Evolved Energy. First Quarter Report (March 31 st, 2012) Alter NRG Provides Evolved Energy Solutions

Transcription

1 First Quarter Report (March 31 st, 2012) Evolved Energy Alter NRG provides energy-from-waste solutions through its wholly owned subsidiary, Westinghouse Plasma Corporation. Alter NRG is pleased to be presenting highlights for its first quarter of 2012 as revenues have increased by 15% over the prior quarter. This is reflective of a maturing business plan with significant long-term potential. WASTE FEEDSTOCK WESTINGHOUSE PLASMA GASIFICATION SYNGAS POWER FUEL OIL REPLACEMENT Alter NRG Provides Evolved Energy Solutions We have commercially proven technology that provides the next generation of energy-fromwaste solutions. With reference facilities, a strong customer base and a worldwide demand for renewable energy, we are well positioned for significant growth. BIOFUELS First Quarter Highlights CEO Message Hazardous Waste Management in India Evolved Energy: Refueling Management's Discussion and Analysis Consolidated Financial Statements Notes to the Consolidated Financial Statements Corporate Information 1 s t Q u a r t e r R e p o r t

2 First Quarter Highlights (to May 10 th, 2012) The first quarter of 2012 was a significant milestone as the Corporation began the fabrication of the Westinghouse Plasma Gasification Solution for Air Products. The fabrication is approximately 7% complete at March 31, 2012 and is progressing on time, and on-budget (see photos below). The project is progressing full swing and we expect a very busy remainder of On December 22, 2011 Air Products issued a purchase order for $22.4 million for the Westinghouse Plasma Gasification Solution for their Tees Valley project in Northern England. The project intends to take 950 tonnes per day of processed household waste and convert it into 49 MW of electricity, enough to power 50,000 homes. This represents a major commercial milestone for the following reasons: Validation of the Westinghouse Plasma Gasification Solution by a well respected Fortune 500 Company. This has generated significant commercial interest from other companies worldwide. Scale-up of the existing gasification solution to up to 950 tonnes per day which is significantly larger than any competitor in the market, and at the scale that attracts larger companies into the sector. Utilization of a combined cycle power configuration which is significantly more efficient than incineration. This is a first-of-a-kind for waste to energy and represents the next generation of improved efficiency and environmental performance. Air Products, along with our technology partner, Alter NRG, see Tees Valley as the first of a number of advanced gasification facilities that we wish to develop in the UK. The UK is seeking more sustainable ways to manage and dispose of its waste, and is looking to diversify its sources of electricity generation: our technology is able to deliver on both counts Air Products hopes to build up to five advanced gasification plants in the UK in the coming years, amounting to an investment of more than 1bn and with the potential to generate around 250 MW of electricity. Ian Williamson, Air Products European Hydrogen and Bioenergy Director (Aug 11, 2011) Tees Valley projects in progress at the KNM Group of Companies, Gebeng, Malaysia 2 Alter NRG 1 st Quarter Report 2012

3 Westinghouse Plasma Sales of $1.4 million which is an increase over prior quarter reflecting the sale to Air Products of the large scale gasification solution. Revenue is expected to continue to increase in 2012 as the pace of fabrication increases. Executed approximately 7% of the purchase order from Air Products, a US based Fortune 500 company. SMS Infrastructure ( SMS ) (who has already constructed two hazardous waste facilities) advanced two projects into the formal regulatory approval phase with an expected equipment order in late 2012 or early These are the more advanced projects within a larger pipeline of projects, which SMS is developing and marketing in India and the Middle East. SMS is a licensee of the Westinghouse Plasma Gasification Solution and provides turnkey hazardous waste facilities to the market and has approximately 140 people in their gasification division. Supported the final engineering for Wuhan Kaidi ( Kaidi ) who continued construction of its demonstration facility in China. Upon successful demonstration (expected in Q3 of 2012), Kaidi has more than 100 sites identified to take biomass and convert it into power and ethanol. Supported a demonstration facility in Shanghai China, for which we have delivered the detailed engineering and torches. The facility has finalized its feedstock agreement, with a large Chinese waste company and its site location and they are advancing the site plan. Finalized the detailed engineering on the standard design of the 200 tonne per day Westinghouse Plasma Gasification Solution for a project in Minnesota being developed by the Koochiching Development Authority. The standard 200 to 400 tonne per day gasifier is expected to sell for $12 million and the project has now applied for regulatory approval. Continued the regulatory process and financing efforts for the Dufferin County energy-from-waste project in Ontario, using the standardized 200 to 400 tonne per day gasification solution. This project currently is being developed by Alter NRG through a subsidiary called Navitus Plasma. Completed the necessary technical work with Coen Company, Inc., a leading boiler burner manufacturer worldwide, to provide syngas as a viable replacement fuel to power plants that currently utilize fuel oil. We are in commercial discussions with several island nations to provide our fuel replacement solution that delivers significant economic and environmental benefits. We have reviewed the Westinghouse Plasma Gasification system by Alter NRG and believe it may offer a viable alternative to Fuel Oil. The syngas created from different types of waste materials can be co-fired through Coen's burner technology to reduce the consumption of fossil fuels at existing power plants. We are excited to be pursuing this market opportunity with Alter NRG as it may offer compelling economic and environmental benefits for customers who are looking to reduce their dependence on fuel oil as well as their overall carbon footprint. Tim Webster, President, Coen Company With the introduction of Walter Howard as the newly appointed Chief Executive Officer, the Corporation began creating a structure for its investment options in current projects, to provide a more formal funding structure for the following investment options. Alter NRG has options to invest with key customers, including Air Products, which allow the Corporation to elect on the option after the project receives regulatory approval but without any promoted costs. This is a favorable option for the Corporation as it does not have to deploy the risky development capital but can participate in the project level annuity cashflow after the project has been de-risked. In addition to the highlights above, customers around the globe continue to advance their business development efforts using the Westinghouse Plasma Gasification Solution. This includes exclusive license agreements for territories that are in advanced negotiations. Corporate Announced the sale of CleanEnergy, the Corporation's geoexchange division, for $5 million so that the Corporation could focus exclusively on the plasma gasification business. The transaction is expected to close in May of Hired Walter Howard as Chief Executive Officer. Mr. Howard brings more than 30 years of global project development experience, specifically renewable energy experience including energy-fromwaste, wind and water projects. Within these industries Mr. Howard has successfully executed technology development and implementation, project development and execution, as well as project finance. Alter NRG 1 st Quarter Report

4 CEO Message I want to start my message by saying that I am privileged to assume the role of CEO of Alter NRG Corp. following Mark Montemurro, who led the Corporation since its founding in Under his leadership, the Corporation developed an excellent platform for growth. I was compelled to join Alter NRG Corp. because of the technology - it genuinely is world class and can change the face of the industry. WASTE FEEDSTOCK WESTINGHOUSE PLASMA GASIFICATION SYNGAS POWER FUEL OIL REPLACEMENT BIOFUELS Wuhan Kaidi Demonstration Plant currently being built in China, alongside an existing facility 4 Alter NRG 1 st Quarter Report 2012

5 The newly appointed CEO, Mr. Howard states that I am very pleased to join Alter NRG as the CEO. The Corporation has the industry leading plasma gasification technology which offers a sustainable solution to both solid waste management as well as renewable energy generation. Having multiple reference facilities coupled with the recent announcement of a $22 million purchase order from a Fortune 500 customer puts Alter NRG in a strong position for future growth and adding shareholder value. I am excited to bring my experience in renewable energy infrastructure technology to Alter NRG to accelerate the adoption of this important technology. March 8 th, 2012 While it s true that we live in fast-paced times, when markets expect quick, if not immediate, results, it would have been a mistake to rush to action simply to make a mark without first taking the time to investigate the present landscape of the Corporation. What I ve happily discovered since coming aboard is that the staff at Alter NRG matches the quality of the technology. We are fortunate to have outstanding and dedicated professionals across all departments and locations. In this regard I am pleased to be working with a seasoned team that represents decades of experience in engineering, technology and business with a great mix of various fields of knowledge. We have what we need to take the Corporation to the next stage of growth. I have not come to this role with a radically new vision for the Corporation, but with a sharply defined focus. We are a technology provider. Our focus is on plasma gasification technology for energy creation and as a solution to waste management issues. Our product is a solution to two of the most pressing problems of our time and our job now is to get that product into the hands of vetted advocates. We re on the right road in this regard. The Tees Valley project is providing us the opportunity to substantiate our technology and engineering in a very big way not only to Air Products and Chemicals, but to the industry as a whole. There is a consensus among leaders that Priority #1 for any company is excellence in execution and there has never been a time in our Corporation s history when this statement has been so meaningful. I understand the importance of integrating strategy and operations and in doing so creating sustainable excellence in performance. We know what is at stake and I have reorganized the team to make it happen efficiently. We are committed to giving the market concrete value and have revised our sales strategy with clear and more targeted value propositions and better defined go-to-market strategies. We are focused on getting deals across the finish line. That means licensing deals, gasifier sales and engineering sales. We are approaching our business with discipline. Alter NRG is not a project development company and we do not provide project financing. However, our support and advice, and the ability to bring co-investors to our customer s projects does something that is critical - it provides our customers, who are the developers, a better certainty of getting their projects financed. When the core technology is in the middle of the structuring and ownership box, financiers gain confidence because they know we are invested beyond reputation in the long term success of the project. This is the experience that I bring. Throughout my career in the energy technology sector I have been on both sides of this scenario. I have both provided, and raised project financing for natural gas, coal and wind projects for decades. With both broad and deep knowledge of the industry, I understand the model and I have the strategy to make this work. That matters because plasma gasification is a long-term story: there is no predicting the ups and downs of capital markets, but energy and waste management solutions are always in demand; critical demand in some cases and with a disciplined approach Alter NRG is uniquely positioned to grow and be successful, and to build value for our shareholders. We are charting a path to success for our company, our customers and our shareholders. Our team has the commitment and dedication to execute our strategic plan and I look forward to advancing the Alter NRG story with them and with you, our valued shareholders. Walter Howard, CEO May 10 th, 2012 Alter NRG 1 st Quarter Report

6 Hazardous Waste Management in India The Westinghouse Plasma Gasification Technology has been operating in India since 2009 handling a wide variety of hazardous wastes. Our customer SMS EnvoCare Ltd. has constructed two facilities and is currently marketing and selling turnkey hazardous waste facilities in India and the Middle East. They currently have 140 people dedicated to plasma gasification and have put another two plants into the regulatory application phase for construction in late 2012 or early These are just examples of a large pipeline of opportunities for which they will provide the turnkey engineering and construction services utilizing the Westinghouse Plasma Technology at its core. With two facilities already built and two in advanced stages, this is a business unit of SMS Envocare Ltd with exciting growth potential. Additional testing of hazardous feedstocks has been successfully demonstrated at the Westinghouse Plasma commercial demonstration facility in Madison, Pennsylvania, USA. Over the past 25 years more than 100 feedstocks have been successfully processed including the following hazardous wastes streams: Common hazardous wastes. Medical Waste. Bio-wastes and sewage sludge. Remediated landfill waste. Industrial wastes. Heavy oil and waste oils. Bitumen. Chemicals (including the destruction of PCBs). Weapon (destruction). Tires. The Value of Syngas The Westinghouse Plasma Gasification system is capable of turning environmentally destructive hazardous waste into a valuable source of energy: syngas. This syngas can be used to create power, generate steam, or produce methanol, ethanol or hydrogen. The plasma gasification process does several things: Completely destroys hazardous waste. Reduces harmful emissions and greenhouse gases when compared to other solutions like landfills. Provides significant economic benefits through power, liquid fuel generation or syngas, which is an essential building block for many chemical processes. Facility in Pune, India...outstanding facility that represents a comprehensive approach to waste handling... lastly the commitment to an overall environmental solution is commendable and responsible. Richard Fish, President, Alter NRG 6 Alter NRG 1 st Quarter Report 2012

7 SMS Envocare Ltd. SMS Envocare Ltd. is a Group Company of SMS Infrastructure Ltd. engaged in providing Environmental Infrastructure projects and Consultancy Services. Westinghouse Plasma and SMS Envocare work in partnership for engineering, procurement, construction and providing a fully integrated balance of plant solution. The Westinghouse Plasma Gasification Solution provides clients with a syngas tailored to meet downstream process needs. While Westinghouse Plasma supplies the critical components of the gasification system, the balance of plant engineering and design is supplied by engineering firms using equipment proven in applications throughout the world. Hazardous Waste Facilities The following facilities are using the Westinghouse Plasma Gasification technology to destroy hazardous waste and generate electricity. Facility in Pune, India Location: Maharashtra Enviro Power Limited (MEPL) in Ranjangaon, Pune, India Vidharbha Enviro Protection Limited (VEPL) in Mandwa, Nagpur, India Owner: SMS Infrastructures Limited subsidiary, SMS Envocare Ltd. is a provider of environmental infrastructure projects and consultancy services Technology: Plasma-assisted gasification utilizing the Westinghouse Plasma Corporation reactor design and torches Configuration: Gasification followed by combustion of syngas in boiler and flue gas clean-up Date Commissioned: MEPL in Ranjangaon, Pune: Q VEPL in Mandwa, Nagpur: Q Feedstock: Over 30 types of hazardous and industrial waste Products: Each plant: Net 1.6MW of electricity to the grid Capacity: Each plant: 72 tonnes per day Advantages: Each plant can gasify a multitude and variety of feedstocks. The feedstocks can change day to day and season to season Each facility processes difficult waste streams and exports 1.6MW of electricity to the grid The primary by-product is an inert vitrified slag Environmentally sound process creating a resultant synthesis gas ( syngas ) that contains very low quantities of NOx, SOx, dioxins and furans Partnership: SMS Envocare Ltd. and WPC have partnered to replicate the Pune plant configuration around the world Alter NRG 1 st Quarter Report

8 Evolved Energy: Refueling The Westinghouse Plasma Gasification technology is capable of processing a variety of waste materials to generate a commodity grade syngas. Syngas is a versatile product that can be used to replace fossil fuels and generate power. The value proposition is simple and compelling Many islands and other areas of the world do not have natural gas and so they import fuel oil to create their electricity. With oil prices of $100 per barrel, plus delivery it can routinely cost $20 per MMbtu. People pay to dispose of waste (tipping fees). The Westinghouse Plasma Technology at a $60 tipping fee for the household waste creates syngas that can be used to replace the fuel oil and at a cost of $0 per MMbtu. This is a significant economic improvement. This is in addition to the benefits of removing waste from landfills, as well as significantly lower carbon dioxide emissions. A win, win, win proposition. Alter NRG is currently in commercial discussions for various projects around the world both with the island nations themselves, as well as engineering companies interested in partnering into this opportunity. Refueling Configuration with Westinghouse Plasma Gasification Existing configuration Refueling configuration FUEL OIL BOILER STEAM FUEL OIL FEED STOCK MODIFIED BOILER STEAM Westinghouse Plasma Corp. provides a complete design build solution for the fuel replacement market. Our project scope is designed to minimize execution risk and provide the best possible solutions and service for our customers, including detailed facility engineering to the start-up and commissioning of your facility. Hazardous Tires Municipal Industrial Biomass etc. SYNGAS WESTINGHOUSE PLASMA S Fuel Replacement SOLUTION In the refueling configuration, the Westinghouse Plasma Gasifier will process waste materials and create a commodity grade clean syngas. This syngas is then co-fired in the existing boiler through a modification of the boiler system. The syngas will likely represent less than 25% of the total fuel being delivered to the power station. By controlling the amount of syngas as a percentage of the total delivered fuel, the facility will benefit from the significant economic and environmental attributes of the syngas while maintaining the original performance of the boiler. Refueling has many advantages, including: Create energy independence. Create an environmentally sustainable in-country waste management solution. Reduced reliance on expensive and volatile fossil fuel imports. Improve the CO2 footprint of power generation facilities by reducing the amount of fuel oil. Existing infrastructure can be used without major capital cost upgrades. 8 Alter NRG 1 st Quarter Report 2012

9 Solution for Islands Countries - The Caribbean Limited land availability and as current landfills are mandated for closure, Westinghouse Plasma provides sustainable Made in Country waste management solution and economic advantages. Significant reduction in fuel costs Westinghouse Plasma Solution can replace a material percentage of the fuel oil being used to generate power, resulting in significant fuel savings and a lower total plant operating cost. Effective utilization of current power plant assets Fuel replacement integrates with an existing power generation facility which greatly reduces the project cost when compared to a greenfield project. Integration with an existing power plant reduces permitting issues when compared to a greenfield project. Westinghouse Plasma Refueling Strategy Create a Made in Country solution for waste streams that are currently land-filled or shipped overseas. Reduce greenhouse gas emissions and the contamination of soil and ground water caused from land-filling. Indirectly increase recycling rates US States with high rates of Waste to Energy tend to also lead the country in recycling. Provide waste management solutions in the areas of high population density where sustainable waste disposal is critical. Provides energy independence Creating syngas from local waste materials, creates a Made in Country energy solution and reduces the reliance on fossil fuel imports that can be volatile and expensive. Creating syngas on site reduces the need for pipeline infrastructure that can be environmentally disruptive and capital intensive ,000 tonnes per day of waste 150, ,000+ bbl of Low Cost Replacement Fuel per annum Alter NRG 1 st Quarter Report

10 Management s Discussion and Analysis The following management s discussion and analysis (MD&A) for Alter NRG Corp. (Alter NRG, the Corporation), prepared as at May 10, 2012, provides a review of the Corporation s financial results for the three months ended March 31, 2012 and consideration of future opportunities. The MD&A should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes for the Corporation for the period ended March 31, The unaudited consolidated financial statements, and extracts of those financial statements provided within this MD&A, were prepared in Canadian dollars and are in accordance with International Financial Reporting Standards ( IFRS ). Certain other information with respect to the Corporation is available on Alter NRG s website ( and in public filings available through SEDAR ( Readers are cautioned that this MD&A contains certain forward looking statements. Please see the Forward Looking Statements section at the end of this document for a discussion concerning the use of such information in this MD&A. Executive Summary The Corporation s core focus is the Westinghouse Plasma Gasification Technology which is the worldwide leader in creating energy from waste using plasma gasification. We market and sell the Westinghouse Plasma Technology through a wholly owned subsidiary called Westinghouse Plasma Corp. ( Westinghouse Plasma ). Westinghouse Plasma is the industry leader for the treatment of all types of waste (industrial, household, commercial, hazardous, etc.) using plasma technology and converting it into useable energy such as electricity, syngas (replacement for natural gas), heat, steam, or liquid fuels such as diesel or ethanol. Our Vision To provide the leading technology platform for converting the world s waste into clean energy for a healthier planet. Our Mission As the industry leader, we will forge and dominate an industry segment that transforms current waste management practices. We build shareholder value by enabling customers to convert waste into clean energy by providing plasma gasification products, services and solutions that are innovative and environmentally friendly. Westinghouse Plasma is a commercially proven technology that is used in two commercially operating facilities in Japan that have been converting waste into energy for more than 9 years, as well as facilities operating in India and under construction in China and England. From an environmental perspective, a plasma facility will have significantly lower emissions than other alternative energy facilities and have an overall emissions profile lower than a natural gas combined cycle power facility, which is considered the cleanest fossil fuel production. From an economic perspective waste to energy projects have strong project returns in populous areas, as the projects receive revenues from tipping fees to take the waste and then also receive revenues for the sale of energy is a year of transition for the Corporation, as follows: the Corporation began execution on a purchase order for its scaled up Plasma gasifier from a leading Fortune 500 company that represents a significant commercial milestone. This validates our larger scale products as well as will be the first-of-a-kind combined cycle facility which is more energy efficient. the Corporation made management changes and has welcomed Walter Howard as the new Chief Executive Officer to shift from focusing on technology development to more aggressive sales and marketing of the product which is now market ready. Mr. Howard brings decades of experience in renewable project development, project financing and commercializing technology. the Corporation is actively negotiating exclusive licenses with other Fortune 500 or equivalent size companies in various jurisdictions. These licenses have upfront cash for the exclusivity and continued exclusivity license payments over the term. These license agreements reflect that our customers continue to look at the Westinghouse Plasma Gasification Solution as a key part of their long-term business plans going forward with broad plans in their local market. The Corporation continues to add to its customer base with large and credible companies that are looking for a commercially proven renewable energy solution. The Corporation believes it continues to be the market leader in plasma gasification and that plasma gasification is a next generation technology that provides a more efficient and environmentally friendly waste management solution. The Corporation also has a wholly owned subsidiary called Clean Energy Developments Corp. ( CleanEnergy ) which provides heating and cooling geoexchange solutions for homes, commercial and industrial buildings using energy from the earth. During December 2011, as a result of the Corporation s strategic review, the Corporation decided to exit the geoexchange business and entered into a sales agreement to dispose of all the assets and liabilities of CleanEnergy. Accordingly, the CleanEnergy results of operations and assets and liabilities are now shown as discontinued operations. The comparative prior periods have been restated to reflect CleanEnergy as discontinued operations. 10 Alter NRG 1 st Quarter Report 2012

11 Our Business Alter NRG provides and pursues alternative clean and renewable energy solutions through plasma gasification to meet the growing demand for clean energy in world markets. Westinghouse Plasma has created industry leading plasma gasification technology that provides clean and renewable energy solutions. Plasma gasification can take renewable feedstocks such as household, commercial waste, industrial waste, hazardous waste, waste biomass, or combinations of feedstocks and turn them into syngas. The syngas can be used as a replacement to fuel oil or natural gas, or converted into ethanol, diesel fuel or electricity. This provides clean energy that has a lower carbon footprint and lower emissions of other harmful pollutants and provides affordable domestic energy sources. This is a commercially proven technology being used in facilities turning waste into energy since 2002 and the Corporation can take clients to reference facilities around the world which provides a major commercial advantage. Plasma gasification facilities are large-scale energy projects. The whole facility is generally $50 million to $500 million. The sales cycle for a project is generally 3 to 7 years. In the initial project development stages, Westinghouse Plasma receives engineering fees and site license fees, which are generally $1.5 million to $6 million per project. After the project receives regulatory approvals and has project financing, customers order the plasma gasifier equipment which generally would be $10 million to $50 million depending on facility size. In the Asian market, our scope is reduced to licensing, engineering and plasma torch sales, which on these smaller scale projects are expected to be $2 million to $5 million per project. Westinghouse Plasma s project pipeline continued to mature in 2012 with projects in Russia, the United States, Poland, Spain, and England that have regulatory approval. Other projects continue to do their engineering, apply for regulatory approvals and continue to actively advance worldwide. During the maturation period the revenues associated with the project pipeline are expected to be inconsistent and concentrated on the more advanced stage projects. Westinghouse Plasma sells technology worldwide, and currently has been selected as the core technology for projects in North America, South America, European Union, Middle East and Asia Pacific. Many of these projects are being developed by Fortune 500 and other large, credible companies such as Air Products, NRG Energy, Wuhan Kaidi, SMS Infrastructures and others. The sale of our large-scale gasifier to a well respected Fortune 500 customer (Air Products) has accelerated the pace of adoption and the Corporation is currently negotiating sales agreements with large, well respected companies around the world with the intention to add to the customer base during The remaining projects are being developed by smaller entrepreneurial companies, the majority of which focus exclusively on building plasma gasification facilities using the Westinghouse Plasma Technology. Westinghouse Plasma intends to support the developers that have the most advanced projects and the capability to execute on their projects. As the core technology provider of the novel and proprietary technology, Alter NRG is often able to negotiate an option to co-invest in the projects themselves. In most cases, the projects have strong project economics and are operated by well respected companies. Alter NRG intends to re-invest the cashflow from technology sales into projects with a high rate of return, operated by qualified companies, to generate recurring revenues. As well, as the Westinghouse Plasma Gasification Solution continues to gain traction in the marketplace companies are looking for exclusivity in certain geographic regions. Alter NRG is currently negotiating exclusive license agreements with well respected companies which in most cases include ongoing royalties and/or an option to co-invest to provide recurring cashflows. Although this business segment is located in the United States, ongoing oversight occurs continually from the Canadian head office and the Board. Financial management is entirely centralized at the Canadian head office. Capability Industry leading technology and market position provides Alter NRG with a competitive advantage. Alter NRG is planning for strategic growth by increasing revenues and capitalizing on the competitive advantages of their Westinghouse Plasma Technologies. The customer base continues to strengthen and the Westinghouse Plasma technology is actively sought out by Fortune 500 and equivalent size companies worldwide. Management is developing new sustainable energy solutions which is a long-term process and recognizes that the Corporation must generate positive cash flows or secure additional financial resources. The Corporation is increasing revenues year over year but continues to report net losses with an accumulated deficit at March 31, 2012 of $95 million. By exiting the geoexchange business, management believes they will be able to focus on sales and delivery of the Westinghouse Plasma Technology and reduce the overall costs of Alter NRG. Alter NRG 1 st Quarter Report

12 Selected Consolidated Financial Information Income Statement and Cash Flow For the three months ended March Total revenues $ 1,378,457 $ 1,365,298 Cost of sales 1,106, ,931 General, administration, selling and distribution expenses 2,126,762 2,245,533 Share-based payments 98, ,600 Depreciation and amortization 582, ,416 Foreign exchange gain (loss) 191, ,766 Other expense (income) 8,969 (183) Finance (costs) income, net (1,006) 5,278 Loss before tax from continuing operations (2,737,032) (2,599,487) Net loss from continuing operations (2,593,108) (2,456,772) Loss from discontinued operations (350,307) (1,476,108) Comprehensive loss (3,317,294) (4,361,796) Loss per share basic and diluted Continued operations (0.04) (0.04) Discontinued operations (0.01) (0.02) Cash used in operations $ (1,831,583) $ (1,370,484) Statement of Financial Position at March Total assets $ 59,479,199 $ 81,286,392 Total liabilities 19,625,174 21,991,065 Shareholders equity $ 39,854,025 $ 59,295,327 Overall Performance CleanEnergy geoexchange Throughout 2011 reductions were made to CleanEnergy expenses and the concentration was on more immediate profitability of CleanEnergy projects. However, the results remained less than expected and the Corporation entered into an agreement to sell CleanEnergy and exit the geoexchange business. The geoexchange business has been classified as a discontinued operation and the financial statements have been adjusted to reflect CleanEnergy as discontinued operations. Accordingly this management discussion and analysis excludes CleanEnergy from the operational analysis. 12 Alter NRG 1 st Quarter Report 2012

13 Plasma sales and services The Westinghouse Plasma business continues to grow. For the three months ended March 31, 2012, the Corporation maintained sales growth and expenses continued to decline as the Corporation continued its efforts to control and reduce expenses. Revenues for the first quarter of 2012 were 15% higher than those of the quarter ended December 31, For the three months ended March 31, 2012, total revenues of $1.4M were $13,000 or 1% higher than the three months ended March 31, Gross profit for the three months ended March 31, 2012 was 20% as compared to the three months ended March 31, 2011 of 64%. The decrease in gross margin from the previous year is attributable to the nature of the revenues earned during the period. Gross margin for the three months ended March 31, 2012 is attributable to gasification equipment sales, compared with the gross margin for the three months ended March 31, 2011 which was mostly attributable to testing revenues. Testing revenues generally have greater margins than those earned on equipment sales. In December 2011, the Corporation received a purchase order for its large-scale plasma gasification unit for $22.4 million, which will increase the revenue stream for 2012 considerably. The Corporation remains focused on decreasing expenses and has continued to achieve success in the first three months of General expenses, which include general and administration and selling and distribution, decreased 5% for the three months ended March 31, 2012 to $2.1 million, as compared to $2.2 million in the same period of The expenses have been decreased through focus, efficiencies and a reduction in the number of employees. Management believes they have built a strong team of people focused on growing revenue in In recent months, the Plasma business accomplished a number of important strategic milestones that are illustrative of the larger sales pipeline that continues to mature. Sales of $1.4 million which is a increase over prior quarter reflecting the sale to Air Products of the large scale gasification solution. Revenue is expected to continue to increase in 2012 as the pace of fabrication increases. Executed approximately 7% of the purchase order from Air Products, a US based Fortune 500 company. SMS Infrastructure ( SMS ) (who has already constructed two hazardous waste facilities) advanced two projects into the formal regulatory approval phase with an expected equipment order in late 2012 or early These are the more advanced projects within a larger pipeline of projects, which SMS is developing and marketing in India and the Middle East. SMS is a licensee of the Westinghouse Plasma Gasification Solution and provides turnkey hazardous waste facilities to the market and has approximately 140 people in their gasification division. Supported the final engineering for Wuhan Kaidi ( Kaidi ) who continued construction of its demonstration facility in China. Upon successful demonstration (expected in Q3 of 2012), Kaidi has more than 100 sites identified to take biomass and convert it into power and ethanol. Supported a demonstration facility in Shanghai China, for which we have delivered the detailed engineering and torches. The facility has finalized its feedstock agreement, with a large Chinese waste company and its site location and they are advancing the site plan. Finalized the detailed engineering on the standard design of the 200 tonne per day Westinghouse Plasma Gasification Solution for a project in Minnesota being developed by the Koochiching Development Authority. The standard 200 to 400 tonne per day gasifier is expected to sell for $12 million and the project has now applied for regulatory approval. Continued the regulatory process and financing efforts for the Dufferin County energy-from-waste project in Ontario, using the standardized 200 to 400 tonne per day gasification solution. This project currently is being developed by Alter NRG through a subsidiary called Navitus Plasma. Completed the necessary technical work with Coen Company, Inc., a leading boiler burner manufacturer worldwide, to provide syngas as a viable replacement fuel to power plants that currently utilize fuel oil. We are in commercial discussions with several island nations to provide our fuel replacement solution that delivers significant economic and environmental benefits. With the introduction of Walter Howard as the newly appointed Chief Executive Officer, the Corporation began creating a structure for its investment options in current projects, to provide a more formal funding structure for the following investment options. Alter NRG has options to invest with key customers, including Air Products, which allow the Corporation to elect on the option after the project receives regulatory approval but without any promoted costs. This is a favorable option for the Corporation as it does not have to deploy the risky development capital but can participate in the project level annuity cashflow after the project has been de-risked. In addition to the highlights above, customers around the globe continue to advance their business development efforts using the Westinghouse Plasma Gasification Solution. This includes exclusive license agreements for territories that are in advanced negotiations. Corporate Announced the sale of CleanEnergy, the Corporation's geoexchange division, for $5 million so that the Corporation could focus exclusively on the plasma gasification business. The transaction is expected to close in May of Hired Walter Howard as Chief Executive Officer. Mr. Howard brings more than 30 years of global project development experience, specifically renewable energy experience including energy-from-waste, wind and water projects. Within these industries Mr. Howard has successfully executed technology development and implementation, project development and execution, as well as project finance. Alter NRG 1 st Quarter Report

14 Quarterly Information (updated for IFRS) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Sales $ 1,378,457 $ 1,197,562 $ 2,928,467 $ 1,219,862 $ 1,365,298 $ 2,735,724 $ 2,725,041 $ 387,843 Cost of sales 1,106, ,084 1,184, , ,931 1,507, , ,768 Gain on sale of assets - - 1,501, , Write down of assets held for sale - 59, , Net loss (2,943,415) (2,067,730) (5,258,033) (9,887,776) (3,932,880) (7,012,668) (6,221,385) (4,338,233) Loss per share - basic and diluted (0.04) (0.03) (0.09) (0.16) (0.06) (0.11) (0.10) (0.07) Capital expenditures 157,217-45,620 40, ,497 (54,955) 279, ,121 Total assets $ 59,479,199 $ 63,173,939 $ 67,122,658 $ 70,887,442 $ 81,286,392 $ 87,187,305 $ 92,068,558 $ 97,710,671 The 2011 and 2010 figures have been adjusted to reflect discontinued operations Revenues for the three months ended March 31, 2012 reflect revenues recognized using the percentage of completion method for the sale of the large scale gasification solution to Air Products. The Corporation is focused on the sale of gasification solutions to provide a long term stable revenue stream. Leading up to the sale of the equipment solution, the Corporation earns engineering and testing revenues which generally have a higher margin than an equipment sale. The majority of revenues earned in 2011 were attributable to testing, resulting in higher margins in the prior year. Alter NRG continues to record net losses as management works to secure plasma sales with long sales cycle and continues to build the reputation of Westinghouse Plasma Technology Solutions. With a concerted effort, general expenses have been lowered through reductions in staff and ongoing overhead. The disposition of CleanEnergy is expected to close in the second quarter of 2012 and this disposition will reduce the losses incurred by the Corporation. Sales and Direct Costs For the three months ended March Revenue Equipment sales $ 1,310,160 $ - Engineering and testing services 60, ,845 Parts and other sales 8, ,453 $ 1,378,457 $ 1,365,298 Direct cost of sales Equipment sales $ 1,105,824 $ - Engineering and services - 384,685 Parts and other sales ,246 1,106, ,931 Gross margin $ 271,761 $ 877, Alter NRG 1 st Quarter Report 2012

15 Revenues for the three months ended March 31, 2012 were $1.4 million, which is an increase of 1.0% from the same period in Gasification equipment sales accounted for the majority of the revenue received in the three months ended March 31, 2012, where as testing services revenue dominated the same period for The parts and other sales continue to reflect minor amounts of revenue. Direct costs of sales were $1.1 million relating to direct labour, materials and expenditures for products sold and services provided for the three months ended March 31, Margins for the three months ended March 31, 2012 are 20%, as compared to 64% for the same period in 2011, as a result of the shift from high margin testing services revenue to lower margin equipment sales revenue in the three months ended March 31, The Corporation continues to have the capacity to provide testing services should they be requested. The engineering and testing services lead to plasma gasification equipment orders which are larger transaction sizes of $10 million to $50 million per project or in the Asian market, where the project scope is smaller; revenues of $2 million to $10 million. Alter NRG has devoted significant efforts into expanding its product offering through completing engineering studies and product design enhancements required to construct the plasma gasification island. The Corporation works with project developers worldwide in the early stages of planning and developing plasma gasification projects. Engineering services are required in the preliminary planning phase and equipment is ordered only after a project has received regulatory approval and project financing, thus these sales have a long lead-time. The Corporation has over 20 projects in the engineering phase of project development which are expected to lead to the sale of a larger scale gasification island in many cases. The number of proposed projects around the world is increasing. Since the Corporation purchased Westinghouse Plasma it has increased its number of customers. Key customers advancing commercial projects include Air Products, Wuhan Kaidi, NRG Energy, Koochiching Development Authority and SMS Infrastructures, which all have the ability to execute. Other projects are being advanced by companies, most of who focus exclusively on developing facilities using the Westinghouse Plasma Technology. General Expenses For the three months ended March General and administrative $ 1,718,479 $ 2,079,584 Selling and distribution 408, ,949 Total $ 2,126,762 $ 2,245,533 Total general expenses including general and administrative and selling and distribution costs declined for the three months ended March 31, 2012 by $0.1 million or 5% as compared to the same period for The Corporation has decreased costs by focusing on key areas and achieving operational efficiencies where possible. Sales and marketing efforts have been focused on near-term opportunities and reflect the world wide nature of the Corporation s market. These efforts resulted in a decline in employee costs through headcount reductions. On a total basis, for the three months ended March 31, 2012, employee costs account for approximately 49% of the total general expenses as compared to 62% for the three months ended March 31, At March 31, 2012, the team included 33 full time employees compared to 46 employees at March 31, Headcount by department is as follows: As at March Engineering and operations Sales and marketing 8 5 Finance and corporate development 5 11 Human resources, information technology and administration 5 6 Total Alter NRG 1 st Quarter Report

16 General and Administrative Expenses For the three months ended March Employee costs, net of recoveries $ 837,708 $ 1,297,206 Professional and consulting 296, ,368 Office and operating 251, ,295 Travel 130,440 86,575 Other 202,183 84,549 Bad debts Total $ 1,718,479 $ 2,079,584 Total general and administrative expenses for the three months ended March 31, 2012 of $1.7 million have decreased by $0.4 million or 17% as compared to the three months ended March 31, The majority of the decrease is related to a reduction in headcount and the increased productivity of the current employees. Employee costs savings of $0.5 million were driven by decreases in the number of employees in most departments as total employees decreased by 28% from March 31, 2011 to March 31, Professional and consulting fees include legal, audit, accounting, external recruiting and engineering consulting fees. The professional and consulting fees for the three months ended March 31, 2012 have remained consistent with the same period for Office and operating costs for the three months ended March 31, 2012 decreased by approximately $0.1 million as compared to the three months ended March 31, 2011 due to significant savings realized as the Corporation consolidated office space and subleased excess space. Travel costs increased for the three months ended March 31, 2012 by approximately $44,000. The increase is due to increased travel to the United States, the United Kingdom and continental Europe as business development continues. Other costs include corporate governance costs such as financial reporting costs, Board of Directors fees and information technology costs. Other costs increased for the three months ended March 31, 2012 by approximately $118,000 which relates to increased costs related to the Board of Directors. Selling and Distribution Expenses For the three months ended March Employee costs $ 131,940 $ 54,686 Professional and consulting 109,021 40,036 Travel 142,350 68,902 Advertising 24,640 1,244 Other 332 1,081 Total $ 408,283 $ 165,949 Total selling and distribution expenses for the three months ended March 31, 2012 of $0.4 million have increased by $0.2 million or 146% as compared to the three months ended March 31, Employee cost increase of approximately $77,000 from the three months ended March 31, 2011 are due to the increase in the number of employees allocated to the sales and marketing team, as the Corporation focuses on growing the plasma gasification business. Professional and consulting expenses increased by approximately $69,000 from the three months ended March 31, 2011 due to external recruitment fees. Travel costs for the three months ended March 31, 2012 significantly increased by approximately $73,000 as compared to the three months ended March 31, 2011 due additional sales efforts and the global nature of the Corporation s markets. Advertising for the three months ended March 31, 2012 increased by approximately $23,000 from the three months ended March 31, 2011 in line with the Corporation s objective of expanding its marketing presence. 16 Alter NRG 1 st Quarter Report 2012

17 Share Based Payments Total share based payments for the three months ended March 31, 2012 totaled $98,327 as compared to $232,600 for the three months ended March 31, With fewer employees at March 31, 2012 and a lower share price, the share based compensation expense has decreased. Depreciation and Amortization For the three months ended March Depreciation $ 84, ,819 Amortization 498, ,597 Total $ 582,602 $ 641,416 Depreciation decreased slightly for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 due to aging assets and few additions in Amortization totaled $498,515 ( $490,597) for the three months ended March 31, 2012 on acquired intangible assets and internally generated intangible assets, which are being amortized on a straight line basis over their estimated useful lives. Acquired intangible assets are assets acquired through the purchase of the Westinghouse Plasma US subsidiary in For the three months ended March 31, 2012, amortization on these assets totaled approximately $0.4 million ( $0.4 million). The US Subsidiary intangible assets have an estimated useful life of 30 years. Internally generated intangible assets are costs spent on design and development of plasma technology. Amortization of completed internally generated intangible assets for the three months ended March 31, 2012 amounted to approximately $0.1 million ( $0.1 million). These intangible assets are being amortized over an estimated useful life of ten years. Foreign Exchange Gain (Loss) The foreign exchange loss of $191,127 for the three months ended March 31, 2012 as compared to a foreign exchange loss of $362,766 for the three months ended March 31, 2011 is the result of the fluctuating Canadian dollar during the period and relates mostly to the intercompany advances. US dollar denominated intercompany advances made to the US subsidiary, which are eliminated at consolidation, are revalued at the exchange rate as of the reporting period date. Income Taxes For the three months ended March Deferred income tax liability $ 14,874,771 $ 17,655,645 Provision for deferred income recovery (143,924) (142,715) Deferred income tax benefit $ - $ - The deferred income tax liability relates predominately to the difference between the accounting and tax treatment of the intangible assets acquired from Westinghouse Plasma in This is not a statutory liability and would only be realized if the Corporation sold the acquired intangible assets for their carrying amount. The provision for income tax recovery arises as the intangible assets are amortized and the difference between the accounting and tax basis is reduced. A deferred income tax benefit is not recorded due to lack of certainty related to realization of this benefit and in accordance with accounting recognition criteria. Alter NRG 1 st Quarter Report