Project Tennessee.

The study concluded that ―establishment of a 400,000 ton facility in the Jasper area is doable

at costs ranging from $30 to $45 per ton delivered and based upon a mix heavily weighted

toward hardwood round wood.” The Ward Consulting study focused on available wood and

wood waste within a 75 mile radius of the Project Tennessee site to minimize transportation

costs and concluded that the $30 to $45 per ton price estimate was sustainable at an annual rate

of consumption of 400,000 tons. The Company’s production model for achieving 30 MGY of

annual ethanol production would require slightly less than 400,000 tons (roughly 357,000) and

the Company’s financial model has conservatively taken $45 per ton as its cost value. In

addition to the Ward Consulting study, the Company has entered into a requirements delivery

contract with The Price Company, Inc. to purchase the Company’s requirements of wood and

wood waste at a price of $45 per ton for up to 400,000 tons per year (including transportation to

the Company’s site). Although the Company is not obligated to purchase at this price (and is

free to identify lower-cost providers) the Company has contractually assured itself of a sufficient

supply of feedstock at a price that is encompassed by its financial model.

In addition, the ―USDA recognized that different regions of the country have a comparative

advantage to the type of feed stocks that can be produced and utilized in biofuel production. By

leveraging the availability of these regional resources, diversification of biofuel production will

be a national solution to reducing the Nation’s dependence on oil, much of which is imported.

These regions were determined based upon the prevalence of potential crop and woody biomass

feed stocks adapted to different ecological regions of the county, their yields, and current

producer interest. USDA estimated 4 the following regional biofuel contributions to the RFS2

advanced biofuel goal of at least 21 billion gallons a year by 2022:

1. Southeast - 49.8%;

2. Northeast - 2.0%;

3. Central –Eastern: 43.3%;

4. Northwest - 4.6%; and

5. Western - 20.3%.


This [the Southeast] region could produce 10.5 billion gallons of advanced biofuels per year, at 263

biorefineries producing 40 million gallons by year, costing $320 million per biorefinery. This will

take an $83.8 billion cumulative investment, to build the 263 biorefineries with an average capacity

of 40 million gallons. USDA estimated that a significant amount of volume, up to 50%, of the

advanced biofuels, could come from this region because it has the most robust growing season in the

United States that supports the highest gallons-per-USDA Biofuels Strategic Production Report June 23, 2010”

Other Inputs

Other inputs required for the Company’s production process include sulfuric acid and lime. Both

are standard industrial products that are readily available on the market. The sulfuric acid is the

primary input from the de-crystallization and hydrolysis processes that separate the lignin from

the cellulose prior to fermentation. The lime is used to neutralize any residual acid in the hydro

late (fermentable sugar) solution, precipitating gypsum and other by products and clarifying the

hydro late for fermentation into ethanol.

The Company’s financial model assumes a price of $80 per ton for sulfuric acid and $376 per ton

for lime.

Our Economic Analysis:

Both the U.S. Department of Agriculture (―USDA‖) and the U.S. Department of Energy

(―DOE‖) have loan guarantee programs that would be applicable for Project Tennessee. The

USDA’s Biorefinery Assistance Program (Section 9003) , authorized by the Food, Conservation,

and Energy Act of 2008, is designed to promote the development of new and emerging

technologies for the production of advanced biofuels. The Biorefinery Assistance Program

provides loan guarantees for the development, construction and retrofitting of viable

commercial-scale biorefineries producing advanced biofuels. The maximum loan guarantee is

$250 million per project subject to the availability of funds. The purpose of this program is to

provide guaranteed loans for the development and construction of commercial-scale biorefineries

or for the retrofitting of existing facilities using eligible technology for the development of

advanced biofuels. The maximum guaranteed loan is $250 million. There is no minimum

amount. The project has to be located in a rural area (50,000 or less population and not in an

urbanized area) and has to be for either 1.) The development and construction of commercial-

scale biorefineries using eligible technology, or 2. ) The retrofitting of existing facilities,

including, but not limited to, wood products facilities and sugar mills, with eligible technology.

Interest rates are negotiated between the lender and the applicant. The term of the loan cannot

exceed 20 years or 85% of the useful life of the project. The loan guarantee is 80% for loans

equal to or less than $8o million, 70% for loans in excess of $80 million up to $125 million and

65% for loans greater than $125 million. The Company is currently preparing its application to

submit to the USDA before the June 31, 2010 application deadline.

The Energy Policy Act of 2005 (EPAct05) authorizes the U.S. Department of Energy to issue

loan guarantees to eligible projects that "avoid, reduce, or sequester air pollutants or

anthropogenic emissions of greenhouse gases" and "employ new or significantly improved


technologies as compared to technologies in service in the United States at the time the guarantee

is issued". Title XVII of EPAct05 provides the basis of DOE's program. This title provides

broad authority for DOE to guarantee loans that support early commercial use of advanced

technologies, if "there is reasonable prospect of repayment of the principal and interest on the

obligation by the borrower." Loan guarantees will be another tool that DOE will use to promote

commercial use of innovative technologies. This tool is targeted at early commercial use only,

not energy research, development, and demonstration programs. The DOE loan guarantee has an

open application process.

In addition, Project Tennessee will qualify for several federal tax credits that will be capable of

being monetized to support repayments to investors or the repayment of debt financing.

The American Recovery and Reinvestment Act of 2009 (the ―Recovery Act‖) created two types

of tax credits applicable to the production of electric power from renewable sources. First, the

Recovery Act established ―production‖ tax credits (―PAC‖) of between 1 cent and 2.1 cents per

kilowatt hour (kWh) of electricity produced. Second, the Recovery Act allows developers of

renewable energy facilities to obtain an ―investment‖ tax credit (the ―ITC‖) of up to 30% of the

cost of developing renewable energy facilities. (The investment tax credit is subject to several

limitations and requirements, including that construction on the facility commence before

December 31, 2010 and that the facility be placed in service before December 31, 2011). The

PAC and the ITC are exclusive. A developer of a renewable energy facility may take the 30%

ITC or the PAC for each kilowatt hour of power produced, but it cannot take advantage of both

programs. In addition, a project developer who elects to take the ITC may also elect to obtain a

cash grant from the U.S. Treasury for the full amount of the ITC, subject to construction

commencement dates and placed-in-service dates pursuant to Section 1603 of the Recovery Act.

The Company would be able to utilize the ITC with respect to the biomass generator that will

produce electricity from burning LMW lignin. That credit would be worth 30% of the cost of the

qualifying equipment purchased for electricity production or $4,500,000.00 and would qualify

for the Section 1603 Treasury grant that would provide the Company with a cash payment for the

amount of the tax credit after the facility is placed in service. If properly structured, the

Company could leverage the investment tax credit to repay a portion of its construction

financing.

The Company has had several meetings with the local economic development authority and has

received assurances that the authority would be willing to back a bond offering for

$20,000,000.00 of the cost of Project Tennessee. In 2008, the Company received a commitment

letter from a bond underwriter, committing to underwrite industrial revenue bonds for Project

Tennessee, and the underwriter has encouraged continued negotiations as the Company moves

through the Industrial Revenue Bond Application process..

National Export Initiative

President Obama's National Export Initiative (NEI), is a key part of his strategy to get America's

economy growing strongly again. With the NEI, American businesses that want to export are

going to have a more vigorous partner in the US government. The NEI is an extremely ambitious

effort that aims to double American exports over the next five years and support 2 million jobs


here at home. And it is unprecedented. There have, of course, been previous endeavors by the

U.S. government to elevate the importance of exports. But what sets this effort apart is that this is

the first time the United States will have a government-wide export-promotion strategy with

focused attention from the president and his cabinet. This initiative was designed with one

overriding goal in mind: to get people back to work in jobs that provide security, dignity and a

sense of hope for the future.

For much of this last decade, America's economic growth was built on a speculative mania that

enriched a select few while leaving many Americans out in the cold. Since 2000, most families

have seen their wages stagnate or decline, while the necessities of life like health care and tuition

skyrocketed. The NEI will help build a stronger economic foundation and allow us to return to

the type of sustainable growth that not long ago , helped build the strongest middle class in

history. From the advent of the phone, to the automobile to new drug therapies and the Internet,

America's strength has always led been our businesses ability to create and sell products and

services that help others around the world lead healthier, wealthier and more productive lives.

The NEI is fundamentally focused on three things:

1. Expand the US government's export promotion efforts in all its forms - Many

American companies don't export, or export less than they should, because they

simply don't have the resources to identify promising new markets or the neces

sary contacts in foreign countries. The National Export Initiative will funnel

$132 million to the Department of Commerce’s International Trade Admin

istration (ITA), and the US Department of Agriculture to educate U.S.

farmers and businesses about opportunities overseas and directly connect them

with new customers.

2. Improve access to credit, especially for small- and medium-sized businesses

that want to export.

3. Increase the government's focus on knocking down barriers that prevent

U.S. companies from getting open and fair access to foreign markets.

The National Export Initiative is one more step in this administration's singular focus on one

goal: making sure every American who wants a job can find one. The Company has projected

exports to be a major source of revenues and will be an ardent participant in the NEI.

The Company’s projected revenues are as follows:


Table #4

bfA Projected Revenues

biofuels AMERICA,

INC.

Project Tennessee

Five Year Pro-Forma

As of June 1, 2010 YEAR # 1 YEAR # 2 YEAR #3 YEAR # 4 YEAR # 5 TOTAL

15mmgy 20mmgy 30mmgy 30mmgy 30mmgy

REVENUES:

Ethanol $ 27,450,000.00 $ 36,600,000.00 $ 54,900,000.00 $ 54,900,000.00 $ 54,900,000.00 $ 228,750,000.00

Lignin $ 81,600,000.00 $ 102,000,000.00 $ 127,500,000.00 $ 159,375,000.00 $ 199,218,750.00 $ 669,693,750.00

Electricity $ 7,956,245.00 $ 9,945,306.00 $ 12,431,632.00 $ 15,539,540.00 $ 19,424,425.00 $ 65,297,148.00

TOTAL REVENUES $ 117,006,245.00 $ 148,545,306.00 $ 194,831,632.00 $ 229,814,540.00 $ 273,543,175.00 $ 963,740,898.00

The above numbers are based on an increased production level in the amount of ethanol to be

produced. Our plant has the capacity to produce 100 MMGPY of ethanol. As Table #2

stipulates, we will operate the plant at 15% of production capacity in Year # 1 producing 15

MMGPY of ethanol. In Year # 2, we will operate the plant at 20% capacity producing 20

MMGPY of ethanol. In Year # 3, we will operate the plant at 30% percent capacity producing

30 MMGPY of ethanol. Ethanol projections are based on sales prices of $1.83 per gallon for

years numbers one through five. Ethanol revenues assume a ten (25%) increase per year. See

Financial Statement #4: Income Statement Thirty Year Pro Forma.

The Company’s exit strategy is either to do an Initial Public Offering (―IPO‖) or to be

merged/acquired with a larger entity within five years. The IPO or merger/acquisition will occur

after four stages of equity drives from its Private Placement Memorandums (―PPMs‖) in order

to raise development , start-up and expansion capital. The Company’s projected Equity Drive

Schedule is as follows:

Table #5

Equity Drive Schedule

STAGE PROJECTED

DATE

PROJECTED

CAPITAL RAISED

Start-Up November 2011 $ 112,247,912.00

Early Stage February 2013 To Be Determined

Exit March 2015 To Be Determined


In year number five, the Company is projected to have $ 273,543,175.00 in total annual sales

with Net Income Before Taxes (after debt service) in the amount of $ 121,697,756.00. Annual

combined sales for years 1-5 are projected to be $ 963,740,898.00 with total combined Net

Income Before Taxes (after debt service) for years 1-5 estimated at $ 404,366,778.00.

Energy Requirements

The energy requirements for ethanol production have improved markedly during the past decade

due to a variety of technology and plant design improvements. The energy needed to produce a

gallon of ethanol has decreased nearly 50 percent over the past fifteen years and that trend is

likely to continue as process technology improves. According to E3 Energy Partners, the

Company’s consulting engineers, the bio-refinery proposed by the Company will have the

following energy requirements:

Table # 6

Energy Usage

Utilities provided to the subject property include electricity, which is provided by

Sequatchie Valley Electric, natural gas, sewer and water (all by way of the city of Jasper). Police

and fire protection are also provided by the city of Jasper.

Transportation

The cost of transportation is important to plant input costs and marketing costs. Depending on

proximity of the plant to population centers, marketing costs may be based on a variety of

transportation modes. Ethanol has historically been shipped to markets via truck, rail and barge.

The location of the plant should take into consideration the modes of transportation by which the

bulk of finished products will move to market. Rail access is often viewed as an essential

requirement for large scale ethanol plants.

UTILITY TYPE USAGE

Steam 250,000 lb/hr of 6000 psig

Natural Gas 2,900 therms/hr (4,600 scfm of gas flow)

Fresh Water 530 gpm

Sewer 500 gpm

Electrical Power 6,000 kw

Electrical Energy 4,300 MWh per month


Table # 7

Site Logistics Data

Slay Industries will provide transportation services for the Company transporting its finished

product to various sellers both domestic and international. Slay Industries is a diverse, St. Louis-

based group of transportation and distribution companies with revenues in excess of $125

million per year. Slay provides its customers with value-added, quality services and an emphasis

on safety.

Slay has over 800 team members and is uniquely suited by size and location to meet the varied

and complex needs of its customers, helping them address the economic and environmental

issues facing their companies in today's changing world marketplace. From general rail, barge

and truck logistics to special product warehousing, Slay Industries helps its clients to maximize

profitability. (www.slay.com)

Water Requirements

Water quality, quantity and infrastructure for handling water treatment are important factors in

site selection. The water requirements factor into capital cost of the plant, operating costs and

permit issues that will become important when the plant is constructed. During the past decade,

new process technology has reduced the volume of process water required in ethanol plants and

has minimized the water discharge volume. An understanding of specific water use and

discharge requirements is useful during the site selection process. Table # 6 shows the projected

water usage per site.

With regard to marketing costs, an initial market assessment conducted by RSI Consultants

identified primary markets for the plant.

Zoning

The property is zoned for heavy industrial use. The I-1 designation permits the present

development and it is compatible with occupancies and trends in the immediate area. The

property has level topographic features and it offers a good deal of industrial development

potential.

SITE

LOCATION

ON SITE

RAIL

NAVIGABLE

WATERWAY

INTERSTATE AIR

FREIGHT

Jasper, TN Sequatchie

Valley

Railroad

Tennessee Rive

Port of Nickajack

Channel Depth 9’

I – 24, I-59, I-

75

0


Project Permitting

The Company has entered into an Engagement Letter with Aqua-Terra Environmental Solutions,

Ltd (―Aqua-Terra‖) of St. Louis, MO to act as its environmental consultant. Based upon initial

conversations with the Tennessee Department of Environment and Conservation (―TDEC‖) the

Company does not anticipate any problems of obtaining the necessary air and water Construction

and Operating Permit (See Table #3; Construction & Permitting Timeline).

Project Construction:

We have projected a construction time of eighteen (18) months. The total development costs are

$ 112,247,912.00. E3 Energy Partners, Inc. with offices in Seattle, Washington, tackle design

and construction needs both regionally and nationally. The company was established in 1991

providing high quality engineering, consulting and project services to industry and utilities. In

addition, they readily maintain field offices for projects that require that extra support and

attention to quality. The company is well versed in bio refining projects both domestically and

internationally. They currently have several traditional ethanol projects in development as well

as a couple of cellulose to ethanol projects. The company provided process design/construction

services on America's Largest Biodiesel Plant, Imperium, which is a 100 MMGPY facility in

Grays Harbor, Washington.

The plant construction timeline is as follows:

Table # 8

Construction Permitting Timeline

Description Projected Date

Close on Seed Financing 11/2011

Close on Equity Financing 11/2011

Submit TDEC Construction Permit Application 8/2011

Obtain TDEC Construction Permit 10/2011

Close of Equity Debt Financing 11/2011

Begin Retrofit 11/2011

Complete Retrofit 7/2012

QA / Test Production 10/2012

Submit TDEC Operating Permit Application 10/2012

Obtain TDEC Operating Permit 11/2012

Begin Full Production 12/2012


Market Issues

With crude prices hovering at all time highs, the need for alternative fuels also would seem to be

just as high. As Table #3 illustrates, these record crude oil prices have resulted in an overall

continued rise in gasoline and diesel fuel prices.

According to the Energy Information Administration’s Annual Energy Outlook 2007

(―AEO2007‖), ethanol use increases rapidly from current levels. Ethanol blended into gasoline is

projected to account for 4.3 percent of the total gasoline pool by volume in 2007, 7.5 percent in

2012, and 7.6 percent in 2030. As a result, gasoline demand increases more rapidly in terms of

fuel volume (but not in terms of energy content) than it would in the absence of ethanol blending.

Overall, gasoline consumption is projected to increase by 32 percent on an energy basis, and by

34 percent on a volume basis, from 2007 to 2030. Ethanol demand is driven primarily by federal

and state Clean Air Act requirements mandating the use of oxygenates in winter gasoline to

lower carbon monoxide emissions. However, it can be debated that the ethanol market has

saturated or will reach a peak in the near future. The price of ethanol has slid by 30 percent in

recent months and now stands at about $1.69 a gallon on the Chicago Board of Trade. At the

same time the price of corn, ethanol’s current chief feed stock, remains high squeezing margins.

High feed stock prices coupled with soaring construction costs have swelled operational

expenses. Ethanol pricing is impacted by variables such as corn prices, MTBE prices, gasoline

prices, and clean air act regulations. In the last five years, wholesale delivered prices to western

ethanol markets have ranged between $1.18 and $1.55 per gallon. Given the seasonal nature of

the demand, winter prices tend to be significantly higher than summer prices.

And the prospects of a glut loom. U.S. ethanol demand now is less than 7 billion gallons but the

nation’s ethanol capacity by next year (2008) could reach 12.4 billion gallons. According to

Eitan Bernstein, an energy analyst at Virginia based Freidman, Billings, Ramsey and Co. that

imbalance will hold down prices possibly through 2008. The slowdown isn’t likely to affect

build outs already under way and those with financing in place. But it raises questions of

whether the fuel additive touted by President Bush and lawmakers as a way to cut the nation’s

dependence on foreign crude has been over hyped.

However, according to Monte Shaw of the Renewable Fuels Association, ―for such a young

industry, people sure want to write its obituary all the time. I just find it humorous because it’s

completely nonsensical if you look at the economics of the industry, if you look at the public

policy and the socio-economic concerns that are driving the industry. It’s definitely headed

forward full throttle.‖

Environmental Issues

The potential environmental effects of operating a commercial-scale Ligno cellulosic ethanol

plant include both the on-site and off-site impacts surrounding the production facility. Cellulose

biomass material will be generated from private timber/milling companies within at least a 75-

mile radius of the ethanol facility. Ward Consulting Services' Feedstock Supply and Delivery

Systems report (April 2009) predicts an available and sustainable, annual supply of 400,000 tons

per year.


The typical environmental concerns that arise from timber harvest and biomass harvest activities

include the effects of roads and landings, riparian zone and water quality impacts, fuel loadings

and arrangements, wildlife disturbances, and changes in suitability of wildlife habitats.

Generically, these can be grouped into soil, water and wildlife impacts.

Monitoring the results of biomass harvest will be critical to the overall success of the biomass

removal program, which are the sole responsibility of the contracted feed stock supplier. The

Company will also mandate an active and comprehensive monitoring program at various

temporal and landscape scales in accordance with the rules and regulations of the USDA Forest

Service.

The Company’s bio-refineries are subject to various federal, state and local environmental laws

and regulations, including those relating to discharges into the air, water and ground; the

generation, storage, handling, use, transportation and disposal of hazardous materials; and the

health and safety of our employees. These laws and regulations require us to obtain and comply

with numerous environmental permits to construct and operate our ethanol plants. They can also

require expensive pollution control equipment or operational changes to limit actual or potential

impacts to the environment. A violation of these laws, regulations or permit conditions can result

in substantial fines, natural resource damage, criminal sanctions, permit revocations and/or

facility shutdowns which could have a material adverse effect on our operations. There is a risk

of liability for the investigation and cleanup of environmental contamination at each of the

properties that we own or operate and at off-site locations where we arranged for the disposal of

hazardous substances. If these substances have been or are disposed of or released at sites that

undergo investigation and/or remediation by regulatory agencies, we may be responsible under

the Comprehensive Environmental Response, Compensation and Liability Act of 1980

(CERCLA) or other environmental laws for all or part of the costs of investigation and/or

remediation and for damage to natural resources. We may also be subject to related claims by

private parties alleging property damage and personal injury due to exposure to hazardous or

other materials at or from these properties. Some of these matters may require us to expend

significant amounts for investigation and/or cleanup or other costs which could have a material

impact on our business. In addition, new laws, new interpretations of existing laws, increased

governmental enforcement of environmental laws or other developments could require us to

make additional significant expenditures or modify our operations.

Continued government and public emphasis on environmental issues could result in increased

future investments for environmental controls at our ongoing operations. Present and future

environmental laws and regulations (and related interpretations) applicable to our operations,

more vigorous enforcement policies and discovery of currently unknown conditions may require

substantial capital and other expenditures. For example, our air emissions are subject to the

federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local

laws and associated regulations. The U.S. Environmental Protection Agency (EPA) has

promulgated National Emissions Standards for Hazardous Air Pollutants (NESHAP), under the

federal Clean Air Act that could apply to facilities that we own or operate if the emissions of

hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit

hazardous air pollutants above the threshold level, then we are required to comply with the

NESHAP related to our manufacturing process and would be required to come into compliance


with another NESHAP applicable to boilers and process heaters by September 13, 2007. New or

expanded facilities would be required to comply with both standards upon startup if they exceed

the hazardous air pollutant threshold. In addition to costs for achieving and maintaining

compliance with these laws, more stringent standards may also limit our operating flexibility.

Likewise, federal and state environmental authorities have recently been investigating alleged

excess volatile organic compounds and other air emissions from certain U.S. ethanol plants.

Because other domestic ethanol manufacturers will have similar restrictions, however, we

believe that compliance with more stringent air emission control or other environmental laws and

regulations is not likely to materially affect our competitive position. In addition, to construct

and operate our ethanol plants, we will need to obtain and comply with a number of permit

requirements. As a condition to granting necessary permits, regulators could make demands that

increase our costs of construction and operations, in which case we could be forced to obtain

additional debt or equity capital.

Community Concerns

It is the Company’s objective to minimize potential problems for the community and area

residents. Factors that can have an impact on residents living in proximity to the plant may

include:

1. Prevailing wind direction. Plant odors can will be controlled with a variety of

pollution and odor control equipment but most ethanol plants emit an little odor or

odors. Odors moving away from area residents will reduce potential complaints.

2. Traffic. Most plants generate an increase in traffic flow in the area around the

plant. Increased truck traffic may raise concerns about safety or wear on local

roads and bridges. Proper traffic planning and scheduling can minimize these

concerns. The Company will work aggressively with local and state jurisdictions

to ensure proper ingress and egress on and off the site.

3. Dust. Increased traffic especially on gravel roads located near the plant may raise

concerns about air quality and visibility during certain driving conditions. Dust

control is an area covered by pollution control agencies. Dust from any plant

source, including traffic, is considered particulate matter (PM). PM controls are

included in plant permit applications and must be approved by the state air

pollution control agency.

4. Infrastructure. In many cases ethanol plants can be integrated into water and

waste treatment systems operated by a community. These community services can

generate fees for the community, thereby increasing revenue required to amortize

the community system. In other cases, the plant may propose to provide revenue

for an expanded system that can be shared with the community. The Company

either currently has or will have the necessary infrastructure in place.

5. Fire Safety. Plant safety coordinators deal with a wide range of safety and

emergency preparedness issues. Good communication between the safety

manager and local fire safety officials will help to ensure that plans are in place


for dealing with potential fire and safety issues. The Company will develop and

maintain a Hazardous Materials Plan (―HAZMAT‖) with each state’s Fire

Marshall.

6. Plant emissions. Best available control technology, typically the ―newest and

best‖ emission control technology, is generally required by state and local

regulatory officials. Emission control requirements for ethanol plants are

discussed in the Permits section of this publication.

7. Noise pollution. Plant generated noise can be a source of complaints if a plant is

located near residential areas. Site buffers will be included in the site design to

minimize any potential problems.

8. Plant site lighting. Plant lighting will be carefully considered so light pollution

complaints are minimized. This is an issue during construction and operation of a

facility but potential problems will be minimized with proper planning of plant

design.

The Company will work closely with community officials to help facilitate the pace of project

development as well as the degree to which each community will support a Cellulose to Ethanol

plant. Awareness of the need for good community relations and communications will help The

Company maximize mutual benefits and minimize community concerns.

Socioeconomic Issues

The socioeconomic report, prepared by RSI Consultants, reviewed the local, regional and

statewide implications of building and operating a forest biomass to ethanol manufacturing

facility at all the Company’s specified sites in Tennessee, Mississippi and Illinois. The report

first sets the current socioeconomic context in this natural resource dependent area. It then

reviews the effect of an ethanol plant on employment, personal incomes, state and local taxes,

construction jobs, and local infrastructure (particularly roads, schools and utilities).

Each plant will create at least 50 direct jobs at the plant. The furnishing of forest biomass

feedstock to these plants would employ 63-100 additional employees per site to gather, process

and transport the cellulose material to the plant. These 91-128 direct jobs would be augmented

by an additional 93-122 indirect or multiplier jobs per site. One 32 million gallon per year

ethanol plant would thus generate between 184-250 total jobs.

Corporate Sustainability

It is our policy to directly impact the communities in which we serve. Traditionally, ethanol

plants contribute between $15 -$18 million to their communities in which they are located. The

Company will continue with this tradition. Our specific community responsibilities to our local

stakeholders will be the following:


1. Local Resident Scholarship Program: The Company will establish a scholar

ship program for local high school residents in the communities in which we op

erate. These students will be eligible for four year scholarships to a college

or uni versity in their respective states. Eligibility for these scholarships will be

based on merit. However, it is the objective of our corporate strategy to increase

the number of minorities and women within the alternative energy industry, as

such, students in these demographic segments will be given priority when looking

at eligibility criteria.

2. Environmental Impact: It is the corporate policy of The Company to uphold

our responsibilities as stewards of the environment. Given this objective we will

be steadfast in maintaining our policy of respecting a “Balance With Nature.”

Specific programs entail the following:

a. Local School (K-12) Environmental Education;

b. Forestry Tree Planting Program;

c. Urban Tree Planting Program; and

d. Participation in Al Gore’s Alliance for Climate Protection

The Company believes that not only do we have a corporate responsibility but they also have a

moral responsibility to adhere to our responsibilities as stewards for the environment.


Section B: Economic Feasibility Determinations

Location

Project Tennessee is located in the township of Jasper in Marion County, Tennessee. Marion

County is situated in the southeastern part of the state, and is considered a part of the

Chattanooga, TN-GA Metropolitan Statistical Area. Jasper is approximately 18 miles west of

Chattanooga, TN, which has an estimated population of 518,000. Jasper is approximately 120

miles northwest from Atlanta, Georgia and approximately 145 miles northeast of Birmingham,

Alabama.

The site’s physical address is 1570 Industrial Blvd., Jasper, Tennessee 37347. The Company has

an option to purchase the land from Renewable Fuels, LLC, the current owners of the property.

The property was sold as part of 225 acres along the Tennessee River. The former Tennol

ethanol plant, lying fallow for 20 years, was purchased in February 2009 for $2.6 million by a

group of investors for a Knoxville-based company. Renewable Fuels LLC of Knoxville bought

the plant and property from Community Bank on Feb. 17, 2009. Renewable Fuels is in the

alternative fuels business, but investors say they have no immediate plans to revive the ethanol

operation.

The $72 million plant was built in 1984 by Tennol Energy. The company was projected

eventually to produce about 25 million gallons of corn-based fuel a year, but production never

got off the ground and the plant went bankrupt in 1988. In 1994, AG Processing Inc. of Omaha,

Neb., bought it for $10.5 million from the U.S. Department of Energy, according to newspaper

accounts. Community Bank acquired the property in a later bankruptcy.

The site is about five miles from the Port of Nickajack on the Tennessee River. It has rail access

and is near Interstates 24, 59 and 75, . "We're very excited about this thing," he said. "I've tried

to get local people to buy that property and subdivide it into 5- or 10-acre tracts so we could

make it one of the best industrial parks anywhere in the Southeast." Now that the purchase has

been made, Mr. Moss said he'll seek to add that property to Marion County's foreign trade zone

territory. Beth Jones, executive director of the Southeast Tennessee Development District, said

the site has been waiting for "an investor with vision." "It's been sitting there as an asset for a

long, long time," she said. "It hasn't been owned by anybody with local control or local interests.

It lends itself to revitalization and reuse."

To date, the following has been performed on the site:


Table # 9 Completed Pre-development Work

The Phase I Environmental Site Assessment (the ―Assessment‖) was conducted on this site on

May 10, 2005 by QORE, INC. (Project # 05-3099E). The Assessment revealed an

environmentally clean site.

From a structural perspective, a Plant Feasibility Study (the ―Study‖) was conducted on August

9, 2006 by Harris Group, Inc. The study stated;

The order of magnitude estimate prepared for this study anticipates total installed costs of

$69 million (+ $28 million) on the basis of a 50 MMGPY plant. This estimate does not

include a barge loading facility and the connecting conveyor…The estimate includes a credit

of $11.3 million representing the “as-is” value of the site improvements, buildings, and

processing equipment at the current facility. The existing administration, maintenance and

lab buildings are large enough to accommodate plant operations to 100 MMGPY. There

appears to be ample area around the existing silos to construct additional silos if plant

capacity is expanded to 100 MMGPY. It generally appears that structures are in good

condition. However, refurbishment work will be required to make the existing structures

…usable for the new process.

The industrial property appraisal; performed by Henry B. Glascock (State Certified General Real

Estate Appraiser, TN #: CG1269; GA #: 2069) of Henry G. Glascock & Company. The

appraisal report valued the entire 225 acre site at $20,400,000.00.

The Company will purchase the site from the current owners for $7,000,000.00.

Availability of Workforce

Between Marion County and adjacent Hamilton County, there is an indigenous population base

of more than 500,000. Marion County is rural, with a population density of slightly more than

50 per square mile. Hamilton County contains both rural and urban areas, with a population

density of more than 500 per square mile. Once Project Tennessee becomes operational, the

operation will provide competitive wages and comprehensive employee benefits designed to

attract a stable, long-term workforce.

DESCRIPTION CONSULTANT DATE

Phase I Environmental Assessment QORE, Inc. May 10, 2005

Ethanol Plant Capital Cost of Magnitude Estimate Harris Group, Inc. August 9, 2006

Complete Appraisal of Industrial Property Henry B. Glascock Co. February 7, 2008


Infrastructure

The infrastructure developed to service the original proposed occupancy was originally designed

to withstand a magnitude five earthquake on the Richter Scale. As such, all buried water lines are

encased in concrete and are of solid copper construction. All copper electric lines are also

encased in poured concrete and, according to the owner, consist of an approximate

weight of 20 tons.

These electric lines are placed in conduit. Miscellaneous site improvements include detention

ponds, evaporation pits, fencing, roadways, parking lot lights, parking lots, etc. What is

extraordinary by heavy industrial standards is the fact that the majority of these improvements

are situated on a concrete ―bowl‖ designed to contain accidental chemical spills. This extensive

site work consists of a massive amount of solid reinforced concrete that is four feet thick in

areas. All building concrete pads are a minimum of 18 inches in thickness. All plumbing lines

and electrical lines are solid copper.

Feedstock Source Management

Perhaps the greatest benefit to our advanced bioenergy technology is “Feedstock

Optionality.”Feedstock Optionality gives the Company the ability to utilize various feed stocks

as raw material in our production process. The PLET process can utilize any vegetation as its

source including:

a. Wood Wastes;

b. Pine Beetle-Killed Trees;

c. Sugar Cane (bagasse);

d. Grasses (switch grass, mascanthus etc.);

e. Husks (i.e. corn Stover, citrus peels, etc.); and

f. Municipal Solid Waste (i.e. construction debris, urban trash etc.)

Feedstock optionality also gives the Company the ability to utilize various vendors as source

providers in order to maximize cost effectiveness of the project. The Company is a strong

believer that to purchase source material from just one provider would eventually lead to price

overruns in the cost of feedstock. The Company currently has an agreement with The Price

Companies to supply 400,000 tons per year of wood waste to the facility at a cost of $45 per ton.

The Company has also explored and negotiated with other source providers of wood waste and

urban trash (pre-sorted municipal solid waste).

As the feedstock provider The Price Companies have individual contracts with various lumber

companies to sell their waste products. As such, The Price Companies are responsible for

feedstock collection and transportation to the facility. Feedstock Transportation to the facility


will be done initially by truck and rail car (the site has its own spur onto Norfolk Southern

Railroad.

Delivered costs will be the result of already established cost structures, increased demand

pressure on stumpage and increased freight due to potentially longer haul distances; i.e., hauling

wood past the Stevenson mill and away from the Rome and Calhoun mills and higher harvesting

costs. Based on the findings outlined above delivered costs should fall within the $30 to $40 per

ton range including round wood deliveries and residual sources.

The ability to successfully provide fiber to a new facility is also contingent upon the Company’s

competitive stance within the drain area. If competitive advantage accrues to the region’s pulp

and paper mills then opportunities outside the 75 mile drain will have to be considered and

evaluations made as to their viability. However, if the Company can establish a competitive

advantage at costs similar to their competitors then they will be successful in acquiring their fiber

needs from within the 75 mile drain.

In summary, establishment of a 400K ton facility in the Jasper area is doable at costs ranging

from $30 to $45 per ton delivered and based upon a mix heavily weighted toward hardwood

round wood. Failure to establish a competitive advantage could result in higher costs due to

procuring fiber from further distances and outside the normal 75 mile drain radius; therefore,

establishing this competitive advantage will be critical for the Company’s long term success.

The Company is directly responsible for:

a. Pre-Treatment - The feedstock is soaked or impregnated with a solution

of nitric acid and ammonium hydroxide for a period of time, generally two

to twenty hours. The soak time depends upon the type of biomass

involved and the size of the biomass particles, with softer biomass (such

as grasses) requiring less time than harder forms of biomass (such as

hardwood trees). This acid solution breaks down the cellulose in the

biomass and separate the constituent parts. After pre-treatment the source

is heated in the Digester.

b. Storage – The site has a two acre area to be used as the Source Arrival

Area (―SAA‖). The SAA will be next to the Feedstock Chipping Area

(―FCA‖) and the Feedstock Conveyor System. (―FSS‖). The SAA will

include a shelter area. Feedstock will be unloaded onto the ground within

the shelter area. Excess feedstock will be stock outdoors.

Impact on Existing Manufacturing Plants

The project will have no potential impact on existing manufacturing plants and other facilities

that use similar feedstock if the proposed biofuel production technology is adopted. Competition

for pulpwood resource in the Jasper, TN area consists of 3 major pulp and paper mills and one

Oriented Strand Board producer. Table’s 7 below identify the competitors, their location and

distance from Jasper, followed by an estimate of their annual consumption of round wood and

chip fiber.


Table # 10

Existing Manufacturing Consumption

COMPANY TYPE LOCATION MILES TO JASPER

METRIC TONS CONSUMED

Arbitibi/Bowater Pulp & Paper Calhoun, TN 71 2,800

Temple/Inland Pulp & Paper Rome, GA 100 3,100

Smurfit/Stone Pulp & Paper Stevenson, AL 23 1,270

Huber Engr. Wood

OSB Spring City, TN 81 500

The competitors draining wood from the Jasper area and surrounding counties consume a mix of

softwood and hardwood with ranges from 100% hardwood by the Stevenson mill to

approximately 87% softwood by the mill at Rome, GA. The satellite image immediately below

identifies Jasper, TN and the general location of competing mills that would impact the drain

area for a new consuming facility. An approximated 75 mile drain radius is indicated around

each facility.

Concluding that the Jasper, TN area presents an acceptable opportunity to support a new facility

relies upon a number of critical issues. Among these are:

1. The presence of adequate resource;

2. Fiber availability’

3. Acceptable delivered costs; and

4. Competitive stance of the proposed facility

Based on Forest Service resource data, sufficient fiber exists within a 75 mile drain radius to

adequately support a 400K ton facility; although the supply will consist almost entirely of

hardwood fiber. Some 24MM tons of hardwood growing stock is present in the drain and is

sufficient alone to supply the annual fiber needs of the Company’s proposed facility. The

region’s pine fiber is in a relatively poor state of growth with demand high, growing stock low

and the resulting growth/drain ratio of concern at 0.61. In contrast, the hardwood growth versus

removals ratio is excellent at 2.12.


Image # 4

Arial of Existing Manufacturers

Source: Ward Consulting Services, Inc.; Wood Resource Evaluation - Jasper, TN for Biofuels of America, Inc.

Therefore, it appears obvious that hardwood pulpwood; complemented by residual sawmill

materials; i.e., chips, bark and sawdust will provide the fiber needed by a Jasper facility. Fiber

availability, particularly hardwood in the piedmont and mountain terrain is always somewhat

problematic; driven by issues of public perception, acceptance of harvesting, alternative land

uses, and esthetics and logistics concerns.

Delivery cost for fiber originating in mountainous terrain will be more expensive than traditional

operations due to road construction, harvesting and freight costs. Procuring hardwood fiber has

historically been more expensive than softwood due to a number of factors which include

expanded wood drains based on availability of the material, landowner harvesting plans (i.e., a

preponderance of partial cuts – reducing available volumes) and harvesting costs. The proximity

to Chattanooga will present problems unless there are ways around the city that would be

advantageous to trucking; otherwise, some of the drain area to the east that would normally be

available to the Jasper area will be more expensive and difficult to access. This will force a

reordering of the traditional circular drain to seek out fiber outside the 75 mile radius, in all

likelihood to the north and northwest of Jasper.

Rome

Stevenson

Calhoun

Huber


Availability and resulting cost of fiber is also very much impacted by the region’s established

competitors and a new facility’s competitive stance in relation to those already in place. Based

on the average annual removals of total fiber; both softwood and hardwood, within the 75 mile

drain, the Company’s anticipated impact is not major. Adding 400K tons of annual consumption

will result in only an 8% increase in annual removals within the drain area. The impact is

somewhat higher when considering hardwood only but it is probable that a reasonable volume of

softwood will inevitably find its way into the Company’s fiber stream, assuming costs for the

softwood are not prohibitive.

It is also significant to note that excess growth over removals of hardwood within the drain area

is 2.87MM tons annually making the 400M tons of added removals of marginal impact.

Assuming that only 50 to 60% of the excess hardwood growth may be made available due to a

litany of factors there is still an excess over the Company’s demand of some 400K tons annually.

Economic Impact

The impact of ethanol production and use goes far beyond Rural America. Virtually every sector

of the U.S. economy benefits from the rapidly expanding ethanol industry. From the technology

sector which provides software for sophisticated plant operations, to the manufacturing sector,

which provides plant components, ethanol production stimulates economic activity. Economists

continue to measure the impact of ethanol production at the local and national level. A variety of

econometric models are used to calculate this rapidly expanding business activity. This

publication examines a variety of ways in which the ethanol industry affects the U.S. economy

and local communities. As this largely Midwestern industry expands across the continent, these

economic impacts are projected to have a never expanding effect from coast to coast.

Historically, the combination of groundbreaking discoveries and subsequent commercialization

has preceded periods of prolonged economic expansion. For example, the Industrial Revolution

in Great Britain was launched by a confluence of new technologies with commercial potential,

such as the steam engine. Later, the internal combustion engine and electric power revolution-

ized America. More recently, William Shockley's transistor and Jack Kilby's microchip laid the

foundation for the Information Age. All these eras of discovery and applied research were

followed by strong economic growth. Benchmark discoveries and innovations such as steam

power, electricity and the microchip always garner the most attention. But it's usually not until

the technology is harnessed and products are mass produced that we see economic consequences.

As a result of the commercialization of the Company’s advanced biofuel technology, Project

Tennessee will cost approximately $112 million and will create 50 permanent ―green jobs‖ and

roughly 150 temporary jobs during construction. The project will not directly impact the tax

base of Marion County, TN because the project will be granted a property tax abatement for ten

years by the Marion County Industrial Development Board.

From tax perspective, Tennessee limits its state income taxes to only dividends and interest

income. It has a flat corporate tax rate of 6.5%. Based upon this tax rate, the Company is

projected to contribute a total of $37,136,657.00 in corporate taxes to the state (See Table #8;

Projected Corporate Income Tax Expense)


Table # 11

Projected Corporate Income Tax Expense

Project Tennessee would also have a ―Ripple Effect‖ or indirect impact on the region. Still a

relative newcomer to the economy, biotechnology is already having a positive indirect influence

on economic activity. Ernst & Young estimates that biotechnology has an employment multiplier

of 2.9. In other words, each job created in biotech generates an additional 2.9 jobs, resulting from

biotech firms' purchases and consumer spending of biotech employees. With the multiplier

effect, biotech's total impact on employment comes in at more than 437,000 jobs. based upon

this assumption, Project Tennessee would create a total of 145 permanent jobs (50 jobs created x

2.9 = 145)

Ernst & Young gives biotech a 2.3 revenue multiplier, increasing the total impact on revenues

from biotechnology to $46.5 billion. The personal income multiplier is estimated to be 2, which

results in a $28.8 billion total impact on personal income from the industry.

Renewable Fuels Standard

The U.S. Renewable Fuel Standard (RFS) for transportation fuels sets minimum levels of

renewable fuels that must be blended into gasoline and other transportation fuels from 2006 to

2022. Specific requirements for blending advanced biofuels,** including cellulosic biofuels and

biomass-based biodiesel, begin at 0.6 billion gallons per year in 2009 and rise to 21 billion

gallons in 2022. The RFS levels for advanced biofuels production will drive the creation of a

major new industry, creating a foundation for future technology development and commercial

growth. To estimate the economic implications of the emergence of this new industry, bio-era

conducted a meta-analysis of nearly two dozen studies of economic impacts of biofuels

production, developed a model to analyze economic output and job creation, and applied this

model to analyze the economic impact of increasing U.S. advanced biofuel production to 21

billion gallons per year by 2022.

FY # Projected Net Income Before Tax

Projected Corporate Tax Expense

Year #1 $ 76,878,134.00 $ 4,997,078.00

Year #2 $ 84,165,757.00 $ 5,470,774.00

Year #3 $ 107,787,131.00 $ 7,006,163.00

Year #4 $ 133,816,530.00 $ 8,698,074.00

Year #5 $ 168,686,287.00 $ 10,964,608.00

Total $ 37,136,697.00


Figure #2

U.S. Production of Advanced Biofuels under RFS

Source: U.S. Economic Impact of Advanced Biofuels Production; Perspectives to 2030, February 2009

This analysis yielded the following conclusions:

1. Direct job creation from advanced biofuels production could reach 29,000 by

2012, rising to 94,000 by 2016 and 190,000 by 2022. Total job creation,

accounting for economic multiplier effects, could reach 123,000 in 2012, 383,000

in 2016, and 807,000 by 2022.

2. Investments in advanced biofuels processing plants alone would reach $3.2 billion

in 2012, rising to $8.5 billion in 2016, and $12.2 billion by 2022. Cumulative

investment in new processing facilities between 2009 and 2022 would total more

than $95 billion.

3. Direct economic output from the advanced biofuels industry, including capital

investment, research and development, technology royalties, processing

operations, feedstock production and biofuels distribution, is estimated to rise to

$5.5 billion in 2012, reaching $17.4 billion in 2016, and $37 billion by 2022.


4. Taking into consideration the indirect and induced economic effects resulting

from direct expenditures in advanced biofuels production, the total economic

output effect for the U.S. economy is estimated to be $20.2 billion in 2012, $64.2

billion in 2016, and $148.7 billion in 2022.

5. Advanced biofuels production under the RFS scenario could reduce U.S.

petroleum imports by approximately $5.5 billion in 2012, $23 billion in 2016, and

nearly $70 billion by 2022.

The cumulative total of avoided petroleum imports over the period 2010–2022 would exceed

$350 billion. The bio-era model was also used to assess the economic implications of a scenario

in which total U.S. biofuels production grows to 60 billion gallons by 2030, with 15 billion

gallons of conventional biofuels production and 45 billion gallons of advanced biofuels

production. This analysis concludes that:

1. Approximately 400,000 jobs would be directly created in the advanced biofuels

industry, with total employment creation in the U.S. economy totaling 1.9 million

jobs.

2. Direct economic output from advanced biofuels production would rise to $113

billion by 2030. The total economic output effect would be $300 billion.

3. Biomass feed stocks in this scenario could be provided by a mix of agricultural

and forest wastes and dedicated energy crops, providing a total of 470 million dry

tons of biomass by 2030 using existing crop and forest land.

4. The average cost of advanced biofuel production at the plant-gate in 2030 would

be $1.88 including all operating costs, overhead, and capital recovery.

Cellulosic Feedstock Production

Lignocellulosic feed stocks for advanced biofuels production are likely to come from a wide

variety of sources, including crop wastes, forest residues, urban wood waste, and dedicated

energy crops. Various analyses have been undertaken to create scenarios for biomass supply to

meet U.S. advanced biofuels production requirements. For example, a recent study funded by the

U.S. Biomass Research and Development Initiative (BRDI) created detailed scenarios of

possible feedstock supplies to 2022 from cropland and forestland biomass, mill residues, and

municipal solid waste. The economic, geographic, and environmental implications of these

different feedstock supply scenarios could diverge significantly. But it is too early to be able to

accurately predict the combination of feedstock supplies that is likely to evolve to support the

U.S. biofuels industry in the future.

To estimate economic impacts and job creation, at least to a first order approximation, we adopt

a simplifying assumption that all cellulosic feedstock for advanced biofuels production is

supplied from dedicated energy crops. We assume an average price of $55 per dry ton for

biomass supplied to processing facilities beginning in 2009, falling to $50 per ton after 2013 as


agricultural practices, yields, and harvesting processes improve. By comparison, a recent study

by the Biomass Research and Development Initiative (2008) estimated total feedstock production

costs, including harvest costs, for short-rotation woody crops to be $39–58 per dry ton. We

assume 5.6 full-time equivalent (FTE) new jobs created in feedstock seed production, energy

crop production, harvesting, transportation and storage for every 1,000 acres of dedicated energy

crops cultivated. Based on these assumptions, farm sector employment related to feedstock

production, harvesting, and transportation would increase to 88,000 by 2022, while the total

value of feedstock produced would exceed $11 billion in that year (See Table #9; Job Creation &

Economic Value of Cellulosic Feedstock Production)

Table # 12

Job Creation & Economic Value of Cellulosic Feedstock Production

Year Tons of bio

Mass per

Acre

(t/acre)

Gallons

biofuels

Per ton feed

Stock

(gal/ton)

Dollars per

Ton

feedstock

($/bdt)

Total feedstock

Jobs at RFS

levels

(thousands)

Value of

feedstock

Produced

(billion dollars)

2009 7 77 55 6.2 0.4

2010 8 78 55 9.0 0.7

2011 8 80 55 11.7 0.9

2012 9 81 55 16.0 1.4

2013 9 83 50 20.4 1.7

2014 10 84 50 25.8 2.2

2015 10 85 50 35.3 3.2

2016 11 87 50 43.5 4.2

2017 11 88 50 50.6 5.1

2018 12 89 50 58.1 6.1

2019 12 91 50 64.7 7.2

2020 13 92 50 70.5 8.1

2021 13 94 50 80.0 9.6

2022 14 95 50 88.4 11.1 Source: U.S. Economic Impact of Advanced Biofuels Production; Perspectives to 2030, February 2009

Performance Plants, Inc.

The Company has been in negotiations with Performance Plants, Inc. to license its advanced

technology that would allow it to grow its own bioenergy crops. Performance Plants Inc. is a

global leader in agricultural and biofuel technology development. Performance Plants’ patented

technologies weatherproof food and non-food biofuel crops through periods of drought and heat

stress resulting in more abundant, consistent and cost-effective harvests for farmers, and

feedstock suppliers. Performance Plants has licensed its breakthrough Yield Protection

Technology(R) to some of the world's leading seed companies such as Syngenta, Stine, RiceTec


and Scotts Miracle Gro. Headquartered in Kingston, Ontario, the privately-held company has

research and development facilities in Kingston, Saskatoon, and Waterloo, New York. PPI has

discovered a family of technologies called Enhanced Conversion Technology (ECT) that alter

plant cell walls to significantly improve their conversion into biofuels.

This Canadian based firm is actively growing non-food biofuel crops to replace coal at Lafarge

Canada Inc.'s cement plant in Bath, ON. PPI and Lafarge have a multi-year agreement to develop

and grow clean energy biomass. The Company is anticipating entering into co-operative

agreements with local farmers who would be interested in growing bioenergy crops. The

Company will lease 300 acres from a local group in Web, Mississippi so that it can plant its first

yield in Spring 2011.

The build-out of a new advanced biofuels industry to meet the requirements of the Renewable

Fuel Standard through 2022 will entail the development and commercialization of new

technology, the investment of nearly $95 billion in new processing plants, and the direct creation

of nearly 200,000 new jobs. In addition, the growth of this new industry will reduce the nation’s

dependence on imported oil, potentially reducing oil imports by as much as $70 billion per year

by 2022. Finally, the growth of the advanced biofuels industry will provide stimulus to the

ongoing development of advanced biotechnology tools and platforms for production of energy,

chemicals, and materials.

Achieving advanced biofuels production of 45 billion gallons by 2030 would bring even greater

economic and employment benefits. Together with the anticipated 15 billion gallons of

conventional biofuels production capacity, this would bring total U.S. biofuels production to 60

billion gallons, enough to supply 22 percent of projected U.S. gasoline consumption. Total job

creation in this scenario, including indirect and induced jobs, reaches nearly 1.4 million jobs by

2030.


Section C: Management and Organization

Organization

Biofuels America Inc. d/b/a BFA Energy Solutions, a Tennessee corporation (―BFA Energy‖ or

the ―Company‖) was founded in 2008 to take advantage of opportunities in the renewable energy

and biofuels sector made possible by the rising cost of oil and the unprecedented wave of federal

and state financial incentives for new projects in these industries. The Company plans to develop

several renewable energy facilities at opportunistic locations across the United States, but is

submitting this application for funding assistance for its first project in Jasper, Tennessee known

as ―Project Tennessee‖. The Company’s founder and primary shareholder, Pete Reeves, has

recruited a number of early investors and experienced investors to serve on the Company’s

Board of Directors. Mr. Reeves has deferred recruiting a management team, pending the

Company securing financing.

Board of Directors

The Company has assembled a diverse Board of Directors who bring a unique combination of

experiences and expertise to the organization. The Board of Directors include the following:

1. Chairman, W.E. “Pete” Reeves - Mr. Reeves founded the Company to take

advantage of the country’s need for energy and the market opportunity for

cellulosic ethanol and biochemicals. Mr. Reeves has a broad background in

alternative energy, urban development and project management. Mr. Reeves is

a results-driven professional with a solid, verifiable career track for successfully

advancing entities in both the public and private sectors through start up ventures,

municipalities and high growth cycles. He is known for exceptional resource

development, business development, grant / proposal writing and delivering

record breaking revenue and profit goals. Mr. Reeves developed Power

Principles which are both performance based successful achievement programs.

In addition, Mr. Reeves, background includes:

a. Proven flexibility to manage wide scope of contracting work.

b. Proven ability to develop and implement long term and short term

strategic plans.

c. Proven operations manager capable of meeting and exceeding

planned P&L and sales goals.

d. Directly responsible for project development/management for

EnviRes, LLC’s HyMelt Coal Gasification Plant in East St.

Louis, Illinois. HyMelt® is a new gasification process, co-

developed by EnviRes, a Kentucky limited liability company, with


Marathon Ashland Petroleum (MAP); and is projected to become a

breakthrough technology by producing separate streams of high-

purity hydrogen and CO-rich synthesis gas from feed stocks of

coal and/or refinery bottoms (such as petroleum coke)--at less cost

than other methods, and with important environmental benefits.

Mr. Reeves was directly responsible for project

development/management and obtaining $31 million (i.e. grants,

loans, tax exempt bonds, tax increment financing etc.) of the $58

million EnviRes, LLC HyMelt Coal Gasification Plant in East St.

Louis, Illinois. Mr. Reeves was directly responsible for taking the

project to groundbreaking.

e. Performed site selection assistance for Entropic, a $12 million

renewable energy project, which produces synthetic coal from

solid wastes in East St. Louis, Illinois.

f. Performed site selection and resource development for Ansar

Development Corporation for a $35 million wind turbine farm near

Muskogee, Oklahoma.

g. Proven proficiency in project overview for residential, commercial,

industrial, mixed use, and browns-field reuse.

h. Government Liaison with local, state and federal legislatures for

various projects in Illinois, Tennessee, Kentucky and Mississippi.

i. Ability to navigate through EPA permitting processes.

Mr. Reeves has participated in numerous civic and community economic

development initiatives including but not limited to; Co-Founder Springfield

Minority Business Council (1992); City of Springfield, Illinois Enterprise

Community Steering Committee (1993); Co-Founder Greater Springfield African

American Chamber of Commerce (1994); City of Bullhead City, Arizona

Economic Development Council (1997); United Way of Central Illinois, Inc.

Community Care (Funds Distribution) Panel Volunteer (2000); City of

Springfield, Illinois Housing Alliance (2000); and the City of East St. Louis,

Illinois Waterfront Development Committee (2001-2002); City of Springfield,

Illinois Mayor’s Taskforce on Homelessness (2003-Present)

In 1993, Mr. Reeves was honored by Illinois Times Newspaper as African

American Entrepreneur of the Year. In 2002, he was most recently honored by

Governor Paul Patton of Kentucky as a Kentucky Colonel, the highest designation

bestowed by the State. Previous Kentucky Colonels include Winston Churchill,

Tiger Woods and Muhammad Ali to name a few.

He earned his B.A. in Legal Studies at the University of Illinois in 1990. He

served as an intern to Alan Whitehead, U.K. Minister for the Environment in


London in 2002, contributing to a comparative study of U.S. and U.K. urban and

economic development strategies.

He has worked as a planning director for the City of East St. Louis, Illinois,

developing community revitalization strategies and managing several

redevelopment projects and for the State of Illinois Environmental Protection

Agency. In 2002 he founded Regeneration Strategies International, a consulting

firm focused on assisting clients with various economic development projects.

As the Chairman of the Board of Directors, Mr. Reeves will have the following

responsibilities.

a. Preside over board or executive committee;

Supply vision and imagination at the highest level (working

closely with CEO and COO)

b. Take chair at general meetings, within which: to ensure orderly

conduct; fair and appropriate opportunity for all to contribute;

suitable time allocation per item; determining order of agenda;

directing discussion towards consensus; clarifying and summing

up actions and policies;

c. Act as the organization's representative in its dealings with the

outside world;

d. Play a leading part in determining composition of board and sub-

committees, so as to achieve harmony and effectiveness;

e. Take decisions as delegated by the board and where required chair

board meetings;

f. Execute the responsibilities of a company director according to

lawful and ethical standards;

2. Board Member, James M. Plautz, - Mr. Plautz is the founder and owner of

Ethanol Productions, LLC, a designer and developer of corn-based ethanol plants

using the McCrabb no-cook, vapor process system. He is also the founder and

owner of two financing companies that provide construction financing and

` equipment leasing. Mr. Plautz earned his B.A. from the University of Wisconsin.

He was employed by Price Waterhouse for eight years, rising to the level of

senior manager, before joining Blount International, Inc. (NYSE: BLT) as a

corporate MIS director.

3. Board Member ,Grady Chronister, - Mr. Chronister is the President of Lincoln

Land Oil and Chronister Oil. Lincoln companies. Lincoln Land Oil owns and

operates the Qik-n-EZ (www.qiknez.com) gasoline stations in the State of


Illinois. The first Qik-n-EZ opened in 1967 by Grady and Linda Chronister. The

business today flourishes, continuing to carry its family minded principles with a

focus on quality employees and outstanding customer service. The full-service

convenience stores are home for fast, convenient products and services at a great

price. As the most recognized convenience store brand in Central Illinois, the

stores provide a family friendly environment where customers can quickly get

everyday products that are easy on their pocket book.

Chronister Oil Company has been a trusted supply source for fuel distribution for

over 40 years. Chronister Oil Company has a state-of-the-art on premise blending

system and are a certified blender of record. They provide an extensive supply of

fuels and bio-fuels so, whether customers need traditional fuel or BioFuel

capabilities in ethanol blends and biodiesel Chronister Oil Company can get them

what they need, when they need it. Chronister Oil Company pride itself on its

environmentally conscious curriculum and service its customers' green

requirements.

4. Board Member, Dan Parker, - Mr. Parker is a principal at E3 Energy Partners,

LLC., (www.e3energypartners.com) a renewable energy engineering and

consulting firm. Prior to joining E3 Energy Partners he was the chief executive

officer of Parker, Messana and Associates, Inc., a chemical and engineering

consulting firm. Mr. Parker has worked as a research engineer or research

chemist at several large corporations, including Beloit Corporation, Neutrogena

Corporation and Fluor Daniel International.

He has more than twenty years of experience in project management for industrial

and utility plant construction and retrofitting. He has managed large teams of

engineers and construction professionals to meet project deadlines and cost

targets. Mr. Parker earned his B.S. in Chemistry in 1977 and his B.S. in Electrical

Engineering in 1985. He is a member of the Project Management Institute and a

licensed electrical engineer in the states of Washington, Idaho, Oregon and

Montana. He is a co-inventor of two patents and has authored numerous technical

papers in the field of biofuels and bioenergy.

5. Board Member, Taylor Pensoneau, - Mr. Pensoneau was the Executive Director

of the Illinois Coal Association (www.ilcoalassn.com)for over ten years until he

retired in 2002. The Illinois Coal Association is the professional trade

organization responsible for the promotion of Illinois coal, a natural resource

found in great abundance in Illinois. Of all the states, Illinois has the largest

reported bituminous coal resources with almost 25% of our nation's reserves. To

carry out its mission, the Springfield- based Association represents the coal

industry in the state in governmental affairs, in public relations and in related

matters. The Association's member companies produce 100 percent of the coal

mined in Illinois.

Mr. Pensoneau began his career as a political correspondent for the St. Louis Post-

Dispatch where he worked for twelve years. He is the author of several books,

http://www.ilcoalassn.com/


including two works of historical non-fiction that were awarded the Illinois State

Historical Society’s Certificate of Excellence.

6. Board Member, Walter Farr - Mr. Farr is the founder of the Farr Group of

Companies which has developed a number of edible oil processing and biodiesel

technologies. Mr. Farr earned his B.S. in Chemistry from Mississippi State

University in 1960 and worked as a chemist with several companies, including

Wesson ConAgra, Archer Daniels Midland, Kraft General Foods and DeSmet

Ballestra.

Since founding the Farr Group of Companies in 2003, Mr. Farr has participated in

the development of oil processing and biofuel plants here in the US and abroad.

He participated in the development of facilities in Owensboro, Kentucky; Pine

Bluff, Arkansas; Alexandria, Egypt; Monterrey, Mexico and Kingston, Jamaica.

Mr. Farr brings to the Company several decades of deep experience in the

biofuels and chemical processing industries.

7. Board Member, Pat Marucco - Mr. Marucco is an accomplished entrepreneur,

having built several companies over the past 20 years, including Spring Mortgage

Company and Reserve Capital Corporation. He founded and ran a retail grocery

store from 1978 to 1989 and also served as the Village Clerk of Stonington,

Illinois from 1975 to 1992. He earned his B.A. in Education from Illinois State

University.

Continuity and Adequacy of Management

The Company is a biotechnology organization whose management has unparalleled experience

combining comprehensive capabilities across various industries with diverse business functions.

Management is positioning the Company as a global entity producing and supplying bioproducts

to industrial customers here in the U.S. and abroad.

Management understands and have embraced the Company’s mission to be a globally

competitive corporation by creating value for its shareholders from natural resources to become a

premiere producer of cellulosic ethanol and other biochemicals.

Using the industry knowledge, capabilities and technology expertise of its strategic partners,

management is forging a new path for its stakeholders and the nation as a whole. The Company’s

management has identified new business and technology trends and developed a energy solution

to help its prospective customers around the world to:

1. Enter new markets (i.e. TECNARO Gmbh (www.arbofrom.org)utilizing the

Company’s lignin to continue its advance into the bio-plastics industry ;

2. Increase revenues in existing markets (i.e. By entering into an Ethanol Sales and

Marketing Agreement with CHS, Inc., (www.chsinc.com) a leading ethanol

marketer, with a diverse range of major buyers nationwide, to purchase all the

ethanol that the Company produces ; thus enhancing CHS, Inc.’s revenues);

http://www.arbofrom.org/


3. Improve operational performance (i.e. By entering into the proposed Power

Purchase Agreement with Sequatchie Valley Electric Co-operative who will sell

the power at a premium to its customers who purchase green power thus

improving their customers bottom line);

Among the many strengths that distinguishes the Company’s management in the marketplace

are our:

1. Proven industry expertise;

2. Diverse and evolving products offerings;

3. Expertise in business operations;

4. Dedication to technology innovation and implementation, including its future

research and development capabilities;

5. Commitment to the long-term development of its employees; and

6. Proven and experienced management team.

Management’s believes that the following core values of the Company will shape the culture and

define the character of its company, guiding how they behave and make decisions:

1. One Global Network - Mobilizing the power of teaming to deliver consistently

exceptional products to its customers anywhere in the world.

2. Integrity - Inspiring trust by taking responsibility, acting ethically, and

encouraging honest and open debate;

3. Stewardship: Building a heritage for future generations, acting with an owner

mentality, developing people everywhere they are, and meeting its commitments

to all internal and external stakeholders;

4. Best People: Attracting and developing the best talent for its business, stretching

its people and developing a "can do" attitude;

5. Client Value Creation: Improving its customers' business performance,

creating long-term, win-win relationships and focusing on executing excellence;

and

6. Respect for the Individual: Valuing diversity, ensuring an interesting and

inclusive environment.


Executive Team

During the 1960's, an approach to structuring executive roles and work emerged in the United

States that can be called the C.E.O./ C.O.O. model. This structure typically includes a Board

Chairman serving as the Chief Executive Officer and a President serving as Chief Operating

officer who reports to the C.E.O. It also includes a number of executives who report to the

C.O.O. and are each responsible for the operations of a particular unit.

Work is allocated so that the C.E.O. is responsible for strategic issues, external relations and

overall corporate governance, while the C.O.O. has primary responsibility for running internal

operations. The C.O.O. might meet regularly with those who directly report to him/her, but the

role of each of the individual executives is to manage his/her own piece of the organization

consistent with the strategies and direction from the top. Although the specific roles and

assignments varied from company to company, by the 1960's this "two-person" structure became

the dominant form of organizing major United States corporations at the executive level.

The Company is structured in this manner except that the President and C.O.O. are two different

individuals. The Company’s President is Cole Porter. The Company currently does not have a

C.O.O. but is expected to fill this position and all other vacant Executive Team member positions

prior to construction. Figure # 5 shows the Company’s organizational structure.

The Company’s Executive Team is as follows:

1. Chief Executive Officer, W.E. “Pete” Reeves – See description in Board of

Directors section above.

As CEO, President Mr. Reeves will have the following responsibilities to the

organization:

a. Identify, develop and direct the implementation of business strategy

(depending on the situation some criteria may already exist or be

established by the organization's chairman, owner(s)/shareholders);

b. Plan and direct the organization's activities to achieve stated/agreed targets

and standards for financial and trading performance, quality, culture and

legislative adherence;

c. Recruit, select and develop executive team members;

d. Direct functions and performance via the executive team;

e. Maintain and develop organizational culture, values and reputation in its

markets and with all staff, customers, suppliers, partners and

regulatory/official bodies;

f. Report to shareholders/parent board on organizational plans and

performance;


2. Cole Porter, President - Mr. Porter is the acting President of Biofuels America,

working with Mr. Reeves on executing the Company’s business strategy to

develop Project Tennessee. Since 1982 Mr. Porter has been the owner and

President of MCR Incorporated (http://www.mcrincorporated.com) ., a designer

and manufacturer of gaming equipment. Mr. Porter brings a unique competence

to the organization. He has been very active within the political community

within the Memphis Tennessee area and the state as a whole.

3. Chief Financial Officer, - The Chief Financial Officer position, which reports

directly to the CEO, is currently a vacant position within the organization.

However, this position will have the following requirements and responsibilities:

a. Business and financial strategy and planning, monitoring, management

and reporting, including management and development of policies,

systems, processes and personnel involved;

b. Reporting and accounting as per regulatory and legal requirements

including taxation, dividends, annual report and accounts; c.

c. Management of strategy for and liaison with stock market, business press

and business analysts community;

d. Financial staff management, motivation, training, recruitment and

selection;

e. Contributing to strategic planning and development as a member of

executive team, and probably keeping and distributing notes and records,

reports to executive and management team;

f. Other areas of potential responsibility: company insurance, import/export

administration, licensing, contracts and agreements, legal areas and

activities, corporate level negotiations (e.g. premises, plant, trading,

acquisitions and divestments, disposals), major supplier/customer/partner

relationships, regulatory bodies relationships and strategies, approvals and

accreditations;

g. Also include environmental responsibilities, (the environmental

function/manager reports to CFO).

http://www.mcrincorporated.com/


Figure # 5

Organizational Chart

Source: biofuels AMERICA, INC.

PETE REEVES/ C.E.O

COLE PORTER/PRES.

V.P. DEV.

BOB PITTMAN

V.P. INVEST REL

JACKIE JOYNER

V.P. PROCUREMENT BRAD JONES

V.P. R & D

TO BE HIRED

V.P. SALES MIKE HOOK

V.P. HUMAN

RESOURCES

TO BE HIRED

CHIEF FIN. OFFICER

TO BE HIRED

CHIEF OPER. OFFICER

TO BE HIRED

OPERATIONS TO BE HIRED

MAINTENANCE TO BE HIRED

TECHNICAL TO BE HIRED

EXECUTIVE ASSISTANT

KAYE AMMER

ACCOUNTING SUPERVISOR TO BE HIRED

RECEIVABLES MANAGER TO BE HIRED

SUPPORT STAFF SUPERVISOR TO BE HIRED

BOARD CHAIRMAN

PETE REEVES

BOARD MEMBER

TAYLOR

PENSONNAEU

BOARD

MEMBER

DAN PARKER

BOARD MEMBER

GRADY

CHRONISTER

BOARD

MEMBER TO

PAT

MAROCCO

BOARD MEMBER

JAMES

PLAUTZ


4. Chief Operating Officer, To Be Hired - The Chief Operating Officer position,

which reports directly to the CEO, is currently a vacant position within the

organization. However, this position will have the following requirements and

responsibilities:

a. Plan, develop and implement strategy for operational management and

development so as to meet agreed organizational performance plans within

agreed budgets and timescales (covering relevant areas of operation – e.g.

manufacturing, distribution, administration, whatever falls within remit

according to organization's structure);

b. Establish and maintain appropriate systems for measuring necessary

aspects of operational management and development;

c. Monitor, measure and report on operational issues, opportunities and

development plans and achievements within agreed formats and

timescales;

d. Manage and develop direct reporting staff;

e. Manage and control departmental expenditure within agreed budgets;

f. Liaise with other functional/departmental managers so as to understand all

necessary aspects and needs of operational development, and to ensure

they are fully informed of operational objectives, purposes and

achievements;

g. Maintain awareness and knowledge of contemporary operational

development theory and methods and provide suitable interpretation to

directors, managers and staff within the organization;

h. Contribute to the evaluation and development of operational strategy and

performance in co-optation with the executive team;

i. Ensure activities meet with and integrate with organizational requirements

for quality management, health and safety, legal stipulations,

environmental policies and general duty of care.

5. V.P. Sales & Marketing, Mike Hook - The V.P. Sales Marketing position,

which reports directly to the CEO, is held by Mike Hook. However, this position

will have the following requirements and responsibilities:

a. Plan and implement marketing strategy, including advertising and PR;

b. Plan and implement sales and customer retention and development;


c. Plan and manage sales and marketing resources according to agreed

budgets;

d. Contribute to formulation of policy and strategy;

e. Recruit, manage, train and motivate direct reporting staff according to

company procedures, policy and employment law;

f. Maintain administration and relevant reporting and planning systems;

g. Manage relevant reporting of management and financial information for

the sales and marketing departments;

h. Select and manage external agencies;

i. Manage R&D and NPD and new business development;

j. Maintain and develop corporate image and reputation, and protect and

develop the company's brands via suitable PR activities and intellectual

property management; and

k. Plan and manage internal communications and awareness of corporate

direction, mission, aims and activities.

6. V.P. Human Resources, To Be Hired - The V.P. Human Resources

position, which reports directly to the CEO, is currently a vacant position

within the organization. However, this position will have the following

requirements and responsibilities:

a. Plan, develop and implement strategy for HR management and

development (including recruitment and selection policy/practices,

discipline, grievance, counseling, pay and conditions, contracts, training

and development, succession planning, morale and motivation, culture and

attitudinal development, performance appraisals and quality management

issues - add others if relevant);

b. Establish and maintain appropriate systems for measuring necessary

aspects of HR development;

c. Monitor, measure and report on HR issues, opportunities and development

plans and achievements within agreed formats and timescales;

d. Manage and develop direct reporting staff;

e. Manage and control departmental expenditure within agreed budgets;


f. Liaise with other functional/departmental managers so as to understand all

necessary aspects and needs of HR development, and to ensure they are

fully informed of HR objectives, purposes and achievements;

g. Maintain awareness and knowledge of contemporary HR development

theory and methods and provide suitable interpretation to directors,

managers and staff within the organization;

h. Contribute to the evaluation and development of HR strategy and

performance in co-operation with the executive team; and

i. Ensure activities meet with and integrate with organizational requirements

for quality management, health and safety, legal stipulations,

environmental policies and general duty of care;

7. V.P. Procurement, Brad Jones - The V.P. Procurement position reports directly

to the CEO. This position has the following requirements and responsibilities:

a. Prepares and issues formal solicitations including Invitations for Bid,

Requests for Proposals, and Requests for Qualifications and Experience as

per the Corporate Procurement Policy and Plan;

b. Evaluates responses to solicitations based on vendor qualifications, price

and conformance requirements;

c. Develops and manages annual contracts for a wide variety of supplies,

services, consultants and capital equipment, including analysis, evaluation

and approval of contractor change orders, contract amendments, monitors

and evaluates contractor performance, contract renewals and addressing

vendor/contractor deficiencies;

d. Writes memoranda to the CEO recommending contract awards and

attends Executive Team meetings as required to answer questions;

e. Conducts public pre bid/proposal conferences and public solicitation

openings and serves as chairperson/facilitator for evaluation meetings and

requesting Best and Final Offers;

f. Serves as a commodity and service specialist and information resource to

user departments, other government entities and the public to interpret,

explain, and makes decisions regarding procurement law and department

policies;

g. Researches and advises user departments on market trends, new product

and service developments and alternative source selections;


h. Uses eRequester computer software to manage the placement of orders for

the Company;

i. Conducts procurement process for all development projects for the

Company;

j. Oversees legal requirements in procurement of construction;

k. Issues addenda to solicitations and amendments to contracts as required;

l. Meets with vendors and provide guidance on how to do business with the

Company;

m. Interviews consultants to determine selection;

n Reviews requisitions for conformance with applicable law;

o. Prepares contract administration documents including contract expiration

notices, contract summaries, reviews Vendor Deficiency Reports, host

post award meetings, and conducts contract user surveys as applicable;

p. Initiates industry best practice surveys;

q. Performs all work duties and activities in accordance with Company

policies and procedures;

8. V.P. Administrative Services, Kaye Ammer - Ms. Ammer is the acting Vice

President of Administrative Services. She is heading the Company’s

administrative department and serving as corporate secretary. She currently has

the primary responsibility for assisting the CEO and President and interfacing

with the Board of Directors and senior management on substantially all of the

Company’s administrative and communication affairs.

a. Develops, coordinates, analyzes and monitors programs, projects,

contracts, grants, overtime limits, funds, budgets and/or budget projections

applicable to the work unit;

b. Prepares, processes and reviews written documents pertaining to Company

projects (i.e., correspondence, personnel action requests, requisitions,

travel requests and claims, requests for proposals, leases, contracts,

funding requests, bid specifications, requests for reimbursement, billing

statements, etc.) to ensure compliance with applicable laws, policies and

procedures;


c. Researches, gathers, summarizes and analyzes data to provide accurate

information for briefs, reports, contracts, grant proposals, correspondence

and presentations; to develop, evaluate and project program goals and/or

strategic plans; and to develop and propose recommendations.

d. Tracks time-sensitive events and assignments to ensure timely completion;

e. Supervise clerical and administrative support personnel and the functions

of the work unit, which includes: interviewing prospective employees;

providing and/or recommending training; coordinating, scheduling and

assigning work product; establishing performance measures, goals,

objectives and priorities; evaluating work performance; providing

feedback, direction and guidance; keeping personnel abreast of new or

revised information; answering questions; and recommending and/or

implementing personnel actions;

f. Maintains various records in compliance with applicable retention

schedules.

g. Develops, reviews and reconciles program reports (e.g., budgetary,

financial, statistical, performance, etc.);

h . Develops and maintains automated systems to update and track

information;

i. Reports information to management regarding project status and program

issues (e.g., balances, funding, administrative issues, etc.) and/or presents

recommendations related to the work unit;

j. Participates in and conducts research projects, audits and/or inspections to

provide information, make recommendations and procedural changes, and

ensure compliance;

k. Resolves procedural and administrative problems and/or contract

discrepancies, and answers questions regarding programs, projects, funds,

budgets and/or budget projections pertaining to work unit;

l. Prepares graphic presentations (e.g., matrices, charts, graphs, spreadsheets,

tables, and time lines) to improve information presentation and

comprehension;

m. Conducts needs assessments (e.g., program, equipment, staff, etc.) to

determine current and future needs, and to provide recommendations;

n. Researches, analyzes, interprets and reviews regulations, laws, policies

and procedures applicable to program assignment to determine conflicts


and ensure compliance;

o. Reviews research papers, analytical reports, programs and/or data trends

to develop innovative approaches to problem solving and program

evaluations, and to make recommendations;

p. May coordinate, direct and review the work of others, internal and/or

external, in order to ensure that assigned tasks are completed accurately

and in a timely manner;

q. Initiates, develops and evaluates program proposals/needs to obtain

required products, services and/or additional funding;

r. Develops, plans, conducts and attends meetings, conferences, seminars

and other events to exchange information and/or address needs and

concerns;

9. V.P. of Business Development, Bob Pittman - Mr. Pittman is the acting Vice

President of Business Development, heading the Company’s efforts to develop

relationships with customers and suppliers. Mr. Pittman has served as the

regional sales director for a medical supply company for nearly than twenty

years.

a. Serve as a key member of the executive team that sets the company’s

strategic direction;

b. Spearhead business development initiatives that are consistent with the

company’s overall strategy;

c. Manage multiple business initiatives in a start-up environment;

d. Revenue generation and strategic partnerships development and

management;

e. Build and manage a business development team;

f. Manage complex contract negotiation and work with legal counsel as

required;

g. Win early customers with limited support; and

h. Be the driving force in the development of the work ethic, culture and

values of the sales and business development group. Through personal

example, establish the style and approach which will characterize the

Company’s dealings with the marketplace.


10. V.P. Investor Relations - The V.P. Investor Relations is held by former

Olympian Jackie Joyner Kersee reports directly to the CEO, Mrs. Kersee will

have the following requirements and responsibilities:

a. Use communication, project management, and financial skills to assist in

the development of financial communication materials and processes to

communicate with the investment community.

b. Assist in preparation of quarterly earnings materials as well as an analysis

of key earnings drivers and issues to be addressed;

c. Create presentations and other communication materials for industry

conferences or other events.

d. Remain current with all pertinent business developments for clients and

their peers; recommend and monitor changes in disclosures and or

requirements.

e. Assist in coordinating details and logistics for events including investor

conferences, non-deal road shows, company-sponsored investor days.

f. Monitor investor base and develop target investor list;

11. V.P. Research & Development, To Be Hired – The V.P. Research &

Development position, which reports directly to the CEO, is currently a vacant

position within the organization. However, this position, which will require a

PhD. in Chemistry or related science, will have the following requirements and

responsibilities: a. Provides oversight leadership on projects related to technology know-how

development and new product development, ensuring that such projects

are completed according to agreed upon schedules.

b. Develops and maintains knowledge of Industry / Market / Customer /

Technology trends and uses this information to identify and capture

technology project opportunities.

c. Works with Sales team to develop relationships with customers, engages

customers in project activities as appropriate in order to facilitate

customer’s adoption/implementation of company’s product technologies.

d. Works with cross-functional teams, including Sales, Customer Care,

Quality Control and Production to provide customers with best of class

products and services.

e. Has administrative oversight responsibility for Technology R&D and


Product Development staff, and is responsible for team and individual

goal setting, employee evaluations, and for making recommendations

regarding employee compensation and career development.

Other Executive Positions

As previously stated, the Company has deferred other executive hires pending funding and

expects to collaborate with its Series A investors on appropriate candidates for roles as Chief

Operating Officer, Chief Financial Officer, Comptroller and other key functions.

Strategic Relationships

A strategic relationship is a formal alliance between two commercial enterprises, usually

formalized by one or more business contracts but falls short of forming a legal partnership or,

agency, or corporate affiliate relationship. Typically two companies form a strategic partnership

when each possesses one or more business assets that will help the other but that it does not wish

to develop internally.

One common strategic relationship involves one company providing engineering, manufacturing

or product development services, partnering with a smaller, entrepreneurial firm or inventor to

create a specialized new product. Typically, the larger firm supplies capital, and the necessary

product development, marketing, manufacturing, and distribution capabilities, while the smaller

firm supplies specialized technical or creative expertise.

Another common strategic relationship involves a supplier / manufacturer partnering with a

distributor or wholesale consumer. Rather than approach the transactions between the companies

as a simple link in the product or service supply chain, the two companies form a closer

relationship where they mutually participate in advertising, marketing, branding, product

development, and other business functions. As examples, would be the Company’s strategic

relationship with its technology provider PLET.

There can be many advantages to creating strategic relationships. As Robert M. Grant (2008, p.

44) states in his book Contemporary Strategy Analysis, "For complete strategies, as opposed to

individual projects, creating option value means positioning the firm such that a wide array of

opportunities become available". Firms taking advantage of strategic partnerships can utilize

other company's strengths to make both firms stronger in the long run. The Company has

formed strategic relationships with the following:

1. Pure Lignin Technologies (“PLET”)/ Technology Provider - Pure Lignin’s

patented, revolutionary, green, bio-technology produces three separate,

economically profitable products: commercial grade cellulose, pure lignin and

Sweet liquor (sugars, hemicellulose). It combines a unique blend of chemicals and

low-pressure steam in a closed-loop process which emits no emissions or

pollution. The process can utilize any vegetation as its source including waste-

wood, Pine beetle-killed trees, sugar cane, grasses, husks etc. With costs to build


and operate considerably lower than conventional processes, and more revenue

streams the plants will be much more profitable than traditional methods.

2. Veolia Energy / Contractor and Operator - The Company has a preliminary

letter of intent with Veolia Energy will to design, operate and maintain its CHP

Biorefinery in eastern Tennessee. Veoila Energy is a division of Veolia

Environment, a French multi-national company with 2007 revenues of $48

services. Veolia Environment is a 150 year old company with operations on

every continent and approximately 300,000 employees. Veolia Energy has

extensive experience in designing, building, operating and maintaining energy

projects and refineries.

3. E3 Energy Partners, LLC / Project Engineering - The Company expects to

engage the firm of E3 Energy Partners to manage the project from planning phase,

through engineering and construction phases, to completion and implementation.

E3 Energy Partners is a global leader in chemical engineering, process scale-up,

detailed design and project oversight for renewable energy solutions. With 25

years of experience, E3 Energy Partners is one of the most highly respected

project engineering firms in the country. It blends fiscal management, problem

analysis, engineering, and a disciplined work measurement into its overall project

control process.

While E3 Energy Partners has considerable experience in all types of industrial

projects, it has created a special niche in retrofitting existing facilities with new

technology, rather than construction of new facilities. Its reputation has been built

from developing engineering solutions within the constraints of a retrofit project.

This expertise is particularly apropos for Project Tennessee. Principals of the

firm have already provided much useful guidance to the Company in the

development of this project. E3 Energy Partners is the former Parker Messana

Consulting Engineers of Seattle, Washington and Dan Parker, one of the

Company’s Board members, is a partner in the firm.

.

4. CHS, Inc. / Ethanol Sales and Marketing - On May 20, 2009, the Company

entered into an Ethanol Sales and Marketing Agreement with CHS. Under the

agreement CHS will purchase all of the ethanol that the plant produces. Under

the Agreement CHS is obligated to market and sell to commercial purchasers all

of the ethanol produced by the Company. The Company’s sales of ethanol will be

priced based upon the purchaser bearing the cost of shipment from the

Company’s location and the Company will pay CHS a marketing commission

equal to 1.25% of the actual price paid by the purchase but not less than $0.015

per gallon.

CHS is a diversified global agriculture and energy company in the Fortune 200

(NASDAQ: CHSCP) with over 75 years in the energy industry and over 25 years

of experience in ethanol marketing. It is the largest distributor of E-85 in the

United States. CHS is both an owner and an operator of refineries, pipelines and


terminals. CHS had 2008 revenues of $32.2 billion with net income of $803

million.

5. Christianson & Associates PLLP / Accountants - The Company has arranged

for the engagement of Christianson & Associates PLLP, a certified public

accounting and consulting firm located in Minnesota to provide accounting

services. Christianson specializes in agri-businesses, and currently provides

professional services to 40 ethanol plants now in operation or under development.

6. Taylor English Duma LLP / Attorneys - The Company is represented by Taylor

English Duma LLP, a law firm of 70 lawyers headquartered in Atlanta, Georgia,

recently recognized by the Atlanta Business Chronicle as one of the top 25 firms

in the city. Jonathan B. Wilson serves as the firm’s primary contact with the

Company. Wilson is a Phi Beta Kappa graduate of the College of William and

Mary (1988) and an honors graduate of the George Washington University Law

School (1991). Wilson is the founding chair of the Renewable Energy Committee

of the American Bar Association Public Utility Section. The Company also

utilizes the tax expertise of Greg Sanderson, a tax attorney who has provided

advice in tax credit transactions for more than 20 years. Attorneys at the firm

have been engaged as counsel in more than 100 tax credit monetization

transactions.

7. Gryphin Company, Inc. - was founded in 1984 to conduct coatings research for

both the industrial and military markets. The focus of that research were the resins

and polymers used in coatings and castings. In 1994, Gryphin purchased the

assets of the Gilbert Spruance Company, including the 11 building, 2-acre site it

presently occupies, along with the manufacturing equipment and processes

essential for the manufacture and distribution of paint and allied products. Since

that time, Gryphin has been engaged in the manufacture of coatings for metal and

wood. Gryphin's present product range includes industrial coatings such as epoxy

tank coatings, anti-skid coatings, corrosion protection coatings in addition to

wood finishing coatings such as stains, fillers, sanding sealers, lacquers,

polyurethane, polyesters and conversion varnishes. The line also includes

architectural grade paints and home decor products manufactured under the

Heritage Village brand name. On April 14, 2011, the Company signed a Lignin

Sales Agreement with Gryphin in which Gryphin will purchase of the lignin that

the Company produces.


Section D: Market Feasibility Determinations

Market Analysis

In the early 2000s, several start-up companies developed corn-based and soybean-based ethanol

plants in order to produce ethanol. U.S. policy favored the development of these liquid fuel

producers through a series of excise tax credits. When world agricultural prices spiked in mid-

2008, many first generation ethanol producers found that they could not acquire feedstock in the

form of corn or soybeans at prices that made ethanol profitable. As a result, many first

generation ethanol producers failed or halted their operations.

In addition, the apparent competition of ethanol producers for edible products like corn and

soybeans produced a political backlash that has tended to disfavor ethanol production based on

grains. In spite of this backlash, the federal government instituted the Renewable Fuels Standard

(―RFS‖). The RFS is a provision of the US Energy Policy Act of 2005 that mandated 7.5 billion

gallons of renewable fuels by 2012. United States currently produces 5 billion gallons of ethanol.

In addition, the ―Food Conservation and Energy Act of 2008‖ mandated that producers of

cellulosic ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for

every gallon of cellulosic ethanol produced.

―For the past few decades, the federal government has increasingly made the development of

renewable biofuels a priority for advancing the nation’s energy and economic security, and, more

recently, for advancing environmental and climate security. In the 1980s and 1990s, the primary

political reasons for developing domestic, renewable biofuels were to promote energy security

and increase crop prices for farmers. However, the first big boost to the biofuels industry in the

2000s arose from efforts to protect urban air quality. Gasoline refiners were scrambling to find a

substitute for methyl tertiary butyl ether (MTBE), a fuel additive that was used to help reduce

smog from tailpipe emissions. MTBE was found to be posing a toxic threat to many urban water

supplies. It was banned by several states. Corn ethanol was the most readily available substitute.

Demand grew rapidly, more than doubling between 2002 and 2005, from 1.8 billion gallons per

year to 3.8 billion gallons (U.S. Energy Information Administration (USEIA), 2009).

At the same time, public concern about increasing U.S. dependence oil imports grew in the

aftermath of the attacks of September 11, 2001. Increasing production of domestic renewable

fuels was proposed as a way to enhance national security and prevent future conflicts over oil. In

the Energy Policy Act of 2005 (―EPACT‖) Congress enacted the first Renewable Fuel Standard

(―RFS‖), mandating further increases in renewable fuels production, and authorized other

programs to increase biofuels production, distribution, and consumption. The threat of global

climate change was also of growing national concern. Many in the environmental community

came to believe that substituting low carbon, next generation, cellulosic biofuels for petroleum

based fuels could help mitigate climate change. Building the market and infrastructure for first

generation corn ethanol could create the necessary bridge to the more environmentally benign

and climate-friendly, next generation biofuels, which were still being developed. Thus, a political

convergence developed by the end of 2007 -- one policy to address three compelling public

concerns: energy security, economic development, and climate change mitigation. These

priorities were codified in the second Renewable Fuel Standard (RFS2) in the Energy

Independence and Security Act of 2007 (―EISA‖)."








Financial Summary and Marketing Budget

Financial Outlook

The Company is a pre-income entity. As such, there are no historical financials by which to base

past sales projections. The Company’s future revenue is projected in its Five Year Pro-Forma.

Based upon our Pro-formas The Company is projecting a 25% increase in sales per year. This

increase will be based upon the following:

The growing concern over our nation’s increasing need for energy, in the form of

electricity, liquid fuels and bio-chemicals and the federal government’s mandate of

renewable fuel standards coupled with governmental financial incentives has created a

burgeoning need for renewable energy solutions.

The U.S. Department of Energy, Energy Information Administration predicts that U.S.

electricity consumption will continue to rise by 26% from 2007 through 2030,

notwithstanding pending improvements in energy efficiency.

the ―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic

ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for


The Company’s production model, utilizes readily-available and inexpensive inputs to

produce marketable, high-value outputs.

Project Tennessee will use an advanced patented process by Pure Lignin Environmental

Technology, Ltd, (―PLET‖) of Kelowna, B.C., Canada licensed to the Company.

Projected Sales are as follows:


Table # 13

bfA Projected Revenues

biofuels AMERICA,

INC.

Project Tennessee

Five Year Pro-Forma

As of June 1, 2010 YEAR # 1 YEAR # 2 YEAR #3 YEAR # 4 YEAR # 5 TOTAL

15mmgy 20mmgy 30mmgy 30mmgy 30mmgy

REVENUES:

Ethanol $ 27,450,000.00 $ 36,600,000.00 $ 54,900,000.00 $ 54,900,000.00 $ 54,900,000.00 $ 228,750,000.00

Lignin $ 81,600,000.00 $ 102,000,000.00 $ 127,500,000.00 $ 159,375,000.00 $ 199,218,750.00 $ 669,693,750.00

Electricity $ 7,956,245.00 $ 9,945,306.00 $ 12,431,632.00 $ 15,539,540.00 $ 19,424,425.00 $ 65,297,148.00

TOTAL REVENUES $ 117,006,245.00 $ 148,545,306.00 $ 194,831,632.00 $ 229,814,540.00 $ 273,543,175.00 $ 963,740,898.00

In order to reach the above financial projections, the Company will require additional human and

capital resources. First Year sales projections are based upon a full employment and the

availability of construction funding and working capital.

Sales Objectives

1. Achieve annual sales of $ 273,543,175.00 by year #5;

2. Report annualized profits of $168,686,287.00 by year #5;

3. Hire a talented Business Development team; and

4. Increase Exports on an annual basis.

Marketing Budget and Results

The Company does not have a separate line item enumerating a marketing budget within its Pro-forma.

The marketing budget in the amount of $250,000 annually for a five year period is included within the

line item entitled “Overhead.”

Our annual advertising budget is as follows:


Table # 14

Annual Marketing Budget

Trade Shows

The marketing budget was determined by estimating the current costs of advertising in various media.

More funds were allocated to Trade Shows because this venue would be the primary forum to sell the

Company’s products and technologies. Deciding which trade shows to attend (i.e. National Fuel Ethanol

Conference, 7th Renewable Energy Finance Forum - Wall Street etc.) can be a difficult decision when

emotions enter the decision process. It seems that every show has a strong advocate trying to convince an

organization to attend.

Statements such as, ―all our customers will be there‖, ―the market will think we have disappeared

if we don’t attend‖, ―the trade publications won’t think we are a serious player‖, and ―this is the

largest show in our biggest market segment‖ are a reflection of feeling, not fact. Conversely,

with very tight budgets and demand to show ROI, deciding which show to attend can prove to be

just as difficult. While establishing better goals and metrics is a usual course of action to prove

marketing return, trade shows can be particularly challenging.

To ensure the show success the Company will set up quantitative and qualitative metrics prior to

deciding to exhibit. It will establish goals such as the number leads, number of customer

meetings, and the number of brand impressions it will mitigate emotional decision making.

Driving to Trade Show ROI

To measure Return on Investment (―ROI‖) it is important to fully capture the costs and benefits

of a show. The Company will use some metrics that can be used to demonstrate the benefit of a

show. Three metrics in particular are the calculation of Advertising Equivalence, cost savings

from customer meetings, and monetizing brand impressions with speaking engagements. It will

use a standard template that includes the elements listed below

Trade Show Costs

Event Sponsorships/Exhibition

1. Exhibit costs;

DESCRIPTION AMOUNT

Trade Shows $125,000.00

Print Media 60,000.00

Public Relations 50,000.00

Miscellaneous 15,000.00

Total $ 250,000.00


2. Speaker costs;

3. Sponsorships; and

4. Individual registrations

Transportation

1. Booth / Equipment Shipping costs; and

2. Other Transportation

Travel

1. Number of attendees x the average cost per day x the number of days

Promotional gifts/collateral

1. Promotional gifts;

2. Printer materials;

3. Other promotional items (pre-show mailers, etc.); and

4. Graphics /Banners / Signs.

Resource Costs (Time x salary)

1. Attendees;

2. Creative services costs (agency, writers, designers, etc.);

3. Show planner;

4. Marketing manager; and

5. Product manager;

Customer Meetings

1. Meeting room;

2. Food and beverage; and

3. Marketing materials.

Show benefits included both quantitative and qualitative measures:

Leads

1. Number of leads;

2. Total revenue resulting from closed leads;

3. Increased Brand Awareness and Reputation;

4. Estimate impressions (total attendees at show that see sponsorship of a general session);

5. Booth traffic impressions (Track for a period of time and then extrapolate); and

6. Brand survey results (taken at the booth).

Customer Relationship Development and Savings


1. Number of customer meetings;

2. Savings from travel to individual customers (number of meetings x number of staff x

travel costs – total cost of travel to individual meetings).

Market Research Insight

1. Number of research surveys completed;

2. Document and key learning from customers at the show; and

3. Competitive information gathered

When using criteria such as the above, the Company will be able to add the total costs and the

total benefits and ultimately be able to calculate the shows ROI (benefits-expenses/expense). The

Print Media

Regardless of economic times and growth of Internet, The Company believes that advertising

through print media brings a definite competitive advantage. The bottom line leaves nothing to

imagination. If a company chooses not to communicate with customers when it enters the

market, then the result is that the prospective buyer will not even consider what that company

offers. This is a fundamental truth in print media advertising. Print media comprises of

newspapers and magazines.

1. Newspaper Advertising Overview - Paid-circulation newspapers have been a

popular advertising medium for many years. Most local businesses use

newspapers to advertise their goods and services, so do the big industrial giants.

That is why almost every community is known to have its own newspaper. Most

ads are cheap and low cost. The downside is that there are over 1,600 paid-

circulation daily newspapers in the U.S. In addition, there are thousands of

additional local weekly papers. That is why the Company will do more magazine

advertising because it has more scope.

2. Magazine Advertising Overview - There are about 160,000 magazines published

in the world. The large number of these magazines is somewhat misleading as it

does not bring that many revenues. However, there is still a great deal of respect

and demand for this traditional form of media advertising. For the advertiser,

there are many great advantages of print media advertising. The main fact is that

they can target a specific audience. This is in spite of the fact that magazines have

lesser coverage as compared to national newspapers.

Advantages of print media advertising include:

1. Specific Target Audience - In print media, the advantage of catering to specific

target audience opens up countless opportunities to enhance sales figures. A


fashion magazine would highlight cosmetic products and fashion accessories. At

the same time, a sports magazine would display sports related ads to cater to its

readers. There is no wastage of resources as ads get to reach the target audience.

2. Loyal Readerships - In the print media industry, readership is mostly long

standing and loyal.

3. Special Ad Positioning - A major advantage in magazine advertising is that an

advertiser can request special ad positioning. This means you can ask that your ad

is placed in a specific page or within a column article. This will bring greater

visibility to the brand. This is also commercially more effective as potential

buyers would notice it. It is a different matter if you don’t want to specify where

your ad should appear.

4. Credibility- Over a period of years, magazines create a vast pool of loyal

readers who feel safe in its very credible environment. The interactive element

may be less when you compare it with the aggressive online advertising. But the

key factor is credibility that print media continues to reign over. It explains why

magazines are known as potential promotional vehicles. It adds improved quality

branding that adds great value to your range of products.

5. Long Life Span - Compared to websites or national newspapers, magazines

enjoy the longest life span. There are some magazines that are treasured across

decades like valuable references. The National Geographic is such an example as

its content is never redundant.

6. High Reach Prospective - Another advantage is that magazines have a high

reach prospective. This is because magazines get passed from family to friends to

customers to colleagues and so on.

7. Glossy Ads - Unlike newspaper advertising, magazine advertising gives great

scope to glossy ads. These are usually trend setting and eye catching. The best

thing is that everybody loves to look again and again at glossy ads. So maximum

visibility is again reiterated through magazine advertising. That is why it is stated

often that consistent advertising ensures a cumulative effect. The more familiar

buyers are with a brand, the more likely they would buy it. That is why print

media advertising will never be out of fashion. The Company will advertise in

the following magazines’


Table # 15

Energy Industry Magazines

MAGAZINE TITLE CIRCULATION/MONTH

Ethanol Producer Magazine 5,000

Pass along rate: 1.5

Total: 7,500

EnergyBiz Magazine

Energycentral.com

90,00 monthly visitors

650,000 impressions

Biomass Magazine 5,000

Pass along rate: 1.5

Total: 7,500

Renewable Energy World Magazine

Renewablenergyworld.com

30 million impressions

e-Newsletter: 800,000 times per month

Public Relations

The Company’s Public Relations budget will be utilized to pay the costs of the following:

1. Press Release Coverage (Number picked up by trade publications);

2. Speaking engagements (Number and survey results showing interest);

3. Ad Equivalency (Cost for a full page advertisement / the amount of coverage space in an

article); and

4. Press meetings/ new relationships developed.

Situation Analysis

Customers

The Company identified several customers to solicit for each of its products. Existing customers

include:

1. CHS, Inc. - The Company has entered into a master Ethanol Sales and

Marketing Agreement CHS, Inc. (―CHS‖). Pursuant to the Agreement CHS will

purchase all of the ethanol that the Company produces at current daily spot prices.

2. TECNARO GmbH - Since lignin is one of its main raw materials, TECNARO

always interested in new sources. We will send them a small testing amount

(around 300 - 400g) and a MSDS. This will be enough for their testing labs.

TECNARO has agreed to keep the Company informed about the testing

results and the possibility to join their manufacturing process. TECNARO and the

Company will then go into detail concerning terms of delivery, prices, quantities,

etc. The Company anticipates send the sample product via its technology


provider PLET on or before August 1, 2010 and anticipates having an Off-Take

Agreement on or before December 1, 2010.

3. Sequatchie Valley Electric Cooperative - Sequatchie Valley Electric

Cooperative (―SVEC‖) was incorporated on July 31, 1939, by a group of

community leaders who could foresee the benefits of an electric utility owned by

and responsive to the people who were to receive electricity from it. Now seventy

years later, the cooperative is providing electrical service to over 35,000 different

homes and businesses. The Company has been negotiating with SVEC through

Veolia Energy, its power facility builder and operator, to obtain a Power

Purchase Agreement.

Table # 16

Customers Sales Agreements

The Company anticipates patenting new processes and new technologies to enhance the cost

effectiveness and efficiency of its own and licensed processes. To this effect, it has established

a Business Development Department responsible for the solicitation and engagement of new

customers for its products and processes.

Competition

There are several domestic and international producers of lignin. The Company’s direct

competitors include but are not limited to:

1. Borregaard LignoTech - Borregaard LignoTech has 11 production units globally

and local sales representation on all continents. As Table # 9 shows, Borregaard

LignoTech control 51% of the market in Europe, Africa and the Middle East ,

25.5% in the Americas and 23.5% in the Asia-Pacific. These market shares make

Borregaard LignoTech the world’s leading producer of lignin based products.

(www.borregaard.com)

2. EnviroTech Services, Inc. - Colorado based EnviroTech Services, Inc. is a

leading provider of value-added and environmentally friendly Dust Control and

Road Stabilization products. EnviroTech also sells a wide variety of de-icing and

COMPANY CONTACT ADDRESS PHONE, FAX, EMAIL PRODUCT SOLD

CONTRACT/OFF-TAKE, PPA

DATE SIGNED

CHS, Inc. David Belseth

5500 Cenex Dr Inver Grove, MN 550787

Phone: 651-355-8534 Fax: 888-488-7366 Email: [email protected]

Ethanol Off Take May 20, 2009

Gryphin Company, Inc.

Nick Nehez

3501 Richmond St. Philadelphia, PA 19134

Phone: 215-426-5976 Fax: +49 (0) 7062/91789-08 Email: [email protected]

Lignin Off-Take To Be Signed

Sequatchie Valley Electric Cooperative

Michael Partin

512 South Cedar Avenue South Pittsburg, TN 37380

Phone: 423-837-8605 Fax: 423-837-9836 Email: [email protected]

Electricity PPA To Be Signed


anti-icing products. Lignosulfonates for dust control and road stabilization

available from EnviroTech are: Lignosulfonate (RTU) Blended Products

include ; ET 820, ET 550, ET 730 and ET 370With plant locations in

Kersey/Denver and Glenwood Springs, Colorado, as well as Post Falls, Idaho and

Muscatine/Rudd, Iowa, EnviroTech is a major provider of Ligno-sulfonate

products.(www.envirotechservices.com)

3. Tembec - Tembec is a leading integrated forest products company, with extensive

operations in North America and France. With sales of approximately $3.5 billion

and some 9,000 employees, it operates 50 market pulp, paper and wood product

manufacturing units, and produces silvichemicals from by-products of its pulping

process and specialty chemicals. Tembec markets its products worldwide and has

sales offices in Canada, the United States, the United Kingdom, Switzerland,

China, Korea, Japan, and Chile. The Company also manages 40 million acres of

forest land in accordance with sustainable development principles and has

committed to obtaining Forest Stewardship Council (FSC) certification for all

forests under its care. Tembec is a pioneer and leader in the sulfite pulp sector.

The Company offers its customers a single-source solution for all their lignin

needs. Tembec manages the forest, harvests the fiber, processes the pulp, and

produces the lignosulfonates. The Lignin Division manufactures a complete line

of ARBOTM

lignosulfonates. (www.arborform.de)

Analysis:

There is currently a growing strongly established market for lignin and lignin products. A very

few companies are supplying lignin based specialty chemicals that mostly are substitutes for

petroleum based chemicals. The value of these chemicals is based on the value of the chemical

they are replacing.

There is a fairly strong market need for lignin that can replace phenolic resins in the plywood,

OSB, and chipboard industry, however there is currently very few sources for lignin of this

quality. Other opportunities may also exist for lignin as a precursor for vanillin. Most vanillin is

benzene based, however, high oil prices have driven up these vanillin prices, increasing the

demand for wood-based vanillin. For lower grade lignin the best market value is probably still in

its value as a fuel. In summary, the lignin market is still developing, but WILL present excellent

opportunities for producers of high value lignin.

Cellulose to Ethanol Commercialized Plant Competition

1. Range Fuels - Range Fuels Inc. plans to build the nation's first commercial

cellulosic ethanol plant in Soperton, Ga., has won a commercial permit from the

state.

On March 3, 2010 Range Fuels, Inc. announced that it had received a loan

note guarantee from the U.S. Department of Agriculture and closed its related


$80 million bond issuance. The proceeds from the $80 million bond will be used

to partially finance the first two phases of construction of Range Fuels’ first

commercial cellulosic biofuels plant using renewable and sustainable supplies

of non-food biomass near Soperton, Georgia.

The first phase is scheduled to be mechanically complete this month, with

production scheduled to commence in the second quarter of this year. Range

Fuels believes its plant will be able to produce more than 100 million gallons of

ethanol a year from wood chips from un-merchantable Georgia pine trees and

forest residues. Wood waste from the state's millions of acres of indigenous

Georgia pine trees will be the main source of biomass for the ethanol production.

While most domestic ethanol production requires corn as a feedstock, Range

Fuels' proprietary technology transforms products such as agricultural wastes,

grasses, cornstalks and wood waste, as well as hog manure, municipal garbage,

sawdust and paper pulp, into ethanol through a thermal conversion process. On

April 1, 2008 Range Fuels Inc. announced that it had completed an

oversubscribed Series B round of private financing greater than $100 million.

Range Fuels will focus the new funds on completing the construction of the

first phase of its commercial cellulosic ethanol plant located near the town of

Soperton, Georgia. Kholsa Ventures has helped finance the entity.

http://www.rangefuels.com

2. Qteros - Amherst, Massachusetts based Qteros has secured a major investor.

Qteros’s technology platform is based around the ―Q Microbe,‖ a unique naturally

occurring bacteria discovered in the New England soil by University of

Massachusetts microbiologist Susan Leshine. Because this bacteria can convert

cellulose from a number of feed stocks, it has a significant commercial feasibility,

which has attracted VeraSun Energy Corp., one of the nation’s leading ethanol

producers. VeraSun is one of many companies teaming up in the race to produce

cellulosic ethanol, following partnerships between Celunol Corp. and Diversa

Corp., Poet and Novozymes, Abengoa BioEnergy and Dyadic and the national

Renewable Energy Laboratory and Chevron to name a few. www.qteros.com

3. Mascoma Corporation - Mascoma Corporation was founded with private

capital. The managers of these funds continue to believe that the time has come to

commercialize the production of cellulosic ethanol as an alternative to fossil fuels.

Since its founding, Mascoma has aggressively pursued the development of

Consolidated Bioprocessing (CBP) technology across a range of cellulosic

feed stocks. This technology offers potentially high values of return on energy

investment and low production costs. During an August 2005 meeting at Lake

Mascoma in New Hampshire between Mascoma’s co-founders Prof. Charles

Wyman and Robert Johnson, Prof. Wyman proposed the concept for what is today

Mascoma Corporation. The addition of co-founder Prof. Lee Lynd and a portfolio

of licensed technologies from Dartmouth College completed the foundation for

the new company to leverage advanced technologies for biological conversion of

cellulosic biomass to ethanol.

http://www.rangefuels.com/

http://www.rangefuels.com/


Mascoma closed on its initial funding of $4MM in early 2006 from

Khosla Ventures and Flagship Ventures, with subsequent venture capital funding

of $35MM, including a Series B round led by General Catalyst Partners, with

participation from Kleiner Perkins Caufield & Byers, Vantage Point Venture

Partners, Atlas Venture, Pinnacle Ventures, Khosla Ventures, and Flagship

Ventures. Mascoma subsequently received a $14.8MM grant from the State of

New York for the establishment of a demonstration plant. Today Mascoma is a

leader in cellulosic ethanol technology development and establishment of

industry-leading cellulosic ethanol production facilities. www.mascoma.com

4. Verenium - In 1995 Verenium, then Celunol, secured an exclusive license to

commercialize proprietary cellulosic ethanol technology developed at the

University of Florida. Working with the University and other academic and

industry sources, including Dartmouth, Auburn, the University of Colorado, and

the University of California at Davis, Verenium has continued to develop its

unique technology to release the full sugar potential of cellulosic biomass.

Today, Verenium continues as an R&D leader in the cellulosic ethanol field. It

operates a laboratory at the Sid Martin Biotechnology Development Incubator of

the University of Florida, as well as a research laboratory at its pilot plant in

Jennings, Louisiana.

Verenium operates a pilot cellulosic ethanol facility located on a 140-acre

company owned site located in Jennings, Louisiana. Opened in 1999, the facility

was capable of CF hemicellulose fermentations. During 2006 the company

completed extensive upgrades on the pilot facility, enabling it to conduct

combined C5 and C6 fermentations. The Jennings pilot facility is capable of

processing approximately two tons of biomass per day into ethanol. It is operated

as an R&D facility to improve the company’s process technology and to validate

the company’s process on a wide variety of biomass feed stocks.

Preparations are being made for Verenium’s first commercial-scale facilities,

which are expected to produce 36 million gallons of ethanol per year. With the

optimization of Verenium’s pilot and demo plants, the commercial plant

development program is underway. Currently, a variety of sites are being

explored for plant development in Florida, Louisiana, and Texas. Verenium's first

commercial project will be built through its joint venture company with BP,

Vercipia Biofuels, in Highlands County, Florida. Vercipia expects to break

ground on the project in 2010 and begin producing commercial cellulosic ethanol

in 2012. The plant is projected to cost $300 million. www.verenium.com

5. Conoco Phillips & Archer Daniels Midland - Conoco Phillips and Archer

Daniels Midland Company have announced that they have agreed to collaborate

on the development of renewable transportation fuels from biomass. The alliance

will research and seek to commercialize two components of a next-generation

biofuel production process:


a. The conversion of biomass from crops, wood or switch grass into

biocrude, a non-fossil substance that can be processed into fuel;

and

b. The refining of biocrude to produce transportation fuel.

―ConocoPhillips believes that the development of next-generation biofuels is a

critical step in the diversification of our nation’s energy sources,‖ said Jim Mulva,

chairman and chief executive officer, ConocoPhillips. ―We are hopeful that this

collaboration will provide innovative technology toward the large-scale

production of biofuels that can be moved efficiently and affordably through

existing infrastructure.‖ Patricia Woertz, chairman and chief executive officer,

ADM, added, ―As we advance our global bioenergy interests, this alliance with

Conoco Phillips represents an important next step. Innovative collaboration like

this will identify and bring to market feasible, economic and sustainable next-

generation biofuels.‖ www.conocophillips.com

6. Poet - Already one of the top ethanol producers of traditional corn ethanol, Poet

plans to add 3.5 billion gallons of cellulosic ethanol by 2022, said Jeff Broin,

CEO, on April 21, 2010 at the National Press Club in Washington, D.C. That’s

more than 20 percent of the cellulosic ethanol mandated by the renewable fuels

standard.

To reach that, Poet will add 1 billion gallons of cellulosic ethanol production from

corn stover to its existing ethanol plants. Current production numbers show Poet

is producing 1.4 billion gallons at 26 corn ethanol plants in the U.S. ―Our model

that co-locates grain and cellulose plants takes biomass from the same acres and

gets us to the commercialization of cellulosic ethanol faster,‖ Broin said. ―It also

makes both ethanol processes more efficient, significantly reducing greenhouse

gas emissions for corn ethanol, and maximizing the use of the corn plant.‖

The company also plans to license the technology to other corn ethanol plants for

an additional 1.4 billion gallons. The final 1.1 billion gallons of cellulosic ethanol

will come from cellulosic ethanol produced from other feed stocks, either by Poet

or through joint ventures. ―We are looking primarily at other waste products: ag

residues such as wheat straw and rice hulls, wood chips, paper waste and

municipal solid waste,‖ he said. ―With much of the work on corn stover nearing

completion in our labs, we will soon turn to studying these other feed stocks.‖

By the end of August, the company plans to have completed installation of an

improved pre-treatment system at its Scotland, S.D., pilot plant. The $2 million

addition will help scale the 20,000 gallon a year facility to commercial size. This

is all part of the company’s quest to cut costs to reach its goal of $2 per gallon —

competitive with gasoline prices but more expensive than the costs of producing

first-generation ethanol.


The company’s first commercial cellulosic ethanol plant will be co-located with

Poet’s corn-to-ethanol plant located in Emmetsburg, Iowa. Called Project Liberty,

the 25 MMgy plant will produce ethanol from corncobs. ―We filed an application

with the DOE this morning and need to have a favorable ruling from them this

calendar year,‖ Broin said. ―If we get that favorable ruling, we told the DOE that

we will start construction by the end of this year, which puts us on track to start

up the facility in early 2012.‖

Broin added that the 3.5 billion gallon number could increase as Poet builds

additional grain ethanol plants. ―With dramatically expanding corn yields

predicted by the USDA and seed bio-tech companies, in the near future this

country will be awash in corn just as it has been for most of my lifetime,‖ he said.

―Those rising yields will lead to additional surplus corn that will enable expansion

of corn-based ethanol production and more cellulose as well.‖

In order for cellulosic ethanol to become a reality, Broin said, policy makers must

allow ethanol more access to the market and put in place the long-term stable

policies needed to attract investors. ―Make no mistake, cellulosic ethanol presents

a tremendous opportunity for our nation,‖ he said. ―Congress has set a target of 16

billion gallons of cellulosic ethanol by 2022. This is a lofty goal, but it is

achievable.‖ On April 28, 2010, President Barack Obama said ethanol is an

important part of a clean energy future and a strong rural economy during a visit

to POET Biorefining in Macon, Mo. The President took a tour of the plant and

talked with POET CEO Jeff Broin and other POET team members before

speaking to the press about ethanol and the jobs the industry continues to provide

for rural America.

"There shouldn't be any doubt that renewable, homegrown fuels are a key part

of our strategy for a clean energy future -- a future of new industries, new jobs

in towns like Macon, and new independence," President Barack Obama, April

28, 2010

By 2011, ten cellulosic ethanol plants are expected to be online with a name plate capacity of

about 35 million gallons per year. By 2011, another dozen plants may be online, adding another

125 million gallons per year in name plate production capacity (Ethanol Across America, 2009).

Poet announced that it had reduced the cost of producing cellulosic ethanol from corn cobs to

$2.35 per gallon at its pilot plant in South Dakota, down from $4.13 per gallon and approaching

its $2.00 per gallon goal for commercialization. In December, fifteen major airlines announced

an agreement with Rentech and AltAir biofuel producers to procure hundreds of millions of

gallons of ―drop-in‖ jet biofuel and biodiesel in the coming decade (Air Transport Association,

2009).

Other cellulosic ethanol competitor companies in the industry:

1. Abengoa - Constructing the world's first commercial scale cellulosic ethanol

biorefinery in Babilafuente (Salamanca), Spain using some components from


SunOpta. Commissioning is expected to start in the summer of 2007. In 2006 Q4,

a partnership was announced with Dyadic. Later this year, Abengoa plans to start

conversion of a corn-based ethanol plant they own in York, Neb., into a bio-mass

ethanol facility, which would initially use small grain straw and corn stover as the

bio-mass feedstock. (www.abegoa.com)

2. Alico - In early 2007 the Dept of Energy announced it would award the company

up to $33 million. The proposed plant will be in LaBelle (Hendry County),

Florida. The plant will produce 13.9 million gallons of ethanol a year and 6,255

kilowatts of electric power, as well as 8.8 tons of hydrogen and 50 tons of

ammonia per day. For feedstock, the plant will use 770 tons per day of yard,

wood, and vegetative wastes and eventually energy cane. (www.alicoinc.com)

3. Archer Daniels Midland - ADM is aggressively studying how to produce

cellulosic ethanol out of parts of the corn kernal that are traditionally not used for

ethanol. ADM's new CEO Patricia Woertz (formerly the head of petroleum

refining at Chevron) was quoted in March of 2007 saying: "We believe this

process would boost our production of ethanol by 15% without requiring an

additional ear of corn. Cellulosic applications such as this, on existing feed stocks,

may be as little as 2 years away." (www.admworld.com)

4. American Process, Inc. - Inventor of AVAP technology which will be used at

the Flambeau River Biorefinery project in Park Falls, WI. It will be the first

modern U.S. based pulp mill biorefinery to produce cellulosic ethanol from spent

pulping liquor. Project engineering has commenced with a production of ethanol

that was expected to begin as early as 2009. (www.americanprocess.com)

5. BRI Energy - Developed a process that uses gasification, fermentation and

distillation to produce ethanol and electricity from a wide array of carbon-based

wastes. (www.brienergy.com)

6. Ceres - Privately-held plant biotech company utilizing genomics technologies to

develop energy crops, such as switch grass, for cellulosic ethanol. (www.ceres-

inc.com)

7. Colusa - Though its stock is not for the faint of heart, the company is highly

regarded by industry peers. Colusa has already harvested the rice straw which it

expects to convert to ethanol when its California bio-refinery comes online.

(www.colusabiomass.com)

8. DuPont - Partnering with Broin to bring cost-effective ethanol derived from corn

stover to market. A pilot cellulosic ethanol production program is planned for

South Dakota later in 2007. (www.dupont.com)

9. Dyadic - Spent over a decade of R&D in the design and development of enzymes

for the increasingly efficient extraction of sugars from

biomass.(www.dyadic.com)

http://www.admworld.com/


10. Globex - Developing supercritical fluid (SCF) which will be used along with

enzymatic hydrolysis for the production of cellulosic ethanol.

(www.globexgreenenergy.com)

11. Green Star Products, Inc. - Developed a waterless continuous flow process

reactor system which will be used in upcoming cellulose ethanol plants planned

for North Carolina and the Northwest. (www.greenstarusa.com)

12. Iogen Corp. - Operates a demonstration scale facility to convert biomass to

cellulose ethanol using enzymatic hydrolysis technology. Full scale commercial

facilities are being planned. It is very likely they will annouce plans for an Idaho

plant that will make ethanol from wheat straw. (www.iogen.com)

13. Lignol Energy Corporation - A western Canadian company, Lignol plans to

build biorefineries for ethanol and co-products produced from Canadian forests.

The Company has acquired and modified a solvent based pre-treatment

technology originally developed by a subsidiary of General Electric (―GE‖).

Lignol also acquired the original GE pilot plant that is now being integrated with

recently developed process capabilities to convert cellulose to ethanol.

(www.lignol.ca)

14. Nova Fuels (maker of Novahol) - Develops biomass-to-fuel conversion facilities

(that use gasification technology) with joint venture partners

(www.novafuels.com)

15. Novozymes - Developing enzymes that can convert cellulose into simple sugars,

for fermentation into fuel ethanol. Has had collaboration/partnerships with

Abengoa and Broin. (www.novozymes.com)

16. Pure Energy - Developed a two-stage dilute acid hydrolysis technology process

which will be used in the forthcoming Green Star Products, Inc projects.

(www.pure-energy.com)

17. SunOpta - Built the first cellulosic ethanol plant 20 years ago, in France. Has

four cellulosic ethanol projects which are or will be operational using SunOpta's

technology and equipment to produce ethanol from cellulosic biomass.

(www.sunopta.com)

18. Virgin Fuels - In September 2006, Sir Richard Branson pledged an estimated $3

billion to fight global warming. A large chunk of that is expected to be invested in

cellulosic ethanol research and production. (www.virgin.com)

19. Xethanol - Recently announced aggressive plans for its new Blue Ridge Xethanol

company to begin producing cellulose ethanol in Spring Hope, NC using acid

hydrolysis. (www.xethanol.com)


Risks Related to Advance Biofuel Industry

1. Rebound in Corn Ethanol Industry - By the fall of 2009, however, the corn

ethanol industry began to rebound. Petroleum prices rose from below $40

per barrel to more than $70. Petroleum companies and other bargain hunters

started buying and reopening shuttered ethanol plants. Valero suddenly became

one of the biggest ethanol producers in the country. Other major oil companies

such as Exxon announced significant new investments in advanced biofuels

research and development. Poet announced it was moving ahead to secure

financing to build an ethanol pipeline from South Dakota to New Jersey. The corn

ethanol industry returned to profitability.

The Obama administration gave the advanced biofuels industry a boost, as well,

accelerating research, development, demonstration, and deployment as part of its

overall goal to promote renewable energy, create jobs, and reduce GHG

emissions. Congress and the administration provided hundreds of millions of

dollars in grants and loan guarantees for advanced biofuels development through

the American Recovery and Reinvestment Act of 2009 (―ARRA‖) and through

accelerated implementation of the 2008 farm bill energy programs. For example,

in May[2009], the Department of Energy (DOE) announced that almost $800

million of ARRA funds would be allocated to advanced biofuels programs. In

addition, more than $300 million in ARRA funding was allocated through the

DOE’s Clean Cities Program to expand E85 refueling infrastructure (USDOE,

EERE, 2009).

2. Biofuels Industry Remains Uncertain - Yet despite the beginning of a rebound

in 2009, the advanced biofuels industry is still sputtering and its future remains

uncertain. The industry is not expected to come close to meeting the original 2010

RFS2 cellulosic fuel production mandate of 100 million gallons. (In February, the

EPA reduced the mandate to 6.5 million gallons.) Biodiesel producers continue to

struggle, producing at only about 15 percent of name plate capacity, with many

plants still shuttered. The $1 per gallon biodiesel expired at the end of 2009. A

study prepared for the National Biodiesel Board (NBB) predicts as many as

23,000 layoffs may be forthcoming as more plants are shuttered (Urbanchuk,

2009).

3. Uncertain Feedstock Availability and Technologies - The availability of

feed stocks and conversion technologies for advanced biofuels remains uncertain.

a. Farmers and foresters are risk averse. They are hesitant to plant new

crops, invest in new technologies, or shift to new production practices

when the markets for biomass production are so uncertain. The

biorefineries have not been built yet. Significant hurdles remain

concerning how to sustainably produce, harvest, store and transport the

massive amounts of biomass that advanced biofuel refineries will need.


b. Without feedstock producers, advanced biofuel producers are unable to

secure the long term, low cost feedstock contracts that they need to secure

financing.

c. Advanced biofuels producers still face significant technological hurdles to

develop economically competitive energy conversion processes at the

commercial scale. To be competitive, production costs need to come down

well below $2 per gallon. Although corn ethanol is more or less

competitive (depending on the price of oil), few other advanced biofuels

are close yet.

d. Feed stocks and conversion technologies for advanced biofuels vary

greatly among different states, regions, and ecosystems. One feedstock

and one conversion process will not necessarily fit all. Each state and

region has its own unique set of conditions to overcome on the path to

commercializing its own feed stocks and conversion processes.

4. The market for advanced biofuels is uncertain - Global petroleum prices

remain volatile. In 2008, prices plunged from a record high of more than $140 per

barrel to below $40. The potential for future petroleum price volatility remains a

threat to the commercial viability of advanced biofuels. Although much progress

has been made to reduce the cost of producing advanced biofuels, most still

cannot compete without substantial government subsidies or mandates at

December 2009 petroleum prices ($70 to $75 per barrel).

a. Many consumers are not sold on biofuels. Much more needs to be done to

convince the public about the consumer value of using biofuels, to assure

consumers that biofuels are safe to use in their vehicles, and to educate the

public about the important energy security, economic development, and

environmental benefits of using biofuels.

b. Fuel distributors are hesitating to install expensive E85 and biodiesel fuel

tanks and pumps, uncertain that it will be profitable. Relatively few

vehicles on the road are equipped to use E85 so far, and there are

relatively few gas stations that sell E85, biodiesel, or other advanced

biofuels.

c. Ethanol production is approaching a blend wall – market saturation at

current fuel blending and consumption rates. The RFS2 mandates total

biofuels production in 2010 of 13 billion gallons. Most of that will be

ethanol. At the current E10 blend rate set by the EPA, with the increasing

fuel efficiency of vehicles, and with the relatively small number of E85

fuel pumps and flex fuel vehicles on the road, ethanol market saturation is

expected to occur by about 2012 at about 15-17 billion gallons of annual

production. If nothing changes, there will not be a market for building

additional ethanol production capacity of any kind – corn or cellulosic.


5. The federal regulatory environment is uncertain - The biofuels industry has

asked the EPA to increase the ethanol blend ratio from ten percent to 15 percent

so as to expand the market for biofuels and move the blend wall. Small engine

manufacturers and boat owners are mounting strong opposition out of concern

that it might harm engines and engine performance. Petroleum fuel distributors

and auto manufacturers do not want to be held liable in the event that higher

ethanol blend rates are found to damage engines. The EPA and DOE have so far

found no evidence that a higher blend rate will harm emissions control equipment

or engines, but EPA has delayed its decision until mid-2010 in order to complete

further testing with DOE.

a. Many federal biofuels incentives – such as the $1 per gallon producer tax

credit for biodiesel which expired at the end of 2009 – are enacted for only

relatively short terms. Renewal is often uncertain politically. Short term

policies like this do little to provide the long term certainty that investors

and the biofuels industry need to make investment decisions that play out

over a decade or more.

b. In its definition of renewable biomass, the RFS2 excludes from eligibility

most biomass feed stocks from federal lands, much of the woody biomass

from private forests, and much of the biogenic matter in municipal solid

waste and construction and demolition debris. This makes it difficult for

many states to develop biofuels industries to their full potential. Congress

is likely to revisit this in the months ahead.

c. On Capitol Hill, the debate over the future of biofuels has widened,

leading in 2009 to political brinksmanship over climate and energy

legislation. Many members of Congress are calling for the RFS2 to be

amended – to expand the definition of renewable biomass and to postpone

for further study the issue of indirect land use change in the GHG lifecycle

analysis of biofuels. After much debate, the House voted in June to delay

for five years the implementation of the life cycle assessments of GHG

emissions due to indirect land use change pending further study as part of

its climate and energy bill (H.R. 2454). This debate is still ahead in the

Senate.‖

As a consequence of these unresolved technological, economic, political, and regulatory issues,

financing for advanced biofuels is uncertain. Even in times when credit markets are functioning

properly, the advanced biofuels industry would have difficulty finding financing, with its

unproven new technologies, undeveloped feedstock supply chains, uncertain markets, and

uncertain regulatory future. However, with today’s frozen credit markets, risk-averse lenders are

even less willing to finance this kind of enterprise. Reducing these uncertainties will be the

critical challenge for the biofuels industry and state and federal governments in 2010 and

beyond.” (Developing an Advanced Biofuels Industry: State Policy Options for Lean and

Uncertain Times; Environmental and Energy Study Institute, February 16, 2010)


As with any business venture there are problems and risks associated with it. The Company has

identified some possible problem areas that, without proper attention could slow progress with

short and long term plans for the future and jeopardize our goals.


Section E: Technical Feasibility Determinations

Project Tennessee involves the acquisition of a closed grain ethanol facility and retrofitting that

facility into a Combined Heat and Power (―CHP‖) biorefinery. Project Tennessee will use an

advanced patented process by Pure Lignin Environmental Technology, Ltd, (―PLET‖) of

Kelowna, B.C., Canada licensed to the Company. Using the licensed technology from PLET, the

Company will convert wood wastes and urban trash (pre-sorted municipal solid waste) into

cellulosic ethanol and other valuable biochemicals such as lignin and will also combust some of

the lignin to produce electricity.

Abstract

A continuous and batch system to produce cellulose, native lignin and unicellular protein from

any form of vegetation in a closed process. The biomass is mixed in the impregnate solution of

nitric acid and/or ammonium hydroxide and water. After a period of time at room temperature

and atmospheric pressure the chemical solution is recycled. The biomass is moved to the reactor

and heated. Evaporated impregnate is recovered via absorption tower and recycled back to

chemical solution. The biomass is moved to an alkaline solution, then cooled to separate pulp

from black liquor. The black liquor is pumped to a separation tank and is treated to precipitate

lignin. The solution is filtered to separate sweet liquor and lignin. The lignin is dried and the

sweet liquor is fermented to produce unicellular protein.

What is claimed is:

1. A method for producing pulp and lignin from lignocellulosic material, the pulp

comprising cellulose, the method comprising: contacting the lignocellulosic

material with an aqueous acid solution to impregnate the lignocellulosic

material, the aqueous acid solution comprising from about 10% to about 40% by

weight of the acid and further comprising ammonium hydroxide; heating the

lignocellulosic material to a temperature that is at or above the boiling point of the

aqueous acid solution to distill off the aqueous acid solution, without substantially

degrading the cellulose or lignin in the lignocellulosic material; contacting the

lignocellulosic material with an aqueous alkaline solution under heat to solubilize

lignin in the alkaline solution, leaving a black liquor; removing the pulp from

the black liquor; adding sufficient acid to the black liquor to precipitate the lignin;

and removing the lignin from the liquor.

2. A method for processing lignocellulosic material, comprising: an impregnation

step, wherein said lignocellulosic material is soaked in an impregnate solution

comprising at least 10 weight percent of nitric acid and further comprising

ammonium hydroxide; a first recycling step, wherein said impregnate solution is

drained, filtered, strengthened and recycled to said impregnation step; a

catalytic reaction step wherein said soaked lignocellulosic material is agitated in a

catalytic reaction chamber and heated to a temperature above the vaporization

point of said impregnate solution, thereby producing vaporized impregnate

solution and a biomass; a second recycling step wherein said vaporized


impregnate solution is condensed and recycled to said saturation step; a digestion

step wherein said biomass is agitated in a digester in the presence of black iron

and an alkaline solution to produce pulp and a full strength black liquor; a

processing step wherein said pulp is drained, washed and dried thereby producing

dried pulp and dilute black liquor; a third recycling step wherein said dilute black

liquor is recycled to said digestion step; a separation step wherein said full

strength black liquor is cooled and agitated in the presence of an acid solution,

thereby producing sweet liquor and precipitating natural form lignin; a filtration

step wherein said sweet liquor is filtered to remove said natural form lignin; and a

fermentation step wherein said sweet liquor is added to bacteria in a fermentation

tank, thereby producing a unicellular protein as a fermentation product.

3. The method of claim 2 wherein said impregnate solution comprises 10 to 30%

acid by weight.

4. The method of claim 2 wherein said impregnate solution comprises 10-30%

ammonium by weight.

5. The method of claim 3 wherein said impregnate solution comprises 10 to 30%

ammonium by weight.

Background of Advanced Technology Invention

Prior art processes for treating lignocellulosic material often require high temperatures and

pressures to ensure the chemical reactions proceed at a sufficient rate. As a result, special

pressure vessels and specialized equipment is necessary to withstand the harsh conditions. This

makes processing facilities very expensive to outfit and maintain, as well as being expensive to

operate, with high energy demands.

In addition, strong chemicals are generally required to produce the desired oxidation or reduction

reaction. The chemicals attack the equipment as well as the lignocellulosic material, again

increasing maintenance costs for the facility. Once used, the chemicals must be disposed of,

creating potential environmental hazards and pollution. Even water used during the treatment

process can become contaminated and require careful handling to prevent pollution and

environmental damage. Fresh chemicals must then be purchased to replace those lost during the

treatment process.

Most processing facilities, despite the expensive, sophisticated equipment in place, can only be

used to process a limited selection of plant material. Different plant materials require different

processing conditions and chemicals, and occasionally different processing methods, meaning

other plant materials cannot be processed without a complete re-tooling of the process line, if at

all. It is preferable to be able to process many types of vegetation without the need to re-tool or

change the facility equipment. It is therefore an object of the invention to provide a process for

treating lignocellulosic material which overcomes the above limitations and provides other

desirable features. This and other objects of the invention will be appreciated by reference to the

summary of the invention and to the detailed description of the preferred embodiment that

follow.


Summary of Advanced Technology Invention

The invention is a continuous and batch system to produce cellulose, native lignin and

unicellular protein from any form of vegetation in a closed process. The hydrolytic Catalytic

Reactor Process (CRP) produces commercial grade pulp and separates sweet liquor (sugars and

hemi cellulose) from native form lignin--a natural lignin not altered by high temperatures or

processing. The sweet liquor is further converted to a unicellular protein which can be converted

to many different products. The process's waters and the catalytic chemicals are recycled.

The crux of the CRP process is the acid catalyzed hydrolysis of impregnated wood chips. The

acid catalyst effects the partial de-polymerization of the lignin matrix in the chemical reactor

with subsequent distillation, condensation and recovery of the acid catalyst and recovery of

native-form lignin. Much of the prior art in the field uses reduction/oxidation chemical reaction

mechanisms. This basic difference in reaction mechanism allows for significant advantages of

the CRP process.

For example, the vegetation is impregnated in a solution of nitric acid and/or ammonium

hydroxide and water. After a period of time at room temperature and atmospheric pressure the

chemical solution is recycled. The biomass is then moved to a catalytic reactor and heated.

Evaporated impregnate is recovered via an absorption tower and is recycled back to chemical

solution. The biomass is moved to an alkaline solution before being cooled to separate pulp from

black liquor. The pulp may be processed as desired to produce saleable products. Black liquor is

pumped to separation tank and is treated to precipitate lignin. The solution is filtered to separate

sweet liquor and lignin. The lignin is dried and the sweet liquor is fermented to produce

unicellular protein.

The process can utilize any species of plant including hardwoods, softwoods, shrubs, grain

species, grasses etc. The process can utilize sawdust as the sole starting material (something that

cannot be done commercially or specifically stated in patents examined to date). The quality and

quantity of lignin produced dictates the reaction conditions throughout the process. A distinct

advantage is the elimination of "dry" raw materials. Indeed, green starting material can be

utilized and is even preferred for the acid catalyzed hydrolysis of the native lignin polymer

depending on the quantity of pulp, lignin and sweet liquor required. The CRP pulping process

does not require added pressure at any stage nor temperature ranges anywhere near those of

traditional Kraft pulping processes. Basically, all temperatures at various stages of the process

are below 90.degree. C. and no external pressure is added to the reaction system.

The CRP pulping process is a closed system where virtually all chemicals used are recovered for

reuse. Water used in the pulping process is recovered in saleable by-products, filtered for reuse

or vented as steam. The vented steam could be used in providing energy for the pulping process

thereby eliminating even this small loss of water and a potential energy source. The recovery of

catalytic chemicals eliminates the need for high chemical cost during each cycle of the pulping

process.

A small amount of chemicals are needed to bring back to strength each recovered chemical

before being re-introduced into the process. The recovery of chemicals does not require external


energy expense to achieve this (unlike current recovery stages in Kraft mills). By using this

novel process the following benefits are achieved:

1. Wet starting materials can be used--it is not necessary to dry the chips as the

water is essential to the hydrolysis;

2. Hydrolysis uses low temperatures, low pressures and little energy input;

3. Weak acids and bases are used, minimizing raw material costs and degradation of

final products;

4. The acid catalysts are distilled and recycled allowing closed cycles;

5. The chemical reactor pulping process is essentially pollution free;

6. The chemical reactor pulping process gives a high yield of native Klason lignin;

7. The chemical reactor pulp yield of alpha cellulose is high;

8. The sweet liquor after precipitation is suitable for fermentation of unicellular

protein;

9. The chemical reactor process is scalable with suitable mixer designs and when

combined with the projected operating cost gives a return on construction

investment of less than 2 years; AND

10. The chemical reactor process is highly efficient with costs half that of typical

Kraft mills.

This results in the use of radically lower concentrations of acids and bases during the impreg-

nation and digestion stages as well as significantly lower temperatures. Since the CRP pulping

process is a closed system with virtually zero discharge of chemicals or water into the environ-

ment, a mill utilizing this process will easily meet and exceed current environmental standards.

Bearing this in mind, a pollutant-free-pulp mill could also garner tremendous profit potential

under an EPA carbon dioxide pollution credit system. The ability to process a wide variety of

vegetation without any re-tooling gives flexibility in pulp production. Currently, mills are

designed to produce specific pulp types and utilize specific wood species as raw materials.

Furthermore, most mills require chips meeting stringent quality specifications. These limitations

are avoided by the invention.

The economic viability of the CRP pulp process may be realized in the sale of pulp alone. Other

benefits are potential EPA credits and the production of native lignin products and of unicellular

protein for sale to others. It is noted that unicellular protein from a vegetative source would be

free of any BSE pathogens and would be the preferred feed for cattle and other livestock animals

presently raised for human consumption.

In one aspect, the invention is a method for producing pulp and lignin from lignocellulosic


material, the pulp comprising cellulose, the method comprising contacting the lignocellulosic

material with an aqueous acid solution to impregnate the lignocellulosic material, the aqueous

acid solution comprising from about 10% to about 40% by weight of the acid; heating the

lignocellulosic material in two stages, the first heating stage being carried out for a period of

time which is sufficient to depolymerize lignin within the lignocellolosic material without

substantially degrading the cellulose or lignin in the lignocellulosic material, the second heating

stage being carried out at or above the boiling point of the acid to distill off the acid; contacting

the lignocellulosic material with an aqueous alkaline solution under heat to solubilize lignin in

the alkaline solution, leaving a black liquor; removing the pulp from the black liquor; adding

sufficient acid to the black liquor to precipitate the lignin; and removing the lignin from the

liquor.

In another aspect, the invention is a method for processing lignocellulosic material, comprising

an impregnation step wherein the lignocellulosic material is soaked in an impregnate solution; a

first recycling step wherein the impregnate solution is drained, filtered, strengthened and

recycled to the impregnation step; a catalytic reaction step wherein the soaked lignocellulosic

material is agitated in a catalytic reaction chamber and heated to a temperature above the

vaporization point of the impregnate solution, thereby producing vaporized impregnate solution

and lignin; a second recycling step wherein the vaporized impregnate solution is condensed and

recycled to the saturation step; a digestion step wherein the lignin is agitated in a digester in the

presence of black iron and an alkaline solution to produce pulp and a full strength black liquor; a

processing step wherein the pulp is drained, washed and dried thereby producing dried pulp and

dilute black liquor; a third recycling step wherein the dilute black liquor is recycled to the

digestion step; a separation step wherein the full strength black liquor is cooled and agitated in

the presence of an acid solution, thereby producing sweet liquor and precipitating natural form

lignin; a filtration step wherein the sweet liquor is filtered to remove the natural form lignin; and

a fermentation step wherein the sweet liquor is added to bacteria in a fermentation tank, thereby

producing a unicellular protein as a fermentation product. The impregnate may be a nitric acid

solution, or an ammonium hydroxide solution.

In another aspect, the invention is an apparatus for processing lignocellulosic material, the

apparatus comprising an impregnation infeed to feed lignocellulosic material and impregnate

solution into an impregnation tank, the impregnation tank comprising an impregnation outfeed; a

catalytic reaction chamber connected to the impregnation tank through the impregnation outfeed,

the catalytic reaction chamber comprising a first agitator and a catalytic outfeed; a digester unit

connected to the catalytic reaction chamber through the catalytic outfeed, the digester unit

comprising a second agitator mechanism and a digester outfeed; a lignin separator connected to

the digester unit through the digester outfeed, the lignin separator comprising a third agitator

mechanism and a separator outfeed; and a fermentation tank connected to the lignin separator

through the separator outfeed.

In a further aspect, the impregnation tank may comprise a recycling outfeed for recycling the

impregnate solution and returning it to the impregnation tank. In yet a further aspect, the digester

unit may comprise an impregnate condensation unit for recycling said impregnate solution and

returning it to said impregnation tank. In a further aspect, the invention is a unicellular protein

produced using the above apparatus or the above method. In yet a further aspect, the invention is

a natural form lignin produced using the above apparatus or the above method.


The foregoing was intended as a broad summary only and of only some of the aspects of the

invention. It was not intended to define the limits or requirements of the invention. Other aspects

of the invention will be appreciated by reference to the detailed description of the preferred

embodiment and to the claims.

Kraft Pulping Processes Disadvantages:

1. Prior processes for treating ligno-cellulosic material require high temperature and

pressures to ensure the chemical reactions proceed at a sufficient rate;

2. As a result, special pressure vessels and specialized equipment is necessary to

withstand the harsh conditions;

3. This makes these traditional facilities very expensive to build, operate and main

tain with high energy demands;

4. In addition, strong chemicals are generally required to produce the desired oxida

tion or reduction reaction;

5. The chemicals attack the equipment as well as the ligno-cellulosic material,

again, increasing maintenance costs for the facility;

6. Once used, the chemicals must be disposed of, creating potential environmental

hazards and pollution;

7. Even water used during the treatment process can become contaminated and

require careful handling to prevent pollution and environmental damage;

8. Fresh chemicals must then be purchased to replace those lost during the treatment

process;

9. Can only be used to process a limited selection of plant material; and

10. Other plant materials cannot be processed without a complete re-tooling of the

process line, if at all.

PLET Process Advantages:

1. The technology is called a Hydrolytic Catalytic Reactor Process (―CRP‖), a

continuous and batch system to produce cellulose, lignin and hemi-cellulose;

2. The Hydrolytic Catalytic Reactor Process (―CRP‖) water and the catalytic chemi

cals are recycled;


3. The crux of the CRP process is the “acid catalyzed hydrolysis of impregnated

wood chips;”

4. The acid catalyst effects the partial de-polymerization of the lignin matrix in the

chemical reactor with subsequent distillation, condensation and recovery of the

acid catalyst and recovery of lignin;

5. Most traditional processes uses reduction/oxidation chemical reaction

mechanisms;

6. This basic difference in reaction mechanism allows for significant advantages of

the CRP process;

7. A distinct advantage is the elimination of ―dry‖ raw materials. Green starting

material can be utilized. It is not necessary to dry the chips as the water is

essential to the hydrolysis;

8. Hydrolysis uses low temperatures (below 90 degrees C), low pressures and little

energy input;

9. Weak acids and bases are used, minimizing raw material costs and degradation of

final product;

10. The acid catalysts are distilled and recycled allowing closed cycles;

11. THE CRP PROCESS IS ESSENTIALLY POLLUTION FREE;

12. The CRP Process gives a high yield of cellulose and lignin;

13. The CRP Process is highly efficient with costs half that of typical Kraft mills.

PLET Production Process

The PLET production process involves the following steps:

STEP 1: The biomass is ground into small chips or sawdust using commercial grinding

machines. Grinding the biomass into small chips or particles makes it easier for the chemical

solution to soak into (or ―impregnate‖) the biomass in the next step.

STEP 2: The biomass is soaked or impregnated with a solution of nitric acid and ammonium

hydroxide for a period of time, generally two to twenty hours. The soak time depends upon the

type of biomass involved and the size of the biomass particles, with softer biomass (such as

grasses) requiring less time than harder forms of biomass (such as hardwood trees). This acid

solution breaks down the cellulose in the biomass and separate the constituent parts.


STEP 3: The wood and acid solution is heated to a temperature above the solution’s boiling

point, but below the temperature at which the lignin would be destroyed by heat. The solution is

also agitated with a mixing device to ensure thorough heating and dispersion of the liquid. Most

of the acid solution evaporates and is condensed and recycled for re-use in the production

process.

STEP 4: The remaining material (which is now called a ―catalyzed biomass‖) is moved to a

digester tank into which is added a caustic alkaline mixture (generally, sodium hydroxide

(NaOH). The mixture is then heated and agitated to produce black liquor and wood pulp.

STEP 5: The mixture is strained and removed from the digester to a press device where the

mixture is separated into black liquor and wood pulp. The wood pulp (or cellulose) is then

removed and stored for commercial sale.

STEP 6: The black liquor is moved to a precipitation tank where it is cooled, agitated and

treated with another acid solution. The resulting precipitate is lignin and the remaining fluid is

an acidified hemi-cellulose (or sweet liquor) solution, consisting of C5 and C6 sugars.

STEP 7: The lignin is removed from the solution through a staining and filtration process and

then removed for storage and commercial sale. The sweet liquor is also stored in a storage tank

and may either be commercially sold or fermented into ethanol for commercial sale. As a result

of the PLET process, woody biomass is converted into three primary outputs:


Figure # 3

PLET Process Flow Chart

Source: Pure Lignin Environmental Technologies, Ltd.


Figure # 4

PLET Process Flow Chart Source: Pure Lignin Environmental Technologies, Ltd.


1. Cellulose (Wood Pulp);

2. Lignin; and

3. Hemi – Cellulose (Sweet Liquor)

Each of these outputs can either be sold commercially or further refined or processed into other

value-added products.

Plant Requirements for 36 Ton Processing Plant

The following information on Tank sizes an d other equipment size requirements are estimates as

per PLET and will require engineering to verify the exact requirements for the equipment. The

36 Ton Processing Plant includes three processes per day.

Tank Storage Containment Requirements

Storage of acids and caustic solutions will require ventilation controls and vapor control not

being released to the atmosphere and will require spillage containment tankage of 110% of the

volume of each storage and processing tank. In the case of the reaction tanks (tanks containing

the finished by-products) it may be easiest to develop the plant floor in that area, which will be

the containment area with either a vacuum cleanup system or pumping system to other

containment tanks.

Tankage Requirements: Per Day of Processing

Fresh Water Storage – For development of First Impregnation Solution – 30,000 gallons

(estimated once every 6 months)

This water can be used for washing the cellulose and then place in the Reaction solution tank for

use in the next Reaction process. All of the reaction solutions become part of the Cellulose,

lignin and sweet liquor. Fresh water tankage size will depend on the water supply. If from a

high volume supply line or from a high volume well, then this would limit the size of storage

tanks.

Acid and Caustic Storage Tanks Sizes

In the simplest terms a B-Train (as related to the road transport or trucking industry) consists of

two trailers linked together by a fifth wheel, and are up to 26 m (85 ft) long. The fifth wheel

coupling is located at the rear of the lead, or first trailer and is mounted on a "tail" section

commonly located immediately above the lead trailer axles. In North America this area of the

lead trailer is often referred to as the "bridge". The twin trailer assembly is hooked up to a tractor

unit via the tractor unit's fifth wheel in the customary manner.


Table # 17

Tankage Requirements: Per Day of Processing in US gallons

Type of Tank #

of

Tanks

#

Us

Gallons

Approx.

B-Train

Holding

Capacity

Cooler

System

Required

Description

Impregnation Solution Tanks 2 7,000 (2) Batch size per tank.

Re-use top off

solution.

Reaction Solution Tanks 2 7,000 (2) Batch size per tank.

Includes water and

caustic

Cellulose Wash tank 1 5,300 Storage of wash water

to be used in Reaction

Solution.

Lignin/Black Liquor Tanks 2 1,200 (4) Batch size per tank

Lignin/Sweet Liquor

Separation Tanks

2 1,200 (4) Batch size per tank

Lignin Storage Tanks 2 10,000 Yes (20) Batches per tank

Sweet Liquor Storage Tanks 2 19,000 (20) Batches per tank

Process Production

1. Price for ―36T‖ Reactor = $1.6M US (FOB: Kelowna, B.C., Canada);

2. Estimated Cost of Non-Recurring Hardware = $ .8M US. These costs do not

include shipping, insurance, duties, taxes, permits, facilities or the costs to build

and assemble the plant. They also do not include the cost for conveying the

sawdust to the reactor, or for drying and packaging the output products once

produced;

3. Pumping systems for loading to tanker trucks not included on the Lignin or the

Sweet Liquor Storage Tanks;

4. Cellulose Production Belt Presses – 24 Hour Production, 36,000 lbs.;

5. Hourly Production: 1,500 lbs/hour;

6. Lignin/Sweet Liquor Separation Belt Press, 24 Hour Production, 40,500 lbs.;

7. Hourly Production: 1,700 lbs/hour;


8. PLET Specified: (6) Reaction tanks – 6’ X 10’ with frame work;

9. Impregnation Tanks: 10’ x 10’ with frame work and tank bottom augers; and

10. Other equipment not included:

a. Spray Driers for Lignin;

b. Fermenting Tanks for the Sweet Liquor;

c Scales & Loading; and

d. Wood Chip Storage Tanks

Table # 18 Daily Requirements for Chemicals and Water

Assumptions:

1. The plant will be operating for 11 months each year (334 days);

2. There will be non-recurring costs for setting up the chemicals on day one and for

―cleaning‖ the system each 6 months thereafter but these costs have been

amortized over the daily cost estimates;

3. These relate to an impregnation solution of 10%, which can be utilized for a 50%

green/50% dead pine wood sawdust; and

4. Estimated costs from chemicals were given to us in ―delivered‖ costs in Canadian

funds. Depending on the scale up of the plant and the quantities ordered, we

believe that there are significant savings in these costs estimates. The prices are

very dependent on shipping distance and mode (i.e. rail car, truck etc.) of

transportation. These costs relate to a 36 Ton (Metric Ton) per day of operation.

A metric ton is 1000 KG or approximately 2,200 pounds (1.1 US Tons). hence

daily input per 36 Ton Reactor is 79,200 pounds per day.

Specifications of Acids:

Description Requirement Estimated Cost/L Daily Cost

Water 250,000 L $ 0.002 $ 500.00

Nitric Acid 3,000 L .60 $ 1,800.00

Ammonia 2,500 L .60 $ 1,500.00

NaOH 6,500 L .55 $ 3,575.00

Sulphuric Acid 3,500 L .20 $ 700.00

Total Daily Costs $ 8,075.00


1. Nitric Acid – 56% and 67% per dry metric ton;

2. Ammonia – aqua;

3. Sulphuric Acid – 96% regent ret; and

4. Caustic Soda – LIQ 50% - MEM (Wet).

Table # 19

Production Out Put for 36T Input of Feedstock/ Day

Product

Produced

%

Output

Per Ton

# Tons

Produced

Per Day

# Tons

Produced

Per Month

# Tons

Produced

Per Year

Sales Price Per

Ton

Cellulose 45% 16.2 486 5,410.80 $ 550.00/T

Lignin 19% 6.8 204 2,271.20 $ 1,700.00/T

Hemi-

Cellulose

36% 13 390 4,342.00 $ 300.00/T

Plant Production

1. Operates with 4 shifts, 24 hours/day, 7 days/week;

2. Single operation (1 36T Reactor) can be set up in a building 20m x 20m

(20meters = 65.616 feet) Including some space for an office and reasonable

storage. If you add in the holding area for a week’s worth of bio-input, we

estimate that the total facility would occupy about 1 acre. This greatly depends

on access and egress roads;

3. Utilities consumption per Ton of raw material = $18 US per Ton; and

4. Percentage of Water for wet Ton = 18% average.


Table # 20

Energy Balance;

Based on Processing 36T Sawdust Daily



Table # 21

Mass Balance;

Based on Processing 36T Sawdust Daily



PLET Pilot Plant

Over the past 10 years PLET has had several independent tests performed confirming the

quality of its products. Initial testing on many different types of biomass was performed at the

Technological Institute in Durango, Mexico and also at Econotech Labs in Vancouver, British

Columbia. Positive results were consistent with all types of vegetation. Since building the 2nd

generation pilot plant two years ago, at least 5 other companies have tested PLET's products in

their own specific applications, also with positive results.

Last year further independent testing was performed on the products from our second-generation

pilot plant by Paprican (Forestry division) at University of British Columbia, Vancouver

B.C. As expected, most of the results were positive. However, some of the testing they did was

based on their experience with traditional style Kraft Pulping Process. They were not familiar

with the CRP process and the unique aspects of PLET products, and did not have the equipment

necessary to fully analyze all aspects and properties. Hence, their report was incomplete in a

number of areas.

Several years ago PLET had a pessimist/optimist review done on their business model by an

internationally recognized accounting firm, resulting in a very positive economic forecast. Their

recently updated costing model, including operational and construction budgets, continue to

show a very lucrative business model.

1. To date, PLET has performed over 40 separate test runs of 100 kg. biomass input

each, in the 2nd generation plant, producing at least 800 kg. of lignin;

2. Time and money have been their only limitations;

3. Laboratory testing has been performed on about 45-50 of the different types of

vegetation in the world, all of which produced a high quality lignin, although

yields vary depending upon the different types of biomass, i.e.: there is more

lignin in hard wood than in soft wood; and

4. PLET is currently negotiating several different licensing agreements globally and

expects to have a commercial facility (either one of its own or one that

is constructed by a licensee) up and operating within the next 10 - 12 months.


Image # 5

PLET Pilot Plant Photo #1

Chips cooking off in reaction vessel

For the second year in a row PLET will receive $100,000 funding from the Canadian

government under NRC-IRAP (National Research Council - Industrial Research Assistance

Program).

Image # 6


1st pressed pulp & washed lignin


Image #7


Lignin in drum filter

Image #8


Pulp after spin cycle – Lignin black liquor removal


Image #9


Imp tank with knife gate

Image #10



Pressed out cellulose cake

Image #11


Lignin-Sweet Liquor Separation

Image #12


#1 Side view of reaction vessel


Image #13


View of pulp press with reaction vessel

Design and Engineering

As previously stated E3 Energy Partners will provide engineering services for the project. The

Company believes E3 Energy Partners qualifications and reputation as a premiere engineering

firm with domestic and international clients provides the project with the authoritative evidence

that its advanced biofuels refinery will be designed and engineered so as to meet its intended

purposes,. will ensure public safety and will comply with applicable laws, regulations,

agreements, permits, codes and standards.

Lignin Pre-Treatment Process Monitoring Equipment

The Lignin Pre-Treatment process licensed to the Company by PLET will be off the shelf

equipment and will be computer monitored on most everything including alarm systems on

the instrumentations as required There will be some of the monitoring on the following:

1. pH;

2. Temperature;

3. High / low tank levels;

4. Spill and/or leak alarms on all acid - caustic transfer flow lines and in the spill

containment areas where the tank storage areas are.

5. Processing time controls for impregnation;

6. Cook and reaction cook times;


7. Load cell controls for the impregnation tanks for weight measurement

8. Pump and filter flow controls; and

9. HVAC controls for monitoring the air quality inside the building and outside.

The design will be subject to each state of Tennessee regulations. Some of the off the shelf

equipment will have individual monitoring and control systems on them, such as the belt

presses, lignin/sweet liquor separation disk separators, which will then be tied into the main

control computer.

Designed specifications are as follows:


Image #14

Impregnation Tank Assembly



Image # 15

Lignin Pre-Treatment Plant Assembly



Image #16

LP1 Isometric



Image #17

LP1 Side view



Timing of Major Component Replacement or Rebuild

All of the major structural components will be designed based upon PLET specifications. The

structural for each Impregnation Tank and Reaction Vessel have been designed in modular

design, so that it becomes almost "plug in and operate" set up. All of the structural components

are standard steel mill supply, so there will not be a problem with purchasing the

equipment. Unless a major type of equipment hits the structure, there should not be a

requirement to replace any of the structure.

The conveyor systems are set up in 20' units and drop in place on the structure. The conveyors

are all set up so that they are serviced from the outside of the structure system.

The plant will be supplied with an extra Reaction Vessel and Maintenance Rack, so that if there

is a major maintenance requirement, it can be unplugged from electrical and supply lines and

lifted out of it structure. Afterwards, the stand by Reaction Vessel is put into its place. The

Reaction Vessel requiring repairs, is then placed into the Maintenance Rack for repairs. That

allows for minimum down time of the production line. PLET estimates a short repair time (one

hour for the 36T Reactor) to pull a Reaction Chamber and place the stand by unit into its place

and reconnect the electrical and flow lines. PLET does not expect that there will be much

replacement maintenance on the Reaction Vessels. The repaired Reaction Vessel then becomes

the stand by unit.

The Costs and Labor Associated with Maintenance of Equipment

The Company has estimated a maintenance expense of $1,700,000.00 for year one. PLET

suggests that it would be similar to other types of processing plants. The tanks and conveyors

are of 304 stainless steel construction. The Reaction Vessel is the only unit with many moving

parts and those are limited to the bottom bearing and the mid support bearings for the auger and

wiper blades. The motors on the Reaction Vessel, auger on the impregnation tank and the augers

on the conveyors are all direct drive, variable speed, so there are no drive chains to require

maintenance.

The plant would operate 24/7 and it expects a full employee force to operate the entire facility.


Section F: Financial Feasibility Determinations

The accompanying financial projections and assumptions present fairly, in all material respects,

the future financial position of The Company as of May 1, 2011 and the projected results of its

operations and its cash flows for each of the thirty years of the useful life of the plant. These

financial statements are the responsibility of the Company’s management.

Planning is a dynamic process. As new data are derived, market circumstances evolve and direct

experience is acquired within the target market, revisions will become necessary as dictated by

the essence of successful planning. Until that time arrives, the Company’s financials provide

insight into the efficacy of business prospects as predictors of potential and profitability. See

Table # 1; Project Financial Statements.

The following financials have been derived from recognized government and industry sources.

All calculations have been derived according to General Accepted Accounting Principles

(―GAAP‖) assuming an accrual basis. These financials have also been prepared utilizing

conservative estimates; thus, are not designed to be either optimistic nor pessimistic. The

business scenario that management derived from these data indicate adequate potential to justify

the Company’s entry into the cellulosic ethanol, lignin and electrical power markets proposed

within this application for funding assistance.

GAAP are varied but based on a few basic principles that must be upheld by all GAAP rules.

These principles include consistency, relevance, reliability, and comparability.

Consistency means that all information should be gathered and presented the same across all

periods. For example, a company cannot change the way they account for inventory from one

period to another without noting it in the financial statements and having a valid reason for the

change.

Relevance means that the information presented in financial statements (and other public

statements) should be appropriate and assist a person evaluating the statements to make educated

guesses regarding the future financial state of a company.

Reliability means simply that the information presented in financial statements is reliable and

verifiable by an independent party. Basically a company must confirm that if an independent

auditor were to base their reports off of the same information that they would come up with the

same results. Following this GAAP also means that the company is representing a clear picture

of what really happened, is happening or will happen with their company.

Comparability is one of the most important GAAP categories and one of the main reasons having

something similar to GAAP is necessary. By ensuring comparability, a company’s financial

statements and other documentation can be compared to similar businesses within its industry.

The importance of this principle cannot be overstated, as without comparability investors would

be unable to discern differences between companies within an industry to benchmark how a

company is doing compared to its peers.


Table # 22

Project Financial Statements

STATEMENT # DESCRIPTION

Financial Statement #1 Total Development Costs Budget

Financial Statement #2 Project Cost Summary

Financial Statement #3 Sources and Uses of Funds Statement

Financial Statement #4 Income Statement Thirty Year Pro forma

Financial Statement #5 Notes to Income Statement Thirty Year Pro forma

Financial Statement #6 Three Year Projected Balance Sheet

Financial Statement #7 Thirty Year Cash Flow Statement

Financial Statement #8 Elements of Development Costs

Financial Statement #9 Procurement Expense Schedule

Generally accepted accounting principles (GAAP) ensures that all companies are on a level

playing field and that the information they present is consistent, relevant, reliable, and

comparable.

Reliability of Financial Projections and Assumptions

Financial Projections

In order to insure the reliability of its financial projections and assumptions, the Company sought

the expert advice of various individuals on its development team to develop the data necessary to

prepare its financials. All financial projections were performed by management with the

assistance of the following:

a. E3 Energy Partners – Provided capital cost projections based upon the

following:

i. Industry Plant and Equipment calculations;

ii. Process engineering and construction cost estimates;

iii. Industry Analysis of the Lignin and Furfural markets;

b. Pure Lignin Environmental Technologies, Ltd. – Provided detailed cost

analysis of the raw material/chemical inputs, reactor costs and output yields;

c. Regeneration Strategies International, Inc. – Provided research on Cellulosic

and biomass industry and feedstock sourcing. In addition, prepared Development

Costs Budgets; and

d. Taylor English Duma LLP – Provided revised financial statements for the

Company’s Confidential Information Memorandum.


Financial statements cannot be useful if they are based on unreliable and inaccurate recordings of

transactions. There is no greater example of the garbage in, garbage out principle than financial

statement preparation. The problem is that financial statement users cannot usually assess the

presence of garbage simply by reading the statements. The statements may look fine, but in

reality be riddled with inaccuracies.

Christianson & Associates, PLLP

The two main sources of financial statement inaccuracy are deliberate dishonesty and

incompetence. There are two principle ways to combat these problems. The first method is to

regularly hire an outside accounting firm to audit the financial statements. In an audit, the outside

accountant tests reported account balances for accuracy. As importantly, the auditor tests to see

that the accounting principles used in recording transactions are in conformity with GAAP and

applied on a consistent basis. Despite some notorious recent audit failures involving large

corporations, the auditing process, in most cases, provides a reasonable safeguard against

fraudulent and inaccurate financial reporting.

The second method used to prevent fraudulent and inaccurate financial reporting is the adoption

of adequate internal controls. Internal controls are the policies and procedures that a business can

take to safeguard its assets, insure accuracy of financial reporting, and prevent fraud. These

methods are not mutually exclusive. In the best of all worlds, firms would have both good

internal controls and regular audits.

The Company will utilize Christianson & Associates, PLLP, (―the Accountants‖) as its CPA

firm to provide accounting and asset management services.

a. Accounting Services – The Accountants, in accordance with attestation standards

established by the American Institute of Certified Public Accountants, from

information management provides, will compile monthly balance sheets and

related statement of operations, cash flows and summaries of significant

assumptions and accounting policies. On an annual basis, the Accountants will

audit and review the financial statements and, accordingly will not express an

opinion or any other form of assurance on them.

b. Asset Management Services – The Accountants will provide monthly

accounting services and maintain all cash disbursements and other asset

management services. In addition, the Accountants will compile, from

information the Company provides, the financial statements of the Company on a

monthly basis for the period in which they are engaged. They will also compare

the cash expenditures to the Company’s construction budget and report variances

and compliance with other specified requirements. A compilation is limited to

presenting in the form of financial statements information that is the

representation of management.


In-house Bookkeeping

As stated earlier, The second method used to prevent fraudulent and inaccurate financial reporting

is the adoption of adequate internal controls. The Company will hire two in house bookkeepers

to adequately handle disbursements, receipts and payables. This information will be submitted

on a monthly basis to the Accountants so that they will be able to adequately prepare the

Company’s monthly, quarterly and annual financial statements as well as performing annual

audits of Company financials.

Financial Assumptions & Elements of Development Cost

An assumption is a statement that is presumed to be true without concrete evidence to support it.

In the business world, assumptions are used in a wide variety of situations to enable companies

to plan and make decisions in the face of uncertainty. Perhaps the most common use of

assumptions is in the accounting function, which uses assumptions to facilitate financial

measurement and reporting.

In developing Project Tennessee, the Company has made many assumptions about future

financial performance. These assumptions were based on a number of factors. The following

financial statements give detailed description of the assumptions made by the Company:

1. Financial Statement # 5: Notes to Income Statement Thirty Year Pro forma;

2. Financial Statement # 9: Elements of Development Costs.

Cost Accounting System Assessment

Cost accounting is an approach to evaluating the overall costs that are associated with conducting

business. Generally based on standard accounting practices, cost accounting is one of the tools

that managers utilize to determine what type and how much expenses is involved with

maintaining the current business model. At the same time, the principles of cost accounting can

also be utilized to project changes to these costs in the event that specific changes are

implemented.

The Company will implement adequate cost accounting measures to enhance productivity and

maximize profitability. The Company will utilize Pavilion Technologies model based software

and its Value First™ customer engagement methodology. A division of Rockwell Automation,

Inc., Over the past eighteen years, Pavilion Technologies has become the leading global supplier

of model-based software that improves manufacturing processes. Their customers achieve

enhanced profitability through gains in process productivity and efficiency. Based on the most

powerful predictive modeling software in the industry, Pavilion8- powered solutions facilitate

quick response to market demands, continuous reduction of costs, consistent achievement of

quality targets, and enhanced air quality. With a commitment to delivering the highest ROI in the

industry, their Value First customer engagement methodology delivers predictable results.

In recognition of the company’s commitment to unparalleled customer value, Frost & Sullivan

honored Pavilion Technologies with the 2006 Emerging Company of the Year Award. Each year

http://www.pavtech.com/index.php?option=com_content&task=view&id=14&Itemid=40


Frost & Sullivan presents the award to a company that has demonstrated excellence in

operations. The award credits the modern Pavilion8 software platform and Value-First backed

industry solutions for allowing manufacturers to make better profit-impacting decisions. Citing

Pavilion’s outstanding management, exceptional customer service, and positive economic impact

for customers and local communities, the award underscores Pavilion’s exceptional financial

growth.

Pavilion Technologies was founded in 1991, leveraging intellectual capital from DuPont,

Eastman Chemical, and the Microelectronics and Computer Technology Corporation (MCC) to

apply neural network modeling to industrial applications. Since that time, Pavilion has advanced

the field of industrial control with more than 144 patents covering modeling, predictive analytics,

process control, optimization, and expert systems. Every day, teams of the brightest researchers,

mathematicians, software developers, and engineering experts collaborate to produce software

solutions that achieve their customers’ most critical business objectives.

1. Pavilion Biofuels Solution - Pavilion Technologies is a leader in

providing control and optimization solutions to the biofuels industry.

Major biofuels companies have employed Pavilion solutions to optimize their

production process while reducing environmental impact. Their patented

technology has helped manufacturers increase yields, reduce operating costs, and

remain compliant to environmental regulations.

2. Biofuels Industry Challenges - The biofuels industry is experiencing cyclical

economic conditions that have been rewarding at times and challenging at others

due to market fluctuations. Today the industry is faced with limited product

demands, recovery from a peak season of corn commodity pricing and an

oversupply of installed capacity to meet current fuel ethanol demand. Although

these recent conditions have challenged biofuel producers, the industry had

benefited from several years of peak profitability and continues to benefit from

modern, well-designed, highly-efficient, integrated processing equipment.

3. Pavilion Biofuels Solution - Manufacturers continually strive to remain

competitive by implementing best practices to reduce costs and optimize

operations with existing assets. The foundation of biofuel production is based on

traditional agricultural and green legacies. Therefore, environmental stewardship

as a responsible producer within farming communities, while focusing on

sustainability, continues to be an operational imperative. The key to maintaining a

competitive edge is to constantly look for operational improvements, execute

projects rapidly with limited operational disruptions and achieve sustained value.

Pavilion provides key benefits through innovative software applications, allowing customers

to achieve faster time-to-value results and greater lifetime ROI value than alternative solutions.

Ability to Achieve Projected Income & Cash Flow

The growing concern over our nation’s increasing need for energy, in the form of electricity,

liquid fuels and bio-chemicals and the federal government’s mandate of renewable fuel standards


coupled with governmental financial incentives has created a burgeoning need for renewable

energy solutions. The Company is uniquely positioned to take advantage of this need for energy.

The Company’s ability to achieve projected income and cash flow will be based upon the

following:

1. Maintaining a Healthy Balance Sheet - The balance sheet is essentially a picture

of how a firm is doing at any given point in time. Rather than being over a range

of time, like the income statement and other financial statements, the balance

sheet represents a single moment in the company’s history. The balance sheet

functionally shows the accounting equation is in balance for that company, and

shows how much of the firm’s assets are equity or liability-related. Below is

Financial Statement #6: Three Year Projected Balance Sheet. The projected

Balance Sheet shows a healthy steady growth over the first three years of

operation. The Company believes based upon its Projected Income Statement ,

that its Balance Sheet will continue to show growth throughout the useful life of

the facility.

2. Management Expertise - The Company’s CEO and its tow of its five Board of

Directors have direct experience in the alternative fuels industry. The Company

understands that that success of an operation is based upon having seasoned

executives with a depth of knowledge, experience and has a track record of

successful strategy development and execution with multi-million dollar

companies. To find talented executives the Company has engaged The Carter

Group, LLC. www.thecartergroup.com. Established in 1994, The Carter Group

has successfully provided professional search services for 16 years, recruiting

leadership teams and corporate governance for many of the world’s most

prominent companies. Their unique process methodology has developed for them

a broad-based reputation for adding talented management that can bring brands to

the top of their respective segments. As industry specialists, they are vested in the

ultimate success of each executive manager or board member they place. The

Company expects to hire its CFO and COO through the Carter Group.

3. Proven Advanced Technology – The Company believes that having a proven,

patented advanced technology will help it to achieve projected income and cash

flow. The Company’s production model, utilizes readily-available and

inexpensive inputs to produce marketable, high-value outputs. PLET’s advanced,

patented, revolutionary, green, bio-technology produces three separate,

economically profitable products: commercial grade cellulose, pure lignin and

Sweet liquor (sugars, hemicellulose). It combines a unique blend of chemicals and

low-pressure steam in a closed-loop process which emits no emissions or

pollution. The process can utilize any vegetation as its source including waste-

wood, Pine beetle-killed trees, sugar cane, grasses, husks etc. The facility will be

much more profitable than traditional methods with costs to build and operate

considerably lower than conventional processes and more revenue streams.

4. Continued Solid Growth in Revenues –The Company believes that continued

growth from its diverse revenue streams in the cellulosic ethanol, lignin and


electricity markets as shown below will be the bases behind the it achieving its

projected income and cash flows.

a. Ethanol Sales - In the early 2000s, several start-up companies developed

corn-based and soybean-based ethanol plants in order to produce ethanol.

U.S. policy favored the development of these liquid fuel producers

through a series of excise tax credits. When world agricultural prices

spiked in mid-2008, many first generation ethanol producers found that

they could not acquire feedstock in the form of corn or soybeans at prices

that made ethanol profitable. As a result, many first generation ethanol

producers failed or halted their operations. In addition, the apparent

competition of ethanol producers for edible products like corn and

soybeans produced a political backlash that has tended to disfavor ethanol

production based on grains. In spite of this backlash, the federal

government instituted the Renewable Fuels Standard (―RFS‖). The RFS

is a provision of the US Energy Policy Act of 2005 that mandated 7.5

billion gallons of renewable fuels by 2012. United States currently

produces 5 billion gallons of ethanol. In addition, the ―Food Conservation

and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or

ethanol produced from non-food sources are entitled to a $1.01 subsidy for


The Company is projecting to receive $15,150,000.00 from Year #1

production of 15MMGY of cellulosic ethanol and $20,200,000.00 from

Year #2 production of 20MMGY of cellulosic ethanol. The Company’s

Income Statement stops the ethanol subsidy of $1.01 per gallon in year

two because it expires in December 31, 2012. The Company’s Income

Statement does not assume the re-instatement of the subsidy once it

expires. It should be noted that without the subsidy the Company still

predicts a positive income from operations of $41,120,208.00 in Year #1

and $45,211,676.00 in Year #2.

b. Lignin Sales - According to the U.S. National Center for Environmental

Research, the U.S. produces some 26 million tons of lignin each year but

as to the quality they find that: ‖Despite the judicious schemes devised for

fractionating and derivatizing the lignin preparations employed by the

traditional Kraft Pulping process which is the current technology in use,

the optimum lignin contents in these polymeric materials have typically

fallen in a range of 25 to 40%. Even in this low grade form of Lignin is a

highly consumed product with a large number of uses. The value of Lignin

per ton is normally twice that of pulp even in such low quality. Our test

results to date, furnished by PLET our technology provider, have shown

that as a by-product of making cellulose, we can produce an 83% pure

lignin that contains 17% impurities, the purest lignin produced in the

world. The Company believes that with a simple washing process the

lignin can reach a purity level between 95% and 99%. Current lignin









prices range from $200 to $3,000 per Ton. The Company’s financial

model estimates that it will sell its LMW lignin for $500 per Ton and its

high molecular weight (―HMW‖) Lignin for $1,700 per Ton. The

company estimates Year # 1 lignin sales of $81,600,000.00.

c. Electricity Sales - From 1995 to 2007, total U.S. electricity consumption

increased by 24% even while the price of electricity also rose by 32.5%.

From 1990 to 2008 the U.S. consumption of petroleum rose 36.5% even

though the price of oil also increased over the same time period by 117%.

The U.S. Department of Energy, Energy Information Administration

predicts that U.S. electricity consumption will continue to rise by 26%

from 2007 through 2030, notwithstanding pending improvements in

energy efficiency.

Based upon the Company’s Income Statement it is projecting electricity

sales in Year #1 of $ 7,956,245.00 and $5,141,602,022 by Year #30 (the

useful life of the plant) with a total of $25,676,185,200 over the facility’s

useful life.

5. Continued Government Support of the Biofuels Industry – On a local, state

and federal level the continued offering of economic development incentives to

developers of bio refineries are a major component to ensuring that the Company

achieves its projected income and cash flows. Without the credit enhancement of

such federal programs and the Biorefinery Assistance Program and DOE’s Loan

Guarantee program, the development of advanced biofuels would be stagnated;

thus, the mandates of the Renewable Fuels Standard would be unattainable.

Availability of Short Term Credit

Regardless of a company’s industry or financial condition, access to short-term credit is critical

to normal operations. For some companies, short-term credit serves as a source of liquidity that

allows them to manage through periods of cash flow shortfalls resulting from seasonal or cyclical

business slowdowns or payment imbalances. In other cases, short-term credit provides a safety

net that gives companies the confidence to use cash on hand to build new plants, invest in

productivity-enhancing equipment, pursue strategic acquisitions, or expand their workforce.

Without confidence in their ability to draw on credit lines and other sources of short-term credit,

companies would be less willing to deploy their cash in longer-term investments that are

beneficial to the company, its stakeholders, and the economy as a whole.

As a result of the Great Recession, a number of events have increasingly shaken the stability of

and confidence in financial markets. In 2007, growing concern about defaults on subprime

mortgages and declining home prices rattled capital markets. Many lenders and other financial

entities that invested in the structured products related to subprime mortgages took significant

write-downs, impairing their capital positions and raising fears about their ability to extend

credit. More recently, the government takeover of Fannie Mae and Freddie Mac, the bankruptcy

of Lehman Brothers, and the government rescue of AIG, have exacerbated the difficulties in the


credit markets. Banks have significantly reduced the number of new credit facilities they are

originating, and some are attempting to pull out of or reduce their participation in existing

commitments.

As of this writing the U.S. economy is struggling to come out of the Great Recession. According

to the U.S. Bureau of Labor Statistics the national unemployment rate is 9.7 percent. Today,

traditional financial institutions are reluctant to issue short term credit, especially to start

organizations such as the Company. Understanding that even in the best economies, companies

must have access to short term credit for their survival, the Company will utilize the following to

meet seasonal business costs:

1. Trade Credit - is an arrangement to buy goods or services on account, that is,

without making immediate cash payment . For many businesses, trade credit is an

essential tool for financing growth. Trade credit is the credit extended to a

company by suppliers who let the company buy now and pay later. Trade Credit

provides one of the most flexible sources of short-term financing available to the

firm. It is a primary source of spontaneous, or on-demand financing - arise

spontaneously with the firm’s purchases. However, effective use of trade credit

requires intelligent planning to avoid unnecessary costs through forfeiture of cash

discounts or the incurring of delinquency penalties. The Company will take full

advantage of trade that is available without additional cost in order to reduce its

need for capital from other sources.

2. Asset Backed Lending - In the simplest meaning, asset-based lending is any

kind of lending secured by an asset. This means, if the loan is not repaid, the asset

is taken. In this sense, a mortgage is an example of an asset-backed loan. More

commonly however, the phrase is used to describe lending to business and large

corporations using assets not normally used in other loans. Typically, these loans

are tied to inventory, accounts receivable, machinery and equipment, but they can

also include exotic things like the value of pharmacy script files, a trademark, or

whole assets of intellectual property.

An asset based business line of credit is usually designed for the same purpose as

a normal business line of credit - to allow the company to bridge itself between

the timing of cash flows of payments it receives and expenses. The primary

timing issue involves what are known as accounts receivables - the delay

between selling something to a customer and receiving payment for it. A non

asset based line of credit will have a credit limit set on account opening by the

accounts receivables size, to ensure that it is used for the correct purpose. An asset

based line of credit however, will generally have a revolving credit limit that

fluctuates based on the actual accounts receivables balances that the company has

on an ongoing basis. This requires the lender to monitor and audit the company to

evaluate the accounts receivables size, but also allows for larger limit lines of

credits, and can allow companies to borrow that normally would not be able to.

Generally, terms stipulating seizure of collateral in the event of default allow the

lender to profitably collect the money owed to the company should the company


default on its obligations to the lender. Two types of asset backed lending

includes factoring and pledging accounts receivables. By maintaining a strong

balance sheet, the Company anticipates to use its assets, when necessary, to obtain

the capital necessary to meet its obligations.

3. Accrued wages and taxes - Because most businesses pay their employees

only periodically, accrued wages = a loan from their employees. Firms

generally make quarterly income tax payments, - accrued taxes = a loan

from government (indirectly). These sources of financing rise and fall

spontaneously with the level of firm sales. The Company will utilize this form

of short term credit only as a last resort to other sources of short term credit

discussed above.

Adequacy of Raw Materials and Supplies

The Company believes that the numbers that it has obtained for raw materials for the project are

in sync with industry averages. As stated earlier, the company utilized the expert advice of Dan

Parker of E# Energy Partners, its process engineer, who has developed large biorefineries

throughout the world as well as data from PLET its technology provider. In addition, the

Company contacted various chemical producers and suppliers throughout the country to obtain

quotes for the following raw materials:

1. Nitrogen;

2, Ammonia;

3. Sodium Hydroxide; and

4. Sulfuric Acid etc.

The numbers outlined in the various financial statements for its raw materials are based upon the

Company’s best estimate. The adequacy of the wood wastes raw material is based upon the

Company’s agreement with The Price Companies who has agreed to supply the Company with

up to 400,000 tons per year of wood waste at a cost of $45 per ton.

Sensitivity Analysis

The sensitivity of project profitability (as measured by IRR) to the following critical variables

was also evaluated:

1. Ethanol plant size;

2. Delivered feedstock cost;

3. Feedstock composition (% moisture);

4. Ethanol selling price;

5. Owner equity;

6. Ethanol facility capital cost;


7. Annual manufacturing cost; and

8. Annual direct labor cost.

Sensitivity analyses were performed for the PLET Hydrolytic Catalytic Reactor Process (―CRP‖)

at the Jasper, TN site only because this site and process has a high IRR. Again, owner equity was

assumed to be 42.18% with 7.25% interest on the remaining debt. The results are summarized

in Table # __ below.

The IRR is most sensitive to feedstock cost and owner equity. Ethanol plant size, annual

manufacturing cost, ethanol selling price, ethanol facility capital cost, and feedstock composition

all display moderate sensitivities. A 30% change in direct labor cost has relatively little effect on

the IRR. A graph of the IRR versus feedstock cost for the PLET technology at the Jasper, TN site

follows (Figure 2).

Table # 23.

Summary of Sensitivities SENSITIVITY VARIABLE & RANK

HIGH TO LOW

SENSITIVITY RANGE CORRESPONDING IRR RANGE

1. Delivered Feed Stock $45 - $0 per BDT feedstock 1% to 44%

(43%)

2. Owner Equity 43% - 5% 11% to 50%

(39%)

3. Ethanol Plant Size 5 – 30 MMGY 0% - 31%

(31%)

4. Annual Manufacturing Costs +/- 20% of Manufacturing Cost 9% to 38%

(29%)

5. Ethanol Selling Price $1.50 - $1.88/ Gallon 11% to 36%

(25%)

6. Ethanol Facility Capital Cost +/- 30% of Capital Cost 17% to 37%

(20%)

7. Feedstock Composition 50% moisture 14% to 34%

(20%)

8. Annual Direct Labor Cost +/- of Direct Labor Cost 23% to 28%

(5%)

Environmental Issues

Off-Site Environmental Impacts

The potential environmental effects of operating a commercial-scale biomass-to-ethanol plant

include both the on-site and off-site impacts surrounding the production facility.

The on-site environmental impacts (as well as local community impacts) are discussed in the

site- specific evaluations conducted by Regeneration Strategies Internal, Inc. (―RSI‖) feasibility

study conducted in July 2008. The RSI study reviewed various environmental and infrastructure

factors at the three study sites in Southeastern Tennessee and the Mississippi Delta region.


Cellulose biomass material will be generated from both public and private forest lands within at

least a 75-mile radius of the facility. Ward Consulting Services, Inc. Feedstock Supply and

Delivery Systems report (April 2009) predicts an available and sustainable, annual supply of

400,000 Bone Dry Tons (BDT), dependent upon site. Sources of biomass will be timber

harvesting by-products, certain lumber mill residues as well as forest fuels reduction treatments.

Environmental reviews and public participation processes that are prerequisites for authorizing

biomass harvest differ between land ownership types. On private timberlands, the Tennessee

Department of Environment and Conservation govern timber harvest practices. Biomass harvest

activities on National Forest System lands must be subjected to National Environmental Policy

Act (NEPA) reviews and public participation processes of the U.S. Forest Service. Projects on

federal lands must also have the environmental review conducted within the current regional or

national context, which must take into account the "latest science." The typical kinds of

environmental concerns that arise from timber harvest and biomass harvest activities include the

effects of roads and landings, riparian zone and water quality impacts, fuel loadings and

arrangements, wildlife disturbances, and changes in suitability of wildlife habitats. Generically,

these can be grouped into soil, water and wildlife impacts.

Feedstock costs

Feedstock costs for Project Tennessee in Year #1 are as follows:

Table # 24

Feedstock Costs

FEEDSTOCK YEAR #1 Ann. Prod. Annual Cost/ Cost/Gal.

Units Cost/Unit Revenue Produced

Raw Materials

Wood Chips $ 8,032,500.00 178,000.00 tons $ 45.00 $ 8,032,500.00 $ 2.52

Nitrogen $ 1,164,240.00 3,528,000.00 ccf $ 0.33 $ 1,164,240.00 $ 0.04

Ammonia $ 2,940,000.00 1,050,000.00 gal $ 2.80 $ 2,940,000.00 $ 0.10

Sodium Hydroxide $ 332,500.00 1,750,000.00 lb $ 0.19 $ 332,500.00 $ 0.01

Sulfuric Acid $ 63,000.00 1,260,000.00 lb $ 0.05 $ 63,000.00 $ 0.00

Other Raw Materials $ 2,547,568.00

Total Feedstock Costs $ 15,079,808.00

Energy Costs

Energy Cost for Project Tennessee in Year #1 are as follows:


Table # 25

Energy & Replacement Costs

Wastewater $ 8,820,000.00 252,000,000.00 gallons $ 0.35 $ 8,820,000.00 $ 0.59

Filter Resin $ 161,875.00 875.00 ton $185,000.00 $ 161,875.00 $ 0.01

Other (Filter Media, etc.) $ 393,750.00 175,000.00 lb $ 2.25 $ 393,750.00 $ 0.03

Electricity $ 6,450,000.00 51,600,000.00 kwh $ 0.13 $ 6,450,000.00 $ 0.43

Natural Gas $ 23,507,400.00 24,360,000.00 therms $ 0.97 $ 23,507,400.00 $ 1.57

Water $ 685,471.00 35,701.00 ccf $ 1.90 $ 685,471.00 $ 0.05

Periodic Major Replacements

Filters $ 112,275.00 4,500.00 ea $ 24,950.00 $ 112,275.00 $ 0.01

Ion Exchange Resin $ 1,640,500.00 85,000.00 lb $ 19,300.00 $ 1,640,500.00 $ 0.11

Chiller Refrigerant $ 53,880.00 6,000.00 cf $ 8,980.00 $ 53,880.00 $ 0.00

Carbon Filter $ 28,000.00 800.00 ea $ 35,000.00 $ 28,000.00 $ 0.00

Ethanol Dryer Substrate $ 85,000.00 6,800.00 ea $ 12,500.00 $ 85,000.00 $ 0.01

Misc. (Gaskets, Bearing etc.) $ 450,000.00 1.00 lot $ 450,000.00 $ 450,000.00 $ 0.03

Total Energy & Replacement Costs $ 42,388,151.00

Product and co-product prices for Project Tennessee in Year #1 are as follows:

Table # 22

Product/Co-Product Prices

REVENUES: YEAR #1 Ann. Prod. Annual Cost/ Cost/Gal.

Units Cost/Unit Revenue Produced

Ethanol $ 27,450,000.00 10,000,000.00 gal $ 1.83 $ 27,450,000.00 $ 1.83

Lignin $ 81,600,000.00 48,000.00 ton $ 1,700.00 $ 81,600,000.00 $ 1,700.00

Electricity $ 7,956,245.00 15 MW

$ 7,956,245.00

Total Revenues/Cost Products Sold $117,006,245.00

$ 1,701.83 $117,006,245.00 $ 1,701.83

Risks Related to the Project

All business ventures have inherent risks associated with it. The Company has identified some

possible problem areas that, without proper attention could slow progress with short and long

term plans for the future and jeopardize its goals.

Environmental Risks

The Company may be adversely affected by environmental, health and safety laws, regulations

and liabilities. It will become subject to various federal, state and local environmental laws and

regulations, including those relating to the discharge of materials into the air, water and ground,

the generation, storage, handling, use, transportation and disposal of hazardous materials, and the

health and safety of our employees. In particular, each ethanol plant the Company intends to

operate will be subject to environmental regulation by the state in which the plant is located and

by the EPA. These laws, regulations and permits can often require expensive pollution control

equipment or operational changes to limit actual or potential impacts on the environment. A


violation of these laws and regulations or permit conditions can result in substantial fines, natural

resource damages, criminal sanctions, permit revocations and/or facility shutdowns. In addition,

to construct and operate its biorefineries, it will need to obtain and comply with a number of

permit requirements. As a condition to granting necessary permits, regulators could make

demands that increase its costs of construction and operations, in which case it could be forced to

obtain additional debt or equity capital. Permit conditions could also restrict or limit the extent of

its operations.

The Company cannot assure that it will be able to obtain and comply with all necessary permits

to construct its ethanol plants. Failure to obtain and comply with all applicable permits and

licenses could halt its construction and could subject it to future claims. Environmental issues,

such as contamination and compliance with applicable environmental standards could arise at

any time during the construction and operation of its biorefineries. If this occurs, it would require

the Company to spend significant resources to remedy the issues and may delay or prevent

construction or operation of its biorefineries. This would significantly increase the cost of these

projects. It may be liable for the investigation and cleanup of environmental contamination at

each of the properties that it owns or operates and at off-site locations where it arranges for the

disposal of hazardous substances. If these substances have been or are disposed of or released at

sites that undergo investigation and/or remediation by regulatory agencies, it may be responsible

under the CERCLA or other environmental laws for all or part of the costs of investigation

and/or remediation, and for damages to natural resources. The Company may also be subject to

related claims by private parties, including its employees and property owners or residents near

its plants, alleging property damage and personal injury due to exposure to hazardous or other

materials at or from those plants. Additionally, employees, property owners or residents near its

biorefineries could object to the air emissions or water discharges from its facilities. Ethanol

production has been known to produce an unpleasant odor. Environmental and public nuisance

claims or toxic tort claims could be brought against the Company as a result of this odor or our

other releases to the air or water. Some of these matters may require us to expend significant

resources for investigation, cleanup, installation of control technologies or other compliance-

related items, or other costs.

In addition, new laws, new interpretations of existing laws, increased governmental enforcement

of environmental laws or other developments could require it to make additional significant

expenditures. Continued government and public emphasis on environmental issues can be

expected to result in increased future investments for environmental controls at its production

facilities. The hazards and risks associated with producing and transporting its products (such as

fires, natural disasters, explosions, and abnormal pressures and blowouts) may also result in

personal injury claims by third parties or damage to property owned by the Company or by third-

parties. As protection against operating hazards, it intends to maintain insurance coverage against

some, but not all, potential losses. However, it could sustain losses for uninsurable or uninsured

events, or in amounts in excess of existing insurance coverage. Events that result in significant

personal injury to third-parties or damage to property owned by it or third-parties or other losses

that are not fully covered by insurance could have a material adverse effect on its business,

results of operations and financial condition.


Management Risks

The Company’s management’s time and attention will be divided among its biorefineries, and

will be part of one common management strategy. Its business model calls for it to form wholly-

owned business entities to own each of its biorefineries, which will be managed by a centralized

management team. The demands on its management’s time from one plant may, from time to

time, compete with the time and attention required for the operation of other plants. This

division of its management’s time and attention among its plants may make it difficult for it to

realize the maximum return from any one plant. Further, to reduce expenses and create

efficiencies, the Company intends to manage each of its plants in a similar manner. This

common management strategy may also result in difficulties in achieving the maximum return

from any one plant. If its common management strategy is not successful or if it is not able to

address the unique challenges of each plant, the impact of this arrangement likely will be spread

among all of its plants, resulting in greater potential harm to its business than if each plant were

operated independently.

Technological Risks

Technological advances could significantly decrease the cost of producing ethanol or lignin

resulting in the production of higher-quality ethanol, and if the Company is unable to adopt or

incorporate technological advances into its operations, its proposed plants could become

uncompetitive or obsolete. The Company expects that technological advances in the processes

and procedures for processing ethanol and lignin will continue to occur. It is possible that those

advances could make the processes and procedures that it intends to utilize at its ethanol plants

less efficient or obsolete, or cause the ethanol it produces to be of a lesser quality. These

advances could also allow its competitors to produce ethanol and lignin at a lower cost. If it is

unable to adopt or incorporate technological advances, its ethanol, lignin and electricity

production methods and processes could be less efficient than those of its competitors, which

could cause its plants to become uncompetitive. Ethanol production methods are also constantly

advancing. The current trend in ethanol production research is to develop an efficient method of

producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and

municipal solid waste. This trend is driven by the fact that cellulose based biomass is generally

cheaper than corn and producing ethanol from cellulose-based biomass would create

opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol

production research is to produce ethanol through a chemical or thermal process, rather than a

fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. If

it is unable to adopt or incorporate these advances into its operations, its cost of producing

ethanol could be significantly higher than those of its competitors, which could make its plants

obsolete. Modifying its plants to use the new inputs and technologies will likely require material

investment. In addition, alternative fuels, additives and oxygenates are continually under

development. Alternative fuel additives that can replace ethanol may be developed, which may

decrease the demand for ethanol. It is also possible that technological advances in engine and

exhaust system design and performance could reduce the use of oxygenates, which would lower

the demand for ethanol and its business, results of operations and financial condition may be

materially adversely affected.


Financing Risks

The Company’s future debt financing agreements may contain restrictive covenants that limit

distributions and impose restrictions on the operation of its business. Its failure, or the failure of

any of its subsidiaries, to comply with applicable debt financing covenants and agreements could

have a material adverse effect on its business, results of operations and financial condition. It

will need a significant amount of additional debt financing to complete its projects and operate

its plants following construction, but it may not be able to obtain additional debt financing on

acceptable terms or at all. The use of debt financing makes it more difficult for it to operate

because it must make principal and interest payments on the indebtedness and abide by

covenants contained in its debt financing agreements. The level of its debt may have important

implications on its operations, including, among other things:

1. Limiting its ability to obtain additional debt or equity financing;

2. Making it vulnerable to increases in prevailing interest rates;

3. Placing the Company at a competitive disadvantage because it may be

substantially more leveraged than some of its competitors;

4. Subjecting all or substantially all of its assets to liens, which means that

there may be no assets left for shareholders in the event of a liquidation;

5. Limiting its ability to adjust to changing market conditions, which could

make it more vulnerable to a downturn in the general economic conditions of its

business; and

6. Limiting its ability to make business and operational decisions regarding

its business and our subsidiaries, including, among other things, limiting

its ability to pay dividends to its shareholders, make capital improvements,

sell or purchase assets or engage in transactions it deems to be

appropriate and in its best interest.

The terms of its existing debt financing agreements contain, and any future debt financing

agreement it enters into may contain, financial, maintenance, organizational, operational and

other restrictive covenants. If it is unable to comply with these covenants or service its debt, it

may lose control of its business and be forced to reduce or delay planned capital expenditures,

sell assets, restructure its indebtedness or submit to foreclosure proceedings, all of which could

result in a material adverse effect upon its business, results of operations and financial condition.

Its debt arrangements may also include subordinated debt, which may contain even more

restrictions and be on less favorable terms than its senior debt. To secure subordinated debt, it

may have to give the lender warrants, put rights, conversion rights, the right to take control of its

business in the event of a default or other rights and benefits as the lender may require. The

Company may secure its debt financing directly or through the wholly-owned subsidiary entities

it have established to operate each of its plants. Regardless of the structure, its debt financing

arrangements will contain various covenants and agreements and may contain cross-acceleration

and cross-default provisions. Under these provisions, a default or acceleration of one debt


agreement will result in the default and acceleration of its other debt agreements (regardless of

whether it were in compliance with the terms of such other debt agreements), providing the

lenders under such other debt agreements has the right to accelerate the obligations due under

such other debt agreements. Accordingly, a default, whether by the Company or any of its

subsidiaries, could result in all of its outstanding debt becoming immediately due and payable.

The application of cross-acceleration or cross-default provisions means that its compliance, and

its subsidiaries’ compliance, with applicable debt covenants and agreements will be

interdependent and one default (including a default by one of its subsidiaries) could have a

material adverse effect on its business, results of operations and financial condition.

Stock Risks

After the inception of its Initial Public Offering (―IPO‖), the market price of its common stock

may be volatile. Securities markets worldwide experience significant price and volume

fluctuations, in response to general economic and market conditions and their effect on various

industries. This market volatility could cause the price of the Company’s common stock to

decline significantly without regard to its operating performance. In addition, the market price of

its common stock could decline significantly if its future operating results fail to meet or exceed

the expectations of public market analysts and investors. The volatility in our stock price could

be based on various factors, including:

1. Actual or anticipated fluctuations in its operating results;

2. Actual or anticipated changes in its growth rates or its competitors’ growth

rates;

3. Conditions in its industry generally;

4. Conditions in the financial markets in general or changes in general

economic conditions such as the Great Recession;

5. Its ability to raise additional capital; and

6. Changes in market prices for ethanol, lignin, and its raw materials,

such as wood wastes or natural gas.

Some view risks and opportunities as different sides of the same coin. The Company is of the

ideology that with risks come opportunities for success.

Borrower Financing Plan

The Company’s financing plan which is part of its overall business strategy is to develop its

projects utilizing the traditional economic development model of Public Private Partnerships

(―PPP‖). A PPP is a contractual agreement between a public agency (federal, state or local) and

a private sector entity. Through this agreement, the skills and assets of each sector (public and

private) are shared in delivering a service or facility. In addition to those sharing of resources,

each party shares in the risks and rewards potentials in the delivery of the service and/or facility.


Sectors where PPPs have been useful include:

1. Transportation;

2. Water/Wastewater;

3. Urban/Rural Development;

4. Energy;

5. Financial Management; and

6. Schools

Successful PPPs balance the strength of both sectors . There are six critical components of any

successful PPP. While there is not a set formula or an absolute foolproof technique in crafting a

successful PPP, each of these keys is involved in varying degrees.

1. Statutory and Political Environment - A successful partnership can result only

if there is commitment from "the top". The most senior public officials must be

willing to be actively involved in supporting the concept of PPPs and taking a

leadership role in the development of each given partnership. A well-informed

political leader can play a critical role in minimizing misperceptions about the

value to the public of an effectively developed partnership. Equally important,

there should be a statutory foundation for the implementation of each partnership.

2. Public Sector’s Organized Structure - Once a partnership has been established,

the public-sector must remain actively involved in the project or program. On-

going monitoring of the performance of the partnership is important in assuring its

success. This monitoring should be done on a daily, weekly, monthly or quarterly

basis for different aspects of each partnership (the frequency is often defined in

the business plan and/or contract).

3. Detailed Business Plan (Contract) – A company must know what to expect of

the partnership beforehand. A carefully developed plan will substantially increase

the probability of success of the partnership. This plan most often will take the

form of an extensive, detailed contract, clearly describing the responsibilities of

both the public and private partners. In addition to attempting to foresee areas of

respective responsibilities, a good plan or contract will include a clearly defined

method of dispute resolution (because not all contingencies can be foreseen).

4. Guaranteed Revenue Stream - While the private partner may provide the initial

funding for capital improvements, there must be a means of repayment of this

investment over the long term of the partnership. The income stream can be

generated by a variety and combination of sources (fees, tolls, shadow tolls, tax

increment financing, or a wide range of additional options), but must be assured

for the length of the partnership.


5. Stakeholder Support - More people will be affected by a partnership than just

the public officials and the private-sector partner. Affected employees, the

portions of the public receiving the service, the press, appropriate labor unions

and relevant interest groups will all have opinions, and frequently significant

misconceptions about a partnership and its value to all the public. It is important

to communicate openly and candidly with these stakeholders to minimize

potential resistance to establishing a partnership.

6. Pick Your Partner Carefully - The "lowest bid" is not always the best choice

for selecting a partner. The "best value" in a partner is critical in a long-term

relationship that is central to a successful partnership. A candidate's experience in

the specific area of partnerships being considered is an important factor in

identifying the right partner.

As stated above, one of the main factors of managing for a successful PPP is that political leadership by

the leading political figure must be in place. For Project Tennessee, the Company has established a

working relationship with the Honorable Mayor Howell Moss, County Mayor of Marion County

Tennessee. Through Mayor Moss’ leadership, the County has committed to allocating $20,000,000.00 in

Industrial Development Bonds, through its Industrial Development Board. In addition, the Company’s

project has Letters of Support from the following:

Table # 27

Political Support for Project Tennessee

NAME OFFICE HELD DATE OF

LETTER

CONTACT INFO.

Honorable Ronald

Ramsey

Lt. Governor, State of

Tennessee

12/30/09 One Legislative Plaza

Phone:(615) 741-4524

Honorable Zach Wamp U.S. Congressman

Third District of Tennessee

2/17/10 Federal Courthouse

Ste. 126

900 Georgia Ave.

(423) 756-2342

Brent Bailey 25 X 25 America’s Energy

Future

12/22/09 www.25x25.org

[email protected]

Sources of Funds

In this ever changing economic environment companies must use creative financing sources in order to

bring their project(s) to fruition. As per Financial Statement #3 Sources and Uses of Funds Statement,

Company will utilize the following sources of funds:

1. Series A Financing - The Company sought an initial round of $1.5 million in Series A

financing which could be accomplished through common equity, convertible preferred

equity or convertible debt. This initial round of investment will be used to secure the 28

acre site where Project Tennessee is located and to pay the advisors and consultants

required to pursue the full financing that Project Tennessee needs. If necessary, the

Company would be willing to consider a hybrid approach in which the seed investor

obtained a collateral interest in the 28 acre site until the Company was fully financed for

the complete project cost.


2. Industrial Development Bonds - The Company has had several meetings with

the local economic development authority and has received assurances that the

authority would be willing to back a bond offering for $20,000,000.00 of the cost

of Project Tennessee.

On September 10, 2008, the Company received a Financial Commitment Letter

(―FCL‖) for Morgan Keegan (www.morgankeegan.com) to purchase for their

own account or the account of other the $20,000,000.00 in bonds that the

Company is applying for from the Marion County Industrial Development Board.

The Company has been informed by Morgan Keegan that the FCL had expired

both that they would explore the re-issuance of the FCL upon the financial

commitment of the Company’s other sources of funds for Project Tennessee.

3. USDA Biorefinery Assistance Program - The USDA’s Biorefinery Assistance

Program (Section 9003) , authorized by the Food, Conservation, and Energy Act

of 2008, is designed to promote the development of new and emerging

technologies for the production of advanced biofuels. The Biorefinery Assistance

Program provides loan guarantees for the development, construction and

retrofitting of viable commercial-scale biorefineries producing advanced biofuels.

The maximum loan guarantee is $250 million per project subject to the

availability of funds. The purpose of this program is to provide guaranteed loans

for the development and construction of commercial-scale biorefineries or for the

retrofitting of existing facilities using eligible technology for the development of

advanced biofuels. The maximum guaranteed loan is $250 million. There is no

minimum amount. The project has to be located in a rural area (50,000 or less

population and not in an urbanized area) and has to be for either 1.) The

development and construction of commercial-scale biorefineries using eligible

technology, or 2. ) The retrofitting of existing facilities, including, but not limited

to, wood products facilities and sugar mills, with eligible technology. Interest

rates are negotiated between the lender and the loan guarantee is 80% for

loans equal to or less than $8o million, 70% for loans in excess of $80 million up

to $125 million and 65% for loans greater than $125 million. The Company with

the assistance of Charter Bank in Lagrange, GA will submit its application to the

USDA for the FY 2010 Section 9003 funding round. The application for

assistance, which is due August 24, 2010, is in the amount of $44,899,164.00.

4. Investment Tax Credit - Project Tennessee will qualify for several federal tax

credits that will be capable of being monetized to support repayments to investors

or the repayment of debt financing.

The American Recovery and Reinvestment Act of 2009 (the ―Recovery Act‖)

created two types of tax credits applicable to the production of electric power

from renewable sources. First, the Recovery Act established ―production‖ tax

credits (―PTC‖) of between 1 cent and 2.1 cents per kilowatt hour (kWh) of

electricity produced. Second, the Recovery Act allows developers of renewable

energy facilities to obtain an ―investment‖ tax credit (the ―ITC‖) of up to 30% of


the cost of developing renewable energy facilities. (The investment tax credit is

subject to several limitations and requirements, including that construction on the

facility commence before December 31, 2010 and that the facility be placed in

service before December 31, 2011). The PTC and the ITC are exclusive. A

developer of a renewable energy facility may take the 30% ITC or the PTC for

each kilowatt hour of power produced, but it cannot take advantage of both

programs. In addition, a project developer who elects to take the ITC may also

elect to obtain a cash grant from the U.S. Treasury for the full amount of the ITC,

subject to construction commencement dates and placed-in-service dates pursuant

to Section 1603 of the Recovery Act.

The Company would be able to utilize the ITC with respect to the biomass

generator that will produce electricity from burning LMW lignin. That credit

would be worth 30% of the cost of the qualifying equipment purchased for

electricity production or $4,500,000.00 and would qualify for the Section 1603

Treasury grant that would provide the Company with a cash payment for the

amount of the tax credit after the facility is placed in service. If properly

structured, the Company could leverage the investment tax credit to repay a

portion of its construction financing.

7. Equity Investors – The Company will issue a Private Placement Memorandum

(―PPM‖) in the fourth quarter of 2010 and will raise money from investors

through an Initial Public Offering (―IPO‖) after five years of plant operation. In

both of these, securities are sold to investors who will then have a stake in the

company. The Securities and Exchange Commission (―SEC‖) requires that all

companies listing themselves through an IPO to file a prospectus. Companies

raising money through private placements, on the other hand, are not required to

register with the SEC. The equivalent of a prospectus for a private placement is

the private placement memorandum (PPM). Much like a prospectus describes the

securities being offered by a publicly traded company, a private placement

memorandum provides material information about the company and the securities

being offered to potential investors. These are sometimes distributed by the

underwriter or brokerages and are also known as "offering memorandums" or

"offering circulars."

Almost all PPMs contain a company history and a description of the company's

business. This helps provide context for potential investors who are trying to

gauge the venture's market viability and profitability. This often includes

information such as founding dates, significant milestones and information about

parents and subsidiaries. Financial statements include disclosures about a

company's cash flow, their balance sheets, their debts and liabilities and their

assets and other financial information. This is useful for investors who want to

assess the company's fiscal health; if a company goes bankrupt, investors can

potentially lose all of their investment. One of the key selling points of an

offering is the management. As such, most PPMs contain biographies of the

officers and directors of the company. This includes information about

compensation, other directorships and their past achievements and affiliations.


This is useful for establishing a track record and identifying potential conflicts of

interest.

An important aspect of PPMs is the disclosures section. Before purchasing

securities, most investors will perform extensive due diligence and background

checks on the company which should reveal litigation and other legal matters

involving the company. By disclosing them upfront, the offering company can

protect themselves from accusations of misrepresentation as well as have an

opportunity to explain the status and liabilities connected to the lawsuits.

Companies can also disclose any regulatory disciplinary actions. Private

placements may typically consist of stocks, shares of common stock or

preferred stock or other forms of membership interests, warrants or promissory

notes (including convertible promissory notes), and purchasers are often

institutional investors such as banks, insurance companies or pension funds and

qualified investors. To be a qualified investor, generally an individual needs to

have a net worth of at least $1,500,000 exclusive of home or an annual income of

at least $200,000 for the immediately preceding two years. The Company’s

investment counsel Mr. Jonathan Wilson with the law firm of Taylor, English

Duma, PLLP (www.taylorenglish.com) will be preparing its PPM. The PPM will

be in the amount of $19,442,476 plus all fees and expenses of preparing and

offering the PPM. The Company may have more than one PPM offering to meet

its funding objectives.

8. Ethanol Subsidy - The ―Food Conservation and Energy Act of 2008‖ mandated

that producers of cellulosic ethanol or ethanol produced from non-food sources

are entitled to a $1.01 subsidy for every gallon of cellulosic ethanol produced.

The Company is projected to produce 15MMGY in FY #1 and 20MMGY in FY

#2 which would result in a subsidy of $15,150,000.00 and $20,200,000.00,

respectively.

Although these two amount are enumerated in the Company’s Financial

Statement # 4; Income Statement Thirty Year Pro forma, the Company

has not include these funds in its Sources and Uses of Funds Statement. These

subsidies are to be received after production and will not become a part of the

Company’s overall funding for construction and permanent financing.

Exit Strategy

The Company’s exit strategy is either to do an Initial Public Offering (―IPO‖) or to be

merged/acquired with a larger entity within five years. The IPO or merger/acquisition will occur

after four stages of equity drives from its Private Placement Memorandums (―PPMs‖) in order

to raise development , start-up and expansion capital.

The Company’s first PPM is projected to occur in the fourth quarter of 2010. In year number five, the

Company is projected to have $ 273,543,175.00 in total annual sales with Net Income Before Taxes

(after debt service) in the amount of $ 56,270,208.00.00. Annual combined sales for years 1-5 are


projected to be $ 963,740,898.00 with total combined Net Income Before Taxes (after debt service) for

years 1-5 estimated at $ 404,366,778.

Operational Units

The Company currently has one operational unit. Upon the receipt of permanent financing it will

explore the option of creating another operational unit to operate and manage Project Tennessee.

Tax Issues

In today’s economic environment businesses have to be aware of every economic development

and tax incentive available in order to ensure its profitability. To assist this industry, various tax

credits and other incentives are made available by the U.S. government for the production,

blending and/or sale of ethanol and ethanol blends. As a new entity entering the biofuels

industry, the Company anticipates the following tax issues.

1. Cellulosic Biofuel Producer Tax Credit - A cellulosic biofuel producer that is

registered with the IRS may be eligible for a tax incentive in the amount of up to

$1.01 per gallon of cellulosic biofuel that is: sold and used by the purchaser in the

purchaser’s trade or business to produce a cellulosic biofuel mixture; sold and

used by the purchaser as a fuel in trade or business; sold at retail for use as a

motor vehicle fuel; used by the producer in a trade or business to produce a

cellulosic biofuel mixture; or used by the producer as a fuel in a trade or

business. If the cellulosic biofuel also qualifies for alcohol fuel tax credits, the

credit amount is reduced to $0.46 per gallon for biofuel that is ethanol and $0.41

per gallon if the biofuel is not ethanol. Cellulosic biofuel is defined as liquid fuel

produced from any lignocellulosic or hemicellulosic matter that is available on a

renewable basis, and meets the U.S. Environmental Protection Agency fuel and

fuel additive registration requirements. Alcohol with a proof of less than 150 is

not considered cellulosic biofuel. The incentive is allowed as a credit against the

producer’s income tax liability. Under current law, only qualified fuel produced

in the U.S. between January 1, 2009, and December 31, 2012, for use in the U.S.

may be eligible.

Section 40(b)(6)(E) of the IRS Code provides that cellulosic biofuel means

any liquid fuel (other than low-proof alcohol) which:

a. Is produced from any lignocellulosic or hemicellulosic matter that is

available on a renewable or recurring basis;

b. Meets the registration requirements for fuels and fuel additives

established by the Environmental Protection Agency under section 211 of

the Clean Air Act (42 U.S.C. 7545);

c. For purposes of paragraph (b)(1) of this section, low-proof alcohol is any

alcohol with a proof of less than 150. The determination of the proof of

any alcohol shall be made without regard to any added denaturants;


d. Registration--(1) In general. Section 40(b)(6)(G) of the Code provides that

the cellulosic biofuel credit under § 40 is not allowed with respect to any

taxpayer unless the taxpayer is registered with the Secretary as a producer

of cellulosic biofuel under Section 4101;

e. Application for Registration. Taxpayers shall apply for registration as a

producer of cellulosic biofuel on Form 637, Application for Registration

(For Certain Excise Tax Activities), in accordance with the instructions for

that form. As provided in § 48.4101-1(a)(2) of the Manufacturers and

Retailers Excise Tax Regulations, a person is registered under Section

4101 only if the Service has issued a registration letter to the person;

f. Requirements. The Service will register an applicant as a producer of

cellulosic biofuel only if the Service:

i. Determines that the applicant is a producer of cellulosic biofuel or

is likely to become a producer of cellulosic biofuel within a

reasonable time after being registered under Section 4101; and

ii. Is satisfied with the filing, deposit, payment, reporting, and claim

history for all federal taxes of the applicant and any related person.

As previously stated, the Company’s Financial Statement # 4; Income

Statement Thirty Year Pro Forma enumerates the Cellulosic Ethanol

Producer Tax Credit in the amount of $15,150,000 for Year #1 and

$20,000,000.00 for Year #2. The Company does not include the tax credit

beyond the current expiration date of December 31, 2012. The Company

anticipates filling IRS Form 637, Application for Registration (For

Certain Excise Tax Activities), on or before September 1, 2010 to register

as a cellulosic biofuels producer.

2. Special Depreciation Allowance for Cellulosic Biofuel Plant Property -

In addition, a company may take a depreciation deduction of the

adjusted basis of a new cellulosic biofuel plant in the year it is put in

service. Any portion of the cost financed through tax-exempt bonds is

exempted from the depreciation allowance. Before amendment by P.L.

110-343, the accelerated depreciation applied only to cellulosic ethanol

plants that break down cellulose through enzymatic processes – the

amended provision applies to all cellulosic biofuel plants. The credit is

available to any cellulosic ethanol plant acquired after December 20, 2006,

and placed in service before January 1, 2013. The Company anticipates

receiving $20,000,000 in Industrial Revenue Bonds; however, those

bonds are not tax exempt. The depreciation allowance would reduce the

Company’s tax liability. As such, the Company is still exploring the

option and availability of tax exempt bonds as a funding source for Project

Tennessee.


In addition to the above, the Company anticipates utilizing the Workforce Investment Tax

Credit, Enterprise Zone Tax Incentives and other tax incentives that its CPA firm deems

appropriate and necessary.


Media Contact:

Kaye Ammer

Vice President of Administrative Services

Phone: 901-577-1658

Fax: 901-577-1659

Email: [email protected]

For information, visit www.biofuelsamericainc.com

© bfa Energy Solutions, 2011. All rights reserved.

[email protected]

www.biofuelsamericainc.com

Documents

COMMITTED TO INNOVATION & COMMUNITY