WASTE FEEDSTOCK WESTINGHOUSE PLASMA GASIFICATION SYNGAS. Evolved Energy

WASTE FEEDSTOCK WESTINGHOUSE PLASMA GASIFICATION SYNGAS Evolved Energy A n n u a l R e p o r t 2 0 1 1

Commercially Proven Energy Solutions Alter NRG provides energy-from-waste solutions through its wholly owned subsidiary, Westinghouse Plasma Corporation. Tees Valley, UK Placed gasifier order late 2011 Owner: Air Products Capacity: 950 tonnes per day Feedstock: Municipal solid waste Output: Power Mihama-Mikata, Japan Commissioned in 2002 Owner: Municipality Capacity: 24 tonnes per day Feedstock: Municipal solid waste and waste water sludge Output: Syngas is combusted to provide heat Nagpur, India Constructed in 2010 Owner: SMSIL Capacity: 72 tonnes per day Feedstock: Hazardous waste Output: Power Yoshii, Japan Commissioned in 1999 Owner: Hitachi Metals, Hitachi Ltd. Feedstock: Municipal solid waste Output: Syngas Pune, India Commissioned in 2009 Owner: SMSIL Capacity: 72 tonnes per day Feedstock: Hazardous waste Output: Power Kinura, Japan Commissioned in 1995 Owner: IHI Inc. Feedstock: Incinerator ash Output: Vitrified ash Utashinai, Hokkaido, Japan Commissioned in 2003 Owner: Hitachi Metals, Hitachi Ltd. Capacity: 220 tonnes per day Feedstock: Municipal solid waste and auto shredder residue Output: Generates salable Power Westinghouse Plasma Center In operation since 1990 Owner: Alter NRG Capacity: 48 tonnes per day Feedstock: Over 100 different feedstock tested Output: Syngas Westinghouse Plasma Gasification Technology Creates Energy Independence and Environmentally Sustainable Waste Management Solutions

Contents WASTE FEEDSTOCK WESTINGHOUSE PLASMA GASIFICATION Alter NRG Corp.: Vision & Mission Fourth Quarter Highlights Executive Chairman s Message Leadership Westinghouse Plasma Gasification: Key Enabling Technology Evolved Energy: Key Project Milestone Sales Pipeline & Strategic Backlog Management's Discussion and Analysis Management s Report Independent Auditor s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements Corporate Information 4-5 6-7 8-9 10-11 12-13 14-15 16-17 18-39 40 41 42-47 48-81 82 SYNGAS POWER FUEL OIL REPLACEMENT Alter NRG Provides Evolved Energy Solutions We have commercially proven technology that provides the next generation of energy-from-waste solutions. With reference facilities, a strong customer base and a worldwide demand for renewable energy, we are well positioned for significant growth. BIOFUELS Alter NRG Annual Report 2011 3

Alter NRG Corp. Alter NRG OWNS 100% of the Westinghouse Plasma Technology Which Takes All Types of Waste and Converts It into Useable Energy - Solving Two Major Challenges: WESTINGHOUSE PLASMA GASIFICATION CYCLE WASTE FEEDSTOCK Diverting waste from landfills Providing a clean and renewable source of domestic energy MUNICIPAL Alter NRG is pursuing alternative energy solutions to meet the growing demand for environmentally responsible and economically viable energy in world markets. The Company s primary objective is to accelerate the adoption of the Westinghouse Plasma Gasification Technology providing renewable and clean energy solutions from a wide variety of feedstocks for a wide variety of energy outputs including liquid fuels like ethanol and diesel, electrical power, replacing fuel oil and using syngas to create heat, or steam for industrial use. With plasma systems in operation for 20 years and converting waste into energy since 2002, this technology is commercially proven and has lower emissions than conventional energy technologies. INDUSTRIAL BIOMASS THE WESTINGHOUSE PLASMA SOLUTION IS EVOLVED ENERGY: 1. Environmentally Superior Performance waste can be landfilled, burned and composted, but treating waste with plasma gasification results in lower emissions that are consistently below regulatory standards - this is the evolution of waste treatment. 2. Industry Leading Technology with the longest commercial history and the largest scale of solutions Westinghouse Plasma has evolved as the industry leader. HAZARDOUS COMMODITIES 3. Fully Engineered Solution Our product has evolved and has been adopted and passed due diligence by world leading Fortune 500 and engineering companies. 4. Strong Business Plan the business plan has evolved with more aggressive outbound sales and marketing of this important technology. This evolution has been supported by changes in the board and management team to support the next generation of plasma gasification 5. Strong customer base Alter NRG has contractual relationships with leading Fortune 500 customers, leading engineering companies, and dozens of developers worldwide. Facilities are being built and our pipeline of opportunities continues to grow. We have evolved to a large scale, commercially and economically viable energy solution. ELECTRICITY FUEL OIL REPLACEMENT LIQUID FUELS 4 Alter NRG Annual Report 2011

Gasifier 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 our customers to convert waste into clean energy by providing plasma gasification products, services and solutions that are innovative and environmentally friendly. Alter NRG Annual Report 2011 5

Fourth Quarter Highlights (to March 20, 2012) 2011 was a year of transition where the Company evolved in three major ways: 1. Selling non-core assets to be completely focused on the Westinghouse Plasma Gasification Solution. 2. Receiving a $22 million purchase order for our large scale gasifier from a Fortune 50 0 company. 3. Focusing the business plan on more aggressive sales and marketing of our market ready products. The newly appointed CEO, Mr. Howard states I am very pleased to join Alter NRG that as the CEO. The Company 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. Sales of $6.7 million which is the largest annual plasma revenues in the Corporation s history. Received a $22 million purchase order from Air Products, a US based Fortune 500 company for their Tees Valley project in Northern England which intends to take 950 tonnes per day of processed household waste and convert it into 49 MW of electricity, enough to power over 50,000 homes. Worked with SMS Infrastructures ( SMS ), who already has constructed two hazardous waste facilities in India using the Westinghouse Plasma technology, and is now pursuing two additional projects and a further portfolio of hazardous waste projects which continue to advance. Provided syngas to Coskata, Inc. ( Coskata ) at the Westinghouse Plasma Centre in Pennsylvania. Coskata has a proprietary syngas to ethanol conversion technology that is using the Westinghouse Plasma technology to create syngas from biomass and waste. The Coskata technology has been chosen for a waste to ethanol project in Australia that is being advanced and is expected to be a $50 million technology sale to Alter NRG, upon successful development. The consortium (called Flex Ethanol) performed a successful waste to ethanol test at the Westinghouse Plasma Centre. Executed upon a $1.9 million sale of plasma torches for use in an industrial application. 6 Alter NRG Annual Report 2011

Finalized the detailed engineering for the construction of a demonstration facility by Wuhan Kaidi ( Kaidi ) in the Wuhan province of China and constructed the plasma torches. Upon successful demonstration, Kaidi has up to 150 biomass-to-energy projects which they expect to develop in the Central China market over the next 15 years using the Westinghouse Plasma technology. The revenue to Westinghouse Plasma is expected to be US$3 to US$5 million per facility. Advanced the detailed engineering and construction of the plasma torches for a demonstration facility in Shanghai which will be integrated with an existing incinerator to take the incinerator ash as well as other difficult feedstocks. Upon successful demonstration, the revenue to Westinghouse Plasma is expected to be US$5 to US$10 million per additional facility and they have identified 13 current incinerators around Shanghai as targets. The Westinghouse Plasma technology has shown that it can handle a wide variety of biomass and waste material, and consistently deliver synthesis gas that is of the quality and specification that Coskata needs for the production of cellulosic biofuels. We look forward to working together with Alter NRG on commercial opportunities to deliver this industry leading waste to fuel solution. Bill Roe, CEO, Coskata Completed the second phase of engineering on a project in Minnesota being developed by the Koochiching Development Authority. The proposed project which is to be located in Koochiching County in Northern Minnesota is called the Renewable Energy Clean Air Project. This project could result in an approximate US$12 million technology sale. Received the first milestone payment on a license agreement in Australia and New Zealand with Phoenix Energy (formerly Moltoni Energy) for $5.75 million payable in increments over 5 years. Phoenix Energy is a private development company with experience in both waste and large power facilities and they have a dozen planned energy-from-waste projects in the region. Continued the regulatory process and stakeholder relations efforts for the Dufferin County energy-from-waste project in Ontario, Canada, an approximate 6.5 MW facility. This would be an approximate $12 million sale of Westinghouse Plasma equipment. In addition to the above highlights, Alter NRG tours potential new customers to the facilities in Japan, India and the Westinghouse Plasma Centre operated by us Madison Pennsylvania on a regular basis. In the last 6 months, we have had numerous Fortune 500 and equivalent companies perform further due diligence on the Westinghouse Plasma Solution and are negotiating various license agreements. We expect to be adding new strategic, and industry leading customers in 2012. Corporate Activity Announced the sale of CleanEnergy, the Corporation s geoexchange division, for $5 million to focus its efforts entirely on plasma gasification. This transaction is expected to close in April 2012. Sold a non-core coal asset for cash proceeds of US$5.0 million and executed an agreement for the sale of a steam turbine for $1.75 million which improved the Corporation s working capital position. Hired Walter Howard as Chief Executive Officer. Mr. Howard brings more than 30 years of global project development and 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. Appointed Kevin Bolin as Executive Chairman, who has an extensive background in the energy-from-waste industry. Completed the necessary filings for a $20 million Committed Equity Facility provided by Haverstock Master Fund. The 24-month agreement enables the Corporation to receive in aggregate $20 million through individual drawdowns of up to $500,000. Timing of any drawdown is at Alter NRG s sole discretion and the Corporation is also able to set a minimum price for each drawdown. Alter NRG Annual Report 2011 7

Executive Chairman s Message 2011 was an important year for Alter NRG. We needed to evolve our Company to ready ourselves for the next stage of value creation. This included garnering the right focus and shedding what was not core to our franchise. Accomplishments this year include: developing a strategy to monetize the value of the Company and put us in a position for growing positive cash flows in 2012 and beyond; directing our corporate resources on project and key milestone delivery; and adjusting our leadership so that we can execute and create value for years to come. By accomplishing these things we are now moving forward quickly. We are now poised to create long-term value. To me, it is a very exciting time at Alter NRG. I would be remiss if I didn t directly address the performance of our share price to our shareholders in this message. It would be easy to excuse our recent market performance on the current overall conditions, widespread investor fatigue and fears of global slowdown - it would also be wrong. Our investors need to see execution and revenue growth. Growth can only come with focus and execution. Early in the year we explored strategic alternatives for the Company in order to achieve the best value for shareholders. The process resulted in the return of our focus to our Westinghouse Plasma business in addition to the sale of non-core assets, which helped to strengthen the balance sheet. With focus 100% on plasma, it was determined that our shareholders would be best served by a modification to our strategy, management and Board. The evolution of our Company has been a journey with some detours, but looking back we can confidently say that we have done an excellent job in creating potential value through advancing our technology development and commercial readiness. Since acquiring Westinghouse Plasma in April of 2007, the Company significantly improved the core plasma gasification technology by enhancing performance, reliability, and the overall economics. This began with leveraging our existing demonstration and commercial facilities, and then expanding our product offering to a full gasification solution, which can be integrated with other conventional equipment to create renewable energy from waste or biomass. Numerous leading engineering companies have provided technical input into our Westinghouse Plasma gasification technology, allowing us to further evolve and extend our technical and commercial lead over competitors. Our technology is commercially deployed. We have operating plants and customers utilizing our plasma gasification offering as substantiated by the $22.4M sale announced in December to Air Products and Chemicals, Inc. The scope of this order includes engineering, fabrication and construction of a plasma gasifier for installation at their proposed Tees Valley Renewable Energy Facility in Northeast England. Our technology is commercially ready for demanding applications substantially up the value chain. 8 Alter NRG Annual Report 2011

Realizing that the Air Products success was a platform for growth coupled with the need to create shareholder value, a change of leadership was important for the next chapter of our Company. We have welcomed our new CEO, Walter Howard, who has experience in both the capital markets and international sales of large infrastructure technology. He comes to us as a leader in the renewable energy field. Mr. Howard will be focused on our new strategy which includes increasing our recurring revenue base through licensing activities and incremental project participation, enhancing our strategic partner base to generate greater sales volumes, and focusing on markets which are ready to act now. He will continue our technology leadership position, capitalize on our brand, and leverage our existing installed base to accelerate technology improvements and intellectual property. Technology improvements will focus on enhancing addressable markets and increasing margins. Finally, Mr. Howard will focus on improving our balance sheet and creating a cash flow positive business. We have a great technology, a great brand, a leading position, and a team that has the ability to capitalize on these. We listen to our Shareholders and we are committed to creating value for you. We are confident that our recent changes and focused direction will provide the results that matter to you. We are fortunate to have some long term supporters and want to take the opportunity to thank you for patiently supporting our evolution. We have achieved important progress during a time of significant change. One of the primary truths about fundamental change is that it can be easy to overestimate the speed with which it will unfold and just as easy to underestimate the impact that it will ultimately have. From that outlook, we are optimistic about the future. It is reasonable to expect a company in our position to have many exciting announcements in the near term and for years to come. WASTE FEEDSTOCK WESTINGHOUSE PLASMA GASIFICATION SYNGAS POWER FUEL OIL REPLACEMENT BIOFUELS Signing this contract will be a watershed moment for Alter NRG. This agreement represents the first sale of our largest plasma gasifier, the G65. Having a prestigious customer choose our technology provides further credibility to our product offerings. As well, the Tees Valley plant would provide Alter NRG a fifth reference plant and our first in Europe. Kevin Bolin, Executive Chairman of Alter NRG Tees Valley United Kingdom Kevin Bolin, Executive Chairman March 20 th, 2012 Alter NRG Annual Report 2011 9

Leadership Focus on People Walter Howard became Alter NRG s second CEO on March 8, 2012 succeeding Mark Montemurro who continues to be a Director on Alter NRG s Board. Walter Howard Chief Executive Officer Walter has extensive experience in business development, project finance, and operations within the electric and water utility industries and has held CEO, COO, CFO, and SVP executive positions with utility leaders including General Electric, US Generating (an affiliate of Pacific Gas & Electric and Bechtel), Noble Environmental Power, GE Capital and J. Makowski Co. Inc (partly owned by Duke Power). With a career spanning more than 30 years, and having successfully executed technology development and implementation, project development and execution and project finance, Walter is the ideal individual to lead us from a very technically focused Danny Hay CFO Richard Fish President Kevin Bolin Executive Chairman organization into a more sales focused company and on to a successful future. Q&A with your new CEO Over the past 30 years you ve been successful in CEO, COO, CFO and SVP roles - what key factors underlie how you work? First, is a realistic and focused vision of what you want to achieve and clear expectations of the roles different parts of the organization play in achieving that vision. Second, you need to have, or assemble, the tools to reach that vision. We have those tools. They include a team with value such as honesty, respect and openness, and a winning technology base. Importantly, it is about communicating and then providing responsive services to ensure customers and shareholders see solid execution and value creation. And it s about good financial management. I am very focused on ensuring an organization has a strong financial position. What attracted you to the role of CEO of Alter NRG? Simply put, the Westinghouse Plasma technology is the best in class and is the industry leader. I was very attracted to the challenges and opportunities it presents in terms of capitalizing on a strong technology and translating that into profitable growth, while at the same time contributing to the good of the planet. What does success look like for you in this role? I am looking forward to building on the excellent platform established by previous management, particularly in areas such as project execution, further progress on the design and engineering of our core offering at the same time as focusing on increasing our sales pipeline and responsibly managing our resources. Through solid execution, I am confident that Alter NRG can improve investor sentiment. Joining Alter NRG in 2006, Danny is one of three original employees. In 2007 he led the complex process of taking Alter NRG public and was central in evaluating the company s readiness and assessing market acceptance. In addition to his role as CFO wherein he oversees the finance and accounting of Alter NRG, he also successfully leads the company s Investor Relations initiatives as well as the Corporate Development group responsible for marketing; corporate communication to investors, customers and partners; scoping analytical models and product development. Originally Richard joined Alter NRG as Chief Marketing and Sales Officer in February 2009. His role transitioned to Chief Operating Officer in late 2009 where his processes and guidance in the Plasma group led to positive operating results for the first time in the company s history. Richard was then appointed President of Alter NRG in November 2010 where his strong track record in restructuring was leveraged. He has been focused on process improvements and driving profitable growth since that time. Kevin joined the Alter NRG Board of Directors in November 2009 bringing licensing, project development and strategic planning expertise. Kevin was appointed Executive Chairman in September 2011 in order to lead the Company through a strategic direction change. He is currently on the Board of Directors of EnerTech Environmental, Inc., a private renewable energy company that converts biomass, primarily municipal sewage sludge, into clean fuel. Kevin led the Atlanta-based company since its inception in 1992 and was involved in all aspects of its growth and development, both domestically and internationally. 10 Alter NRG Annual Report 2011

Alter NRG s Board of Directors take their primary responsibility of ensuring the greatest shareholder value and protecting the shareholders assets seriously. The Board has been very active over the last year with management in participating in the Company s ongoing strategic planning process. Together with management, the Board has focused on specific strategic themes, including growth and the strategic management of cost, risk and talent. Their experience brings an independent, balanced and value-added perspective to this process. Nancy M. Laird Lead Director Brent J. Conway Director Joseph Schwager Director Michael E. Heier Director Mark A. Montemurro Director Nancy was appointed to the Board of Directors in April 2006. She chairs the Compensation and Governance Committee. She was appointed Lead Director in September 2011 to help navigate the Company through strategic direction changes. Nancy is valued for her more than 25 years of experience having served as Senior Vice President, Marketing and Midstream for PanCanadian Energy (predecessor to Encana Corporation). She is currently a board member for Keyera Corp. and Synodon Inc. and serves on various private company boards. Nancy holds a Bachelor of Arts degree (Honours) from the University of Western Ontario and earned her MBA from the Schulich School of Business at York University in Toronto. Brent was appointed to Alter NRG s Board of Directors in April 2006 and chairs the Audit Committee. Brent is currently the Chief Financial Officer of Trinidad Drilling. He graduated from the Faculty of Management at the University of Calgary with a Bachelor of Commerce in accounting. Brent received his Certified General Accountant Designation in 1986. Joe was appointed to Alter NRG s Board of Directors in June 2010 after being granted formal observer status to the Board of Directors in January 2010. He chairs the Project Review Committee. Joe founded Juniper, a consultancy that established itself as the leading independent analyst of novel waste processing technologies, assessing their capabilities and limitations and their impact upon market dynamics internationally. Through this advisory work he has developed a unique perspective on the competitive landscape and the direction of government policy. He is a board member of Viridor, one of the UK s leading waste management companies. Michael is one of the founders of Alter NRG, formally establishing the Company in 2006. In April 2007, drawing on his experience as the founder and Chairman of Trinidad Drilling he helped support the completion of Alter NRG s Initial Public Offering a significant hurdle given the challenges of generating acceptance of a new technology in a new market. He provides invaluable strategic direction and long term vision in addition to chairing the Health, Safety and Environment Committee. Mark is one of the founders, formally establishing Alter NRG in 2006. From 2006 to the end of 2011, Mark held the position of CEO of Alter NRG. He has more than 24 years oil and gas experience, focusing primarily on the application of new technologies and the commercial development of conventional and thermal heavy oil. Prior to Alter NRG, Mark was the Vice President, Thermal Operations with Deer Creek Energy from 2002 to September 2005, at which time the company was purchased by Total. He holds a Bachelor of Science degree in Chemical Engineering from the University of Calgary. Alter NRG Annual Report 2011 11

Westinghouse Plasma: Key Enabling Technology Westinghouse Plasma Technology is the Key Enabling Technology for the energy-from-waste industry as it can convert many types of waste feedstocks into a clean Syngas. This clean syngas can be further converted into electricity, ethanol, gasoline, diesel fuel and a replacement of fuel oil. Better economics and environmental performance make plasma gasification the next generation of waste conversion technology. Commercially Proven Environmentally Superior Industry Leader Westinghouse Brand Fortune 500 Customers Large sales pipeline of existing projects FEED HANDLING PLASMA GASIFICATION SYNGAS CLEAN-UP & GAS COOLING UNMATCHED APPLICABILITY TO MARKETABLE COMMODITIES Feed Material Receiving, Storage & Conveying STEAM CYCLE COMBINED CYCLE ETHANOL DIESEL GASOLINE JET FUELS Industrial Waste ENGINES FUEL CELLS BIO FERMENTATION CALATLYTIC FISCHER- TROPSCH Commercial Waste Waste Biomass Household Waste Medical Waste Plasma Torches Air or Oxygen POWER FUEL OIL REPLACEMENT BIOFUELS Tires etc. Slag & Recovered Metals SYNGAS WIDE VARIETY OF FEEDSTOCKS LOW $ COST FLEXIBLE PROCESS GASIFIER WIDE VARIETY OF PRODUCTS HIGH $ VALUE 12 Alter NRG Annual Report 2011

The Westinghouse Plasma technology is a commercially proven process to convert all types of waste into valuable energy. Our process has significant benefits which have attracted world-leading innovators as our customers. We offer a range of standard products for many feedstocks and various types of projects. We s t i n g h o u s e P l a s m a G a s i f i c a t i o n h a s S i g n i f i c a n t C o m m e r c i a l A d v a n t a g e s Minimal feedstock preparation Typically a pre-sorting of recyclables and a one stage shredding of the material Handles a wide range of feed compositions High moisture content High inert content Blend any number of solid or liquid feedstock s Ability to blend feedstocks reduces project feedstock risk and significantly increases project economics High reliability Operates in rugged industrial applications Over 500,000 hours and 20 years of industrial use of the plasma torches Diverse Gasification Portfolio Standard platforms P 5 Replaces up to 50,000 bbls/yr of fossil fuel 30 to 100 tpd of Waste Produces up to 5 MW electrical W 15 Replaces up to 150,000 bbls/yr of fossil fuel 100 to 290 tpd of Waste Produces up to 15 MW electrical G 65 Replaces up to 650,000 bbls/yr of fossil fuel 450 to 1000 tpd of Waste Produces up to 50 MW electrical Engineering services Feasibility Study Design Basis Memorandum (DBM) Process Design Package (PDP) Scope of supply Feed Inlet Plasma gasification reactor Plasma torch systems Slag solidification system Initial syngas cooling & cleaning Syngas Cleaning Systems Low emissions and waste by-products Syngas, after cleanup, burns clean like natural gas Vitrified slag is inert/non-leaching and is being used as a construction aggregate Low greenhouse gas footprint when compared to alternative methods of creating power In the Westinghouse Plasma Gasification configuration, the gasifier will process waste materials and create a commodity grade clean syngas. By controlling the amount of syngas as a percentage, the facility benefits from the significant economic and environmental attributes of the syngas. Alter NRG Annual Report 2011 13

Evolved Energy: Key Project Milestone Te e s Va l le y P roj e c t i s a s ig n i f ic a n t m i le s t on e i n t he Evo lut ion o f t he We s t i n g h o u s e P la s m a Te c h no lo g y : Validation by a well respected Fortune 500 company Scale- up of our gasification island Endorsement by government that plasma gasification qualifies for special credits and incentives Provides growing revenue for 2012 Intention to build 5 facilities under the existing license agreement I welcome the progress that Air Products has made with its project to bring advanced gasification to the UK. Energy-from-waste leads to considerable reductions in waste going into landfill, and makes an important contribution to the UK s low carbon energy supply. This new technology will be an exciting addition to the energyfrom-waste sector and I look forward to seeing the announcement of more of these projects. Greg Barker, UK Energy and Climate Change Minister In August 2011, Air Products announced regulatory approval for their energy-from-waste facility which will convert 950 tonnes of household waste into 49 MW of Power, enough to power 50,000 homes. Today s announcement makes clear the Government s commitment to supporting long-term investment in the UK s renewables industries. (Speaking about the UK s incentives for advanced conversion technologies such as Alter NRG s gasification process). Nick Clegg, The UK Deputy Prime Minister Site location for the Air Products Tees Valley project in UK. 14 Alter NRG Annual Report 2011

Air Products: Tees Valley, UK On December 21 of 2011, Alter NRG announced the sale of our large scale gasification island for $22 million. Alter NRG has been developing the larger scale gasification island for many years and through a lot of hard work and strong engineering skills the product is now market ready. The sale of our larger scale gasification island is a major milestone as it provides validation that our product has not only been acknowledged, but has been embraced by a renowned and reputable Fortune 500 Company. This validation is opening up many other commercial opportunities and attracting new customers that are looking for renewable energy solutions. Air Products is the perfect example of a strong customer and a relationship that has developed over time. We first started doing business with Air Products in mid-2008 as they were looking to re-enter the energyfrom-waste market (they previously owned incinerators). They selected our technology after thorough due diligence and signed a license agreement in February of 2009. Since that time they have been diligently undertaking the business development of their first facility with dedicated full-time staff working on their plasma gasification business plan supported by our core technology. It is satisfying to see our collective years of hard work and dedication pay off and to receive the purchase order for this very large facility which will take 950 tons per day of waste and convert it into 49MW of power, enough to permanently power 50,000 homes. This is evolution. We are not stopping here. Air Products has a license agreement and has publicly stated its intentions to build five of these facilities in the near term. They are focused in the United Kingdom and are continuing their business development efforts on their second project. Air Products is an extremely strong strategic customer and we look forward to continuing to support their efforts, removing waste from landfills and creating clean and renewable energy solutions. 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) Artist rendition for the Tees Valley projects, in Billingham, UK Alter NRG Annual Report 2011 15

Sales Pipeline We s t i n g h o u s e P l a s m a i s s o u g h t o u t a s t h e m a r k e t l e a d e r i n p l a s m a g a s i f i c a t i o n. R e c o g n i z e d f o r o u r c l e a n a n d r e n e w a b l e a l t e r n a t i v e e n e r g y t e c h n o l o g y, a t t h e f o r e f r o n t o f t h e i n d u s t r y a n d w i t h a m a t u r i n g p i p e l i n e, We s t i n g h o u s e P l a s m a i s c o n t i n u i n g t o g r o w i t s c u s t o m e r b a s e w o r l d w i d e. Engineering Services Equipment Supply Westinghouse Plasma Corp. provides a complete design build solution for the Westinghouse Plasma technology and equipment scope of supply consists of the energy-from-waste market. Our project scope is designed to minimize execution Plasma gasification reactor, plasma torch systems, slag solidification system and risk and provide the best possible solutions and service for our customers. From initial syngas cooling & cleaning. Westinghouse Plasma executed upon a $1.9 detailed facility engineering to the start-up and commissioning of the facility. million sale of plasma torches for use in an industrial application. Westinghouse Plasma has a very skilled engineering technical team that provides customers with support for The Westinghouse Plasma their project, including technology has been selected initial engineering services, for proposed projects being feasibility study and advanced worldwide that are detailed engineering. in active project development Licensing Revenues by numerous industry leading Westinghouse Plasma companies. Projects result in continues to support sales of ~$10 to $25 million developing projects located each. As the pipeline worldwide as well as continues to mature, the advance licensing revenues and cashflows of discussions with various Operating Projects large, credible companies. Projects Under Construction We received the first Engineering Stage milestone payment on a Proposed Projects Proposed Projects Operating Projects Projects Under Construction Engineering Stage license agreement in Australia and New Zealand with Phoenix Energy (formerly Moltoni Energy) for $5.75 million payable in increments over 5 years. Strategic Partners: 16 Large Sales Pipeline Alter NRG Annual Report 2011 Alter NRG will continue to increase.

Strategic Backlog Companies that have signed license agreements with Alter NRG many years ago continue to advance their business plan. A selection of these companies are highlighted in the table below. In addition to these companies, there are dozens of other developers that are advancing projects - many with the sole focus of building Westinghouse Plasma gasification projects. This is a pipeline with customers that have put in years of time, effort and capital to move projects forward around the world. Our customer base continues its evolution to larger, well capitalized companies. Customers License Current Activity Business Plan Facility type Revenue per Facility Air Products Jan 2009 5 projects in UK, Italy and Spain Facility under construction in Tees Valley, England To build up to five advanced gasification plant in the UK to generate around 250 MW of electricity" August 11, 2011 Municipal waste to electricity $25 million SMS June 2010 Already built two We have aggressive plans to develop and build plasma Hazardous waste to Infrastructure Indian partnership agreement facilities, currently advancing 3 additional facilities gasification facilities ourselves and for our customers in India and the Middle East. We have dedicated 140 people to expanding our plasma gasification business and we expect to construct up syngas and electricity $2 to $10 million to 4-5 facilities over the next 2-3 years. Wuhan Kaidi May 2010 Building a We are pleased to be working with the Westinghouse plasma Biomass to power China strategic alliance demonstration facility solution and believe it provides fuel flexibility for the more than 150 biomass projects that we plan to develop throughout China. and ethanol $2 to $5 million GTS Shanghai Dec 2010 China incineration project Building a demonstration facility Taking incinerator ash and other industrial feedstocks to create syngas, and blend the syngas into the incinerator to improve performance. GTS currently has 8 incinerators. Incineration co-processing $5 to $10 million Coskata July 2008 Built a demonstration Take clean syngas and convert it into fuel grade ethanol and Waste and biomass Project Lighthouse - preferred vendor agreement facility and completed testing using our plasma centre chemicals. They plan to use our gasifier for waste to ethanol projects within their customer base. Currently, several projects are advancing to ethanol $25 to $50 million Evolution Supported by: Alter NRG Annual Report 2011 17

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 March 20, 2012, provides a review of the Corporation s financial results for the fiscal period ended December 31, 2011 and consideration of future opportunities. The MD&A should be read in conjunction with the audited consolidated financial statements and accompanying notes for the Corporation for the year ended December 31, 2011. The 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 (www.alternrg.com) and in public filings available through SEDAR (www.sedar.com). 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 Company 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. 2011 was a year of transition for the Corporation, as follows: the Corporation ran a strategic process to build its balance sheet and ending up selling several non-core assets to strengthen the working capital position, the Corporation was issued a purchase order for its scaled up Plasma gasifier from a leading Fortune 500 company that represents a significant commercial milestone. the Corporation made management changes to shift from focusing on technology development to more aggressive sales and marketing of the product which is now market ready. The Corporation has exited the year in a strong position and 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. 18 Alter NRG Annual Report 2011

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 2011 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 2012. 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 December 31, 2011 of $93 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 Annual Report 2011 19

Selected Consolidated Financial Information Income Statement and Cash Flow For the years ended December 31 2011 2010 2009 Total revenues $ 6,711,189 $ 6,412,736 $ 1,943,462 Cost of sales 2,673,345 2,690,791 756,812 General, administration, selling and distribution expenses 8,871,905 11,695,431 12,219,806 Share-based payments 554,986 1,222,514 2,042,235 Depreciation and amortization 2,454,797 2,391,175 2,038,885 Foreign exchange gain (loss) 114,554 (587,318) 1,349,463 Other income 1,634,213 269,025 45,726 Finance (costs) income, net (458,204) 184,038 814,241 Write down of assets held for sale 500,385 - - Loss before tax 7,053,666 11,721,430 20,512,800 Net loss from continuing operations 4,123,382 13,239,329 18,272,366 Loss from discontinued operations 17,023,037 9,112,984 1,839,242 Comprehensive loss 20,748,825 23,244,229 20,111,608 Loss per share basic and diluted Continuing operations (0.07) (0.21) (0.32) Discontinued operations (0.28) (0.15) (0.03) Cash used in operations $ 8,507,926 $ 16,046,061 $ 11,595,441 Statement of Financial Position at December 31 2011 2010 Total assets $ 63,173,939 $ 87,187,305 Total liabilities 20,050,857 23,854,469 Shareholders equity $ 43,123,082 $ 63,332,836 20 Alter NRG Annual Report 2011

Overall Performance CleanEnergy geoexchange As part of the strategic process, the Corporation began shifting focus in 2011 to the plasma gasification business and 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 Company 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. Plasma sales and services The Westinghouse Plasma business continues to grow. For the year ended December 31, 2011, the Corporation achieved sales growth and expenses declined significantly as the concerted efforts to control and reduce expenses across the Corporation were realized. For the year ended December 31, 2011, total revenues of $6.7M were $298,000 or 5% higher than the year ended December 31, 2010. Gross profit for the year ended December 31, 2011 was 60% as compared to the year ended December 31, 2010 of 58%. In late December 2011, the Corporation received a purchase order for its large-scale plasma gasification unit for $22.4 million, which increases the revenue base for 2012 considerably. The Corporation remains focused on decreasing expenses and has achieved success in 2011. General expenses, which include general and administration and selling and distribution, decreased 24% for the year ended December 31, 2011 to $8.9 million as compared to $11.7 million in the same period of 2010. The expenses have been decreased through focus and efficiencies and a reduction in the number of employees. Management believes they have built a strong team of people focused on further growing revenue in 2012. The Plasma business accomplished a number of important strategic milestones that are illustrative of the larger sales pipeline that continues to mature. Sales of $6.7 million which is the largest annual plasma revenues in the Corporation s history. Received a $22 million purchase order from Air Products, a US based Fortune 500 company for their Tees Valley project in Northern England which intends to take 950 tonnes per day of processed household waste and convert it into 49 MW of electricity, enough to power over 50,000 homes. Worked with SMS Infrastructures ( SMS ), who already has constructed two hazardous waste facilities in India using the Westinghouse Plasma technology, and is now pursuing two additional projects and a further portfolio of hazardous waste projects which continue to advance. Provided syngas to Coskata, Inc. ( Coskata ) at the Westinghouse Plasma Centre in Pennsylvania. Coskata has a proprietary syngas to ethanol conversion technology that is using the Westinghouse Plasma technology to create syngas from biomass and waste. The Coskata technology has been chosen for a waste to ethanol project in Australia that is being advanced and is expected to be a $50 million technology sale to Alter NRG, upon successful development. The consortium (called Flex Ethanol) performed a successful waste to ethanol test at the Westinghouse Plasma Centre. Executed upon a $1.9 million sale of plasma torches for use in an industrial application. Alter NRG Annual Report 2011 21

Finalized the detailed engineering for the construction of a demonstration facility by Wuhan Kaidi ( Kaidi ) in the Wuhan province of China and constructed the plasma torches. Upon successful demonstration, Kaidi has up to 150 biomass-to-energy projects which they expect to develop in the Central China market over the next 15 years using the Westinghouse Plasma technology. The revenue to Westinghouse Plasma is expected to be US$3 to US$5 million per facility. Advanced the detailed engineering and construction of the plasma torches for a demonstration facility in Shanghai which will be integrated with an existing incinerator to take the incinerator ash as well as other difficult feedstocks. Upon successful demonstration, the revenue to Westinghouse Plasma is expected to be US$5 to US$10 million per additional facility and they have identified 13 current incinerators around Shanghai as targets. Completed the second phase of engineering on a project in Minnesota being developed by the Koochiching Development Authority. The proposed project which is to be located in Koochiching County in Northern Minnesota is called the Renewable Energy Clean Air Project. This project could result in an approximate US$12 million technology sale. Received the first milestone payment on a license agreement in Australia and New Zealand with Phoenix Energy (formerly Moltoni Energy) for $5.75 million payable in increments over 5 years. Phoenix Energy is a private development company with experience in both waste and large power facilities and they have a dozen planned energy-from-waste projects in the region. Continued the regulatory process and stakeholder relations efforts for the Dufferin County energy-from-waste project in Ontario, Canada, an approximate 6.5 MW facility. This would be an approximate $12 million sale of Westinghouse Plasma equipment. In addition to the above highlights, Alter NRG tours potential new customers to the facilities in Japan, India and the Westinghouse Plasma Centre operated by us Madison Pennsylvania on a regular basis. In the last 6 months, we have had numerous Fortune 500 and equivalent companies perform further due diligence on the Westinghouse Plasma Solution and are negotiating various license agreements. We expect to be adding new strategic, and industry leading customers in 2012. In addition to the above highlights, Alter NRG tours potential new customers to the facilities in Japan, India and the Westinghouse Plasma Centre operated by us Madison Pennsylvania on a regular basis. In the last 6 months, we have seen numerous Fortune 500 and equivalents companies undertaking further due diligence on the Westinghouse Plasma Solution and are negotiating various license agreements. We expect to be adding new strategic, and industry leading customers in 2012. Corporate Announced the sale of CleanEnergy, the Corporation's geoexchange division, for $5 million to focus its efforts entirely on plasma gasification. This transaction is expected to close in April 2012. Sold a non-core coal asset for cash proceeds of US$5.0 million and executed an agreement for the sale of a steam turbine for $1.75 million which improved the Corporation s working capital position. Hired Walter Howard as Chief Executive Officer. Mr. Howard brings more than 30 years of global project development and 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. Appointed Kevin Bolin as Executive Chairman, who has an extensive background in the energy-from-waste industry. Completed the necessary filings for a $20 million Committed Equity Facility provided by Haverstock Master Fund. The 24-month agreement enables the Corporation to receive in aggregate $20 million through individual drawdowns of up to $500,000. Timing of any drawdown is at Alter NRG s sole discretion and the Corporation is also able to set a minimum price for each drawdown. 22 Alter NRG Annual Report 2011

Quarterly Information 2011 2010 (adjusted to IFRS) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales $ 1,197,562 $ 2,928,467 $ 1,219,862 $ 1,365,298 $ 2,735,724 $ 2,725,041 $ 387,843 $ 564,128 Cost of sales 622,084 1,184,206 379,124 487,931 1,507,645 942,743 141,768 98,635 Gain on sale of assets - 1,501,010 108,941 - - - - 205,340 Write down of assets held for sale 59,361 441,024 - - - - - - Net loss (2,067,730) (5,258,033) (9,887,776) (3,932,880) (7,012,668) (6,221,385) (4,338,233) (4,780,027) Loss per share - basic and diluted (0.03) (0.09) (0.16) (0.06) (0.11) (0.10) (0.07) (0.08) Capital expenditures - 45,620 40,559 140,497 (54,955) 279,719 709,121 590,704 Total assets $ 63,173,939 $ 67,122,658 $ 70,887,442 $ 81,286,392 $ 87,187,305 $ 92,068,558 $ 97,710,671 $ 99,667,909 The 2010 figures have been adjusted to reflect the impact of IFRS 2 Share Based Payments, which resulted in lower stock based compensation expense in 2010, totaling $157,072 for the year ended December 31, 2010 and the reported net loss is lower in each quarter. As well the 2010 figures have been adjusted to reflect discontinued operations. Revenues fluctuate quarter over quarter based on the delivery of project work which is dependant on customer timing for project engineering, testing and scheduling. This is largely outside the control of Alter NRG and sales and associated costs are recognized on a percentage of completion basis. Profit margins are generally consistent at 55% - 60% each quarter. As the Corporation divested of non-core assets, net gains on sale were recorded and a write down of goodwill was recorded in Q3 2011 to reflect an anticipated sales price for CleanEnergy at lower than the carrying value of its net assets. Alter NRG continues to record losses as management works to close on sales with long sales cycles 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. Alter NRG Annual Report 2011 23

Sales and Direct Costs For the years ended December 31 2011 2010 Revenue Engineering and services $ 4,057,387 $ 4,435,911 Equipment sales 2,077,966 1,569,234 Parts and other sales 575,836 407,591 $ 6,711,189 $ 6,412,736 Direct cost of sales Engineering and services 1,542,068 1,791,748 Equipment sales 968,509 812,921 Parts and other sales 162,768 86,122 2,673,345 2,690,791 Gross margin $ 4,037,844 $ 3,721,945 Revenues for the year ended December 31, 2011 were $6.7 million, which is an increase of 5.0% from the same period in 2010. Engineering and services account for the largest portion of plasma revenues and include engineering services provided for plasma reactor design and process engineering and plasma gasification testing services provided at the Corporation s testing centre pilot facility located in the United States. The parts and other sales of $0.6 million represents the revenue generated on the sale of scrap silver and various parts and license fee revenue for use of the plasma technology on a short term basis. Direct costs of sales were $2.7 million relating to direct labour, materials and expenditures for products and services sold. Margins for the year ended December 31, 2011 are slightly higher at 60% as compared to 58% for 2010. 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, NRG Energy, Wuhan Kaidi and SMS Infrastructures, which are all large companies that 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. 24 Alter NRG Annual Report 2011

General Expenses For the years ended December 31 2011 2010 General and administrative $ 7,588,448 $ 10,014,211 Selling and distribution 1,283,457 1,681,220 Total $ 8,871,905 $ 11,695,431 Total general expenses including general and administrative and selling and distribution costs declined for the year ended December 31, 2011 by $2.8 million or 24% as compared to December 31, 2010. 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 spending on corporate development has decreased. These efforts resulted in a decline in employee costs through headcount reductions. On a total basis, for the year ended December 31, 2011, employee costs account for approximately 47% of the total general expenses as compared to 42% for the year ended December 31, 2010. At December 31, 2011, the team included 38 full time employees compared to 46 employees at December 31, 2010. Headcount by department is as follows: As at December 31 2011 2010 Engineering and operations 18 22 Sales and marketing 5 6 Finance and corporate development 9 12 Human resources, information technology and administration 6 6 Total 38 46 Alter NRG Annual Report 2011 25

General and Administrative Expenses For the years ended December 31 2011 2010 Employee costs, net of recoveries $ 4,134,031 $ 4,920,876 Professional and consulting 1,337,182 1,505,483 Office and operating 1,387,347 2,631,344 Travel 241,878 596,505 Other 477,966 335,950 Bad debts 10,044 24,053 Total $ 7,588,448 $ 10,014,211 Total general and administrative expenses for the year ended December 31, 2011 of $7.6 million have decreased by $2.4 million or 24% as compared to the year ended December 31, 2010. The decrease is related to most cost categories. Employee costs savings of $0.8 million were driven by decreases in the number of employees in all departments as total employees decreased by 18% year over year. Professional and consulting fees include legal, audit, accounting, external recruiting and engineering consulting fees. The Corporation made a concerted effort to reduce the professional and consulting fees and realized savings. Office and operating costs for the period ended December 31, 2011 decreased by approximately $1.2 million as compared to the year ended December 31, 2010. Significant savings were realized as the Corporation consolidated office space and subleased excess space. Travel costs decreased for the period ended December 31, 2011 by approximately $355,000. The decrease is due to less travel to China, the Middle East, India and Japan as business development was deferred when not immediately necessary, as part of overall cost control. Other costs include corporate governance costs such as reporting and Board costs and information technology costs. Other costs increased for the period ended December 31, 2011 by approximately $142,000 of which approximately $138,000 related to additional costs for financial reporting and corporate governance. Bad debt expense decreased by $14,000. Bad debt expense is recognized for specific amounts that are greater than 90 days old. 26 Alter NRG Annual Report 2011

Selling and Distribution Expenses For the years ended December 31 2011 2010 Employee costs, net of recoveries $ 533,218 $ 653,136 Professional and consulting 413,966 574,144 Travel 331,133 334,005 Advertising 3,608 107,818 Other 1,532 12,117 Total $ 1,283,457 $ 1,681,220 Total selling and distribution expenses for the year ended December 31, 2011 of $1.3 million have decreased by $0.4 million or 24% as compared to the year ended December 31, 2010 due to efforts on cost control and project focus on near-term opportunities. The cost savings were across all expense items. Employee cost savings of approximately $120,000 due to the decrease in the number of employees. Professional and consulting expenses decreased by approximately $160,000 due efforts to reduce costs; professional fees and consulting costs were deferred when it was not related to a near-term opportunity. Travel costs for the year ended December 31, 2011 were slightly lower by approximately $3,000 as compared to the year ended December 31, 2010. Advertising and other expenses decreased as any non critical costs were delayed. Alter NRG Annual Report 2011 27

Share Based Payments Total share based payments for the year ended December 31, 2011 totaled 554,986 as compared to $1,222,514 for the year ended December 31, 2010. With fewer employees at December 31, 2011, the share based compensation expense has decreased. In addition, accounting for share based payments under IFRS results in accelerated expenses at the grant date and hence with fewer employees and fewer grants, the share based payment expenses have decreased in 2011 as compared to 2010. Depreciation and Amortization For the years ended December 31 2011 2010 Depreciation $ 478,196 $ 578,356 Amortization 1,976,601 1,812,819 Total $ 2,454,797 $ 2,391,175 Depreciation decreased slightly for the year ended December 31, 2011 as compared to the year ended December 31, 2010 due to aging assets and few additions in 2011. Amortization totaled $1,976,601 (2010 - $1,812,819) for the year ended December 31, 2011 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: Intangible assets acquired through the purchase of the Westinghouse Plasma US subsidiary in 2007. For the year ended December 31, 2011, amortization on these assets totaled approximately $1.5 million (2010 - $1.5 million). The US Subsidiary intangible assets have an estimated useful life of 30 years. Internally generated intangible assets: Costs spent on design and development of plasma technology. Amortization of completed internally generated intangible assets for the year ended December 31, 2011 amounted to approximately $0.5 million (2010 - $0.3 million). The increase in 2011 is a result of amortization on assets put into use during part way through 2010 and thus being depreciated for four quarters in 2011 as compared to two quarters in 2010. These intangible assets are being amortized over an estimated useful life of ten years. Foreign Exchange Gain (Loss) The foreign exchange gain of $114,554 for the year ended December 31, 2011 as compared to a foreign exchange loss of $587,318 for the year ended 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. 28 Alter NRG Annual Report 2011

Other Income and Expenses For the years ended December 31 2011 2010 Gain on sale of assets $ 1,609,951 $ 205,340 Other income 24,262 133,299 Realized gain on short-term investments - 158,779 Unrealized gain (loss) on short-term investments - (228,393) Total Other Income $ 1,634,213 $ 269,025 The $1.6 million gain on sale of assets for the year ended December 31, 2011 is attributed to the sale of non-core assets. Fox Creek Coal Asset: During 2011, the Corporation evaluated the available technical and economic information to determine the appropriate strategic steps for this asset. As a result of the strategic steps, the Corporation was able to sell this asset for $5.1 million (US $5.0 million), recognizing a gain of $1.5 million after expenses and creating significant cash flow for operations. Bruderheim Land and Building: During the second quarter 2011, the Bruderheim land and buildings were sold for gross proceeds of $2.1 million, with a resulting gain, after legal costs. Transformers: The gain on sale of $0.2 million for the year ended December 31, 2010 was a result of the sale of transformers. Impairment of Assets Held for Sale For the years ended December 31 2011 2010 Write down of assets held for sale $ 500,385 $ - During the third quarter of 2011, the Corporation entered into an agreement to sell the final remaining non-core asset, the steam turbine, for gross proceeds of $1.75 million. The Corporation has received $0.2 million as a non-refundable deposit during 2011 and the balance of the proceeds are expected in April 2012. As the selling price is less than the carrying value an estimated loss of $500,385, which is dependant on the exchange rate at the time the final proceeds are received and actual commission and legal fees as compared to the amount estimated and accrued, was recorded as an impairment at December 31, 2011. Alter NRG Annual Report 2011 29

Finance Income and Costs For the years ended December 31 2011 2010 Finance income $ 40,165 $ 206,495 Finance costs 498,369 22,457 Cash balances in the Corporation declined during 2010 and 2011, as cash flow from operations was negative, and as a result finance income decreased. Finance income relates to funds invested in interest bearing accounts with a Canadian chartered bank. During 2010, the Corporation invested cash in short-term investments including a government backed mortgage fund in pursuit of a better rate of return, without significantly increasing the Corporation s investment risk. In March 2011, these short-term investments were liquidated. During the year ended December 31, 2011, finance costs of $473,000 were incurred related to the Haverstock equity facility. Income Taxes For the years ended December 31 2011 2010 Deferred income tax liability $ 15,255,176 $ 17,852,617 Provision for deferred income recovery (tax) 2,930,284 (1,517,899) 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 2007. The provision for income tax recovery arises as the intangible assets are amortized and the difference between the accounting and tax basis is reduced. This is not a statutory liability and would only be realized if the Corporation sold the acquired intangible assets for their carrying amount. 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. 30 Alter NRG Annual Report 2011

Net Loss The Corporation continues to record business losses as the business builds revenue and executes on its strategy. The accumulated deficit at December 31, 2011 was $92 million. However, during 2011, the Corporation has achieved sales and gross margin increases and reductions in expenses. For the three months ended December 31, 2011, the Corporation recorded an operating profit of $396,000 as compared to an operating loss of $4.3 million in 2010. The loss before tax for the year ended December 31, 2011 was $7 million as compared to $11.7 million for the year ended December 31, 2010. In 2011, the results benefited from net gains on the sale of assets. Even though the business earns positive margins, the total revenue and gross profits are not enough to cover the costs of overhead for administration, selling and distribution. The Corporation continues to focus on increasing revenues and managing costs. Contributing to the total loss and accumulated deficit were the losses of CleanEnergy, since acquisition in October 2009. Accumulated losses since acquisition were $27.6M and the loss from discontinued operations for the year ended December 31, 2011 was $$17M. During December 2011, the Corporation entered into a sales agreement to dispose of all the assets and liabilities of CleanEnergy and to exit the geoexchange business segment. Accordingly, the CleanEnergy results of operations and assets and liabilities are now shown as discontinued operations. Management believes that the business can increase revenues as the Westinghouse Plasma technology strengthens its reputation as projects progress into the construction phase. The plasma gasification business consists of large dollar sales transactions that have a long sales cycle. There are many projects being advanced around the world using the Corporation s plasma solution that are expected to proceed into the construction phase. Profitability is expected to be achieved as equipment orders are fulfilled in 2012 and subsequent orders obtained. As well, as the technology matures, customers are seeking exclusivity in regions around the world. License fees for this exclusivity is additive to engineering, testing and equipment revenues and management believes this will accelerate profitability. The Corporation is working with customers on projects in the United States, Canada, Spain, the United Kingdom, India and China. Other potential sales are also possible around the world, however large scale waste to energy facilities have inherent risks of delay or being cancelled (see the Business Conditions and Risks section). Liquidity and Capital Resources The Corporation s working capital balance is approximately $7.8 million at December 31, 2011, a decrease of $9.7 million from the balance at December 31, 2010 of $17.5 million. Working capital provides funds for the Corporation to meet its operational and capital requirements. During the year ended December 31, 2011, the sale of the Fox Creek coal asset contributed $5.0 million to working capital. The Corporation signed a binding agreement on February 14, 2011 to secure access to funds on an as-needed basis for up to $20 million through a Committed Equity Facility provided by Haverstock Master Fund. The prospectus for this transaction was filed with the securities commission on June 28, 2011. Management believes that increases in revenues will provide the necessary capital to fund operations as the plasma gasification orders are large sales and do not tie up working capital as customers pay deposits and there has been an increase in engineering services for customers which have very strong margins. Delays in revenues, diminished project profit margins or higher than expected expenses could result in the need to raise additional working capital. At December 31, 2011, the Corporation has $1.4 million tied up in restricted cash against a letter of credit and the Corporation s credit cards and carries a deferred revenue balance of $1.0 million for project work in process. The Corporation has contractual commitments for operating leases, as outlined in the notes to the financial statements, of approximately $3.8 million over the next ten years. There have been no material changes to the Corporation s contractual obligations during the period ended December 31, 2011. Alter NRG Annual Report 2011 31

Discontinued Operations On October 2, 2009, the Corporation acquired 100% of the issued and outstanding shares of CleanEnergy. CleanEnergy is a Canadian based corporation providing turnkey geoexchange services in the residential, commercial and government sectors. During December 2011, the Corporation entered into a sales agreement to dispose of all the assets and liabilities of CleanEnergy and to exit the geoexchange business segment. Accordingly, the CleanEnergy results of operations and assets and liabilities are now shown as discontinued operations. Net Loss from Discontinued Operations The information for revenue, expenses and after tax loss are presented in the table below. For the years ended December 31 2011 2010 Sales $ 5,158,062 $ 6,863,987 Cost of Sales 4,587,639 6,543,528 Gross Profit 570,423 320,459 General and administrative expenses Selling and distribution costs Share-based (recovery) expense Depreciation and amortization 3,886,041 761,033 (14,927) 600,340 4,579,624 1,802,646 396,927 751,431 Foreign exchange (gain) loss (2,789) 12,240 5,229,698 7,542,868 Operating loss (4,659,275) (7,222,409) Other income 175,000 253,744 Finance costs Finance income Write down of long-term equity investment Impairment of goodwill (28,658) 6,569 - (12,650,000) (23,005) - (2,299,999) - Loss before tax (17,156,364) (9,291,669) Income tax recovery 133,327 178,685 Net loss from discontinued operations $ (17,023,037) $ (9,112,984) 32 Alter NRG Annual Report 2011

Net Assets Assets and liabilities of CleanEnergy include cash and cash equivalents, restricted cash, accounts receivable, inventories, prepaid expenses, long-term deposits, accounts payable, finance lease obligations and deferred revenue. Property Plant and Equipment Property plant and equipment for CleanEnergy includes primarily leasehold improvements, computers and furniture with a carrying value at December 31, 2011 of $236,923 (2010 - $354,887). Intangible Assets The Corporation previously recognized acquired intangible assets including a backlog of orders and a dealer network, relating to CleanEnergy, with an original book value of $2,160,000 and a carrying value at December 31, 2011 of $848,750 (2010 - $1,333,750.) Goodwill The Corporation previously recognized goodwill with an original book value of $16,546,856, related to the acquisition of CleanEnergy. During 2011, a goodwill impairment of $12,650,000 (2010 - $nil) was recognized, to take into account the delay in timing of obtaining positive cashflow and achieving anticipated revenue growth., The carrying value at December 31, 2011 of $3,896,856 (2010 - $16,546,856) reflects management s estimate of the future value of the cash generating unit ("CGU") and the estimated recoverable amount of the remaining net assets of the CGU exceeds the carrying value. Long-term Equity Investment On April 21, 2010, the Corporation acquired a 35% non-controlling equity interest in Groundheat International Inc. ( GHI ). The Corporation paid $1,250,000 in cash, loaned $705,000 in cash to GHI and sold GHI a drilling rig with an agreed upon value of $450,000. The loan amounts were non-interest bearing and with no fixed repayment date. During 2010, GHI incurred operating losses and made the decision to significantly downsize its operations. As a result, management determined the investment and loans receivable were impaired and the investment was written down to $1 and the loan receivable was written down to $nil and an impairment loss was of $2,299,999 was recorded for the year ended December 31, 2010. Common shares acquired at April 21, 2010 $ 1,250,000 Loan receivable 1,155,000 Equity loss to December 31, 2010 (330,817) Impairment (2,024,183) Investment recovery in 2010 55,001 Repayment on loan in December 2010 (105,000) Long-term equity investment at December 31, 2010 and December 31, 2011 $ 1 During the year ended December 31, 2011, $175,000 (2010 -$55,000) of the loan receivable, previously written off, was received and is included in other income for CleanEnergy. Lease Obligations CleanEnergy has finance and operating lease obligations for office equipment and office space of $38,454 and $583,322, respectively (2010 - $74,563 and $nil) in addition to a deferred lease inducement of $38,889(2010 - $45,052). Alter NRG Annual Report 2011 33

Capital Expenditures For the years ended December 31 2011 2010 Property, plant and equipment $ 92,630 $ 1,078,990 Internally generated intangible assets 124,605 367,178 Total capital expenditures $ 217,235 $ 1,446,168 Property, plant and equipment expenditures have decreased by $1.2 million for the year ended December 31, 2011 compared to the year ended December 31, 2010. In 2010, the majority of the property, plant and equipment expenditure were due to significant improvements made to the Westinghouse Plasma pilot plant in Pennsylvania. Internally generated intangible asset expenditures, consisting of internal project development work on the Corporation s plasma gasification island, also decreased in 2011. Equity The authorized share capital of the Corporation consists of an unlimited number of common shares. During the year ended December 31, 2011, 28,334 shares (2010-89,600) were issued for proceeds of $38,690 (2010 - $131,348) upon the exercise of employee options. As at March 20, 2012, the Corporation had 61,838,201 common shares issued and outstanding and 4,909,700 stock options issued and outstanding, of which 4,097,707 were vested. Outlook During 2011, the Corporation expects the existing plasma projects committed to, using the Westinghouse plasma technology, will contribute directly to revenues. Any single gasification order could make the Corporation cashflow positive and the Corporation is actively supporting near-term opportunities. Management is committed to focusing on continued general and administration cost reductions, while at the same time hiring the right personnel to deliver on the short term goals. Cash used in continuing operations for the year ended December 31, 2011 of $5.7 million (2010 - $9.3 million) decreased over the previous year, due to reduced expenditures throughout the Corporation. Cash used in operations is expected to improve as the Corporation secures plasma equipment sales contracts and license revenue and decreases costs. The timing of these cash flows is a function of sales timing, type and margin and can be affected by various operating issues as outlined further in the Business Conditions and Risks section. Related Party Transactions The Corporation occasionally transacts with related parties in the normal course of business. The transactions occur at market rates. During the year ended December 31, 2011, the Corporation incurred corporate legal fees totaling approximately $518,975, of which $28,417 relates to discontinued operations (2010 - $202,558, of which $55,075 relates to discontinued operations) to a legal firm of which two officers are partners. At December 31, 2011, $87,058, of which $6,703 relates to discontinued operations (2010 - $nil), was owed to the legal firm. These fees are included in general and administrative expenses in the consolidated statements of loss and comprehensive loss. Included in general and administrative expenses is remuneration of the key management personnel of the Corporation. For the year ended December 31, 2011, remuneration of $999,938 included $830,680 of salaries and cash-based compensation and $169,258 of stock-based compensation costs (December 31, 2010 $654,007 and $341,618, respectively). 34 Alter NRG Annual Report 2011

Off-Balance Sheet Arrangements During the years ended and as at December 31, 2011 and 2010, the Corporation did not have any off-balance sheet arrangements. Financial Instruments The Corporation s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities. Due to the short term nature of these financial assets and liabilities, the carrying values equal the fair values. The Corporation however, remains exposed to various risks associated with financial instruments including credit risk, foreign currency risk, interest rate risk and liquidity risk. The Corporation did not hold or issue any derivative financial instruments during the periods ended December 31, 2011 or 2010. For further information on financial instruments please refer to the Corporation s consolidated financial statements for the period ended December 31, 2011. Recent Changes in Accounting Policies On December, 2011, the Corporation adopted International Financial Reporting Standards ( IFRS ) for financial reporting purposes, using a transition date of January 1, 2010. The financial statements for December 31, 2011, including required comparative information, have been prepared in accordance with International Financial Reporting Standards 1, First-time adoption of International Financial Reporting Standards, and with International Accounting Standard ( IAS ) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ( IASB ). Previously, the Corporation prepared its Interim and Annual Consolidated Financial Statements in accordance with Canadian generally accepted accounting principles ( previous GAAP ). Unless otherwise noted, 2010 comparative information has been prepared in accordance with IFRS. The adoption of IFRS has not had an impact on the Corporation s operations, strategic decisions and cash flow. As part of our transition to IFRS, we will adopt all IFRS accounting standards in effect on December 31, 2011. A number of new standards and interpretations have been issued under IFRS, which are outlined in detail in NOTE 3 of the Corporation s consolidated financial statements for the period ended December 31, 2011. These standards are required to be applied for accounting periods beginning on or after December, 2013, with early adoption permitted. When adopted, they may results in changes to our existing accounting policies and note disclosures. The Corporation is currently evaluating the impact that these standards may have on our results of operations and financial position. Critical Accounting Estimates The preparation of the Corporation s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date and the reported amounts of revenue and expenses for the periods presented. Estimates and judgments are continuously evaluated and are based on management s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Anticipating future events involves uncertainty and consequently the estimates used by management in the preparation of the consolidated financial statements may change as future events unfold, additional experience is acquired or the Corporation s operating environment changes. Key sources of estimation uncertainty have been disclosed in the condensed interim consolidated financial statements for December 31, 2010 and December 31, 2011. Alter NRG Annual Report 2011 35

Going Concern As at and for the years ended December 31, 2011, the Corporation had losses of $21,146,419 of which $17,023,037, negative cash flows from operations of $8,507,926 and had an accumulated a deficit of $91,938,688 (year ended December 31, 2010 - $22,352,313, $16,046,061 and $70,792,269 respectively). 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 in order to meet its liabilities as they come due and to enable the Corporation to continue operations. On February 11, 2011, the Corporation entered into a binding agreement to secure access to funds on an as-needed basis for up to $20 million through a Committed Equity Facility provided by Haverstock Master Fund ( Haverstock ). The ability to access the cash through the facility is subject to regulatory approval, which was obtained May 30, 2011, and the filing of a base shelf prospectus with the Canadian Securities Administrators, which was completed on June 28, 2011 and filing of the prospectus supplement which was completed on August 26, 2011. The Company has not yet drawn on these funds. Whether and when the Corporation can achieve profitability or secure additional financial resources through Haverstock or other sources is uncertain. While the Corporation has been successful in obtaining its required funding in the past, there is no assurance that financing will be available to the Corporation in the future. These uncertainties may cast significant doubt about the Corporation s ability to continue as a going concern. The financial statements have been prepared on the basis that Alter NRG Corp. will continue to operate as a going concern, which means we expect to realize our assets and settle liabilities and commitments in the normal course of business. The statements do not reflect adjustments in the carrying values of assets and liabilities reported, revenue or expenses, and the classification used on the consolidated statement of financial position that would be necessary if the going concern assumption was not appropriate. Such adjustments would be material. Revenue recognition Revenue is recognized when evidence of an arrangement exists, services are rendered, the selling price is fixed and determinable and collectability is reasonably assured Advance payments received from customers, in excess of revenue recognized, are classified as deferred revenue until the service is provided or the product delivered. Revenue from long-term service contracts, consisting of designing and engineering services, revenue from contracts for plasma torch systems and the engineering and design, is recognized using the percentage-of-completion method of accounting. The degree of completion is determined by comparing the costs incurred to the total costs anticipated for the contract. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are eligible to be recovered. Interest income revenue is recognized as interest accrues (using the effective interest method). Interest income is included in financing income on the consolidated statement of loss and comprehensive loss. Rental income on sub-leased properties is recognized on a straight line basis over the lease terms against the cost incurred for the original lease. Share based payments Share based payment expense associated with options at grant date are estimates based on various assumptions such as volatility, annual distribution yield, risk-free interest rate and expected life using the Black-Scholes option pricing model to produce an estimate of the fair value of the related compensation. 36 Alter NRG Annual Report 2011

Long-lived Assets Long-lived assets are recorded at cost and include property, plant and equipment and intangible assets. These assets are reviewed for impairment annually or whenever events or circumstances indicate the carrying value may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to the estimated discounted cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds the future cash flow, impairment is recognized equal to the amount that the carrying value exceeds the fair value. The Corporation s estimates for sales prices and interest rates and net profits used for discounted cash flow calculations as subject to measurement uncertainty as there can be no assurance as to what prices or actual profits will be achieved. Business Conditions and Risks The business of Alter NRG is subject to certain risks and uncertainties. Prior to making any investment decision regarding Alter NRG investors should carefully consider, among other things, the risks described herein (including the risks and uncertainties listed in the first paragraph of this Management s Discussion and Analysis) and the risk factors set forth in the most recently filed Annual Information Form of the Corporation which is incorporated by reference. The Annual Information Form is available through the internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www. sedar.com. Copies of the Annual Information Form may be obtained by request, at no charge, by contacting Alter NRG Corp., Suite 215, 4000 4th Street S.E., Calgary, Alberta, T2G 2W3, or by contacting Investor Relations at (403) 214-4235 or by facsimile at (403) 806-3701. Disclosure Controls and Procedures and Internal Controls Over Financial Reporting The Corporation has established disclosure controls and procedures to ensure the timely and accurate preparation of financial and other reports. Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed is recorded, processed, summarized and reported within the time periods specified by securities regulations and that information required to be disclosed is accumulated and communicated to the appropriate members of management and properly reflected in the Corporation s filings. The Executive Chairman of the Board ( Chair ) and the Chief Financial Officer ( CFO ) oversaw the evaluation and implementation process and have concluded that the design and operation of disclosure controls and procedures are adequate and effective in ensuring that the information required to be disclosed under applicable securities laws is accurate and complete and filed within the time periods required. The Corporation s Chair and CFO evaluated the design and implementation of internal controls over financial reporting and have concluded that these controls are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards. It should be noted that while the Corporation s Chair and CFO recognize that all internal controls systems, no matter how well designed, have inherent limitations and therefore have concluded that these systems provide reasonable, but not absolute assurance, that the financial information is accurate and complete in all material respects. Any control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. During the period ended December 31, 2011 the Corporation did not make any significant changes to its internal controls over financial reporting that would have materially affected, or would likely materially affect, the effectiveness of such controls. The MD&A and Financial Statements are reviewed by the Audit Committee of the Board of Directors and is charged with oversight of financial reporting, disclosure and regulatory filing compliance. Once approved by the Audit Committee, the MD&A and Financial Statements are presented to and approved by the Board of Directors. Alter NRG Annual Report 2011 37

Forward-looking Statements Certain statements in this MD&A are forward-looking statements. In particular, this MD&A contains forward-looking statements pertaining to capital expenditures, schedules and commencement of operations of existing projects and projects under development; availability of project financing; timing of sales; industry trends; factors influencing capital investments and development activities; the Corporation s reputation and market position within the industries in which it operates and the Corporation s strategy and competitive advantages. Forward-looking statements require management to make estimates and assumptions with respect to the outcome of future events. These estimates and assumptions could, in the future, turn out to be inaccurate and materially affect the final outcome. The significant estimates and assumptions within the Corporation s forward-looking statements include: availability and cost of key materials and labour and availability of funds with respect to the amount of capital expenditures and scheduled commencement of operations; timing of regulatory approval including various permits from federal, provincial, state and local authorities; the assessment of capital markets including the availability of debt and equity in current market conditions; commodity prices for electricity, natural gas, coal and other resources that impact the Corporation s operations directly and indirectly; extent of investment by government authorities in infrastructure projects; the financial and operational health of key partners in various projects; the continued development of the Corporation s technology and its use in various applications; and consumer demand for our solutions. Forward-looking statements are frequently characterized by words such as plan, expect, project, propose, target, intend, believe, should, anticipate, estimate or other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are not based on historical facts but rather on the expectations of management of the Corporation regarding, among other things, the Corporation s future plans and intentions, results of operations, levels of activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. 38 Alter NRG Annual Report 2011

Forward-looking statements reflect management s current beliefs and assumptions, based on information currently available to management. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, many of which are beyond the control of the Corporation. Among the material factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: that the information is of a preliminary nature and may be subject to further adjustment; the completion of strategic partner s projects; arrangements with key suppliers; potential product liability and other claims; other business risks outlined in this MD&A, including risks associated with the proprietary technology; the possible unavailability of financing at competitive rates and the related effect on development activities; the effect of energy price fluctuations; changes in government regulation, including changes to environmental regulations; the effects of competition; the dependence on senior management and key personnel; and fluctuations in currency exchange rates and interest rates. Additional information relating to Alter NRG, including the Annual Information Form, can be viewed at our website (www.alternrg.com) or at SEDAR (www.sedar.com). Information can also be obtained by request, at no charge, by contacting Alter NRG Corp., Suite 215, 4000 4th Street S.E., Calgary, Alberta, T2G 2W3, or by contacting Investor Relations at (403) 214-4235 or by facsimile at (403) 806-3701. Alter NRG Annual Report 2011 39

Management s Report Management has the responsibility for preparing the accompanying financial statements, the management discussion and analysis and the related annual report. This responsibility includes selecting appropriate principles and making objective judgments and estimates in accordance with International Financial Reporting Standards and establishing appropriate internal controls over financial reporting. In discharging its responsibilities for the integrity and fairness of the financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and proper records are maintained. The Corporation s Board of Directors has approved the information contained in the financial statements, management s discussion and analysis and the related annual report and has overseen the performance of management s responsibilities. The Audit Committee is appointed by the Board to review the consolidated financial statements, management s discussion and analysis and the related annual report in detail with management and to report to the Board prior to their approval of these documents for publication. The Audit Committee is composed of Directors, the majority of whom are neither management nor employees of the Corporation. The Audit Committee meets with management and the external auditor to discuss the financial statements, management s discussion and analysis, the annual report and internal controls over financial reporting. In addition, the audit committee is responsible for recommending the appointment of the external auditors. External auditors have full and free access to, and meet periodically and separately with, both management and the Audit Committee to discuss their audit findings. (Signed) Daniel Hay Chief Financial Officer March 20th, 2012 (Signed) Richard Fish President 40 Alter NRG Annual Report 2011

Independent Auditor s Report INDEPENDENT AUDITOR S REPORT To the Shareholders of Alter NRG Corp. We have audited the accompanying consolidated financial statements of Alter NRG Corp., which comprise the consolidated statements of financial position as at December 31, 2011 and 2010 and January 1, 2010, and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended 2011 and 2010, and the notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Alter NRG Corp. as at December 31, 2011 and 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates that Alter NRG Corp. incurred a net loss of $21,146,419 during the year ended December 31, 2011 (2010 - $22,352,313), negative cash flows from operations of $8,507,926 (2010 - $16,046,061) and an accumulated deficit of $91,938,688 ( 2010 - $70,792,269). These conditions, along with other matters as set forth in Note 1 indicate the existence of material uncertainties that may cast significant doubt about the Corporation's ability to continue as a going concern. (signed) Deloitte & Touche LLP Chartered Accountants Calgary, Alberta March 20th, 2012 Alter NRG Annual Report 2011 41

Consolidated Financial Statements Consolidated Statements of Financial Position As at December 31, 2011 December 31, 2010 Assets (NOTE 24) January 1, 2010 (NOTE 24) Current assets: Cash and cash equivalents (NOTE 4) $ 3,379,965 $ 3,059,929 $ 1,118,590 Short-term investments (NOTE 6) - 3,376,305 23,589,940 Restricted cash (NOTE 7) 1,443,471 375,079 680,290 Accounts receivable (NOTE 8) 2,438,341 2,160,664 1,327,260 Prepaid expenses 270,734 185,374 190,051 Inventories (NOTE 9) 503,474 670,806 787,174 Assets held for sale (NOTE 10) 1,652,678 3,996,900 3,996,900 Current assets of discontinued operations (NOTE 5) 2,205,227 3,655,532 1,733,620 11,893,890 17,480,589 33,423,825 Non-current assets: Restricted cash (NOTE 7) Resource properties (NOTE 11) Property, plant and equipment (NOTE 12) Intangible assets (NOTE 13) Non-current assets of discontinued operations (NOTE 5) - - 3,810,311 42,412,849 5,056,889 503,863 3,405,171 4,117,254 43,437,406 18,243,022-3,405,896 3,773,109 46,900,851 19,285,649 Total assets $ 63,173,939 $ 87,187,305 $ 106,789,330 42 Alter NRG Annual Report 2011

As at December 31, 2011 December 31, 2010 January 1, 2010 Liabilities and Shareholders Equity Current liabilities: Accounts payable $ 220,735 $ 794,369 $ 286,483 Accrued liabilities 1,702,186 2,095,912 1,995,280 Deferred revenue 1,093,367 526,885 822,301 Operating lease obligations (NOTE 15) 207,586 352,191 - Current liabilities of discontinued operations (NOTE 5) 890,106 1,619,206 968,176 4,113,980 5,388,563 4,072,240 Non-current liabilities: Operating lease obligations (NOTE 15) - 205,444 - Deferred income tax (NOTE 14) 15,255,176 17,852,617 17,178,560 Non-current liabilities of discontinued operations (NOTE 5) 681,701 407,845 620,039 Total liabilities 20,050,857 23,854,469 21,870,839 Shareholders equity: Shareholders capital (NOTE 17) 127,375,847 127,337,157 127,205,809 Reserves (NOTE 17) 7,685,923 6,787,948 6,152,638 Deficit (91,938,688) (70,792,269) (48,439,956) Total shareholders equity 43,123,082 63,332,836 84,918,491 Total shareholders equity and liabilities $ 63,173,939 $ 87,187,305 $ 106,789,330 Commitments (NOTE 16) See accompanying notes to the consolidated financial statements. Comparative information has been adjusted to reflect the presentation of discontinued operations (NOTE 5). Approved by the Board of Directors: (Signed) Brent Conway Director (Signed) Kevin Bolin Director Alter NRG Annual Report 2011 43

Consolidated Statements of Loss and Comprehensive Loss For the years ended December 31 2011 2010 Sales $ 6,711,189 $ 6,412,736 Cost of Sales 2,673,345 2,690,791 Gross Profit 4,037,844 3,721,945 General and administrative expenses (NOTE 19) Selling and distribution costs Share-based payments (NOTE 18) Depreciation and amortization Foreign exchange gain (loss) Other income (NOTE 20) 7,588,448 10,014,211 1,283,457 1,681,220 554,986 1,222,514 2,454,797 2,391,175 114,554 (587,318) 1,634,213 269,025 10,132,921 15,627,413 Operating loss Finance costs Finance income Write down of assets held for sale (NOTE 10) Loss before tax (6,095,077) (11,905,468) 498,369 22,457 40,165 206,495 500,385 - (7,053,666) (11,721,430) Income tax recovery (expense) 2,930,284 (1,517,899) Net loss from continuing operations (4,123,382) (13,239,329) Discontinued operations (NOTE 5) (17,023,037) (9,112,984) Net loss $ (21,146,419) $ (22,352,313) Comprehensive Loss Net Loss $ (21,146,419) $ (22,352,313) Exchange gain (loss) on translating foreign operations 397,594 (891,916) Total comprehensive loss for the period $ (20,748,825) $ (23,244,229) Loss per share (NOTE 21) Basic and diluted from continuing operations Basic and diluted from discontinued operations $ (0.07) (0.28) $ (0.21) (0.15) See accompanying notes to the consolidated financial statements. Comparative information has been adjusted to reflect the presentation of discontinued operations (NOTE 5). 44 Alter NRG Annual Report 2011

Consolidated Statements of Changes in Equity For the years ended December 31 Issued Deficit Equity Settled Foreign Total Capital Employee Benefits Reserve Currency Translation Reserve At January 1, 2010 (NOTE 24) $ 127,205,809 $ (48,439,956) $ 6,152,638 $ - $ 84,918,491 Total comprehensive loss for the period - (22,352,313) - (891,916) (23,244,229) Share based compensation (NOTE 18) - - 1,584,552-1,584,552 Issuance of ordinary shares under employee share option plan 131,348 - (57,326) - 74,022 At December 31, 2010 (NOTE 24) 127,337,157 (70,792,269) 7,679,864 $ (891,916) 63,332,836 Total comprehensive (loss) gain for the period - (21,146,419) - 397,594 (20,748,825) Share based compensation (NOTE 18) - - 517,288-517,288 Issuance of ordinary shares under employee share option plan 38,690 - (16,907) - 21,783 At December 31, 2011 $ 127,375,847 $ (91,938,688) $ 8,180,245 $ (494,322) $ 43,123,082 See accompanying notes to the consolidated financial statements. Comparative information has been adjusted to reflect the presentation of discontinued operations (NOTE 5). Alter NRG Annual Report 2011 45

Consolidated Statements of Cash Flows For the years ended December 31 2011 2010 Cash provided by (used in): Operating: Operating loss from continuing operations before tax $ (6,095,077) $ (11,905,468) Add (deduct) items not involving cash: Share-based payments (NOTE 18) Depreciation and amortization Gain on sale of assets Bad debts Unrealized foreign exchange (gain) loss Unrealized loss on short-term investments 554,986 2,454,797 (1,609,951) 10,044 (114.554) 24,606 1,222,514 2,391,175 (205,340) 24,055 587,318 228,393 (4,775,149) (7,657,353) Change in deferred revenue Change in non-cash working capital 558,270 (1,475,355) (268,480) (1,346,422) Cash used in continuing operations (5,692,234) (9,272,255) Cash used in discontinued operations (2,815,692) (6,773,806) $ (8,507,926) $ (16,046,061) Financing: Issue of share capital Finance costs 21,784 (498,369) 74,022 (22,457) Cash (used in) provided by continuing operations (476,585) 51,565 Cash used in discontinued operations (64,768) (83,220) $ (541,353) $ (31,655) 46 Alter NRG Annual Report 2011

For the years ended December 31 2011 2010 Investing Acquisition of property, plant and equipment Proceeds on sale of assets Purchase of intangible assets Sale of short-term investments Restricted Cash Finance income Change in non-cash working capital $ (92,630) 6,808,959 (124,605) 3,351,699 (564,529) 40,165 (769) $ (1,078,990) 208,647 (367,178) 20,401,937 (214,701) 206,495 1,293,491 Cash provided by continuing operations 9,418,290 20,449,701 Cash provided by (used in) discontinued operations 9,191 (2,299,480) $ 9,427,481 $ 18,150,221 Cash flow from operating, investing and financing activities from: Cash provided by continuing operations Cash used in discontinued operations Effect of translation on foreign currency cash 3,249,471 (2,871,269) (58,166) 11,229,011 (9,156,506) (131,166) Increase in cash and cash equivalents 320,036 1,941,339 Cash and cash equivalents, beginning of period (NOTE 4) 3,059,929 1,118,590 Cash and cash equivalents, end of period (NOTE 4) $ 3,379,965 $ 3,059,929 See accompanying notes to the consolidated financial statements. Comparative information has been adjusted to reflect the presentation of discontinued operations (NOTE 5). Alter NRG Annual Report 2011 47

Notes to the Consolidated Financial Statements Note 1 Corporate Information Alter NRG Corp. (the Corporation ) was incorporated on February 20, 2007 in the Province of Alberta. The Corporation is a widely-held, publicly traded company and is domiciled at 215, 4000-4th Street S.E., Calgary, Alberta, Canada. The Corporation markets and sells plasma gasification technology and invests in alternative energy projects using its core technologies to create saleable energy products. The Corporation owns 100% of the outstanding shares of a United States of America ( US ) company, Westinghouse Plasma Corporation ( Westinghouse Plasma ), a plasma technology services company. The Corporation also owns 100% of the outstanding shares of Clean Energy Developments Corporation ( CleanEnergy or CED ), a geoexchange services company. As at and for the year ended December 31, 2011, the Corporation had losses of $21,146,419, negative cash flows from operations of $8,507,926 and had an accumulated a deficit of $91,938,688 (year ended and as at December 31, 2010 - $22,352,313, $16,046,061 and $70,792,269, respectively). 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 in order to meet its liabilities as they come due and to enable the Corporation to continue operations. On February 11, 2011, the Corporation entered into a binding agreement to secure access to funds on an as-needed basis for up to $20 million through a Committed Equity Facility provided by Haverstock Master Fund, Ltd. ( Haverstock ). The ability to access the cash through the facility was subject to regulatory approval, which was obtained on May 30, 2011, the filing of a base shelf prospectus with the Alberta Securities Commission, which was completed on June 28, 2011 and the filing of the prospectus supplement which was completed on August 26, 2011. No amounts have been drawn under the facility to date. Whether and when the Corporation can achieve profitability or secure additional financial resources through Haverstock or other sources is uncertain. While the Corporation has been successful in obtaining its required funding in the past, there is no assurance that financing will be available to the Corporation in the future. These uncertainties cast significant doubt about the Corporation s ability to continue as a going concern. These consolidated financial statements were approved and authorized for issuance by the Board of Directors of Alter NRG Corp. on March 20, 2012. Note 2 Basis of Preparation The consolidated financial statements ( financial statements ) are presented in Canadian dollars, the functional currency of the Corporation. The consolidated financial statements have been prepared using historical costs, except for financial instruments carried at fair value. The financial statements of the Corporation include the accounts of the Corporation and its subsidiaries. All intercompany transactions have been eliminated. Subsidiaries are consolidated from the date of acquisition, being the date on which the Corporation has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Corporation, using consistent accounting policies, in all material respects. 48 Alter NRG Annual Report 2011

Statement of compliance These financial statements have been prepared by management, in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The significant accounting policies set out below were applied consistently in all periods presented. The financial statements present the Corporation s first annual financial statements of the Corporation in compliance with IFRS. Future changes in accounting policies The International Accounting Standards Board (the IASB ) issued a number of new and revised International Accounting Standards ( IASs ), International Financial Reporting Standards ( IFRSs ), amendments and related Interpretations ( IFRICs ) (hereinafter collectively referred to as the NEW IRFSs ), certain of which are effective for the Corporation s financial period beginning on January 1, 2012. At the date of this report, the IASB has issued the following new and revised standards, amendments and interpretations which are not yet effective during the relevant periods. IFRS 9 Financial Instruments 1 (note that IFRS 9 is applicable for 2015) IFRS 10 Consolidated Financial Statements 1 IFRS 11 Joint Arrangements 1 IFRS 12 Disclosure of Interests in Other Entities 1 IFRS 13 Fair Value Measurement 1 IAS 1 (Amendments) Disclosures Presentation of other comprehensive income IAS 12 (Amendments) Deferred Tax: Recovery of Underlying Assets 2 IAS 19 (Amendments) Disclosure and Measurement Post-Employment Benefits and Termination Benefits Projects IAS 27 (Revised 2011) Separate Financial Statements 1 IAS 28 (Revised 2011) Investments in Associates and Joint Ventures 1 1 Effective for annual periods beginning on or after 1 January 2013 2 Effective for annual periods beginning on or after 1 January 2012 Management have not assessed the impact of these new and revised standards, amendments and interpretations on the consolidated financial statements of the Corporation. Alter NRG Annual Report 2011 49

Note 3 Significant Accounting Policies, Judgments, Estimates and Assumptions Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of acquisition. Costs directly attributable to the acquisition are expensed, within general & administrative expenses, in the period in which they occur. Goodwill is initially measured at cost being the excess of the cost of the business combination over the Corporation s share in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Corporation s cash generating units ( CGUs ) that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Investments in an associate The Corporation s investments in its associates are accounted for using the equity method of accounting. An associate is an entity in which the Corporation has significant influence. Under the equity method, the investment in the associate is carried at cost plus post-acquisition changes in the Corporation s share of the net assets of the associate. The consolidated statements of loss and comprehensive loss reflects the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Corporation recognizes its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Corporation and the associate are eliminated to the extent of the interest in the associate. After application of the equity method, the Corporation determines whether it is necessary to recognize an additional impairment loss on the investment in its associates. The Corporation determines at each reporting period date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Corporation calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the consolidated statement of loss and comprehensive loss. Assets held for sale Current and non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Current and non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Foreign currency translation The financial statements are presented in Canadian dollars, which is the Corporation s functional currency and the currency of the primary economic environment in which the Corporation operates. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the spot rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are recorded in the consolidated statement of loss and comprehensive loss. 50 Alter NRG Annual Report 2011

The assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange prevailing at the reporting period date and their income statements are translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are taken directly to a separate component of the foreign currency translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognized in the foreign currency translation reserve relating to that particular foreign operation is recognized in the consolidated statement of loss and comprehensive loss. Revenue recognition Revenue is recognized when evidence of an arrangement exists, services are rendered, the selling price is fixed and determinable and collectability is reasonably assured. Advance payments received from customers, in excess of revenue recognized, are classified as deferred revenue until the service is provided or the product delivered. Revenue from long-term service contracts, consisting of designing and engineering services, revenue from contracts for plasma torch systems and the engineering and design, is recognized using the percentage-of-completion method of accounting. The degree of completion is determined by comparing the costs incurred to the total costs anticipated for the contract. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are eligible to be recovered. Interest income revenue is recognized as interest accrues (using the effective interest method). Interest income is included in financing income on the consolidated statement of loss and comprehensive loss. Rental income on sub-leased properties is recognized on a straight line basis over the lease terms against the cost incurred for the original lease. Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantially enacted by the reporting period date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of loss and comprehensive loss. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except: where a deferred income tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized for all deductible temporary differences, carry forward or unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except: where a deferred income tax asset relating to the deductible temporary difference arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. Alter NRG Annual Report 2011 51

The carrying value of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is expected to be realized or the liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of loss and comprehensive loss. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred income taxes relate to the same taxable entity and the same taxation authority. Share-based payment transactions Employees (including senior executives) of the Corporation may receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ( equity-settled transactions ). Further, directors of the Corporation are granted Restricted Share Units ( RSU ) and Performance Stock Units ( PSU ), both of which can only be settled in cash ( cash-settled transactions ). Restricted share units Under the Corporation s RSU plan, non-employee directors are entitled to receive restricted share units. Each RSU gives the director the right to receive a lump sum cash payment based on the market value of the Corporation s common shares at the time the RSU vests. Compensation expense for each RSU is recognized over the vesting period, with the associated liability being recorded in accrued liabilities. At each reporting date, any change in the intrinsic value of the outstanding RSUs is recognized in earnings. Market value, per the RSU plan, is defined as the volume weighted average closing price for the immediately preceding five trading days. Performance stock units Under the Corporation s PSU plan, non-employee directors are entitled to receive performance stock units. Each PSU gives the director the right to receive a lump sum cash payment based on two key financial performance metrics which drive long-term stockholder value, being earnings before interest, tax, depreciation and amortization ( EBITDA ) and stock price performance as compared to a Board-approved peer group. Compensation expense for each PSU is recognized over the vesting period, with the associated liability being recorded in accrued liabilities. At each reporting date, any change in the intrinsic value of the outstanding PSUs is recognized in earnings. Market value, per the PSU plan, is defined as the volume weighted average closing price for the immediately preceding five trading days. Equity-settled transactions The cost of equity-settled transactions with employees for awards granted is measured by reference to the fair value at the date on which they were granted. The fair value is determined by an external value using an appropriate pricing model, further details of which are given in NOTE 18. The cost of equity-settled transactions is recognized, together with a corresponding increase in shareholders equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ( the vesting date ). The cumulative expense recognized for equity-settled transactions at each reporting date, is based on the Corporation s best estimate of the number of equity instruments that will ultimately vest. Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the counterparty are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. 52 Alter NRG Annual Report 2011

Cash-settled transactions The cost of cash-settled transactions is measured initially at fair value at the grant date in accordance with the terms of the contract; further details of which are given in NOTE 18. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date up to and including the settlement date with changes in fair value recognized in the consolidated statement of loss and comprehensive loss. Financial assets Initial recognition Financial assets classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Corporation determines the classification of its financial assets at initial recognition. Financial assets are recognized at fair value including directly attributable transaction costs, except in the case of investments recognized directly through profit or loss. The Corporation s financial assets include cash and cash equivalents, short-term investments, restricted cash and accounts receivable. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term, generally defined as within the next twelve months. Financial assets at fair value through profit and loss are carried in the consolidated statement of financial position at fair value with gains or losses recognized in the consolidated statement of loss and comprehensive loss. Loans and Receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are carried at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated statement of loss and comprehensive loss when the assets are derecognized or impaired. Held-to-maturity investments: Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Corporation has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method. This method uses an effective interest rate that exactly discounts estimated future cash received through the expected life of the financial asset to the net carrying value of the financial asset. Gains and losses are recognized in the consolidated statement of loss and comprehensive loss when the investments are derecognized or impaired, as well as through the amortization process. The Corporation did not have any held-to-maturity investments as at January 1, 3010, December 31, 2010 and December 31, 2011. Available-for-sale financial assets: Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial measurement, available-for-sale financial assets are measured at fair value with unrealized gains or losses recognized directly in equity until the investment is derecognized, at which time the cumulative gain or loss recorded in equity is recognized in the consolidated statement of loss and comprehensive loss. Alter NRG Annual Report 2011 53

Financial liabilities Initial recognition Financial liabilities are classified as financial liabilities at fair value through profit or loss, other liabilities, or as derivatives designated as hedging instruments in an effective hedge as appropriate. The Corporation determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognized initially at fair value. The Corporation s financial liabilities include accounts payable and accrued liabilities. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through the consolidated statement of loss and comprehensive loss. Financial liabilities are classified as fair value through profit or loss if they are acquired for the purpose of selling in the near term. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Impairment of financial assets The Corporation assesses at each reporting period date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Derecognition of financial instruments Financial assets A financial asset (or, where applicable part of a financial asset or part of a group of similar financial assets) is derecognized when the rights to receive cash flows from the asset have expired; or The Corporation has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Corporation has transferred substantially all the risks and rewards of the asset, or (b) the Corporation has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. 54 Alter NRG Annual Report 2011

Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses and residual values, if any. Such cost includes the cost of replacing parts of the property, plant and equipment. Likewise, when a major inspection is performed, its cost is recognized in the carrying value, as under IAS 16, of the property, plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the consolidated statement of loss and comprehensive loss as incurred. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Depreciation is calculated on a straight-line basis over the useful life of the asset as follows: Plant and facility Office equipment Computer equipment 10-20 years 5 years 3 years An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the consolidated statement of loss and comprehensive loss in the period the asset is derecognized. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate. Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Finance leases, which transfer to the Corporation substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the consolidated statements of loss and comprehensive loss. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Corporation will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimate useful life of the asset and the lease term. Operating lease payments are recognized as an expense in the consolidated statements of loss and comprehensive loss on a straight line basis over the lease term. Alter NRG Annual Report 2011 55

Cash and cash equivalents Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less. Cash held as collateral for a letter of credit and to securitize Visa credit cards is treated as restricted cash (NOTE 7). Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the expenditure is reflected in the consolidated statement of loss and comprehensive loss in the period in which the expenditure is incurred. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Amortization expense on the intangible assets with finite lives is recognized in the consolidated statements of loss and comprehensive loss in the expense category consistent with the function of the intangible asset. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying value of the asset and are recognized in the consolidated statements of loss and comprehensive loss when the asset is derecognized. Intangible assets represent the value attributed to the technology acquired from Westinghouse Plasma in 2007 and internally generated intangible assets. The intangible assets acquired from Westinghouse Plasma are amortized on a straight-line basis over their estimated useful life estimated to be 30 years. Internally generated intangible assets are amortized once the individual asset is put into use over its estimated useful life of 10 years. The carrying value of intangible assets are reviewed at each reporting date to determine whether there is an indication of impairment. If any such indication exists, the intangible assets recoverable amount is estimated and compared to the carrying value at the reporting date to determine if an impairment is to be recognized in the consolidated statements of loss and comprehensive loss. Amortization is calculated on a straight-line basis over the useful life of the asset as follows: Acquired intangible assets Development costs Patent and licenses 1-30 years 10-20 years 8-10 years Research and development costs Research costs are expensed as incurred. Development expenditure on an individual project is recognized as an intangible asset when the Corporation can demonstrate: the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete and its ability to use or sell the asset; how the asset will generate future economic benefits; the availability of resources to complete the asset; and the ability to measure reliably the expenditure during development. Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. The asset is tested for impairment annually if indicators of impairment exist. 56 Alter NRG Annual Report 2011

Patents The Corporation s patents have been granted for a specific period by the relevant government agency. All patents are considered to have a finite life and are amortized over the period the patent was provided on a straight line basis. Resource properties All direct costs related to the acquisition of mineral property interests are capitalized on a property-by-property basis. The Corporation reviews capitalized costs on mineral properties annually or whenever events or changes in circumstances indicate that the recoverable amount, based on estimated future cash flows on a discounted basis, is less than the carrying value of the property. Inventories Inventories are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials purchased cost on a first in, first out basis. Finished goods and work in progress cost of direct materials and labor. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Impairment of non-financial assets The Corporation assesses at each reporting date whether there is an indication that an asset or CGU may be impaired. If an indication exists, or when annual impairment testing for an asset or CGU is required, the Corporation estimates the recoverable amount. The recoverable amount is the higher of an asset s or CGU s fair value less costs to sell and its value in use and is determined for an individual asset or the CGU when the individual asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered to be impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU, using an appropriate valuation model. These calculations are corroborated by calculation multiples or other available fair value indicators. Impairment losses of continuing operations are recognized in the consolidated statement of loss and comprehensive loss in those expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may be reversed. If such indication exists, the Corporation estimates the asset s or CGU s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying value of the asset does not exceed its recoverable amount, nor does it exceed the carrying value that would have been determined, net of depreciation, had no impairment loss been recognized. Impairment reversals are recognized in the consolidated statements of loss and comprehensive loss. The following criteria are also applied in assessing impairment of specific assets: Goodwill is tested for impairment annually, as at December 31, and when circumstances indicates that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which goodwill relates. Where the recoverable amount of the CGU including goodwill, is less than its carrying value an impairment loss is recognized. Impairment losses related to goodwill cannot be reversed in future periods. Intangible assets with a indefinite useful life are tested for impairment annually as at December 31, either individually or at the CGU, as appropriate, and when circumstances indicate that the carrying value may be impaired. Alter NRG Annual Report 2011 57

Loss per share Loss per share is calculated using the weighted average number of shares outstanding during the year. Diluted per share amounts are calculated using the treasury stock method, which assumes that any proceeds from the exercise of share options would be used to purchase shares at the average market price during the period, unless the effect would be anti-dilutive. Significant accounting judgments, estimates and assumptions The preparation of the Corporation s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date and the reported amounts of revenue and expenses for the periods presented. Estimates and judgments are continuously evaluated and are based on management s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying value of the assets or liabilities in future periods. The following are the key assumptions concerning the key sources of estimation uncertainty at December 31, 2011, that have a significant risk of causing adjustments to the carrying values of assets and liabilities. Going concern These financial statements have been prepared on a going concern basis. The going concern basis assumes that the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. As discussed in NOTE 1, there are uncertainties which cast significant doubt about the Corporation s ability to continue as a going concern. Assessment of impairments The Corporation s impairment tests for goodwill and intangible assets are based on value-in-use calculations that use a discounted cash flow model. The value-in-use calculations employ the following key assumptions: future cash flows, growth projections, including economic risk assumptions and estimates of achieving key operating metrics. Management uses its best estimate to determine which key assumptions to use in the analysis. The cash flows are derived from the Corporation s budget for the next five years and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that will enhance the asset base of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model, as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Share-based payments The Corporation measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payments are disclosed in NOTE 18. 58 Alter NRG Annual Report 2011

Deferred tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Fair value of financial instruments Where the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flow model. Reporting and Functional Currency The Corporation s reporting currency is the Canadian dollar. While the majority of the Corporation s transactions are denominated in Canadian dollars, a portion of revenue and operating expenses are in US dollars due to the geographical diversity of the Corporation s operations. Note 4 Cash and Cash Equivalents December 31 2011 2010 Jan 1, 2010 Cash at banks and on hand $ 3,116,265 $ 2,256,855 $ 1,118,390 Short-term deposits 263,700 803,074 200 $ 3,379,965 $ 3,059,929 $ 1,118,590 Cash at banks earns interest at floating rates based on daily bank deposit rates and short term deposits are held in guaranteed investment certificates at interest rates of 1% to 2% (December 31, 2010-2%, January 1, 2010-1%). Note 5 Discontinued Operations Sale of Clean Energy Developments Corp. ( CleanEnergy ) On October 2, 2009, the Corporation acquired 100% of the issued and outstanding shares of CleanEnergy. CleanEnergy is a Canadian based corporation providing turnkey geoexchange services in the residential, commercial and government sectors. Since acquisition, the results of CleanEnergy s operations have been included in the consolidated financial statements. During December 2011, the Corporation entered into a sales agreement to dispose of all the assets and liabilities of CleanEnergy and to exit the geoexchange business segment. The sale proceeds are 5 million and sale transaction is expected to close during the 2 nd quarter of 2012. Accordingly, the CleanEnergy results of operations and assets and liabilities are now shown as discontinued operations. The comparative prior periods have been adjusted to reflect CleanEnergy as discontinued operations. Alter NRG Annual Report 2011 59

The breakdown of current and non-current assets and liabilities is presented in the table below. As at December 31, 2011 December 31, 2010 January 1, 2010 Assets Current assets: Cash and cash equivalents $ 166,320 $ 787,825 $ 137,258 Restricted cash 106,613 330,308 - Accounts receivable 1,872,759 2,196,331 1,045,061 Prepaid expenses 2,002 83,447 130,785 Inventories 57,533 251,436 299,018 Deferred compensation cost - 6,385 121,498 Current assets of discontinued operations 2,205,227 3,655,532 1,733,620 Non-current assets: Property, plant and equipment Deferred compensation cost Long term deposit Intangible assets Goodwill 236,923-74,359 848,750 3,896,857 354,887 7,529-1,333,750 16,546,856 539,232 215,811-1,983,750 16,546,856 Non-current assets of discontinued operations $ 5,056,889 $ 18,243,022 $ 19,285,649 As at December 31, 2011 December 31, 2010 January 1, 2010 Liabilities and Shareholders Equity Current liabilities: Accounts payable and accrued liabilities $ 715,535 $ 1,319,394 $ 880,447 Deferred revenue 1,262 266,534 27,745 Financing lease obligations 33,609 33,278 59,984 Operating lease obligations 139,700 - - Current liabilities of discontinued operations 890,106 1,619,206 968,176 Non-current liabilities: Financing lease obligations Operating lease obligations Deferred income tax 4,845 443,622 233,234 41,285-366,560 74,793-545,246 Non-current liabilities of discontinued operations $ 681,701 $ 407,845 $ 620,039 60 Alter NRG Annual Report 2011

The breakdown of revenue, expenses and after tax loss are presented in the table below. For the years ended December 31 2011 2010 Sales $ 5,158,062 $ 6,863,987 Cost of Sales 4,587,639 6,543,528 Gross Profit 570,423 320,459 General and administrative expenses Selling and distribution costs Share-based (recovery) expense Depreciation and amortization Foreign exchange (gain) loss Operating loss 3,886,041 4,579,624 761,033 1,802,646 (14,927) 396,927 600,340 751,431 (2,789) 12,240 5,229,698 7,542,868 (4,659,275) (7,222,409) Other income Finance costs Finance income Write down of long-term equity investment Impairment of goodwill 175,000 (28,658) 6,569 - (12,650,000) 253,744 (23,005) - (2,299,999) - Loss before tax (17,156,364) (9,291,669) Deferred income tax recovery 133,327 178,685 Net loss from discontinued operations $ (17,023,037) $ (9,112,984) Alter NRG Annual Report 2011 61

Net assets Assets and liabilities of CleanEnergy include cash and cash equivalents, restricted cash, accounts receivable, inventories, prepaid expenses, long-term deposits, accounts payable, finance lease obligations and deferred revenue. Property plant and equipment Property plant and equipment for CleanEnergy includes primarily leasehold improvements, computers and furniture with a carrying value at December 31, 2011 of $236,923 (2010 - $354,887). Intangible assets The Corporation previously recognized acquired intangible assets including a backlog of orders and a dealer network, relating to CleanEnergy, with an original book value of $2,160,000 and a carrying value at December 31, 2011 of $848,750 (2010 - $1,333,750.) Goodwill The Corporation previously recognized goodwill with an original book value of $16,546,856, related to the acquisition of CleanEnergy. During 2011, a goodwill impairment of $12,650,000 (2010 - $nil) was recognized, to take into account the delay in timing of obtaining positive cashflow and achieving anticipated revenue growth., The carrying value at December 31, 2011 of $3,896,856 (2010 - $16,546,856) reflects management s estimate of the future value of the CGU and the estimated recoverable amount of the remaining net assets of the CGU exceeds the carrying value. Long-term equity investment On April 21, 2010, the CleanEnergy acquired a 35% non-controlling equity interest in Groundheat International Inc. ( GHI ). Clean Energy paid $1,250,000 in cash, loaned $705,000 in cash to GHI and sold GHI a drilling rig with an agreed upon value of $450,000. The loan amounts were non-interest bearing and with no fixed repayment date. During 2010, GHI incurred operating losses and made the decision to significantly downsize its operations. As a result, management determined the investment and loans receivable were impaired and the investment was written down to $1 and the loan receivable was written down to $nil and an impairment loss of $2,299,999 was recorded for the year ended December 31, 2010. Common shares acquired at April 21, 2010 $ 1,250,000 Loan receivable 1,155,000 Equity loss to December 31, 2010 (330,817) Impairment (2,024,183) Investment recovery in 2010 55,001 Repayment on loan in December 2010 (105,000) Long-term equity investment at December 31, 2010 and December 31, 2011 $ 1 During the year ended December 31, 2011, $175,000 (2010 -$55,000) of the loan receivable, previously written off, was received and is included in other income. Lease Obligations CleanEnergy has finance and operating lease obligations for office equipment and office space of $38,454 and $583,322, respectively(2010 - $74,563 and $nil) in addition to a deferred lease inducement of $38,889(2010 - $45,052). 62 Alter NRG Annual Report 2011

Note 6 Short-term Investments December 31 2011 2010 Jan 1, 2010 Cost Fair Market Value Cost Fair Market Value Cost Fair Market Value Short-term investments $ - $ - $ 3,349,555 $ 3,376,305 $ 23,335,197 $ 23,589,940 The short-term investments were highly liquid investments which could be converted to cash in three to five working days. The investments were units held in the National Bank Mortgage Fund. This fund invests primarily in first mortgages and residential real estate in Canada and debt securities of domestic corporations and of Canadian federal, provincial and municipal governments. During the year, the investments were sold. Note 7 Restricted Cash December 31 2011 2010 Jan 1, 2010 Cash collateral for corporate credit cards $ 126,275 $ 75,579 $ 156,990 Letters of credit 1,317,196 803,363 523,300 Total $ 1,443,471 $ 878,942 $ 680,290 At December 31, 2011, the Corporation held some of this restricted cash in short term investments including $585,000 USD (December 31, 2010 - $575,000 USD) in a short-term revolving term deposit and $849,500 (December 31, 2010 - $404,808) in guaranteed investment certificates. The term deposit and guaranteed investment certificates earn interest at rates of 1% to 2% (2010-1% to 2%). Restrictions on cash held are expected to be released or could be released in 2012, and hence all restricted cash has been classified as a current asset at December 31, 2011. At December 31, 2010, a $500,000 USD short term investment was classified as a non-current asset. Alter NRG Annual Report 2011 63

Note 8 Accounts Receivable December 31 2011 2010 Jan 1, 2010 Trade receivables $ 2,389,170 $ 2,016,256 846,200 Accrued receivables 33,900 195,000 141,585 Other receivables 25,441 69,205 444,135 Allowance for doubtful accounts (10,170) (119,797) (104,660) Total $ 2,438,341 $ 2,160,664 1,327,260 Note 9 Inventories December 31 2011 2010 Jan 1, 2010 Equipment, parts and materials $ 503,474 $ 660,723 623,577 Work-in-progress - 10,083 163,597 Total $ 503,474 $ 670,806 787,174 The Corporation maintains inventory of equipment, parts and materials for sales; this inventory is valued at the lower of cost and net realizable value. Work-in-progress relates to costs incurred on testing or engineering services in progress. The cost of sales for the year ended December 31, 2011 includes $339,335 from the sale of equipment and parts to customers (2010 - $86,122). Note 10 Assets Held for Sale During 2009, the Corporation determined that it would discontinue development of the Bruderheim property and began to actively market the property and equipment to potential buyers. The property consisted of land and building recorded at $1,852,500 and a steam turbine recorded at $2,144,400. During November 2010, the Corporation entered into an agreement to sell the Bruderheim land and building, which closed on May 17, 2011, for gross proceeds of $2,200,000 with a resulting gain of $68,122, (net of transaction costs). On October 6, 2011, the Corporation entered into an agreement, which is expected to close in April 2012, to sell the steam turbine for gross proceeds of USD $1,750,000, The sales price, net of estimated transaction costs, is less than the carrying value and an estimated loss of $500,385 has been recorded as an impairment for the year ended December 31, 2011. Note 11 Resource Properties On September 23, 2011, the Corporation completed the sale of the Fox Creek coal assets, for gross proceeds of $5,100,000 with a resulting gain of $1,541,829, net of transaction costs, included in other income. 64 Alter NRG Annual Report 2011

Note 12 Property, Plant and Equipment Plant and Leasehold Office Computer facility improvements equipment equipment Total Cost January 1, 2010 $ 3,583,748 $ 106,090 $ 264,956 $ 439,033 $ 4,393,827 Additions 916,970-52,954 109,066 1,078,990 Exchange adjustment (178,410) (4,686) (3,769) (5,529) (192,394) December 31, 2010 4,322,308 101,404 314,141 542,570 5,280,423 Additions 38,661 53,969 - - 92,630 Exchange adjustment 98,967 2,020 1,354 2,382 104,723 December 31, 2011 $ 4,459,936 $ 157,393 $ 315,495 $ 544,952 $ 5,477,776 Depreciation and impairment January 1, 2010 $ (288,443) $ (33,306) $ (86,057) $ (212,912) $ (620,718) Charge for the year (414,422) (25,031) (36,071) (102,832) (578,356) Exchange adjustment 28,551 2,150 1,317 3,887 35,905 December 31, 2010 (674,314) (56,187) (120,811) (311,857) (1,163,169) Charge for the year (207,842) (24,302) (71,461) (174,591) (478,196) Exchange adjustment (21,215) (1,599) (782) (2,504) (26,100) December 31, 2011 $ (903,371) $ (82,088) $ (193,054) $ (488,952) $ (1,667,465) Net book Value December 31, 2011 $ 3,556,565 $ 75,305 $ 122,441 $ 56,000 $ 3,810,311 December 31, 2010 $ 3,647,994 $ 45,217 $ 193,330 $ 230,713 $ 4,117,254 January 1, 2010 $ 3,295,305 $ 72,784 $ 178,899 $ 226,121 $ 3,773,109 All assets held are in use and being depreciated over their useful lives. During the year ended December 31, 2010, the Corporation sold transformers to an unrelated party for proceeds of $205,340. These assets were written off in 2008 as they were deemed to have no book value and, accordingly, a gain of $205,340 was recorded and is included in other income for 2010. Alter NRG Annual Report 2011 65

Note 13 Intangible Assets Acquired Intangibles Development Costs Patents Total Cost January 1, 2010 $ 45,991,021 $ 5,126,563 $ - $ 51,117,584 Additions - 331,592 35,586 367,178 Exchange adjustment (2,285,050) - - (2,285,050) December 31, 2010 43,705,971 5,458,155 35,586 49,199,712 Additions - 91,250 33,355 124,605 Exchange adjustment 984,329 5,404-989,733 At December 31, 2011 $ 44,690,300 $ 5,554,809 $ 68,941 $ 50,314,050 Amortization and impairment January 1, 2010 $ (4,151,968) $ (64,765) $ - $ (4,216,733) Charge for the year (1,517,823) (294,246) (750) (1,812,819) Exchange adjustment 267,246 - - 267,246 December 31, 2010 (5,402,545) (359,011) (750) (5,762,306) Charge for the year (1,449,057) (524,097) (3,447) (1,976,601) Exchange adjustment (162,294) - - (162,294) December 31, 2011 $ (7,013,896) $ (883,108) $ (4,197) $ (7,901,201) Net book Value December 31, 2011 $ 37,676,404 $ 4,671,701 $ 64,744 $ 42,412,849 December 31, 2010 $ 38,303,426 $ 5,099,144 $ 34,836 $ 43,437,406 January 1, 2010 $ 41,839,053 $ 5,061,798 $ - $ 46,900,851 Acquired intangible assets were recorded upon the acquisitions of Westinghouse Plasma as the Corporation recognized intangible assets consisting of technological processes, patents, licenses, designs and engineering expertise. Development costs are internally generated intangible assets consisting of the costs of developing plasma technology intended for future sale. Patent and license costs relate to legal and other fees associated with the plasma technology. All intangibles are being amortized over the estimated useful lives and at December 31, 2011 have been assessed for indicators of impairment. Based on the indicators of impairment, an impairment test was completed and no impairment was required. 66 Alter NRG Annual Report 2011

Note 14 Deferred Income Tax The provision for income taxes in the financial statements differs from the result that would be obtained applying the federal and provincial tax rates to the Corporation s loss before income taxes. The difference results from the following items: For the years ended December 31 2011 2010 Loss before income taxes for continuing operations $ (7,053,666) $ (11,721,430) Combined federal and provincial tax rate 26.50% 28.00% Computed expected income tax recovery $ (1,869,221) $ (3,282,000) Non-deductible expenses 59,066 462,587 Effect of change in corporate tax rate 92,675 237,709 Differences in foreign exchange rates (35,652) (1,443,218) Other 3,512,993 (423,085) Losses and deferred income tax assets not recognized for tax (4,690,145) 5,965,906 Income tax (recovery) expense $ (2,930,284) $ 1,517,899 During the years ended December 31, 2011 and 2010, the Corporation recorded deferred tax recoveries in net loss, other comprehensive loss and equity related to intangible assets. The Corporation has not recorded deferred tax expenses related to the deferred tax assets in either year. Components of deferred income tax assets and liabilities are as follows: As at December 31 2011 2010 Jan 1, 2010 Deferred income tax liabilities: Property, plant and equipment $ - $ (2,363,238) $ - Resource property - - (194,600) Intangible assets (15,255,176) (15,489,379) (16,983,960) $ (15,255,176) $ (17,852,617) $ (17,178,560) Alter NRG Annual Report 2011 67

As at December 31 2011 2010 Jan 1, 2010 Unrecognized deferred income tax assets: Property, plant and equipment $ 754,402 $ 4,306,687 $ 1,789,192 Share/Unit issuance costs 228,826 446,108 778,317 Corporate reorganization 995,379 995,379 995,379 Non-capital losses 9,532,598 9,915,196 7,318,924 Resource property 674,558 - - Unrealized foreign exchange and other 377,892 1,590,430 406,008 Components of unrecognized deferred income tax assets $ 12,563,655 $ 17,253,800 $ 11,287,820 Movements in deferred income tax liabilities are as follows: Resource property Property, plant and equipment Intangible assets Total January 1, 2010 $ (194,600) $ - $ (16,983,960) $ (17,178,560) Recognized in net loss from continuing operations 194,600 (2,363,238) 650,739 (1,517,899) Exchange adjustment - - 843,842 843,842 December 31, 2010 - (2,363,238) (15,489,379) (17,852,617) Recognized in net loss from continuing operations - 2,363,238 567,046 2,930,284 Exchange adjustment - - (332,843) (332,843) December 31, 2011 $ - $ - $ (15,255,176) $ (15,255,176) The Corporation has accumulated non-capital losses for income tax purposes related to its continuing operations that expire as follows: Accumulated non-capital losses Canadian (CD$) US (US$) Expiring in 2026 491,483-2027 2,890,829-2028 6,986,926 798,924 2029 7,794,552 2,330,058 2030 7,918,970 382,883 2031 6,263,123-68 Alter NRG Annual Report 2011

Note 15 Operating Lease Obligations A provision has been recognized for lease premiums on operating leases for excess office space that are significantly higher than the sub lease income. The provision has been calculated based on the difference between the amount owing and the amount receivable. For the years ended December 31 2011 2010 Balance, beginning of year $ 557,635 $ - Arose during the year - 557,635 Utilized during the year (350,049) - Total $ 207,586 $ 557,635 Current $ 207,586 $ 352,191 Non-current - 205,444 Note 16 Commitments The Corporation has obligations under operating lease agreements for office space with future lease obligations for the remainder of the term as summarized below: For the years ended December 31 Continuing Operations Discontinued Operations (NOTE 5) Total 2012 $ 964,477 $ 44,496 $ 1,008,973 2013 648,713-648,713 2014 547,626-547,626 2015 516,273-516,273 2016 359,700-359,700 Thereafter 719,400-719,400 $ 3,756,189 $ 44,496 $ 3,800,685 Within one year $ 964,477 $ 44,496 $ 1,008,973 Two to five years 2,072,312-2,072,312 More than five years - - 719,400 The Corporation s previous office space rental commitments of $319,929 for 2012 were included in the totals although this office space has been subleased to tenants for the remainder of the lease term. Approximately $112,343 will be received by the end of the lease term on July 31, 2012. At December 31, 2011 and at December 31, 2010, the Corporation has no capital commitments. Alter NRG Annual Report 2011 69

Note 17 Shareholders Capital and Reserves Shareholders capital Authorized At December 31, 2011 and December 31, 2010, there is an unlimited number of common shares, voting and participating. Issued and fully paid For the years ended December 31 2011 2010 Number Issued Amount Number Issued Amount Shareholders capital, beginning of year $ 61,809,867 $ 127,337,157 $ 61,720,267 $ 127,205,809 Common shares issued on exercise of options (NOTE 18) 28,334 38,690 89,600 131,348 Share issue costs - - - - Common shares issued and fully paid, end of year $ 61,838,201 $ 127,375,847 $ 61,809,867 $ 127,337,157 Reserves Employee equity benefits reserve Foreign currency translation reserve Total Cost January 1, 2010 $ 6,152,638 $ - $ 6,152,638 Transfer to share capital on exercise of options (57,326) - (57,326) Share based compensation (NOTE 18) 1,584,552-1,584,552 Currency translation differences - (891,916) (891,916) December 31, 2010 7,679,864 (891,916) 6,787,948 Transfer to share capital on exercise of options (16,907) - (16,907) Share based compensation (NOTE 18) 517,288-517,288 Currency translation differences - 397,594 397,594 December 31, 2011 $ 8,180,245 $ (494,322) $ 7,685,923 70 Alter NRG Annual Report 2011

Nature and purpose of reserves Employee equity benefits reserve The employee equity benefits reserve is used to record the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of the foreign subsidiary. Note 18 Share-Based Payment Plans The expense recognized for employee services received during the year is shown in the following table: For the years ended December 31 2011 2010 Expenses arising from equity-settled share-based payment transactions $ 532,214 $ 1,187,625 Expenses arising from cash-settled share-based payment transactions 22,772 34,889 Expenses relating to continuing operations $ 554,986 $ 1,222,514 Expenses arising from equity-settled share-based payment transactions related to discontinued operations $ (14,926) $ 396,927 The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2011 or 2010. For the year ended December 31, 2011, share-based payments accounted for 13% (2010-33%) of the total employee wage, salary and benefits expense. Stock-option plan The Corporation has a stock option plan for employees, officers and directors. The Corporation may grant options up to 10% of the aggregate number of common shares outstanding, with no one optionee permitted to hold more than 50% of the total options outstanding. The options vest one-third immediately with an additional one-third on the first and second anniversary dates of the grant and expire in five to ten years from the date of grant. The expected volatility is based upon the movement in the daily share prices of the Corporation. The exercise price of the options is equal to the lower of the weighted average market price of the shares for the previous five days or the closing price on the date of grant. The contractual life of the options is five to ten years and there are no cash settlement alternatives. The weighted-average fair value of options granted during the year was $0.68 (2010 $2.14) per option. The Corporation uses a Black-Scholes option-pricing model to determine the estimated fair value of the options at the date of grant and the associated compensation expense over the life of the options. A summary of the assumptions used in the Black-Scholes option-pricing model to determine the estimated fair value is as follows: For the years ended December 31 2011 2010 Expected volatility 82% to 85% 85% to 133% Dividend rate 0% 0% Risk free interest rate 1.5% to 2.3% 2.3% Forfeiture rate 7.28% 7.28% Expected life 4 years 4 years Alter NRG Annual Report 2011 71

The following options are outstanding: For the years ended December 31 2011 2010 Weighted Average Weighted Average Number of Exercise Price Number of Exercise Price Options ($/option) Options ($/option) Outstanding, beginning of year 6,094,567 $ 2.07 5,025,567 $ 2.19 Granted 770,000 0.68 1,570,000 1.87 Forfeited (1,926,533) 2.88 (411,400) 3.03 Exercised (28,334) 0.77 (89,600) 0.83 Outstanding, end of year 4,909,700 $ 1.54 6,094,567 $ 2.07 Exercisable, end of year 4,097,707 $ 1.62 4,763,084 $ 2.14 As at December 31, 2011 Outstanding Exercisable Weighted Average Weighted Average Weighted Average Exercise Price Number of Remaining Exercise Price Number of Exercise Price ($/option) Options Contractual Life (years) ($/option) Options ($/option) $ 0.45 0.49 427,700 4.42 $ 0.45 $ 427,700 $ 0.45 0.50 0.99 1,394,833 5.34 0.70 968,161 0.78 1.00 1.49 165,000 4.69 1.08 145,000 1.03 1.50 1.99 968,333 3.57 1.73 733,341 1.73 2.00 2.49 1,905,834 4.79 2.27 1,775,505 2.27 3.00 3.49 20,000 6.09 3.30 20,000 3.30 4.00 5.99 28,000 6.43 5.85 28,000 5.85 Total 4,909,700 4.69 $ 1.54 $ 4,097,707 $ 1.62 Restricted share unit plan This plan is offered to directors of the Corporation. Each Restricted Share Unit ( RSU ) gives the director the right to receive a lump-sum cash payment based on the market value of the Corporation s shares with respect to each RSU which has vested in accordance with the terms of the grant agreement relating to the RSU. During the year 42,000 new RSUs were awarded (2010-40,666). At December 31, 2011, 41,555 RSUs (December 31, 2010-27,711 units) were outstanding with a market value of $25,602 (2010 $38,000). The compensation expense recognized during the year was $22,772 (2010 - $34,889). 72 Alter NRG Annual Report 2011

Performance share unit plan Performance Share Units ( PSU ) may be offered to any officer or employee of the Corporation or an affiliate beginning January 1, 2011. Each grant agreement shall provide, at the grant date, the number of PSUs or Target Award subject to such grant, the applicable vesting conditions, performance conditions, performance period(s) and the performance condition measurement period and may specify such other terms and conditions. During the year, a total of 67,500 PSUs were awarded. The PSUs have no value at December 31, 2011 as performance metrics have not been met. Performance metrics include the performance of our share price and EBITDA in comparison to a peer group. The compensation expense recognized during the year was $nil (2010 - $nil). Note 19 General and Administrative Expenses For the year ended December 31 2011 2010 Employee costs $ 4,619,643 $ 5,365,289 Less amounts allocated to: Cost of sales (451,412) (210,242) Intangible assets (34,200) (234,171) Employee costs, net of reallocations 4,134,031 4,920,876 Office and operating costs 1,387,347 2,631,344 Professional and consulting fees 1,337,182 1,505,483 Travel costs 241,878 596,505 Other costs 477,966 335,950 Bad debts 10,044 24,053 General and administrative expenses $ 7,588,448 $ 10,014,211 Note 20 Other Income and Expenses For the year ended December 31, 2011 2011 2010 Gain on sale of assets $ 1,609,951 $ 205,340 Other income 24,262 133,299 Realized gain on short-term investments - 158,779 Unrealized loss on short-term investments - (228,393) Other income $ 1,634,213 $ 269,025 Note 21 Loss Per Share Basic and diluted loss per share amounts are calculated by dividing net income or loss for the year attributable to common shareholders of the Corporation by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding for year ended December 31, 2011 was 61,832,237 (2010-61,780,050). As the Corporation is in a loss position, any conversion of options would be anti-dilutive to the net loss per share calculation. Alter NRG Annual Report 2011 73

Note 22 Related Party Transactions The Corporation transacts with related parties in the normal course of business. The transactions are measured at the exchange amount, which is equivalent to the market rate. During the year, the Corporation incurred corporate legal fees totaling approximately $518,975, of which $28,417 relates to discontinued operations (2010 - $202,558 of which $55,075 relates to discontinued operations), to a legal firm of which two officers are partners. At December 31, 2011, $87,058, of which $6,703 relates to discontinued operations (2010 - $nil), was owed to the legal firm. These fees are included in general and administrative expenses in the consolidated statements of loss and comprehensive loss. During the year $nil (2010 -$40 661) of drilling fees were paid to a company owned by a parent company of which a director of the Corporation serves as director and $nil (2010 - $3,690) of consulting fees were paid to a company of which a director of the Corporation also serves as a director. These costs are included in expenses of discontinued operations (NOTE 5). Included in general and administrative expenses is remuneration of the key management personnel of the Corporation. For the year ended December 31, 2011, remuneration of $999,938 included $830,680 of salaries and cash-based compensation and $169,258 of stock-based compensation costs (December 31, 2010 $654,007 and $341,618, respectively). Note 23 Financial Instruments and Risk Management The Corporation s principal financial liabilities comprise accounts payables and accrued liabilities. The Corporation has cash and cash equivalents, restricted cash, short-term investments and accounts receivable that arise directly from its operations. The Corporation did not hold or issue any derivative financial instruments at December 31, 2011 and December 31, 2010. The Corporation is exposed to interest rate risk, foreign exchange risk, credit risk and liquidity risk. The Corporation s senior management oversees the management of these risks. The Corporation s senior management is supported by an appropriate financial risk governance framework. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Corporation s exposure to the risk of changes in market interest rate relates primarily to the Corporation s cash and cash equivalent balances. The Corporation has deposited its cash with a Canadian financial institution in a low risk, interest-bearing account. The fluctuation in the Corporation s loss and comprehensive loss for the year would have been approximately $45,000 (2010 - $31,000) for each 1.0% variation in the interest rate on its cash and cash equivalents. 74 Alter NRG Annual Report 2011

Foreign exchange risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Corporation s exposure to the risk of changes in foreign exchange rates relates primarily to the Corporation s operating activities, where revenue or expenses are denominated in a different currency from the Corporation s functional currency, and the Corporation s net investments in foreign subsidiaries. The Corporation s foreign exchange exposure is primarily on translation of its foreign subsidiary as opposed to transactional. This has primarily an unrealized or non-cash impact on the Corporation s results. The Corporation s US subsidiary s operations are in the US and revenue, expenses, assets and liabilities are denominated in US dollars. As a result, the Corporation s financial statements are impacted by changes in foreign currency between Canadian and US currencies. The US dollar based losses are also converted into Canadian dollars for purposes of consolidated financial reporting. This conversion does not result in foreign exchange gains or losses but does result in lower or higher net losses from US operations than would have occurred had the exchange rate not changed. If the Canadian dollar strengthens against the US dollar, the Canadian dollar equivalent of net losses from US operations will be impacted as reduced losses. For the year ended December 31, 2011 the fluctuation in the Corporation s comprehensive loss would have been approximately $1.5 million (2010 - $1.9 million) for each $0.10 variation in the United States/Canadian dollar exchange rate on translation of its US subsidiary upon consolidation. The Corporation transacts its Canadian operations primarily in Canadian dollars; however, it occasionally purchases goods and supplies and earns revenue in US dollars. The US operations are transacted in US dollars. These transactions and foreign exchange exposure would not typically have a material effect on the Canadian operation s financial results. Credit risk The Corporation is exposed to credit risk from its operating activities, primarily for trade accounts receivables, and from its financing activities, including deposits with banks and financial institutions. The Corporation s cash and cash equivalents and restricted cash are presented in NOTE 4 and NOTE 7. Management reviews the financial strength of the institutions on a regular basis. Trade accounts receivable subject the Corporation to credit risk. There is a provision for amounts outstanding at December 31, 2011 of $10,170 (2010 - $119,797) and the Corporation believes the remaining amounts will be ultimately collected. All aged amounts are actively being collected and management believes these amounts will be collected. The Corporation minimizes its credit risk by requiring up to 50% deposits on technology sales. The aging of trade accounts receivable (net of allowance) is as follows: As At December 31 2011 2010 Jan 1, 2010 Current $ 1,119,275 $ 1,430,493 $ 1,189,513 31 to 60 days 1,100,377 687,290 46,333 61 to 90 days 143,749 30,792 57,486 Over 90 days 74,940 12,089 33,928 Accounts receivable total $ 2,438,341 $ 2,160,664 $ 1,327,260 The maximum exposure risk is limited to the carrying value of financial assets on the Corporation s consolidated statement of financial position that includes cash and cash equivalents, short-term investments, restricted cash, and accounts receivable. Alter NRG Annual Report 2011 75

Liquidity risk The Corporation is exposed to liquidity risk or the risk of not meeting its financial obligations as they come due. At December 31, 2011, the Corporation s exposure was limited because cash balances were in excess of total current liabilities. The Corporation may draw down on the committed equity fund (NOTE 1) should there be a need for additional working capital. The majority of accounts payable are subject to normal 30 day terms. Capital management The Corporation s defines capital as shareholders equity, given operations are financed primarily through equity transactions. The Corporation s objectives when managing capital are to sustain its ability to continue as a going concern, maximize returns for shareholders and benefits for other stakeholders and provide resources to enable growth. The Corporation manages the capital structure and responds to changes in economic conditions and planned requirements and will continue to use cash flows from technology sales and equity offerings to fund operations and invest in its capital expenditure program. To the extent the existing strategy is not sufficient to meet capital demands, other capital strategies may include debt financing and obtaining strategic partners to fund a portion of certain development projects. The current economic conditions have significantly affected capital markets, including the availability of debt and the Corporation s share price. Management is monitoring the Corporation s rate of spending on development projects and general and administrative costs given the current environment and the amount of funds on hand at December 31, 2011. Development projects and capital spending can be slowed or suspended to match funds available. The Corporation may draw down on the committed equity fund (NOTE 1) should there be a need for additional working capital. Capital management objectives and strategies remain substantially unchanged from the prior period. There are no external restrictions on the Corporation s capital except for the restricted cash. Fair value Financial instruments consist of cash and cash equivalents, short-term investments, restricted cash, accounts receivable, accounts payable and accrued liabilities. The Corporation does not have any financial assets or liabilities at fair value through profit or loss in their consolidated statements of financial position. Due to the short-term nature of the Corporation s financial assets and liabilities the carrying values equal fair values. The Corporation classifies financial instruments carried at fair value according to the following hierarchy based on the amount of observable inputs used to value the instrument as follows: Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 Pricing inputs are other than unadjusted quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Level 3 Valuations in this level are those with inputs for the asset or liability that are not based on observable market data. The fair value of the Corporation s cash and cash equivalents, restricted cash and short-term investments have been assessed using the fair value hierarchy described above, and have been determined using Level 1 inputs. The Corporation does not have any financial assets, held at fair value, classified as Level 2 or Level 3. 76 Alter NRG Annual Report 2011

Note 24 Transition to International Financial Reporting Standards ( IFRS ) For all periods up to and including the year ended December 31, 2010, the Corporation prepared its financial statements in accordance with Canadian Generally Accepted Accounting Principles ( GAAP ). The Corporation prepared financial statements that comply with IFRS for periods beginning on or after January 1, 2010, the Corporation s date of transition to IFRS. Any adjustments necessary to the opening balances at January 1, 2010, December 31, 2010 and comparative periods to reflect the revision of the financial statements from GAAP to IFRS have been made. Further due to the presentation requirements under IFRS, certain comparative figures have been reclassified to different headings on the financial statements. IFRS 1, First-time Adoption of International Financial Reporting Standards, ( IFRS 1 ) sets forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are applied retrospectively at the transitional reporting date with all adjustments to assets and liabilities recognized in retained earnings unless certain exemptions are applied. The Corporation has applied the following optional exemptions to its opening statement of financial position dated January 1, 2010: (a) Business combinations IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3, Business Combinations ( IFRS 3 ) retrospectively to business combinations that occurred before the date of transition to IFRS. The Corporation has taken advantage of this exemption and will apply IFRS 3 only to business combinations that occur on or after January 1, 2010. (b) Share-based payments The Corporation has elected to take the IFRS 1 exemption that allows the Corporation an exemption on IFRS 2, Share Based Payments ( IFRS 2 ) for equity instruments which vested and settled before the Corporation s transition date to IFRS. (c) Accumulated foreign currency translation Under IFRS, accounting for foreign currency transactions and the translation of foreign currency based account balances is addressed in IAS 21, The Effects of Changes in Foreign Exchange Rates ( IAS 21 ). There is no material difference between IAS 21 and GAAP as they relate to the Corporation; however, IFRS 1 allows an exemption to set accumulated foreign currency translation balances reported in other comprehensive income to zero upon IFRS transition and the Corporation elected to take the IFRS 1 exemption. No other optional IFRS exemptions were applicable and therefore have not been adopted. The Corporation has also applied the following mandatory exception: (d) Estimates IFRS 1 prohibits the use of updated information to revise or create estimates applied in determining balances upon IFRS transition. Consequently, the estimates previously used by the Corporation in the determination of 2010 balances reported under GAAP were not revised in the application of IFRS unless changes were required to reflect differences in IFRS accounting policies. No other mandatory exceptions were applicable to the Corporation. Alter NRG Annual Report 2011 77

Reconciliation of equity as at January 1, 2010 (date of transition) Canadian GAAP IFRS Adjustments IFRS Shareholders equity: Shareholders capital $ 127,205,809 $ - $ 127,205,809 Contributed Surplus (f) 5,891,305 (5,891,305) - Reserves (f) - 6,152,638 6,152,638 Deficit (e) (f) (45,949,195) (2,490,761) (48,439,956) Accumulated other comprehensive loss (e) (2,229,428) 2,229,428 - Total shareholders equity $ 84,918,491 $ - $ 84,918,491 Reconciliation of equity as at December 31, 2010 Canadian GAAP IFRS Adjustments IFRS Assets Current assets: Cash and cash equivalents $ 3,059,929 $ - $ 3,059,929 Short-term investments 3,376,305-3,376,305 Restricted cash 375,079-375,079 Accounts receivable 2,160,664-2,160,664 Prepaid expenses 185,374-185,374 Inventories 670,806-670,806 Assets held for sale 3,996,900-3,996,900 Current assets of discontinued operations 3,655,532-3,655,532 17,480,589-17,480,589 Non-current assets: Restricted cash 503,863-503,863 Property, plant and equipment 4,117,254-4,117,254 Resource properties 3,405,171-3,405,171 Intangible assets 43,437,406-43,437,406 Non-current assets of discontinued operations 18,243,022-18,243,022 Total assets $ 87,187,305 $ - $ 87,187,305 78 Alter NRG Annual Report 2011

Liabilities and Shareholders Equity Current liabilities: Accounts payable and accrued liabilities (g) $ 3,447,916 $ (557,635) $ 2,890,281 Deferred revenue 526,885-526,885 Operating lease obligations (g) - 352,191 352,191 Current liabilities of discontinued operations 1,619,206-1,619,206 5,594,007 (205,444) 5,388,563 Operating lease obligations (g) - 205,444 205,444 Deferred income tax liability 17,852,617-17,852,617 Non-current assets of discontinued operations 407,845-407,845 Total liabilities 23,854,469-23,854,469 Shareholders equity: Shareholders capital 127,337,157-127,337,157 Contributed surplus (f) 7,575,603 (7,575,603) - Reserves (e) (f) - 6,787,948 6,787,948 Deficit (e) (f) (68,458,580) (2,333,689) (70,792,269) Accumulated other comprehensive loss (e) (3,121,344) 3,121,344 - Total shareholders equity 63,332,836-63,332,836 Total shareholders equity and liabilities $ 87,187,305 $ - $ 87,187,305 Alter NRG Annual Report 2011 79

Note 25 Reconciliation of loss and comprehensive loss for the year ended December 31, 2010 GAAP IFRS Adjustments IFRS Sales $ 6,412,736 $ - $ 6,412,736 Cost of Sales 2,690,791-2,690,791 Gross Profit 3,721,945-3,721,945 General and administrative expenses 10,014,211-10,014,211 Selling and distribution expenses 1,681,220-1,681,220 Share-based payments (f) 1,415,637 (193,123) 1,222,514 Depreciation and amortization 2,391,175-2,391,175 Foreign exchange (loss) gain (587,318) - (587,318) 16,089,561 (193,123) 15,896,438 Operating loss 12,367,616 (193,123) 12,174,493 Other expenses (income) 269,025-269,025 Finance costs 22,457-22,457 Finance income 206,495-206,495 Loss before income tax 11,914,553 (193,123) 11,721,430 Income tax expense 1,517,899-1,517,899 Net loss from continuing operations 13,432,452 (193,123) 13,239,329 Loss from discontinued operations 9,076,933 36,051 9,112,984 Net loss $ 22,509,385 $ (157,072) $ 22,352,313 Comprehensive loss Net loss $ 22,509,385 $ (157,072) $ 22,352,313 Exchange loss on translating foreign operations 891,916-891,916 Total comprehensive loss for the period (f) $ 23,401,301 $ (157,072) $ 23,244,229 Loss per share Basic and diluted from continuing operations $ (0.22) $ - $ (0.21) Basic and diluted (0.36) - (0.36) 80 Alter NRG Annual Report 2011

Notes to the IFRS reconciliations (e) In accordance with IFRS 1, the Corporation elected to deem all foreign currency translation differences that arose prior to the transition date in respect of foreign operations to be nil and reclassified related amounts included in other comprehensive loss under GAAP to deficit under IFRS. At January 1, 2010, the entire balance in accumulated other comprehensive loss of $2,229,428 related to foreign currency translation and was therefore reclassified to deficit, leaving a nil balance in accumulated other comprehensive loss and an increase to the deficit of $2,229,428. At December 31, 2010, the foreign currency translation loss of $891,916 for the year then ended was reclassified from accumulated other comprehensive loss and is shown as a decrease to the foreign currency translation reserve. (f) In accordance with IFRS 1, the Corporation remeasured the expense related to share-based payments for the Corporation s stock option plan and differences in the compensation expense between GAAP and IFRS 2. The Corporation now uses a graded vesting schedule, where as previously the Corporation used a straight line schedule. Amounts related to share-based payments previously included in contributed surplus under GAAP were reclassified to equity settled employee benefits reserve under IFRS. At December 31, 2010, the contributed surplus balance in accordance with GAAP was $7,575,603 and this amount was reclassified to equity settled employee benefits reserve. In addition, the reclassification of share-based payment expense resulted in an increase in share-based payments recognized of $261,333, an increase in the equity settled employee benefits reserve and in the deficit. The share-based payment expense for the year ended December 31, 2010 decreased by $157,072, with a corresponding decrease in the equity settled employee benefits reserve and the deficit as at December 31, 2010. (g) (h) In accordance with IFRS 1 presentation, the Corporation reclassified certain operating lease obligations on an onerous lease from accrued liabilities to the current and long-term portion of operating lease obligations, with a current portion of $352,191 and a long-term portion of $205,444, with a corresponding reduction in accounts payable and accrued liabilities of $557,635 as at December 31, 2010. There was no impact on the consolidated statement of cash flows upon adoption of IFRS. Alter NRG Annual Report 2011 81

Corporate Information Directors Management Stock Exchange Listings Head Office Kevin Bolin Executive Chairman Nancy Laird (1) Alter NRG Walter Howard Chief Executive Officer TSX Symbol: NRG OTCQX Symbol: ANRGF Legal Counsel 215, 4000-4th Street SE Calgary, Alberta, Canada T2G 2W3 Main 403 806 3875 Fax 403 806 3701 Email info@alternrg.ca Lead Director Brent Conway (2) Director Michael Heier (3) Director Mark Montemurro Director Danny Hay Chief Financial Officer Richard Fish President Blake, Cassels & Graydon LLP Calgary, Alberta Auditors Deloitte & Touche LLP Calgary, Alberta Banker Scotiabank Calgary, Alberta Westinghouse Plasma Corporation Office Plasma Center P.O. Box #410, 1-70, Exit 54 Madison, Pennsylvania USA 15663-0410 Main 724 722 7053 Fax 724 722 7057 Email wpcinfo@westinghouse-plasma.com Glossary MW megawatts Joseph Schwager (4) Director Transfer Agent Valiant Trust Company Syngas synthesis gas WTE waste-to-energy (1) Chair of Governance and Compensation Committee Calgary, Alberta Websites www.alternrg.com (2) Chair of Audit Committee www.westinghouse-plasma.com (3) Chair of Health, Safety and Environment Committee (4) Chair of Project Review Committee 82 Alter NRG Annual Report 2011

Westinghouse Plasma Gasification Technology Creates Energy Independence & Environmentally Sustainable Waste Management Solutions

www.alternrg.com