Mr. William Crossland reports

THERMAL ENERGY INTERNATIONAL REPORTS SECOND QUARTER FINANCIAL RESULTS

Thermal Energy International Inc. has released its financial results for the three months ended Nov. 30, 2014.

Highlights

• Revenue was $1.7-million for the quarter and $2.8-million for the first six months or the year to date (YTD).
• Gross profit was $1.0-million (or 61.3 per cent of revenue) for the quarter and $1.7-million (or 60.8 per cent of revenue) YTD.
• The company incurred a net loss of almost $500,000 for the quarter and a net loss of nearly $1.2-million YTD.
• Operating cash flow was negative $338,000 for the quarter and negative $811,000 YTD.
• The company has net cash of $1.0-million at quarter-end, compared with $2.0-million as at May 31, 2014.
• Subsequent to quarter-end, the company received purchase orders for three heat recovery systems.
• The company had an order backlog of approximately $3.5-million as at Jan. 26, 2015.

"We had a disappointingly slow first half of fiscal 2015 following a record year last year," said William Crossland, chief executive officer of Thermal Energy. "Our second quarter last year was exceptionally strong and included revenues from a number of major heat recovery projects as well as the substantial completion of a large GEM order from a hospital, and the fulfilment of the largest individual GEM order in the company's history. Despite the fact that our financial results over the short term remain susceptible to the timing of large orders as evidenced by the first six months of this year, we remain confident that we are executing a sound strategy for long-term growth. We have enhanced our sales hiring and training processes, and have hired seven new sales and marketing staff in the last 12 months. We intend to continue adding to our sales and distribution capabilities and are encouraged by our increasing penetration in new areas and with new customers. In the last two months following quarter-end we have announced three heat recovery orders, all of which were from new customers."

                                SUMMARY FINANCIAL RESULTS
                           (In thousands, except per cent data)
  
                                  Three months ended                 Six months ended 
                        Nov. 30, 2014  Nov. 30, 2013    Nov. 30, 2014   Nov. 30, 2013

Revenue                        $1,663         $4,014           $2,834          $5,536
Gross profit                    1,019          1,875            1,722           2,845
Gross margin                    61.3%          46.7%            60.8%           51.4%
Operating expenses              1,599          1,647            3,059           3,002
EBITDAS (loss)                  (487)            311          (1,145)              25
Net income (loss)               (491)            238          (1,160)           (121)
Adjusted cash flow
(loss)                          (338)            434            (811)             328
   

Second quarter 2015 financial review

Revenue for the quarter was $1.7-million, representing a decrease of 58 per cent when compared with revenue of $4.0-million for the same quarter a year ago. The lower revenue was attributable to a 68-per-cent decrease in heat recovery sales and a 40-per-cent decrease in GEM condensate return system sales compared with the second quarter of last year.

Heat recovery sales in the second quarter of last year included $1.4-million in revenues from the partial installation at a major pulp and paper company, as well as a hospital conversion and the commencement of two installations at a major food and beverage company. Although the second quarter of the current year included the commencement of one other heat recovery system at the same food and beverage company, there was little additional activity other than concluding minor work on the major pulp and paper company project plus the completion of an extension to an installation at a hospital, as announced July 15, 2014.

GEM condensate return system sales in the second quarter of last year included revenues from two major food and beverage manufacturers, as well as a major hospital conversion. The second quarter of fiscal 2015 contained no such sales.

Gross profit for the quarter was $1.0-million compared with $1.9-million for the second quarter of last year, representing a decrease of 45 per cent. As a percentage of sales, gross profit for the quarter was 61.3 per cent compared with 46.7 per cent in the second quarter of last year. The improved margin was a result of a higher percentage of revenues from GEM sales.

Operating expenses for the quarter totalled $1.6-million, representing a decrease of 2.9 per cent compared with the second quarter of last year. The decrease was attributable to a decrease in commissions payable resulting from the reduced revenues; improved foreign exchange gains due to the strengthening of the U.S. dollar against the Canadian dollar; and partially offset by the costs associated with the addition of extra sales staff.

The company incurred a net loss for the quarter of $491,000 compared with net income of $238,000 for the same quarter a year ago.

Operating cash flow (defined as net loss for the period, plus items not involving cash, plus lease payments received) for the quarter was negative $338,000 compared with positive $434,000 for the same period last year.

In addition to its net cash balance of $1.0-million at quarter-end the company also had an estimated $137,000 of unused borrowing capacity under its bank loans. With cash balances and unused borrowing capacity of approximately $1,175,425, management believes that it has sufficient capital resources to finance existing operations and anticipated capital requirements in fiscal 2015.

As at Nov. 30, 2014, the company's net cash position amounted to $1.0-million, compared with $2.0-million as at May 31, 2014. With cash balances and unused borrowing capacity totalling approximately $1.2-million, management believes that it has sufficient capital resources to finance existing operations and anticipated capital requirements in the remainder of fiscal 2015.

Full financial results including management's discussion and analysis and accompanying notes to the financial results, are available on SEDAR and the company's website.

We seek Safe Harbor.