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1 Member FINRA, SIPC Mike Niehuser Analyst 1 (503) miken@scarsdale equities.com Alter NRG Conducted its Annual Open House in Teesside, England, including presentations from customers; Analystʹs report of visit to Air Productsʹ Tees Valley Project Reiterate Rating Investment Conclusion Headquartered in Calgary, Canada, Alter NRG Corp. (TSX: NRG; OTCQX: ANRGD) is a clean energy company commercializing plasma gasification projects leveraging its plasma torch technology. Alter entered the plasma gasification business through the acquisition of Westinghouse Plasma Corporation in The company is currently a market leader in providing alternative and renewable clean energy solutions through its proprietary plasma gasification technology to meet the growing global demand for clean fuels, which places them on a strong footing in several end markets including Biomass To Fuels, Energy from Waste (EfW) and certain traditional hydrocarbon fuel replacements. With the company projecting to be cash flow positive by the end of 2014, and the pipeline in place, we believe the company is on the cusp of a period of rapid product adoption and is undervalued at these levels. Summary Teesside Open House and Project Visit. We attended the Alter NRG Open House and visited the Tees Valley Project. This report will discuss the project visit, presentations by customers as well as other information acquired in discussions with management and attendees. Alter NRG Corp. July 9, 2014 Rating: Price Target: Price: 52 Week Range: Cash (M)*: NRG.TO BUY C$8.00 C$2.90 C$ C$12.0M Debt (M)*: C$ 0.0M Market Cap (M): C$81.8M Enterprise Value (M): C$69.8M Adj. Shares Out. (M) (1) 28.2M Q Rev: C$ 5.9M FY13 Rev: C$11.6M TTM: ( * a/o March 31, 2014) Stock Performance C$16.3M Source: Bloomberg Tees Valley Project (Alter NRG Gasifier Lifted Into Place) Source: Air Products Valuation Currently trading at C$2.95 and NRG.TO shares are undervalued at these levels. Applying a 15% discount our forecast of potential cash flows based on our assessment of the companies pipeline and we recently increased our price target to $8.00. We are reiterate our Rating. Company Description Alter NRG Corp. provides alternative clean and renewable energy solutions through plasma gasification. It markets and sells plasma gasification technology; and invests in alternative energy projects in North America, South America, the European Union, the Middle East, and Asia Pacific. See Page 12 for analyst certification and important disclosures. Scarsdale Equities does and seeks to do business with companies covered in research reports. Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

2 Alter NRG Open House Update Report We attended Alter NRG Corp. s (TSX: NRG, OTCQX: ANRGD) Open House 2014 at the Tees Valley municipal waste gasification complex in Teesside, England. This was the first year that Alter NRG conducted an Open House other than at their demonstration facility in Madison, Pennsylvania. The purpose for attending the Open House was to observe the first phase at Tees Valley, in process of commissioning, and witness the second phase now under construction. As expected, over the two plus days, it was invaluable to have generous portions of management s time and attention as well as an opportunity to hear and meet several of Alter NRG s customers and peripheral interested parties. The purpose of this update report is to provide a summary of what was gleaned from the visit, including presentations of Alter NRG customers and EPC (Engineering Procurement & Construction) providers, as well as to gain an improved understanding based on in depth discussions with the management team and other attendees. In addition to a summary review and update of key customer presentations, this update report should also convey an improved (albeit simplified) understanding of the gasification process, concluding with comments on the validity of the writer s financial model and conclusions. In summary, we were impressed with the scale of the gasification project undertaken by Air Products & Chemicals Inc. (and EPC Foster Wheeler) at Tees Valley; in its physical size, novel process, and capital commitment. It is difficult to overstate the commitment by Air Products to commence a carbon copy second phase at Tees Valley, ahead of stabilization of the first phase, with combined total costs for both phases now approaching one billion dollars. (It is an important reminder to note that the complex is built around Alter NRG s technology, at a cost of only approximately $42 million, which will be the last component to be commissioned.) Tees Valley Project (first phase) in the United Kingdom (note Alter NRG gasifier to right, gas cleaning circuit to the left) Source: Analyst It was also interesting to discover that each of Alter NRG s customers presenting had a diverse perspective on how to best monetize the gasification technology and solutions. This important diversity sustained the writer s confidence in the investment thesis, financial model, and investment opinion and recommendations. Conversely, with comments made by Air Products regarding holding off from proceeding with an additional project in Scotland, this provided a sober reminder of the significant capital cost and the nature of the timing of purchase orders for industrial projects, and its impact on the notion of rapid product adoption; however, this did not dampen our conclusions or our investment rating. 2

3 Alter NRG Open House Presentations Discussion The discussion of presentations at the Open House might be grouped by scale. This includes larger scale combined cycle projects under construction (Air Products Tees Valley project by EPC Foster Wheeler) or development (Cahill Energy in Barbados), important for energy independence, as well as environmental issues such as landfill scarcity. Also, smaller scale projects in China, which in addition to environmentally sound waste disposal, produce useful products (GreenWorld Energy Solutions in Bijie), or a demonstration for potential turnkey waste destruction facilities (GTS Energy Technology in Shanghai) in concert with Alter NRG to be marketed globally. Tees Valley, United Kingdom: Air Products & Chemicals Inc. and Foster Wheeler Ltd. The two phases at Tees Valley are each designed to process over 950 tpd and rated to produce 50 MW and capable of powering 50,000 households. The first phase at Tees Valley appears to be generally on schedule. Commissioning is now underway, which includes testing of all electrical and gas/liquid systems, prior to commencing the process of putting waste through the Alter NRG gasifier. It is expected that the first phase will come on line by the end of 2014, and the second phase in early Air Products has contracted with a waste provider for feedstock, which will be sourced locally for the first phase, and from other areas of the United Kingdom (as far away as London and Scotland) for the second phase. While Alter NRG s waste gasifier solution is capable of handling heterogeneous feedstock, the ROCs (Renewable Obligation Certificates) subsidies extend only to organic waste (not inert recyclables) headed for the landfill, necessitating the addition of a Murf (MRF Materials Recovery Facility) nearby. Tees Valley Projects in the United Kingdom (December 2013) Source: Air Products Air Products is the owner/operator of the waste gasification facility at Tees Valley and Foster Wheeler is the EPC. Though the waste component provides the benefit of being paid to take feedstock and receive government subsidies for landfill avoidance, Air Products is in the business of operating large gas facilities, and reports that it is the world s largest commercial producer of hydrogen. The representative from Air Products displayed a sense of fortitude in bringing Tees Valley on line. As Air Products generally self funds projects, concerns for holding off on an additional facility in Scotland 3

4 appeared to be more a matter of the large investment of capital required rather than reservations regarding the technology or return on investment. The representative from Foster Wheeler, while appropriately conservative in comments regarding the scheduled commissioning or construction, was visibly enthusiastic regarding the experience gained at Tees Valley to optimize project economics and for the opportunity for Foster Wheeler to replicate additional versions of the facility elsewhere. While the economics of Tees Valley are undisclosed, it appears that the unleveraged rate of return is between 15% and 20%. This is based on the combination of tipping charges, government subsidies, and sale of energy, which make up roughly 50%, 20% and 30%, respectively, of initial revenue estimates. It became apparent during the Open House that once the Tees Valley project is up and running, the return on the projects may be significantly improved upon by managing feedstock or optimizing the facility s flowchart by recapturing heat or pressurizing gasses. Each phase at Tees Valley is rated at 50 MW and it is estimated that the parasitic load of operations is about 17 MW. It is anticipated that by managing feedstock, production may be increased to 53 to 54 MW. Economics for maximizing ROCs by marginally presorting material at the Murf are a given. It is also anticipated that improvements to the operation to recapture heat should significantly reduce the parasitic load by returning as much as 20 MW to the operation of the facility. In addition, pressurizing gasses from gasification through the gas cleaning process may provide an additional net benefit of about 7 MW. Clearly, additional optimization has the potential to reduce the dependence on subsidies, demonstrating the global potential for providing an environmentally positive alternative to landfills and the means to efficiently extract energy contained within the waste feedstock. Barbados: Cahill Energy (privately held) Cahill Energy, a privately held company, has signed an agreement with the Government of Barbados to finance, build, own and operate a 650 tpd Energy from Waste (EfW) facility in Vaucluse, St Thomas, Barbados. A purchase order has not been announced, but Cahill Energy reported that Alter NRG has been selected to supply the plasma gasification technology. The EfW facility is expected to provide up to 25% of Barbados' total energy needs and substantially reduce the cost of energy. Cahill Energy CEO Clare Cowan was on hand to tell the company s story of how she perceived the EfW industry, the selection of Alter NRG s technology, and why Barbados was picked for their initial EfW project. Ms. Cowan s remarks were noted for their candor as she stated that it can t get any better than getting paid to take other people s garbage. On this nascent industry, she added that the market is so big [that] there may be collaboration as made evident by the cast of presenting customers at the Open House. Customers using Alter NRG s technology, who would otherwise be potential competitors, did not actually pose a threat. She was complimentary of Air Products preparing the way by demonstrating the potential for Alter NRG s technology, and smoothing the path for permitting and institutional financing seeking higher long term yields. Furthermore, she testified that Cahill Energy, having carefully reviewed all of the available competing technologies, had independently and clearly identified Alter NRG as having the leading technology, hands down. She indicated that they saw the increasing environmental concerns in the Caribbean for waste disposal and energy costs. Also, initially considering Trinidad & Tobago and Jamaica, Barbados was strategically selected for its educated populace, lack of cultural barriers, favorable climate and tactically, as the country was in the process of planning to build an incinerator. Ms. Cowan told the story in which Cahill Energy was actually written into the law in Barbados as having legal claim to all of the island s municipal waste (municipal, hospital, shipping and sugar cane). The project is expected to cost 4

5 approximately $256 million, and preliminarily may expect to receive cash flow of about $1.7 billion over a 30 year period, providing an unlevered rate of return of nearly 19%. As tipping charges are only about $30 per tonne, the project is made feasible by a $225/MW electricity price. Cahill Energy is currently completing a prefeasibility study and doing sample work. The current schedule would imply a nine month FEED (Front End Engineering and Design) and a 36 month development and construction schedule with a 2019 start date. This is in line with earlier comments by government officials endorsing the project to meet the island s carbon goals a decade ahead of its stated 2029 target. It would appear that Cahill Energy has identified two additional potential locations to site other EfW projects, and perceives the potential to develop a couple more. Bijie, China: GreenWorld Energy Solutions Corp. (GES) GreenWorld Energy Solutions Corp. (GES) is advancing an EfW facility in Bijie, a city of about 1.3 million people (with a downtown core population of 100,000, forecast to reach one million by 2020), in Guizhou Province, in south central China. The first phase will have the capacity to process 600 tons of MSW and 200 tons of other waste. Unlike Alter NRG s other customers, GES business plan is made economic by converting the vitrified slag byproduct of gasification into useful foam insulation used for fireproofing and insulating properties. Jeffrey Hu, President of GES, presented through an interpreter. GreenWorld Energy Solutions Foam Insulation Product (approximately one quarter ounce of foam produced from vitrified slag) Source: Analyst This was our introduction to enlightenment of the perspective (equally evident in the following presentation by GTS Energy), that the Westinghouse name has nearly ecclesiastical status among Chinese engineers, and conversely, the broad expanse of environmental problems ailing China today may be summed up in the word dioxin. This reveals the unique need in China today to locate and advance dependable solutions to contain the harmful byproducts of growth, namely the disposing of exponentially increasing levels of solid waste and reducing smog. Beyond the importance of adverse health effects in the long run, the current environmental problem may exacerbate very real social issues of 5

6 income inequality in the short term. Regarding the central theme of Mr. Hu s presentation regarding Alter NRG, he pointedly summed up the matter as foam, economic, good. The economics for the disposal of solid waste in Guizhou Province is quite different than Tees Valley. The tipping charges for disposal are significantly less and there are few government subsidies available beyond the potential for government credit. Accordingly, the waste destruction capabilities of Alter NRG s solutions are relied upon to minimize presorting, resulting in the gasification of higher levels of inert (low caloric value) feedstock, which increases the parasitic load with reduced production of valuable gases. In this case, the project is made economic by producing innovative products from the environmentally friendly vitrified slag (having only residual value at Tees Valley for use as road building material). GES has completed hundreds of tests over several years on vitrified material, sourced from commercial facilities in Japan that have used Alter NRG s gasification solution. The primary product is a type of foam insulation rated as a Class A building material. GES patented process is simply to grind the obsidian like vitrified slag into a powder, add various chemicals and mix the material into dough, then heating and letting it rise like bread. The resulting product is remarkably lightweight, fireproof, strong, and environmentally friendly. In addition to taking all types of feedstock, with significantly lower harmful byproducts relative to even the most state of the art incinerator (surpassing Chinese air standards), the GES process is designed to have zero water discharge or remaining material for the landfill. MSW Incineration Air Emission Standards (GB ) Item Unit Bijie project complies with EU2000/76/EC Standards Particulate mg/m 3 <10 80 Blackness <Ringelmann I Ringelmann I SO 2 mg/m 3 < NOx mg/m 3 < HCl mg/m 3 <10 75 CO mg/m 3 < Hg mg/m 3 < Cd mg/m 3 < Pb mg/m 3 < Dioxin TEQ ng/m 3 <0.01(EU 0.1) 1 Source: GreenWorld Energy Solutions Corp. (GES) The plan is to construct two 600 tpd gasifiers in Bijie, with a total cost of about USD$150 million (the exchange rate of the RMB to the USD is roughly six to one). The first phase, including infrastructure for the second phase, is USD$107 million. The facility will have a combined output potential to produce 74 MW, plus 10,000 and 89,500 tons of foam glass and powder material, respectively, each year. The project, having broken ground in 2013, is subject to final approvals in 6

7 the coming months, and may commence construction, with commissioning in 2015 and full production in Anticipated revenues from the combined phases are currently estimated at USD$32.5 million per year, with EBITDA of USD$12.4 million, with an 8.6 year payback. While it is immediately apparent that construction costs are lower in China than at Tees Valley, the required pay back periods are longer. While this stark difference is apparent, the economics of the project do not account for either the size or investment returns within China for producing innovative products for sale. It is readily apparent from the presentation that GES selected Alter NRG due to the ability to economically process a wide range of feedstock combined with total waste destruction characteristics, significantly reducing harmful environmental byproducts. Demand for GES products could be greatly helped by higher national goals in China for air quality, as well as insulating and fireproofing new construction. GES sees the potential for China to build 300 MSW incinerators over the next ten years, and notes the large opportunity should they penetrate 20% of that market. Presently, the provincial government in Guizhou has recommended eight projects, and there is additional potential in other provinces. Shanghai, China: GTS Energy Technology (Shanghai) Ltd. (GTS) The presentation by GTS Energy Technology (Shanghai) Ltd. (GTS) was conducted by Naicheng Zhou, General Manager and Dean Mao, Deputy General Manager. The presentation reinforced the importance of the Westinghouse brand name and environmental advantages of deploying Alter NRG s gasification technology. The brand name was so omnipresent that at times during the presentation one might have been led to conclude that an individual named Westinghouse was physically in attendance at the Open House. In addition, the presentation was periodically punctuated with the chorus dioxin, dioxin, dioxin. Clearly, the emphasis on the brand name was closely tied to the elimination of the later environmental concern, exemplifying the gasifying abilities of the WPC (Westinghouse Plasma Corporation) plasma torches used in the destruction of dangerous waste feedstock, including industrial (fly ash and hazardous waste) and medical waste. GTS Energy Technology Shanghai Ltd. Waste Demonstration Plant (note Alter NRG gasifier on the left, gas cleaning circuit to the right) Source: GTS Energy Technology (Shanghai) Ltd. The emphasis on waste destruction is a global opportunity for Alter NRG and GTS to jointly conduct marketing, construction and operating products and services (please see Alter NRG press release dated March 5, 2014). The 7

8 partnership builds upon Alter NRG s gasification solution with Alter NRG s knowledge base and established sales team and the economic advantages of GTS low cost steel fabrication and construction. The gasification solutions are expected to be sited adjacent to existing waste incinerators, providing the benefits of producing syngas and recapturing heat (reducing the parasitic load of the combined incinerator/gasifier) and complete destruction of difficult to dispose wastes. As expected, gasifier solutions are expected to be smaller in scale (30 to 150 tpd), but with significantly higher tipping fees. The presenters reported tipping charges of USD$333 per ton, and USD$100 per ton to USD$117 per ton, for medical waste and fly ash, respectively. (Alter NRG has referenced tipping charges for some waste feedstocks to range from USD$300 to USD$1,000 per tonne.) The presenters also anticipate a payback of capital in four to five years, which they report is significantly better than ten years, which is not uncommon in China. GTS reported that their demonstration facility in Shanghai was completed in February of 2014 and has met specifications. Presently, GTS plans to complete tests in August on eleven other types of waste. While GTS is waiting on federal approval to complete a second project, the presenters indicated that there are over one hundred cities in China with populations of five million or more which could readily accommodate waste destruction units. The total installed capital cost of these turn key units are expected to cost as little as USD$20 million and are expected to be complimentary to over 2,000 existing incinerators worldwide. Though the market in China is significant, with modification of the units to European or North American safety standards, the turn key units could be marketed globally. The relationship with GTS may reflect the most lucrative and immediate financial opportunity to Alter NRG. A Simplified Discussion of Gasification Process We had the opportunity to meet at length with members of the management team to better understand how waste feedstock is gasified, converted, and cleansed to become valuable gases or reduced to vitrified insoluble slag. While not having advanced knowledge of chemistry, we found a simplified explanation sufficient to achieve a general understanding of the gasification process. This also provided a better understanding of the significant environmental benefits of gasification relative to incineration. The following includes a simplified discussion of the process of converting waste feedstock to energy. Alter NRG Gasification Solution Source: Air Products Waste feedstock is introduced to an oxygen deprived gasification chamber and subjected to intense heat from the WPC plasma torches, metallurgical coke, and the chemical reactions of material. The periodic firing of the torches is 8

9 necessary to maintain the appropriate temperature for the breaking of connections between molecules, both liberating gases and liquefying heavier elements and inert materials, to optimize flows of materials. Gases are released at temperatures of 700ºC to 1,000ºC while heavier materials are heated to 1,500ºC or 1,600ºC to fully destroy hazardous chemical compounds rendering them suitable for easier disposal. There are primarily four reactions which reduce heterogeneous feedstock into valuable syngas, primarily hydrogen (H 2 ) and carbon monoxide (CO), in the gasification chamber. Of these syngas creating reactions, two produce heat, partial oxidation (2C + O 2 2CO), and shift reaction (CO + H 2 O CO 2 + H 2 ), while a carbon steam reaction (C + H 2 O CO + H 2 ) is marginal, and Boudouard (CO 2 + C 2CO) consumes heat. In addition to carbon, oxygen, hydrogen and nitrogen, other gases produced include sulfur (S), chlorine (Cl), and mercury (Hg). Hydrogen chloride (HCl) is cleansed with the addition of caustic soda (NaOH), hydrogen sulfide (H 2 S) is scrubbed, and mercury is removed with activated carbon. The cleansed syngas is useful for powering turbines, with the application of heat and the addition of oxygen (O), syngas combusts and powers turbines, with cleaner emissions of carbon dioxide (CO 2 ) and water (H 2 O). While the gases are cleansed in the process, all other elements (or inert material) are reduced to ash and melted at high temperatures. Limestone is added to the metallurgical coke in the bottom of the gasification cauldron to improve the composition of melted material for removal and to ensure that material, once cooled, is insoluble and suitable for disposal or reuse. Gasification is the optimal waste disposal solution as it heats waste to high temperatures, breaking the bonds holding together hazardous compound elements, into separate and more benign material on the periodic table, in a state in which they may be more easily disposed. On the other hand, incineration (C + O 2 CO 2 + Heat) may at best only reduce the physical mass and sterilize waste feedstock. The process of incineration creates dangerous compounds (including dioxins) hazardous to human health and the environment. Dioxins are formed at high temperatures from copper, chlorine, oxygen, particulates and other catalysts. On the other hand, gasification breaks the bonds which form dioxins and maintains an environment in the gasification chamber which prevents the formation of dioxins. This is one reason why emissions from the process of gasification are able to achieve superior results relative to incineration. Financial Model Discussion Following the Alter NRG Open House we revisited the assumptions for our financial model. Anticipating a purchase order in the next quarter from GES for their Bijie facility, we remain confident in our revenue forecast for Alter NRG for Though not discussed at the Open House, it is particularly important for margin improvement should the company hope to produce positive cash flow for Some revenues we had anticipated for 2015 are not likely to be realized. We had anticipated that Air Products would announce a purchase order for an additional project in the United Kingdom. This does not appear likely given the commitment of capital to the first two phases at Tees Valley. In addition, though Alter NRG has not received a purchase order for Cahill Energy s project in Barbados, we had anticipated a shorter timeline. It is now more likely to see Alter NRG receive engineering and license fees in 2015 and more significant revenues for fabrication in While both of these would be large orders, for projects with total costs of over hundreds of millions of dollars, margins need to improve, particularly for large commitments of management time and attention. 9

10 We were positively surprised by the apparent conviction of the presenters from GES and GTS. It would appear that China is ripe for robust solutions for numerous environmental byproducts from continuing economic growth. It would appear that the potential for GES to improve upon emission releases relative to incineration is substantial and the potential market for its products potentially immense. These markets have yet to form and may take time to develop. The partnership between Alter NRG and GTS for the marketing and production of turnkey waste destruction units may have a revenue and cash flow contribution equal or superior to all other activities with realization in the nearer term. Turnkey units added to existing incinerators in industrial settings should naturally require less engineering and should face fewer permitting challenges. In addition, Alter NRG has years of experience in this area, as well as an established sales team. Following completion of testing in August, GTS and Alter NRG should be in a better position to market these units, which might provide a positive financial surprise in Concluding Comments Our primary concern following our previous report was the use of possibly flamboyant language in comparing the significance of the gasification of waste to energy to be on par with the advent of the steam locomotive, the television, or the IPod. We felt somewhat vindicated when Matthew Cook, a representative of Foster Wheeler and native of Teesside, commenced his presentation in praise of Teesside s own Captain Cook, the first steam passenger locomotive, the friction match, and presently the world s largest waste gasifier. The metaphor is clear and we remain of the opinion that Alter NRG has significant potential of advancing the most economical and environmentally important alternative energy solution in the current era. Scarsdale Equities staff: Paul Troiano, and Analyst (Tees Valley Project in background) Source: Analyst We were positively impressed with the Alter NRG Open House due to the scale of the Tees Valley projects, the candidness and conviction of the presenters, and improved visibility on issues soon to drive product adoption and shape financial results. While 2015 continues to be difficult to forecast with much precision, Alter NRG s technology appears 10

11 to be making significant and meaningful progress amongst a wide range of customers with diverse objectives to monetize the technology. All have in common receiving payment for economically and environmentally converting waste feedstock into valuable gasses for sale or valuable products from environmentally friendly byproducts. We remain confident in our original investment thesis, including the importance of the scale of the commitment at Tees Valley, important for demonstrating efficacy to governments as well as global utility, waste and alternative energy companies. While Alter NRG could benefit greatly from large numbers of sales of turnkey waste destruction units, the scale of Tees Valley rises near the level which would attract the interest of global energy companies. It is difficult to forecast with great precision the commitment of orders and financial results in the near term, but it appears clear that Tees Valley coming on line should drive increased attention of the industry as well as project financiers and equity investors. We retain our price target of $8.00 per share (reflecting our existing $2.00 price target following a 1 for 4 reverse stock split) and maintain a rating. While the price target may be somewhat subjective, we believe the reasoning is more than sufficient to support the rating at the current price level. It would appear that the reduced price of Alter's shares since our previous report may have resulted from a negative response to the company's decision to complete a reverse stock split, and the possible delay by Air Products to commit to a third project in the United Kingdom by the end of However, we believe that the reverse stock split should be helpful for listing on an exchange in the United States, which may aid in raising additional capital should that be necessary if product adoptions accelerate. In addition, we believe that even with possible changes in subsidies in the United Kingdom, the potential for optimization at a Tees Valley type project may be quite attractive. We look forward to the second quarter earnings conference call for additional clarity on company activities and the financial outlook. 11

12 Disclosure Appendix AUTHOR CERTIFICATION R. Michael Niehuser, the author primarily responsible for this report certifies, with respect to each security or issuer in this report, that: (1) all of the views expressed in this report accurately reflect his own personal views about the subject companies and their securities; (2) part of the author s compensation may be, directly or indirectly, related to a portion of the commissions generated by Scarsdale Equities LLC [ SE ] in transactions in this or other securities designated for the author s credit; (3) the author does not receive compensation based on investment banking or advisory services SE might provide to this or any other issuer. IMPORTANT U.S. REGULATORY DISCLOSURES Fundamental Analysis. The research provided in this report is based on fundamental analysis. The investments discussed in this report in some cases will not be suitable for all investors. Investors should use this report as only one input in formulating an investment opinion. Additional inputs should include, but are not limited to, the review of other research generated by a review of regulatory filings, other available news items, and other analyses that may influence the merits of the securities of the issuers discussed. RATING DISTRUBUTION Covered companies from which Scarsdale Equities LLC has received investment banking compensation within the previous twelve months or from which it expects to receive compensation within three months: Scarsdale Equities LLC Fundamental Analysis Coverage Universe (as of 7/9/14) Count Percent Investment Banking Relationships Count Percent 1 100% 1 100% Neutral 0 0% Neutral 0 0% Sell 0 0% Sell 0 0% : Expected to outperform broad market averages by at least 15%. Neutral: Expected to perform in line with broad market averages, +/ 15%. Sell: Expected to underperform broad market averages by at least 15%. COMPANY SPECIFIC DISCLOSURES All applicable current disclosures on the items referred to in this report are obtainable by contacting R. Michael Niehuser at (503) The following disclosures apply to the securities discussed in this research report: 1 Scarsdale Equities LLC, at the time of publication, does not make a market in any security. 2 The author owns common shares of the subject company and therefore has a financial interest in the security covered in this report. 3 Part of the author s compensation may consist of a portion of the commissions generated by transactions in this issuer s securities placed at Scarsdale Equities LLC for the credit of the author. 4 Scarsdale Equities LLC has an advisory relationship with the issuer and may seek or receive advisory or investment banking compensation from the issuer in the next ninety days. PRICE TARGET METHODOLOGY AND RISKS NRG.TO is currently trading at a market capitalization of C$81.8 million. With FY14 sales projected to come in at C$33.3 million (see our June 2014 report), this gives a 2.5x multiple on a MV/Sales basis; for FY15 sales projected at $91.1 million, the multiple is 1.1x. Other companies in the "clean technology" area tend to have substantially higher comparable ratios; however, there is a wide degree of uncertainty on project timing for Alter and as such we are applying a substantial discount to the multiple at this time. The result is that our current price target has been retained at C$8.00 per share (equivalent to C$2.00 pre reverse split). We believe it is reasonable to conclude that there is significant upside potential over the next 12 months even with an aggressive discount to the MV/Sales multiple. 12

13 The Company operates in highly competitive markets and may be unable to successfully compete against competitors having significantly greater resources and experience. Future technology changes may render obsolete various elements of equipment comprising plasma gasification installations. AlterNRG must select equipment for its projects so as to achieve attractive operating efficiencies, while avoiding excessive downtimes from the failure of unproven technologies. If it is unable to achieve a proper balance between the cost, efficiency and reliability of equipment selected for its projects, its growth and profitability will be adversely impacted. AlterNRG may need to raise additional capital for its business, which would potentially dilute existing stockholders. 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In addition, such information in some cases will be condensed or contain calculated data which should be verified by the recipient. Any information provided is for informational purposes only. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future 13

14 events, which cannot be assumed; therefore, the actual results achieved during the projection period, if applicable, in some cases will vary from the projections. Additional information is available upon request. Write to Mike Niehuser at Scarsdale Equities LLC, 10 Rockefeller Plaza, Suite 720, New York, NY to obtain additional information or him at equities.com SCARSDALE EQUITIES LLC Mike Niehuser, Analyst Scarsdale Equities LLC 10 Rockefeller Plaza Suite 720 New York, NY Work: (503) Cell: (503) Fax: (212) equities.com None of the information contained in this report constitutes a recommendation, solicitation or offer by Scarsdale Equities LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. The information contained in this report has been prepared without reference to any particular investor's investment requirements or financial situation. Certain transactions give rise to substantial risk and are not suitable for all investors. Information herein may not reflect actual prices or values that would be available in the market at the time an investor may want to purchase or sell a particular security or other instrument. Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. The information provided in this message is not provided to and may not be used by any person or entity in any jurisdiction where the provision or use thereof would be contrary to applicable laws, rules, or regulations of any governmental authority or regulatory or self regulatory organization or clearing organization or where Scarsdale Equities LLC is not authorized to provide such information or services. 14