Financial statements
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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the three and six months period ended June 30, 2026 and June 30, 2025 (Unaudited) (Expressed in Canadian dollars)
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DRAFT Index CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION ............................................. 4 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS ......................................................................... 5 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS ......................................... 6 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY .............. 7 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS ........................................................... 8 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS .................................................. 9 `
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4 KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION June 30, 2026 Unaudited December 31, 2025 Audited ASSETS Current assets: Cash and cash equivalents $ 34,382,156 $ 21,418,827 Receivables and advances (Note 8) 72,705 29,333 Prepaid expenses 322,870 242,348 Marketable securities (Note 4) 903,231 1,080,736 35,680,962 22,771,244 Non-current assets: Fixed assets (Note 5) 1,057,148 973,440 Exploration and evaluation assets (Note 6) 44,883,046 35,955,394 Receivables (Note 8) 1,903,811 1,565,090 Right-of-use asset (Note 15) 44,437 63,481 Total assets $ 83,569,404 $ 61,328,649 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities (Note 10) $ 379,615 $ 439,009 Lease liability (Note 15) 40,840 39,107 Total current liabilities 420,455 478,116 Lease liability long term (Note 15) 21,524 42,386 Total liabilities 441,979 520,502 Shareholders’ equity: Share capital (Note 7) 169,408,501 142,266,459 Share to be issued on warrant exercise - 708,034 Reserves (Note 7) 58,993,085 60,116,370 Accumulated other comprehensive income 5,728,093 4,449,764 Deficit (151,002,254) (146,732,480) Total shareholders’ equity 83,127,425 60,808,147 Total liabilities and shareholders’ equity $ 83,569,404 $ 61,328,649 Nature of Operations (Note 1) Commitments (Note 12) Approved on Behalf of the Board of Directors: “Ron Miller” “James McDonald” Director Director -The accompanying notes are an integral part of these condensed consolidated interim financial statements-
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5 KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS -The accompanying notes are an integral part of these condensed consolidated interim financial statements- Three months ended June 30, Six months ended June 30, 2026 5 2025 2026 2025 General and administrative expenses Office and general (Note 10d) $ 1,493,931 $ 471,568 $ 2,930,098 $ 967,633 Professional fees 248,412 172,740 449,241 360,040 Management fees (Note 10) 340,000 60,000 400,000 120,000 Rent and occupancy costs 26,113 26,090 52,987 40,522 Regulatory and filing fees 90,801 35,800 131,786 84,730 Depreciation (Note 5) 8,761 7,788 17,308 17,267 Stock-based compensation (Note 7) 337,715 - 699,140 93,209 Loss before exploration and other Items 2,545,733 773,986 4,680,560 1,683,401 Exploration and evaluation Exploration expenditures (Note 6) (89,271) 92,356 225,646 322,824 (89,271) 92,356 225,646 322,824 Other Items IVA recovered (80,618) (51,851) (111,736) (71,672) Foreign exchange loss 24,202 29,848 39,077 36,615 Finance income (244,077) (16,366) (563,773) (56,257) (300,493) (38,369) (636,432) (91,314) Loss for the period 2,155,969 827,973 4,269,774 1,914,911 Basic and diluted loss per share (Note 7) $ (0.02) $ (0.01) $ (0.04) $ (0.03) Weighted average number of shares outstanding – basic and diluted (Note 7) 101,320,480 62,891,330 98,182,958 62,305,931
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6 KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS Three months ended June 30, Six months ended June 30, 2026 2025 2026 2025 Loss for the period $ 2,155,969 $ 827,973 $ 4,269,774 $ 1,914,911 Other comprehensive loss (income): Fair value changes to marketable securities arising during the period (Note 4) 184,439 87,332 177,505 (71,848) Item that will be reclassified to (earnings) or loss: Foreign currency translation differences of foreign operations (832,129) 1,093,178 (1,455,834) 1,271,912 Total other comprehensive loss (income): (647,690) 1,180,510 (1,278,329) 1,200,064 Comprehensive loss for the period $ 1,508,279 $ 2,008,483 $ 2,991,445 $ 3,114,975 -The accompanying notes are an integral part of these condensed consolidated interim financial statements-
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7 KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY -The accompanying notes are an integral part of these condensed consolidated interim financial statements-
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8 KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS Supplemental disclosure of cash and non-cash activities (Note 9) -The accompanying notes are an integral part of these condensed consolidated interim financial statements- Three months ended June 30, Six months ended June 30, 2026 2025 2026 2025 Cash flows from operating activities Loss for the period $ $ (2,155,969) $ (827,973) $ (4,269,774) $ (1,914,911) Add items not involving cash: Option based compensation (Note 7) 350,035 - 751,185 93,209 Accretion of lease liability 1,107 1,909 2,421 4,008 Depreciation (Note 5,15) 18,283 17,310 36,352 36,311 (1,786,544) (808,754) (3,479,816) (1,781,383) Changes in non-cash working capital balances: Receivable and advances (336,458) 243,684 (240,641) (195,374 ) Prepaid expenses 716,964 (55,657) (82,543) (117,367) Accounts payable and accrued liabilities (253,125) 144,831 (28,947) 163,669 (1,659,163) (475,896) (3,831,947) (1,539,707) Cash flows from financing activities Net proceeds from private placement and equity financing, net of issuance costs (Note 7) - 18,705,703 16,678,939 18,826,243 Proceeds from the exercise of options 5,500 - 119,250 - Proceeds from the exercise of warrants 3,773,986 - 7,424,177 - Lease payments (10,775) (10,775) (21,550) (21,550) 3,768,711 18,684,928 24,200,816 18,804,693 Cash flows from investing activities Investment in exploration and evaluation assets (4,065,425) (738,337) (7,341,047) (2,873,883) Investment in equipment (86,586) - (95,709) - (4,152,011) (738,337) (7,436,756) (2,873,883) Effect of foreign exchange rate changes on cash 12,708 21,037 31,216 49,978 Net change in cash and cash equivalents during the period (2,029,755) 17,501,732 12,963,329 14,441,081 Cash and cash equivalents, beginning of the period 36,411,911 2,306,797 21,418,827 5,367,448 Cash and cash equivalents, end of the period $ 34,382,156 $ 19,808,529 $ 34,382,156 $ 19,808,529
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9 KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 1 Nature of Operations Kootenay Silver Inc. and its wholly owned Mexican incorporated subsidiaries (the “Company”) is a Canadian exploration stage company incorporated under the Business Corporations Act (British Columbia). The address of the Company’s registered office is 910 - 810 West Pender St. Vancouver, British Columbia, Canada. The Company is currently listed on the TSX Venture Exchange (“TSX-V”) under the symbol “KTN”. The Company is focused on acquiring and exploring mineral properties principally located in Mexico, with the objective of identifying mineralized deposits economically worthy of subsequent development, mining or sale. These condensed consolidated interim financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future. While the Company has been successful in the past at raising funds, there can be no assurance that it will be able to do so in the future. The Company has predominately experienced operating losses and negative operating cash flows; operations of the Company having been primarily funded by the issuance of share capital. The Company expects to incur further losses in the development of its business. Management has estimated that the Company has sufficient financing to complete current work plans; however, future development will require additional financing in order to complete all anticipated exploration and other programs during the forthcoming year and thereafter. The business of mining and exploration involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable mining operations. The recoverability of resource property expenditures is dependent upon sever al factors. These include the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of these properties, and future profitable production or proceeds from disposition of mi neral properties. The Company will need access to capital to continue advancing its projects in Mexico. These condensed consolidated interim financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments to the carrying values of assets and liabilities would be necessary. Such adjustments may be material. Six months ended June 30, 2026 Year ended December 31, 2025 Loss $ 4,269,774 $ 6,365,345 Working capital $ 35,260,507 $ 22,293,128
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 10 2 Basis of Presentation: Statement of Compliance These condensed consolidated interim financial statements, including comparatives have been prepared in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board (“IASB”), and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). These condensed consolidated interim financial statements are for the six months ended June 30, 2026 and 2025, and have been prepared in accordance with IAS 34 "Interim Financial Reporting" as issued by the International Accounting Standards Board (“IASB”). They do not include all the information required in annual financial statements in accordance with IFRS® and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2025. The policies applied in these condensed consolidated interim financial statements are consistent with the accounting policies disclosed in Notes 2 and 3 of the audited consolidated financial statements for the year ended December 31, 2025. These condensed consolidated financial statements were authorized for issue by the Audit Committee of the Board of Directors on August 27, 2026. Functional and presentation currency These condensed consolidated interim financial statements are presented in Canadian dollars. Under IFRS, the Canadian dollar is the functional currency of the Company and its wholly owned subsidiaries, Northair Silver Corp. The functional currency of wholly owned subsidiaries of the Company, Minera JM S.A. de C.V. , Grupo Northair de Mexico S.A. de C.V. and Kootenay Gold (US) Corp., is the US dollar and for Servicios de Exploraciones Sonora, S.A. de C.V., is the Mexican Peso. Assets and liabilities of the subsidiaries with a functional currency in US dollars and Mexican pesos are translated at the period-end exchange rates, and the results of its operations are translated at average exchange rates for the period. The resulting translation adjustments are recorded in accumulated other comprehensive loss (income) in shareholders’ equity. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in accumulated other comprehensive loss. 3 Material Accounting Policies: The material accounting policies, significant estimates and judgements applied in the preparation of these condensed consolidated interim financial statements are consistent with the accounting policies disclosed in Note 3 of the audited consolidated financial statements for the year ended December 31, 20 25, except if noted below. These condensed consolidated interim statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2025. New Accounting Standards Issued but not yet Effective: Presentation and Disclosure in Financial Statements (IFRS 18) In April 2024, the IASB issued amendments to IFRS 18, Presentation and Disclosure in Financial Statements. These amendments, which replaces IAS 1, impacts the presentation of primary financial statements and notes, mainly the income statement, where companies will be required to present separate categories of income and expense for operating, investing, and financing activities with prescribed subtotals for each new category. IFRS 18 will require management-defined performance measures to be explained and included in a separate note within the consolidated financial statement. The standard is effective for financial statements beginning on January 1, 2027, including interim financial statements and requires retrospective application. The Company is currently evaluating the impact of these amendments on its financial statements.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 11 3 Material Accounting Policies (continued): New Accounting Standards Issued but not yet Effective (continued): Amendments to the Classification and Measurement of Financial Instruments - Amendments to IFRS 9 and IFRS 7 In May 2024, the IASB issued targeted amendments to IFRS 9 and IFRS 7, Classification and Measurement of Financial Instruments. These amendments: • clarify the date of recognition and derecognition of some financial assets and liabilities, including a new exception for certain financial liabilities settled through an electronic payment system; • clarify and add further guidance for assessing whether a financial asset meets the solely payments of principal and interest ("SPPI") criterion; • add new disclosures for certain instruments with contractual terms that can change cash flows (such as some financial instruments with features linked to the achievement of environment, social and governance targets); and, • update the disclosure requirements for equity instruments designated at fair value through other comprehensive income. The amendments are effective for annual periods beginning on or after January 1, 2026 with early application permitted, and did not have a material impact on the Company’s financial statements. 4 Marketable Securities As at June 30, 2026, the fair value of marketable securities held was $ 903,231 (December 31, 2025 – $1,080,736) related to investments in publicly traded companies which was issued to the Company in consideration of various property earn-in option agreements. During the six months ended June 30, 2026, the Company recorded in other comprehensive loss, a loss of $177,505 (June 30, 2025 – a gain of $71,848) for fair value adjustments to marketable securities.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 12 5 Fixed Assets: Vehicle Office Equipment Machinery &Computer Equipment Land Total Cost Balance December 31, 2024 $ 266,329 $ 67,252 $ 504,399 $ 803,304 $ 1,641,284 Addition - - 33,229 - 33,229 Disposal - - - - - Effect of foreign exchange (4,524) - (15,003) - (19,527) Balance December 31, 2025 $ 261,805 $ 67,252 $ 522,625 $ 803,304 $ 1,654,986 Addition - 9,214 86,495 - 95,709 Effect of foreign exchange 5,157 9,122 1,910 - 16,189 Balance June 30, 2026 $ 266,962 $ 85,588 $ 611,030 $ 803,304 $ 1,766,884 Accumulated Depreciation Balance December 31, 2024 $ 196,444 $ 63,789 $ 397,922 $ - $ 658,155 Depreciation for the period 12,565 3,517 18,136 - 34,218 Disposal - - - - - Effect of foreign exchange (16,174) (2,825) 8,172 - (10,827) Balance December 31, 2025 $ 192,835 $ 64,481 $ 424,230 $ - $ 681,546 Depreciation for the period 6,804 2,184 8,320 - 17,308 Effect of foreign exchange (2,322) (1,907) 15,111 - 10,882 Balance June 30, 2026 $ 197,317 $ 64,758 $ 447,661 $ - $ 709,736 Carrying value December 31, 2025 $ 68,970 $ 2,771 $ 98,395 $ 803,304 $ 973,440 Carrying value June 30, 2026 $ 69,945 $ 20,830 $ 163,369 $ 803,304 $ 1,057,148
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 13 6 Exploration and evaluation assets:
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 14 6 Exploration and evaluation assets (continued): Columba – Chihuahua State, Mexico On November 12, 2018, the Company entered into an option agreement to acquire a 100% undivided interest in the Columba project. The Company having fulfilled its requirements under the option agreement through staged payments totalling US$3,290,000 of which US$215,000 was settled by issuing 245,233 common shares during 2023 and completed work commitments, holds 100% of the Columba project. Under the acquisition agreement t he vendors retain a 2% net smelter royalty of which 1% can be purchased by the Company for US$750,000. The Company has registered a surface access agreement which allows exploration and exploitation until December 31, 2047. Under the surface agreement which includes annual operating payments, certain bonus payments and for a 2% net smelter royalty of which 1% can be bought by the Company for US$4,500,000. La Cigarra – Chihuahua State, Mexico The Company acquired the La Cigarra project through the acquisition of Northair and its wholly owned Mexican subsidiary Grupo Northair. The La Cigarra project is 100% owned by the Company with no underlying royalty on the resource. However certain concessions are subject to a 1% net smelter royalty under an agreement with DFX Exploration Ltd. (the “DFX Agreement”). Pursuant to the terms of the DFX Agreement, a royalty will be paid of $0.10 per silver equivalent ounce from production to a maximum of 185 million ounces from the Parral 2 concession. During the year ended December 31, 2022, the Company recorded an impairment expense for accounting purposes of $36,882,567 to the carrying value of La Cigarra. The Company maintains the project in good standing. The recognition of impairment was determined primarily due to a lack of financing and no significant exploration work planned at the time . During the six month s ended June 30, 2026 , the Company announced a positive Preliminary Economic Assessment (“PEA”) on this project. Promontorio – Sonora State, Mexico The Company entered into an agreement on October 20, 2006 with Siete Campanas de Plata, S.A de C.V. (“Siete”), Exploration Canada De Oro, SA de CV (“ECO”) and the Mexican Government Agency (“FIFOMI”) to acquire an unencumbered 100% registered and beneficial interest in the Promontorio Concession, which includes the former producing Promontorio Mine Site. Upon completion of a bankable feasibility study or commencement of production, the Company must pay the remaining cash balance of US$210,000 to ECO. A 1% net smelter royalty is payable to Siete on the core claims of Promontorio of which the Company can purchase 50% of this net smelter royalty at any time for US$500,000. The Company also has a right of first refusal to purchase the remaining 50% of this royalty. Additionally, a 2% net smelter royalty is payable to ECO on the core and surrounding claims. The Company may upon commencement of commercial production or sooner purchase 50% of this net smelter return for US$1,000,000. The Company also has a r ight of first refusal on the remaining 50% of this royalty. During the year ended December 31, 2022, the Company recorded an impairment expense for accounting purposes of $33,693,642 to the carrying value of Promontorio. The Company maintains the project in good standing. The recognition of impairment was determined appropriate at that time primarily due to the lack of financing and as a result no significant exploration was planned or conducted within the year ended December 31, 2022. The Company is reviewing alternatives to advance the property, which may include conducting work on the property or optioning or partnering with a third party for further development of the property.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 15 6 Exploration and evaluation assets (continued): Hercules Chihuahua State, Mexico The Company entered into an option agreement to acquire 100% ownership in the Hercules project on May 25, 2026 based on a letter of intent signed on November 4, 2025 with a group of arms-length private Mexican concession holder s. Under the terms of t he option agreement the Company is required to make total cash payments of US$925,000 over a 4 year period. The initial payment of US$83,525 has been paid related to historic concession taxes. On signing of the option agreement US$6,000 has been paid. The balance of the payments will be made on the anniversary date for the next 4 years with US$10,475 due on the first anniversary. Property Investigation and Impairment During the period ended June 30, 202 6, the Company expended $ nil (2025 - $nil) related to other property investigation expense and $225,646 (2025 - $322,824) related to exploration expenditures incurred on previously impaired properties that are still held by the Company. The Company reviews periodically for indicators of impairment and impairment reversal in the carrying value of its mineral assets. During the six months ended June 30, 2026, no impairment was identified. Title to mineral property interests Although the Company has taken steps to verify the title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects. 7 Share Capital and Reserves: Authorized share capital and share consolidation: The authorized share capital is an unlimited number of common shares without par value. All issued shares, consisting of only common shares are fully paid. There were 102,713,198 (2025 – 88,262,390) fully paid common shares on issue as at June 30, 2026. Issued: Six months ended June 30, 2026 On February 10, 2026, the Company closed a "bought deal" private placement (the “Offering”) for gross proceeds of $18,000,002 which includes the exercise in full of the over-allotment option and incurred cash shares issuance cost of $ 1,080,000. Pursuant to Offering, the Company sold 8,000,001 common shares of the Company ( the “Offered Shares”) at a price of $2.25 per Offered Share (the “Offering Price”). The underwriters of the Offering received aggregate cash fees of C$1,080,000 and 480,000 non -transferable common share purchase warrants (the "Broker Warrants"). Each Broker Warrant is exercisable to acquire one common share of the Company at the Offering Price at any time on or before February 10, 2028. During the six months ended 6,298,307 warrants were exercised for gross proceeds of $7,423,077 with 4,166,427 warrants expiring unexercised. Additionally, 117,500 options were exercised for gross proceeds of $119,250. Year ended December 31, 2025 During the year ended December 31, 2025, under the terms “at-the-market” equity distribution program (the “ATM Program”) as announced on July 10, 2024, the Company issued 500,000 shares under the ATM program for gross proceeds of $708,172 and incurred cash shares issuance costs of $17,704 for net proceeds of $690,468.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 16 7 Share Capital and Reserves (continued): During the year ended December 31, 2025, 448,205 common shares were issued upon exercise of share options for gross proceeds of $471,276 and 6,111,942 common shares were issued upon exercise of warrants for gross proceeds of $8,055,929. Additionally, the Company received $708,034 for the exercise of warrants which were issued subsequent to December 31, 2025. On July 21, 2025, the Company announced stock options have been granted to officers, directors, employees, and consultants to purchase up to an aggregate of 2,500,000 shares and issued restricted share and deferred units totalling 1,500,000 common shares. The stock options have been granted at a n exercise price of $1.10 per common share for a period of five years. On August 22, 2025, the Company announced 250,000 stock options have been granted to a consultant to the Company at an exercise price of $1.19 per common share for a period of two years. On June 27, 2025, the Company closed a bought deal public offering (the “Shelf Offering”) for gross proceeds of up to $20,010,690, which consisted of a sale of up to 19,057,800 units of the Company (each, a “Shelf Unit”) including the full exercise of the over-allotment option, at a price of $1.05 per Unit (the “Shelf Offering Price”). The Company recorded $1,479,160 in cash share issuance costs and $784,589 being the fair value of 1,114,897 finders warrants issued, at an exercise price of $1.05 , from the Shelf Offering . Each Shelf Unit consisted of one common share of the Company and one -half Common Share purchase warrant (each whole warrant, a “Shelf Warrant”). Each whole Shelf Warrant entitles the holder to purchase one Common Share of the Company at a price of $1.58 a t any time before June 27, 2028. The net proceeds will be used for the advancement of the Company’s Columba Silver Project as well as for general working capital and corporate purposes. Additionally, an aggregate total of 4,909,308 share purchase warrants with an average exercise price of $2.04 per share purchase warrant expired unexercised. Options and Warrants: Stock option and share purchase warrant transactions are summarized as follows: Warrants Options Number Weighted Average Exercise Price Number Weighted Average Exercise Price Outstanding, December 31, 2024 21,172,279 $ 1.54 3,300,000 $ 1.35 Granted 10,643,797 1.52 2,750,000 1.11 Exercised (6,111,942) 1.32 (448,205) 1.05 Expired (4,909,308) 2.04 - - Outstanding, December 31, 2025 20,794,826 $ 1.48 5,601,795 $ 1.25 Granted 605,955 2.25 - - Exercised (6,298,307) 1.29 (117,500) 1.01 Expired (4,166,427) 1.40 - - Outstanding, June 30, 2026 10,936,047 $ 1.56 5,484,295 $ 1.26
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 17 7 Share Capital and Reserves (continued): Warrants As at June 30, 2026, the Company had outstanding share purchase warrants, enabling holders to acquire common shares as follows: Number of Warrants Exercise Price Expiry Date 9,341,150 1.58 June 27, 2028 1,114,897 1.05 June 27, 2028 480,000 2.25 February 10, 2028 10,936,047 The weighted average remaining life of the outstanding warrants is 1.98 years (December 31, 2025 – 1.42 years). The fair value of warrants is estimated using the Black Scholes option -pricing model. Warrants are included in reserves until exercised, at which time they are transferred into share capital. The following assumptions were used for the Black-Scholes option pricing model for the six months ended June 30, 2026 and for the year ended December 31, 2025. 2026 2025 Risk-free interest rate 2.42% 2.66% Expected life of warrants 24 months 24 mo 36 months Annualized volatility 78% 91% Dividend rate 0.00% 0.00% Option pricing models require the input of highly subjective assumptions, including the expected price volatility. The Company has used historical volatility in its share price to estimate expected volatility. Changes in the subjective input assumptions can materially affect the fair value estimated. Options / Restricted and Deferred Share Units The Company has adopted an incentive stock option plan under the rules of the TSX -V pursuant to which it is authorized to grant options to executive officers, directors, employees and consultants, enabling them to acquire up 10% of the issued and outstanding common shares of the Company. Under the plan, the exercise price of each option is equal to the market price of the Company’s shares on the date of grant. The options can be granted for a maximum term of 10 years and generally vest 25% in specified increments. No individual may hold options to purchase common shares of the Company exceeding 5% of the total number of common shares outstanding from time to time. During the six months ended June 30, 2026, stock-based compensation including options, restricted and deferred share units totalling $1,089,457 (2025 - $157,881) of which $ 338,272 (2025 - $64,672) was capitalized under mineral properties, $699,140 (2025 –$93,209) was expensed under stock-based compensation and $52,045 (2025 – $nil) under consulting. As at June 30, 2026, 4,987,488 options (December 31, 2025 – 4,517,669) with a weighted average exercise price of $1.27 per option (December 31, 2025 - $1.29) were fully vested and exercisable.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 18 7 Share Capital and Reserves (continued): During the six months ended June 30, 2026, the Company issued 35,000 common shares related to granted and fully vested RSUs. As at June 30, 2026, the Company had outstanding stock options enabling holders to acquire common share s of the Company as follows: Number of Options Exercise Price Expiry Date 65,000 $ 2.70 July 06, 2026(1) 2,095,000 1.55 January 12, 2028 981,250 0.90 March 6, 2029 2,093,045 1.10 July 18, 2030 250,000 1.19 August 21, 2027 5,484,295 (1) Subsequent to June 30, 2026, expired unexercised. The weighted average remaining life of the options is 2.7 years (December 31, 2025 – 3.2 years). For stock options granted to employees, officers, directors and consultants, share based payment expense is measured at fair value and recognized over the vesting period from the date of grant. The fair value of stock options granted during the year ended December 31, 2025 were estimated using the Black -Scholes option-pricing model with the following weighted-average assumptions: 2025 Risk-free interest rate 2.70-3.00% Expected life of options 2-5 years Exercise price per option granted $1.10-1.19 Annualized volatility 86-82.0% Dividend rate 0.00% Option pricing models require the input of highly subjective assumptions, including the expected price volatility. The Company has used historical volatility in its share price to estimate expected volatility. Changes in the subjective input assumptions can materially affect the fair value estimated. RSU and DSU transactions are summarized as follows: Number of RSUs Number of DSUs Outstanding, December 31, 2025 910,000 1,045,000 Settled in common share (35,000) - Outstanding, June 30, 2026 875,000 1,045,000 Loss per share The calculation of basic loss per share for the six months ended June 30, 2026 was based on the loss of $4,269,774 (2025 - $1,914,911) and the weighted average number of common shares outstanding of 98,182,958 (2025 – 62,305,931), respectively. The Company does not have any instruments that would give rise to a dilution effect as of June 30, 2026 and 2025. As at June 30, 2026, the Company has 5,484,295 options (2025 – 3,300,000) 1,920,000 (2025 – 1,955,000) restricted and deferred share units and 10,936,047 warrants (2025 – 27,683,739) that are anti- dilutive and thus, not included in diluted loss per share.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 19 8 Receivables and Advances: The Company’s receivables are as follows: June 30, 2026 December 31, 2025 Net IVA/GST receivable $ 1,903,811 $ 1,565,090 Other receivable 72,705 29,333 Total $ 1,976,516 $ 1,594,423 During the six months ended June 30, 2026, the Company collected $111,736 IVA refund (2025 - $71,672). As at June 30, 2026 the Company held $1,903,811 (2025 - $1,565,090) of IVA & GST receivable as non-current assets based on the expected timing of realization. 9 Supplemental Disclosure of Cash and Non-Cash Activities: The following transactions incurred during the period did not include cash: June 30, 2026 June 30, 2025 Option based compensation capitalized in mineral property (Note 7) $ 338,272 $ 64,672 Mineral property costs included in accounts payable $ 50,213 $ 91,736 10 Related Party Transactions and Balances: Except as disclosed elsewhere in these consolidated financial statements the following related party transactions were incurred in the normal course of business and were measured at the exchange amount. Key management renumeration: Key management personnel comprise the Company’s Board of Directors and executive officers. June 30, 2026 June 30, 2025 Management fees charged by companies controlled by officers (a and b) $ 977,500 $ 305,272 Director fees (c) 45,500 40,000 $ 1,023,000 $ 345,272 a) The Company has entered into a consulting agreement dated January 1, 2008 with Makwa Exploration Ltd. (“Makwa”) for the services of James McDonald to act as the Company’s President and CEO. The base monthly fee for Makwa was amended to $22,917 effective January 1, 2026. b) The Company capitalized $577,500 (June 30, 2025 - $185,272) under Geological consulting and prospecting exploration expenditures related to management fees and bonuses.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 20 10 Related Party Transactions and Balances (continued): c) For the six months ended June 30, 202 6, the Company incurred $45,500 (June 30, 2025 - $40,000) for compensation to directors and is recorded under the office and general line . As at June 30, 2026, $45,500 (June 30, 2025 - $40,000) was held in accrued liabilities as owing to directors for compensation. In addition to the above: d) For the six months ended June 30, 2026, the Company recorded $ 458,628 (2025 - $78,607) for non-cash stock-based compensation to officers and directors of the Company, related to the vesting of stock purchase options, of which $99,565 (2025 – $28,584) was recorded under exploration and evaluation assets. Related party balances are non-interest bearing with no specific terms of repayment and are unsecured. 11 Segmented Information: The Company has one reportable operating segment, being the acquisition and exploration and future development of mineral properties. The Company’s current assets, non -current assets, current liabilities, and mineral properties and non-current liabilities by geographic location are as follows: June 30, 2026 December 31, 2025 Canada: Current assets $ 34,191,466 $ 21,371,882 Non-current assets 1,033,939 915,613 Current liabilities (378,692) (440,148) Non-current liabilities (21,524) (42,386) $ 34,825,189 $ 21,804,961 Mexico: Current assets $ 1,489,496 $ 1,399,362 Mineral properties 44,883,046 35,955,394 Non-current assets excluding mineral properties 1,971,457 1,686,398 Current liabilities (41,763) (37,968) $ 48,302,236 $ 39,003,186 12 Commitments: The Company entered into various contracts for office and warehouse rent in Canada and Mexico. The following table summarizes the Company's total annual obligations under these agreements as at June 30, 2026: Year 2026 $ 47,830 2027 $ 47,474
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 21 13 Financial Instruments and Financial Risk Management: The Company’s financial instruments include cash and cash equivalents, receivable and advances, marketable securities, accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to the short -term to maturity and are measured at amortized cost except for marketable securities, which are measured at fair value through other comprehensive income at each reporting period end. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities. The Company has exposure to credit risk, liquidity risk and market risk as a result of its use of financial instruments. This note presents information about the Company’s exposure to each of the above risks and the Company’s objectives, policies and processes for measuring and managing these risks. Further quantitative disclosures are included throughout these condensed consolidated interim financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has implemented and monitors compliance with risk management policies. (a) Credit risk: Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to cash and receivables. The Company maintains its cash with high -credit quality financial institutions The Company’s accounts receivable relates to receivables from exploration partners who are earning a right to the Company’s property via earn -in option agreements. (b) Liquidity risk: Liquidity risk is the risk that the Company will incur difficulties meeting its financial obligations as they are due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation. The Company prepares annual expenditure budgets, which are regularly monitored and updated as considered necessary. To facilitate its expenditure program, the Company raises funds through private equity placements. The Company anticipates it will have adequate liquidity to fund its financial liabilities. As at June 30, 2026, the Company’s liabilities were comprised of accounts payable and accrued liabilities and short term lease liabilities, which have a maturity of less than one year, and long term lease liability which have a maturity within the next two years. (c) Market risk: Market risk consists of currency risk, commodity price risk and interest rate risk. The objective of market risk management is to manage and control market risk exposures within acceptable limits while maximizing returns.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 22 13 Financial Instruments and Financial Risk Management (continued): (i) Currency risk: Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although the Company is considered to be in the exploration stage and has not yet developed commercial mineral interests, the underlying market prices in Canada for minerals are impacted by changes in the exchange rate between the Canadian dollar, the United States dollar and the Mexican Peso. The Company’s transactions are denominated in Canadian dollars, United States dollars and the Mexican Peso . The Company has not entered into any arrangements to hedge currency risk but does maintain cash balances within each currency. Canadian dollars are exchanged when needed to meet foreign denominated liabilities. The balances denominated in foreign currency are as follows: June 30, 2026 December 31, 2025 US$ US$ Cash and cash equivalents 808,721 333,110 Trade accounts payable and accrued liabilities 32,248 65,606 Mexican Peso Mexican Peso Cash and cash equivalents 1,246,778 6,417,829 Receivables and advances 584,568 83,898 Trade accounts payable and accrued liabilities 699,789 667,909 USD closing rate:1.3706 MXN closing rate:0.07622 The Company has completed a sensitivity analysis to estimate the impact of the change in the foreign exchange rates on net loss for the period. The result of the sensitivity analysis shows a change in +/- 10% in the US Dollar and Mexican Peso exchange rate could have a collective impact of approximately +/- $119,541 (December 31, 2025 - $81,130). This result arises primarily because the Company has Mexican Peso denominated cash accounts, accounts receivable and short term liabilities. The actual results of a change in foreign exchange rates would depend on the foreign currency denominated assets and l iabilities at the time and could cause the impact on the Company’s results to differ from above. (ii) Commodity price risk: Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for minerals are impacted by world economic events that dictate the levels of supply and demand as well as the relationship between the Canadian and United States dollar, as outlined above. The Company is expo sed to the price volatilities for precious and base metals that could significantly impact its future operating cash flow. As part of its routine activities, management is closely monitoring the trend of international metal prices. (iii) Interest rate risk: Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The risk that the Company will realize a loss as a result of a decline in the fair value of cash and cash equivalents is limited because o f their short -term investment nature. A variable rate of interest is earned on cash and cash equivalents, changes in market interest rates at the period-end would not have a material impact on the Company’s consolidated financial statements.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 23 13 Financial Instruments and Financial Risk Management (continued): e) Fair value of financial instruments The Company classifies its financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair value: June 30, 2026 Level 1 Level 2 Level 3 Total Marketable securities $ 903,231 $ - $ - $ 903,231 December 31, 2025 Level 1 Level 2 Level 3 Total Marketable securities $ 1,080,736 $ - $ - $ 1,080,736 Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). There were no transfers between levels during the period ended June 30, 2026. The Company’s carrying values of cash and cash equivalents, receivables and advances and accounts payable and accrued liabilities approximate their fair value due to their short-term nature. 14 Capital Management: The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to maintain a flexible capital structure which will allow it to pursue the development of its mineral properties. Therefore, the Company monitors the level of risk incurred in its mineral property expenditures relative to its capital structure. The Company’s capital structure include s working capital and shareholders’ equity. The Company monitors its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to facilitate the management of capital and the development of its mineral properties, the Company prepares annual expenditure budg ets, which are regularly monitored and updated as considered necessary. To maintain or adjust the capital structure, the Company may issue new equity if available on favourable terms, option its mineral properties for cash and/or expenditure commitments from optionees enter into joint venture arrangements or dispose of mineral properties. The Company’s investment policy is to hold cash in interest bearing, bank accounts and highly liquid short -term interest-bearing investments, with maturities of one year or less which can be liquidated at any time without penalties. The Company is not subject to externally imposed capital requirements. There has been no change in the Company’s approach to capital management during the six months ended June 30, 2026.
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KOOTENAY SILVER INC. (Unaudited - Expressed in Canadian dollars) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS June 30, 2026 and 2025 24 15 Right of use asset and lease liability: On September 1, 2024 t he Company entered into office leases that resulted in right -of-use assets and lease liabilities. The balances are as follows: Right-of-use assets: Balance, December 31, 2025 $ 63,481 Lease additions - Amortization (19,044) Balance, June 30, 2026 $ 44,437 Lease liabilities: Balance, December 31, 2025 $ 81,493 Lease accretion 2,421 Lease payments (21,550) Balance, June 30, 2026 $ 62,364 Short term portion, lease liability 40,840 Long term portion, lease liability $ 21,524