Good Afternoon Everyone,
I had the opportunity to interview Mr. Foster of R-Qubed Energy based out of El Paso, Texas. They are developing an innovative/sustainable energy source to be used on farms across America. The phone interview took place on 20JUN19, over the course of about an hour and many interesting topics were brought to light. I look forward to continuous communication with Mr. Foster over the years and I am happy to have developed a relationship with him. Please feel free to take a look at what was discussed below.
1) Q: Mr. Foster, please tell me a little about yourself.
A: I grew up in Omaha, Nebraska. Graduated from University Nebraska at Omaha, a Division 2 school and was immediately hired by St. Paul Insurance and moved to Amarillo, Texas where I lived for one year. The company moved me to El Paso, Texas where I have lived ever since. In 1980, I began my insurance career as a Claim Adjuster for St. Paul Insurance. I became Claim Manager of that office in 1985. With no further advancement possible without relocating, I left in 1988 to work for a large insurance agency. I set up the Risk Management Department centered around a business ability to reject the Workers Compensation Act in Texas, we were the only state that allowed this option. I left in 1992 over a salary dispute and started my Consulting Business, continuing the niche for the businesses who rejected the Workers Compensation Act. In 1998, I closed the Consulting Company because the niche was going away. Workers Compensation premiums became more reasonable and fewer businesses were choosing this option.
2) Q: What is the current project you are working on and how did you get involved?
A: I am currently involved with a company called R-Qubed Energy. R-Qubed Energy began in 2008 as a result of the Founder, Keith Hughes trip to China. Keith was working for an international box company as a commissioned salesperson. He was taken to a small rural farm in China and shown the crude methane production of the small Chinese farmer. They dig a small hole and gather all the manure from the farm animals, cows, pigs, etc., and place a cover over the hole and run a pipe from there to the kitchen and use the methane to heat and cook their food. The Chinese guide who took him to the farm told Keith that Americans were stupid. We had all of these resources in abundance and failed to take advantage of the opportunity. Keith came back from this trip and met with 4 other close friends and they hatched the plan to sell the idea to a large company who had the funding to build the Anaerobic Digester. Unable to sell the idea, in 2009 they began seeking investors.
The CEO of R-Qubed Energy was an insurance customer of mine and she asked me to attend a meeting where the Founder Keith Hughes pitched the idea and vision behind the company. My wife and I were intrigued enough to invest a small amount of money. We attended annual shareholder meetings in 2012 and 2013 and when it seemed the company lacked direction, I parlayed my relationship with the CEO into a seat on the Board of Directors. Shortly thereafter, the current Managing Director wanted to resign and I volunteered to take their place. In March of 2013, I was elected to the Board of Directors and by October of 2013, I was Managing Director and running the day-to-day operations of the Company. Qualifications had nothing to do with me attaining this position. There was absolutely no competition and most shareholders thought the company was on the road to bankruptcy. I really had nothing to lose and the Founder had convinced me he had a solid plan and vision for moving the company forward. I bought into that vision and I can tell you we have re-racked that original vision a million times since.
3) Q: How many investors are onboard and how did you raise funding? We are currently studying angel investing, do you have any experience with that?
A: We currently have about 64 Shareholders. In March of 2017, the company we were working with to build the Anaerobic Digester offered to invest $500,000 into the Company in exchange for a Convertible Promissory Note. This is essentially a loan to the company in exchange for 25% ownership. The reality is the Note will never be paid back. Either the company goes broke and there are no assets from which to pay the money back or the company gains financing and is about to start making money and they will simply convert the Note to Ownership. This is the closest thing we have had to an angel investor. Most of that money went to finish developing the project, primarily engineering costs to finish process flow diagrams (PFD) so we can determine exactly how much Biogas, Fertilizer Pellets and Aqueous Ammonia the project expects to make. You then plug those quantities into a Pro Forma with an anticipated sale price and begin determining how much money the project is anticipated to make. You sell the project based on the Executive Summary, Business Plan and Pro Forma. You must be able to support the numbers in your Pro Forma. If the potential Equity Investors do not believe your numbers, they will not invest.
4) Q: What setbacks have occurred during the “startup” phase and how did you overcome them?
A: The immediate problem I inherited was we took out a 10 year note on the land we purchased, had made two monthly payments and had been in default for about 2 years. I had several private meetings with the holder of the Note and kept them from attempting foreclosure for about 2 years. Eventually they grew weary of the story about how close we were to financially closing the project and took us to court and obtained a judgement allowing them to foreclose on the Property. However, the Note Holder really didn’t want the Property back and would be unable to sell the Property due to the Groundwater Contamination. We have 3 test wells on our Property that the State of New Mexico required us to drill and pay for and one of those wells is testing at 81 parts per million nitrate and 10 parts per million nitrate is considered toxic. I was able to negotiate a payment of $25,000 per month in exchange for the Note Holder not entering the Judgment.
Our legal work is being done by a high powered law firm in Washington DC. They are the leading Energy firm in the United States. Their lead attorney has a deep rolodex and has introduced us to numerous funding opportunities and those introductions will ultimately lead to the successful financing of this project. We are unable to pay their legal bill each month and I have negotiated a $15,000 installment payment each month. Together with the land obligation, the company has $40,000 in operating expenses each month. The Founder, Keith Hughes and myself have an Employment Contract that pays us $140,000 each on an annual basis. The Founder has not been paid in 8 years and I have never been paid. The Company has accumulated $12.5 mil in debt during the startup phase that must be completely discharged at financial closing. Only then will the Founder and I receive all the accumulated back wages. Just a brief side note, it is legal to not pay Founders of Companies, but it is not legal to not pay the Managing Director, me, anything less than minimum wage. We are intentionally violating the Federal Pay Day Laws, but the person with a Cause of Action is me and I am not filing suit on this issue. This point drives the DC law Firm out of their mind, but what can you do when money is so tight.
Prior to my involvement, another effort to raise capital resulted in a current shareholder loaning the company $500,000 in exchange for a 2nd lien on the Property. Once again, we made a couple of payments and stopped. That shareholder hired legal representation, coincidentally someone I had favorable past dealings with and I was able to hold them at bay for about 3 years. The guarantors of that 2nd lien was the Founder, Keith Hughes and the former CEO who was my introduction to the Company. Last year the 2nd lienholder obtained a Judgement against both of these individuals but has not asked the sheriff to begin selling assets to meet the obligation. Therefore, after accumulated interest and penalties for non payment, they each have a Judgement against them in the amount off $782,000. The Judgement ruined the credit rating for both people.
5) Q: What opportunities do you see within your business model?
A: Today we are negotiating a Biogas offtake contract with Chevron. We have had a longstanding offer from British Petroleum but never had anything to compare it too. We asked Chevron to improve upon the offer from BP and they have done so. Chevron is the most likely buyer of our Biogas. Chevron is also interested in potentially investing in the project. However, they do not understand the Aqueous Ammonia and are not interested in investing in that part of the project. Because of this, we have cared the company in half. One side makes Biogas, and Chevron can invest there and the other half makes Fertilizer Pellets and Aqueous Ammonia and Chevron will have no investment in this side. This forced us to set up another company, Rampion Fertilizers, Inc. and separate the project into two Pro Formas. Chevron has not made a solid commitment to invest in the project beyond just purchasing the Biogas.
We searched the world for a company with the Technology to extract minerals, specifically Ammonia and Phosphorous, from various waste streams. Through our large rolodex, we found them in Germany. Unlike the United States, the Europeans actually care about air and groundwater contamination. Although ammonia and phosphorous are extremely valuable fertilizers, both contain high levels of nitrate and used improperly will contaminate the air and groundwater. In Europe, the industries producing these minerals as byproducts must capture them and dispose of them appropriately. The German Company was born out of this requirement. In addition to mining/extracting the Ammonia from the Digestate material from our Anaerobic Digester, they also have the ability to extract the Ammonia from other waste streams. We have spent some time identifying those industries that produce large quantities of Ammonia is a natural byproduct. Turns out the Sugar Manufacturers, Beef Processors and Alcohol Manufacturers meet this criteria. We set up a new company called NHꝫ Pure for purposes of working those Prospects. We met the German Company in January of 2018. We had to slowly develop this relationship despite wanting to move quickly. The Germans/Europeans are very skeptical of American business practices and afraid of making a bad deal. We nurtured that relationship, set up NHꝫ Pure with equal ownership among 3 companies. The German Company, R-Qubed Energy and the Angel Investor holding the Convertible Promissory Note. Each of those 3 companies had to set up a subsidiary company to own NHꝫ Pure.
NHꝫ Pure is off to a great start. We have met with JBS in Colorado. They are the world’s largest beef, poultry and pork processor. They have tons of Ammonia. Turns out the type of Ammonia they produce requires an Anaerobic Digester at the front end before you can extract the Ammonia. The beauty of that is the Anaerobic Digester will produce a lot of Biogas that we can sell to Chevron. The downside is these projects may have capital costs in the neighborhood of $80 mil each and JBS has 72 locations in the United States. We just met with two Sugar Beet manufacturers in the Fargo, North Dakota area. Both are ready to cut a deal with NHꝫ Pure. The capital costs on those projects are expected to be in the area of $12 mil each. Much easier to finance. After we spoke this morning I received word we have a verbal commitment for a company to purchase all of the Aqueous Ammonia we can produce. Once we have negotiated that offtake contract, we have completed the puzzle. That was the last missing piece preventing us from financially closing the R-Qubed Energy Digester in Mesquite, New Mexico.
6) Q: Where do you see your project in the next five years and how are you going to reach the goals set forth?
A: Looking 5 years into the future, we have pipeline projects in the Portales-Clovis New Mexico area and Romulus, New York. The Portales-Clovis area has a ton of dairy farms. Romulus has an abundance of land at an old Army Military Base. They have rail access and sit in a very remote area. No one wants to live close to these digester projects. Although we can control the odor, there is no getting around the volume of heavy traffic in and out of the site location. Each of those projects would take about two years to develop. We intend to develop them simultaneously once the Mesquite location is financed and partially built. We could have both completed in about a 2 year period. So within 5 years we could have 3 of these projects built and who knows how many projects through NHꝫ Pure
7) Q: Do you have any advice to give to the class on the process of starting a business?
A: You need thick skin and cannot be very sensitive to criticism. Develop a plan with the understanding that plan may need to change on an almost daily basis. Be flexible without being indecisive. Have confidence in your plan and the team around you. If you don’t have confidence in a team member, get rid of them. Project development is hard enough and you cannot afford to have the negative Nellie’s or the doubting Debbie’s on board. Shake them loose and let them go be someone else’s pain in the neck. Try to make measurable progress every day. Recognize that some days that progress may be measured in inches instead of feet. Every day cannot be a home run. Singles and doubles add up too. No matter how long you think the project will take, it will take longer. No matter how much money you think you need to develop the project, you will always need more. Put every name in your outlook contact card list. Cannot tell you how many times I thought we were done with a relationship and for one reason or another something causes us to circle back. This is particularly difficult for me, but try not to burn any bridges. There will be any number of people who burn you or fail to meet your expectations. I just roll with it and vow to get even with them at a later date if the opportunity presents itself. Perhaps not the most endearing quality, but I do keep score and have a very good memory, particularly for those who I think have done the company wrong!
