caoba business plan revised on may 2008

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Proyecto Tercer Dia S. de R. L

Business Plan2009

Ecologically Sustainable Forestry Development Project Catacamas Olancho, Honduras, C.A.

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I. Table of Contents

I. Table of Contents...........................................................................2

II. Executive Summary.......................................................................3

III. General Company Description.......................................................4

IV. Products and Services...................................................................6

V. Marketing Plan..............................................................................9

VI. Operational Plan..........................................................................22

VII. Management and Organization...................................................26

IX. Startup Expenses and Capitalization...........................................27

X. Financial Plan..............................................................................28

XI. Appendices...................................................................................29

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II. Executive Summary

Projecto Tercer Dia S.D.R.L is a private company with a twofold objective: its primary function is to promote the conservation of the Honduran forests and wildlife through the reforestation of a diverse variety of hardwoods, especially Mahogany, while at the same time making it economically profitable in the next 10-25 years by managing its forest plantations in an environmentally friendly and sustainable way.

Projecto Tercer Dia will be based in the city of Catacamas, State of Olancho, Honduras. Its operations will be in the village of Santa Cruz, located near the Patuca Forest National Reserve. This village is approximately 35 miles from the City of Catacamas.

Projecto Tercer Dia S. de R.L. is already established as a legal entity with the Honduran government, and is also registered with the Chamber of Commerce of the city of Catacamas.

The objective is to plant 22,500 mahogany trees per year in an organic and environmentally friendly way, good for the community, economy, and the environment. A variety of other trees will also be planted in order to protect the water sources.

With a Plantation Certificate granted by COHDEFOR (Honduran Corporation of Forestry Development) and with a proper operational forestry plan to be prepared by a forest engineer, we expect to manage the plantation in an ecologically friendly and sustainable manner in order to be able to export the lumber out of the Port of Honduras to international markets, in particular the United States. All of the lumber for exportation will be Certified by the FSC (Forest Stewardship Council).

The total start-up budget for the first year is approximately $50,000. This includes the purchase of land for the first year, labor, company car, personnel, and supplies. The land to be purchased is expected to cost approximately $50-$120 per hectare (2.4 acres). The more land purchased and the more trees planted, the greater the benefit is for the environment and the greater profit to be earned in the long run.

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III. General Company Description

The goal of this company is to enter into the international lumber industry. Special focus will be given to the plantation of Mahogany trees. Twenty-two thousand, five hundred trees will be planted every year. The trees will begin selective harvest after their 10th year of growth.

Mission Statement: To develop sustainable reforestation of tropical rainforests in Honduras using organic, ecologically conscious methods, that will serve as a natural protective buffer zone for the existing National Park and will also serve to benefit the surrounding community, educating them in the importance of their unique ecosystem and giving a portion of profits earned to a nonprofit medical work (PREDISAN) that provides holistic healthcare to the region.

Vision: That in 15 years, a sustainable forestry resource is in place that will benefit the environment by preserving the ecosystem through reforestation of degraded farmland and is economically profitable by providing lumber to the international market.

Company Objectives: Environmental: -To incorporate a range of commercial forest species as an important component in helping to rehabilitate degraded farmland and contributing to surrounding forest reserves by conserving biodiversity

- To improve wildlife habitat - To recycle carbon dioxide into

oxygen to help reduce the greenhouse effect

Economic: -To earn at least $100,000 annually, after the 9th year and to earn at least $1 Million after the 11th year from harvesting the hardwood trees. - To help finance the tree farm for the first 7 years from the harvesting and sale of cocoa, coffee, vanilla, or any other fast cash generating project.

-To increase and spread employment income to the community. -Provide jobs for unskilled workers, skilled workers, and also to professionals -Profitable to Predisan Mission work in Catacamas. - Create a Family legacy.

Social: - Provide ecology education for local school children and farmers. - Provide an avenue for science research for local agriculture schools as well as universities from the United States, providing more scientific information about rainforest hardwoods to be available to the public.

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Target Market The target markets for our Mahogany will the United States and the European Union. The lumber of lesser quality will be sold in national and local markets in Honduras.

Opportunity

Mahogany has been included in the CITES Appendix II as an endangered species. It is now illegal to harvest mahogany from natural forests of Honduras. Brasil, Bolvia and Peru are the major suppliers of mahogany to the biggest demander, the USA. Brasil’s and Bolivias mahogany from natural forests is also under very strict control.

In Honduras, a new forestry law was just approved and published in February 2008, where it provides incentives for individuals and legal entities to start their own plantations for two reasons, one, to preserve the forests and two, to satisfy the international demand for mahogany.

The increasing deficit of wood is created by strict forest regulations and pressures from environmentalists creates an opportunity for us to succeed in this business.

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IV. Products and Services

The main product to be commercialized is Mahogany (Swietenia Macrophylla) teak, but special focus will be given to Mahogany.

Description of MahoganyOne Mahogany tree produces an average of 1.8 cubic meters of wood.Common Name: Honduras Mahogany Botanical Name: Swietenia macrophylla Other Names: Big-Leaf mahoganySpecies Distribution: Scattered areas throughout central and South America including some Caribbean islands. Honduras mahogany trees once had a distribution covering most of South America.

Tree Characteristics: Height of 150' with trunk diameters as large as 6'.Honduras mahogany prefers dry forests and can also be found in high elevation stands. Wood Characteristics: Straight grain with a fine even texture. Honduras Mahogany is relatively free of voids and pockets. Color: Reddish brown to medium red which darkens to a deep reddish-brown with time. Workability: Excellent! Honduras mahogany is one of the best woods for machining, cutting, and plaining. Honduras Mahogany can be sanded very easily and efficiently. Finishing Qualities: Excellent! Honduras Mahogany readily accepts a wide range of common stains and finish. Durability: Very Good! The wood is strong and dense. Slightly less durability than Red Oak. For outdoor applications such as patio furniture and wooden boats this wood is an excellent choice for its combination of strength and rot resistant properties. Drying: Honduras Mahogany can be air-seasoned and kiln-dried without appreciable warping or checking. Movement after manufacture is rated as small. Weight: Air-Dried: 30-52 pounds per cubic foot. Stability: Excellent in kiln dried lumber.

Uses: Fine furniture, cabinet making, plywood, turning, boat building, outdoor furniture.

Comments: Honduras Mahogany has become a valuable cash crop for many South American countries.

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Plantation farming is working to supply the demand for this versatile lumber. Many other species, such as Lauan, are marketed as "Mahogany"; however they often come from other wood families.

Natural Distribution of Mahogany: The species is found in the humid and sub-humid zones, from the south of Mexico (Oaxaca, Veracruz, Tabasco and to the south of the Yucatan Peninsula); in the slopes of the Atlantic of Central America, from Belize to Panama; in Venezuela, Colombia and in part of the High Region of the Amazon, in Peru, Bolivia and Brazil.

Mahogany distribution in Honduras: In Honduras the mahogany is found in almost all the humid and sub-humid mountainous regions; it is frequently abundant in the humid tropical forests of the Departments of Atlántida, Colon, Gracias a Dios and Olancho). In the Atlantic Region of Honduras, mahogany is found from 600-800m above sea level; it grows in deep to semi deep grounds, stony deep grounds to, aired well, of good drainage, moderate slopes to steep, rainy climates with rainy winters. For more detail, see the natural distribution of this species on Appendix D (Map 1).(Diagnostico de la Caoba en Honduras, pg. 3)

Competitive Advantage:

The factors giving an advantage for the success of this business is the increasing demand of Mahogany and Teak in international markets. Less of these woods are being supplied by countries due to environmental concerns and regulations by governments and organizations. Most of the hardwood supplied is illegal but governments are controlling that, so now only approved and well managed forest will be commercialized.

Another important factor that will give us competitive advantage is geographic location where the Mahogany will be planted. The world demand is for Swietenia Macrophylla Mahogany or Honduras Mahogany. This kind of mahogany is native to Honduras specially to the State of Olancho and this company’s operations is located in such state. These means that it is the best place to grow Swietenia Macrophylla also known as Honduras mahogany.

The following factors will contribute to making the business projections highly profitable. A previous research study done by Eco-forest, a company with its base in Spain, states that due to the high-increase of world population and the ever-growing restrictions on harvesting natural forests, the market for timber has great potential. The FAO (Food and Agriculture

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Organization) assures that by 2010, even with all the forestry plantations taking place at this very moment, there will be a deficit of wood of almost 500 Million cubic meters. From a world-wide perspective, the timber deficit according to experts will be major difficulty, hence in all of our daily activities we make use of wood products or wood derived products. As main cause for the deficit we can consider the following:

- Exponential increase of world population-Pressure from Environmentalists to continue to regulate the harvest of Natural Forests -The increasing rate of world deforestation, which accounts to 1.8% compounded annually. Historically, the supply and demand of wood was based on the active deforestation of the world’s forests, and never through sustainable forestry plantations. -India and China emerging as new world economic super-powers. -All of the above are common facts that contribute to the increasing deficit of wood.

Mahogany and Teak are generally sold by board foot or cubic meter. The board foot of mahogany is valued at: $ 6.25 and the cubic meter: $1300-1650.

Demand for teak in Asia has increased considerably in recent years. Currently, mostAsian countries rely on plantation teak logs imported from Africa and Latin America.

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V. Marketing Plan

ECONOMICThe Mahogany and Teak timber industry is a fast growing industry outside of Latin America. The United States is the world’s leading consumer of the mahogany (Swietenia spp.) harvested in Latin America, and imports an estimated US$56 million of mahogany annually. Big-leafed mahogany (Swietenia Macrophylla)—also known as genuine mahogany, caoba, mara (in Bolivia), or mogno (in Brazil)— is the most traded and coveted of the three American mahogany species. Conservationists are concerned that current harvest rates and practices may be pushing big-leafed mahogany in the same direction as Caribbean mahogany (Swietenia mahagoni), which was once heavily traded but is now endangered and commercially exhausted because of past over-harvest (Mahogany and CITES). In fact, the Convention on International Trade of Endangered Species (CITES) recently classified S. Macrophylla (Honduras Mahogany) as an endangered species.

Approximately 60 U.S. companies in some 17 U.S. states are involved in the importation and distribution of big-leafed mahogany from Latin America, with the greatest amount imported by firms based in states east of the Mississippi River. In 1997 and 1998, North Carolina, the furniture manufacturing center of North America, accounted for most U.S. imports, absorbing 39 per cent of all U.S.-bound shipments. Mississippi is the second largest importing state at 24 percent, followed by Florida (11 percent), Pennsylvania (9 percent), and Louisiana (6 percent). The U.S. furniture industry absorbs about 90 percent of the top grade mahogany lumber imported into the United States, while lower grade mahogany goes into the production of doors and architectural millwork (Mahogany and CITES)

Location of forestry industries that process Mahogany in Honduras are mainly dedicated to the furniture exportation. Most of these industries are located in San Pedro Sula (Wellington Hall, Caobas de Honduras, MOBINSA), Tegucigalpa (DERIMASA), La Ceiba (Muebles Alí), HondurasVeneer (Bonito Oriental) and Trujillo (Honduras Mahogany).

Mahogany (Swietenia Macrophylla) was added in the CITES list of protected woods. This action has caused the price to increase due to its harvesting restrictions set due to the environmental concerns. Big-leafed mahogany matters not only to U.S. consumers with expensive taste in furniture, but also to mahogany-producing areas (range states) where the resource is critical to local economies yet increasingly threatened by intensive and illegal harvest that is driven, in part, by U.S. demand. Lately, the list of South American countries supplying mahogany to the United States may be

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changing as their inventories decrease or access to the forests is restricted because of environmental concerns. (Mahogany and CITES

Also of note, timber is also seen as a hedge against inflation and the fluctuations of mostfinancial securities; analysts say it has a low correlation with stocks and bonds,meaning that its returns may well be rising when securities prices are falling. (New York Times)

The growth potential and opportunity for this business has a high percentage rate for the following reasons:

- S. Macrophylla grows naturally in the area where this business is to plant the trees.

- The climate and elevation are ideal for the trees to grow fast and healthy.

- The expansion of the plantation will be cost effective due to low labor cost and land purchase.

- Mahogany has an increasing demand and decreasing supply.

Barriers to entry:

The main barrier for this company will be the sustainability of the plantation during the first 10 years. The trees will be selectively harvested after 10 years of growth. Enough capital needs to be budgeted in order to give proper care and maintenance to the plantation during this time.

The second barrier is the transportation of the product to the port. The plantation at the moment does not have good roads and during the rainy season it becomes almost inaccessible for cars to get to the location. The nearest port is approx. 190 miles away.

The first barrier is to be overcome by the implementation of a small business to generate enough cash to make the project self-sustainable. The small business considered are the plantation of coffee trees which generate cash after the third year, or cocoa trees which generate cash after the 4th to 5th year.

The second barrier is to be overcome by working along with the community to keep the roads accessible during the rainy season. At

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this moment the accessibility is a concern but hopefully in ten years the roads will be improved with government intervention. The distance to the port is a long way but finding the right truck to transport the wood will not be hard since this area provides with a competitive transportation business. A lot of trucks available will lower the cost. Of note, prior precedence for harvesting mahogany timber from these mountains exists.

RISKS:There several risk involved in the forestry business in Honduras such as:

- Hurricanes

- Changes in government regulations

- Land not having legal ownership/Problems with land titles

- Fires

- And the major enemy for Mahogany trees, Hypsipyla grandella.

Solutions for these risks:

- The past Hurricane Mitch, Felix, and Humberto have not caused much damage in this zone, except for flooding of homes. But it is still a natural phenomenon to be prepared for. Too much wind will bend the young trees, but by planting cocoa and coffee trees in between will lower the risk of this problem.

- Changes in government regulations might affect much of this business since the land we plan to own is public municipal land, meaning that it has a owner but still belongs to the state. No more private titles are given to people in this zone since it is on the buffer zones of the Patuca Reserve. According to the Honduran Forestry Law, it allows for investment of private forestry plantations in these lands with a proper Plantation Certificate.

- Fires are to be avoided by cleaning around the perimeter of the plantations.

- H. grandella, whose common name is shoot borer, is the natural predator of young mahogany trees. There are practical options to avoid damages caused by this insect. The plants will be checked consistently for this pest in order to treat it immediately before it

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causes too much damage. Treatment options which have been studied and shown to be successful include: 1) an organic extract from the Neem tree; 2) leave other plants or bushes between trees to protect them; and 3) intensive pruning in the event of an infestation (Crop Protection. Sept 2005.).

CUSTOMERSOur main customers for Mahogany will be the United States but the European Union will also be considered.

COMPETITIONGiven the fact that Mahogany and teak demand is increasing worldwide and there is a shortage in supply, there is no direct competition. As demand for mahogany increases every year, prices will also increase.

Our competitive advantages are the low labor costs for production and processing as well as central geographic location to the U.S., European, and Asian markets.

Our competitive disadvantage in comparison to other forestry plantations is the lack of access to good roads year round.

INDUSTRY AND MARKET ANALYSIS

Honduras has a very well developed furniture industry, which exports about $45 million annually, of which 80% is to export to the US Market (Molinos y Membreno, 1999). Most of the lumber produced in Honduras ends up in these exportation industries which are mostly located around the city of San Pedro Sula (Filipo del Gatto pg 8).

Status: Mahogany is perhaps the most valuable timber tree in the whole of Latin America and has been heavily exploited for most of this century. Mahogany is becoming increasingly rare, and is already extinct in parts of its original range. It is listed as threatened in "Arboles Maderables en Peligro de Extinción en Costa Rica" and is listed in CITES Appendix III.

The United States accounts for 60 percent of the global mahogany trade, says the report. In 1998, the equivalent of about 57,000 mahogany trees, known as 'big-leafed mahogany'' was harvested and shipped to the United

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States to supply growing furniture industries in the states of North Carolina, Mississippi, Florida, Pennsylvania, Louisiana and California

European colonists beginning in the late 15th century once harvested a type of mahogany wood in Caribbean and Central America, but now that type has been virtually cleared from those regions. A similar mahogany species, the big-leafed variety, is currently being harvested mostly from the denser, tropical forests in Bolivia, Brazil and Peru, with some being harvested in Guatemala, Nicaragua and Belize.

Mahogany in Latin America is harvested predominantly through the practice known as selective logging, in which only mahogany and other valuable timber species are extracted.

Biologists have long argued that this practice typically does not create conditions that foster regeneration and it results in removal of nearly all mature mahogany trees within a population, drastically reducing its ability to reproduce successfully.

In order to maintain production levels, loggers are continually moving into increasingly remote unlogged old-growth forests, rather than harvesting within set areas from regenerating stands of trees, said a letter sent to the US government last year by the Center for International Environmental Law and other ecological advocacy organizations.

Because of such logging methods and levels of logging, scientists say the populations of mahogany are in decline.

Demand has exhausted Caribbean mahogany, which is now considered endangered, and supplies in Central America are dwindling. As the tree disappears from these areas, so harvesting has increased in the tropical forests of Peru and Brazil, some of the most ecologically diverse areas in the World (Mahogany Trees Survival in doubt due to US demand) http://forests.org/archive/samerica/matrsurv.htm

Transportation route

Even though the accessibility to the village of Santa Cruz (where our plantations are intended to take place) has improved substantially over the last years, the acces to this zone is still difficult. This will have a strong

http://forests.org/archive/samerica/matrsurv.htm

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implication in the methods and transportation costs of the lumber to the city. Commonly, the transportation is based on three phases:

1) In mules from the forest to the roadside (1/2-2 miles)

2) In small 4X4 pickup trucks to the city of Catacamas (30 miles)

3) From Catacamas to the Port in San Pedro Sula or La Ceiba ,190 and 140 miles respectively.

Most of the Mahogany being extracted by local sawmills, cooperatives and associations is sold to Companies in San Pedro Sula who then process it and then export it as semi finished or finished products in the form of furniture, furniture parts or doors mainly to the US and Caribbean Market.

Total logging, milling, and transportation costs for 1 cubic meter in US $

US $

- Taxes 40 COHDEFOR & Municipial

- Logging and milling 150

- Transportation 130 From mountains to Port

Total 320

Mahogany commercilization chain to San Pedro Sula:

Individual sawmiller: are local people with chainsaws who are paid $.40 cts per board foot to cut down the trees and cut in boards.

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Local Cooperative or Association partners: are associations created in the villages in order to be able to extract mahogany trees, but they have very limited capital and are forced to sell sell it to local lumber retailers who later sell it for higher prices to the big lumberr and furniture companies in San Pedro Sula.

Lumber retailer: lumber retailers buy logs and lumber and are able to afford to transport it to the transformers and exporters in San Pedro Sula.

Transformer and exporter: are the big lumber and furniture companies in San Pedro Sula who buy the mahogany lumber at a very low price from national providers who in return have alot of money and make even more money by being able to ship it internationally or give the lumber aggregate value (furniture or furniture parts) and ship it mostly to the US.

The goal of our Company, Projecto Tercer Dia S. de R. L., is to sell the lumber directly to US and European markets , avoiding all the intermediaries and thus being able to obtain higher revenues.

Extraction and Exportation companies in Honduras:

Jose Lamas S. de R. L.: Owned by Jose Lamas. He has the biggest sawmill of the country in San Pedro Sula. He buys the lumber and timber at a very low price from different sawmills and local cooperatives around the country and then exports the processed lumber.He is considered the biggest of the timber industry in Honduras and also the richest man of the country.

Comercial Maderera Noriega:Owned by Guillermo and Gilma Noriega. He is the second biggest logger of the country, he owns 6 sawmills around the country and exports all of the lumber to the U.S.

Caoba de Honduras: They are mahogany furniture manufacturing Business. They are located in San Pedro Sula. They buy mahogany lumber from different cooperatives at low prices and converts it into fine furniture for exportation.

Milwork International: also Mahogany furniture exporter located in San Pedro Sula.

Yodeco: They are also one of the largest lumber exporters in Honduras.

Aserradero Sansone S. de R.L: They are also a large logger in Honduras.

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SERMA S.A. DE C.V : It is not a honduran company but they have logging operations in Honduras for lumber exportation.

Derivados De Madera S.A. de C.V. (Derimasa): An International Private company who manufacture wood household furniture. There lumber is provided to them by individul loggers who do not have capital to process the timber in any way.

Tracoma e Industrial Forestal Abigail: They have their own sawmills and export lumber to U.S.

Exportadora de Maderas Procesadas S. de R. L, EXMAPRO: another large lumber exporting company, with its own sawmills to process logs.

The previous companies process mostly pine trees but also mahogany trees. It has been more difficult for them to process mahogany due to all the more strict international regulations for cutting mahogany from natural forests. Processing and selling mahogany is a profitable business so three of the strongest companies from the previous list have already started planting their own mahogany trees.

Summary of Swietenia macrophylla exports for 2000.

COMPANY AMOUNT EXPORTED (board feet)

Wellington Hall 2,959.3

Caoba de Honduras 163,873.01

Madera Nacional 14,775.0

Internacional Mahogany 90,256

EXMAPRO 45,312

Muebles de Honduras 1871

MADEX 10,356

IMAPRO 2,070

DRACOSA 16,890

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Maderas Subirana 25,907

Total (board feet) 372,393.84 p.t.

Soource: Department of Protected Areas and Wildlife

The following is a list of some of the small companies and associations who extract mahogany trees and are providers for the big companies listed above.

Maderera Sipres S. de R. L: located in San Pedro Sula with their own sawmills but do not export only provide lumber nationally.

Industrias Josue: owned by Fredy Najera in San Esteban, Olancho. He has his own sawmill but is only a provider to the large exporting companies.

Local Cooperatives and Associations: compose only a small fraction of the forestry extraction and they only sell it nationally since they lack the capital to provide their own sawmills and also lack the capital to export it internationally, so they are forced to sell it to the big companies in San Pedro Sula for a much lower price. These companies export internationally for big bucks.

U. S Main Importers

U.S. main importers of Hoduran lumber and their providers:

CompanyBase in the U.S Provider U.S. Distributor

ALJOMA LUMBER, INC Medley, FL José Lamas S.

http://www.aljoma.com/ (305) 556-8003 de R.L

INTERGRO, INC. Clearwater, FLYodeco, SERMA,

http://www.intergro.com/ (800) 783-0416Lamas, Tracoma

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MARBLE & WOOD PRODUCTS Miami, FL DerimasaMacy's Furniture Gallery,

CORP (305) 805-0200 Robb & Stucky, others

http://www.hamiltonheritage.com/

KINDERKRAFT INC Hialeah, FL Babies “R” Us

http://kinderkraft.com/main.htm

WOOD PRODUCTS Savannah, GANoriega, Tracoma Home Depot, Orvis

INTERNATIONAL, INC. (912) 231-0909 ,Sutton Place Gourmet,

http://www.fatwood.com/ LL Bean, Brookstone,

http://www.caribbean Plow,and Hearth

heartpine.com

ROBINSON LUMBER CO New Orleans, LA Yodeco

www.robinsonlumber (800) 874-1165

andflooring.com

HERITAGE DOOR LLC Jupiter, FL International

http://www.heritagedoorusa.com/ (877) 414-7400 Mahogany Millwork

HOOKER FURNITURE CORP. Martinsville, VA Derimasa Dillards,

http://www.hookerfurniture.com/ (276) 656-3335 Colony House Furniture

The Furniture Store

Source: La crisis de la Tala Ilegal en Honduras, pg 38

http://www.robinsonlumber/

http://www.caribbean/

http://kinderkraft.com/main.htm

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List of some of the US mahogany importers from Peru, Bolivia and Brasil:

Alan Mcilvain Co.

Banks Hardwoods Florida

Dan K. Moore Lumber Co.

Downes & Reader Hardwood

Fine Woods Products

Inter-Continental Hardwoods

J. Gibson Mcilvain Co.

Lane Stanton Vance Lumber

Medley Hardwoods

Overseas Tropical Lumber

Patriot Timber Products

Precious Tropical Hardwoods

Rex Lumber Co.

South Florida Lumber Co.

Specialty Woods Inc., and

Thompson Mahogany Co.

Stickley

Furniture Brands International (maker of Broyhill, Drexel Heritage, Henredon and Thomasville), Henkel-Harris, and Hekman.

STRATEGY

Our Company, Projecto Tercer Dia S. de R. L. will be a vertically integrated company with 100% Rainforest Alliance/FSC certification of our mahogany plantations and 100% organic.

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We will have a farm-to-market approach; hence, there would be no “middle man” or intermediaries. Our goal is to sell our wood to high-end furniture and cabinet makers in the US and EU.

We will market our wood to companies who are willing to pay top-dollar for high quality wood which was harvested in an organic and environmentally friendly way.

Our Mahogany trees will be harvested with a responsable operational plan authorized by COHDEFOR. (Honduran Corporation of Forest Development) and exported with a certification of “Forest Management” and “Chain of Custody” granted by the Rainforest Alliance SmartWood Program.

Forest Stewardship Council Certification

Based in Bonn, Germany, the Forest Stewardship Council (FSC) sets the global standard for responsible forestry. Established in 1993 by a collaboration of businesses and environmental groups, including the Rainforest Alliance, which is now the world's leading FSC certifier of forestlands.

The Rainforest Alliance's SmartWood program awards Forest Stewardship Council (FSC) certification based on audit results and issues certificates for five-year periods (Rainforest-allegiance).

Forest Management Certification

Available to all operations involved in growing and harvesting trees, including forest companies, government forestry agencies, mid-sized forest managers, indigenous peoples and groups of small landowners.

Chain of Custody Certification Chain-of-Custody (CoC) certification assures consumers and forest product companies that the wood they buy comes from certified forests. If your business is involved in the production or delivery of certified products, you must hold a Forest Stewardship Council (FSC) CoC certificate in order to make claims about the FSC content in your products.

CoC certification is available for any operation that processes cut wood, such as sawmills, secondary manufacturers, broker/distributors, wholesalers, retailers, printers, paper merchants and other points in the forest products supply chain. (Rainforest-allegiance).

http://www.fsc.org/

http://www.fsc.org/

http://www.fsc.org/

http://www.fsc.org/

http://www.cohdefor.hn/

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A certified Chain of Custody up to the final point of sale enables end customers to identify and choose FSC certified products knowing there is a system in place to verify the sources of the wood used to manufacture the products. The FSC label thus provides the link between responsible production and consumption (Forest Stewardship Council website)

These certifications, will assure consumers that the wood products they purchase come from responsibly managed forests, where biodiversity is conserved and local communities are supported.

ORGANIC:

Our Company, Projecto Tercer Dia S. de R. L., will aim at becoming 100% organic in the timber industry, we will not use chemical fertilizers or pesticides to treat infected trees, and instead we will recur to the use of natural pest treatments for infected trees. This treatment will be in the form of either or a combination of the following:

1. Leaving some natural weeds between the trees. We will also plant cocoa and coffee

trees among the mahogany trees to make it more difficult for the mahogany trees

biggest enemy, “Hypsyfila grandella,” to find the trees.

2. Using extract from neem trees to combat hypsyfila grandella. Neem tree

extract is considered organic and we will also grow our own neem trees on our

plantation for this purpose.

3. Pruning the affected trees in case of an infestation.

http://www.rainforest-alliance.org/forestry.cfm?id=certification

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PROMOTION

We will create a website in which we will promote our plantation to companies around the world. We will additionally offer our lumber directly to companies in the US.

PRICING

Pricing will be by board foot and they will be determined by the…

LOCATION

Location for this product is not so important to the customers but highly important to the business. Higher yields depend a lot on the business location. Transportation plays a major role in this industry so an accessible location is essential.

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VI. Operational Plan

ProductionMahogany and Teak trees are to be grown at Santa Cruz de Capapan a village 38 miles away from the city of Catacamas and 190 miles away from the nearest port.

Production techniques and costs:

- 400 Mahogany trees will be planted per hectare

The cost of planting 400 trees /hectare is approx. $300. The cost was obtained in the following way:

Seeds $12.00Bags for seedling $7.00Seed treatment $14.00Seedling preparation, $28.00(filling bags with mixed soil) Planting labor $70.00Fertilizers (manure) $21.00Leafcutter ant treatment $7.001 Yr. Maintenance $140.00 Total Cost/hectare $300.00

The total cost per hectare of $300 neglects cost of: - Accounting

– Basic equipment for pruning and planting seedling – Land

– Administrative expenses.

Thinning

Thinning consists of cutting have of the trees planted in a hectare so that the remaining ones can have a greater and faster growth in diameter and height. The trees cut during the thinning process also mean revenue.

- The first thinning of the plantation will be at age 7 years. These logs will be intended for the Honduran market. The purpose of the thinning is to allow the best quality trees to develop in the best way.

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The thinning will produce our first revenue which will help to give the project some sustainability.

- A Mahogany tree at age 10-12 years can produce an average of .8 cubic meters. A cubic meter cost approx. $1,600. After thinning, each hectare will have the best 80-100 quality trees of the original 400 planted. Each hectare is estimated to produce 80 cubic meters which is the equivalent of $104,000 per hectare. Taxes, transportation, and milling costs are not included.

Quality control: Every tree will be closely supervised in order to make sure that each tree survives and growths well in order to produce the best quality timber. SmartWood Certification will be pursued to further insure quality and establish chain of custody from seedling to timber.

LocationPhysical requirements:

100 hectares of land for the first year

A storage facility

As close as possible to the city

Access:

It is very important that this location be convenient for transportation. These product will be exported to the US, so transportation plays a major role in earning higher yields.

The land to be purchased also needs to be accessible for planting the seedlings in order to lower losses in the transportation of the seedling to its place of plantation. Flat land is ideal but not necessary.

Cost:

A small place for storage is required. It will either need to be built or rented from a local.

*The cost of building an adequate place for storage and sleeping is approximately $1,300.

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Legal Environment Licensing requirements: and operation permit is required before the

company begins its operation. These permit is to be obtained from the Munipality of Catacamas

An environmental license is also necessary which is to be obtained at the municipality of Catacamas.

Permits: a Plantation Certificate will be necessary in order to be able to harvest these trees in the future. It has to be requested at COHDEFOR.

Environmental regulations: The trees are to be harvested according to the forestry operational plan and supervised by COHDEFOR.

Personnel Employees are categorized in the following way:

General Manager (1)

General labor employees (6)

Forestry engineer (1)

Accountant (1)

Lawyer (1)

The labor to be employed for the proper operation consists of both unskilled and professional labor.

The right employees are to be hired locally, by their recommendation and reputation.

The pay structure will be on a monthly basis for the manager. The accountant and forestry engineer will be paid on a fee they charge for their consultancies.

The general labor employees will be paid weekly.

They will be trained and educated in the proper way for producing the seedling and also trained on the proper way of planting the seedlings.

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The general manager will be responsible for hiring the right employees. He will supervise the entire operational process and will be the person responsible to make the business successful.

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VII. Management and Organization

The business will be managed on a daily basis by Marcos Madrid. Marcos Madrid holds a BBA in Finance from the School of Business Administration at Oklahoma Christian University. Marcos will use his knowledge in the areas of financing in order to budget operations in the most efficient way. He will be responsible for allocating capital resources where necessary and required. Marcos will also be responsible for writing proposals to different organizations and investors if financing is needed. Marcos has knowledge on both areas, the financial area as well as experience on the field. He has previously started his own mahogany tree plantation and has purchased land in the same area of the proposed location for this company.

Professional and Advisory Support

Board of directors: Robert Clark, Kristie Clark and Marcos Madrid

Our forestry engineer will be Efrain Sinclair. He will be responsible for preparing the forestry operation plan. He will also supervise the plants and recommend the proper treatment for any pest and will also recommend when fertilizing is necessary.

The accountant will be responsible for keeping our accounting system in accordance with Honduran accounting system. The person in mind for this purpose is Fredy Lopez he is currently the Sub-Director of Mission Predisan and he also has a Pawn Shop. He will not be full time, he will only provide us with advice and consultancies.

The general labor employees are one of the most important since they will be the ones who will actually doing the manual labor of planting the trees, maintaining the land, and caring for the trees.

The lawyer we used to incorporate the business was Attorney Isauro Aguilar. He will also be our lawyer to provide us with advice when needed.

Other Forestry engineers and people who already have experience in forestry will serve as mentors and advisors.

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VIII. Startup Expenses and Capitalization

Startup Expenses: Projecto Tercer Dia

This expense forecast was calculated based on the current price of materials in the city of Catacamas. It represents the startup cost and

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operations for one year, given the land purchased belongs to the state and not private property.

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IX. Financial Plan

Start-up Expenses:See Appendix A

10-Year Revenue and Expense Projection:See Appendix B

12-Month Projected Cash Flow Statement:The cash flow will show whether the working capital is adequate. Clearly, if the projected cash balance ever goes negative, more start-up capital will be required. This plan will also predict just when and how much needs to be borrowed.

See Appendix C

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X. Appendices

A. Start-up Expenses

B. 10-Year Revenue and Expense Projection

C. 12-Month Projected Cash Flow Statement

D. Maps and photos of location

E. Articles & Market research studies

References:

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Ecoforests. Guarantee: Forestry Market Situation. 25 Sep. 2007

http://ecoforests.eu/guarantee/market-analysis/

Diagnostico de la Caoba en Honduras, 1999. 3Sep. 2007

http://www.ccad.ws/documentos/varios/caoba/3Por_pais/4Honduras/Diagnostico.pdf

Mahogany and CITES. US Market. Sept 7. http://www.traffic.org/mahogany/us.html

International Teak Market Report.

New York Times. Real Estate. For Some Investors, Money Grows on Trees, 2007. Sept.

1 2007 http://www.nytimes.com/2007/05/27/realestate/commercial/27sqft.html

Appendix D

http://www.nytimes.com/2007/05/27/realestate/commercial/27sqft.html

http://www.traffic.org/mahogany/us.html



http://ecoforests.eu/guarantee/market-analysis/

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Map 1. Natural Distribution of Mahogany in Honduras

Healthy 1 year old Mahogany tree planted in the same area where Projecto Tercer Dia S. DE R. L is planning to take forth its plantation.

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Appendix E

Articles & Market research studies

Reforestacion Kosñipata. http://www.bidnetwork.org/artefact-59262-es.html

Stipendium. http://stipendium.blogspot.com/

http://stipendium.blogspot.com/

http://www.bidnetwork.org/artefact-59262-es.html

http://www.bidnetwork.org/artefact-59262-es.html

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Teak in CR Economic Aspects. http://www.fao.org/DOCREP/005/Y7205E/y7205e09.htm

Big-Leaf Mahogany: Genetics, Ecology, and Management. http://books.google.com/books?id=aFF_Q7l_bR8C&pg=PA276&ots=xduJmNMENY&dq=Mahogany+(Swietenia+Macrophylla)+in+Central+America&sig=edrFQGcyAMFtIG3GcM2IDRrJe0w#PPP1,M1

Ecoforest. http://www.ecoforests.eu/

Fondebosque. http://www.fondebosque.org.pe/principal.html

El Semillero. http://www.elsemillero.net/

Tropical American Tree Farms. http://tropicalhardwoods.com/projections.htm

Pacific Teak. http://pacificteak.com/aboutteak/teakmarketvalue.htm

Municipial Forest Mngt. http://www.idrc.ca/en/ev-43421-201-1-DO_TOPIC.html

Teak Plantation program. http://theamericas.org/forestry.htm

Forest Management Bureau. http://forestry.denr.gov.ph/index.html

Friendly Forest Products. http://www.exotichardwood.com/pricelinks.html

Bali International Consulting group. http://www.bicgbusiness.blogspot.com/

Empress Trees. http://www.wonderearthpartners.com/info/empresstrees.html

International Teak Market Report Mahogany Matters

http://www.wonderearthpartners.com/info/empresstrees.html

http://www.bicgbusiness.blogspot.com/

http://www.exotichardwood.com/pricelinks.html

http://forestry.denr.gov.ph/index.html

http://theamericas.org/forestry.htm

http://www.idrc.ca/en/ev-43421-201-1-DO_TOPIC.html

http://www.idrc.ca/en/ev-43421-201-1-DO_TOPIC.html

http://pacificteak.com/aboutteak/teakmarketvalue.htm

http://tropicalhardwoods.com/projections.htm

http://www.elsemillero.net/

http://www.fondebosque.org.pe/principal.html

http://www.ecoforests.eu/

http://books.google.com/books?id=aFF_Q7l_bR8C&pg=PA276&ots=xduJmNMENY&dq=Mahogany+(Swietenia+Macrophylla)+in+Central+America&sig=edrFQGcyAMFtIG3GcM2IDRrJe0w#PPP1,M1



http://www.fao.org/DOCREP/005/Y7205E/y7205e09.htm

caoba business plan revised on may 2008

Documents