Terraqua Barranca

A Business Plan Executive Summary

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Ramiro Priale & Paul Skillicorn

8/19/2011

Terraqua Barranca

A Business Plan Executive Summary

________________________________

Ramiro Priale & Paul Skillicorn

9/9/2012

Introduction:

Terraqua Barranca, a collaboration among principals now based in Peru and the United States is launching a new business in Peru based on the Terraqua System. Following successful commissioning of a comprehensive pilot project now being conducted in collaboration with the community of Santa Catalina and the City of Barranca in the Lima Region of Peru, the Company intends implementing a full commercial scale operation which, through successive phases, will provide comprehensive wastewater treatment services to the entire province of Barranca.

Terraqua Barranca intends to change, fundamentally, the existing paradigm for wastewater treatment in Peru. The Terraqua System treats municipal, industrial and CAFO (concentrated animal feeding operations) wastewater effluent to a fully recyclable condition. Byproducts of the Terraqua wastewater treatment process – branded high protein animal feeds, fish, crustaceans and protein concentrates – generate a positive cash flow sufficient to cover both operating and capital costs. Nothing is discharged. No water is lost. The Terraqua System, as first implemented in Barranca, Peru will, in fact, become the first truly profitable commercial-scale “no-fees” wastewater treatment system in the world.

Terraqua Barranca intends using the “entre” and local presence afforded by its rural, or small town wastewater treatment concessions, to introduce at the community level in Peru the massive advantages of its aquaculture methods in the context of a mutually beneficial, truly interdependent joint venture agribusiness relationship with rural community smallholders. In a second phase, agribusiness iteration, the TJVA (Terraqua Joint Venture Agribusiness) enterprises will leverage possession of the continuous stream of highly treated effluent realized by the Terraqua wastewater treatment system and adoption of fertigation irrigation technologies also to achieve highly efficient distributed

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production and local processing of a wide range of valuable extractive crops, energy crops, building materials and domes for internal consumption and sale to the US, Europe and the Far East. In so doing, TJVA enterprises will also enrich rural community partners in a manner and to a level hitherto thought to be unattainable.1

Terraqua Barranca intends employing an accelerated amortization, distributed treatment approach to treating wastewater in the Peruvian urban context. In so doing, the System will save the Municipal client not only the cost of a treatment plant – but also the cost of installing and maintaining expensive mains that would otherwise be required to aggregate wastewater and transport it to common points of treatment and discharge. It will also allow quick, local distribution of treated wastewater to industrial clients and to public and private irrigation applications – thus freeing up the municipality’s constrained fresh water supplies for use in supporting new growth in the greater metropolitan area. Terraqua and its partners intend financing each such system located within the larger Barranca provincial area (Barranca, Supe, Puerto Supe, Pativilca and Paramonga) entirely off budget to the partnering municipality. In latter phases of this project, this expansion will, in part, be enabled by the capital gains realized through sale of properties that have been “cycled” through the Terraqua process and thereby gained “absolute preference” with respect to zoning allowances, installation of infrastructure (roads, electricity, water, wastewater, telephone, emergency service, police etc.), and preferential access to Terraqua-treated recycled water.

Following formal commissioning of the Barranca Pilot project, scheduled for late-2011, construction of the first commercial Terraqua wastewater treatment plant, also in Barranca, will begin in mid-2013 with early subsystem commissioning to occur in late-2013 and full scale operations to begin in mid-2014. During the subsequent 5 years, the Company will have become an important factor in the Peruvian domestic market for premium, high protein branded feeds; an important new supplier of tilapia, barramundi, a Western Pacific region fish, as well as Paiche (Arapaima in Brazil) and Paco, two Amazonian fish species, to the US, European and East Asian markets.

The Company will be managed at the discretion of an international board of directors, by a compact team of managers and production experts based in the Company’s offices located in Barranca and Lima, Peru.

Recognizing its preeminent position in the “new world of wastewater treatment,” Terraqua, Peru, the parent company, intends pursuing an aggressive program of Peru-specific R&D with an aim to continue improving its local technology base while also broadening the scope of its offerings. To that end, the Company will also continue working with plants and organisms other than the duckweed and tubifex species that form the foundation of existing technologies. The Company also intends to continue pushing

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Readers should consult The Terraqua Barranca Agribusiness Plan for details on Phase II of the Terraqua Barranca Project.

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the boundaries of its existing experience with the groundbreaking community-level implementation of fertigation technologies and attendant approaches to deriving leveraged value from resulting treated water.

Terraqua principals believe the Company’s “green” contributions to improving the aquatic environment; changing the global paradigms for treatment of wastewater and production of food protein; leveraging the limited and fragile supplies of fresh water for human use and consumption; and developing dramatic improvements in the production efficiencies of building materials and renewable energy feed stocks will come to be recognized by a world that is gradually increasing its sensitivity to the environment in which we live.

Public Benefits

A recitation of Terraqua Barranca’s public benefits – in effect a contribution to all the citizens of Peru – is noteworthy.

During the first five years of the proposed project, Barranca will move from being absolutely negligent in its treatment of wastewater to become the unquestioned global leader. All wastewater treated by the Terraqua Barranca wastewater treatment plants will meet the highest treated effluent standards in the world, and all of it will be fully recycled. Nothing will be lost. This will have the effect of significantly expanding the availability of water to all those living within Barranca Province – a region comprising the towns of Barranca, Supe, Puerto Supe, Paramonga, Pativilica, Santa Catalina and Caral.

In addition to recycling all treated wastewater, the Company intends introducing a new, low cost means by which seawater can be brought, through ocean-current-powered reverse osmosis, to a drinking water standard. Coastal communities participating in the project will be given the option of supplementing their existing drinking water supplies at a fraction of the cost now incurred by conventional reverse osmosis technologies.

By joint-venturing with rural communities, the Company intends to distribute up to 10% of the project’s profits to individual members of those communities. By the end of 2017 rural household partners will be expected to share an annual distribution averaging just over $150,000 per household. For the first time in contemporary history, a “major rural development project” will have gone beyond merely providing basic needs, to genuinely enriching rural Peruvians – helping them truly get ahead. These same rural Peruvians will also have reduced the “wastewater treatment burden” of 50% of their urban brethren effectively to zero. During the next five years Terraqua Barranca expects to expand services to encompass the entire sewered population within the greater Barranca province.

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Duckweed, the principal crop produced by the project, is widely recognized as the most productive of all leafed plants. Grown with supreme efficiency, as it will be in this project, duckweed will convert more CO2 per hectare than can any other combination of plants on any “footprint” on the face of the earth. By 2017, project-grown plants, while treating up to 500 liters of water each second to a drinking water standard, will be removing over 20 tonnes of CO2 from the environment each year. This would be equivalent to taking over a dozen mid-sized cars completely “off the road.”

By substituting for conventional activated sludge wastewater treatment plants, the only comparable system when it comes to effluent quality, the Terraqua system, once fully deployed as proposed in this business plan, will also save over 25,000 megawatt hours of electricity each year – enough capacity to provide all the electricity needs of over 1,000 Peruvian households: capacity that can contribute to improving the lives of every Peruvian citizen. If produced by a conventional coal-powered thermal power plant, that same energy would generate release of over 25,000 tonnes of carbon dioxide over a 12 month period, approximately the same amount as a fleet of 2,500 mid-sized cars.

The centerpiece of the Terraqua wastewater treatment system, the duckweed-based biological nutrient removal system, will effectively change the global paradigm for production of plant-based protein. One hectare of duckweed surface area will produce 30 times as much plant protein as will soybeans – and a better protein (better amino acid profile) at that. In 2016, the project will produce more than 106,000 tonnes of duckweed meal – substituting for approximately 120,000 tonnes of soybeans – all of which must now be imported into Peru. The project’s novel vermiculture primary treatment system will also produce more “meat protein” per unit of surface area than does any other animal protein production system. As harvests of fishmeal inevitably decrease with overfishing and the advent of global warming, “Terraqua worms” can easily replace those losses.

The Terraqua phased-sequenced anaerobic digesters provide an alternative method by which to extract value from volatile solids. Today, they can deliver more biogas, and a better biogas (higher methane) from primary waste solids than can any other comparable process. These systems will also contribute, in a significant manner, to both CO2 mitigation and energy savings throughout Peru.

Location

The Terraqua System may be profitably deployed in any Peruvian location where wastewater is collected. Long term benefits are maximized, however, along the water deficient coastal plain and in the Andean highlands – regions expected to experience increasing future water shortages as the effects of global warming become more apparent. This advantage is most pronounced in regions such as Barranca province, where smallholder farmers – campesinos – still predominate. These favorable geographic circumstances, combine with the favorable disposition of municipal authorities to make

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Barranca Province ideally suited to host the first major implementation of the Terraqua System.

The Numbers

A brief summary of the “numbers” is presented below. The reader should note that beyond Barranca city, no other sewered towns and villages of greater Barranca Province feature in this plan. The “numbers” also ignore income and future value derived from urban real estate capital gains. The Company believes, nevertheless, that this source of income may eventually come to exceed most other Terraqua System outputs. Additionally, invitations already received from the mayors and councils of towns such as Supe, Paramonga and Pativilca suggest the Company will have no difficulty expanding its services to cover the entire province.

Income Statement (Profit & Loss) 2013 2014 2015 2016 2017

SALES $ 51 $ 10,228,632 $ 16,262,780 $ 17,072,238 $ 17,072,238

Product Group 1 Sales $ 0 $ 1 $ 0 $ 0 $ 0

Product Group 2 Sales (frozen fillets) $ 4 $ 10,228,620 $ 16,262,768 $ 17,072,226 $ 17,072,226

Product Group 3 Sales $ 12 $ 6 $ 6 $ 6 $ 6

Product Group 4 Sales $ 35 $ 6 $ 6 $ 6 $ 6

COST OF GOODS SOLD $ 64,458 $ 5,035,878 $ 7,463,691 $ 7,900,092 $ 7,990,297

INCOME FROM PRODUCTION (Gross Margin) -$ 64,407 $ 5,192,754 $ 8,799,089 $ 9,172,146 $ 9,081,941

OPERATING EXPENSES $ 1,294,840 $ 2,611,773 $ 3,066,000 $ 2,974,286 $ 2,814,886

EBITDA -$ 602,083 $ 3,417,765 $ 6,616,776 $ 7,105,128 $ 7,200,979

INCOME FROM OPERATIONS -$ 1,359,247 $ 2,580,981 $ 5,733,089 $ 6,197,860 $ 6,267,054

NET INTEREST INCOME -$ 1,075,109 -$ 2,192,222 -$ 2,155,091 -$ 2,027,702 -$ 1,826,481

INCOME BEFORE TAXES -$ 2,434,357 $ 388,759 $ 3,577,998 $ 4,170,158 $ 4,440,573

TAXES ON INCOME $ 0 $ 157,158 $ 1,154,254 $ 1,379,165 $ 1,491,634

NET INCOME AFTER TAXES -$ 2,434,357 $ 231,601 $ 2,423,744 $ 2,790,992 $ 2,948,939

Cashflow Statement 2013 2014 2015 2016 2017

INVESTMENT AND OTHER CAPITAL $ 0 $ 0 $ 0 $ 0 $ 0

LONG-TERM DEBT $ 14,241,330 $ 3,171,833 $ 0 $ 0 $ 530,000

SHORT TERM LOANS $ 3,000,000 $ 2,400,000 $ 0 $ 0 $ 0

INCOME FROM OPERATIONS $ 47 $ 9,002,182 $ 16,066,547 $ 17,072,238 $ 17,072,238

INCREASE IN ACCOUNTS PAYABLE $ 25,089 $ 284,778 $ 403,317 $ 416,655 $ 412,588

INCOME FROM INTEREST $ 38,051 $ 16,357 $ 18,183 $ 39,161 $ 73,341

TOTAL SOURCES OF FUNDS $ 17,304,517 $ 14,875,150 $ 16,488,048 $ 17,528,054 $ 18,088,167

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CAPITAL EXPENDITURES $ 14,241,330 $ 3,214,517 $ 428,553 $ 480,428 $ 528,405

SALARIES, LABOR & COMM. $ 102,093 $ 2,065,236 $ 2,662,202 $ 2,710,939 $ 2,674,703

COST OF GOOD SOLD $ 27,071 $ 3,522,292 $ 5,408,875 $ 5,750,758 $ 5,821,567

OTHER OPERATING COSTS $ 472,970 $ 1,502,866 $ 1,852,483 $ 1,742,888 $ 1,593,633

PAYMENT OF PRINCIPAL $ 922,427 $ 2,170,850 $ 2,413,107 $ 2,519,518 $ 2,572,038

INTEREST EXPENSE $ 1,113,160 $ 2,208,580 $ 2,173,274 $ 2,066,863 $ 1,899,822

INCOME TAX PROVISION $ 0 $ 157,158 $ 1,154,254 $ 1,379,165 $ 1,491,634

DIVIDEND PAID $ 0 $ 0 $ 0 $ 0 $ 0

TOTAL UTILIZATION OF FUNDS $ 16,879,052 $ 14,841,499 $ 16,092,748 $ 16,650,559 $ 16,581,803

FUND INCREASE (DEFICIT) $ 425,465 $ 33,651 $ 395,300 $ 877,495 $ 1,506,364

OPENING CASH BALANCE $ 0 $ 425,465 $ 459,116 $ 854,416 $ 1,731,911

CLOSING CASH BALANCE $ 425,465 $ 459,116 $ 854,416 $ 1,731,911 $ 3,238,275

Balance Sheet 2013 2014 2015 2016 2017

ASSETS

CASH & SHORT TERM INVESTMENTS $ 425,465 $ 459,116 $ 854,416 $ 1,731,911 $ 3,238,275

ACCOUNTS RECEIVABLE $ 4 $ 1,226,454 $ 1,422,687 $ 1,422,686 $ 1,422,686

INVENTORIES $ 81 $ 135,183 $ 404,698 $ 831,757 $ 1,363,299

TOTAL CURRENT ASSETS $ 425,551 $ 1,820,754 $ 2,681,800 $ 3,986,355 $ 6,024,260

LAND AND IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0

MACHINERY, EQUIPMENT, VEHICLES $ 14,241,330 $ 17,436,975 $ 17,874,340 $ 18,374,698 $ 18,935,547

BUILDINGS & IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0

ACCUMULATED DEPRECIATION $ 757,164 $ 1,593,948 $ 2,477,635 $ 3,384,904 $ 4,318,828

TOTAL PLANT & EQUIPMENT $ 13,484,166 $ 15,843,027 $ 15,396,705 $ 14,989,794 $ 14,616,719

OTHER ASSETS $ 0 $ 0 $ 0 $ 0 $ 0

TOTAL ASSETS $ 13,909,717 $ 17,663,780 $ 18,078,505 $ 18,976,149 $ 20,640,979

LIABILITIES

SHORT-TERM DEBT & NOTES PAYABLE $ 2,476,875 $ 3,705,900 $ 2,352,584 $ 872,318 $ 0

ACCOUNTS PAYABLE $ 25,089 $ 309,867 $ 713,185 $ 1,129,840 $ 1,542,427

TOTAL CURRENT LIABILITIES $ 2,501,964 $ 4,015,767 $ 3,065,769 $ 2,002,158 $ 1,031,060

LONG TERM DEBT $ 13,842,028 $ 16,013,987 $ 14,954,195 $ 13,914,943 $ 13,256,591

INVESTMENTS & OTHER CAPITAL $ 0 $ 0 $ 0 $ 0 $ 0

RETAINED EARNINGS -$ 2,434,276 -$ 2,365,974 $ 58,541 $ 3,059,048 $ 6,353,328

TOTAL EQUITY -$ 2,434,276 -$ 2,365,974 $ 58,541 $ 3,059,048 $ 6,353,328

TOTAL LIABILITIES $ 13,909,717 $ 17,663,780 $ 18,078,505 $ 18,976,149 $ 20,640,979

Financing and Capital Contribution:

Terraqua Barranca is seeking investments of $8 million in cash and 50 qualifying hectares of land immediately proximate to Barranca, along with $10 million in long-term debt and $4.5 million in short term credit. The cash investors will acquire a minority 49% stake in Barranca Investment Partners, which in turn, when fully subscribed, will own a controlling 85% of Terraqua Barranca. The land investments will acquire a proportionate

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stake in Barranca Land Partners, which in turn, when fully subscribed, will own a minority 15% interest in Terraqua Barranca.2

Alternatively, the project can employ a Public-Private Partnership (PPP) approach within the context of a 30 year concession. Employing creative phrasing and the Peruvian SNIPs mechanism, this approach can allow 100% of project financing to be provided through the public sector. Trust-pooled municipal bonds, aid agency guarantees to commercial credit and direct sovereign debt may all be employed, either singly or in some combination, to raise the necessary capital. To that end, project principals are now engaged in discussion with cognizant officials of the Peruvian Ministry of Housing, The City of Barranca, USAID, The Overseas Private Investment Corporation (OPIC), The InterAmerican Development Bank (IDB), private commercial banks and Andino Regional Capital (bonding agency).3

Each “partner” in this Barranca expression of the Terraqua System contributes an essential element to the project. Terraqua contributes proprietary technology and management; its investment partner provides equity; the Municipal, Provincial and Regional partners contribute wastewater and the means for its collection; and community partners contribute their land, their labor and the environmental circumstance in which they now live. The banking consortium will provide credit and the government of Peru, acting on behalf of the project’s true beneficiaries, the people of Peru, will provide the basic infrastructure which allows the project to move forward. Peruvian private sector companies, their principals and their employees will also contribute contract construction, expertise, machinery, design, engineering and supplies to the project.

Timing:

The Barranca pilot project is underway and treating raw municipal wastewater to an advanced tertiary standard – higher than any commercial municipal system now deployed anywhere in Peru. (see appendix 1.) A site to accommodate the wastewater treatment elements of the Barranca city wastewater treatment project has been selected. The city has thrown its full weight behind the project. The project has even been approved by the Santa Catalina rural community board. Cognizant Barranca city and

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Alternatively, the option exists to use only Terraqua Barranca and issue class A (common), B (preferred) and C (land related preferred) shares – forgoing use of Barranca Investment Partners and Barranca Land Partners.

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In the event alternative financing becomes available, 85% of project equity will be held by Terraqua, Peru, with 15% contributing to the Terraqua Barranca Trust, a fund having an independent board exercising the Trust’s charitable mission towards the city and it’s residents.

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regional water and wastewater officials (SEMAPA) are fully engaged. An environmental assessment is underway. Construction is expected to commence within 120 days.

Contact Information:

Readers requiring additional information or those wishing to express an interest in making an investment should contact:

Paul SkillicornSkillicorn@yahoo.com, PaulSkillicorn@gmail.comHome/office: +1 512-383-5006 cell: +1 512-934-7441Skype: PaulSkilliorn

Ramiro Prialerpriale@terraquaperu.comHome/office +511 4365103 cell: +511 996595044 / +511 969333641Skype: RamiroPriale

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