IonO2X Engineering LLC

Bion provides comprehensive and cost-effective treatment of livestock waste onsite, while it is still concentrated and before it contaminates air, soil, aquifers and downstream waters. Bion’s proven proprietary technology platform can deliver substantial cost savings and improved efficiencies in two multi-billion dollar industry sectors: water treatment and dairy/livestock production.

In most watersheds, livestock waste is the largest source of excess nutrients that EPA now calls “the greatest water quality problem in the US today.” Excess nutrients create ‘Dead Zones’ in rivers, lakes and estuaries. Notable examples include the Great Lakes, Chesapeake Bay and Gulf of Mexico. Cleanup cost estimates, based on legacy treatment strategies, range from $30B to $50B for the Chesapeake Bay alone. The Great Lakes and GOM would cost much more.

Looming costs of hundreds of billions of dollars are forcing changes to the clean water strategies in most of our states. The futility of pumping those billions into increasingly expensive traditional treatment, while essentially ignoring the larger upstream sources that represent significantly lower cost solutions, has now been recognized. Policies are evolving to address livestock/agriculture and encourage private-sector solutions in order to successfully manage these costs. There is no affordable alternative. Bion can supply large-scale low-cost solutions in this new space that is poised to receive several billion dollars in federal, state, local and private spending.

Livestock production is also one of the largest sources of greenhouse gases and is under scrutiny for ammonia emissions, pathogens and antibiotics. Bion systems can recover more than 95% of the nutrients, reduce greenhouse gases by 90%, virtually eliminate ammonia emissions, and substantially reduce pathogens, antibiotics and hormones in the waste stream. The system separates and aggregates the various components of the waste stream so they become benign and/or value-added and transportable. In addition to reclaiming valuable nutrients and clean water, the technology platform also recovers renewable energy from the waste stream.

Recognition of livestock production’s environmental ‘footprint’ has also had a devastating impact on the industry, making it impossible to streamline its supply chain to deal with the dual challenges of climate change and higher fuel costs. Bion can develop new facilities with little environmental footprint in strategic locations that reduce transportation costs. These state-of-the-art facilities can benefit from greatly improved resource and operational efficiencies that can increase the profitability of an industry that has suffered severe declines over the last decade.

NEW CLEAN WATER STRATEGY/MARKET SPACE

Chesapeake Bay states are under federal mandate to reduce nutrients that flow to the Chesapeake Bay. Pennsylvania has spent about $3B on muni plant upgrades to achieve 2M lbs of nitrogen reduction. Data from a 2012 Chesapeake Bay Commission report indicates that agriculture projects such as Bion’s could reduce overall compliance costs between 50% and 95%. A Pennsylvania Legislative Budget and Finance Committee report concluded that targeting upstream livestock would save PA’s taxpayers up to 80% of previously estimated costs – more than $1.5B per year (by 2025) – to meet their obligation.

In April 2015 the Pennsylvania Auditor General issued a Special Report acknowledging that the state is far behind in meeting its mandated 2017 Bay reduction targets and faces costly sanctions from EPA. The report also supported using low-cost solutions and technologies as alternatives to higher-cost public infrastructure projects, where possible. The report specifically mentioned direct investment in manure control technologies.

Pennsylvania Senate Bill 724, the Watershed Improvement Act, was introduced in April 2015 to establish a competitive procurement program for verified nitrogen reductions, which will enable the private sector (including Bion) and any other source to compete for public funding on an equal basis with public works and storm water authorities. Beginning this year, all credits have to be verified, creating a standardized commodity that can be valued based on cost alone. Existing federal and state laws require the low-cost solution when public funding is involved.

Bion’s Kreider Farms projects, at one of the largest dairy/poultry operations in PA (and the Bay watershed) will produce about 2M pounds of verified nitrogen reductions annually to the Chesapeake Bay upon completion of Phase 2. The Phase 1 project at Kreider Farms (dairy waste treatment) was financed by the Pennsylvania Infrastructure Investment Authority and has now been issued a full water quality permit – the first ever for a livestock facility in the US.

If Senate Bill 724 is adopted and the recommendations of the LBFC study followed, Bion and other technology providers will compete to sell these reductions to PA under long term contracts. Bion anticipates that verified credits from its Kreider Farms project will sell in the $8-$12 range and that Kreider Farms Phases 1 & 2 will generate annual EBITDA of $7M to $10M when fully operational.

The Wisconsin Assembly passed the Clean Waters, Healthy Economy Act in February 2014 to provide alternatives for compliance with strict new phosphorus limits that were adopted in 2010. The Wisconsin Manufacturers and Commerce group estimates that the new requirements (that are now taking effect) will cost $4.9B. Introduced to reduce costs, the Act provides additional time and flexibility for compliance and establishes a policy and regulatory framework to secure low cost nutrient reductions (primarily phosphorus initially) from agricultural projects like Bion can develop.

This legislation marks the first state program to direct significant financial resources to long term agriculture projects, such as those that can be achieved with Bion’s livestock waste treatment technology. Dairy waste is the largest source of unregulated phosphorus in the watershed. Bion has been in discussions with a number of WI stakeholders – regulatory, county and municipal, and point- and non-point sources – about potential large-scale projects. With the second largest dairy herd in the US (1,265,000 head), Wisconsin represents a large potential market for Bion.

More than a billion and a half pounds of nutrients need to be reduced in the Mississippi River Basin, Great Lakes and Chesapeake Bay watersheds alone. Initial policy frameworks to support water quality trading are in place in almost all affected states and the strategy is clearly accepted by US EPA. There are more than 9 million dairy cows, 92 million beef cattle, 62 million swine and almost 2 billion chickens and turkeys in the U.S. Although the economics will vary widely with livestock type, scale and location, livestock waste is the largest source of unregulated nutrients in most states. Bion’s technology is the only one approved to generate verified credits from wet livestock waste by any state program overseen by EPA; the Company is well-positioned to capture a significant portion of the billions of dollars in spending that must come into this new water treatment space.

INTEGRATED PROJECTS

Bion can develop new, state-of-the-art livestock production facilities with little environmental footprint and substantially greater operational and resource efficiencies. Bion can retrofit existing operations and achieve many of the same benefits.

The livestock industry has struggled for the last decade to deal with rising fuel costs and drought conditions that have exposed critical weaknesses in its supply chain. For the most part, the industry has been unable to relocate or consolidate to mitigate these effects due to its environmental impacts. As a result, margins across the supply chain have fallen dramatically.

Bion’s ability to permit new, more-efficient large-scale facilities in strategic locations can substantially reduce transportation costs. Bion’s technology platform creates new revenue sources through the production of by-products, including renewable energy, fertilizer and feed additive opportunities, and discharge water that can meet requirements for reuse by the herd. These state-of-the art production facilities can be integrated with processing and in some cases biofuels production to further increase efficiencies, potentially raising margins by five percentage points or considerably more, depending on location.

Bion Integrated Projects bring two more key improvements to livestock production: food safety and branding. Food safety and the direct impacts of food production on the environment and public health are issues of growing worldwide importance. WalMart, Costco, McDonalds and a host of other distributors of meat and dairy products are increasingly specifying sustainable production practices to satisfy growing customer demand. Bion Integrated Projects allow greater control over inputs, improved traceability and accountability, and the cleanest, most efficient production practices possible.

The U.S. livestock industry must reduce its footprint and simultaneously improve its efficiencies if it is to remain environmentally and economically sustainable in the modern world. Bion addresses both these inescapable challenges that will require significant investment over the coming years. Bion filed a Form 8-K in March 2013 describing discussions with government agencies and potential agri-industry partners concerning a potential large scale Integrated Project in Pennsylvania. Discussions are ongoing.

THE TECHNOLOGY

Bion’s proven third generation technology combines patented mechanical, biological, chemical and thermal processes to provide a comprehensive solution to nutrients and air emissions from livestock waste, as well as substantial reductions in pathogens, hormones, and antibiotics. Bion has developed its groundbreaking technology over the last 24 years with 30 first generation systems installed through 2003. Bion’s core biological processes are protected by seven US patents, with two pending, and six international patents, with applications pending in the EU, New Zealand, Mexico, Brazil, Argentina and Australia. The technology was recently reviewed and qualified by US Department of Agriculture under their Technical Assessment review process. There is no other known cost-effective technology that provides Bion’s level of treatment of wet livestock waste: dairy, beef and swine.

HIGHLIGHTS

• Excess nutrients now recognized by US EPA as “greatest water quality problem in the US today”
• Livestock waste is acknowledged as the largest source of nutrients in most major watersheds
• Clean water strategies now changing to deal with hundreds of billions in anticipated cleanup costs
• Bion has the only proven and accepted technology for comprehensive treatment of wet livestock waste – recently qualified by USDA/Rural Development Technical Assessment for program for loan guarantees up to $250M
• US livestock census: 9M dairy cows, 92M beef cattle, 62M swine, >2B poultry
• Next-gen technology – improved performance/by-product recovery; 60% lower cost – just patented
• Bion estimates the market for nutrient reductions in the US alone at $8B to $10B annually