SEDAR Interim Financial Statements

Condensed Consolidated Interim Financial Statements of THERMAL ENERGY INTERNATIONAL INC. Quarters ended February 28, 2026 and 2025 (Unaudited) THERMAL ENERGY INTERNATIONAL INC. Condensed Consolidated Interim Statements of Financial Position As at February 28, 2026 and May 31, 2025 (Expressed in Canadian dollars) (Unaudited) February 28, 2026 May 31, 2025 $ $ Assets Current assets: Cash and cash equivalents (note 5) 3,956,688 2,798,695 Trade and other receivables (note 6) 5,115,829 4,498,562 Current tax receivable 31,910 19,037 Prepaid expenses (note 7) 456,345 765,266 Inventory 1,942,585 1,827,077 11,503,357 9,908,637 Non-current assets: Property, plant and equipment (note 8) 578,419 388,837 Right-of-use assets (note 9) 725,850 939,653 Intangible assets 449,547 491,835 Deferred tax assets 216,304 217,271 1,970,120 2,037,596 Total assets 13,473,477 11,946,233 Liabilities Current liabilities: Trade payables and other liabilities (note 11) 4,068,285 3,419,874 Current tax liabilities 68,848 84,023 Pensions and other employer obligations 204,033 226,149 Current portion of long-term debt (note 12) 6,486 327,757 Deferred revenue (note 13) 2,863,508 2,715,070 Provisions 343,944 345,000 Current portion of lease obligations (note 14) 293,955 394,510 7,849,059 7,512,383 Non-current liabilities: Long-term debt (note 12) - 1,640 Lease obligations (note 14) 749,249 864,393 Deferred tax liabilities 942 867 750,191 866,900 Total liabilities 8,599,250 8,379,283 Equity Capital stock (note 15) 32,833,530 32,798,603 Contributed surplus 5,120,900 4,896,549 Accumulated other comprehensive income 525,802 536,000 Deficit (33,612,967) (34,660,733) Equity attributable to owners of the parent 4,867,265 3,570,419 Non-controlling interest 6,962 (3,469) Total equity 4,874,227 3,566,950 Commitment (note 23) Total liabilities and equity 13,473,477 11,946,233 The accompanying notes are an integral part of these condensed consolidated interim financial statements. On behalf of the Board: (signed) William Crossland (signed) William Ollerhead Director Director 1 THERMAL ENERGY INTERNATIONAL INC. Condensed Consolidated Interim Statements of Comprehensive Income (Loss) For the three and nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars) (Unaudited) 2026 2025 2026 2025 $ $ $ $ Revenue (note 18) 9,423,521 5,815,078 26,461,283 22,955,379 Cost of sales 5,923,541 3,548,021 15,764,401 14,290,439 Gross profit 3,499,980 2,267,057 10,696,882 8,664,940 Expenses (note 19): Administration 1,787,464 1,293,849 5,311,770 4,444,284 Selling, marketing and business development 1,277,852 1,223,203 3,874,106 3,795,221 Research and development 58,843 75,952 244,204 257,719 3,124,159 2,593,004 9,430,080 8,497,224 Operating income (loss) 375,821 (325,947) 1,266,802 167,716 Finance costs (note 20) (30,382) (70,211) (91,339) (235,657) Finance revenue 6,088 7,962 16,845 51,900 Income (Loss) before income tax 351,527 (388,196) 1,192,308 (16,041) Income tax expense (13,951) (14,440) (71,088) (49,451) Net income (loss) for the period 337,576 (402,636) 1,121,220 (65,492) Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of overseas operations 55,644 (28,444) (11,785) (8,427) Total comprehensive income (loss) for the period 393,220 (431,080) 1,109,435 (73,919) Net income (loss) for the period attributable to: Owners of the parent 322,627 (416,630) 1,047,766 (125,362) Non-controlling interest 14,949 13,994 73,454 59,870 Net --- income (loss) for the period 337,576 (402,636) 1,121,220 (65,492) Total comprehensive income (loss) for the period attributable to: Owners of the parent 379,626 (448,035) 1,037,568 (139,952) Non-controlling interest 13,594 16,955 71,867 66,033 Total comprehensive income (loss) for the period 393,220 (431,080) 1,109,435 (73,919) Net income (loss) per share - basic and diluted 0.002 (0.002) 0.006 (0.001) The accompanying notes are an integral part of these condensed consolidated interim financial statements. Three months ended Nine months ended February 28 February 28 2 THERMAL ENERGY INTERNATIONAL INC. Condensed Consolidated Interim Statements of Changes in Equity For the nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars) (Unaudited) Accumulated Total other attributable Non- Capital Contributed comprehensive to owners of controlling Total stock surplus Deficit income the parent interest equity $ $ $ $ $ $ $ Balance at June 1, 2024 33,247,637 4,659,779 (34,733,899) 288,798 3,462,315 (39,914) 3,422,401 Share-based compensation (note 17) - 192,250 - - 192,250 - 192,250 Share options excercised (note 15) 50,966 (17,116) - - 33,850 - 33,850 Dividends paid (note 16) - - - - - (58,040) (58,040) Transactions with owners 50,966 175,134 - - 226,100 (58,040) 168,060 Net (loss) income for the period - - (125,362) - (125,362) 59,870 (65,492) Other comprehensive (loss) income: exchange differences arising on translation of overseas operations - - - (14,590) (14,590) 6,163 (8,427) Total comprehensive (loss) income for the period - - (125,362) (14,590) (139,952) 66,033 (73,919) Balance at February 28, 2025 33,298,603 4,834,913 (34,859,261) 274,208 3,548,463 (31,921) 3,516,542 Balance at June 1, 2025 32,798,603 4,896,549 (34,660,733) 536,000 3,570,419 (3,469) 3,566,950 Share-based compensation (note 17) - 191,683 - - 191,683 - 191,683 Share options excercised (note 15) 219,791 (152,291) - - 67,500 - 67,500 Shares repurchased (note 15) (684,864) 184,959 - - (499,905) - (499,905) Obligations related to share repurchases (note 15) 500,000 - - - 500,000 - 500,000 Dividends paid (note 16) - - - - - (61,436) (61,436) Transactions with owners 34,927 224,351 - - 259,278 (61,436) 197,842 Net income for the period - - 1,047,766 - 1,047,766 73,454 1,121,220 Other comprehensive income (loss): exchange differences arising on translation of overseas operations - - - (10,198) (10,198) (1,587) (11,785) Total comprehensive income (loss) for the period - - 1,047,766 (10,198) 1,037,568 71,867 1,109,435 Balance at February 28, 2026 32,833,530 5,120,900 (33,612,967) 525,802 4,867,265 6,962 4,874,227 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 3 THERMAL ENERGY INTERNATIONAL INC. Condensed Consolidated Interim Statements of Cash Flows For the three and nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars) (Unaudited) 2026 2025 2026 2025 $ $ $ $ Operating activities: Net income (loss) for the period 337,576 (402,636) 1,121,220 (65,492) Add items not involving cash: Depreciation of property, plant and equipment (note 8) 64,218 59,345 185,588 177,467 Loss on disposal of assets (note 8) 187 77 187 255 Depreciation of right-of-use assets (note 9) 77,015 91,906 265,105 274,564 Amortization of intangible assets 10,122 37,470 39,104 117,460 Finance costs (note 20) 30,382 70,211 91,339 235,657 Finance revenue (6,088) (7,962) (16,845) (51,900) Share-based compensation (note 17 --- ) 68,407 61,638 191,683 192,250 Income tax expense 10,951 14,440 68,088 49,451 Unrealized foreign exchange and translation adjustments 85,456 157,940 (22,967) 296,761 Changes in working capital: Trade and other receivables 2,187,784 1,710,233 (614,267) (231,614) Prepaid expenses 693,713 (18,597) 308,921 588,684 Inventory (181,251) (304,430) (115,508) (313,439) Trade payables and other liabilities (1,488,308) (913,299) 1,128,584 (810,647) Deferred revenue (note 13) 706,405 2,614,264 157,928 (655,233) Income tax (paid) refunded (82,634) (57,096) (98,828) 30,811 Interest paid (30,512) (71,008) (93,628) (237,530) Interest received 6,088 7,962 16,845 51,900 Net cash provided by (used in) operating activities 2,489,511 3,050,458 2,612,549 (350,595) Investing activities: Additions to property, plant and equipment (note 8) (346,918) (29,607) (378,951) (62,912) Net cash used in investing activities (346,918) (29,607) (378,951) (62,912) Financing activities: Repayment of long-term debt (note 12) (63,233) (526,478) (322,875) (990,589) Repayment of lease obligations (note 14) (92,156) (79,874) (265,011) (234,209) Stock options exercised (note 15) - - 67,500 33,850 Repurchase of shares (note 15) - - (499,905) - Dividends paid (note 16) - - (61,436) (58,040) Net cash used in financing activities (155,389) (606,352) (1,081,727) (1,248,988) Increase (decrease) in cash and cash equivalents for the period Cash and cash equivalents, beginning of period 2,005,661 2,823,168 2,798,695 6,965,145 Exchange differences on cash and cash equivalents (36,177) (94,693) 6,122 (159,676) Cash and cash equivalents, end of period 3,956,688 5,142,974 3,956,688 5,142,974 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 1,987,204 2,414,499 1,151,871 (1,662,495) Three months ended Nine months ended February 28 February 28 4 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 5 1. Nature of operations: Thermal Energy International Inc. (the “parent”) was incorporated under the Ontario Business Corporations Act on May 22, 1991 and is primarily engaged in the development, engineering and supply of pollution control, heat recovery systems, and condensate return solutions. The parent company’s common shares are listed on the TSX Venture Exchange (“TSX.V”) and OTCQB under the symbol TMG and TMGEF, respectively. The primary office is located at Suite 850, 36 Antares Drive, Ottawa, Ontario, K2E 7W5. The unaudited condensed consolidated interim financial statements comprise the financial results of the parent and its subsidiaries (collectively known as the “Company”) for the nine months ended February 28, 2026 and 2025. 2. Basis of presentation: (a) Statement of compliance: These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed consolidated interim financial statements do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Accounting Standards and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended May 31, 2025. However, selected explanatory --- notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual consolidated financial statements for the year ended May 31, 2025. The policies applied in these unaudited condensed consolidated interim financial statements are based on IFRS Accounting Standards issued and effective as of April 27, 2026, the date the Board of Directors approved the unaudited condensed consolidated interim financial statements. (b) Significant accounting judgments and estimates: In preparing these unaudited condensed consolidated interim financial statements, management makes judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The accounting policies and the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended May 31, 2025. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 6 3. Material accounting policies: New standards and amendments yet to be adopted: IFRS 18, Presentation and Disclosures of Financial Statements In April 2024, the IASB issued IFRS 18, Presentation and Disclosures of Financial Statements (“IFRS 18”) with the aim of improving companies’ reporting of financial performance and giving investors a better basis for analyzing and comparing companies. IFRS 18 introduces three new sets of requirements:  Improved comparability in the statements of income which introduces three defined categories for income and expenses: operating, investing and financing. These changes would require all companies to use the same structure of the statements of income and provide new defined subtotals, including operating profit.  Enhanced transparency of management-defined performance measures which would require companies to disclose explanations of those company specific measures that are related to the income statement.  More useful grouping of information in the financial statements which provides enhanced guidance on how to organize information and whether to provide it in the primary financial statements or in the notes. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, which will be June 1, 2027 for the Company, with early adoption permitted. The Company is currently evaluating the impact of this new standard. 4. Segment reporting: Management reporting comprises analysis of revenue and gross profit within two distinct geographical areas. All other items of revenue and expenses are considered on a geographical and/or global basis in making strategic decisions regarding the Company’s future. The Company has two operational bases (“reporting units”). One in Ottawa, Canada covering North America, and the other in Bristol, United Kingdom, covering Europe and the rest of the world. These areas are determined by proximity of the region to the reporting unit, plus the location of the contracts in existence with agents and distributors in the respective areas and the historical relationships with those agents and di --- stributors. Corporate costs that cannot easily be attributed to either of the two reporting units are included in reconciling items. The chief operating decision maker focuses on revenues and costs by geographical segments but manages assets and liabilities on a global basis. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 7 4. Segment reporting (continued): Segment information for the three months ended February 28, 2026 and the comparative period are detailed in the table below. Thermal Energy Ottawa Thermal Energy Bristol Reconciling Items Total 2026 $ 2025 $ 2026 $ 2025 $ 2026 $ 2025 $ 2026 $ 2025 $ Revenue 6,973,332 3,296,225 2,450,189 2,518,853 - - 9,423,521 5,815,078 Cost of sales (4,684,184) (1,785,180) (1,239,357) (1,762,841) - - (5,923,541) (3,548,021) Gross profit 2,289,148 1,511,045 1,210,832 756,012 - - 3,499,980 2,267,057 Other expenses (1,127,790) (949,609) (1,435,077) (1,439,034) (561,292) (204,361) (3,124,159) (2,593,004) Finance costs (19,373) (21,413) (7,483) (7,297) (3,526) (41,501) (30,382) (70,211) Finance revenue 6,088 7,962 - - - - 6,088 7,962 Income (loss) before income tax 1,148,073 547,985 (231,728) (690,319) (564,818) (245,862) 351,527 (388,196) Income tax expense - - (13,951) (14,440) - - (13,951) (14,440) Net income (loss) for the period 1,148,073 547,985 (245,679) (704,759) (564,818) (245,862) 337,576 (402,636) Attributable to: Owners of the parent 1,147,919 548,181 (260,474) (718,949) (564,818) (245,862) 322,627 (416,630) Non-controlling interest 154 (196) 14,795 14,190 - - 14,949 13,994 Segment information for the nine months ended February 28, 2026 and the comparative period are detailed in the table below. Thermal Energy Ottawa Thermal Energy Bristol Reconciling Items Total 2026 $ 2025 $ 2026 $ 2025 $ 2026 $ 2025 $ 2026 $ 2025 $ Revenue 16,855,778 9,966,579 9,605,505 12,988,800 - - 26,461,283 22,955,379 Cost of sales (11,281,722) (6,099,996) (4,482,679) (8,190,443) - - (15,764,401) (14,290,439) Gross profit 5,574,056 3,866,583 5,122,826 4,798,357 - - 10,696,882 8,664,940 Other expenses (3,586,329) (3,231,135) (4,686,353) (4,251,247) (1,157,398) (1,014,842) (9,430,080) (8,497,224) Finance costs (61,131) (64,812) (18,397) (24,361) (11,811) (146,484) (91,339) (235,657) Finance revenue 16,845 51,900 - - - - 16,845 51,900 Income (loss) before income tax 1,943,441 622,536 418,076 522,749 (1,169,209) (1,161,326) 1,192,308 (16,041) Income tax expense - - (71,088) (49,451) - - (71,088) (49,451) Net income (loss) for the period 1,943,441 622,536 346,988 473,298 (1,169,209) (1,161,326) 1,121,220 (65,492) Attributable to: Owners of the parent 1,943,388 618,149 273,587 417,815 (1,169,209) (1,161,326) 1,047,766 (125,362) Non-controlling interest 53 4,387 73,401 55,483 - - 73,454 59,870 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 8 4. Segment reporting (continued): Other expenses in reconciling items comprise the following: Three months ended February 28 Nine months ended February 28 2026 $ 2025 $ 2026 $ 2025 $ Corporate administration costs 203,955 193,549 612,133 575,647 Share-based compensation 68,407 61,638 191,683 192,250 Professional fees 470 40,018 172,561 188,887 Depreciation of property, plan --- t and equipment 64,218 59,345 185,588 177,467 Amortization of intangible assets 10,122 37,470 39,104 117,460 Foreign exchange loss (gain) 214,120 (187,659) (43,671) (236,869) Total 561,292 204,361 1,157,398 1,014,842 Corporate administration costs include directors’ fees, all costs relating to both the CEO and CFO, directors’ and officers’ insurance, corporate legal costs, public relations costs, professional fees relating to group tax planning and corporate filing costs as well as the Annual General Meeting. Finance costs within the reconciling items include interest and deferred financing charge on the long-term debt. 5. Cash and cash equivalents: February 28, 2026 May 31, 2025 Cash $ 3,956,688 $ 2,782,956 Cash equivalents - 15,739 Balance, end of period $ 3,956,688 $ 2,798,695 Cash equivalents consist of excess cash invested in guaranteed investment certificate. 6. Trade and other receivables: February 28, 2026 May 31, 2025 Trade receivables, gross $ 4,284,451 $ 3,495,104 Allowance for expected credit losses (4,381) (5,208) Trade receivables, net 4,280,070 3,489,896 Unbilled revenue 442,063 452,754 Contract assets 174,047 431,423 Sales tax and other miscellaneous receivables 219,649 124,489 Balance, end of period $ 5,115,829 $ 4,498,562 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 9 6. Trade and other receivables (continued): The net carrying value of trade receivables is considered a reasonable approximation of fair value. At February 28, 2026, $208,088 (4.9%) of the Company’s trade receivables balance was over 90 days past due. $4,381 of the past due balance was impaired at February 28, 2026. At May 31, 2025, $65,783 (1.9%) of the Company’s trade receivables balance was over 90 days past due. $787 of the past due balance was impaired at May 31, 2025. The Company’s trade and other receivables have been reviewed for indicators of impairment. For the nine months ended February 28, 2026, provisions of $4,381 were made as expected credit losses and recorded under administrative expense on the condensed consolidated interim statements of comprehensive income ($5,248 – February 28, 2025). For the nine months ended February 28, 2026, $nil ($6,047 – February 28, 2025) of previously provided credit losses was released due to the collection on the expected credit losses. The Company wrote off allowance for expected credit losses in the amount of $788 for the nine months ended February 28, 2026 by removing the amount from trade receivables ($11,450 – February 28, 2025). Translation gain of $39 (loss of $618 – February 28, 2025) was recognized under exchange differences arising on translation of overseas operations. 7. Prepaid expenses: February 28, 2026 May 31, 2025 Prepayments for goods, equipment and projects $ 71,692 $ 268,452 Foreign government regulatory fees 146,336 140,553 Insurance 44,696 133,301 Rent 56,162 58,293 Other prepaid expenses 137,459 164,667 Balance, end of period $ 456,345 $ 765,266 8. Property, plant and equipment: During the nine months ended February 28, 2026, the Company acquired property, plant and equipment of $378,951 ($62,912 – February 28, 2025) and the Company disposed of depreciated assets with a net book value of $187 for $nil proceeds (net book value of $255 for $nil proceeds – February 28, 2025). Depreciation expense of $185,588 ($177,467 – February --- 28, 2025) was recognized under administration expense. Translation loss of $3,594 (gain of $17,892 – February 28, 2025) was recognized under exchange differences arising on translation of overseas operations. Included in the nine months ended February 28, 2026, additions included the acquisition of a plasma table for the US production team, for which the Company paid a capital advance of $283,838. The acquisition is designated to be funded through a convertible equipment line of credit, see note 10(c). THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 10 9. Right-of-use assets: Offices Vehicles Equipment Total right-of-use assets $ $ $ $ Balance, June 1, 2025 876,397 61,870 1,386 939,653 Additions 11,105 29,767 15,296 56,168 Depreciation (230,544) (32,248) (2,313) (265,105) Translation adjustments (4,126) (740) - (4,866) Balance, February 28, 2026 652,832 58,649 14,369 725,850 Offices Vehicles Equipment Total right-of-use assets $ $ $ $ Balance, June 1, 2024 1,180,389 95,079 4,158 1,279,626 Depreciation (243,451) (29,034) (2,079) (274,564) Translation adjustments 50,095 3,779 - 53,874 Balance, February 28, 2025 987,033 69,824 2,079 1,058,936 10. Short-term borrowings: (a) During the year ended May 31, 2025, the Company entered into a line of credit agreement with a lending institution for a total amount of $2,000,000. $Nil was utilized as at February 28, 2026 ($nil - May 31, 2025). The line of credit bears interest at the institution’s floating base rate plus a premium of 3.51%. The line of credit is expected to support internal working capital needs related to operations. (b) At January 16, 2026, the Company’s US subsidiary entered into a line of credit agreement with a lending institution for a total amount of $687,350 (equivalent to USD$500,000). $Nil was utilized as at February 28, 2026. The line of credit bears interest at daily SOFR plus a premium of 2.5%. The line of credit is expected to support internal working capital needs related to the subsidiary company’s operations. (c) At January 16, 2026, the US subsidiary also entered into a convertible equipment line of credit agreement with the same lending institution for a total amount of $687,350 (equivalent to USD$500,000). $Nil was utilized as at February 28, 2026. The convertible equipment line of credit bears interest at daily SOFR plus a premium of 2.5%. The convertible equipment line of credit is expected to support fixed asset acquisitions. The Company may elect to convert any advance or multiple advances to one or more separate equipment term loan with a maximum term of five years, bearing interest at a floating or fixed rate as offered by the lending institution. The Company is designating a property, plant and equipment acquisition to be funded under this agreement, see note 8. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 11 11. Trade payables and other liabilities: Trade payables and other liabilities recognized in the statements of financial position can be summarized as follows: February 28, 2026 May 31, 2025 Trade payables $ 1,603,694 $ 1,510,899 Accruals 2,204,872 1,074,716 Obligations related to share purchases (note 15) - 500,000 Other government remi --- ttances payable 259,719 334,259 $ 4,068,285 $ 3,419,874 Included in accruals is $20,725 due to directors ($26,107 at May 31, 2025). All amounts are short-term. The carrying values of trade payables and other liabilities are considered to be a reasonable approximation of fair value. 12. Long-term debt: February 28, 2026 May 31, 2025 (a) Term loan, bearing interest at 5.45%, was fully paid at January 15, 2026 (5.95% on May 31, 2025), repayable in monthly principal installments of $41,667, with a final payment of $16,656 payable on the maturity date, January 15, 2026. - 308,325 (b) Term loan (equivalent to GBP£3,531), bearing interest at 2.50%, repayable in monthly principal installments of $1,613 (equivalent to GBP£878) up to the maturity date, June 10, 2026. 6,486 21,072 Total long-term debt 6,486 329,397 Less: current portion (6,486) (327,757) Long term portion - $ 1,640 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 12 12. Long-term debt (continued): (a) On June 9, 2020, the Company entered into a Working Capital – COVID-19 loan with a lending institution for a total amount of $2,300,000. This loan bears interest at the institution’s floating base rate less a variance of 1.10%. The institution’s floating base rate was 6.55% on January 15, 2026 (7.05% on May 31, 2025). Interest is payable monthly in arrears on the 15th day of the month. A financing cost of $3,000 was charged by the lending institution. The amount advanced under the financing was expected to support internal working capital needs related to operations. On May 28, 2025, the Company repaid a portion of its outstanding debt in the amount of $150,000, reducing the maturity date to January 15, 2026, and amending the final loan payment to $16,656. (b) On June 10, 2020, the Company entered into a COVID-19 bounce back fixed rate loan with a UK lending institution for a total amount of GBP£50,000 (equivalent to $85,760 on June 10, 2020). This loan bears zero interest for the first 12 months and 2.50% thereafter and is repayable over 6 years. 13. Deferred revenue: The change in deferred revenue was as follows: Deferred revenue relating to contracts for heat recovery projects Deferred revenue relating to sales of goods, equipment and services Total deferred revenue Balance, June 1, 2025 $ 2,002,697 $ 712,373 $ 2,715,070 Increase from payments received 13,814,012 3,391,870 17,205,882 Decrease from revenue recognized (13,731,318) (3,316,636) (17,047,954) Translation adjustments (2,260) (7,230) (9,490) Balance, February 28, 2026 $ 2,083,131 $ 780,377 $ 2,863,508 Deferred revenue relating to contracts for heat recovery projects Deferred revenue relating to sales of goods, equipment and services Total deferred revenue Balance, June 1, 2024 $ 3,318,084 $ 1,026,709 $ 4,344,793 Increase from payments received 11,301,630 1,884,258 13,185,888 Decrease from revenue recognized (11,816,214) (2,024,907) (13,841,121) Translation adjustments 34,477 77,302 111,779 Balance, February 28, 2025 $ 2,837,977 $ 963,362 $ 3,801,339 All amounts are short-term and is expected to be settled within the next reporting year. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 13 13. Deferred revenue (co --- ntinued): The Company changed the description and categorization of revenue during the year ended May 31, 2025. Heat recovery related services that were delivered at a point in time, that were previously reported under revenue from contracts for heat recovery projects, were reclassified to revenue from sales of goods, equipment and services (see note 18). As a result of the change:  Deferred revenue relating to point-in-time services in the amount of $254,882 that was previously reported under deferred revenue relating to contracts for heat recovery projects as at June 1, 2024, was reclassified to deferred revenue relating to sales of goods, equipment, and services.  For the nine months ended February 28, 2025, increase from payments received in the amount of $439,700 and decrease from revenue recognized in the amount of $584,142 relating to point- in-time services, that were previously reported under deferred revenue relating to contracts for heat recovery projects, were reclassified to deferred revenue related to sales of goods, equipment, and services.  For the nine months ended February 28, 2025, $4,044 translation adjustments relating to point- in-time services, that were previously reported under deferred revenue relating to contracts for heat recovery projects, were reclassified to deferred revenue relating to sales of goods, equipment, and services.  At February 28, 2025, $114,484 of deferred revenue relating to point-in-time services, that was previously reported as deferred revenue relating to contracts for heat recovery projects, was reclassified to deferred revenue relating to sales of goods, equipment, and services. 14. Lease obligations: The following table presents the contractual undiscounted cash flows for lease obligations as of February 28, 2026 and May 31, 2025: February 28, 2026 May 31, 2025 Less than one year $ 364,607 $482,158 One to five years 866,172 912,783 Six to ten years - 115,300 Total undiscounted lease obligations 1,230,779 1,510,241 Less: impact of present value (187,575) (251,338) Less: current portion (293,955) (394,510) Long term portion $ 749,249 $864,393 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 14 14. Lease obligations (continued): During the nine months ended February 28, 2026, the interest expense on lease obligations (see note 20) was $75,087 ($89,174 – February 28, 2025) and total cash outflow for leases was $377,291($361,715 – February 28, 2025), including $37,193 ($38,332 – February 28, 2025) for short-term leases. For the nine months ended February 28, 2026 and 2025, expenses for leases of low-dollar value items are not material. Extension options are included in the measurement of lease obligations when the Company is reasonably certain to exercise that option. 15. Capital stock: Authorized: Unlimited number of Class A common shares, no par value. Unlimited number of Series 1 preferred shares, voting only in the case of dissolution of the Company, redeemable at the option of the Company, at $0.01 per share and convertible to common shares on a 1 to 1 basis at the rate of 20% of the number originally issued per year. Outstanding: Nine months ended February 28, 2026 Year ended May 31, 2025 # Shares $ # Shares $ Class A Common shares issued Balance, beginning of period 173,114,305 32,798,603 172,734,305 33,247,637 Stock options --- exercised (note 17)(1) 1,409,185 219,791 380,000 50,966 Shares repurchased(2) (3,560,500) (684,864) - - Reduction (increase) of obligations related to share repurchases(2) - 500,000 - (500,000) Balance, end of period 170,962,990 32,833,530 173,114,305 32,798,603 (1) For the nine months ended February 28, 2026, the Company issued 1,409,185 shares following the exercise of 3,155,000 stock options. Out of 1,409,185 shares issued 750,000 shares were issued upon the exercise of 750,000 options for cash proceeds of $67,500, resulting in an increase to capital stock of $101,550 and a reduction in contributed surplus of $34,050. In addition, 659,185 shares were issued upon the exercise of 2,405,000 options using the net exercise method with no cash proceeds, resulting in an increase of capital stock of $118,241 and a reduction in contributed surplus of the same amount. For the nine months ended February 28, 2025, the Company issued total 380,000 shares following the exercise of 380,000 stock options for cash proceeds of $33,850, resulting in an increase to capital stock of $50,966 and a reduction in contributed surplus of $17,116. (2) For the nine months ended February 28, 2026, 3,560,500 shares were purchased for cancellation by the company under NCIB for a total purchase price of $499,905, resulting in a reduction to capital stock of $684,864 and an increase in contributed surplus of $184,959. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 15 15. Capital stock (continued): Normal Course Issuer Bid: On May 16, 2025, the Company announced its intent to re-launch the Normal Course Issuer Bid (“NCIB”) for a further period of twelve months. The NCIB was approved by the TSX Venture Exchange on May 22, 2025. During the 12-month period commencing May 22, 2025 and ending May 21, 2026, the Company could purchase on the TSX up to 8,655,715 common shares, representing approximately 5% of the then issued and outstanding common shares. Prior to the year end of May 31, 2025, the Company entered into an automatic share purchase plan (“ASPP”) to provide the option to instruct its broker to make purchases under the NCIB during the blackout period between June 1, 2025 and October 30, 2025. As of February 28, 2026, an obligation for the repurchase of shares of $nil ($500,000 – May 31, 2025) was captured under trade payables and other liabilities (see note 11), as instructions were provided to the Company’s broker to make purchases during the blackout period in accordance with ASPP. 16. Non-controlling interest in subsidiaries: During the nine months ended February 28, 2026, a subsidiary of the Company, which has a non- controlling interest of 33%, distributed dividends to its shareholders. The portion of the dividends attributable to the non-controlling interests (33%) amounted to $61,436 ($58,040 - February 28, 2025). This amount has been recorded as a reduction in the non-controlling interest’s equity. 17. Share-based compensation: Activity in stock options was as follows: Three months ended February 28, 2026 Three months ended February 28, 2025 Weighted Weighted Average Average # Exercise Price # Exercise Price Options $ Options $ Outstanding, beginning of period 18,392,702 0.15 15,495,302 0.15 Forfeited (89,000) 0.17 (35,000) 0.20 Exercised (1,090,000) 0.14 - - Outstanding, end of period 17,213,702 0 --- .15 15,460,302 0.15 Options exercisable, end of period 9,197,400 0.15 8,939,707 0.13 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 16 17. Share-based compensation (continued): Nine months ended February 28, 2026 Nine months ended February 28, 2025 Weighted Weighted Average Average # Exercise Price # Exercise Price Options $ Options $ Outstanding, beginning of period 15,442,802 0.15 12,985,902 0.14 Granted 5,014,900 0.13 2,930,400 0.20 Forfeited (89,000) 0.17 (76,000) 0.18 Exercised (3,155,000) 0.11 (380,000) 0.09 Outstanding, end of period 17,213,702 0.15 15,460,302 0.15 Options exercisable, end of period 9,197,400 0.15 8,939,707 0.13 The following tables summarize information about stock options outstanding at February 28, 2026: Options outstanding Options exercisable Range of exercise prices Number outstanding February 28, 2026 Weighted average remaining contractual life Weighted average exercise price Number exercisable at February 28, 2026 Weighted average exercise price 0.11 - 0.15 10,891,402 3.09 0.13 5,915,502 0.13 0.16 - 0.20 6,322,300 3.21 0.20 3,281,898 0.20 17,213,702 3.13 0.15 9,197,400 0.15 The following tables summarize information about stock options outstanding at February 28, 2025: Options outstanding Options exercisable Range of exercise prices Number outstanding February 28, 2025 Weighted average remaining contractual life Weighted average exercise price Number exercisable at February 28, 2025 Weighted average exercise price 0.08 - 0.10 2,065,000 0.74 0.09 2,065,000 0.09 0.11 - 0.15 7,005,502 2.26 0.13 5,709,908 0.13 0.16 - 0.20 6,389,800 4.21 0.20 1,164,799 0.20 15,460,302 2.86 0.15 8,939,707 0.13 The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using the Black-Scholes model. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 17 17. Share-based compensation (continued): The following inputs were used in the measurement of the fair values at grant date of the share- based payment plans: 30-Nov-25 30-Nov-24 Grant date share price ($)(1) 0.125 0.20 Exercise price ($) 0.125 0.20 Expected volatility (%)(2) 79.54 64.42 Expected life (years) 4.00 4.00 Expected dividend yield (%) 0.00 0.00 Risk-free interest rate (%) 2.72 2.93 Forfeiture rate (%) 18.00 22.00 (1) The closing market price of the shares on the TSX Venture Exchange on the day immediately preceding the date of grant or the last day of trading preceding the date of grant if no shares traded on the day immediately preceding the date of grant. (2) The expected volatility was based on historical volatility of the Company over a period of time that is commensurate with the expected life of the options. Stock-based compensation expense related to the issuance of stock options is included in administration, selling, marketing and business development expenses and is broken down as follows: Three months ended February 28, 2026 Three months ended February 28, 2025 Administration $ 60,981 $ 51,699 Selling, marketing and business development 7,426 9,939 $ 68,407 $ 61,638 Nine months ended February 28, 2026 Nine months ended February 28, 2025 Administration $ 164,379 $ 154,672 Sel --- ling, marketing and business development 27,304 37,578 $ 191,683 $ 192,250 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 18 18. Revenue: Three months ended February 28, 2026 Three months ended February 28, 2025 Sale of goods, equipment and services $ 2,967,924 $ 3,120,126 Services over time 500,920 459,396 Contracts for heat recovery projects 5,954,677 2,235,556 $ 9,423,521 $ 5,815,078 Nine months ended February 28, 2026 Nine months ended February 28, 2025 Sale of goods, equipment and services $ 11,109,907 $ 9,662,104 Services over time 1,628,539 1,463,081 Contracts for heat recovery projects 13,722,837 11,830,194 $ 26,461,283 $ 22,955,379 The Company now describes the categories of disaggregation of revenue as sale of goods, equipment and services where previously it was described as sale of goods and equipment. Services delivered at a point in time that were previously classified as contracts for heat recovery projects, were reclassified to sale of goods, equipment and services (see note 13). As a result of the change, for the three months ended February 28, 2025, $125,764 of services delivered at a point in time, that were previously reported as contracts for heat recovery projects, and $93,660 of services delivered at a point in time that were previously reported as services, were reclassified to sale of goods, equipment and services, for the six months ended February 28, 2025, $590,876 of services delivered at a point in time, that were previously reported as contracts for heat recovery projects, and $132,406 of services delivered at a point in time that were previously reported as services, were reclassified to sale of goods, equipment and services. 19. Other significant expenses: Other significant expenses included in administration expense are as follows: Three months ended February 28, 2026 Three months ended February 28, 2025 Depreciation of property, plant and equipment (note 8) $ 64,218 $ 59,345 Depreciation of right-of-use assets (note 9) 77,015 91,906 Amortization of intangible assets 10,122 37,470 Foreign exchange loss (gain) 214,120 (187,659) THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 19 19. Other significant expenses (continued): Nine months ended February 28, 2026 Nine months ended February 28, 2025 Depreciation of property, plant and equipment (note 8) $ 185,588 $ 177,467 Depreciation of right-of-use assets (note 9) 265,105 274,564 Amortization of intangible assets 39,104 117,460 Foreign exchange gain (43,671) (236,869) 20. Finance costs: Three months ended February 28, 2026 Three months ended February 28, 2025 Interest on indebtedness $ 3,526 $ 41,499 Interest on leases (note 14) 25,664 28,712 Other 1,192 - $ 30,382 $ 70,211 Nine months ended February 28, 2026 Nine months ended February 28, 2025 Interest on indebtedness $ 11,811 $ 146,483 Interest on leases (note 14) 75,087 89,174 Other 4,441 - $ 91,339 $ 235,657 21. Financial instruments: The fair values of the following financial instrument assets and liabilities are not measured at fair value, but fair value disclosures are required: cash and cash equivalents, trade and other receivables, trade payables and other liabilities, and long-term debt. --- The carrying values of cash and cash equivalents, trade and other receivables, trade payables and other liabilities approximate their fair values due to their short-term to maturity. The carrying values of long-term debt is different from its fair value. The fair values of long-term debt, except the COVID-19 bounce back fixed rate loan, are subject to market interest rate. Fair value increases with lower market interest rates, incremental borrowing rates and decreases with higher market interest rates and incremental borrowing rates. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Nine months ended February 28, 2026 and 2025 (Expressed in Canadian dollars except share amounts) 20 22. Related party transactions: Related parties include the members of the Board of Directors and key management personnel, as well as close family members and enterprises that are controlled by these individuals and shareholders. Transactions with key management personnel Key management personnel of the Company include members of the Company’s Board of Directors as well as members of the Company’s senior management team. Key management personnel remuneration includes the following expenses: Three months ended February 28, 2026 Three months ended February 28, 2025 Salaries and other short-term employee benefits $ 260,339 $ 251,820 Share-based payments 32,248 22,203 $ 292,587 $ 274,023 Nine months ended February 28, 2026 Nine months ended February 28, 2025 Salaries and other short-term employee benefits $ 785,639 $ 757,504 Share-based payments 76,654 72,045 $ 862,293 $ 829,549 Salaries and other short-term employee benefits include cash payments for base salaries and related social security costs and employee benefits, as well as payments made into defined contribution pension plans of the Company’s UK based subsidiary, amounts expensed in the period as due to key management personnel under the Company’s employee incentive plan, and Directors’ fees including meeting fees, committee chairman fees and retainers. Share-based payments include the fair value of equity settled share-based payment arrangements expensed during the period. 23. Commitment: On January 26, 2026, an advanced performance guarantee of $19,981 (equivalent to USD$14,647) with no collateral was issued by a financial institution in favour of a customer of the Company. The bank guarantee has an expiry date of September 6, 2026.