MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT

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Executive Summary
PHYCO
2
/ Michigan State University / Dow Chemical
18 Month Full-Scale Bioreactor Test Plan


The Opportunity

An innovative process (patent pending) for the accelerated production of algae biomass is
under development by PHYCO
2
LLC in conjunction with Michigan State University and Dow
Chemical Company. This summary identifies the necessary steps to build and operate two
full-scale Helix Algae Photobioreactors to demonstrate their ability to grow algae at an
accelerated rate while sequestering CO
2
.

Market demand for the use of algae biomass in the production of food, pharmaceuticals,
nutraceuticals and fuel oil is increasing. Simultaneously, global social and political
pressure is increasing to reduce levels of emitted CO
2
.


The Challenge

Current algae production is hamstrung by the use of natural sunlight, which limits the
time of exposure to daylight hours, and geography to warmer regions. PHYCO
2
holds the
rights to a potentially game changing technology that can grow algae of any type, any
time, anywhere. With the PHYCO
2
bioreactor design, Algae can now be grown 24/7 and
along side any power plant, capturing CO
2
emissions anywhere in the world.


Algae Biomass Product Opportunity

Algae based products are in the infancy stage of supplying the markets of fuel, bio-
chemicals, pharmaceuticals, nutraceuticals, food additives and animal feed. Globally, the
current total available markets (TAM) are $2,500B for fuel, and over $1,200B for the rest.
There is substantial social, political and market pressure to incorporate natural based
components into these production processes. Amongst the bio-alternatives, algal biomass
has the greatest promise of economic viability.

Market estimates widely vary, but all carry the same message of potentially large and
growing markets. For instance, just addressing biofuels:

The Algae 2020: market report forecasts algal based biofuels growing from 2018
to 2025 at a 30% clip globally from 1B to 6B gallons produced. This would be a
$20B market at todays prices.



MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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A 2011 study by the US Department of Energy shows a potential by 2022 of
replacing 17% of all imported oil with algae based biofuels. This would represent a
$62B market in the US alone.
(Source: National microalgae biofuels production potential and resource demand. Mark S. Wigmosta, 2011)

Market Research Media estimates total biofuel production (algae and other bio
sources) production at 1.9B barrels globally in 2020, growing at a CAGR of 10%
from 2015-2020. This would yield a $240B annual market and growing. And it will
represent only about 6% of the of total global fuel production in 2020.
(Source: Market Research Media Global Biofuel Production Forecast 2015-2020)

Thus for algal based biofuels alone we have a market potential range of $20B - $240B in
about 10 years and growing at a double digit rates.




CO
2
Sequestration Opportunity

Over a ton of CO
2
is released for each MWh produced using coal as the energy source.
Natural gas produces about half that amount. The US produces over 2 trillion tons of CO
2

annually using coal-fired power plants, which represents about a fourth of global output.

Many countries have undertaken the challenge of reducing these emission levels using a
variety of incentives, regulations and penalties. Carbon taxes and credits are some of the
mechanisms under serious consideration. Examples: A European commission has gone
as far as to suggest a tax rate of about $40/ton of CO
2
produced. For a medium sized
power plant, that would be an annual levy of over $100M, which is on the order of the
entire annual operating cost for the plant. Furthermore, the Australian government has
pegged a value of $25/per ton for a yet to be established carbon credit market. So the
political pressure worldwide is firm and strengthening.



















MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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The Technology


Algae production (photosynthesis) requires more
than CO
2
, water, nutrients and sunlight. It
requires a photobioreactor that combines the
right CO
2
, water, nutrients and light. Current
processes depend upon large acreage surfaces
(e.g. ponds) to grow algae during daylight only.
This is economically impractical. PHYCO
2
has
developed an exclusive (patent pending) process
to grow any algae, any where and any time.
Our innovative algae photo bioreactor is a
vertical system powered by a constant high
intensity LED light source thus allowing 2-3
times the algae biomass production in less than
1/8
th
the space. It will produce more algae,
more quickly, utilizing less real estate.

The heart of the process is the closed loop
photobioreactor, a 10 foot tall vertical helix
coiled tube (designed in association with B-Side
Plastics and Parker Hannifin) wrapped around a
high intensity LED light source (developed in
jointly with IDT TOSHIBA and J&J Electronics).
Algae are grown inside the helix tube as it continuously circulates around the light source
24/7. Advantages include specifically tuned light sources to maximize growth, flow
dynamics to accelerate growth, indoor operation independent of geography or weather,
and the Photobioreactors are stackable for a minimal footprint resulting in efficient use of
available land.



Accomplished to Date

A scale prototype algae photobioreactor was constructed with the following design
objectives:

Reduced Footprint to grow more algae in less space than inefficient ponds or
other methods.
Eliminate Natural Sunlight Requirement by growing algae 24 hours a day indoors.
Increase Production Rate by growing more algae, more quickly, more selectively.
Vertical Expansion For further real estate savings by stacking bioreactors.
Cost Effective For CO
2
sequestration and algae production.

Internal testing resulted in successful outcomes of these objectives. The fundamental
technology of growing algae in a continuous flow helix coil photobioreactor with HILED
illumination was proven, and subsequently received confirmatory academic endorsement
in testing, at the Utah State University Energy Dynamics Laboratory in May 2010.

10 feet
MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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Next Steps

With basic design, development and academic endorsement complete, the next step is to
prove the technology to be scalable. This will entail an 18-month project to ultimately
build, test, and validate performance of two (2) full-scale commercial HILED
photobioreactors at the T.B. Simon Power Plant located on campus at Michigan State
University, East Lansing, MI. The project will be conducted in two stages: Initial Assembly
and Full Scale Testing. The total project investment will be just under $1,500,000.


1 2 3 4 3 6 7 8 9 10 11 12 13 14 13 16 17 18
PHASE I - Initial Assemply (California/Texas)
ManufacLure ComponenLs (4 unlLs)
Assemble & lnlLlal 1esL 2 unlLs
1ransporL Lo MSu
PHASE II - Full Scale Testing (Michigan State University)
ueslgn 1esLlng roLocols
repare laclllLy aL Mlchlgan SLaLe
llue Cas ConnecLlons
Assemble 2 unlLs
SysLem 1esL / CpLlmlzaLlon
Complle & lormaL uaLa for 8eporL
uarter|y 1ota|
Cumu|at|ve Investment
MSU-Dow-Phyco2 Full Scale Photo-Bioreactor Testing - 18 Month Investment
MonLh
5380,000
5380,000
52S0,000 5184,000
51,318,000 51,482,000 5630,000
5290,000 5214,000
5920,000 51,134,000
5164,000

(See detail backup in appendix)


Phase I Initial Assembly (California/Texas)

The first 8 months will see the development, production, and testing of two full-scale
HILED photobioreactors. Working with B-Side Plastics, the helix coil injection molds will
be perfected. Parker-Hannifin will complete development of the special flanges to be used
during final coil assembly. Unique hardware and software components will be specified
and purchased. The high intensity LED light bars for the center of the helix coil designed
by IDT TOSHIBA and J&J Electronics, will be supplied by J&J Electronics. The completed
and tested HILED photobioreactor assemblies will be partially disassembled and
transported to the campus of Michigan State University, East Lansing, MI for reassembly
and installation at the power plant site.


PHASE II Full Scale Testing (Michigan)

In conjunction with the production of the two HILED photobioreactors by B-Side Plastics
and Parker Hannifin in Houston, a 300 sq. ft. site at the Michigan State University power
plant will be prepared to accept the units. This will include the build-out and temperature
control of the space. Also at this time flue gas connections will be plumed from the power
plan exhaust to the test site.


MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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On month 8, the two units will be shipped from Texas to the staging area at the power
plant on campus. Final assembly, testing and test protocol optimization will be developed
by a collaboration of MSU, Dow, and PHYCO
2
. Once the HILED photobioreactors are
assembled and commissioned for use, full scale testing and begin on month 11.

The units will be monitored and controlled by a computer system, various algae strains
will be tested to determine optimal LED wavelength/duration cycles, and an efficient
harvesting process will be identified. This will complete performance testing and allow
final analysis and reporting of data to more specifically quantitate functional efficiency and
economic opportunity for this technology.



Expected Outcomes

Outcomes of this project include the optimization of connectivity to power plant emissions
exhaust system, selection of the most efficient algae strains, determining algae yields,
harvesting frequency, measuring CO
2
absorption rates, and improving current design
characteristics of the bioreactors and interconnections.

Scope of Project

Confirm optimal size/shape of HILED photobioreactor helix coil
Establish appropriate water flow rates
Engineer water circulation system

Optimize LED configuration & wavelengths
Optimize LED exposure frequency
Determine power usage requirements

Test two algae species for CO
2
absorption and algae production characteristics

Establish appropriate CO
2
input flow rates, pressures and temperatures
Determine extent of CO
2
input filtering required
Calculate CO
2
absorption rates

Optimize and measure algae product production yields
Determine harvesting cycle
Identify algae drying process for end product


Performance Hypotheses to be Validated

Per HILED photobioreactor
Algae Biomass Produced: 0.9 Tons / Year (extrapolated)
CO2 Absorbed: 5 Grams per each gram of dried Algae Biomass produced
Power Consumption: 34 Watts / Hour
Water Consumption: 5 Gallons / Day (15% daily loss of 110 liter capacity)


MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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The Project Team


Don Hubbard Chief Executive Officer, PHYCO
2

Attorney. Alex Brown and Sons
Managing Director, Internet and Software Banking. UBS Warburg
Co-Head, Technology Investment Banking, Morgan Stanley
Co-Founder CFO, Chameleon Communications
Head of Merchant Banking for privately held Swiss Asset Management Company
Lieutenant Commander, U.S. Navy (Ret)

Claude Hutchison Chief Operating Officer, PHYCO
2

President, Security National Bank
Founder, Chairman & CEO CivicBank of Commerce
Managing Director, Smith & Crowley, Inc
Managing Director, LECG
Regent, University of California
Director, Office of Asset Enterprise Mgt. U.S. Dept of Veterans Affairs
Captain, U.S. Navy (Ret)


Eric Hagopian - Operations Director / Project Manager, PHYCO
2

BS Biological Science, San Jose State University
Founder of Insulated Shipping Containers, Inc. (ISC).
Invented and patented for ISC the VacIntact, a mechanical device to monitor the integrity
of a vacuum in an insulating wall
Operations Manager for MicroScan, Inc., a medical diagnostic manufacturer.
United States Army, Nuclear Weapons Specialist, Secret Clearance


Robert Morgan Chief Technology Officer, PHYCO
2

Over 25 years experience designing and working with technology systems
Designed and developed new technologies in the field of algal biomass production
Designed equipment for GHG emissions, capture/sequestration & alternative fuels feedstock
FBI training in hazardous materials investigation
Honored California Fire Service Member
United States Coast Guard


Wei Liao, Ph.D., P.E. Assistant Professor, Michigan State University
Department of Biosystems & Agricultural Engineering
Ph.D. Washington State University
BS & MS, Wuxi University of Light Industry, China
Over 10 years experience in fields of bioenergy & bioproducts


Mike Mazor, Ph.D., Fellow & Dow Scientist, Dow Chemical Company
Dow Scientist for Energy Efficiency & Sustainability
Ph.D. Physical Chemistry, University of Houston
BS Chemical Engineering, Penn State University


MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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In Conclusion


Clearly there is ever-increasing global pressure to produce more energy with fewer
harmful emissions released into the atmosphere. A prime target is the operation of coal
and natural gas fired electric utility plants, where the sequestration of CO
2
would show
immediate environmental benefits. Several technologies to sequester CO
2
have been
under development for years; most are very expensive and none, with the exception of
PHYCO
2
s HILED Photobioreactor technology, have the capability to pay for themselves
with an economic byproduct. The conversion of CO
2
into usable algae biomass for food,
medicine or fuel is a scientific breakthrough with the promise of leveraging the value of
the sequestration process. Therefore, for the first time there is an identifiable path to
harvest a useful and marketable product while materially reducing noxious emissions.
The alignment of the scientific resource of Michigan State University, with the support and
guidance of Dow Chemical, and the patent pending technology of PHYCO
2
is an ideal
partnership. The technological and economic rewards for the successful completion of this
18-month testing process are enormous; particularly in light of the relatively nominal
investment required to take this next essential step.

Beyond completion of this 18 month full-scale test, PHYCO
2
will be positioned to move
forward with one of several scenarios. Possible pathways include:

Partnering with a large diversified company (e.g. Dow Chemical, DuPont, or similar
manufacturing/energy/agribusiness company) to integrate the technology into
ongoing algae production projects.

Commercialize the technology by linking with an emerging company in a strategic
alliance to accelerate the innovation to commercialization process.

Licensing the technology to manufacturing, natural resources or energy companies;

Sell the company outright.



MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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Appendix Project Detail

MSU-Dow-Phyco2 Full Scale Photo-Bioreactor Testing - 18 Month Investment
updaLed: 4-!une-2012 4:23p 1
updaLe: 1-!une-12 11:30a 1 18-Month
Month 1 2 3 4 S 6 7 8 9 10 11 12 13 14 1S 16 17 18
1ota|
Mater|a|s
Pardware 2,000 2,000 2,000 $6,000
SofLware urchase/uevelopmenL 2,300 2,300 2,300 $7,300
1oollng/Machlnlng/Assembly 73,000 70,000 70,000 20,000 14,000 $249,000
MonlLorlng uevlces& Sensors 3,000 3,000 3,000 3,000 $20,000
Mlsc Assembly MaLerlal 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 $17,000
LxLernal Poldlng 1anks 1,300 1,300 1,300 $4,300
ParvesLlng /urylng LqulpmenL 63,000 10,000 $73,000
k&D ] Cperat|ons
ro[ecL Manager 6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
$108,000
ulrecLor of 1echnology 6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
6,000
1
$108,000
SclenLlsLs 0 0 0 0 0 10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
10,000
1
0 $120,000
Lab 1echnlclans 0 0 0 0 0 2,000
1
2,000
1
4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
2,000
1
2,000
1
0 $40,000
ConsulLanLs/Advlsors 3,000 8,000 3,000 10,300 7,300 7,300 7,300 10,300 10,300 10,300 7,300 7,300 7,300 10,300 8,000 3,000 $126,300
1ravel /Lodglng 7,300 7,300 7,300 7,300 7,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 7,300 7,300 7,300 7,300 7,300 7,300 $149,000
M|ch|gan State Iac|||ty
1esL Chamber 30,000 10,000 10,000 $30,000
PvAC & LlecLrlc lnsLallaLlon 2,300 2,300 2,300 $7,300
lumblng 2,300 2,300 $3,000
Adm|n|strat|ve
CLC/CCC 0 0 0 0 0 0 0 0 0 0 0 4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
4,000
2
$28,000
aLenL roLecLlon /Legal 14,000 9,000 9,000 4,000 4,000 14,000 4,000 4,000 4,000 14,000 4,000 14,000 4,000 4,000 4,000 4,000 4,000 4,000 $122,000
AccounLlng 1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
1,000
1
$18,000
lnsurance LlablllLy/ulrecLors 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 $36,000
1ravel /Lodglng 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 $30,400
Cont|ngency 11,330 11,780 11,230 6,030 8,380 8,130 13,330 6,880 6,130 6,680 3,680 7,080 3,380 3,380 3,380 3,680 3,430 3,830 $134,740
Month|y1ota|
126,830 129,S80 123,S30 66,330 94,380 89,430 146,630 7S,680 67,430 73,480 62,480 77,880 61,380 61,380 61,380 62,480 S9,730 42,130 51,482,140
PHASE I - Initial Assemply (California/Texas)
ManufacLure ComponenLs(4unlLs)
Assemble &lnlLlal 1esL2unlLs
1ransporLLoMSu
PHASE II - Full Scale Testing (Michigan State University)
ueslgn1esLlng roLocols
repare laclllLyaLMlchlganSLaLe
llue CasConnecLlons
Assemble 2unlLs
SysLem1esL/CpLlmlzaLlon
Complle &lormaLuaLa for8eporL
uarter|y1ota|
Cumu|at|veInvestment 920,000 1,134,000
380,000 2S0,000
380,000 630,000 1,318,000 1,482,000
290,000 214,000 184,000 164,000

MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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Appendix PHYCO
2
Directors & Advisors


Board of Directors


Gregory Hagopian, Santa Maria, CA
Chairman BOD, PHYCO
2

CEO Fuel Technologies International

Don Hubbard, Maryland
CEO, PHYCO
2

BA, U.S naval Academy
JD, Maryland School of Law

Claude Hutchison, Jr., Glenbrook, NV
COO PHYCO
2

BS, University of California, Berkeley
MBA, Harvard University


Bruce Tatarian, San Juan Capistrano, CA
Principal, Tatarian & Associates
BA Chemistry,
Cal State University, Fresno
MBA, Cal State University, Long Beach
JD, Western State University
(Member California Bar)


William Clary, Tulsa, OK
Managing Director,
MIRATECH Holdings, LLC
BA Chemistry, Carleton College
MS Mechanical Engineering,
University of Minnesota


Keith Nahigian, Washington, DC
President, Nahigian Strategies
BA, College of Wooster


Karl Seitz, Huntington Beach, CA
Principal, Seitz & Associates, LLC
BS Economics,
University of California, Los Angeles
MBA Taxation, Golden West University
Certified Public Accountant



Advisory Board


Howard L. Chesneau President
Fuel Quality Services, Inc.
25 yrs experience in fuel stability
Chairman Atlanta Chapter SAE
Co-Chair ASTM Committee on Microbial
Contamination
Member ASTM D2 Committee on fuel
from middle distillates to heavy oil.
Co-Editor ASTM, STP 1005 Distillate
Fuel Contamination and Storage

Rafi Fass, Ph.D. Senior Scientist
Dept of Biotechnology,
Israel Inst. for Biological Research,
Ness-Ziona, Israel.
PhD Biotechnology,
Faculty of Agriculture, The Hebrew
University in Rehovot, Israel.
Fields of scientific activity include:
- Applied and environmental biotech,
- Microbiology of hydrocarbons fuel
distillates,
- Bioremediation of contaminated soils
and water,
- Biotechnology R&D and scaling up of
microbial fermentation processes

Edward English VP & Tech Director
Fuel Quality Services, Inc.
Experience in nuclear power industry
BS Chemistry, University of Florida
2 yrs Grad Studies, University of Miami

Norman Arikawa Asst Director of Trade
Port of Los Angeles
Formerly Chief Accountant, Port of LA
Advises LA Mayors Office of Econ Dev
Co-Chair LA Chamber of Commerce
Global Initiatives Committee
Member District Export Council of SoCal






MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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Appendix Letter of Support Dow Chemical Company


MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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Appendix Letter of Support Michigan State University



MSU-Dow-Phyco2 Full-Scale Test Plan Executive Summary DRAFT 2-July-12 2:37p PT
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Appendix Letter of Support Wei Liao, Ph.D., Michigan State University