Q2Earth, Inc. focuses on the manufacture and sale of compost and engineered soils from recycled waste for the agriculture, horticulture, construction, and infrastructure sectors. The company was formerly known as Q2Power Technologies, Inc. and changed its name to Q2Earth, Inc. in August 2017. Q2Earth is based in Palm Beach, Florida.
Q2Earth seeks to become a leading manufacturer of compost and engineered soils through a plan of acquisitions, strategic alliances, smart development and organic growth. All of this is focused on creating and marketing quality beneficial reuse end products. The Company seeks to build the preeminent compost and soil company in North America.
Q2Earth (aka Q2Power Technologies) was previously in the business of developing waste fuel-to-power systems based on a unique engine technology. The Company has recently completed the first phase of financing that will expedite their business plan and operational transition, and simultaneously, have wound-down their previous R&D operations.
Q2Earth seeks to become a leading manufacturer of compost and engineered soils through a plan of acquisitions, strategic alliances, smart development and organic growth. All of this is focused on creating and marketing quality beneficial reuse end products. The Company seeks to build the preeminent compost and soil company in North America.
Q2Earth (aka Q2Power Technologies) was previously in the business of developing waste fuel-to-power systems based on a unique engine technology. The Company has recently completed the first phase of financing that will expedite their business plan and operational transition, and simultaneously, have wound-down their previous R&D operations.
Organizational History and Merger with Q2P
The Company, formerly known as The Anpath Group, Inc. was organized pursuant of the laws of the State of Delaware on August 26, 2004, under the name “Telecomm Sales Network, Inc.”. On January 10, 2006, the Company completed the acquisition of EnviroSystems Inc. (ESI) which became a wholly-owned operating subsidiary of the Company. The Company conducted all its business through ESI, and on January 12, 2007, changed its name to Anpath.
On November 12, 2015, the Company's newly formed and wholly-owned subsidiary, AnPath Acquisition Sub and Q2P consummated an Agreement and Plan of Merger. As a result Q2P became the surviving company and a wholly-owned subsidiary of AnPath.
As a result of the Merger, all outstanding shares of Q2P were exchanged for 24,034,475 shares of the Company’s common stock, representing approximately 93% of the total issued and outstanding common stock of the Company, excluding stock options, warrants and convertible notes outstanding at such time. In addition, the Company assumed both the Q2P 2014 Founders Stock Option Plan and the 2014 Employees Stock Option Plan and 1,095,480 options outstanding thereunder. Also pursuant to the Merger, the officers and directors of Q2P took over the management and Board of Directors of the Company.
In connection with the Merger, the Company sold the former operating entity of Anpath, ESI, to three former officers and shareholders of Anpath in exchange for the return of 470,560 shares of common stock of the Company and ESI retaining all of the old liabilities of ESI including a litigation judgment.
In December 2015, the Company officially changed its name to Q2Power Technologies, Inc. to reflect the new business direction of the Company after the Merger. In February 2016, the Company changed its fiscal year end from March 31 to December 31 and up-listed its common stock to the OTCQB.
Q2P’s Waste-to-Power Business
Q2P was originally formed as a Florida limited liability company by Cyclone Power Technologies, Inc. to pursue development and commercialization of its patented waste heat recovery engine. In July 2014, Q2P commenced operations as an independent company after receiving its initial round of funding and signing a formal Separation Agreement with Cyclone. From then until recently, the business of Q2P was the development of waste heat and waste fuel-to-power systems based on core technology licensed from Cyclone on a worldwide exclusive basis for 20 years, with two 10-year renewal terms.
Q2P’s prime target market for its waste-to-power technology was small-scale Waste Water Treatment Plants, whereby the Q2P Technology could capture methane produced from the WWTPs and convert it into power and usable heat. The Q2P Technology was comprised of a unique external heat engine as well as waste fuel burners, controls and other subcomponents. The Company developed the CHP System from proof-of-concept to a working “pilot stage” product between 2014 and 2015.
The pilot program operated in central Ohio for approximately six months, during which time the Company collected significant information about the technology itself, and the operations and cost structures of WWTPs generally. A large portion of a WWTP’s operating expenditures are spent removing the residual sludge from digesters, that vast portion of which is either combusted, landfilled or applied directly to the land. Technologies and processes that can convert biosolids to other useful products, such as compost and engineered soils could provide additional value to agricultural and construction sector customers and new revenue streams for this waste value chain. In mid-2016, along with the addition of two new Board of Director members with vast experience in the waste water, biosolids and waste recycling sectors, the Company started pursuing synergistic alliances with companies that have both technology and business networks for the manufacturing and sale of such beneficial re-use products. This led us to the composting industry.
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New Business Model: Compost and Engineered Soils
According to the U.S Composting Council, one-third of the world’s arable land has been lost to soil erosion. In the United States, 99 million acres (28% of all cropland) are eroding above soil tolerance rates, meaning the long-term productivity of the soil cannot be maintained and new soil is not adequately replacing the lost soil. This erosion reduces the ability of the soil to support plant growth and store water, making food production more difficult, reducing the earth’s ability to filter out carbon and produce oxygen, and adding significant pressure on water resources.
Management believes that soil health may be one of the most important issues facing our planet, affecting the food we eat, water we drink, and air we breathe. Composting is a critical process for recycling organic wastes for beneficial uses to replenish top soil, conserve water and reduce pollution. Composting further protects our climate by sequestering carbon in the soil, and reducing methane production from landfills by reducing the volume of organic wastes disposed in this manner.
The composting industry is highly fragmented, comprised of over 5,000 facilities throughout the United States, most of which are small in size and supplying varying product qualities. An estimated $5.6 billion in compost is sold annually in the United States, according to the U.S. Compost Council, but less than 10% of farms nationwide currently utilize compost to supplement top soil and reduce chemical and water requirements. New applications for compost such as engineered soils used in general construction, infrastructure projects, land reclamation, sod and turf farms and other green landscape projects are creating an additional business opportunities globally.
One of the most compelling business aspects of the compost industry is the trend among certain facilities to view their business less as simply a waste management solution and more as a manufacturing process to produce higher end compost and soil products that can be sold at higher margins and have beneficial uses for our planet.
The Company believes that the composting industry in the United States is prime for consolidation, operational and technological efficiency improvements, and comprehensive sales and marketing strategies to increase demand and usage. They intend to build the Company over the next years by acquiring strategic compost facilities and established distribution channels and brands, and developing procedures and programs to foster organic growth.
Acquisition and Funding Strategy
The Company seeks to acquire companies and assets in the compost and soils sector. These targets include both operating compost facilities and independent sales companies with established distribution and product brands. Through a mixture of these acquisitions located in key regions, management believes we can grow rapidly but prudently utilizing a relatively “capital light” strategy.
The Company is currently in discussions with multiple potential acquisition targets, which it may acquire solely or in connection with strategic partners. Initial acquisitions include leaders in the industry with well-run facilities focused on end product (i.e., compost and soil) production and sales, and established brands. Future acquisition targets may include undervalued facilities in key locations that, through better management and more focus on end product production, management believes can become profitable in a short period of time.
Business Plan and Value Appreciation Strategy
The Company believes that by creating a nationwide footprint of composting facilities that can manufacture consistent, quality product, combined with strong sales and marketing strategies, they can create substantial added value from acquired assets. When combined with a solid acquisition plan backed by the proper financial partners and executed by an experienced team, management believes there is great potential for building a dominant company in this sector over the next two to three years, with further significant growth opportunities in the following years.
Product Focus. The Company plans to achieve organic growth by maximizing sales of high end compost and soils through a network of distribution channels. Part of this strategy would include transitioning facilities that are more reliant on tipping fees to better manufacturing processes that can achieve higher quality products. For those facilities that already have these procedures in place, the Company plans to introduce new branded and blended soils products into their regional markets that command higher prices and margins.
Sales Channels/Distribution. Current sales of compost and soils predominately involve selling to one farm at a time/one project at a time. The trend in farmland is moving towards PE and REIT owned assets, which creates the ability to negotiate long-term compost sales with corporate customers, and acquire composters strategically located where these large customers control land. The Company will seek to develop nationwide marketing and sales channels with large corporate customers, government agencies, etc. Marketing is a major component of compost sales that seems to be lacking in the industry, and can result in significant strides in organic growth in management’s opinion.
The engineered soils market is generally in its early growth stages. Management believes there are substantial opportunities to promote these products for construction, federal/municipal infrastructure programs, and land reclamation/mining projects. As infrastructure projects increase nationwide so will the soils market. The Company plans to invest in sales and marketing to attract nationwide landscape engineering firms, state and municipal planning agencies and other customers that can benefit from and place large orders for engineered soils. To the extent that they can divert more compost to construction and infrastructure projects, they can better grow revenue and margins organically, while always being cognizant of cyclical changes in this market.
Efficiencies. Management expects that consolidating composting companies can lead to better operational and sales efficiencies. Activities such as safety, accounting, legal, advertising, lobbying, training and others can be done at the corporate level, thus reducing overlapping personnel and efforts. To create greater efficiencies, the Company’s employee base is expected to include operational experts with successful track records of consolidating operations and cultures in a merger strategy.
Composting Industry
Size and Composition. According to research conducted by the U.S. Composting Counsel, there are approximately 5,000 commercial composters in the United States diverting an estimated 19.4 million tons of organics from landfills. These organic waste streams primarily consist of yard trimmings, food scraps, biosolids (from waste water treatment plants) and some agricultural waste streams, including manure.
Of the approximately 5,000 composting sites in the U.S., most are small producers generating under $1 million per year in revenue. Less than 400 composters in the U.S., by the Company’s count based on industry data, generate more than $5 million in revenue per year, and even few over $10 million.
Compost manufacturers can also be segmented by the types of waste they collect for processing. The three main feedstocks are biosolids from waste water treatment plants, yard (or “green”) waste from commercial or municipal waste collection firms, and pre or post-consumer food waste. The largest number of composters utilize green waste, however, the largest volume of compost in the U.S. comes from biosolids.
The largest segments for the application of compost and engineered soils include the following:
Applications/Sectors for Compost Sales. The applications for agricultural compost and engineered soils are wide and growing. Engineered soils (sometimes called manufactured soils) are blends of soil, soil components and soil-like material used in horticulture, landscape, construction and site restoration applications. Using engineered soils allows for “tailoring” of soil properties to specific needs. Soil blending is performed at a production scale across the United States, generating millions of cubic yards of product annually. Compost is a primary component of engineered soils, typically comprising 1/3 of its volume.
Agriculture. Making farmland more productive and sustainable is the largest application of compost. Compost improves infiltration rates, water holding capacity and soil tilth; and fertilizes the soil to supplement nitrogen, phosphorus and potassium. Use of compost can save farmers money by decreasing water, chemical fertilizer and pesticide uses by up to 80%. Despite the utilization of compost on farmland being an age-old practice, the market for this in the U.S. is still largely untapped, estimated at only a 10% utilization rate relative to all farmable land, according to the U.S. Composting Council.
Construction. For both traditional construction and LEED certified projects, use of engineered soils for control of erosion, water retention, sedimentation and pollution can result in cost savings and easier compliance with permitting. Further, Low Impact Development (LID) approaches – maintaining and enhancing pre-development watershed regimes – have become critically important, especially in urban settings. Engineered soils play a major role in green roofs, bio- retention cells, rain gardens, infiltration trenches and open grid pavement systems. The goals of these systems are to reduce the flow rate, volume and contaminant level of storm water runoff (compost can retain 20X its weight in water).
Silviculture and Land Reclamation (Mining). Engineered soils are being used to repopulate forests (silviculture) and other land where heavy use, industry or other activities such as mining have decimated the vegetation. This is an important area to help control water conservation and climate change.
Sod and Turf. Engineered soils are being used to improve sod and turf quality, produce a lighter material, and enhance growth efficiency. They are being used for college and high school athletic fields (especially to replace synthetic turf fields), and for golf course construction and maintenance.
Competition
The composting industry is highly fragmented with no clear leader on a national basis. As composting is very much a localized business constrained by the costs of transporting soils over long distances, each region or community that we may enter in the future will have a dominant market player. The Company views these local leaders as potential acquisition targets or partners; however, there is no assurance that the Company will be able to acquire or build a dominant business in each location it chooses to enter.
Large waste companies such as Waste Management and Republic Industries own compost facilities in their respective portfolios. WM in particular owns over 40 compost facilities, typically connected to a landfill property. Management believes that these compost sites are under-utilized and not geared to creating the highest value end-products for sale into multiple markets. As a result, the Company believes there is an opportunity to work with large companies like WM to help them expand their sales and marketing operations.
My Path Forward
This really is an evolving, early stage company that's recently changed from a company that sells a waste to power conversion plant to a compost and engineered soils company. It also plans to expand through acquisition and consolidation. To that extent, the management team they're putting together appears to have the knowledge and experience to pull this all together.
This is also a penny stock and it's probably not for everyone. The risk of bankruptcy on these early stage companies is high so a risk strategy must always be a part of investing in these. That said, I believe it's worth the risk to me to take a piece of this company and add it to my portfolio. I expect that acquisitions mean dilution over time so I need to be aware of the effect that will have on the shares.
I believe there's almost unlimited potential for this company to grow in this fragmented industry. It may just be ripe for consolidation and this management team may just be the right mix of individuals to make this happen. I think this could be a fun ride.
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