SEDAR Interim Financial Statements

Condensed Consolidated Interim Financial Statements of THERMAL ENERGY INTERNATIONAL INC. Quarters ended November 30, 2025 and 2024 (Unaudited) THERMAL ENERGY INTERNATIONAL INC. Condensed Consolidated Interim Statements of Financial Position As at November 30 and May 31, 2025 (Expressed in Canadian dollars) (Unaudited) November 30, 2025 May 31, 2025 $ $ Assets Current assets: Cash and cash equivalents (note 5) 2,005,661 2,798,695 Trade and other receivables (note 6) 7,300,613 4,498,562 Current tax receivable 32,762 19,037 Prepaid expenses (note 7) 1,150,058 765,266 Inventory 1,761,334 1,827,077 12,250,428 9,908,637 Non-current assets: Property, plant and equipment (note 8) 300,278 388,837 Right-of-use assets (note 9) 805,618 939,653 Intangible assets 463,986 491,835 Deferred tax assets 217,989 217,271 1,787,871 2,037,596 Total assets 14,038,299 11,946,233 Liabilities Current liabilities: Trade payables and other liabilities (note 11) 5,567,209 3,419,874 Current tax liabilities 138,035 84,023 Pensions and other employer obligations 193,547 226,149 Current portion of long-term debt (note 12) 69,752 327,757 Deferred revenue (note 13) 2,168,784 2,715,070 Provisions 345,259 345,000 Current portion of lease obligations (note 14) 328,280 394,510 8,810,866 7,512,383 Non-current liabilities: Long-term debt (note 12) - 1,640 Lease obligations (note 14) 813,884 864,393 Deferred tax liabilities 949 867 814,833 866,900 Total liabilities 9,625,699 8,379,283 Equity Capital stock (note 15) 32,774,990 32,798,603 Contributed surplus 5,111,033 4,896,549 Accumulated other comprehensive income 468,803 536,000 Deficit (33,935,594) (34,660,733) Equity attributable to owners of the parent 4,419,232 3,570,419 Non-controlling interest (6,632) (3,469) Total equity 4,412,600 3,566,950 Total liabilities and equity 14,038,299 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 six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars) (Unaudited) 2025 2024 2025 2024 $ $ $ $ Revenue (note 18) 10,187,983 8,670,911 17,037,762 17,140,301 Cost of sales 6,180,494 5,797,974 9,840,860 10,742,418 Gross profit 4,007,489 2,872,937 7,196,902 6,397,883 Expenses (note 19): Administration 1,894,058 1,361,291 3,524,306 3,150,435 Selling, marketing and business development 1,354,742 1,282,020 2,596,254 2,572,018 Research and development 78,044 119,873 185,361 181,767 3,326,844 2,763,184 6,305,921 5,904,220 Operating income 680,645 109,753 890,981 493,663 Finance costs (note 20) (29,727) (78,151) (60,957) (165,446) Finance revenue 4,836 12,739 10,757 43,938 Income before income tax 655,754 44,341 840,781 372,155 Income tax expense (37,832) (16,669) (57,137) (35,011) Net income for the period 617,922 27,672 783,644 337,144 Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of overseas operations (72,769) (109,121) (67,429) 20,017 Total comprehensive income (loss) for the period 545,153 (81,449) 716,215 357,161 Net income for the period attributable to: Owners of the parent 578,393 12,978 725,139 291,268 Non-controlling interest 39,529 14,694 58,505 45,876 Net income for the period 617,922 27,672 783,644 337,144 Total comprehensive --- income (loss) for the period attributable to: Owners of the parent 505,930 (96,637) 657,942 308,083 Non-controlling interest 39,223 15,188 58,273 49,078 Total comprehensive income (loss) for the period 545,153 (81,449) 716,215 357,161 Net income per share - basic and diluted 0.003 - 0.004 0.002 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Three months ended November 30 Six months ended November 30 2 THERMAL ENERGY INTERNATIONAL INC. Condensed Consolidated Interim Statements of Changes in Equity For the six months ended November 30, 2025 and 2024 (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) - 130,612 - - 130,612 - 130,612 Share options excercised (note 15) 50,966 (17,116) - - 33,850 - 33,850 Dividends paid (note 16) - - - - - (58,040) (58,040) Transactions with owners 50,966 113,496 - - 164,462 (58,040) 106,422 Net income for the period - - 291,268 - 291,268 45,876 337,144 Other comprehensive income: exchange differences arising on translation of overseas operations - - - 16,815 16,815 3,202 20,017 Total comprehensive income for the period - - 291,268 16,815 308,083 49,078 357,161 Balance at November 30, 2024 33,298,603 4,773,275 (34,442,631) 305,613 3,934,860 (48,876) 3,885,984 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) - 123,276 - - 123,276 - 123,276 Share options excercised (note 15) 161,251 (93,751) - - 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 (23,613) 214,484 - - 190,871 (61,436) 129,435 Net income for the period - - 725,139 - 725,139 58,505 783,644 Other comprehensive income: exchange differences arising on translation of overseas operations - - - (67,197) (67,197) (232) (67,429) Total comprehensive income (loss) for the period - - 725,139 (67,197) 657,942 58,273 716,215 Balance at November 30, 2025 32,774,990 5,111,033 (33,935,594) 468,803 4,419,232 (6,632) 4,412,600 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 six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars) (Unaudited) 2025 2024 2025 2024 $ $ $ $ Operating activities: Net income for the period 617,922 27,672 783,644 337,144 Add items not involving cash: Depreciation of property, plant and equipment (note 8) 62,026 58,270 121,370 118,122 Loss on disposal of assets (note 8) - 178 - 178 Depreciation of right-of-use assets (note 9) 95,386 90,774 188,090 182,658 Amortization of intangible assets 10,122 36,417 28,982 79,990 Finance costs (note 20) 29,727 78,151 60,957 165,446 Finance revenue (4,836) (12,739) (10,757) (43,938) Share-based compensation (note 17) 61,638 65,306 123,276 130,612 Income tax expense 37,832 16,669 57,137 35,011 Unrealized foreign exchange and translation adjustments (89,864) (22,262) (108,423) 138,821 Changes in work --- ing capital: Trade and other receivables (2,744,892) (1,066,590) (2,802,051) (1,941,847) Prepaid expenses (248,485) 361,487 (384,792) 607,281 Inventory 91,175 11,169 65,743 (9,009) Trade payables and other liabilities 2,174,413 153,393 2,616,892 102,652 Deferred revenue (note 13) (1,856,773) (1,619,512) (548,477) (3,269,497) Income tax (paid) refunded (16,194) (7,982) (16,194) 87,907 Interest paid (30,059) (78,850) (63,116) (166,522) Interest received 4,836 12,739 10,757 43,938 Net cash (used in) provided by operating activities (1,806,026) (1,895,710) 123,038 (3,401,053) Investing activities: Additions to property, plant and equipment (note 8) (21,357) (13,013) (32,033) (33,305) Net cash used in investing activities (21,357) (13,013) (32,033) (33,305) Financing activities: Repayment of long-term debt (note 12) (129,831) (231,823) (259,642) (464,111) Repayment of lease obligations (note 14) (88,639) (77,132) (172,855) (154,335) Stock options exercised (note 15) 67,500 33,850 67,500 33,850 Repurchase of shares (note 15) (261,777) - (499,905) - Dividends paid (note 16) (61,436) - (61,436) (58,040) Net cash used in financing activities (474,183) (275,105) (926,338) (642,636) Decrease in cash and cash equivalents for the period (2,301,566) (2,183,828) (835,333) (4,076,994) Cash and cash equivalents, beginning of period 4,288,830 5,047,595 2,798,695 6,965,145 Exchange differences on cash and cash equivalents 18,397 (40,599) 42,299 (64,983) Cash and cash equivalents, end of period 2,005,661 2,823,168 2,005,661 2,823,168 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Three months ended November 30 Six months ended November 30 4 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (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 six months ended November 30, 2025 and 2024. 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 January 26, 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 Six months ended November 30, 2025 and 2024 (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 distributors. 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 Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 7 4. Segment reporting (continued): Segment information for the three months ended November 30, 2025 and the comparative period are detailed in the table below. Thermal Energy Ottawa Thermal Energy Bristol Reconciling Items Total 2025 $ 2024 $ 2025 $ 2024 $ 2025 $ 2024 $ 2025 $ 2024 $ Revenue 6,449,937 3,874,796 3,738,046 4,796,115 - - 10,187,983 8,670,911 Cost of sales (4,363,227) (2,824,054) (1,817,267) (2,973,920) - - (6,180,494) (5,797,974) Gross profit 2,086,710 1,050,742 1,920,779 1,822,195 - - 4,007,489 2,872,937 Other expenses (1,426,637) (1,063,972) (1,702,818) (1,458,252) (197,389) (240,960) (3,326,844) (2,763,184) Finance costs (20,674) (21,427) (5,239) (8,168) (3,814) (48,556) (29,727) (78,151) Finance revenue 4,836 12,739 - - - - 4,836 12,739 Income (loss) before income tax 644,235 (21,918) 212,722 355,775 (201,203) (289,516) 655,754 44,341 Income tax expense - - (37,832) (16,669) - - (37,832) (16,669) Net income (loss) for the period 644,235 (21,918) 174,890 339,106 (201,203) (289,516) 617,922 27,672 Attributable to: Owners of the parent 644,343 (20,061) 135,253 322,555 (201,203) (289,516) 578,393 12,978 Non-controlling interest (108) (1,857) 39,637 16,551 - - 39,529 14,694 Segment information for the six months ended November 30, 2025 and the comparative period are detailed in the table below. Thermal Energy Ottawa Thermal Energy Bristol Reconciling Items Total 2025 $ 2024 $ 2025 $ 2024 $ 2025 $ 2024 $ 2025 $ 2024 $ Revenue 9,882,446 6,670,354 7,155,316 10,469,947 - - 17,037,762 17,140,301 Cost of sales (6,597,538) (4,314,816) (3,243,322) (6,427,602) - - (9,840,860) (10,742,418) Gross profit 3,284,908 2,355,538 3,911,994 4,042,345 - - 7,196,902 6,397,883 Other expenses (2,458,539) (2,281,526) (3,251,276) (2,812,213) (596,106) (810,481) (6,305,921) (5,904,220) Finance costs (41,758) (43,399) (10,914) (17,064) (8,285) (104,983) (60,957) (165,446) Finance revenue 10,757 43,938 - - - - 10,757 43,938 Income (loss) before income tax 795,368 74,551 649,804 1,213,068 (604,391) (915,464) 840,781 372,155 Income tax expense - - (57,137) (35,011) - - (57,137) (35,011) Net income (loss) for the period 795,368 74,551 592,667 1,178,057 (604,391) (915,464) 783,644 337,144 Attributable to: Owners of the parent 795,469 69,968 534,061 1,136,764 (604,391) (915,464) 725,139 291,268 Non-controlling interest (101) 4,583 58,606 41,293 - - 58,505 45,876 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 8 4. Segment reporting (continued): Other expenses in Reconciling Items comprise the following: Three months ended November 30 Six months ended November 30 2025 $ 2024 $ 2025 $ 2024 $ Corporate administration costs 206,930 207,857 408,178 382,098 Share-based compensation 61,638 65,306 123,276 130,612 Professional fees 35,039 76,052 172,091 148,869 Depreciation of property, plant and equipment 62,026 58,270 121,370 118,122 Amortization of intangible assets 10,122 36,417 28,982 79,990 Foreign exchange gain (178,366) (202,942) (257,791) (49,210) Total 197,389 240,960 596,106 810,481 Corpo --- rate 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: November 30, 2025 May 31, 2025 Cash $ 2,005,661 $ 2,782,956 Cash equivalents - 15,739 Balance, end of period $ 2,005,661 $ 2,798,695 Cash equivalents consist of excess cash invested in guaranteed investment certificate. 6. Trade and other receivables: November 30, 2025 May 31, 2025 Trade receivables, gross $ 6,894,950 $ 3,495,104 Allowance for expected credit losses (5,197) (5,208) Trade receivables, net 6,889,753 3,489,896 Unbilled revenue 123,513 452,754 Contract assets 116,989 431,423 Sales tax and other miscellaneous receivables 170,358 124,489 Balance, end of period $ 7,300,613 $ 4,498,562 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (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 November 30, 2025, $73,308 (1.1%) of the Company’s trade receivables balance was over 90 days past due. $5,029 of the past due balance was impaired at November 30, 2025. 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 six months ended November 30, 2025, provisions of $5,197 were made as expected credit losses and recorded under administrative expense on the condensed consolidated interim statements of comprehensive income ($5,045 – November 30, 2024). For the six months ended November 30, 2025, $nil of the provisions was released due to the collection on the expected credit losses ($1,416 – November 30, 2024). The company did not write off the allowance for expected credit losses for the six months ended November 30, 2025 and November 30, 2024. Translation gain of $11 (loss of $242 – November 30, 2024) was recognized under exchange differences arising on translation of overseas operations. 7. Prepaid expenses: November 30, 2025 May 31, 2025 Prepayments for goods, equipment and projects $ 704,826 $ 268,452 Foreign government regulatory fees 113,549 140,553 Insurance 73,422 133,301 Rent 58,785 58,293 Other prepaid expenses 199,476 164,667 Balance, end of period $ 1,150,058 $ 765,266 8. Property, plant and equipment: During the six months ended November 30, 2025, the Company acquired property, plant and equipment of $32,033 ($33,305 – November 30, 2024) and the Company disposed of depreciated assets with a net book value of $nil for $nil proceeds, ($178 for $nil – November 30, 2024). Depreciation expense of $121,370 ($118,122 – November 30, 2024) was recognized under administration expense. Translation gain of $778 (gain of $9,538 – November 30, 2024) was recognized under exchange differences arising on translation of overseas operations. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended Nov --- ember 30, 2025 and 2024 (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 - 29,767 15,296 45,063 Depreciation (166,087) (20,385) (1,618) (188,090) Translation adjustments 9,351 (359) - 8,992 Balance, November 30, 2025 719,661 70,893 15,064 805,618 Offices Vehicles Equipment Total right-of-use assets $ $ $ $ Balance, June 1, 2024 1,180,389 95,079 4,158 1,279,626 Depreciation (161,247) (20,025) (1,386) (182,658) Translation adjustments 25,793 2,310 - 28,103 Balance, November 30, 2024 1,044,935 77,364 2,772 1,125,071 10. Short-term borrowings: 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. $Nil was utilized as at November 30, 2025 ($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. 11. Trade payables and other liabilities: Trade payables and other liabilities recognized in the statements of financial position can be summarized as follows: November 30, 2025 May 31, 2025 Trade payables $ 3,321,069 $ 1,510,899 Accruals 1,813,781 1,074,716 Obligations related to share purchases (note 15) - 500,000 Other government remittances payable 432,359 334,259 $ 5,567,209 $ 3,419,874 Included in accruals is $25,690 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. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 11 12. Long-term debt: November 30, 2025 May 31, 2025 (a) Term loan, bearing interest at 5.45% (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. 58,323 308,325 (b) Term loan (equivalent to GBP£6,178), bearing interest at 2.50%, repayable in monthly principal installments of $1,615 (equivalent to GBP£873) up to the maturity date, June 10, 2026. 11,429 21,072 Total long-term debt 69,752 329,397 Less: current portion (69,752) (327,757) Long term portion - $ 1,640 (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 November 30, 2025 (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 inte --- rest for the first 12 months and 2.50% thereafter and is repayable over 6 years. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 12 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 7,490,303 1,832,628 9,322,931 Decrease from revenue recognized (7,776,640) (2,094,768) (9,871,408) Translation adjustments 275 1,916 2,191 Balance, November 30, 2025 $ 1,716,635 $ 452,149 $ 2,168,784 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 5,784,804 1,317,286 7,102,090 Decrease from revenue recognized (8,675,757) (1,695,830) (10,371,587) Translation adjustments 24,436 12,366 36,802 Balance, November 30, 2024 $ 451,567 $ 660,531 $ 1,112,098 All amounts are short-term and is expected to be settled within the next reporting year. 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 six months ended November 30, 2024, increase from payments received in the amount of $383,150 and decrease from revenue recognized in the amount of $415,360 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. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 13 13. Deferred revenue (continued): • For the six months ended November 30, 2024, $2,530 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 November 30, 2024, $225,200 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 November 30, 2025 and May 31, 2025: November 30, 2025 May 31, 2025 Less than one year $ 404,705 $482,158 One to five years 919,112 912,783 Six t --- o ten years 30,085 115,300 Total undiscounted lease obligations 1,353,902 1,510,241 Less: impact of present value (211,738) (251,338) Less: current portion (328,280) (394,510) Long term portion $ 813,884 $864,393 During the six months ended November 30, 2025, the interest expense on lease obligations (see note 20) was $49,423 ($60,462 - November 30, 2024) and total cash outflow for leases was $251,871 ($233,543 - November 30, 2024), including $29,593 ($18,746 - November 30, 2024) for short-term leases. For the six months ended November 30, 2025 and 2024, 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. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 14 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: Six months ended November 30, 2025 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) 1,161,262 161,251 380,000 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 170,715,067 32,774,990 173,114,305 32,798,603 (1) For the six months ended November 30, 2025, the Company issued 1,161,262 shares following the exercise of 2,065,000 stock options. Out of 1,161,262 shares issued 750,000 shares were issued upon the exercise of 750,000 options for cash proceeds of $67,000, resulting in an increase to capital stock of $101,550 and a reduction in contributed surplus of $34,050. In addition, 411,262 shares were issued upon the exercise of 1,315,000 options using the net exercise method with no cash proceeds, resulting in an increase of capital stock of $59,701 and a reduction in contributed surplus of the same amount. For the six months ended November 30, 2024, 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 six months ended November 30, 2025, 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. 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 November 30, 2025, 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. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 15 16. Non-controlling interest in subsidiaries: During the six months ended November 30, 2025, 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 - November 30, 2024). 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 November 30, 2025 Three months ended November 30, 2024 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 - - (41,000) 0.16 Exercised (note 15) (2,065,000) 0.09 (380,000) 0.09 Outstanding, end of period 18,392,702 0.15 15,495,302 0.15 Options exercisable, end of period 10,287,400 0.15 8,939,707 0.13 Six months ended November 30, 2025 Six months ended November 30, 2024 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 - - (41,000) 0.16 Exercised (note 15) (2,065,000) 0.09 (380,000) 0.09 Outstanding, end of period 18,392,702 0.15 15,495,302 0.15 Options exercisable, end of period 10,287,400 0.15 8,939,707 0.13 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 16 17. Share based compensation (continued): The following tables summarize information about stock options outstanding at November 30, 2025: Options outstanding Options exercisable Range of exercise prices Number outstanding November 30, 2025 Weighted average remaining contractual life Weighted average exercise price Number exercisable at November 30, 2025 Weighted average exercise price 0.11 - 0.15 12,020,402 3.13 0.13 7,005,502 0.13 0.16 - 0.20 6,372,300 3.46 0.20 3,281,898 0.20 18,392,702 3.24 0.15 10,287,400 0.15 The following tables summarize information about stock options outstanding at November 30, 2024: Options outstanding Options exercisable Range of exercise prices Number outstanding November 30, 2024 Weighted average remaining contractual life Weighted average exercise price Number exercisable at November 30, 2024 Weighted average exercise price 0.08 - 0.10 2,065,000 0.99 0.09 2,065,000 0.09 0.11 - 0.15 7,005,502 2.51 0.13 5,709,908 0.13 0.16 - 0.20 6,424,800 4.46 0.20 1,164,799 0.20 15,495,302 3.11 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. 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. THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 17 17. Share based compensation (continued): 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 November 30, 2025 Three months ended November 30, 2024 Administration $ 51,699 $ 51,487 Selling, marketing and business development 9,939 13,819 $ 61,638 $ 65,306 Six months ended November 30, 2025 Six months ended November 30, 2024 Administration $ 103,398 $ 102,973 Selling, marketing and business development 19,878 27,639 $ 123,276 $ 130,612 18. Revenue: Three months ended November 30, 2025 Three months ended November 30, 2024 Sale of goods, equipment and services $ 3,557,957 $ 3,047,518 Services over time 626,194 535,465 Contracts for heat recovery projects 6,003,832 5,087,928 $ 10,187,983 $ 8,670,911 Six months ended November 30, 2025 Six months ended November 30, 2024 Sale of goods, equipment and services $ 8,141,983 $ 6,541,978 Services over time 1,127,619 1,003,685 Contracts for heat recovery projects 7,768,160 9,594,638 $ 17,037,762 $ 17,140,301 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 18 18. Revenue (continued): 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 November 30, 2024, $229,262 of services delivered at a point in time, that were previously reported as contracts for heat recovery projects, and $12,427 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 November 30, 2024, $465,112 of services delivered at a point in time, that were previously reported as contracts for heat recovery projects, and $38,746 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 administratio --- n expense are as follows: Three months ended November 30, 2025 Three months ended November 30, 2024 Depreciation of property, plant and equipment (note 8) $ 62,026 $ 58,270 Depreciation of right-of-use assets (note 9) 95,386 90,774 Amortization of intangible assets 10,122 36,417 Foreign exchange gain (178,366) (202,942) Six months ended November 30, 2025 Six months ended November 30, 2024 Depreciation of property, plant and equipment (note 8) $ 121,370 $ 118,122 Depreciation of right-of-use assets (note 9) 188,090 182,658 Amortization of intangible assets 28,982 79,990 Foreign exchange gain (257,791) (49,210) 20. Finance costs: Three months ended November 30, 2025 Three months ended November 30, 2024 Interest on indebtedness $ 3,813 $ 48,556 Interest on leases (note 14) 24,363 29,595 Other 1,551 - $ 29,727 $ 78,151 THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 19 20. Finance costs (continued): Six months ended November 30, 2025 Six months ended November 30, 2024 Interest on indebtedness $ 8,285 $ 104,984 Interest on leases (note 14) 49,423 60,462 Other 3,249 - $ 60,957 $ 165,446 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. 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: THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2025 and 2024 (Expressed in Canadian dollars except share amounts) 20 22. Related party transactions (continued): Three months ended November 30, 2025 Three months ended November 30, 2024 Salaries and other short-term employee benefits $ 266,326 $ 257,930 Share-based payments 22,203 24,921 $ 288,529 $ 282,851 Six months ended November 30, 2025 Six months ended November 30, 2024 Salaries and other short-term employee benefits $ 525,300 $ 505,684 Share-based payments 44,406 49,842 $ 569,706 $ 555,526 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 p --- eriod 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.