October 14, 2016

Report #2Green Energy Technology

Strategic Government Alliance to install up to 750 IWS systems, enabling Scotland to achieve its carbon savings targets by 2020

Today, the green energy tech company International Wastewater Systems Inc. (“IWS”) announced that its wholly owned subsidiary SHARC Energy Systems (UK) Ltd. will form a strategic alliance with Scottish Water Horizons Ltd., the commercial subsidiary of Scottish Water, a public water utility owned 100% by the Scottish Government.

This strategic alliance will support the Scottish Government’s ambitious renewable heat and carbon reduction targets for 2020. It is the result of 2 years of informal collaboration between SHARC Energy and Scottish Water Horizons, which has created a £20 million GBP ($32.4 million CAD) pipeline of potential installations across Scotland that when deployed would generate 170 GWHs per year of heating and cooling to displace the fossil fuel currently used.

Scottish Water Horizons has estimated that up to 750 such systems would need to be installed by 2020 to enable Scotland to achieve its carbon savings targets.

In late August 2016, IWS announced a $60 million USD joint venture with RENEW

Energy Partners LLC, a US-based clean energy developer and funding company committed to finance capital expenditures for 1,000 PIRANHA systems from IWS to be installed in California. Following this announcement, IWS’ stock surged from $0.25 to $0.59 CAD and is currently trading at $0.45 CAD with a market capitalization of $40 million CAD.

With now 2 large commercial projects in the US and Scotland, up to 1,750 IWS systems could be installed over the next few years to generate revenues in excess of $110 million CAD.

Today’s announced strategic alliance, and the August announced joint venture, could become the blueprint for other renewable energy companies, funds, organizations and governments to follow the same path to reduce energy costs up to 80% for residential and industrial buildings worldwide. Such a funding and revenue sharing model is also attractive because of its longevity, typically running for more than 20 years while paypack periods for individual installments are a few years only (depending on flow rates, local electricity costs, etc. and will vary with each project).

Company Details

International Wastewater Systems Inc. 1443 Spitfire PlacePort Coquitlam, BC, V3C6L4 Canada Phone: +1 604 475 7710Email: yaron.conforti@iws-sharc.com (CFO)Web: www.sewageheatrecovery.com

Shares Issued & Outstanding: 89,340,000

Canadian Symbol (CSE): IWSCurrent Price: $0.45 CAD (October 13, 2016)Market Capitalization: $40 million CAD

German Symbol / WKN: IWI / A14233Current Price: €0.29 EUR (October 14, 2016)Market Capitalization: €26 million EUR

Chart Canada (CSE)

Chart Germany (Frankfurt)

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he SHARC thermal heat recovery system developed by IWS has been deployed

in numerous international locations, intercepts wastewater from sewers and uses heat pump technology to amplify the natural warmth of waste water. This generates an energy-saving, cost-effective and environmentally-friendly system for heating, cooling and hot water production in commercial, residential and industrial buildings.

Scottish Water Horizons is mandated to drive Scottish Water’s green agenda, developing renewable energy projects and leveraging commercial value from Scottish Water’s assets to contribute to a greener and better connected Scotland. Scottish Water Horizons and SHARC Energy are joining forces to help businesses and public organizations reduce heating costs and carbon emissions. The companies have confirmed their intention to establish a strategic alliance to expand and accelerate the deployment of Sewage Heat Recovery systems around Scotland.

Scottish Water serves approximately 5 million residential customers and 150,000 business customers in Scotland, and is the sole provider of water and waste water services to an area of over 30,000 square miles, a third of the area of Britain. Scotland has a coastline of over 6,800 miles, with a small and relatively dispersed population which requires a large number of small water and waste water treatment plants. Every day Scottish Water supplies 1.34 billion litres of drinking water and takes away 847 million litres of waste water from customers and treats it before returning it to the environment.

Commenting on the announcement, Andrew Macdonald, Head of Scottish Water Horizons, said: “The potential to deploy this technology is significant. Heat accounts for over half of Scotland’s total energy use and we believe that by harnessing the natural resources of our vast waste water network, we can further the development of Scotland’s low carbon economy, whilst protecting and enhancing the environment. Scottish Water treats over 900 million litres of waste water every year and we are determined to maximise the opportunities presented. Our alliance with

SHARC Energy is an exciting opportunity which will help to accelerate the deployment of this proven technology on a wider scale, providing customers with an innovative and sustainable lower cost heating solution.”

Commenting on the announcement, Russ Burton, COO of IWS, said: “This announcement is a very exciting step for SHARC Energy and IWS and represents the culmination of two and a half years working with Scottish Water Horizons to identify opportunities for the SHARC technology. Having the support from Scottish Water Horizons will give customers the confidence in the SHARC technology, positioning it as a sustainable and viable wastewater heat recovery solution.”

Lynn Mueller, CEO of IWS, commented: “IWS’s strategic alliance with Scottish water is a significant milestone for our Company and demonstrates how far we have come in a very short space of time. We are delighted to be partnering with one of the world’s leading water utility operations. This achievement truly is indicative of the scale of the opportunity we have uncovered.”

Today’s announced strategic alliance follows the launch of the UK’s first sewage heat recovery system, developed by SHARC Energy at Borders College in Galashiels, Scotland (approximately 5,500 students) which aims to displace 1.8 GWhs of natural gas and save 150 t of carbon emissions per year.

The innovative SHARC system had been examined by the University of Glasgow in a case study involving the Borders College, with the following results:

• The use of this technology provides for the sustainable development. • This project estimated reduction of CO2 emissions is around 140 tonnes/year. • The monetary savings by the college per year sums up to around £10,000 per year on their bills for heating by using SHARC system in comparison to use of gas boilers for heating of the buildings.

UK Green Investment Bank plc (GIB) and the Equitix Energy Efficiency Fund invested £4 million into the SHARC technology for the pilot project Borders College, whereupon Lord Smith of Kelvin (Chairman of GIB) commented in June 2015:“Our 50th investment neatly sums up what we are trying to achieve at GIB. We are backing the deployment of innovative new technology across the UK to produce renewable energy, cut energy use, cut costs and improve the UK’s green performance. It is enabling SHARC Energy systems to equip Borders College with pioneering technology in an arrangement that I hope can be replicated elsewhere in the country.”

Previous Coverage

Report #1: “Major Breakthrough and Turnaround in the Making for IWS” (August 25, 2016)

Report #2 | International Wastewater Systems Inc.

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From the website of Scottish Water Horizons Ltd.

We are opening up Scottish Water’s networks to extract renewable heat from waste water.

Scottish Water has a vast infrastructure including 32,000 miles of sewers which carry waste water from homes and businesses to around 1,800 treatment works across Scotland.

We are harnessing these networks to support innovation, growth and the development of a sustainable low carbon economy.

Innovative heat recovery technology

Working with our external partner SHARC Energy Systems, we are deploying innovative heat recovery technology in waste water networks to capture heat for use as a renewable energy source.

Already employed in Canada, the technol-ogy involves the use of a heat exchanger to extract energy from waste water and transfer it as heat to the clean water net-work. This provides heating, cooling and hot water for export to nearby homes and buildings. As the technology uses a closed-loop system, waste water never comes into contact with the clean water flow. With versatile application, the technology can be installed within a wide range of buildings, either as a retro-fit or as part of a new-build, and is particularly suited for locations with a large number of people within a relatively small area. Find out how the process works.

A first in the UK

Already we have helped to install the UK’s first waste water heat recovery scheme at Scottish Borders college campus in Galashiels. Up 95% of the college’s heating needs can be now be met through use of the technology, producing savings in energy, costs and carbon emissions. “Borders College is delighted to be the client in this project which places us at the forefront of renewable energy use in the UK. This solution goes a long way to meeting our own carbon-reduction targets, while offering long-term price certainty and offering a good degree of local control.” (Pete Smith, Vice Principal - Finance and Resources at Borders College) Read our press release.

Providing a sustainable heating alternative

By recovering heat that would otherwise have been discharged to the environment, we are helping to provide customers with an innovative and sustainable lower cost heating solution with a reduced carbon impact. With tens of thousands of miles of waste water pipes throughout Scotland, we are actively exploring the potential for this new approach to be replicated at other locations. Not only does this help contribute to a sustainable circular economy, it also helps to alleviate fuel poverty, meet Scottish Government’s

target of 11% of heating from renewable sources by 2020, and tackle the threat posed by climate change. Download our brochure.

Get in touch

To find out if your business could benefit from renewable heat technology contact Ian Dunsmore on 07875 872312 or email Ian.Dunsmore@scottishwater.co.uk

Scottish Water provides clear fresh drinking water to 2.46 million households and 150,000 business premises across Scotland. Every day, Scottish Water also takes away 921 million litres of waste water, which is treated before being safely returned to the environment. In recent years, Scottish Water has been working to build an increasingly sustainable business. Scottish Water Horizons Ltd. is a commercial subsidiary wholly owned by Scottish Water. The company plays a key role in supporting the development of Scotland’s sustainable and circular economy by making the most of the public utility’s vast array of assets. From generating renewable energy from waste, wind and solar power to recycling food and aggregates waste, Scottish Water Horizons is improving connections, communications and enabling sustainable development. The company’s growth strategy is to support Scotland as a developing Hydro Nation and take opportunities to harness Scottish Water’s asset base through both its own development and working in partnership with other organisations including the public and private sectors.

Report #2 | International Wastewater Systems Inc.

Recovering Heat from Waste Water

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By Scott Wright, Deputy Business Editor at HeraldScotland on October 14, 2016

A SUBSIDIARY of utility Scottish Water has joined forces with a Canadian renewables giant to help firms and public bodies reduce their heating costs and carbon emissions.

Scottish Water Horizons has formed an alliance with Vancouver-based International Wastewater Systems to accelerate the deployment of sewage heat recovery systems around the country.

It follows the launch of the UK’s first sewage heat recovery (SHR) system at

Borders College in Galashiels. Developed by SHARC Energy Systems, a subsidiary of the listed Canadian business, it aims to displace 1.8 gigawatt hours of natural gas and save 150 tonnes of carbon emissions a year.

The system, which has been deployed at several locations, works by heating the waste water from sewers with heat pump technology to amplify the natural warmth of waste water.

It is highlighted by its backers as a cost-effective and energy saving method for heating, cooling and producing hot water in commercial and residential buildings.

The alliance follows two years of formal collaboration between Scottish Water Horizons and SHARC, which they say has

led to a £20 million pipeline for potential installations around Scotland.

Scottish Water Horizons said up to 750 systems would have to be installed by 2020 to enable Scotland to meet its carbon savings targets.

Andrew Macdonald, head of Scottish Water Horizons, said:

“The potential to deploy this technology is significant. Heat accounts for more than half of Scotland’s total energy use and we believe that by harnessing the natural resources of our vast waste water network, we can further the development of Scotland’s low carbon economy, whilst protecting and enhancing the environment.”

Report #2 | International Wastewater Systems Inc.

Scottish Water signs heat recovery alliance

By Jay Egg for PlumbingEngineer on October 7, 2016

There are a lot of great ideas for saving energy, but first cost is usually a limiting factor for our customers. One of those has to do with wastewater energy recovery. I doubt that I’m alone when I have wondered about all of the hot water (and energy) running down the drain from the shower/bathtub, washing machine, dishwasher and other fixtures and drains in the house.

Lynn Mueller of International Wastewater Systems Inc. (IWS) has been involved in geothermal heat pump systems for some

30 years. It was only a matter of time until he attached one to a plate and frame exchanger and made his own wastewater thermal extraction system. Maybe no one else would tackle the effort, but it’s a technology that has come of age. Mueller did well, and his company went public last year and continues to expand. It won the AHR 2016 Green Building Product of the Year with the newly released PIRANHA heat recovery system.

California is getting one thousand (1,000) PIRANHA thermal heat recovery systems, thanks to a joint venture between International Wastewater Systems Inc. and RENEW Energy Partners LLC. The PIRANHA is designed to provide for the domestic hot water (DHW) needs in multi-family housing from 50 to 200 units.

According to the DOE, 350 billion kWh

of usable energy goes down the drain each year. That is enough energy to heat 5 billion average sized homes in the dead of winter for an entire day (24 hours) or, heat 69 billion DHW tanks up from room temperature to 130 F. This is a remarkably large quantity of energy that is not being recovered.

Just as heat pump water heaters have been proven to be a great way to save energy on DHW bills, energy recovery with wastewater takes this concept to the next level. With a heat pump water heater, the compressor normally sits atop the tank and extracts heat from the air in the garage, or wherever it happens to be located. The by-product is chilled air, because the heat has been pulled out of the air stream and placed in the DHW tank. Essentially, the PIRANHA does the same thing with the wastewater that runs down the drain,

Wastewater Energy Recovery: It’s time to put to use the hot water from the sewer

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recovering unused energy for other purposes such as DHW, heating or cooling; but the potential exists to save quite a bit more energy with wastewater than just air-exchange alone.

In Vancouver, Canada, the city built a wastewater energy plant to displace natural gas (NG) heating, and they are convinced that through the use of geothermal heat pumps (GHPs) and some smart strategies, they can meet their goals. This article has an example of a large wastewater heat recovery system and a video interview with Brian Crowe, Director of Water, Sewers and District Energy for Vancouver (a must see). Incidentally, Vancouver is Lynn Mueller’s hometown.

The PIRANHA thermal heat recovery systems that are going into California are the entry level portion of this technology, recovering energy primarily for DHW needs. Another product of IWS introduced some years ago is the SHARC, having more applications, such as cooling and heating for residential, commercial and district applications. This is the junction at which wastewater heat recovery and mechanical professionals become fully engaged. There will soon be buildings and designs crossing our collective desks with these waste energy recovery systems in

the design, and they’ll be a big part of the plumbing and HVAC systems.

I spoke with Mueller recently, and he has some exciting things coming up. In the near future, IWS will be introducing a residential level wastewater energy recovery unit. This is another opportunity to help customers become more sustainable, save money and increase the profits for plumbing and HVAC professionals. Mueller told me that IWS is seeking professionals and companies that wish to be trained on this technology. Just give them a call.

GHPs are integral components of this technology. Unlike the air-source type, GHPs are the central component of the thermal extraction/rejection portion of energy recovery. GHPs use available energy in liquids between 25 F and 110 F and are able to absorb and reject heat to/from them. GHPs are “thermal energy pumps,” concentrating heat energy through the “Carnot Cycle,” delivering final temperatures from well below freezing to 140+ for uses such as space conditioning, refrigeration, or domestic hot water.

Of course, these applications are well suited to be a hybrid of waste energy (as the primary source/sink) and earth

coupled systems. The earth coupled portion of projects is reduced in both scope and cost by taking advantage of the wastewater thermal energy heat source and sink.

Hydronic systems are amazing because they effectively channel BTUs within a pipeline, unlike air source systems. GHPs make the magic happen, by simply managing BTUs entrained in liquids to whatever temperature is needed at the time. GHPs are the “center of the energy universe” for renewable and sustainable energy systems.

Technologies that reduce greenhouse gas (GHG) emissions are in high demand; and wastewater energy recovery has a great potential to reduce GHG emissions and save energy in buildings of all kinds. This is a technology whose time has come.

Jay Egg is a geothermal consultant, writer, and the owner of EggGeothermal. He has co-authored two textbooks on geothermal HVAC

systems published by McGraw-Hill Professional. He can be reached at jayegg.geo@gmail.com.

Report #2 | International Wastewater Systems Inc.

Previous media coverage

CNN, National Geographic, BBC News, The Globe & Mail, The Vancouver Sun, BusinessVancouver, EnergyManagerToday, Valve Magazine, Canadian Property Management Magazine, GeoOutlook, ResourcesQuarterly, Plumbing & HVAC, North American Clean Energy, Fast Company, HPAC Engineering, WaterCanada, CleanTechnica, TriCityNews, Altenergymag, Environmental Leader, Earth911, GreenLodgingNews, REMI Network, EarthFix, Living on Earth, TPO Magazine, Construction Business Magazine, The Georgia Straight, Clean Energy Pipeline, Burnaby Now, Journal of Commerce

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Disclaimer and Information on Forward Looking Statements:All statements in this report, other than statements of historical fact should be considered forward-looking statements. Much of this report is comprised of state-ments of projection. Statements in this report that are forward looking include that International Wastewater Systems Inc. (“IWS”)or any other company or market will perform as expected; that today’s an-nounced joint venture will materialze; that IWS can and will start selling or installing more systems; that the company can raise sufficient funds for further developments or project completions, and corporate matters; that any of the mentioned plans, comparisons with other companies, regions or numbers are valid or economic. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in these forward-looking statements. Risks and uncertainties respecting technology com-panies are generally disclosed in the annual financial or other filing documents of IWS and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this report. In addition, with respect to IWS, a number of risks relate to any statement of projection or forward statements, including among other risks: the receipt of all necessary approv-als and permits; the ability to conclude a transaction to start installing and operating its systems; uncertainty of future market regulations, capital expenditures and other costs; financings and additional capital requirements for production, development, construction, and operating of a system; the receipt in a timely fashion of further per-mitting for its legislative, political, social or economic developments in the jurisdictions in which IWS carries on business; operating or technical difficulties in connection with production or development activities; the ability to keep key employees, joint-venture partner(s), and operations financed. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking infor-mation. Rockstone and the author of this report do not undertake any obligation to update any statements made in this report.

Disclosure of Interest and Advisory Cautions: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Rockstone, its owners and the author of this report are not registered brok-er-dealers or financial advisors. Before in-vesting in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including Rockstone’s report, especially if the investment involves a small, thinly-traded company that isn’t well known. The author of this report is paid by Zimtu Capital Corp., a TSX Venture Exchange listed investment company. Part of the author’s responsibilities at Zimtu is to research and report on companies in which Zimtu has an investment. So while the author of this report is not paid directly by International Waste-water Systems Inc. (“IWS”), the author’s em-ployer Zimtu will benefit from appreciation of IWS’s stock price. The author does NOT own any shares or other kinds of interests in IWS but may buy in the market shortly after this initial publication. The author currently owns shares of Zimtu Capital Corp. and thus would also benefit from volume and price appreciation of its stocks. Thus, multiple conflicts of interests exist. Therefore, the information provided herewithin should not be construed as a financial analysis or rec-ommendation but strictly as advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Rockstone and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. IWS has not reviewed all of the con-tent of this report prior to publication. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect. Please read the entire Di-sclaimer carefully. If you do not agree to all of the Disclaimer, do not access this website or any of its pages including this report in form of a PDF. By using this website and/or report, and whether or not you actually read the Dis-claimer, you are deemed to have accepted it. Information provided is educational and general in nature.

Analyst Profile and Contact

Stephan Bogner (Dipl. Kfm. FH)Mining Analyst Rockstone Research 8050 Zurich, Switzerland+41-44-5862323sb@rockstone-research.com

Stephan Bogner studied at the International School of Management (Dortmund, Germany), the European Business School (London)

and the University of Queensland (Brisbane, Australia). Under supervision of Prof. Dr. Hans J. Bocker, Stephan completed his diploma thesis (“Gold In A Macroeconomic Context With Special Consideration Of The Price Formation Process”) in 2002. A year later, he marketed and translated into German Ferdinand Lips‘ bestseller („Gold Wars“). After working in Dubai for 5 years, he now lives in Switzerland and is the CEO of Elementum International AG specialized in duty-free storage of gold and silver bullion in a high-security vaulting facility within the St. Gotthard Mountain Massif in central Switzerland.

Rockstone is a research house specialized in the analysis and valuation of capital markets and publicly listed companies. The focus is set on exploration, development, and production of resource deposits. Through the publication of general geological basic knowledge, the individual research reports receive a background in order for the reader to be inspired to conduct further due diligence. All research from our house is being made accessible to private and institutional investors free of charge, whereas it is always to be construed as non-binding educational research and is addressed solely to a readership that is knowledgeable about the risks, experienced with stock markets, and acting on one’s own responsibility.

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Report #2 | International Wastewater Systems Inc.