Innovative Crop Solutions, Inc.newcropscience.com/wp-content/uploads/2014/09/Innovative-Crop... ·...

Innovative Crop Solutions, Inc.

Strategic Business and Marketing Plan

The information in this document is confidential and is to be only read

by authorized parties. Please refer to the confidentiality agreement for

further details. This business plan is not an offering for securities.


2

Confidentiality Agreement

The undersigned reader acknowledges that the information provided in this business plan

is confidential; therefore, the reader agrees not to disclose it without the express written

permission of an authorized agent of Innovative Crop Solutions, Inc.

It is acknowledged by the reader that information furnished in this business plan is in all

respects confidential in nature, other than information which is in the public domain

through other means and that any disclosure or use of same by reader, and may cause

serious harm or damage to aforementioned parties.

This business plan is not to be copied or reproduced by any means without the sole

written consent of an authorized agent of Innovative Crop Solutions, Inc.

Upon request, this document is to be immediately returned.

__________________________________ _______________

Signature Date

_______________________________

Name (typed or printed)


3

Table of Contents

Executive Summary ............................................................................................................ 5

The Financing ..................................................................................................................... 7

2.1 Funds Required ......................................................................................................... 7

2.2 Investor Equity .......................................................................................................... 7

2.3 Management Equity .................................................................................................. 7

2.4 Board of Directors Composition ............................................................................... 7

2.5 Exit Strategies ........................................................................................................... 7

Products............................................................................................................................... 8

Overview of the Organization ............................................................................................. 9

4.1 Registered Name ....................................................................................................... 9

4.2 Commencement of Operations ................................................................................. 9

4.3 Mission Statement ..................................................................................................... 9

4.4 Vision Statement ....................................................................................................... 9

4.5 Organizational Objectives ......................................................................................... 9

4.6 Organizational Values ............................................................................................... 9

Strategic Analysis ............................................................................................................. 10

5.1 External Environment Analysis .............................................................................. 10

5.3 Customer Profile ..................................................................................................... 11

5.4 Competition............................................................................................................. 13

Key Strategic Issues .......................................................................................................... 14

6.1 Sustainable Competitive Advantage ....................................................................... 14

6.2 Basis for Growth ..................................................................................................... 14

7.1 Marketing Objectives .............................................................................................. 15

7.2 Sales Forecasts ........................................................................................................ 15

7.3 Sales Assumptions .................................................................................................. 15

7.4 Marketing Strategies ............................................................................................... 16

7.5 Product Marketing .................................................................................................. 16

7.5.1 Price ................................................................................................................. 17

7.5.2 Distribution ...................................................................................................... 17

Organizational Plan ........................................................................................................... 18


4

8.1 Corporate Organization ........................................................................................... 18

8.2 Organizational Budget ............................................................................................ 19

Financial Plan.................................................................................................................... 20

9.1 Underlying Assumptions ........................................................................................ 20

9.2 Financial Highlights ................................................................................................ 20

9.3 Sensitivity Analysis ................................................................................................ 20

9.4 Source of Funds ...................................................................................................... 20

9.5 Financial Proformas ................................................................................................ 21

A) Profit and Loss Statement .................................................................................... 21

B) Common Size Income Statement ......................................................................... 22

C) Cash Flow Analysis ............................................................................................. 23

D) Balance Sheet....................................................................................................... 24

9.7 Business Ratios ....................................................................................................... 25

Appendixes

SWOT Analysis ................................................................................................................ 27

Critical Risks and Problems .............................................................................................. 28

Reference Sources ............................................................................................................. 29


5

Executive Summary

The purpose of this business plan is to raise and examine the allocation of $1,000,000 for

the continued development of a technology company that has acquired a patent that

allows for drastic increases in crop yields. Innovative Crop Solutions, Inc. (“the

Company”) is a Texas based business that intends to sell this technology to farmers. The

business was founded in 2014.

According to the #2 Marketing Research firm MarketsandMarkets, the global seed

market was $44 billion in 2012 and is projected to be valued at $85 billion by 2018, with

an annual CAGR of 12.1% from 2013 to 2018. Innovative Crop Solutions intends to

develop its technology into the following seeds: corn, cotton, rice, grass, flowers, mustard

seed, flowers, certain vegetables and pine trees.

The Founders – Corey Park and Jenny Hinsman

The Founders of the Company are Corey Park (CEO) and Jenny Hinsman (COO). They

are both highly experienced entrepreneurs that have had significant experience in the

field of technology development. The business is recruiting a number of scientific and

business professionals that will not only operate the business on a day to day basis, but

will also provide oversight and strategic advice as the business progresses through its

operations.

The Technology

As stated above, the business currently holds a patent for technology that increases

industrial crop biomass (i.e., yield) up to 300%. It should be noted that this is not a GMO

product. As such, the business does not need to file an application with the FDA for the

usage of this technology. It should be noted that at the onset of operations – the business

will begin by selling these various crops. The technology relies on enhancing the

glutamate receptors within plant seeds, which is best explained by an analogy of a car

that has automatic brakes that have been removed so the car can suddenly significantly

increase its speed.

The Company will earn its income by outsourcing the manufacturing of seeds to a third

party, then will sells its products through independent distributors and dealers, as well as

directly to large growers.

The Financing

At this time, the business is seeking $1,000,000 of capital in order to commence revenue

generating operations. The terms of this agreement can be found in the Company’s

private placement memorandum. The funds are required in three segments of the

Company:


6

Financing of the finalized development of Innovative Crop Solutions’ patent and

patent filing costs.

Development of the Company’s sales and marketing channels.

Cash for maintaining normal business operations

In the future, the business would be an excellent candidate for either equity or debt

capital in order to expand operations. The gross margins coupled with the high growth in

revenue should be attractive to any mezzanine capital investor or lending institution.

Sales Forecasts

The company anticipates an exceptional rate of growth upon the commencement of

operations. Below is a chart that exemplifies Management’s vision for growth during the

next five years of operations. Please note that Management expects to begin revenue

generating operations in 2016.

Proforma Profit and Loss (Yearly)

Year 1 2 3 4 5

Sales $6,438,000 $17,704,500 $53,113,500 $84,981,600 $127,472,400

Cost of Goods Sold $3,540,900 $8,852,250 $26,025,615 $40,339,703 $57,282,379

Operating Income $2,897,100 $8,852,250 $27,087,885 $44,641,897 $70,190,021

Total Operating Costs $2,922,863 $6,261,754 $18,667,208 $29,878,279 $44,709,141

EBITA -$25,763 $2,590,496 $8,420,677 $14,763,618 $25,480,880

-$20,000,000

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

1 2 3 4 5

Year

Sales, Operating Costs, and Profit Forecast

Sales

Total Operating Costs

Net Profit

The Future

As time progresses, the business will continually make substantial reinvestments into

research and development so new crop technologies can be incorporated into the product

mix. The Company will also continually expand its marketing and distribution channels

in order to expand the revenues of Innovative Crop Solutions, Inc.

Sales will begin in North American and are expected to expand globally from years 2-5.


7

The Financing

2.1 Funds Required

The business will require a cash inflow of $1,000,000 to properly develop, operate, and

maintain its distribution of technology. Below is a brief breakdown of how the funds will

be allocated:

Projected Startup Costs

Finalized Patent Development and Filing $300,000

Initial Marketing Campaign $200,000

Equipment and Supplies $25,000

Initial Employee Costs $150,000

Professional Fees and Licensure $50,000

Miscellaneous (Insurance, etc) $25,000

Research and Development Costs $250,000

Total Startup Costs $1,000,000

2.2 Investor Equity

Please reference the Company’s private placement memorandum.

2.3 Management Equity


2.4 Board of Directors Composition


2.5 Exit Strategies

The Management has discussed and planned for two possible exit strategies. The first

strategy would be to sell the Company to a larger entity at a significant premium. Since,

the technology and farming technology industry maintains a very low risk profile once

the business is established; the Management feels that the Company could be sold for

thirty to forty times earnings.

The second exit scenario would entail selling a portion of the Company via an initial

public offering (or “IPO”). After a detailed analysis, it was found that comparable

companies sell for thirty-five to fifty times earnings on the open market. However, taking

a company public involves significant legal red tape. Innovative Crop Solutions, Inc.

would be bound by the significant legal framework of the Sarbanes-Oxley Act in addition

to the legal requirements set forth in form S1 of the Securities and Exchange

Commission. The Company would also have to comply with the Securities Act of 1933

and the Exchange Act of 1934.


8

Products

As stated in the executive summary, Innovative Crop Solutions has acquired a patent

whose process is used in conjunction with seed production for a number of crops

including corn, cotton, rice, grass, flowers, mustard seed, flowers, certain vegetables and

trees.

While these crops do in fact produce nearly 300% increased yield, they grow at the same

rate as other plants. They do not grow faster or slower. They also (relatively speaking)

utilize less water per yield and are capable of fighting stress better than the average plant

by absorbing more nutrients that make them healthier.

Management’s plan is to develop each crop, one by one, and submit patents for each crop

seed before commercializing. Therefore, sales should commence in 2016.


9

Overview of the Organization

4.1 Registered Name

Innovative Crop Solutions, Inc. The business is registered as a for profit corporation in

the State of Texas.

4.2 Commencement of Operations

The Company plans to commence revenue generating operations by 2016.

4.3 Mission Statement

Innovative Crop Solution’s mission is to become a worldwide leader as it relates to

developing and implementing technology processes that increase crop yields.

4.4 Vision Statement

Through their diverse areas of expertise and knowledge, the owners of the Company

expect to build a business that will achieve in excess of $120 million of revenues by the

fifth year of revenue generating operations.

4.5 Organizational Objectives

Maintain a committed program for research and development that may produce

additional patent indications.

Maintain fiscally sound operating protocols.

Immediate develop relationships with agricultural firms and large scale industrial

crop producing farmers throughout the United States.

To create a wealth producing vehicle for the Company’s Founders (Corey Park

and Jenny Hinsman) and Investors.

4.6 Organizational Values

Complete disclosure and transparency regarding all financial transactions.

To create a business that provides, on a worldwide basis, a solution for increasing

biomass and root structures for industrial crops.


10

Strategic Analysis

5.1 External Environment Analysis

The business of producing seeds for agricultural products is an extremely complex

business that has significant upfront investments in land, machinery and equipment.

Therefore, we have identified a list of companies that we can outsource the

manufacturing of the seeds to rather than invest in our own our own manufacturing

process.

Currently, the economic outlook in the United States is moderate. Unemployment rates

have declined while asset prices have increased substantially. However, Innovative Crop

Solutions will be able to remain profitable and cash flow positive. The demand for the

seeds produced using the Company’s technology will be in tremendous demand from the

onset of operations. As such, the business will be able to remain profitable and cash flow

positive at all times.

Inflation is somewhat of a concern for the Company. If inflation rates decrease, the

purchasing power parity of the American dollar decreases in relation to other currencies.

This may pose a risk to the Company should rampant inflation, much like the inflation

experienced in the late 1970s, occur again. This event would significant weaken the

Company’s ability to borrow funds and could impact the gross margins of the business.

5.2 Industry Analysis

According to the #2 Marketing Research firm MarketsandMarkets, the global seed

market was $44 billion in 2012 and is projected to be valued at $85 billion by 2018, with

an annual CAGR of 12.1% from 2013 to 2018.

North America is the largest seed market in the world with an $14.1 billion in sales in

2012 according to the International Seed Federation, and is projected to grow rapidly.

Latin America is the fastest growing market for seed. China, Brazil, and India are also

important countries for this market, adopting new technologies to grow faster. Globally,

India is projected to be the fastest growing market through 2018.

The grain seeds market held maximum share in 2012 and is estimated to grow at a CAGR

of 11.9% from 2013 to 2018. For grain seed, corn covers the largest market share

followed by soybean under the crop segment which shared 70.4% of the total grain seed

market in 2012, growing with the fastest CAGR of 12.5%.

The growth factors include continually growing world population, increasing advanced

agricultural technologies, decreasing per capita land availability, and high return on

investment. Demand for seeds is increasing globally as these biotech trait seeds provide

benefits like helping the crop sustain extreme climatic conditions.


11

As shown in the chart below from the International Seed Federation, the top 10 countries

that produce seeds globally represented 80% of the market in 2012, with the US being the

largest producer/seller of seeds.

Rank Country Total

Mkt.

Share

1 USA $12,000 27%

2 China $9,034 21%

3 France $3,600 8%

4 Brazil $2,625 6%

5 Canada $2,120 5%

6 India $2,000 5%

7 Japan $1,350 3%

8 Germany $1,170 3%

9 Argentina $754 2%

10 Italy $715 2%

All Others $8,647 20%

Total $44,015 100%

Domestic Seed Market 2012 (USD million)

5.3 Customer Profile

The target customers will be small to large farms. Small and medium sized farms will be

marketed and sold through distributors and a direct sales force will sell to large farms.

Management has identified preliminary target US states that will be the primary (yellow),

secondary (red) and tertiary (green) targets based on drought and water issues by state.


12

Additionally, we have identified the primary states that grow cotton in the US as shown

in the map below, which cover 12 million acres. Annual seed production in the US is 5.2

million tons according to the National Cotton Council. Texas (38%), Georgia (12%),

Arkansas (10%), Mississippi (7%), North Carolina (6%), Tennessee (5%), Louisiana

(4%), and Missouri (4%) are top producers of cotton. Global cotton sales (for crops, not

seeds) are $38.6 billion.

The top producing states for corn are listed below, which will be the target states for this

crop:

State

Bushels

(Billions)

Iowa 2.2

Illinois 1.96

Minnesota 1.36

Indiana 0.98

South Dakota 0.73

Kansas 0.49


13

5.4 Competition

As shown in the chart below, the ten largest companies in the global seed business

currently control approximately 75% of the global supply of seeds to farmers. While this

appears to be a concern, especially with Monsanto’s unpopular business tactics, a

distinctive strategy for survival in the seed industry is in the area of innovation. By

investing heavily in research and development (R&D), companies like Innovative Crop

Solutions that rely on and enforce their intellectual property rights (IPRs) have proven to

be successful, especially when they cater to the farmers’ needs such as crop yields and

overall water use efficiency and consumers’ needs such as being non-GMO.

Company Crop Revenue Market Share HQ Agriculture Crops

1 Monsanto $10 Billion 29% USAAlfalfa, Canola, Corn, Cotton, Sorghum,

Soybeans, Sugarbeets, Wheat

2 Dupont (Pioneer) $4 Billion 17% USA

Alfalfa, Canola, Corn, Cotton, Inoculants,

Mustard, Parl Millet, Rice, Sorghum,

Soybeans, Sunflowers, Wheat

3 Syngenta $3.2 Billion 9% Switzerland

Cereals, Corn, Lawn & Garden, Oil

Seeds/Sugar Beet, Rice, Soybean, Sugar

Cane, Vegetables

4 Groupe Limagrain $1.2 Billion 5% France Corn, Cereals, Wheat, Vegetables

5 Land O' Lakes/Purina Unknown 4% USA Livestock Feed (grains)

6 KWS AG $702 Million 3% GermanySugarbeet, Corn, Oilseed Rape,

Sunflowers, Cereals, Potatoes

7 Bayer Crop Science $525 Million 2% Germany

Cotton, Fruit & Vegetables, Corn,

Oilseeds, Rice, Soybeans, Wheat,

Sugarbeets, Sugarcane

8 Sakata $512 Million under 2% Japan

Dozens of flower crops and Vegetables

(tomato, broccoli, carrots, watermellon,

etc)

9 Takii Unknown under 2% JapanCabbage, Onion, Cantaloupe, 6 Flower

Types

10 DLF-Trifolium $279 Million under 2% DenmarkAnimal grazing crops (grass, clover,

ryegrass, vegetables etc),

In terms of cotton production, Monsanto, Al-Tex, Americot, Bayer Crop Science,

Dynagrow, Dow AgroScience, Croplan Genetics and University of Georgia all compete

in this multi-billion dollar industry.

The business will maintain a competitive advantage due to the fact that business will

invest in patent protection for each of its developed seed products. One of the

differentiating factors that the business will have is that the Company’s product is not a

genetically modified product. Although many studies have been and are being conducted

regarding GMOs, this product does not fall into this politically charged category.


14

Key Strategic Issues

6.1 Sustainable Competitive Advantage

The Company will be able to maintain successful business operations because of the

following:

Continued research and development into the Company’s usage of technology

that commercializes plant glutamate receptors into the seeds of specific crops.

A highly experienced Management Team (Corey Park and Jenny Hinsman).

Patent protection of the Company’s developed technology products.

The business could be sold for a substantial earnings multiple privately or through

an initial public offering.

6.2 Basis for Growth

Innovative Crop Solutions, Inc. will grow through three main avenues:

The successful marketing and growth of the Company’s technology patents to

farmers via distributors and sold directly to large farms.

Expansion of the number of patents owned and/or licensed by Innovative Crop

Solutions via Research & Development investments and/or licensing agreements

of cutting-edge technologies from top universities.

Acquisition of additional rounds of capital that will further fuel the growth of the

business.


15

Marketing Plan

7.1 Marketing Objectives

Build a large referral network of farming and agricultural development clients.

Establish connections with nationwide distributors of seed and agricultural

products.

Develop connections with overseas distributors that specialize in agricultural

products.

7.2 Sales Forecasts

Yearly Sales Forecast

Year 1 2 3 4 5

Growth (%) 0.0% 175.0% 200.0% 60.0% 50.0%

Revenue $6,438,000 $17,704,500 $53,113,500 $84,981,600 $127,472,400

Totals $6,438,000 $17,704,500 $53,113,500 $84,981,600 $127,472,400

Cost of Sales Forecast

Year 1 2 3 4 5

Growth (%) 0.0% 150.0% 194.0% 55.0% 42.0%

COGS $3,540,900 $8,852,250 $26,025,615 $40,339,703 $57,282,379

Totals $3,540,900 $8,852,250 $26,025,615 $40,339,703 $57,282,379

Gross Profit

Year 1 2 3 4 5

Total $2,897,100 $8,852,250 $27,087,885 $44,641,897 $70,190,021

7.3 Sales Assumptions

Year 1

After an 18 month development period, the Company’s operations will commence

and the business will begin to generate revenue.

Sales from operations are expected to reach $6.4 million of revenue in the first

year of operations.

Year 2

The business will leverage existing relationships with farmers and farm product

distributors in North America and Innovative Crop Solutions technology will be

distributed fully on a nationwide basis.

Gross receipts will reach $17.7 million.

Gross profits will reach approximately $8.9 million dollars.


16

Years 3-5

By the fifth year of operations gross sales will reach $127 million dollars.

Gross margins will improve to an estimated 55% as volume increases.

During this time, the business will increase its global sales to major agriculture

countries such as China, India, South America and Europe.

7.4 Marketing Strategies

Management intends to use a qualified advertising and marketing firm to help Innovative

Crop Solutions reach its targeted audience of farmers, agricultural companies, and third

party technology firms that may license the Company’s patent. The business will also

hire a number of marketing and sales agents that will directly approach large agricultural

firms that specifically produce non-edible crops including corn and cotton.

Additionally, technology/farming conventions, trade shows, online advertising activities,

sales development and viral marketing campaigns will follow carefully orchestrated

strategies by our marketing personnel in conjunction with marketing experts.

Timely coverage of the highly unique seed enhancement methodology offered by

Innovative Crop Solutions will be further directed through ongoing press relations, news

releases and feature stories targeted at key scientific and professional farming

communities and other media outlets.

Publicity activities will be designed to generate ongoing coverage about the Company in

targeted media by providing writers and editors with newsworthy releases, features,

stories, briefs, and visual material for their columns and stories.

As stated above, the business will maintain a broad network of sales agents to contact and

develop technology licensing relationships with major providers of agricultural products.

In all brochures, literature, and media distributed by the Company – the business will

focus on the fact that this is a non-GMO product.

7.5 Product Marketing

Using the aforementioned marketing strategies, the business will focus on the fact that its

patented methodology increases the biomass and root structure of non-edible crops by up

to 300%. The business will focus specifically on the fact that this product will greatly

increase crop yields especially in areas that suffer historically from frequent droughts.


17

7.5.1 Price

Our current assumption is that each crop seed will be sold based on volume (small,

medium, and large) based on the size of the farm at a slightly elevated price versus the

competition, for example 5%-10% more, to reflect the significant yield of nearly 300%.

7.5.2 Distribution

Distribution agreements will be negotiated and managed from the Company’s senior

leadership team.


18

Organizational Plan

8.1 Corporate Organization

Senior Management

Development Staff

Administrative Staff

Accounting/Finance

Sales/Marketing

Administrative

Research Directors

Research Assistants

Distribution Staff

Strategy / Business

Development

Distribution Agents


19

8.2 Organizational Budget

Personnel Plan - Yearly

Year 1 2 3 4 5

Senior Management $250,000 $550,000 $1,350,000 $2,000,000 $3,250,000

Marketing and Sales Staff $200,001 $661,000 $3,000,000 $4,800,000 $7,000,000

Administrative & Distribution Staff $280,000 $440,000 $1,250,000 $2,200,000 $3,300,000

Accounting / Finance Staff $170,001 $300,000 $868,000 $1,248,000 $2,000,000

Research and Development Staff $400,000 $700,000 $1,500,000 $2,500,000 $3,500,000

Total $1,300,002 $2,651,000 $7,968,000 $12,748,000 $19,050,000

Numbers of Personnel

Year 1 2 3 4 5

Senior Management 2 3 5 6 9

Marketing and Sales Staff 3 9 38 60 83

Administrative & Distribution Staff 10 15 38 58 80

Accounting / Finance Staff 3 5 14 19 28

Research and Development Staff 5 8 16 25 35

Totals 23 40 111 168 235

Personnel Expense Breakdown

19%

15%

22%13%

31% Senior Management

Marketing and Sales Staff

Administrative & Distribution Staff

Accounting / Finance Staff

Research and Development Staff


20

Financial Plan

9.1 Underlying Assumptions

The Company has based its proforma financial statements on the following:

Innovative Crop Solutions anticipates that its growth rate will be on average

121% per year.

The Company will acquire $1,000,000 of funds to launch revenue generating

operations.

Management shall settle most short term payables at the end of each month.

9.2 Financial Highlights

Positive cash flow and profitability in each year of operation.

The ability to create high gross margin cash flows through the Company’s

licensing of seed production methodologies.

The business will have a substantial price to earnings multiple.

9.3 Sensitivity Analysis

Innovative Crop Solutions’ products are generally immune from the changes in the

general economy. Specialized technology farm products are demanded by farms

regardless of the direction of the economic markets. The unique methodology for

increasing biomass and root structure for industrial crops will be in tremendous demand

from the onset of operations. As such, the business will be able to remain profitable and

cash flow positive at all times.

9.4 Source of Funds

Financing

Equity Financiers

Investor(s) $1,000,000.00

Total Equity Financing $1,000,000.00

Banks and Lenders

Total Debt Financing $0.00

Total Financing $1,000,000.00


21

9.5 Financial Proformas

A) Profit and Loss Statement

Proforma Profit and Loss (Yearly)

Year 1 2 3 4 5

Sales $6,438,000 $17,704,500 $53,113,500 $84,981,600 $127,472,400

Cost of Goods Sold $3,540,900 $8,852,250 $26,025,615 $40,339,703 $57,282,379

Gross Margin 45.00% 50.00% 51.00% 52.53% 55.06%

Operating Income $2,897,100 $8,852,250 $27,087,885 $44,641,897 $70,190,021

Expenses

Payroll $1,300,002 $2,651,000 $7,968,000 $12,748,000 $19,050,000

General and Administrative $40,000 $88,531 $266,592 $424,948 $637,421

Marketing Expenses $250,000 $531,185 $1,593,554 $2,549,686 $3,824,528

Professional Fees $175,000 $88,531 $266,592 $424,948 $637,421

Insurance Costs $35,000 $177,062 $531,185 $849,895 $1,274,843

R&D Costs $643,860 $1,770,615 $5,311,845 $8,498,962 $12,748,428

Miscellaneous Costs $50,000 $80,000 $100,000 $175,000 $250,000

Payroll Taxes $429,001 $874,830 $2,629,440 $4,206,840 $6,286,500

Total Operating Costs $2,922,863 $6,261,754 $18,667,208 $29,878,279 $44,709,141

EBITA -$25,763 $2,590,496 $8,420,677 $14,763,618 $25,480,880

Federal Income Tax $0 $878,789 $2,864,569 $5,159,431 $8,892,524

State Income Tax $2,000 $3,877 $12,638 $22,112 $381,111

Interest Expense $0 $0 $0 $0 $0

Net Profit -$27,763 $1,707,830 $5,543,470 $9,582,075 $16,207,245

Profit Margin -0.43% 9.65% 10.44% 11.28% 12.71%

-$20,000,000

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

1 2 3 4 5

Year

Sales, Operating Costs, and Profit Forecast

Sales

Total Operating Costs

Net Profit


22

B) Common Size Income Statement

Proforma Profit and Loss (Common Size)

Year 1 2 3 4 5

Sales 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of Goods Sold 55.00% 50.00% 49.00% 47.47% 44.94%

Operating Income 45.00% 50.00% 51.00% 52.53% 55.06%

Expenses

Payroll 20.19% 14.97% 15.00% 15.00% 14.94%

General and Administrative 0.62% 0.50% 0.50% 0.50% 0.50%

Marketing Expenses 3.88% 3.00% 3.00% 3.00% 3.00%

Professional Fees 2.72% 0.50% 0.50% 0.50% 0.50%

Insurance Costs 0.54% 1.00% 1.00% 1.00% 1.00%

R&D Costs 10.00% 10.00% 10.00% 10.00% 10.00%

Miscellaneous Costs 0.78% 0.45% 0.19% 0.21% 0.20%

Payroll Taxes 6.66% 4.94% 4.95% 4.95% 4.93%

Total Operating Costs 45.40% 35.37% 35.15% 35.16% 35.07%

EBITA -0.40% 14.63% 15.85% 17.37% 19.99%

Federal Income Tax 0.00% 4.96% 5.39% 6.07% 6.98%

State Income Tax 0.03% 0.02% 0.02% 0.03% 0.30%

Interest Expense 0.00% 0.00% 0.00% 0.00% 0.00%

Net Profit -0.43% 9.65% 10.44% 11.28% 12.71%


23

C) Cash Flow Analysis

Proforma Cash Flow Analysis - Yearly

Year 1 2 3 4 5

Cash From Operations -$27,763 $1,707,830 $5,543,470 $9,582,075 $16,207,245

Cash From Receivables $0 $0 $0 $0 $0

Operating Cash Inflow -$27,763 $1,707,830 $5,543,470 $9,582,075 $16,207,245

Other Cash Inflows

Equity Investment $1,000,000 $0 $0 $0 $0

Increased Borrowings $0 $0 $0 $0 $0

Sales of Business Assets $0 $0 $0 $0 $0

A/P Increases $259,706 $467,471 $841,447 $1,514,605 $2,726,290

Total Other Cash Inflows $1,259,706 $467,471 $841,447 $1,514,605 $2,726,290

Total Cash Inflow $1,231,943 $2,175,301 $6,384,917 $11,096,680 $18,933,535

Cash Outflows

Repayment of Principal $0 $0 $0 $0 $0

A/P Decreases $230,904 $415,627 $748,129 $1,346,632 $2,423,938

A/R Increases $0 $0 $0 $0 $0

Asset Purchases $650,000 $256,175 $831,521 $1,437,311 $2,431,087

Dividends $0 $1,110,090 $3,603,256 $6,228,349 $10,534,710

Total Cash Outflows $880,904 $1,781,891 $5,182,905 $9,012,292 $15,389,734

Net Cash Flow $351,039 $393,410 $1,202,012 $2,084,388 $3,543,801

Cash Balance $351,039 $744,449 $1,946,461 $4,030,850 $7,574,651

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

1 2 3 4 5

Year

Proforma Cash Flow (Yearly)

Total Cash Inflow

Total Cash Outflows

Net Cash Flow


24

D) Balance Sheet

Proforma Balance Sheet - Yearly

Year 1 2 3 4 5

Assets

Cash $351,039 $744,449 $1,946,461 $4,030,850 $7,574,651

Amortized Startup Costs $625,000 $868,366 $1,658,310 $3,023,756 $5,333,288

FF&E $25,000 $37,809 $79,385 $151,250 $272,805

Accumulated Depreciation ($38,235) ($76,471) ($114,706) ($152,941) ($191,176)

Total Assets $962,804 $1,574,153 $3,569,451 $7,052,915 $12,989,567

Liabilities and Equity

Accounts Payable $28,802 $80,646 $173,964 $341,937 $644,289

Long Term Liabilities $0 $0 $0 $0 $0

Other Liabilities $0 $0 $0 $0 $0

Total Liabilities $28,802 $80,646 $173,964 $341,937 $644,289

Net Worth $934,002 $1,493,507 $3,395,486 $6,710,977 $12,345,278

Total Liabilities and Equity $962,804 $1,574,153 $3,569,451 $7,052,915 $12,989,567

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

1 2 3 4 5

Year

Proforma Balance Sheet

Total Assets

Total Liabilities

Net Worth


25

9.6 Breakeven Analysis

Monthly Break Even Analysis

Year 1 2 3 4 5

Monthly Revenue $541,271 $1,043,626 $3,050,197 $4,739,763 $6,766,372

Yearly Revenue $6,495,250 $12,523,508 $36,602,369 $56,877,152 $81,196,463

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

1 2 3 4 5

Year

Break Even Analysis

Monthly Revenue

Yearly Revenue

9.7 Business Ratios

Business Ratios - Yearly

Year 1 2 3 4 5

Sales

Sales Growth 0.0% 175.0% 200.0% 60.0% 50.0%

Gross Margin 45.0% 50.0% 51.0% 52.5% 55.1%

Financials

Profit Margin -0.43% 9.65% 10.44% 11.28% 12.71%

Assets to Liabilities 33.43 19.52 20.52 20.63 20.16

Equity to Liabilities 32.43 18.52 19.52 19.63 19.16

Assets to Equity 1.03 1.05 1.05 1.05 1.05

Liquidity

Acid Test 12.19 9.23 11.19 11.79 11.76

Cash to Assets 0.36 0.47 0.55 0.57 0.58


26

9.8 General Assumptions

General Assumptions

Year 1 2 3 4 5

Federal Tax Rate 33.0% 33.0% 33.0% 33.0% 33.0%

State Tax Rate 5.0% 5.0% 5.0% 5.0% 5.0%

Personnel Taxes 33.0% 33.0% 33.0% 33.0% 33.0%

Note that Texas has a unique Franchise tax that is based on a number of inputs, including

the percent of sales that come from the State of Texas.


27

SWOT Analysis

Strengths

Recurring streams of high margin revenue from the sale of economically insulated

technology.

Highly experienced and motivated Management Team led by Corey Park and

Jenny Hinsman.

Efficient back office support for managing distribution to farms and distributors.

Patent protection on the agricultural technology offered by the business.

Very high barriers to entry.

Development of new patentable agricultural products through research and

development as well as acquisition of additional patents.

Weaknesses

Major, well-financed competitors can develop products that are similar to those of

the Company.

High operating costs.

Opportunities

Expansion into several national and international markets that target farmers and

large scale agricultural companies.

Development of large distribution networks that solicit sales from farmers.

Threats

Cost driver prices can suddenly increase, causing a significant change in the

Company’s profit and loss statement.

Competition from companies like Stine Seed and other agriculture tech companies

that create corn (or other crops) with smaller plants rather than larger ones, that

yield the same produce as an average plant.


28

Critical Risks and Problems

Development Risk – Moderate

At this time, the primary development risk faced by the business is Management’s ability

to raise the requisite capital sought in this business plan. As stated earlier, the technology

that the business will license to third parties has already been developed. The

development of this project is not only cost intensive, but subject to the development and

implementation of a new technology.

Financing Risk – Moderate

At this time, Management is seeking $1 million of capital in order to solidify the

technology outlined in this business plan while launching general business operations.

The risks associated with this investment are that the technology held by the business is

patentable and the Company will generate extremely high gross margins from licensing

the technology outlined in the third section of the business plan.

Marketing Risk – Moderate

Farm related products (especially as it relates to seed technology) are demanded

regardless of the general economic environment. Additionally, the market for specialized

fertilizer (using the Company’s patented technology) that will allow crops to grow larger

and faster is immense. However, the marketing strategies outlined in the third section of

the business plan are expensive and may not yield the result anticipated in this business

plan.

Management Risk – Low/Moderate

Innovative Crop Solutions, Inc.’s Management Team, led by Corey Park and Jenny

Hinsman, is highly experienced in the field of developing projects regarding technology.

They will be able to bring the operations to profitability in the first year of revenue

generating operations.

Valuation Risk – Low

The risk that an investor pays too much for the venture is offset by:

Investor funds will be in a Company that generates recurring streams high margin

revenue from patent licensing.

The Company’s growth rate will create value and equity in the business very

quickly.

Exit Risk - Low

There is a great demand for established technology businesses, and the Management of

Innovative Crop Solutions feels that the full sale of all Company assets could occur

within one year of marketing the Company for sale. The Company would most likely

solicit the help of a major investment bank.


29

Reference Sources

All statistics and market information were obtained through:

1. U.S. Government Bureau of Labor Statistics

2. U.S. Economic Census

Seed Production and Manufacturing – NAICS Code – 325314

Chemical Manufacturing – NAICS Code – 325

3. International Seed Federation

4. Marketsandmarkets.com

5. http://www.statpub.com/book/20monthyear-2013-farmer/sample.pdf

6. http://usda01.library.cornell.edu/usda/current/CropValuSu/CropValuSu-02-14-

2014.pdf

7. http://www.agweb.com/article/which_states_will_have_the_highest_corn_yields/

8. US Department of Agriculture (USDA)

http://www.statpub.com/book/20monthyear-2013-farmer/sample.pdf

http://usda01.library.cornell.edu/usda/current/CropValuSu/CropValuSu-02-14-2014.pdf

http://usda01.library.cornell.edu/usda/current/CropValuSu/CropValuSu-02-14-2014.pdf

http://www.agweb.com/article/which_states_will_have_the_highest_corn_yields/

Innovative Crop Solutions, Inc.newcropscience.com/wp-content/uploads/2014/09/Innovative-Crop... ·...

Documents

Transcript of Innovative Crop Solutions, Inc.newcropscience.com/wp-content/uploads/2014/09/Innovative-Crop... ·...