SECOND QUARTER REPORT June 30, 2009 Q2 HIGHLIGHTS (to August 13, 2009)

Transcription

1 LEADING THE ENERGY TRANSFORMATION TSX: NRG OTCQX: ANRGF SECOND QUARTER REPORT June 30, 2009 Q2 HIGHLIGHTS (to August 13, 2009) Alter NRG owns an industry leading plasma gasification technology that can provide clean and renewable energy solutions from a variety of inputs including all types of waste and biomass. The technology is commercially proven with facilities operating since Alter NRG has a unique vision, a strong team, a leading technology, capable strategic partners and financial strength we are well positioned for the opportunities ahead. Substantially completed the construction of Project Lighthouse, a commercial demonstration facility developed by Coskata Inc. (Coskata) that uses the Westinghouse Plasma Corporation (WPC) gasification solution to turn biomass into ethanol. The facility will begin operation in Q3 and represents a significant milestone in the development of cellulosic ethanol from non-food feedstocks (see page 3). Announced the signing of an alliance agreement with Uhde Engineering Consulting (Shanghai) Co. to provide engineering services, marketing services and jointly pursue business opportunities predominantly in the Asia Pacific region, including China. This alliance agreement provides Alter NRG presence on the ground in China and Southeast Asia through a well respected and capable engineering firm (see page 4). Travelled to China to follow up on interest generated from the initial visit in Q1 of this year. Alter NRG is currently advancing discussions with numerous large, credible Chinese companies and advancing a signed memorandum of understanding into a definitive agreement. The interest in China and Southeast Asia for the Westinghouse technology has been significant and the central government has aggressive plans to utilize renewable energy solutions. Continued the commissioning of the world s largest hazardous waste-to-energy (WTE) facility in Pune, India. The facility is working through commissioning and expects to be operational in late Q3 or Q4 of this year. Advanced discussions in the European market with sizeable companies, respected engineering firms and governments that are looking for renewable energy alternatives. This has resulted in advancing submissions into several WTE projects in the UK and EU, being shortlisted for plasma projects in advanced stages of regulatory approval and also advancing project developments with strategic partners in the area. The European market has very favorable incentives and regulatory framework. Advanced commercial discussions for a 75 tonne per day WTE project located in Dufferin County, Ontario. Alter NRG submitted into a request for proposal process and was selected as the technology provider. Focused engineering efforts on the construction of the Coskata facility and the preparation for the testing program of our gasification testing facility in Madison, Pennsylvania. This resulted in lower second quarter revenues as the testing facility was closed and our engineering resources were supporting preparation for the upcoming 50 test program in Q3 and Q4 of 2009 estimated at approximately $3 million in revenue. Advanced 14 projects located worldwide which are at the engineering stage of the project development. Alter NRG continues to advance discussions with industry leading engineering companies and well capitalized energy companies and project developers which have interest in the industry leading Westinghouse technology (see page 5). OUR VISION Be a senior energy producer by becoming the world s leading supplier of plasma gasification technology and develop environmentally sustainable and economically viable gasification projects. PRESIDENT S MESSAGE 2 FOCUS ON CUSTOMER PROJECTS 3 FOCUS ON STRATEGIC PARTNERS 4 FOCUS ON INTERNATIONAL ACTIVITIES 5 FOCUS ON TEAM 6 MANAGEMENT S DISCUSSION & ANALYSIS 7 CONSOLIDATED FINANCIAL STATEMENTS 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21 CORPORATE INFORMATION IBC

2 PRESIDENT S MESSAGE The commercialization of a breakthrough technology in an emerging market is an exciting opportunity but also presents execution challenges. Our strategy is to work with industry leading partners that are well capitalized and who also bring significant technical expertise and execution capability. We announced an additional partner this quarter in a new market which adds to our already substantial list of credible industry partners. Increasing public awareness about utilizing both waste and biomass energy and the many associated environmental benefits is playing a key role in promoting the adoption of the renewable energy concept on a large scale. This is evidenced in the unveiling of the The American Clean Energy and Security Act on May 15 th of this year. This Act includes credits for both waste and biomass to create renewable energy solutions and illustrates the commitment to sustainable development in the United States. North America, however, is still playing catch up to the European Union which has favorable credits and incentives for clean and renewable energy solutions. The recent clean energy policies are a great advantage at a time when concerns about the United States dependence on foreign oil are rapidly increasing. However, despite recognizing the benefits of renewable energy, governments in North America have been slow to develop this as a primary energy source. We are making progress, but it takes time to bridge the gap between concept and action. The Asian and European markets have recognized the development of efficient, sustainable energy as an environmental and economic imperative. It makes sense for us to continue our pursuit of those markets and aim for a presence on the ground in China and Southeast Asia. At the end of Q2, we successfully negotiated an alliance agreement with a well respected and capable engineering firm, Uhde Engineering Consulting (Shanghai) Co. Ltd who will license, market and promote the Alter NRG technology in WTE projects and other developments. This agreement will increase our sales pipeline and will help to reduce the capital cost of our plasma gasification systems worldwide. Reflecting on our Company strategy is a key part of our growth and movement forward. At the outset we committed to being an aggregator of commercially proven but still emerging technology in the alternate energy space. It has been our objective to have working relationships with strategically important partners and, to regularly review and refresh these relationships. We are continuing that focus by evaluating and considering how other technology in the alternative energy space could potentially accelerate and strengthen our balance sheet. Alter NRG continues to grow, and we are maintaining focus on our strategic relationships and the strength of our team. We remain confident that Alter NRG has an exciting future and we thank our loyal shareholders for their confidence in us amid these most challenging economic times. Alter NRG has a unique vision, a strong team, a leading technology, a large coal asset and financial strength we are well positioned for the opportunities ahead. Mark Montemurro President & CEO August 13, ALTER NRG SECOND QUARTER REPORT 2009

3 FOCUS ON CUSTOMER PROJECTS COSKATA PROJECT LIGHTHOUSE Coskata is an industry leading Cellulosic Ethanol company and has been ranked as the number one company in the biofuels market by Biofuels Digest. Their technology enables the low-cost production of ethanol from a wide variety of input material including biomass, agricultural and municipal waste, as well as other carbon containing feedstocks. Alter NRG is providing the syngas which is the energy source for the Coskata ethanol process Using proprietary microorganisms and patented bioreactor designs, Coskata is developing a breakthrough technology to enhance energy security, fuel economic growth and provide environmental sustainability. Coskata is completing the construction of their commercial demonstration facility at our WPC site (picture on the left). Alter NRG is providing the syngas using its existing gasification system at the WPC site which is the energy source for the Coskata ethanol process. Coskata is also advancing its first commercial scale project called Project Flagship which is expected to be an approximate $40 million sale of gasifiers for Alter NRG. Coskata is advancing financing for the project through the DOE loan guarantee program and they expect to begin construction development once financing is secured. The Market Ethanol is a government mandated market that is a major part of Energy Independence for the 10% MARKET SHARE The projected US demand for ethanol by 2030 could result in $7.2 BILLION in technology sales to Alter NRG. Note: based on ethanol production projections from H.R.6-Energy Independence and Security Act of 2007 United States and many other countries around the world. Coskata is a leading second generation cellulosic ethanol producer and is in discussions with Alter NRG regarding commercial facilities. The sale of gasification systems to support just 10% of the US market represents a significant market opportunity. This technology has attracted interest from major energy companies worldwide. Alter NRG also has customers and strategic partners pursuing other multi-billion dollar markets including municipal, commercial and industrial WTE, biomass to create power, and refuelling coal power plants. All these markets have strong project returns and also represent a significant environmental benefit in emissions. Alter NRG is an industry leader in the development of clean, renewable and sustainable energy solutions. ALTER NRG SECOND QUARTER REPORT

4 FOCUS ON STRATEGIC PARTNERS Alter NRG has an abundance of opportunity as a market leading company in an emerging market and we continue to have industry leaders approach us. Our challenge is not necessarily finding customers, or competing with others but in execution of large scale energy projects. The development process is multi-year, global in scope and includes balancing delays, financing, regulatory approvals, challenges by various NGO s, cost overruns, etc. Alter NRG is focused on working with credible industry partners that have a track record of successful execution of projects and successfully managing the project development challenges. For example, if we had 10 strategic partners doing one project every two to three years, the expected result would be $50 to $100 million in annual cashflow from technology sales. This provides a solid base of cash inflows to invest into energy projects with strong returns to provide cashflow from energy sales year after year. We have a great start COMPANY CREDENTIALS NRG Energy One of America s largest independent power producers that has received regulatory approval for North America s first commercial-scale plasma gasification project. They are currently advancing seven projects in North America. SMSIL Central India s largest civil engineering and infrastructure development company that has completed the world s largest plasma gasification hazardous waste facility. Coskata A leading cellulosic ethanol technology developer who continues to advance Project Lighthouse, a cellulosic ethanol commercial demonstration project located at Westinghouse Plasma Corporation s commercial demonstration facility in Madison, Pennsylvania. Air Products - Alter NRG and Air Products, an innovative Fortune 500 company, signed a Joint Development Agreement to build renewable energy projects in North America and Europe. They are actively developing project opportunities and partnerships and have initiated several engineering studies for projects. Saipem One of the world s largest engineering firms for turnkey contracting in the oil and gas industry. Saipem has a joint development agreement to market the Westinghouse plasma technology in the Middle East. UHDE Shanghai Uhde is one of the world s leading engineering companies in the design and construction of chemical, refining and other industrial plants. Uhde Shanghai is marketing the Westinghouse Plasma technology in China and throughout Southeast Asia and also providing a lower cost more turnkey product offering. 4 ALTER NRG SECOND QUARTER REPORT 2009

5 FOCUS ON INTERNATIONAL ACTIVITIES Alter NRG has been focusing on international activities in 2009 as many jurisdictions have favorable policies, incentives, or government mandates which are positive for the development of plasma gasification facilities. We are an industry leader worldwide. The Stimulus package has significant funds earmarked for clean and renewable energy, as well as the proposed American Clean Energy and Security Act which provides credits and incentives enhancing project returns. In the UK, the Alter NRG Plasma Gasification process would be classified as Advanced gasification qualifying for 2 ROCs per MWh at a value of each for power improving project returns. China budgeted RMB billion ($12.63 billion USD) to build new WTE facilities and RMB 3.41 trillion ($500 billion USD) for biomass. Partnered with Fortune 500 Companies with execution capability. Industry leading companies advancing projects and doing initial engineering on projects. Alliance with Uhde Shanghai, an industry leading EPC and negotiations with developers in progress. Alter NRG is advancing a coal to liquids project in Alberta and owns 468 million tonnes of coal suitable for gasification. Two commercial facilities in operation since 2002 and 2003 using WPC technology. Location of WPC plasma gasification testing facility and Coskata cellulosic ethanol project. Advancing discussions on multiple WTE projects One facility commissioned and another being constructed by a leading engineering company. Hosted delegations from Mexico to discuss their upcoming initiatives to convert significant municipal waste streams into power in major urban areas of Mexico. Pre-selected by large developers advancing Eco-Parks which include plasma gasification. India has in its 11th Five-Year Plan a target of generating 1,200MW of biomass power and a target to generate 400MW from industrial and urban solid WTE. In the EU they have aggressive renewable energy mandates of 20/20 by This is 20% reduction in GHG, and 20% power generated from renewable solutions by Most member nations are facing significant challenges and behind in execution which will result in sanctions and penalties. Partnered with SAIPEM and industry leading EPC. National targets to clean up waste and increase renewable power outputs. Proposed projects Engineering stage and publicly announced Projects under construction The above map are only highlights, and the list of opportunities continues to grow. Alter NRG remains focused on working with industry leading companies that are looking for a commercially proven Westinghouse technology to provide clean and renewable energy solutions. We have capable partners and developers, large market opportunities and are the leader in an exciting growth industry. ALTER NRG SECOND QUARTER REPORT

6 FOCUS ON TEAM At Alter NRG we bring together results oriented people who take calculated risks and who make the team a higher priority than any personal objective. As we move forward, the expertise, creativity and dedication of our people will allow us to realize our Corporate vision. Gregory Wright Vice President, Finance Mr. Wright is a seasoned executive with the demonstrated ability to improve operations and positively impact business growth through the application of sound financial strategies. With expertise in corporate finance, administration and public company accounting he has a talent for complex financial thinking that drives and maximizes profitability. Most recently as CFO for Ultrasonix Medical Corporation, Mr. Wright dramatically increased the reliability and timeliness of the company s internal and external financial reporting. Prior to that Mr. Wright served as CFO for Serono s International Business Operations, an operating division of a global biotech company operating in 45 countries with $2.5 billion in annual revenues. Mr. Wright received his Bachelor of Commerce from the University of Calgary in 1992 followed by his Chartered Accountant designation in Derek Sather Director, Strategic Alliance and Business Development Mr. Sather is a results focused leader with significant experience in executing large ticket, complex transactions. Coming from the technology sector, Mr. Sather worked for Oracle Corporation one of the world s largest enterprise software companies. While at Oracle, Mr. Sather led national accounting management and sales activities that delivered multi-million dollar sales for the company s emerging technology solutions. Mr. Sather was recognized for driving dramatic sales revenue growth and in leading strategic planning initiatives for Western Canada. Most recently, Mr. Sather was director of sales for OSJ Consulting. Specializing in technology sector consulting, Mr. Sather led cross functional efforts to drive performance improvements and increase pipeline revenue. He led and negotiated strategic alliance agreements as well as managed post sales support. Mr. Sather attended Trinity Western University in Langley, BC. 6 ALTER NRG SECOND QUARTER REPORT 2009

7 MANAGEMENT S DISCUSSION AND ANALYSIS The following management s discussion and analysis (MD&A) for Alter NRG Corp. (Alter NRG, the Corporation, us or we), prepared as at August 13, 2009, provides a review of the Corporation s financial results for the three and six months ended June 30, 2009 and consideration of future opportunities. The MD&A should be read in conjunction with the unaudited consolidated financial statements and accompanying notes for the Corporation for the three and six months ended June 30, 2009 and the audited consolidated financial statements for the year ended December 31, The unaudited consolidated financial statements, and extracts of those financial statements provided within this MD&A, were prepared in Canadian dollars and are in accordance with Canadian Generally Accepted Accounting Principles (GAAP). 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 ( ADVISORIES 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 industry 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 labor 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, and the continued development of the Corporation s technology and its use in various applications 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. 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 forwardlooking 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 the possible unavailability of financing at competitive rates and the related effect on development activities other business risks outlined in this MD&A, including risks associated with the proprietary technology the effect of energy price fluctuations risks associated with the clean energy business 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 ALTER NRG SECOND QUARTER REPORT

8 CORPORATE OVERVIEW Alter NRG provides and pursues alternative energy solutions through gasification to meet the growing demand for clean energy in world markets. The Corporation s vision is to become a leader in the development of economically viable and environmentally sustainable gasification projects for the commercial production of energy. Alter NRG creates revenues by selling plasma gasification technology and through participation in gasification projects that fit its strategic growth plan. Alter NRG s mission is to maximize returns for its investors by participating in financially accretive projects in the emerging alternative energy market, through technology sales and project interests. Alter NRG endeavors to be a leader in innovative gasification related technologies applied to produce profitable and clean alternative energy solutions. The Corporation invests in the skills of its people who will provide the creativity, determination and passion to generate growth in stakeholder value. The Corporation strives to be transparent and fair in its activities and works to form positive relationships with the communities where it operates and with all of its stakeholders. Initially, the Corporation is focusing its efforts on technology sales and developing a strategic portfolio of customers with the capability to advance projects from internally generated cash flow. The focus will be to increase near term cash inflows by generating operational revenues and reducing capital expenditures by limiting the working interest we hold in projects and slowing project timelines. The Corporation owns Westinghouse Plasma Corporation (WPC). WPC has proprietary technology that the Corporation believes is an industry leading technology with the following broad advantages: Commercially proven the technology has been commercially applied, for six years, in facilities in Japan for gasification of waste. The plasma torches, which are core to the overall technology, have been commercially used for over 20 years. Environmentally responsible the technology has the capability to reduce emissions significantly as compared to other conventional fossil fuel technologies. Flexible technology the technology can handle a wide range of feedstocks, including many types of waste (municipal, commercial, industrial, and hazardous), biomass, coal and petroleum coke. The flexibility to accept a variety of feedstocks gives the technology a range of uses and markets to which it can be applied. Scalable technology the technology is ideal for projects with total capital between $50 million and $500 million. The technology is larger scale than most other plasma gasification technologies, and has a longer commercial operating history. The current economic and capital market conditions provide a challenging environment to navigate. To mitigate the challenges, Alter NRG is focusing on technology sales to parties that bring the capital, skill and expertise to develop energy projects. A core part of the corporate strategy is the use of strategic alliances and partnerships to commercialize the technology into different geographic regions and markets. HIGHLIGHTS Technology Sales Alter NRG has a strategic focus for technology sales to large waste and energy companies with the ability to advance plasma gasification projects in this challenging market environment. The Corporation is initially focusing on opportunities in North America, the European Union and Southeast Asia. Discussions have advanced with numerous companies with strong balance sheets and a focus on renewable energy solutions. Alter NRG has significant strategic customers and alliances with NRG Energy, a leading independent power producer in the US, Air Products, a world leader in industrial gasses, Coskata Inc., a leading cellulosic ethanol developer, and also credible engineering firms such as Uhde Shanghai, Saipem, and SMS Infrastructures Ltd. 8 ALTER NRG SECOND QUARTER REPORT 2009

9 In the first half of 2009, the Corporation announced the signing of a Joint Development Agreement with Air Products to pursue renewable energy opportunities in North America and Europe. Air Products is a leading industrial gas provider and a Fortune 500 Company, with annual revenues of over $10 billion, operations in more than 40 countries and 21,000 employees. The non-exclusive agreement allows Air Products to license and incorporate Alter NRG s proprietary Westinghouse Plasma Gasification technology in renewable energy projects. Air Products will initially focus on developing energy facilities using renewable feedstock to generate synthesis gas (syngas a mixture of hydrogen and carbon monoxide) for power, heat or steam generation. Alter NRG continued to advance Project Lighthouse, a commercial demonstration facility developed by Coskata Inc. (Coskata) that uses the WPC gasification solution to turn biomass into ethanol. This breakthrough technology will use non-food biomass (waste biomass) to create ethanol at a market leading low cost, which is expected to be under $1.25 per gallon. Coskata, a leading second generation ethanol company, was recently named number one in the 50 Hottest Companies in Bioenergy. Project Lighthouse is expected to generate approximately $3 million in revenues for use of our plasma centre and has attracted international interest from leading energy companies and developers from around the world. Coskata is also advancing engineering on their first commercial facility which is expected to generate approximately $50 million in engineering services and equipment sale revenues. NRG Energy, another strategic partner, continues work on multiple projects using plasma gasification. The Somerset project operated by NRG Energy will convert coal and biomass into 120 MW of power. This project received regulatory approval from the Department of Environmental Protection of Massachusetts on January 25, 2008, but was subject to various regulatory appeals. Management understands that NRG Energy anticipates commencing construction during 2010 and currently this would result in an approximately $40 million sale of equipment. The Corporation also supports NRG Energy s project development efforts on other waste-to-energy (WTE) projects and coal retrofit opportunities. The Corporation announced the signing of an alliance agreement with Uhde Engineering Consulting (Shanghai) Co. Ltd. Uhde is one of the world s leading engineering companies in the design and construction of chemical, refining and other industrial plants with over 2000 plants to its credit. The non-exclusive alliance agreement allows Uhde to license, market as well as promote the Alter NRG technology in WTE projects and other developments. The alliance agreement includes a preferred engineering relationship for engineering and procurement support for the projects requiring the syngas conditioning and gasification expertise that Uhde Shanghai and Alter NRG, respectively, can provide its customers in the China and Southeast Asian market. During the first half of 2009, management continued its marketing efforts in Europe and China for discussions with companies advancing renewable energy projects. The response was very positive and resulted in commercial discussions with several different companies. This includes two developers entering proposals for a waste project, entering final round technology discussions for several projects in Spain and signing an initial MOU with a company in China. Further details will be available when binding contracts are executed. The Company continued to advance 14 projects to the engineering stage. Nine opportunities are located in the United States, three in Europe and two in Southeast Asia. An average plasma gasification equipment sale would result in approximately $10 million to $100 million of revenues upon successful development. Customer Projects Under Construction Continuing projects that align with Alter NRG s strategic focus include the following: Project Lighthouse is a 40,000 gallon per year ethanol commercial demonstration project developed by Coskata. Coskata expects to complete the project, located at the Alter NRG pilot facility in Madison, Pennsylvania, in the summer of The existing plasma gasifier provides the syngas that will then be converted to ethanol through the Coskata proprietary conversion process. The Corporation expects this ethanol commercial demonstration project to result in $3 million in total revenues in 2009 and Further, the Corporation expects a successful demonstration will attract key customers with a focus on renewable energy to the Alter NRG pilot facility in SMS Infrastructure Limited (SMSIL) consists of two hazardous WTE facilities under construction in India. The first facility in Pune has undergone initial commissioning and is resolving several integration challenges. The first facility became operational in the second quarter of 2009 and is currently undergoing further gasifier design changes. Both facilities will use Alter NRG plasma gasification technology to convert approximately 68 tonnes per day of hazardous waste into power. The facilities are owned and operated by SMSIL, central India s largest civil engineering and infrastructure development company. These facilities will increase the number of commercial facilities processing waste using Alter NRG s technology from two to four and provide commercial experience for smaller scale industrial waste solutions that can be replicated. ALTER NRG SECOND QUARTER REPORT

10 Alter NRG Project Development As a means to reduce Alter NRG s capital requirements the Corporation has adopted a staged approach for internally led projects under development, as described below: Fox Creek, Alberta is a coal-to-liquids project expected to produce up to 40,000 barrels per day of diesel fuel and naphtha from Alter NRG s existing coal reserves. Alter NRG is reducing project development expenditures to less than $1.5 million in 2009 on work defining the project scope. The delayed timeline will postpone completion of the development until late 2015, subject to successful partner selection by the end of SELECTED FINANCIAL INFORMATION FOR THE THREE MONTHS ENDED JUNE Total revenues, interest and other income $ 354,733 $ 1,363,471 Gain on sale 2, ,404 Expenses 4,764,774 4,968,033 Write down of assets held for sale 1,866,000 Loss (6,087,592) (2,454,308) Comprehensive loss (8,048,276) (2,670,791) Loss per Unit/Share basic and diluted (0.11) (0.04) Cash used in operations (2,800,230) (2,326,796) FOR THE SIX MONTHS ENDED JUNE Total revenues, interest and other income $ 1,605,197 $ 2,427,320 Gain on sale 2, ,404 Expenses 9,161,436 8,177,164 Write down of assets held for sale 1,866,000 Loss (9,033,141) (4,263,441) Comprehensive loss (10,255,715) (3,484,531) Loss per Unit/Share basic and diluted (0.16) (0.08) Cash used in operations (6,131,830) (3,523,080) AS AT JUNE Total assets $ 109,968,453 $ 120,709,784 Total liabilities 23,664,397 21,856,749 Shareholders equity 86,304,056 98,853,035 PLASMA TECHNOLOGY SALES AND SERVICES FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Sales revenue Engineering and testing services $ 250,527 $ 783,661 $ 1,294,045 $ 1,387,992 Parts and other sales 47,361 69, , ,900 $ 297,888 $ 853,305 $ 1,412,030 $ 1,564,892 Direct cost of sales Engineering and testing services $ 83,846 $ 338,722 $ 484,807 $ 705,446 Parts and other sales 20,588 51,632 83, ,806 $ 104,434 $ 390,354 $ 567,809 $ 835,252 Gross margin $ 193,454 $ 462,951 $ 844,221 $ 729,640 Plasma technology sales and service revenues result from engineering services provided for reactor design and process engineering, replacement parts for existing gasification customers and plasma gasification testing services provided at the Corporation s testing centre pilot facility located in the United States (US). 10 ALTER NRG SECOND QUARTER REPORT 2009

11 Direct costs of sales relate to direct materials and expenditures for products and services and reflect standard rates. Margins in 2009 are higher than 2008 due to the reduced amount of direct labor spent on engineering products. The Corporation s revenue generating projects are advancing as expected and will generate revenues that vary from one quarter to the next. Revenues for the three months ended June 30, 2009 decreased over the prior period by 65% or $555,417. This is attributed to the shut down of the pilot facility for third party testing services and allocation of our engineering resource to prepare for Coskata Project Lighthouse. The Coskata Project Lighthouse has contracted to do 50 pilot tests between September 2009 and June 2010 which is expected to generate approximately $3 million in revenues. In the second quarter of 2008, the majority of revenue was derived from testing services conducted by WPC. Revenues for the first six months of 2009 decreased by $152,862 or 10% with the majority of the decrease related to the reasons described above related to Project Lighthouse. Alter NRG anticipates a key revenue stream from equipment sales of a plasma torch or a plasma gasification island. Plasma torches are one component of the plasma gasification island and the sale of torches used in a small scale gasification facility generates approximately $1.5 million to $3 million in revenue. The Corporation plans to sell a full scope gasification solution, the plasma gasification island, to third party project developers which would generate revenues of approximately $25 million each. Alter NRG has devoted significant efforts expanding its product offering while completing the 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. Since the Corporation purchased WPC it has tripled its number of customers. Key customers advancing commercial projects include SMSIL, Coskata, NRG Energy, and Air Products (see the Highlights section). These companies indicate they expect to order equipment in 2010 to support their development activities. Alter NRG also has 14 engineering sales for customer projects in various stages of development (see the Business Conditions and Risks section). INTEREST AND OTHER INCOME FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Interest income $ 56,845 $ 509,943 $ 192,761 $ 787,744 Other income ,684 Total interest and other income $ 56,845 $ 510,166 $ 193,167 $ 862,428 Interest income relates to funds invested in short-term, interest-bearing investments with a Canadian chartered bank and decreased by 76% for the six months ended June 30, 2009 versus the six months ended June 30, The decrease reflects the average interest rate earned on investments of approximately 0.8% and 0.5% for the current six month and three month periods versus the average 3.5% and 3.1% earned on investments for the same periods in The decrease in interest income also was due to lower levels of investments on hand during the current periods. In July of 2009, the Corporation moved its investment to investment grade fixed income investments that provide for an improved rate of return. GENERAL AND ADMINISTRATIVE EXPENSES FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Employee costs, net of recoveries $ 1,418,904 $ 1,511,225 $ 2,757,760 $ 2,415,824 Office costs 505, , , ,294 Repairs and maintenance 419,350 52, ,788 79,043 Professional and consulting fees 382, , , ,550 Travel costs 199, , , ,999 Bad debts 120, ,620 Business development costs 80, , , ,610 Other costs 50, , , ,194 Board of Directors fees 23,112 43,112 General and administrative expenses $ 3,200,317 $ 2,864,950 $ 6,238,102 $ 4,820,514 ALTER NRG SECOND QUARTER REPORT

12 Employee costs increased due to the increased number of staff required to enact the Corporation s corporate growth strategy. At June 30, 2009, the team included 46 full time employees 28 in the Calgary office and 18 in the US compared to 29 employees at June 30, The Corporation does not expect significant changes to the current headcount for the remainder of Office costs for the three and six months ended June 30, 2009 increased by $168,743 and $403,654, respectively. Both increases are due to increased expenditures for rent and insurance costs as the Corporation continues to ramp up its sales efforts in North America. Repairs and maintenance for the three and six months ended June 30, 2009 increased by $366,535 and $390,745, respectively. The increase is due to one-time expenditures related to preparations for Project Lighthouse. Professional and consulting fees consist primarily of audit and accounting fees, external recruiting fees and consulting and legal fees for business development. A portion of these fees are paid in US dollars, resulting in an increase in costs for the first six months of 2009 due to the strengthened US dollar compared with the same six months in Travel costs for the three and six months ended June 30, 2009 increased by $12,958 and $58,967, respectively. Both increases are due mostly to expenditures related to trips to the European Union and China to meet with potential strategic partners. The Corporation has recorded a provision in the amount of $120,620 at June 30, 2009 (December 31, 2008 nil) after the completion of its review of all outstanding accounts receivable to assess whether the amounts are recoverable. A significant portion of the trade accounts receivable outstanding for greater than 90 days has been collected subsequent to June 30, The Corporation believes the remaining amounts will be collected. Business development costs include the costs of acquiring and developing strategic partnerships for project development efforts. Other costs include public reporting costs, IT-related costs, advertising, promotion and banking charges and are consistent with the increase in personnel. Total general and administrative costs for 2009 are expected to be approximately $13 million, which reflects staffing at current levels for a full year and associated costs to support the current activity levels. Should prolonged negative market conditions persist or customer activity decline in a significant way, general and administrative costs will be evaluated and reduced. FOREIGN EXCHANGE LOSS, NET Foreign exchange relates mostly to US dollar amounts loaned to the US subsidiary. The increase in foreign exchange losses for both the three and six months ended June 30, 2009 compared to the prior year is mostly due to the strengthening of the Canadian dollar during the first six months of the year. DEPRECIATION AND AMORTIZATION FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Depreciation $ 59,768 $ 73,804 $ 145,358 $ 105,647 Amortization 427, , , ,661 Total depreciation and amortization $ 487,153 $ 443,733 $ 1,028,764 $ 843,308 The increase in depreciation for the six months ended June 30, 2009 over the same period in 2008 reflects a full six months of depreciation on the US facility upgrade, completed at the end of the first quarter of No depreciation was recognized on this asset in the first quarter of Amortization relates to the intangible assets acquired on the purchase of the US subsidiary on April 17, The intangible asset is being amortized on a straight-line basis over an estimated useful life of thirty years. WRITE DOWN OF ASSETS HELD FOR SALE During the three months ended June 30, 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 consists of land, a building and a steam turbine. During the three months ended June 30, 2009, the Corporation recognized an impairment of $1,866,000 to write down the Bruderheim property to its fair value less costs to sell the assets. The write-down was based on an assessment of the latest market conditions for each of the assets held for sale. 12 ALTER NRG SECOND QUARTER REPORT 2009

13 INCOME TAXES FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Future income tax liability $ 21,095,554 $ 18,959,943 $ 21,095,554 $ 18,959,943 Provision for income tax recovery (186,097) (371,850) (386,746) (707,999) Future income tax benefit $ $ 646,607 $ $ 646,607 The future income tax liability relates predominately to the difference between the accounting and tax treatment of the intangible assets acquired from WPC on April 17, The provision for income tax recovery arises as the intangible asset is 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. LOSS FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Loss $ 6,087,592 $ 2,454,308 $ 9,033,141 $ 4,263,441 The increased loss for the six months ended June 30, 2009 related primarily to lower interest income earned during the period and a write down of assets held for sale as well as increases in general and administration costs and depreciation and amortization. Profitability is a function of sales timing, type and margin as described in the Plasma Technology Sales and Services section and can be affected by various operating issues as outlined further in the Business Conditions and Risks section. QUARTERLY INFORMATION 2009 Q1 Q2 Total Capital expenditures $ 1,398,152 $ 1,652,023 $ 3,050,175 Total revenues, interest and other income 1,250, ,085 1,607,549 Interest and other income 136,322 56, ,167 Gain on sale 2,352 2,352 Write down of assets held for sale 1,866,000 1,866,000 Loss (2,945,549) (6,087,592) (9,033,141) Loss per Share basic and diluted (0.05) (0.11) (0.16) 2008 Q1 Q2 Q3 Q4 Total Capital expenditures $ 1,968,600 $ 5,894,939 $ 5,450,365 $ 1,472,406 $ 14,786,310 Total revenues, interest and other income 1,063,849 2,141, , ,671 4,847,743 Interest and other income 352, , , ,639 1,681,141 Gain on sale 778, ,405 Loss (1,809,133) (2,454,308) (4,414,367) (4,246,478) (12,924,286) Loss per Share basic and diluted (0.04) (0.04) (0.08) (0.08) (0.24) 2007 Q1 Q2 Q3 Q4 Total Capital expenditures $ 321,141 $ 594,085 $ 463,178 $ 1,330,057 $ 2,708,461 Total revenues, interest and other income 73, ,727 1,156, ,563 2,590,870 Interest and other income 73, , , ,335 1,046,015 Loss (311,382) (3,276,859) (3,642,098) (4,286,204) (11,516,543) Loss per Share basic and diluted (0.02) (0.10) (0.09) (0.10) (0.35) ALTER NRG SECOND QUARTER REPORT

14 The increase in the loss from the first quarter of 2009 to the second quarter of 2009 was due primarily to the further write-down of assets allocated to the Bruderheim project ($1,866,000) to their fair values less costs to sell the assets and to lower interest income earned on account of lower interest rates. Sales revenue related to engineering and testing services were nil in the second quarter compared to $810,970 in the first quarter. CREDIT FACILITY The Corporation s US subsidiary has a line of credit agreement with a major bank in the US for $500,000 US (June 30, 2008 $500,000 US). The line of credit is due on demand and secured by the subsidiary s assets. The credit facility bears interest at a rate that is equal to the US prime rate. No amounts have been drawn on the credit facility as at June 30, LIQUIDITY AND CAPITAL RESOURCES The Corporation s working capital balance was approximately $41.2 million at June 30, 2009, a decrease of $8.2 million from the year ended December 31, 2008 ($49.4 million). Working capital provides funds for the Corporation to meet its operational and capital requirements. These funds will allow Alter NRG to focus on increasing its operational cash flows through sales revenues and prevail through the current economic downturn without relying on raising additional debt or equity financing in a volatile market. Cash Used in Operations FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Cash used in operations $ 2,800,230 $ 2,326,796 $ 6,131,830 $ 3,523,080 The increase in cash used in operations reflects the growth in the Company operations through its expansion in sales and marketing, engineering and administration personnel, related office operating expenses, costs for public filings and business development activities. Cash flow used in operations is expected to decrease as Alter NRG secures equipment sales contracts and license revenue. 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. Capital Expenditures FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Resource property $ 346,642 $ 341,340 $ 406,988 $ 708,532 Property, plant and equipment 801,972 4,876,436 1,493,602 5,502,365 Internally generated intangible assets 503, ,429 1,149,585 1,652,642 Total capital expenditures $ 1,652,023 $ 5,894,205 $ 3,050,175 $ 7,863,539 Internally generated intangible assets consist of internal project development work on the Corporation s plasma gasification island. These costs are not currently amortized, as the related projects have not reached commercial operation. These costs will be amortized when a project begins commercial construction, which management expects to be in late 2009 or Resource property expenditures for the six months ended June 30, 2009 include costs incurred for the Fox Creek core-hole program. Property, plant and equipment costs relate primarily to the facility upgrades for the Coskata Lighthouse project. Alter NRG expects to expand its overall product offering during 2009 and to incur costs on the Fox Creek resource of approximately $1.5 million. The actual expenditures that will be incurred may vary significantly from this estimate as the Corporation regularly reviews its spending in light of current market conditions, opportunities and the estimated timing and cost of development projects. In addition, new projects may arise during the year that will require capital expenditures. 14 ALTER NRG SECOND QUARTER REPORT 2009

15 EQUITY June 30, December 31, Common shares Value $ 116,469,393 $ 116,456,163 Number outstanding at end of period 56,195,551 56,185,551 Issued for cash during the period 10,454,545 Issued on exercise of options 10, ,333 Options Number outstanding 5,168,767 4,796,600 Number exercisable 4,201,600 3,311,767 Granted during the period 547,500 1,286,000 Exercised during the period 10, ,333 Forfeited during the period 165, ,667 Weighted average remaining contract life 8.0 years 8.5 years Weighted average exercise price $ 2.15 $ 2.29 The number of common shares and options outstanding as of August 13th, 2009 was 56,198,051 and 5,242,933, respectively. The authorized share capital of the Corporation consists of an unlimited number of common shares. CONTRACTUAL OBLIGATIONS There have been no material changes to the Corporation s contractual obligations during the six month period ended June 30, 2009 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 three and six month periods ended June 30, 2009, the Corporation incurred $56,995 and $100,216 (June 30, 2008 $81,431 and $128,937) in corporate legal fees to a legal firm of which two officers are partners. At June 30, 2009, nil was owed to this legal firm. These fees are included in general and administrative expense. During the period ended March 31, 2008, Alter NRG engaged an engineering firm to assist with project development work. An officer of Alter NRG was also a director of the engineering firm. As at June 30, 2008, the Corporation s officer was no longer a director of the engineering firm. Total costs incurred for the three months ended March 31, 2008 (while the Corporation s officer was a director of the firm) was $439,524 related to development work. OFF-BALANCE SHEET ARRANGEMENTS As at June 30, 2009, the Corporation does not have any off-balance sheet arrangements. FINANCIAL INSTRUMENTS Note 14 to the financial statements includes a discussion of the Corporation s financial instruments and the related market risks. For further information on financial instruments please refer to the Corporation s consolidated financial statements for the year ended December 31, CRITICAL ACCOUNTING ESTIMATES The preparation of the consolidated financial statements requires various accounting estimates in applying the Corporation s accounting policies around the reported amount of revenues and expenses and the carrying values of assets and liabilities. Anticipating future events involve 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. ALTER NRG SECOND QUARTER REPORT

16 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. Revenue from long-term service contracts consisting of designing and engineering services is recognized when the service has been rendered and specific milestones have been delivered. Revenue from long-term contracts for plasma torch systems sales 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. Judgment is used in evaluating performance for purposes of revenue recognition. Stock Based Compensation Compensation 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. Long-lived Assets Long-lived assets are recorded at cost and include property, plant and equipment, resource properties and intangible assets. These assets are reviewed for impairment 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 undiscounted 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. RECENT CHANGES IN ACCOUNTING POLICIES Accounting Policies Not Yet Adopted In January 2009 the CICA issued new standards relating to business combinations (Section 1582), consolidated financial statements (Section 1601) and non-controlling interests (Section 1602). Section 1582 will be harmonized with IFRS 3 Business Combinations. It will require most assets acquired and liabilities assumed, including contingent liabilities, to be measured at fair value and all acquisition costs to be expensed. Section 1602 will harmonize with the requirements of IAS 27 Consolidated and Separate Financial Statements. It requires non-controlling interests to be recognized as a separate component of equity and net earnings to be calculated without a deduction for non-controlling interests. Section 1601 in combination with Section 1602 replaces the former consolidated financial statements standard (Section 1600) and establishes standards for the preparation of consolidated financial statements. These standards are effective January 1, 2011 with early adoption permitted. The Corporation is currently evaluating the impact of these new sections on its consolidated financial statements. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) In February 2008, the Accounting Standards Board (AcSB) confirmed that accounting standards in Canada will converge with IFRS. Canadian firms will begin reporting under IFRS for interim and annual financial statements for fiscal years beginning January 1, 2011, with appropriate comparative information for the prior year. The Corporation intends to develop a changeover plan that will address the impact of the changeover to IFRS, including accounting policies, financial reporting, internal controls, information systems, education, training and other business activities. The Corporation will engage consultants to assist with its IFRS project and believes that the plan will fall into three major phases as follows, the timing of which is not finalized. PHASE ACTIVITIES 1. Plan and scope Perform accounting policy gap analysis and identify key areas that will be affected Perform high level assessment of affect on systems Develop conversion plan 2. Design and build Amend accounting policies and disclosures Design IFRS-compliant internal and external reporting Design information systems plan to incorporate IFRS reporting Assess affect on internal controls over financial reporting and disclosure controls and address deficiencies Provide internal training Determine if and what strategy required for dual current GAAP and IFRS reporting in the comparative period 3. Implement and review Prepare IFRS-compliant financial statements and reporting Develop and implement approach to maintain and update control framework Implement and test information system enhancements Provide internal training Monitor reporting requirements and address deficiencies 16 ALTER NRG SECOND QUARTER REPORT 2009

17 As a first step, the Corporation will complete a gap analysis in accordance with IFRS 1: First-time Adoption of International Financial Reporting Standards, which will identify the accounting differences that may have a significant affect during the conversion. The Corporation has not begun to quantify the potential effects of accounting differences between IFRS and current GAAP. As the Corporation identifies implications of the conversion, it will address the requirements, continue to monitor the affect of adopting IFRS and will update its progress on its changeover plan in its quarterly MD&A disclosures. 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 are incorporated by reference herein. 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 Copies of the Annual Information Form may be obtained, on request without charge, from Alter NRG Corp. at Avenue S.W., Calgary, Alberta T2P 3N8, or at or by facsimile at (403) 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 Chief Executive Officer ( CEO ) 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 CEO and CFO evaluated the design and implementation of internal controls over financial reporting and have concluded that these controls have been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. It should be noted that while the Corporation s CEO 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 three and six month periods ended June 30, 2009 the Corporation did not make any changes to its internal controls over financial reporting that would have materially affected, or would likely materially affect, the effectiveness of such controls. ADDITIONAL INFORMATION Additional information relating to Alter NRG, including the Annual Information Form for the year ended December 31, 2008, can be viewed at our website ( or at SEDAR ( Information can also be obtained by contacting Alter NRG Corp., Suite 700, 910 7th Avenue S.W., Calgary, Alberta T2P 3N8, or by calling Investor Relations at (403) ALTER NRG SECOND QUARTER REPORT

18 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, December 31, Assets Current assets: Cash and cash equivalents $ 41,794,303 $ 51,252,576 Accounts receivable 660,131 1,639,637 Prepaid expenses 547, ,144 Inventories (NOTE 3) 764, ,686 43,766,622 53,704,043 Restricted cash (NOTE 4) 581, ,300 Assets held for sale (NOTE 5) 7,039,928 Property, plant and equipment (NOTE 6) 3,819,500 11,538,150 Resource properties 3,186,203 2,779,215 Intangible assets (NOTE 7) 51,574,950 53,850,248 Total assets $ 109,968,453 $ 122,483,956 Liabilities and Shareholders Equity Current liabilities: Accounts payable and accrued liabilities $ 1,673,277 $ 2,574,868 Deferred revenue 895,566 1,685,182 2,568,843 4,260,050 Future income tax liability 21,095,554 22,602,635 Total liabilities 23,664,397 26,862,685 Shareholders equity (NOTE 9): Share capital 116,469, ,456,163 Contributed surplus 5,015,821 4,090, ,485, ,546,714 Deficit (35,131,861) (26,098,720) Accumulated other comprehensive income (loss) (49,297) 1,173,277 (35,181,158) (24,925,443) Total shareholders equity 86,304,056 95,621,271 Total liabilities and shareholders equity $ 109,968,453 $ 122,483,956 See accompanying notes to financial statements. 18 ALTER NRG SECOND QUARTER REPORT 2009

19 CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE Revenue, interest and other income: Sales $ 297,888 $ 853,305 $ 1,412,030 $ 1,564,892 Interest and other income 56, , , ,428 Gain on sale of asset 2, ,404 2, , ,085 2,141,875 1,607,549 3,205,724 Expenses: Direct cost of sales 104, , , ,252 General and administrative 3,200,317 2,864,950 6,238,102 4,820,514 Foreign exchange loss, net 554,870 49, ,761 47,735 Stock based compensation 418,000 1,219, ,000 1,630,355 Depreciation and amortization 487, ,733 1,028, ,308 Write down of assets held for sale (NOTE 5) 1,866,000 1,866,000 6,630,774 4,968,033 11,027,436 8,177,164 Loss before income taxes (6,273,689) (2,826,158) (9,419,887) (4,971,440) Provision for income taxes (recovery) Current 1, , Future (188,050) (372,103) (388,699) (708,503) (186,097) (371,850) (386,746) (707,999) Net loss (6,087,592) (2,454,308) (9,033,141) (4,263,441) Deficit, beginning of period (29,044,269) (14,983,567) (26,098,720) (13,174,434) Deficit, end of period $ (35,131,861) $ (17,437,875) $ (35,131,861) $ (17,437,875) Loss per share basic and diluted (NOTE 11) $ (0.11) $ (0.04) $ (0.16) $ (0.08) See accompanying notes to financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE Net loss $ (6,087,592) $ (2,454,308) $ (9,033,141) $ (4,263,441) Foreign currency translation on self-sustaining operations (1,960,684) (216,483) (1,222,574) 778,910 Comprehensive income (loss) $ (8,048,276) $ (2,670,791) $ (10,255,715) $ (3,484,531) Accumulated other comprehensive income (loss) beginning of period $ 1,911,387 $ (3,031,077) $ 1,173,277 $ (4,026,470) Foreign currency translation on self-sustaining operations (1,960,684) (216,483) (1,222,574) 778,910 Accumulated other comprehensive income (loss) end of period $ (49,297) $ (3,247,560) $ (49,297) $ (3,247,560) See accompanying notes to financial statements. ALTER NRG SECOND QUARTER REPORT

20 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Cash provided by (used in): FOR THE THREE MONTHS ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE Operating: Loss $ (6,087,592) $ (2,454,308) $ (9,033,141) $ (4,263,441) Add (deduct) items not involving cash: Future income tax recovery (188,050) (372,103) (388,699) (708,503) Stock based compensation 418,000 1,219, ,000 1,630,355 Depreciation and amortization 487, ,733 1,028, ,308 Gain on sale of asset (2,352) (778,404) (2,352) (778,404) Bad debt expense 120, ,620 Write down of assets held for sale 1,866,000 1,866,000 Unrealized foreign exchange loss 532, ,034 Change in non-cash working capital 77,929 (462,389) (214,440) (956,496) Change in deferred revenue (24,053) 77,395 (789,616) 710,101 (2,800,230) (2,326,796) (6,131,830) (3,523,080) Financing: Issue of share capital, net of share issuance costs 7,500 43,487,450 7,500 43,490,150 Change in non-cash working capital 64,855 7,500 43,552,305 7,500 43,490,150 Investing: Property, plant and equipment additions (801,972) (4,876,436) (1,493,602) (5,502,365) Resource properties additions (346,642) (341,340) (406,988) (708,532) Intangible assets additions (503,409) (676,429) (1,149,585) (1,652,642) Restricted cash (509,300) (509,300) Proceeds on sale of asset 2,352 1,000,000 2,352 1,000,000 Change in non-cash working capital (851,055) (481,355) (324,260) (86,076) (2,500,726) (5,884,860) (3,372,083) (7,458,915) Cash flow provided by (used in) operating, investing and financing activities (5,293,456) 35,340,649 (9,496,413) 32,508,155 Effect of translation on foreign currency cash balances 43,912 8,003 38,140 37,550 Increase (decrease) in cash and cash equivalents (5,249,544) 35,348,652 (9,458,273) 32,545,705 Cash and cash equivalents, beginning of period 47,043,847 27,289,536 51,252,576 30,092,483 Cash and cash equivalents, end of period $ 41,794,303 $ 62,638,188 $ 41,794,303 $ 62,638,188 Cash and cash equivalents consists of: Term deposits $ 41,055,782 $ 62,107,733 $ 41,055,782 $ 62,107,733 Cash 738, , , ,455 $ 41,794,303 $ 62,638,188 $ 41,794,303 $ 62,638,188 No interest or taxes were paid during the three and six month periods ended June 30, 2009 (June 30, 2008 $ nil and $ nil, respectively). See accompanying notes to financial statements. 20 ALTER NRG SECOND QUARTER REPORT 2009

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 NOTE 1 DESCRIPTION OF THE CORPORATION AND BUSINESS The Corporation markets and sells plasma gasification technology and invests in alternative energy projects using gasification and gasification related technology to create saleable energy products. The Corporation owns 100% of the outstanding shares of a US company, Westinghouse Plasma Corporation ( WPC ). NOTE 2 SIGNIFICANT ACCOUNTING POLICIES These unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and are consistent with the accounting policies and method of application used in the preparation of the audited consolidated financial statements as at December 31, These interim consolidated financial statements do not include all of the information and disclosures required by GAAP applicable to annual financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements as at December 31, The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent amounts and the reported amount of revenues and expenses. Actual results could differ from these estimates and the differences could be material. NOTE 3 INVENTORIES June 30, December 31, Parts and materials $ 648,910 $ 247,406 Work-in-progress 116, ,280 Total inventory $ 764,982 $ 423,686 Inventories are carried at cost. The Corporation maintains an inventory of parts for torch repairs and sales. Work-in-progress relates to costs incurred on testing services or engineering services in process. For the three and six months ended June 30, 2009, parts inventories of $20,393 and $37,724 were expensed as part of direct cost of sales (June 30, 2008 $40,278 and $71,970). There were no material write-downs or reversals of previously written down amounts at either June 30, 2009 or NOTE 4 RESTRICTED CASH As at June 30, 2009, the Corporation had $500,000 USD in restricted cash (December 31, 2008 $509,300 USD) that was held in a short-term revolving certificate of deposit. The restricted cash is collateral for a letter of credit which expires June 30, NOTE 5 ASSETS HELD FOR SALE During the three months ended June 30, 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 consists of land, a building and a steam turbine. During the three months ended June 30, 2009, the Corporation recognized an impairment of $1,866,000 to write down the Bruderheim property to its fair value less costs to sell. ALTER NRG SECOND QUARTER REPORT

22 NOTE 6 PROPERTY, PLANT AND EQUIPMENT June 30, 2009 December 31, 2008 Accumulated Net Book Accumulated Net Book Cost Depreciation Value Cost Depreciation Value Plant and facility costs $ 3,520,558 $ (232,500) $ 3,288,058 $ 11,115,592 $ (171,444) $ 10,944,148 Leasehold improvements 116,526 (27,658) 88, ,118 (21,659) 100,459 Office equipment 235,107 (69,206) 165, ,280 (51,313) 182,967 Computer equipment 447,113 (170,440) 276, ,184 (125,608) 310,576 $ 4,319,304 $ (499,804) $ 3,819,500 $ 11,908,174 $ (370,024) $ 11,538,150 During the three months ended June 30, 2009, $8,905,928 of plant and facility costs (net book value $8,905,928) were reclassified to assets held for sale (NOTE 5). NOTE 7 INTANGIBLE ASSETS Foreign Accumulated Exchange Net Book AS AT JUNE 30, 2009 Cost Amortization rate effect Value Acquired intangible assets $ 49,721,806 $ (3,519,965) $ 1,121,852 $ 47,323,693 Internally generated intangible assets 4,251,257 4,251,257 Total $ 53,973,063 $ (3,519,965) $ 1,121,852 $ 51,574,950 Foreign Accumulated Exchange Net Book AS AT DECEMBER 31, 2008 Cost Amortization rate effect Value Acquired intangible assets $ 49,721,806 $ (2,636,560) $ 3,663,330 $ 50,748,576 Internally generated intangible assets 3,101,672 3,101,672 Total $ 52,823,478 $ (2,636,560) $ 3,663,330 $ 53,850,248 Acquired intangible assets, consisting of technological processes, patents, licenses, designs, engineering expertise and capitalized general and administrative costs, are amortized over 30 years. Internally generated intangible assets consist of development costs of internal assets intended for future sale. Amortization will begin on completion of development of the asset and will be based on its estimated useful life. NOTE 8 CREDIT FACILITY The Corporation s US subsidiary has a line of credit agreement with a major US bank of $500,000 USD (June 30, 2008 $500,000 USD). The line of credit is due on demand and secured by the subsidiary s assets. The credit facility bears interest at a rate that is equal to the US prime rate. No amounts have been drawn on the credit facility as at June 30, 2009 and ALTER NRG SECOND QUARTER REPORT 2009

23 NOTE 9 SHARE CAPITAL AND CONTRIBUTED SURPLUS Share capital Authorized An unlimited number of common shares, voting and participating. Issued Common shares June 30, 2009 December 31, 2008 Number Issued Amount Number Issued Amount Share capital balance, beginning of period 56,185,551 $ 116,456,163 45,600,673 $ 72,718,807 Common shares issued for cash 10,454,545 45,999,997 Common shares issued on exercise of options 10,000 13, , ,376 Share issue costs (2,678,017) Share capital balance, end of period 56,195,551 $ 116,469,393 56,185,551 $ 116,456,163 Contributed surplus June 30, December 31, Contributed surplus, beginning of period $ 4,090,551 $ 1,699,158 Transfer to share capital on exercise of options (5,730) (135,041) Stock based compensation 931,000 2,526,434 Contributed surplus, end of period $ 5,015,821 $ 4,090,551 NOTE 10 STOCK OPTION PLAN The Corporation has a Stock Option Plan for employees, consultants, 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 exercise price of options is approved by the Board and cannot be less than the market price of its common shares on the day the option is granted. 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 following options have been granted: June 30, 2009 December 31, 2008 Weighted Weighted Average Average Number of Exercise Price Number of Exercise Price Options ($/option) Options ($/option) Outstanding, beginning of period 4,796,600 $ ,852,600 $ 1.74 Granted 547, ,286, Forfeited (165,333) (3.83) (211,667) (2.95) Exercised (10,000) (0.75) (130,333) (2.15) Outstanding, end of period 5,168,767 $ ,796,600 $ 2.29 Exercisable, end of period 4,201,600 $ ,311,767 $ 1.89 ALTER NRG SECOND QUARTER REPORT

24 Outstanding Exercisable Weighted Average Weighted Weighted Remaining Average Average Exercise Price Number of Contractual Life Exercise Price Number of Exercise Price ($/option) Options (years) ($/option) Options ($/option) $ , $ ,600 $ ,254, , , , , , ,136, ,928, , , , , , , , , , , , , $ ,168, $ ,201,600 $ 2.13 For the three and six month periods ended June 30, 2009, the Corporation recognized compensation expense included in the calculation of net earnings of $418,000 and $931,000 (June 30, 2008 $1,219,280 and $1,630,355) with an equal offsetting amount to contributed surplus, based on the vesting terms of the options. The weighted-average fair value of options granted during the three and six month periods ended June 30, 2009 was $1.38 and $0.98 (June 30, 2008 $3.60 and $3.45) per option. The Corporation uses the Black-Scholes option-pricing model to determine the estimated fair value of the options at the date of grant. A summary of the assumptions used in the Black-Scholes option-pricing model to determine the estimated fair value is as follows: FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30 JUNE Expected volatility 100% 55% 100% 55% Distribution rate 0% 0% 0% 0% Risk free interest rate 3.4% to 3.5% 3.6% 3.0% to 3.5% 3.5% to 3.9% Expected life 4 years 8 years 6.6 years 8 years NOTE 11 LOSS PER SHARE Basic and diluted net loss per share has been calculated using the weighted average number of shares outstanding during the three and six month periods ended June 30, 2009 of 56,191,773 and 56,188,662 (June 30, ,853,561 and 50,728,073). As the Corporation is in a loss position, any conversion of options would be anti-dilutive to the loss per share calculation. NOTE 12 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 three and six month periods ended June 30, 2009, the Corporation incurred $56,995 and $100,216 (June 30, 2008 $81,431 and $128,937) in corporate legal fees to a legal firm of which two officers are partners. At June 30, 2009, $nil was owed to the legal firm. These fees are included in general and administrative expense. During the period ended March 31, 2008, Alter NRG engaged an engineering firm to assist with project development work. An officer of Alter NRG was also a director of the engineering firm. As at June 30, 2008, the Corporation s officer was no longer a director of the engineering firm. Total costs incurred for the three months ended March 31, 2008 (while the Corporation s officer was a director of the firm) were $439,524 related to development work. 24 ALTER NRG SECOND QUARTER REPORT 2009

25 NOTE 13 SEGMENTED INFORMATION The Corporation focuses on creating clean energy solutions through the construction of gasification facilities and is in the process of developing several projects. The subsidiary s technology represents a core technology that supports the project development and provides additional project opportunities. The Corporation has two reportable segments. FOR THE THREE MONTHS ENDED JUNE Corporate Plasma Corporate Plasma Operations Technology Operations Technology and Project Sales and and Project Sales and Development Services Total Development Services Total Revenue from external customers $ $ 297,888 $ 297,888 $ $ 853,305 $ 853,305 Interest and other income 53,748 3,097 56, ,373 1, ,166 Gain on sale of asset 2,352 2, , ,404 Direct cost of sales 104, , , ,354 Depreciation and amortization 106, , ,153 28, , ,733 General and administrative 1,234,684 2,520,503 3,755,187 1,296,919 1,617,747 2,914,666 Stock based compensation 418, ,000 1,219,280 1,219,280 Write down of assets held for sale 1,866,000 1,866,000 Income taxes (recovery) 1,953 (188,050) (186,097) 253 (372,103) (371,850) Loss (3,570,935) (2,516,657) (6,087,592) (1,257,859) (1,196,449) (2,454,308) Capital expenditures 652, ,144 1,652,023 5,347, ,047 5,894,939 Total assets 52,556,415 57,412, ,968,453 71,112,977 49,596, ,709,784 Assets held for sale 7,039,928 7,039,928 Intangible assets $ $ 51,574,950 $ 51,574,950 $ $ 45,130,866 $ 45,130,866 FOR THE SIX MONTHS ENDED JUNE Corporate Plasma Corporate Plasma Operations Technology Operations Technology and Project Sales and and Project Sales and Development Services Total Development Services Total Revenue from external customers $ $ 1,412,030 $ 1,412,030 $ $ 1,564,892 $ 1,564,892 Interest and other income 188,813 4, , ,850 77, ,428 Gain on sale of asset 2,352 2, , ,404 Direct cost of sales 567, , , ,252 Depreciation and amortization 138, ,619 1,028,764 53, , ,308 General and administrative 2,641,147 3,992,716 6,633,863 2,642,122 2,226,127 4,868,249 Stock based compensation 931, ,000 1,630,355 1,630,355 Write down of assets held for sale 1,866,000 1,866,000 Income taxes (recovery) 1,953 (388,699) (386,746) 504 (708,503) (707,999) Loss (5,387,080) (3,646,061) (9,033,141) (2,763,015) (1,500,426) (4,263,441) Capital expenditures 687,453 2,362,722 3,050,175 6,789,462 1,074,077 7,863,539 Total assets 52,556,415 57,412, ,968,453 71,112,977 49,596, ,709,784 Assets held for sale 7,039,928 7,039,928 Intangible assets $ $ 51,574,950 $ 51,574,950 $ $ 45,130,866 $ 45,130,866 NOTE 14 FINANCIAL RISK MANAGEMENT Capital Management Capital management objectives and strategies remain unchanged from the year ended December 31, ALTER NRG SECOND QUARTER REPORT

26 Financial Instrument Risk Exposure and Management The Corporation is exposed to various risks associated with its financial instruments. These risks are categorized as credit risk, foreign currency risk, interest rate risk and liquidity risk. The Corporation did not hold or issue any derivative financial instruments during the first six months of Credit risk The Corporation s cash and cash equivalents of $41.8 million is primarily held at a chartered Canadian financial institution. Its restricted cash of $500,000 USD is held in a short-term revolving certificate of deposit at a strong, diversified US financial institution. Management reviews the financial strength of the institutions on a regular basis. Accounts receivable also subject the Corporation to credit risk. The risk results from extending credit to customers. The Corporation s credit risk with respect to accounts receivable is minimal. The Corporation has recorded a provision in the amount of $120,620 at June 30, 2009 (December 31, 2008 $nil). A significant portion of the trade amounts due over 90 days have been collected and the Corporation believes the remaining amounts will be collected. As at June 30, 2009, $75,775 of the amount over 90 days (December 31, 2008 $96,148) related to a loan advanced to an employee and is secured by real property, considered to represent a minimal credit risk. The Corporation minimizes its credit risk by requiring up to 50% deposits on technology sales. The aging of accounts receivable is as follows: June 30, December 31, Within 30 days $ 306,491 $ 665, to 60 days 22, , to 90 days 26,650 48,651 Over 90 days 304, ,819 Accounts Receivable $ 660,131 $ 1,639,637 The maximum risk exposure is limited to the carrying amount of financial assets on the Corporation s balance sheet that includes cash and cash equivalents, restricted cash and accounts receivable. Market risk Changes in interest rates and foreign currency exchange rates can expose the Corporation to loss, and fluctuations in the fair value of its financial assets and liabilities. Foreign exchange risk 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 consolidated financial statements are impacted by changes in exchange rates 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. The Corporation does not currently hedge any of its exposure related to the translation of US based losses into Canadian dollars. The Corporation may enter into derivative forward exchange rate contracts to manage this risk, but has not done so to date. As at June 30, 2009, the fluctuation in the Corporation s other comprehensive income for the six months ended June 30, 2009 would have been approximately $10,162 for each $0.10 variation in the USD/Canadian exchange rate on translation of its US subsidiary upon consolidation. The majority of US operations and Canadian operational revenue are transacted in US dollars. The Corporation transacts its Canadian operational expenses primarily in Canadian dollars, however it occasionally purchases goods and supplies in US dollars. These transactions and foreign exchange exposure would not typically have a material affect on the Canadian operation s financial results. Interest rate risk The Corporation is exposed to interest rate risk or fluctuating cash flows arising from changes in interest rates on its term deposits. Its term deposits are daily revolving short term investments at a variable interest rate averaging 0.5% and 0.8% for the three and six month periods ended June 30, 2009 (June 30, % and 3.5%). The Corporation has deposited its cash with a Canadian financial institution in a low risk, interest-bearing account. As at June 30, 2009, the fluctuation in the Corporation s loss for the six months ended June 30, 2009 would have been $463,616 for each 1.0% variation in the interest rate on its term deposits. Liquidity risk The Corporation is exposed to liquidity risk or the risk of not meeting its financial obligations as they come due. At June 30, 2009, the Corporation s exposure was limited due to having cash balances, invested in short term liquid term deposits, significantly in excess of total current liabilities and a $500,000 USD credit facility available for its US subsidiary. 26 ALTER NRG SECOND QUARTER REPORT 2009

27 CORPORATE INFORMATION DIRECTORS Michael Heier Director and Chairman Nancy Laird (1) Director Brent Conway (2) Director Mark Montemurro Director, President and Chief Executive Officer (1) Chair of Governance and Compensation Committee (2) Chair of Audit Committee MANAGEMENT Alter NRG Mark Montemurro President & CEO Danny Hay Chief Financial Officer Richard Fish Chief Marketing & Sales Officer Greg Wright Vice President, Finance Ken Willis Vice President, Project Development Kent Hicks Vice President, Construction & Operations Kevin Willerton Vice President, Technology Sales & Marketing Pieter van Nierop Vice President, Engineering Alex Damnjanovic Vice President, Strategic Alliances MANAGEMENT Westinghouse Plasma Corporation Hector Cruz Vice President, Engineering Tom Gdaniec Vice President, Sales & Marketing LEGAL COUNSEL Blake, Cassels & Graydon LLP Calgary, Alberta AUDITORS Deloitte & Touche LLP Calgary, Alberta BANKER Scotiabank Calgary, Alberta TRANSFER AGENT Valiant Trust Company Calgary, Alberta STOCK EXCHANGE LISTINGS TSX Symbol: NRG OTCQX Symbol: ANRGF WEBSITES HEAD OFFICE 700, 910-7th Avenue SW Calgary, Alberta, Canada T2P 3N8 Main Fax WESTINGHOUSE PLASMA CORPORATION OFFICE Plasma Center P.O. Box #410, 1-70, Exit 4 Madison, Pennsylvania USA Main Fax wpcinfo@westinghouse-plasma.com GLOSSARY MW Syngas WPC WTE megawatts synthesis gas Westinghouse Plasma Corporation waste-to-energy

28 HEAD OFFICE 700, 910-7th Avenue SW Calgary, Alberta, Canada T2P 3N8 Main Fax