Condensed Interim Unaudited Financial Statements of Karnalyte Resources Inc. Six Months Ended June 30, 2025

Condensed Interim Unaudited Financial Statements of

Six months ended June 30, 2025 and 2024

"signed" "signed" Sanjeev Varma, Director Divyabhash Anjaria, Director

Condensed Interim Statements of Income/(Loss) and Comprehensive Income/(Loss) (unaudited)

For the three and six months ended June 30, 2025 and 2024 (CAD $ thousands)

Three months ended Six months ended

See accompanying notes to the financial statements.

Condensed Interim Statements of Changes in Equity (unaudited)

For the six months ended June 30, 2025 and 2024 (CAD $ thousands)

Notes to Condensed Interim Financial Statements (unaudited)

For the three and six months ended June 30, 2025 and 2024

(All tabular amounts are in CAD thousands except per share amounts)

1. Reporting entity

   Karnalyte Resources Inc. (the "Company" or "Karnalyte") is incorporated under the laws of the province of Alberta. As at the date of the financial statements, the business of Karnalyte consisted of the exploration and development of its property and possible construction of a production facility and development of a potash mine. The property is situated in Saskatchewan, south of Wynyard and contains a dominant zone of potash and magnesium minerals.

   The Company's address is PO Box 22055 RPO Wildwood, Saskatoon, SK S7H 5P1.

2. Basis of presentation

   These financial statements are prepared on the assumption that the Company will continue as a going concern. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company's ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business.

   The Company is in its pre-development phase and therefore there is material uncertainty that the Company will be able to raise additional funds to maintain sufficient financial resources to fund ongoing operating and required exploration expenditures and to move forward to the production stage. As at June 30, 2025, the Company had working capital (current assets less current liabilities) of $880,000 which is expected to be insufficient to fund operations in the upcoming year. In addition to ongoing operating expenses, the Company is committed to expenditures in 2025 and subsequent years on its regulatory spending requirements and mineral properties to keep the Company in good standing (note 9). The Company's cash position may also be impacted by a requirement to fund the decommissioning liability (note 6).

   The ability of the Company to continue as a going concern is dependent upon obtaining further equity issuances or other forms of financings. There is no assurance that the Company will be successful in obtaining required funding at an acceptable cost as and when needed or at all. Failure to obtain additional funding on a timely basis may cause the Company to postpone development plans, forfeit rights in its properties or reduce or terminate its operations.

   These financial statements do not include any adjustments to carrying values of asset amounts and liabilities or reported expenses that may be necessary if the going concern assumption were not appropriate.

3. Basis of preparation

   1. Statement of compliance

      These condensed interim unaudited financial statements have been prepared by management in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. In preparing these interim financial statements the Company applied the same accounting policies as disclosed in the restated financial statements for the year ended December 31, 2024. These statements do not include all information or disclosures normally provided in annual statements. These interim statements should be read in conjunction with the annual financial statements and related notes.

      These financial statements were authorized for issue by the Board of Directors on August 13, 2025.

   2. Changes in accounting policy

      A number of amendments to existing standards became effective January 1, 2025 but they did not have an effect on the Company's financial statements.

   3. New standards and interpretations not yet adopted

      A number of amendments to existing standards are not yet effective for the period ended June 30, 2025 and have not been applied in preparing these condensed interim financial statements. The Company does not intend to early adopt any of the amendments and does not expect them to have a material impact on its financial statements. The one new standard that may have an impact on disclosures is described below.

      1. Financial statement presentation

In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18, Presentation and Disclosure of Financial Statements ("IFRS 18"). IFRS 18 is effective for periods beginning on or after January 1, 2027, with early adoption permitted. IFRS 18 is expected to improve the quality of financial reporting by requiring defined subtotals in the statement of profit or loss, requiring disclosure about management-defined performance measures, and adding new principles for aggregation and disaggregation of information. The Company has not yet determined the impact of this standard on its disclosures.

As at June 30, 2025, cumulative impairment losses recognized for capital assets is $20,123,000 (December 31, 2024 - $20,123,000). The impairment indicators, as determined in 2014 by previous management, continue to exist as at June 30, 2025.

1. Exploration and evaluation assets and other assets

   	Mineral Properties	Process Patents	Computer Software	Total
   Cost
   Balance at January 1, 2024	$ 53,659	$ 226	$ 246	$ 54,131
   Additions	718	14	-	732
   Disposals	(518)	-	(6)	(524)
   Balance at December 31, 2024	53,859	240	240	54,339
   Additions	403	3	-	406
   Disposals	(420)	-	-	(420)
   Balance at June 30, 2025	$ 53,842	$ 243	$ 240	$ 54,325
   Accumulated depreciation and impairment
   Balance at January 1, 2024	$ 48,610	$ 226	$ 246	$ 49,082
   Disposals	(518)	-	(6)	(524)
   Impairment	718	14	-	732
   Balance at December 31, 2024	48,810	240	240	49,290
   Impairment	403	3	-	406
   Balance at June 30, 2025	$ 49,213	$ 243	$ 240	$ 49,696
   Carrying amounts
   December 31, 2024	$ 5,049	$ - $ - $ 5,049
   June 30, 2025	$ 4,629	$ - $ - $ 4,629

   As at June 30, 2025, cumulative impairment losses recognized for exploration and evaluation assets and other assets is $49,430,000 (December 31, 2024 - $49,024,000).

   6. Decommissioning liability
   	June 30, 2025	December 31, 2024
   Beginning balance	$ 1,571	$ 1,536
   Change in estimate	(32)	(15)
   Unwinding of discount	26	50
   Ending balance	$ 1,565	$ 1,571

2. Decommissioning liability (continued)

   The undiscounted amount of estimated costs required to settle the obligations at June 30, 2025 is

   $1,730,000 (December 31, 2024 - $1,730,000) which are expected to be incurred in 2038. As at June 30, 2025 the estimated costs have been inflated at an implied inflation rate of 1.82 percent (December 31, 2024 - 1.79 percent) and discounted at a risk free nominal rate of 3.51 percent (December 31, 2024 - 3.31 percent). The change in estimate is included in other income.

3. Share capital

   1. Authorized

      As at June 30, 2025 and 2024 the Company was authorized to issue an unlimited number of common shares. The holders of common shares are entitled to receive dividends as declared by the Company and are entitled to one vote per share. Since its inception, the Company has not declared a dividend. No common shares were issued throughout the six months ended June 30, 2025.

      The Company is also entitled to issue an unlimited number of preferred shares. There were no preferred shares issued throughout the six months ended June 30, 2025.

   2. Income/(loss) per share

Three months ended Six months ended

1. Share capital (continued)

   1. Income/(loss) per share (continued)

      For the six months ended June 30, 2025, 913,000 options were excluded from the diluted weighted average number of common shares as their effect would have been anti-dilutive. For the three and six months ended June 30, 2024, 1,095,000 options were excluded from the diluted weighted average number of common shares as their effect would have been anti-dilutive.

   2. Share-based compensation expense

The Company has a stock option plan under which directors, officers and non-employees of the Company are eligible to receive stock options. The aggregate number of common shares to be issued upon the exercise of all stock options granted under the plan shall not exceed 10% of the issued common shares of the Company at the time of granting of the options. Options granted under the plan generally have a term of two to five years and vest at terms to be determined by the directors at the time of grant. The exercise price of each option shall be determined by the directors at the time of grant but shall not be less than the price permitted by the policies of the stock exchange on which the Company's common shares are then listed.

The number (thousands) and weighted average exercise prices of share options are as follows:

2025 2024

Weighted Weighted

1. Share capital (continued)

   (c) Share-based compensation expense (continued)

   Number of Options Outstanding	Exercise Price	Remaining Life (years)	Exercisable Options
   150,000	0.19	0.04	150,000
   300,000	0.27	1.42	300,000
   242,500	0.21	3.10	210,000
   220,000	0.13	4.00	115,000
   912,500	$ 0.21	2.14	775,000

   Share-based compensation of $4,000 (2024 - $7,000) was expensed during the three month period ended June 30, 2025. Share-based compensation of $9,000 (2024 - $17,000) was expensed during the six month period ended June 30, 2025. The forfeiture rate assumed in the calculation of all share-based compensation expenses was 11%.

2. Supplemental cash flow information

   Operating activities included in the statements of cash flows are as follows:

   June 30,	2025	2024
   Changes in non-cash working capital Trade and other receivables	$ (11)	$ (23)
   Prepaids	(139)	(132)
   Trade and other payables	(39)	37
   	$ (189)	$ (118)

3. Financial instruments and related risk management

   Financial instruments included in the statements of financial position consist of cash and cash equivalents, trade and other receivables, restricted cash, and trade and other payables. The fair values of these financial instruments approximate their carrying amounts due to the short-term maturity of the instruments. The Company considers its capital structure to include cash and cash equivalents and non-cash working capital. During the period January 1, 2025 to June 30, 2025, cash and cash equivalents and non-cash working capital increased by $376,000 to $880,000. During the six month period ended June 30, 2025, there have been no changes to the risks and related management thereof as disclosed in the annual financial statements.

   In addition to the minimum regulatory expenditure requirements, the following are the commitments of the Company as at June 30, 2025:

   Contractual Less than Two - three Four - five More than cash flows one year years years five years

   Trade and other payables $ 682 $ 682 $ - $ - $ -Lease on mineral property 3,700 367 735 735 1,863 Project contracts 7 7 - - -

   $ 4,389 $ 1,056 $ 735 $ 735 $ 1,863

4. Contingent liabilities

   During the six month period ended June 30, 2025, there have been no changes in contingent liabilities as disclosed in the annual financial statements.

5. Restatement

The Company has restated the comparative figures presented for the three and six month periods ended June 30, 2024 due to a calculation error when determining the required adjustment to the decommissioning liability. There is no impact on the previously reported total cash flows used in operating activities or the loss per share, basic and diluted for the period ended June 30, 2024.

The Company does not expect any adverse affect on the Company's day to day operations as a result of the June 30, 2024 restatement.

The decommissioning liability reports the discounted amount of estimated costs required to settle the Company's obligations to dismantle, decommission and to complete activities to remediate site disturbance which are expected to be incurred in 2038 (note 6). Provisions are made for the estimated cost of site restoration and capitalized in the relevant asset category. Decommissioning provisions are measured at the present value of management's best estimate of expenditure required to settle the present obligations at the reporting date. Subsequent to the initial measurement, the provisions are adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time is recognized as finance costs whereas changes in the estimated future cash flows are either capitalized or recognized immediately in other income.

The following tables summarize the line items impacted by the error on the financial statements:

Three months ended June 30, 2024

Previously Adjustment Restated

reported STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

Six months ended June 30, 2024

Previously Adjustment Restated

reported STATEMENTS OF LOSS AND COMPREHENSIVE LOSS