Mr. James Bond reports

KELSO TECHNOLOGIES INC. FINANCIAL RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2023

Kelso Technologies Inc. has released its unaudited consolidated interim financial statements and management's discussion and analysis for the six months ended June 30, 2023.

The unaudited consolidated interim financial statements were prepared in accordance with international financial reporting standards (IFRS) as issued by the International Accounting Standards Board (IASB). All amounts herein are expressed in U.S. dollars (the company's functional currency) unless otherwise indicated.

The company's unaudited consolidated financial statements and MD&A for the six months ended June 30, 2023, were approved by the board of directors on Aug. 9, 2023.

Liquidity and capital resources

As at June 30, 2023, the company had cash on deposit in the amount of $1,777,525, accounts receivable of $949,319, prepaid expenses of $162,891 and inventory of $3,721,672, compared with cash on deposit in the amount of $2,712,446, accounts receivable of $1,381,979, prepaid expenses of $92,768 and inventory of $4,144,196 as at Dec. 31, 2022.

The company had income tax payable of $22,524 at June 30, 2023, compared with $30,626 at Dec. 31, 2022.

The working capital position of the company as at June 30, 2023, was $5,448,575, compared with $7,000,568 as at Dec. 31, 2022. The company's gross profit margins declined due to the distribution of a new varied product mix and general economic conditions. Capital resources and operations are expected to continue the company's ability to conduct continuing business as planned for the foreseeable future.

Net assets of the company were $8,947,876 as at June 30, 2023, compared with $10,781,672 as at Dec. 31, 2022. The company had no interest-bearing long-term liabilities or debt as at June 30, 2023, or Dec. 31, 2022.

Outlook

During the first half of 2023, the owners and shippers that utilize rail tank cars continue to cautiously consider the timing and investment in new tank car equipment and/or the requalification of their existing rail tank car fleets. Industry experts anticipate that new car production will track replacement demand for the 438,000-tank-car fleet estimated to be in the range of 7,000 to 10,000 new cars per year. Rail tank car requalifications activities will be in the range of 40,000 to 50,000 cars per year for the next several years.

Rail tank car activity requiring Kelso components has remained mostly unchanged based on general economic recoveries and manufacturing supply chain disruptions that may require an increase in rail tank car transportation solutions. Traditional foreign supply chains in the rail tank car industry have become unreliable. The company's 100-per-cent-American-made reputation and a new distribution agreement with a third party producer of rail tank equipment give the company additional competitive capabilities. The company's proven ability to service customer orders even during the most challenging of times have improved Kelso's reputation and brand recognition as a reliable go-to primary supplier.

Rail industry projections indicate that the rail tank car market is in a period of modest fleet growth in rail tank car utilization. Industry analysts predict new tank car volume rate at approximately 7,000 to 10,000 tank cars in 2023. For the first half of 2023, approximately 4,100 new rail tank cars were produced and delivered.

Management believes that there are significant opportunities to grow from the introduction of new innovative products in both the rail and automotive industries that are emerging from the company's R&D (research and development) activities. The company continues to research, develop and engineer promising new transportation related equipment. In the heavily regulated transportation industries, the company's R&D projects are complex, time consuming and expensive. The primary purpose of its R&D investments is to advance and elevate the probability of future financial successes from a larger and more diverse product line.

Several new rail products currently in AAR service field trials continue to progress well during the first and second quarters of 2023. The company anticipates regulatory progress in 2023 that can lead to new revenue sources when full approval and early AAR vetted conditional sales to qualified customers are permitted.

The KXI HD prototype vehicle has been completed and initial testing activities are above expectations. All mechanical and hydraulic components are proven technologies that are sourced from well-established OEM (original equipment manufacturer) suppliers and stakeholders. Component designs have been scaled from existing uses in military and commercial applications to fit the specifications of KXI HD. The prototype vehicle has been commissioned with the company's proprietary encryption protected Road-To-No-Road wilderness driver assistance software, which encompasses the company's trademarks, PreciseRide and AdaptiveGrip. The commissioned prototype vehicle is currently going through extensive software and engineering commissioning and integrity testing in preparation for Canadian motor vehicle safety standards (CMVSS) compliance testing.

Once KXI HD has its commercial design specifications completed, the final design will have to attain full proprietary rights and compliance with the CMVSS. Successful completion of the CMVSS requirements should allow the company to meet the federal motor vehicle safety standards (FMVSS) in the United States, including the majority of compliance requirements for each Canadian province and each American state. This is expected to provide the company with a national safety mark awarded as a final-stage manufacturer, which is a key prerequisite for enabling full-scale marketing initiatives and initial commercial sales in 2024.

Timing of regulatory approvals on new rail and automotive products and corresponding revenue streams remains unpredictable and cannot be guaranteed to be successful. Management continues to assess the company's research and development discoveries, new product viability, budget restrictions. and market potential of all R&D programs. Management adjusts R&D plans based on testing results as part of the company's R&D risk management program. Despite the many challenges created by the COVID-19 recession, historic inflation rates and compromised supply chain issues, management remains bullish on the longer-term potential of the company's new product developments.

The company deploys capital resources sensibly to maintain financial health and liquidity. The company's working capital was $5,448,575 as at June 30, 2023. Current working capital and anticipated sales activity for the remainder of 2023 are expected to protect the company's ability to conduct continuing business operations and R&D initiatives for the foreseeable future. With no interest-bearing long-term debt to service and improved sales prospects from a larger product portfolio, Kelso can continue to focus on longer-term financial performance generated from a wider range of proprietary products on behalf of the shareholders of Kelso.

About Kelso Technologies Inc.

Kelso is a diverse product development company that specializes in the design, engineering, production and distribution of proprietary service equipment used in transportation applications. The company's reputation has been earned as a designer and reliable supplier of unique high-quality rail tank car valve equipment that provides for the safe handling and containment of hazardous and non-hazardous commodities during transport. All Kelso products are specifically designed to provide economic and operational advantages to customers while reducing the potential effects of human error and environmental harm.

We seek Safe Harbor.