Mr. William Crossland reports

THERMAL ENERGY INTERNATIONAL CEO PROVIDES LETTER TO SHAREHOLDERS

Thermal Energy International Inc. has provided the following letter to shareholders from its chief executive officer William Crossland.

Dear shareholders,

With fiscal 2026 now behind us, I am pleased to share with you a couple of milestones as well as an update on the strategic initiatives we announced last September during our fiscal 2025 year-end earnings call. I will start with the two milestones.

First, we finished fiscal 2026 (our year ended May 31, 2026) with total order intake of $29.9-million, our highest ever for a fiscal year and a 27-per-cent increase year over year. This record order intake was fuelled by strong demand across multiple industries, largely from pharmaceuticals, food and beverage, and building materials, and by a very positive response to our streamlined HeatSponge turnkey offering, which I'll discuss in more detail later.

Second, over the past few years, we have used our operating cash flow to strengthen our balance sheet, maintaining healthy cash reserves and a solid working capital position while aggressively reducing debt. After repaying more than $3.9-million of term loans since May, 2022, I am pleased to share that last month, we finished repaying our existing term loans as planned. We have since borrowed approximately $240,000 (U.S.) to finance a new piece of equipment for our growing HeatSponge business.

Update on strategic initiatives

Last September, we set out a focused plan to scale the business and drive continued profitable growth. This plan included four core elements:

1. Introducing some new products and service extensions based on our existing technologies, including:
   1. Standardized equipment packages;
   2. Simplified turnkey projects; and
   3. Heat pump integration;
2. Developing extensive indirect sales channels in both North America and Europe;
3. Establishing HeatSponge manufacturing in Europe; and
4. Supercharging both direct and indirect sales with our carbon reduction and efficiency scoping tool platform.

Work is under way to develop a line of standardized, pre-engineered equipment packages for smaller or less complex projects that independent manufacturers' representatives can sell from a line card along with their other products and services. In parallel, we launched a streamlined HeatSponge turnkey offering that gives our internal team the opportunity to pursue larger, more strategic HeatSponge opportunities on a quicker, more repeatable basis. This initiative is already gaining traction: We previously announced roughly $5-million in simplified HeatSponge turnkey project orders in fiscal 2026, including two projects with a multinational building material company and three with a global nutrition company. More recently, in June of this year, we secured an additional $250,000 HeatSponge order from the same global nutrition customer.

Another exciting driver of our recent and potential growth that we have not discussed much previously is the integration of heat pumps into our turnkey heat recovery projects. This includes not only the supply and installation of heat pumps as part of one of our heat recovery projects, but also heat recovery projects that result from our customers implementing separate heat pump projects that can be supplied with our recovered heat. Our first heat pump integrated turnkey project, announced in September, 2024, with a leading pharmaceutical customer, used heat pumps to elevate the thermal energy recovered by Flu Ace and HeatSponge to much higher, more usable temperatures.

Previously, without heat pumps, many target sites could use only a small portion of the heat we recovered. With heat pumps, the usable heat for some sites more than doubles, significantly expanding our addressable opportunity.

On the indirect sales channel front, we are working to develop a network of IMRs which already sell and service industrial boiler and steam system products and have deep, long-standing relationships with end-users. We recently hired two indirect sales channel managers -- one for North America and one for Europe -- who will be responsible for driving this strategy in their respective markets. By leveraging IMRs for smaller equipment sales, we believe we can increase revenue with less investment while freeing our internal sales team to focus on larger, more strategic opportunities. As part of this strategy, we reorganized the North American sales team, and Ken Hardon, who joined us in January, 2023, as vice-president of sales for North America, is no longer with the company. We thank Ken for shepherding the sales team for the past three years and wish him the best.

We see significant opportunity to expand HeatSponge into Europe, an attractive and largely untapped market. Our initial approach is straightforward: our U.S. facility will supply components for assembly and testing in Europe, with the intention of shifting to contract manufacturing in Europe as volumes grow. Establishing local manufacturing should shorten lead times and improve cost competitiveness.

Finally, across all these initiatives, CREST is the accelerator. Our award-winning mobile platform identifies thermal energy savings and carbon reduction opportunities, speeds up quoting, and helps both our sales team and IMRs spot opportunities that might otherwise be missed.

Together, these initiatives position us to scale more efficiently, expand into new markets and convert more opportunities (both large and small) into profitable growth.

Investor relations update

We believe Thermal Energy is at an inflection point, and we have been actively expanding our profile with investors around the world.

In April, we were invited to participate in an exclusive three-day Toronto Stock Exchange-sponsored European road show featuring a select group of TSX- and TSX Venture Exchange-listed companies. The road show provided us the opportunity to introduce our story to a curated group of family offices and high-net-worth individuals in Zurich, Paris and London, with interests in the new energy economy.

In June, we were invited to present at the 2026 Canadian Climate Investor Conference, hosted by the TSX and TSX Venture Exchange, where leading clean technology companies met with climate-focused investors seeking opportunities to support the transition to a more sustainable future. In addition to participating in a panel discussion on decarbonization, the event provided us the opportunity to share our story with climate-focused investors here in Canada.

Also in June, I presented at Planet MicroCap Las Vegas, connecting with a highly targeted audience of microcap investors and fund managers through a formal presentation and a full schedule of one-on-one meetings.

In closing, I want to thank our shareholders for their continued confidence and support. We are excited about the opportunities ahead and look forward to sharing our continued progress with you.

Sincerely,

William Crossland,

President and chief executive officer

About Thermal Energy International Inc.

Thermal Energy provides energy efficiency and emissions reduction solutions to Fortune 500 and other large multinational companies. The company saves its customers money by reducing their fuel use and cutting their carbon emissions. Thermal Energy's proprietary and proven solutions can recover up to 80 per cent of energy lost in typical boiler plant and steam system operations while delivering a high return on investment with a short, compelling payback.

Thermal Energy is a fully accredited professional engineering firm with engineering offices in Ottawa, Canada, and Pittsburgh, United States, as well as Bristol, United Kingdom, with sales offices in Canada, the U.K., the U.S., Germany, Poland and Italy. By providing a unique mix of proprietary products together with process, energy and environmental engineering expertise, Thermal Energy can deliver unique, site-specific turnkey and custom engineered solutions with significant financial and environmental benefits for its customers.

Thermal Energy's common shares are traded on the TSX Venture Exchange under the symbol TMG, on the OTCQB under the symbol TMGEF and on the Frankfurt Open Market under the symbol EUW.

We seek Safe Harbor.